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Election Results And Opportunistic Policies: An Integrated Approach

  • Toke S. Aidt

    ()

    (University of Cambridge, Faculty of Economics)

  • Francisco José Veiga

    ()

    (Universidade do Minho and NIPE, Escola de Economia e Gestão)

  • Linda Gonçalves Veiga

    ()

    (Universidade do Minho and NIPE, Escola de Economia e Gestão)

The literature on political business cycles suggests that politicians systematically manipulate economic and fiscal conditions before elections. The literature on vote and popularity functions suggests that economic conditions systematically affect election outcomes. This paper integrates these two strands of literature. We use Rogoff (1990)’s model of the rational political business cycle to derive the two-way relationship between the win-margin of the incumbent politician and the size of the opportunistic distortion of fiscal policy. This relationship is estimated, for a panel of 275 Portuguese municipalities (from 1979 to 2001), as a system of simultaneous equations (by GMM). The results show that (1) opportunism pays off, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when their win-margin is small. These results are consistent with the theoretical model.

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File URL: http://www.gee.min-economia.pt/RePEc/WorkingPapers/avv.pdf
File Function: First version, 2008
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Paper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0007.

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Length: 37 pages
Date of creation: Apr 2008
Date of revision: Apr 2008
Handle: RePEc:mde:wpaper:0007
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  1. Pissarides, Christopher A, 1980. "British Government Popularity and Economic Performance," Economic Journal, Royal Economic Society, vol. 90(3593), pages 569-81, September.
  2. Rosenberg, Jacob, 1992. " Rationality and the Political Business Cycle: The Case of Local Government," Public Choice, Springer, vol. 73(1), pages 71-81, January.
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  4. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
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  9. Snyder, James M, 1989. "Election Goals and the Allocation of Campaign Resources," Econometrica, Econometric Society, vol. 57(3), pages 637-60, May.
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  15. Borooah, V K & van der Ploeg, F, 1982. "British Government Popularity and Economic Performance: A Comment," Economic Journal, Royal Economic Society, vol. 92(366), pages 405-10, June.
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  18. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  19. Allan Drazen & Marcela Eslava, 2005. "Electoral Manipulation via Expenditure Composition: Theory and Evidence," NBER Working Papers 11085, National Bureau of Economic Research, Inc.
  20. Seitz, Helmut, 2000. " Fiscal Policy, Deficits and Politics of Subnational Governments: The Case of the German Laender," Public Choice, Springer, vol. 102(3-4), pages 183-218, March.
  21. Francisco JosÈ Veiga & Linda GonÁalves Veiga, 2004. "The Determinants of Vote Intentions in Portugal," Public Choice, Springer, vol. 118(3_4), pages 341-364, 03.
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  23. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, March.
  24. Francisco Jose Veiga & Linda Goncalves Veiga, 2004. "Popularity functions, partisan effects, and support in Parliament," Economics and Politics, Wiley Blackwell, vol. 16(1), pages 101-115, 03.
  25. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in A Young Democracy Setting," The Quarterly Journal of Economics, MIT Press, vol. 119(4), pages 1301-1338, November.
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