Electoral Uncertainty, Fiscal Policy and Macroeconomic Fluctuations

Jim Malley, Apostolis Philippopoulos () and Ulrich Woitek

No 1593, CESifo Working Paper Series from CESifo

Abstract: In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.

Keywords: political uncertainty; business cycles & growth; optimal policy; hybrid maximum likelihood estimation (search for similar items in EconPapers)
JEL-codes: D90 E60 H10 H50 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Journal Article: Electoral uncertainty, fiscal policy and macroeconomic fluctuations (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1593

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