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Electoral uncertainty, fiscal policy and macroeconomic fluctuations

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  • Malley, Jim
  • Philippopoulos, Apostolis
  • Woitek, Ulrich

Abstract

In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.
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  • Malley, Jim & Philippopoulos, Apostolis & Woitek, Ulrich, 2007. "Electoral uncertainty, fiscal policy and macroeconomic fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 1051-1080, March.
    • Handle: RePEc:eee:dyncon:v:31:y:2007:i:3:p:1051-1080
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    More about this item

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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