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Elections And Macroeconomic Policy Cycles

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  • Rogoff, Kenneth
  • Sibert, Anne

Abstract

There is an extensive empirical literature on political business cycles, but its theoretical foundations are grounded in pre-rational expectations macroeconomic theory. Here we show that electoral cycles in taxes, government spending and money growth can be modeled ?s an equilibrium signaling process. The cycle is driven by temporary information asymmetries which can arise if, for example, the government has more current information on its performance in providing for national defense. Incumbents cheat least when their private information is either extremely favorable or extremely unfavorable. An exogenous increase in the incumbent party's popularity does not necessarily imply a damped policy cycle.

Suggested Citation

  • Rogoff, Kenneth & Sibert, Anne, 1985. "Elections And Macroeconomic Policy Cycles," SSRI Workshop Series 292676, University of Wisconsin-Madison, Social Systems Research Institute.
  • Handle: RePEc:ags:uwssri:292676
    DOI: 10.22004/ag.econ.292676
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