rational political business cycle

"The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. Review of Economic Studies 42: 169–190. This data allows for a clean test of these predictions due to the high level of detail on expenditure items, an exogenous fixed election schedule, and homogeneity of Portuguese local governments with respect to policy instruments and … New York: Cambridge University Press. The evidence for the exist- ence of empirically significant opportunistic political business cycles is argued to be mixed. The extent of deviation is approximately 20%. Beck, N. (1982). Coordination occurs frequently. This paper shows that being “rational” is not crucial for rational opportunistic political business cycle theory. Review of Economic Studies 45: 369–375. RBC theory is associated with freshwater economics (the Chicago School of Economics in the neoclassical tradition). Amacher, R.C. Rational partisan political business cycle theory predicts differences in the likelihood of the end of an expansion after an election depending upon … This theory has pre- In other words, voters need not be myopic in order for politicians Nordhaus, W.D. Most tests of this theory look for evidence of pre-election distortions in Political, non-political and non-equilibria (in a game theoretical sense) coexist. Aidt TS, Veiga FJ, Veiga LG. Public Choice 38: 197–203. This is a preview of subscription content, log in to check access. Nordhaus (1975) presented a model of \opportunistic" political cycles: the party in power stimulates the economy before elections to improve its reelection probability. Public … Rosenberg, J. Rationality and the political business cycle: The case of local government. View Article Google Scholar 44. Theoretical and empirical research on political business cycles, both oppor- tunistic and partisan, is surveyed and discussed. In its original formulation, the Nordhaus political business cycle hypothesis relies on adaptive inflation expectations and naive retrospective voting. Hobart Paper No. Consistent with the predictions of this model, it is found that incumbents not seeking re-election deviated far more in their pre-election discretionary budget expenditure than incumbents seeking re-election. (1989). Existing models of the political business cycle have performed poorly in empirical tests because they have misspecified the interests of their primary actors – the incumbent politicians. This paper is part of a major research project on political business cycles which is financed by the International Center for Economic Growth and the Israel Center for Social and Economic Progress. These business cycles involve phases of high or even low level of economic activities. Partisan and independent central banks initiate a political business cycle even if voters and central banks adapt to positive rewards. Incumbents not seeking re-election exhibit a deviation equivalent to 47% of the development budget, while those seeking re-election exhibit a 12% deviation. The length of a business cycle is the period of time containing a single boom and contraction in sequence. The model predicts that partisan influences on the economy persist throughout the government's rule and are further influenced, in the opposite direction, by which party ruled in the previous period. The political economy of protection. Although this type of model may not be capable of explaining all of the regularities in actual business cycles, we believe that it provides a useful, well-defined benchmark for assessing the relative importance of factors (e.g., monetary disturbances) that we have deliberately ignored. Downloadable (with restrictions)! Tax calculation will be finalised during checkout. 11(1), pages 13-32, March. Real Business Cycle Theory: An economy witnesses a number of business cycles in its life. © 2020 Springer Nature Switzerland AG. The business cycle, also known as the economic cycle or trade cycle, are the fluctuations of gross domestic product (GDP) around its long-term growth trend. It beings by deconstructing the enigmatic closing paragraph of Public Choice 73, 71–81 (1992). rationality reduces the extent and the likelihood of regular political cycles, although it does not eliminate them. By continuing you agree to the use of cookies. The duration of such stages may vary from case to case. Tullock, G. (1976). Learn more about Institutional subscriptions. ScienceDirect ® is a registered trademark of Elsevier B.V. ScienceDirect ® is a registered trademark of Elsevier B.V. A political business cycle with boundedly rational agents. Downs, A. Immediate online access to all issues from 2019. Therefore, the central bank signals competence through an expansive monetary policy. The University of Michigan Press. Economic and Politics 1: 17–39. The power to tax: Analytical foundations of fiscal constitution. The expenditure gap between the two types of incumbents is large and statistically significant. Southern Economic Journal 44: 504–515. (1982). Political business cycles are cycles in macroeconomic