Political Competition and Convergence to Fundamentals: With Application to the Political Business Cycle and the Size of Government

40 Pages Posted: 16 Feb 2006

See all articles by J. Stephen Ferris

J. Stephen Ferris

Carleton University - Department of Economics

Soo-Bin Park

Carleton University - Department of Economics

Stanley L. Winer

Carleton University - School of Public Policy and Administration; Carleton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2006

Abstract

We address the problem of how to investigate whether economics, or politics, or both, matter in the explanation of public policy. The problem is first posed in a particular context by uncovering a political business cycle (using Canadian data for 130 years) and by taking up the challenge to make this fact meaningful by finding a transmission mechanism through actual public choices. Since the cycle is in real growth, and it is reasonable to suppose that public expenditure would be involved, the central task then is to investigate the role of (partisan and opportunistic) political factors, as opposed to economic fundamentals, in the evolution of government size. We proceed by asking whether the data allow us to distinguish between the convergence and the nonconvergence hypotheses. Convergence means that political competition forces public spending to converge in the long run to a level dictated by endowments, tastes and technology. Nonconvergence is taken to mean that political factors other than the degree of political competition prevent convergence to that long run. The general idea here, one that may be applied in any situation where the key issue is the role of economics versus politics over time, is that an overtly political factor can be said to play a distinct role in the evolution of public choices if it can be shown to lead to departures from a dynamic path defined by the evolution of economic fundamentals in a competitive political system.

Keywords: public expenditure, size of government, long run versus short run, opportunism, partisanship, political competition, cointegration

JEL Classification: H1, H3, H5

Suggested Citation

Ferris, J. Stephen and Park, Soo-Bin and Winer, Stanley L., Political Competition and Convergence to Fundamentals: With Application to the Political Business Cycle and the Size of Government (January 2006). CESifo Working Paper Series No. 1646. Available at SSRN: https://ssrn.com/abstract=884342

J. Stephen Ferris

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

HOME PAGE: http://www.carleton.ca/~sferris/

Soo-Bin Park

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

Stanley L. Winer (Contact Author)

Carleton University - School of Public Policy and Administration ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 x2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 ex.2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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