DP6701 Consumer Confidence and Elections

Author(s): Gikas A Hardouvelis, Dimitrios D Thomakos
Publication Date: February 2008
Keyword(s): consumer confidence, EU-15, fiscal conditions, incumbent party, macro-economy, national elections, political business cycle, USA
JEL(s): D7, E6, H3
Programme Areas: International Macroeconomics, Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6701

We investigate the behavior of consumer confidence around national elections in the EU-15 countries during 1985:1-2007:3. Consumer confidence increases before the date of elections and falls subsequently by almost the same amount. It is able to predict the strength of the performance of the incumbent party and its probability of re-election both alone and in the presence of macro- economic and fiscal variables. The post-election drop is negatively related to the previous run up and is a function of the political - but not the economic - environment. A similar rise and fall characterizes consumer confidence in the United States.