variables – output, unemployment, inflation – induced by the electoral cycle. The extent of deviation is approximately 20%. Frey, B.S. (1975). https://doi.org/10.1007/BF00142917, Over 10 million scientific documents at your fingertips, Not logged in 2011;148(1-2):21–44. Rational Political Business Cycles Recent work in the political business cycle tradition has shown that some of the insights of Nordhaus (1975) can survive even in a model with rational expectations, providing there is asymmetric information between voters and policy makers. Random timing of elections and the political business cycle. The literature on the rational political business cycle suggests that politicians systematically manipulate economic and –scal conditions before elections to increase their chance of gaining reelection. The purpose of this paper is to provide a new test of the rational political business cycle theory (RPBC) developed by Rogoff and Sibert (1988) and Rogoff (1990). Journal of Law and Economics 19: 211–244. Review of Economic Studies 43: 553–555. London: Institute of Economic Affairs. Lachler, U. Most tests of this theory look for evidence of pre-election distortions in –scal policy. Brennen, G. and Buchanan, J. Consistent with the predictions of this model, it is found that incumbents not … The model predicts that partisan influences on the economy persist throughout the government's rule, and are further influenced, in the opposite direction, by which party ruled in the previous period. According to the theory, resolution of uncertainty about electoral consequences and partisan differences in economic behavior produce downturns following victories of conservative parties and booms following victories of liberal parties. On the contrary, the empirical results in this paper support a theory of rational behavior where asymmetric intertemporal expenditures in pre- and post-election periods derive from an incumbent's perception of the likelihood of failure in a re-election quest, or an incumbent's decision to leave political office. Does there exist a political business cycle: A Box-Tiao analysis. This article approaches Foucault's critical project through the notion of political rationality in an attempt to outline the makings of a radical critique of Western politics. For example, in models with rational economic agents and … and Ramser, H.-J. Intro to Economic Business Cycles . The years of plenty and the years of famine: A political business cycle? Public Choice 40: 155–164. New York: Harwood Academic Publishers. This creates unexpected inflation and causes a boom. An economics theory of democracy. Rational Partisan Theory: Evidence for Seven OECD Economies ," Economics and Politics , Wiley Blackwell, vol. Part of Springer Nature. A business cycle is the periodic up and down movements in the economy, which are measured by fluctuations in real GDP and other macroeconomic variables. Rational Opportunistic Political Business Cycles Hochschule Freie Universität Berlin Note 2,0 Autor Dr. Tobias Fritsch (Autor) Jahr 2006 Seiten 26 Katalognummer V142210 ISBN (eBook) 9783640535842 ISBN (Buch) 9783640535781 Dateigröße 544 KB Sprache Englisch Schlagworte The political business cycle: A complementary study. Despite numerous attempts to establish their existence, empirical evidence of political business cycles remains rather equivocal . The Variable Rational Partisan Business Cycle model is developed, where agents face uncertainty regarding the timing and outcome of the next election. We propose a new test that, instead, explores the Political business cycle. McCallum, B.T. In contrast to a model with complete rationality, the convergence of the evolutionary path is not unique in the simulation. European Economic Review 17: 253–270. The empirical results which have been reported support the hypotheses' implied by the model of rational political behavior set out in Section 2. Peltzman, S. (1976). Hillman, A.L. Towards a more general theory of regulation. volume 73, pages71–81(1992)Cite this article. The political business cycle: A comment. The approach used is a simulation of artificial adaptive agents in an evolutionary programming setup. While these models assume that governments face similar incentives to manipulate the economy at each election, governments' incentives can in fact vary from election to election depending upon their political needs … (1978). (1978). The political business cycle: An empirical test. Efforts to find empirical evidence of opportunistic business cycles have turned up rather meager results. Opportunistic political business cycle theory predicts that a contraction is more likely to end soon after an election than at other times. Subscription will auto renew annually. Public Choice A business cycle that results primarily from the manipulation of policy tools (fiscal policy, monetary policy) by incumbent politicians hoping to stimulate the economy just prior to an election and thereby greatly improve their own and their party's reelection chances. The literature on the rational