Do Elections Hurt Developing Economies?

Abstract

Political economists debate the existence of a political business cycle (PBCs), in which politicians stimulate the economy to improve their re-election chances, only to cause a post-election slowdown. For developing countries, scholars have found evidence of election-year policy tinkering. Yet beyond this tinkering, perhaps elections have other important consequences. I test whether elections produce the harmful economic effects predicted by PBC theory. Using quarterly data from 47 democracies from 1993-2004, I do not find any evidence of negative outcomes. Instead, there is an unexpected variance correlated with institutional design. Elections and economic outcomes appear to have no relationship in presidential systems, but a positive and statistically significant relationship in parliamentary systems. I argue that the absence of PBCs reflects the difficulty in triggering booms before elections in open economies.

Keywords: political business cycles, developing countries, elections, political budget cycles, political economy

JEL Classification: E30, E32, E40, E50, E60, E62, E64, F20, O10, O11