Working Paper: NBER ID: w3830
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: 1) We find very little evidence of pre-electoral effects of economic outcomes, in particular, on GDP growth and unemployment; 2) We see some evidence of "political monetary cycles." that is, expansionary monetary policy in election years; 3) We also observe indications of "political budget cycles," or "loose" fiscal policy prior to elections; 4) Inflation exhibits a postelectoral jump, which could be explained by either the preelectoral "loose" monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.
Keywords: Political Business Cycles; Macroeconomic Policy; OECD Economies
JEL Codes: E62; H70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Election years (K16) | Expansionary monetary policies (E52) |
| Expansionary monetary policies (E52) | Inflation (E31) |
| Election years (K16) | Economic performance (P17) |
| Loose fiscal policies prior to elections (E62) | Economic outcomes (F69) |
| Loose monetary policies (E52) | Post-electoral jump in inflation (E31) |
| Political motivations (D72) | Monetary policy (E52) |
| Political budget cycles (H61) | Increased spending or reduced taxes (H59) |
| Loose fiscal policies (E62) | Enhancing electoral prospects (K16) |