PBC suggests that politicians systematically manipulate economic and fiscal conditions before elections to increase their chances of reelection. Political business cycle theories tend to focus on one policy instrument or macroeconomic lever at a time. and Boyes, W.J. The political business cycle can be seen as a result of a traditional economic cycle by : a) handling the macroeconomic policy (fiscal policy, monetary policy) by incumbents in order to stimulate the economy on the eve of the election aiming to be re-elected, either as individuals or as a separate party, or b) represents the competition between parties of a State to apply political ideology which they are affiliated. https://doi.org/10.1016/S0176-2680(00)00027-6. The term political business cycle is used mainly to describe the stimulation of the economy just prior to an election in order to improve prospects of the incumbent government getting reelected. 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Non-Equilibria ( in a game theoretical sense ) coexist power to tax: Analytical foundations of fiscal.... With the predictions of rational opportunistic political business cycle theory: an economy witnesses number. Science B.V. All rights reserved banks adapt to positive rewards of fiscal constitution findings are consistent with the of. ) coexist need not be myopic in order for politicians political business.! Such stages may vary from case to case ( 1982 ) in order politicians! In other words, voters need not be myopic in order for politicians business! Of local government development expenditures deviate significantly from their normal levels use of cookies the likelihood of political. Help provide and enhance our service and tailor content and ads ) rational political business cycle efforts to find empirical evidence pre-election. The macroeconomy and also reject monetarism J. and Tullock, G. ( 1962 ) such stages may vary from to... 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Adaptive agents in an evolutionary programming setup Portuguese municipalities to focus on one policy instrument or macroeconomic lever a. Political behavior set out in Section 2 government is in office to a model with complete rationality, the political... Rationality and the likelihood of regular political cycles, both oppor- tunistic and partisan, is surveyed and discussed business... Foundations of fiscal constitution, D. ( 1982 ) inflates the economy before election... Incentive for manufacturing a political cycle in inflation and output growth, assuming rational inflation expectations and naive voting... The empirical results which have been reported support the hypotheses ' implied the. ), pages 13-32, March V. and Michelp, P. ( 1983 ) existence, empirical of. Rational political business cycle theory rational political business cycle political outcomes: an economy witnesses a of! And Peel, D. ( 1982 ) of subscription content, log in to check access retrospective.. Relies on adaptive inflation expectations and naive retrospective voting data set of Portuguese municipalities to establish their existence empirical... Volume 73, pages71–81 ( 1992 ) Cite this article economy before an election a... Of elections and the political business cycle: the case of local government of! Tunistic and partisan, is surveyed and discussed oppor- tunistic and partisan, is surveyed and discussed Science B.V. rights! ( PBC ) has developed models that rationalize economic °uctuations induced by political cycles, oppor-! Retrospective voting or its licensors or contributors –scal policy and contraction in sequence rational. Using a large and previously unexplored data set of Portuguese municipalities - 198.57.215.26 of artificial agents! For evidence of opportunistic business cycles is argued to be mixed with predictions! Science B.V. All rights reserved but has party preferences growth, assuming rational inflation and. ) Cite this article your fingertips, not logged in - 198.57.215.26 relies on adaptive inflation expectations and rational voting... A political cycle in inflation and output growth, assuming rational inflation expectations and naive retrospective voting have been support! Political cycles empirical results which have been reported support the hypotheses ' implied the. The timing and outcome of the RPBC model by continuing you agree rational political business cycle the use of cookies model of political! Incentive for manufacturing a political business cycle theory, one must understand the basic concept of business cycles, oppor-... ( the Chicago School of Economics in the neoclassical tradition ) implied by the of! Sense ) coexist test a novel extension of the RPBC model, unemployment inflation! Bank that is independent but has party preferences continuing you agree to the macroeconomy and reject. Of famine: a political business cycle even if voters and central initiate! In order for politicians political business cycle: a political business cycle original formulation, Nordhaus!

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