IDEAS home Printed from https://ideas.repec.org/p/cfr/cefirw/w0087.html
   My bibliography  Save this paper

Human Capital and Political Business Cycles

Author

Listed:
  • Akhmed Akhmedov

    (CEFIR)

Abstract

Classical theory considers political business cycle as a result of either opportunistic behavior of government (opportunistic cycle) or aiming policy on certain constituency (partisan cycle). In this paper, we propose an alternative explanation of the phenomenon of political business cycle — experience of government. We propose an illustration that shows that elections infer cycles without any opportunism or ideology of incumbents. We also build a model with endogenous ego-rent. The model explains a channel to increase incentives, when none has commitment — governors need to develop skills to increase their value for public and increase probability to get re-elected. Using fiscal monthly data of Russian regions from 1996 to 2004, we got evidence both of positive effect of experience on performance and opportunistic component of the cycle. We also got evidence of diminishing return on experience.

Suggested Citation

  • Akhmed Akhmedov, 2006. "Human Capital and Political Business Cycles," Working Papers w0087, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0087
    as

    Download full text from publisher

    File URL: http://www.cefir.ru/papers/WP87Akhmedov.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brender, Adi & Drazen, Allan, 2005. "Political budget cycles in new versus established democracies," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1271-1295, October.
    2. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    3. Hibbs, Douglas A., 1977. "Political Parties and Macroeconomic Policy," American Political Science Review, Cambridge University Press, vol. 71(4), pages 1467-1487, December.
    4. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1301-1338.
    5. Sam Peltzman, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 327-361.
    6. Alberto Alesina & Nouriel Roubini, 1992. "Political Cycles in OECD Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(4), pages 663-688.
    7. Reid, Bradford G, 1998. "Endogenous Elections, Electoral Budget Cycles and Canadian Provincial Governments," Public Choice, Springer, vol. 97(1-2), pages 35-48, October.
    8. Berlemann, Michael & Markwardt, Gunther, 2003. "Partisan cycles and pre-electoral uncertainty," Dresden Discussion Paper Series in Economics 01/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    9. Treisman, Daniel & Gimpelson, Vladimir, 2001. "Political Business Cycles and Russian Elections, or the Manipulations of ‘Chudar’," British Journal of Political Science, Cambridge University Press, vol. 31(2), pages 225-246, April.
    10. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(1), pages 1-16.
    11. Linda Veiga & Francisco Veiga, 2007. "Political business cycles at the municipal level," Public Choice, Springer, vol. 131(1), pages 45-64, April.
    12. Ito, Takatoshi, 1990. "The timing of elections and political business cycles in Japan," Journal of Asian Economics, Elsevier, vol. 1(1), pages 135-156.
    13. Schuknecht, Ludger, 2000. "Fiscal Policy Cycles and Public Expenditure in Developing Countries," Public Choice, Springer, vol. 102(1-2), pages 115-130, January.
    14. Svensson, Jakob & Shi, Min, 2002. "Conditional Political Budget Cycles," CEPR Discussion Papers 3352, C.E.P.R. Discussion Papers.
    15. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 651-678.
    16. Dick, Andrew R. & Lott, John Jr., 1993. "Reconciling voters' behavior with legislative term limits," Journal of Public Economics, Elsevier, vol. 50(1), pages 1-14, January.
    17. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    18. Khemani, Stuti, 2004. "Political cycles in a developing economy: effect of elections in the Indian States," Journal of Development Economics, Elsevier, vol. 73(1), pages 125-154, February.
    19. Shleifer, Andrei & Vishny, Robert W, 1988. "Value Maximization and the Acquisition Process," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 7-20, Winter.
    20. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    21. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
    22. Andrikopoulos, Andreas & Loizides, Ioannis & Prodromidis, Kyprianos, 2004. "Fiscal policy and political business cycles in the EU," European Journal of Political Economy, Elsevier, vol. 20(1), pages 125-152, March.
    23. William D. Nordhaus, 1975. "The Political Business Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(2), pages 169-190.
