DP547 Political Parties, Elections and Inflation in Greece

Author(s): George Alogoskoufis, Apostolis Philippopoulos
Publication Date: June 1991
Keyword(s): Elections, Greece, Political Parties, Unemployment
JEL(s): 023, 025
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=547

We extend the `rational partisan model' of inflation and unemployment by introducing inflation and unemployment dynamics. We investigate the case of Greece, which has had a polarized political system and a problem of persistently high inflation in the last two decades. High inflation can be attributed to the failure of political parties to precommit to price stability. The greater aversion of `socialists' to unemployment results in an inflation rate which is higher by five percentage points than under the more anti-inflationary `conservatives'. Unemployment seems to be independent of the identity of the party in power, and post-election years do not seem to be characterized by systematic mistakes on the part of wage setters as predicted by recent partisan theories.