DP608 Macroeconomic Policy and Elections in OECD Democracies

Author(s): Alberto F Alesina, Gerald D Cohen, Nouriel Roubini
Publication Date: January 1992
Keyword(s): Elections, Political Business Cycle
JEL(s): D72, D78, E42
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=608

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.