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A Model Of The Political Economy Of The United States

  • ALESINA, A.
  • LONDREGAN, J.A.
  • ROSENTHAL, H.

We develop and test a model of joint determination of the rate of economic growth and the results of presidential and Congressional elections in the United States. In our model, economic agents and voters have rational expectations. Economic policy varies as a function of control of the White House and the two-party shares in Congress. Politics affects growth through unanticipated policy shifts following the outcome of presidential elections. The economy influences elections as voters use past realizations of growth to make rational inferences about the "competency" level of the incumbent administration. Elections are also influenced by voters using their midterm Congressional votes to moderate the policies of the incumbent administration. The theoretical model is used to generate a recursive system of equations in which the dependent variables are the growth rate and the vote shares in presidential and Congressional elections. The theory implies several restrictions on the equations. Tests of the restrictions generally support the model; however, the results support the traditional view of naive retrospective voting as well as the "rational" retrospective voting posited in the model.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 1990-27.

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Length: 46 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:cmu:gsiawp:1990-27
Contact details of provider: Postal:
Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890

Web page: http://www.tepper.cmu.edu/

Order Information: Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

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  1. Fair, Ray C, 1978. "The Effect of Economic Events on Votes for President," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 159-73, May.
  2. John Y. Campbell & N. Gregory Mankiw, 1986. "Are Output Fluctuations Transitory?," NBER Working Papers 1916, National Bureau of Economic Research, Inc.
  3. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  4. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  5. Bernheim, B. Douglas & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria II. Applications," Journal of Economic Theory, Elsevier, vol. 42(1), pages 13-29, June.
  6. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  7. Lawrence J. Christiano & Martin Eichenbaum, 1989. "Unit Roots in Real GNP: Do We Know, and Do We Care?," NBER Working Papers 3130, National Bureau of Economic Research, Inc.
  8. Greenberg, Joseph, 1989. "Deriving strong and coalition-proof nash equilibria from an abstract system," Journal of Economic Theory, Elsevier, vol. 49(1), pages 195-202, October.
  9. Romer, Christina D, 1989. "The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 1-37, February.
  10. Susan Lepper, 1974. "Voting behavior and aggregate policy targets," Public Choice, Springer, vol. 18(1), pages 67-81, June.
  11. Balke, Nathan S & Gordon, Robert J, 1989. "The Estimation of Prewar Gross National Product: Methodology and New Evidence," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 38-92, February.
  12. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  13. Sachs, Jeffrey & Alesina, Alberto, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Scholarly Articles 4553026, Harvard University Department of Economics.
  14. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
  15. N. Gregory Mankiw & Jeffrey A. Miron & David N. Weil, 1987. "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve," NBER Working Papers 2124, National Bureau of Economic Research, Inc.
  16. Kahn, C.M. & Mookherjee, D., 1990. "The Good The Bad, And The Ugly: Coalition Proof Equilibrium In Ganes With Infinite Strastegiy Spaces," University of Chicago - Economics Research Center 90-2, Chicago - Economics Research Center.
  17. Alesina, Alberto & Sachs, Jeffrey, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 63-82, February.
  18. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  19. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-88, July.
  20. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
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