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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. Francisco José Veiga & Linda Gonçalves Veiga, 2000. "Popularity functions, partisan effects and support in Parliament," NIPE Working Papers 8/2001, NIPE - Universidade do Minho.
  2. 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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  5. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  6. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2003. "Opportunistic Political Cycles: Test in a Young Democracy Setting," Working Papers w0024, Center for Economic and Financial Research (CEFIR).
  7. 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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  9. Blais, Andre & Nadeau, Richard, 1992. " The Electoral Budget Cycle," Public Choice, Springer, vol. 74(4), pages 389-403, December.
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  14. 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.
  15. Linda Veiga & Francisco Veiga, 2004. "Political business cycles at the municipal level," ERSA conference papers ersa04p427, European Regional Science Association.
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  17. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  18. Adi Brender & Allan Drazen, 2004. "Political Budget Cycles in New versus Established Democracies," NBER Working Papers 10539, National Bureau of Economic Research, Inc.
  19. 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.
  20. Alesina, Alberto & Londregan, John, 1993. "A Model of the Political Economy of the United States," Scholarly Articles 4552529, Harvard University Department of Economics.
  21. Frey, Bruno S & Schneider, Friedrich, 1978. "A Politico-Economic Model of the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(350), pages 243-53, June.
  22. Shi, Min & Svensson, Jakob, 2006. "Political budget cycles: Do they differ across countries and why?," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1367-1389, September.
  23. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  24. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  25. Galli, Emma & Rossi, Stefania P S, 2002. " Political Budget Cycles: The Case of the Western German Lander," Public Choice, Springer, vol. 110(3-4), pages 283-303, March.
  26. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, March.
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