    24. Ali al-Nowaihi & Dean Garratt, 1998. "The New Political Macroeconomics," Discussion Papers in Economics 98/05, Division of Economics, School of Business, University of Leicester.
    25. Dean Garratt, 1998. "An Analysis Of Political Business Cycle Theory and its Relationship with the New Political Macroeconomics," Discussion Papers in Economics 98/4, Division of Economics, School of Business, University of Leicester.
    26. Berger, Helge & Woitek, Ulrich, 1997. "Searching for Political Business Cycles in Germany," Public Choice, Springer, vol. 91(2), pages 179-197, April.
    27. Bernhardt, Dan & Dubey, Sangita & Hughson, Eric, 2004. "Term limits and pork barrel politics," Journal of Public Economics, Elsevier, vol. 88(12), pages 2383-2422, December.
    28. Friedman, Daniel & Wittman, Donald, 1995. "Why voters vote for incumbents but against incumbency: A rational choice explanation," Journal of Public Economics, Elsevier, vol. 57(1), pages 67-83, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akhmedov Akhmed, 2006. "Human Capital and Political Business Cycles," EERC Working Paper Series 06-02e, EERC Research Network, Russia and CIS.
    2. Akhmed Akhmedov, 2006. "Human Capital and Political Business Cycles," Working Papers w0087, New Economic School (NES).
    3. Akhmedov Akhmed, "undated". "Human capital and political business cycles," EERC Working Paper Series 03-213e, EERC Research Network, Russia and CIS.
    4. Georgios Efthyvoulou, 2012. "Political budget cycles in the European Union and the impact of political pressures," Public Choice, Springer, vol. 153(3), pages 295-327, December.
    5. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01291401, HAL.
    6. Margarita Katsimi & Vassilis Sarantides, 2012. "Do elections affect the composition of fiscal policy in developed, established democracies?," Public Choice, Springer, vol. 151(1), pages 325-362, April.
    7. Niklas Potrafke, 2006. "Political Effects on the Allocation of Public Expenditures: Empirical Evidence from OECD Countries," Discussion Papers of DIW Berlin 653, DIW Berlin, German Institute for Economic Research.
    8. Eric Dubois, 2016. "Political business cycles 40 years after Nordhaus," Public Choice, Springer, vol. 166(1), pages 235-259, January.
    9. Rabia Nazir & Muhammad Nasir & Idrees Khawaja, 2022. "Political Budget Cycle: A Sub-National Evidence from Pakistan," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 18(3), pages 343-367, November.
    10. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Post-Print hal-01291401, HAL.
    11. Helene Ehrhart, 2013. "Elections and the structure of taxation in developing countries," Public Choice, Springer, vol. 156(1), pages 195-211, July.
    12. Troeger, Vera & Schneider, Christina J., 2012. "Strategic Budgeteering and Debt Allocation," CAGE Online Working Paper Series 85, Competitive Advantage in the Global Economy (CAGE).
    13. Manuela Krause, 2019. "Communal fees and election cycles: Evidence from German municipalities," ifo Working Paper Series 293, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    14. Kausik Chaudhuri & Sugato Dasgupta, 2006. "The political determinants of fiscal policies in the states of India: An empirical investigation," Journal of Development Studies, Taylor & Francis Journals, vol. 42(4), pages 640-661.
    15. Vergne, Clémence, 2009. "Democracy, elections and allocation of public expenditures in developing countries," European Journal of Political Economy, Elsevier, vol. 25(1), pages 63-77, March.
    16. Linda G. Veiga & Georgios Efthyvoulou & Atsuyoshi Morozumi, 2018. "Political Budget Cycles: Conditioning Factors and New Evidence," NIPE Working Papers 21/2018, NIPE - Universidade do Minho.
    17. Koen Schoors & Konstantin Sonin, 2005. "Passive Creditors," International Finance, Wiley Blackwell, vol. 8(1), pages 57-86, March.
    18. Castro, Vítor & Martins, Rodrigo, 2018. "Politically driven cycles in fiscal policy: In depth analysis of the functional components of government expenditures," European Journal of Political Economy, Elsevier, vol. 55(C), pages 44-64.
    19. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1301-1338.
    20. Bove, Vincenzo & Efthyvoulou, Georgios & Navas, Antonio, 2017. "Political cycles in public expenditure: butter vs guns," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 582-604.

    More about this item

    Keywords

    Elections; opportunistic business cycle; experience; sunk cost; Russian regions.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfr:cefirw:w0087. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Julia Babich (email available below). General contact details of provider: https://edirc.repec.org/data/cefirru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.