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.

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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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Series:	CESifo Working Paper ; 1593
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
Source:	EconStor