ELECTION RESULTS AND OPPORTUNISTIC POLICIES: AN INTEGRATED APPROACH

Toke S Aidt (), Francisco José Veiga () and Linda Veiga ()

No 7, GEE Papers from Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação

Abstract: The literature on political business cycles suggests that politicians systematically manipulate economic and fiscal conditions before elections. The literature on vote and popularity functions suggests that economic conditions systematically affect election outcomes. This paper integrates these two strands of literature. We use Rogoff (1990)’s model of the rational political business cycle to derive the two-way relationship between the win-margin of the incumbent politician and the size of the opportunistic distortion of fiscal policy. This relationship is estimated, for a panel of 275 Portuguese municipalities (from 1979 to 2001), as a system of simultaneous equations (by GMM). 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)
New Economics Papers: this item is included in nep-cdm, nep-mac and nep-pol
Date: 2008-04, Revised 2008-04
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http://www.gee.min-economia.pt/RePEc/WorkingPapers/avv.pdf First version, 2008 (application/pdf)

Related works:
Working Paper: Election Results and Opportunistic Policies: An Integrated Approach (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:mde:wpaper:0007

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