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Electoral uncertainty, fiscal policy and macroeconomic fluctuations

In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.
Year of publication:
2005
Authors: Malley, Jim ; Philippopoulos, Apostolis ; Woitek, Ulrich
Publisher: Munich : Center for Economic Studies and Ifo Institute (CESifo)
Subject: Wahlverhalten | Finanzpolitik | Politischer Konjunkturzyklus | Schätzung | Theorie | USA | political uncertainty | business cycles & growth | optimal policy | hybrid maximum likelihood estimation
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Type of publication: Book / Working Paper
Type of publication (narrower categories): Working Paper
Language: English
Other identifiers:
503749419 [GVK]
hdl:10419/19057 [Handle]
Classification: E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook ; D9 - Intertemporal Choice and Growth ; H5 - National Government Expenditures and Related Policies ; H1 - Structure and Scope of Government
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