Elections and Macroeconomic Policy Cycles

44 Pages Posted: 12 Apr 2004 Last revised: 12 Jul 2010

See all articles by Kenneth Rogoff

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Anne Sibert

Birkbeck, University of London; Centre for Economic Policy Research (CEPR)

Date Written: February 1986

Abstract

There is an extensive empirical literature on political business cycles, but its theoretical foundations are grounded in pre-rational expectations macroeconomic theory. Here we show that electoral cycles in taxes, government spending and money growth can be modeled as an equilibrium signaling process. The cycleis driven by temporary information asymmetries which can arise if, for example,the government has more current information on its performance in providing for national defense. Incumbents cheat least when their private informationis either extremely favorable or extremely unfavorable. An exogenous increase in the incumbent partyts popularity does not necessarily imply a damped policy cycle.

Suggested Citation

Rogoff, Kenneth S. and Sibert, Anne, Elections and Macroeconomic Policy Cycles (February 1986). NBER Working Paper No. w1838. Available at SSRN: https://ssrn.com/abstract=341806

Kenneth S. Rogoff (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Anne Sibert

Birkbeck, University of London ( email )

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HOME PAGE: http://www.ems.bbk.ac.uk/faculty/sibert/index_html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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