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Reverse Electoral Business Cycles and Housing Markets

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  • Canes-Wrone, Brandice

    (Princeton University)

  • Park, Jee-Kwang

    (Princeton University)

Abstract

We argue that the political uncertainty generated by elections encourages private actors to delay investments that entail high costs of reversal, creating a pre-election decline in economic activity entitled a "reverse electoral business cycle." This incentive for delay becomes greater as policy differences between parties/candidates increase. Using new survey and observational data from the United States, we test these arguments. The individual-level analysis assesses whether respondents' perceptions of presidential candidates' policy differences increased the likelihood of postponing certain actions and purchases. For one of these items, housing, we collected observational data to examine whether electoral cycles indeed induce a pre-election decline in economic activity. The findings support the predictions and cannot be explained by existing theories of political business cycles.

Suggested Citation

  • Canes-Wrone, Brandice & Park, Jee-Kwang, 2010. "Reverse Electoral Business Cycles and Housing Markets," Papers 9-12-2010b, Princeton University, Research Program in Political Economy.
  • Handle: RePEc:ecl:prirpe:9-12-2010b
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    File URL: http://www.princeton.edu/~bcwrone/RECs_housing.pdf
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    References listed on IDEAS

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    5. Kevin Grier, 2008. "US presidential elections and real GDP growth, 1961–2004," Public Choice, Springer, vol. 135(3), pages 337-352, June.
    6. Stein, Ernesto H. & Streb, Jorge M., 2004. "Elections and the timing of devaluations," Journal of International Economics, Elsevier, pages 119-145.
    7. Garfinkel, Michelle R & Glazer, Amihai, 1994. "Does Electoral Uncertainty Cause Economic Fluctuations?," American Economic Review, American Economic Association, vol. 84(2), pages 169-173, May.
    8. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, pages 229-242.
    9. Ernesto H. Stein & Jeffry Frieden & Piero Ghezzi, 2000. "Politics and Exchange Rates: A Cross-Country Approach to Latin America," Research Department Publications 3119, Inter-American Development Bank, Research Department.
    10. David Stasavage, 2000. "Private Investment and Political Uncertainty," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 25, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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