Working Paper: CEPR ID: DP608
Authors: Alberto Alesina; Gerald D. Cohen; Nouriel Roubini
Abstract: The purpose of this paper is to test for evidence of opportunistic `political business cycles' in a large sample of 18 OECD economies. Our results can be summarized as follows. First, we find very little evidence of pre-electoral effects of economic outcomes, in particular, on GDP growth and unemployment. Second, we see some evidence of `political monetary cycles', that is, expansionary monetary policy in election years. Third, we observe indications of `political budget cycles', or `loose' fiscal policy prior to elections. Fourth, inflation exhibits a post-electoral jump, which could be explained by either the pre-electoral `loose' monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.
Keywords: political business cycle; elections
JEL Codes: 072; 078; E42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Electoral timing (D72) | Monetary policy decisions (E52) |
| Electoral timing (D72) | Fiscal policy (E62) |
| Pre-electoral loose monetary and fiscal policies (E62) | Postelectoral jump in inflation (E31) |
| Electoral timing (D72) | GDP growth (O49) |
| Electoral timing (D72) | Unemployment (J64) |
| Pre-electoral loose fiscal policy (E62) | Popularity of politicians (D72) |