Political Cycles in OECD Economies

Abstract

This paper studies whether the dynamic behavior of GNP growth, unemployment and inflation is systematically affected by the timing of elections and of changes of governments. The sample includes the last three decades in 18 OECD economies. We explicitly test the implication of several models of political cycles, both of the "opportunistic" and of the "partisan" type. Also, we confront the implication of recent "rational" models with more traditional approaches. Our results can be summarized as follows: a) The "political business cycle" hypothesis, as formulated in Nordhaus (1975) on output and unemployment is generally rejected by the data. With the exception of Japan, we also reject by the extension of the "political business cycle" model, with endogenous timing of elections; b) inflation tends to increase immediately after elections, perhaps as a result of preelectoral expansionary monetary and fiscal policies; (c) we fire evidence of temporary partisan differences in output and unemployment and of long-run partisan differences in the inflation rate as implied by the "rational partisan theory" by Alesina (1987); (d) we find virtually no evidence of permanent partisan differences in output and unemployment.