Equilibrium Political Budget Cycles
Prior to elections, governments (at all levels) frequently undertake a consumption binge. Taxes are cut, transfers are raised, and government spending is distorted towards highly visible items. The "political business cycle" (better be thought of as "the political budget cycle") has been intensively examined, at least for the case of national elections. A number of proposals have been advanced for mitigating electoral cycles in fiscal policy. The present paper is the first effort to provide a fully-specified equilibrium framework for analyzing such proposals. A political budget cycle arises here via a multidimensional signaling process, in which incumbent leaders try to convince voters that they have recently been doing an excellent job in administering the government. Efforts to mitigate the cycle can easily prove counterproductive, either by impeding the transmission of information or by inducing politicians to select more costly ways of signaling. The model also indicates new directions for empirical research.
|Date of creation:||Nov 1987|
|Date of revision:|
|Publication status:||published as The American Economic Review, Vol. 80, No. 1, pp. 21-36, (March 1990).|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Keech, William R. & Simon, Carl P., 1985. "Electoral and welfare consequences of political manipulation of the economy," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 177-202, June.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2428. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.