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Is the Political Business Cycle for Real?

  • S. Brock Blomberg
  • Gregory D. Hess

This paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models. We augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic Presidents and contracts early under Republican Presidents. Second, that Presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms. The model generates both of these features that conform to U.S. Post World War II data.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 415.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_415
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  19. David S. Bizer & Steven N. Durlauf, 1990. "Testing the Positive Theory of Government Finance," NBER Working Papers 3349, National Bureau of Economic Research, Inc.
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  27. Hess, Gregory D & Iwata, Shigeru, 1997. "Measuring and Comparing Business-Cycle Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 432-44, October.
  28. S. Brock Blomberg & Gerald D. Cohen, 1994. "Scoring political economy models: a multiple equilibrium approach," Research Paper 9410, Federal Reserve Bank of New York.
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  30. Kuehlwein, Michael, 1998. "Evidence on the substitutability between government purchases and consumer spending within specific spending categories," Economics Letters, Elsevier, vol. 58(3), pages 325-329, March.
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  38. Seater, John J., 1985. "On the construction of marginal federal personal and social security tax rates in the U.S," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 121-135, January.
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