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Political Cycles in OECD Economies

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  • Alesina, Alberto F
  • Roubini, Nouriel

Abstract

This paper studies whether the dynamic behaviour of GNP growth, unemployment and inflation is systematically affected by the timing of elections and changes of government. The sample includes the last three decades in 18 OECD economies. We test explicitly the implications of several models of political cycles, both of the `opportunistic' and of the `partisan' type. Also, we confront the implications of recent `rational' models with more traditional approaches. Our results can be summarized as follows: (a) the `political business cycle' hypothesis, as formulated in Nordhaus (1975) on output and unemployment, is generally rejected by the data; with the exception of Japan, we also reject the extension of the `political business cycle' model, with endogenous timing of elections; (b) inflation tends to increase immediately after elections, perhaps as a result of pre- electoral expansionary monetary and fiscal policies; (c) we find evidence of temporary partisan differences in output and unemployment and of long-run partisan differences in the inflation rate as implied by the `rational partisan theory' (Alesina, 1987); (d) we find virtually no evidence of permanent partisan differences in output and unemployment.

Suggested Citation

  • Alesina, Alberto F & Roubini, Nouriel, 1990. "Political Cycles in OECD Economies," CEPR Discussion Papers 470, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:470
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    1. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
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    6. Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 797-814.
    7. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    8. Ito, Takatoshi, 1990. "The timing of elections and political business cycles in Japan," Journal of Asian Economics, Elsevier, vol. 1(1), pages 135-156.
    9. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
    10. Lindbeck, Assar, 1976. "Stabilization Policy in Open Economies with Endogenous Politicians," American Economic Review, American Economic Association, vol. 66(2), pages 1-19, May.
    11. Terrones, M.E., 1989. "Macroeconomic Policy Cycles Under Alternative Electoral Structures," UWO Department of Economics Working Papers 8905, University of Western Ontario, Department of Economics.
    12. 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.
    13. 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 473-491, June.
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    Cited by:

    1. Cohen, Gerald & Alesina, Alberto & Roubini, Nouriel, 1992. "Macroeconomic Policy and Elections in OECD Democracies," Scholarly Articles 4553023, Harvard University Department of Economics.
    2. Bruno Merlevede & Koen Schoors, 2004. "Reform, FDI and Economic Growth: Tale of the Tortoise and the Hare," William Davidson Institute Working Papers Series wp730, William Davidson Institute at the University of Michigan.
    3. Block, Steven A. & Vaaler, Paul M., 2004. "The price of democracy: sovereign risk ratings, bond spreads and political business cycles in developing countries," Journal of International Money and Finance, Elsevier, vol. 23(6), pages 917-946, October.
    4. Alesina, Alberto F & Grilli, Vittorio, 1991. "The European Central Bank: Reshaping Monetary Politics in Europe," CEPR Discussion Papers 563, C.E.P.R. Discussion Papers.
    5. al-Nowaihi, Ali & Levine, Paul, 1998. "Can political monetary cycles be avoided?," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 525-545, October.
    6. Andrikopoulos, Andreas A. & Prodromidis, Kyprianos P. & Serletis, Apostolos, 1998. "Electoral and Partisan Cycle Regularities: A Cointegration Test," Journal of Policy Modeling, Elsevier, vol. 20(2), pages 119-140, April.
    7. Ozkan, F. Gulcin, 2003. "Explaining ERM realignments: Insights from optimising models of currency crises," Journal of Macroeconomics, Elsevier, vol. 25(4), pages 491-507, December.
    8. Michael Toma & Richard Cebula, 2001. "Politicians, deficits, and monetary policy in the U.S. revisited," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(4), pages 419-430, November.
    9. Alfaro, Laura, 2005. "Inflation, openness, and exchange-rate regimes: The quest for short-term commitment," Journal of Development Economics, Elsevier, vol. 77(1), pages 229-249, June.
    10. Steven A. Block & Burkhard N. Schrage & Paul M. Vaaler, 2003. "DEMOCRACY???S SPREAD: Elections and Sovereign Debt in Developing Countries," William Davidson Institute Working Papers Series 2003-575, William Davidson Institute at the University of Michigan.
    11. Paola Assael & Felipe Larraín, 1994. "El Ciclo Político-económico: Teoría, Evidencia y Extensión para una Economía Abierta," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 31(92), pages 87-114.
    12. Alesina, Alberto, 1992. "Political models of macroeconomic policy and fiscal reform," Policy Research Working Paper Series 970, The World Bank.
    13. repec:kap:iaecre:v:7:y:2001:i:4:p:419-430 is not listed on IDEAS
    14. Steven Block & Burkhard N. Schrage & Paul M. Vaaler, 2003. "Democratization???s Risk Premium: Partisan and Opportunistic Political Business Cycle Effects on Sovereign Ratings in Developing Countries," William Davidson Institute Working Papers Series 546, William Davidson Institute at the University of Michigan.
    15. Jula, Dorin, 2008. "Economic Impact of Political Cycles – The Relevance of European experinces for Romania," Working Papers of Institute for Economic Forecasting 081101, Institute for Economic Forecasting.

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