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Reelection or term limits? The short and the long run view of economic policy

An incumbent's drive for reelection can lead to political budget cycles. The distortion cycles cause in economic policy may be offset by the information they indirectly provide about the incumbent's competency. The informative content of cycles depends on the sophistication of voters, i.e. on whether they are rational or near rational. In a framework of individual candidates, constitutional clauses that prohibit the reelection of the president eliminate political budget cycles. One-term limits that allow non-immediate reelection also shift the focus from short-run cycles to the long-run soundness of economic policies, and have superior welfare properties. Hence, the choice is not reelection or not, but rather immediate or non-immediate reelection.

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File URL: http://www.econ.uchile.cl/uploads/publicacion/ee46fbd5-e230-4f87-8779-b1dda4bdfd12.pdf
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Article provided by University of Chile, Department of Economics in its journal Estudios de Economia.

Volume (Year): 26 (1999)
Issue (Month): 2 Year 1999 (December)
Pages: 187-206

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Handle: RePEc:udc:esteco:v:26:y:1999:i:2:p:187-206
Contact details of provider: Web page: http://www.econ.uchile.cl/

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  1. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
  2. Barry Eichengreen & Ricardo Hausmann & Jürgen Von Hagen, 1999. "Reforming Budgetary Institutions in Latin America: The Case for a National Fiscal Council," Open Economies Review, Springer, vol. 10(4), pages 415-442, October.
  3. Ernesto H. Stein & Jorge M. Streb, 1999. "Elections and the Timing of Devaluations," Research Department Publications 4164, Inter-American Development Bank, Research Department.
  4. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  5. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp..
  6. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  7. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  8. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  9. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
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