Election Results and Opportunistic Policies: A New Test of the Rational Political Business Cycle Model

Toke Aidt, Francisco Jose Veiga and Linda Gonçalves Veiga
Authors registered in the RePEc Author Service: Linda Gonçalves Veiga and Francisco José Veiga

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The literature on the rational political business cycle suggests that politicians systematically manipulate economic and fiscal conditions before elections to increase their chance of gaining reelection. Most tests of this theory look for evidence of pre- election distortions in fiscal policy. We propose a new test that, instead, explores the implied two-way interaction between the magnitude of the opportunistic distortion and the margin of victory. The test is implemented using a panel of 278 Portuguese municipalities (from 1979 to 2005). The results show that (1) opportunism pays off, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when their win-margin is small. These results are consistent with the theoretical model.

Keywords: Voting and popularity functions; opportunism; rational political business cycles; local government; system estimation; Portugal (search for similar items in EconPapers)
JEL-codes: D72 E32 H72 (search for similar items in EconPapers)
Date: 2009-09-24
New Economics Papers: this item is included in nep-cdm and nep-pol
References: Add references at CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Election results and opportunistic policies: A new test of the rational political business cycle model (2011)
Working Paper: Election Results and Opportunistic Policies: A New Test of the Rational Political Business Cycle Model (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0934

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