Equilibrium Political Budget Cycles

Kenneth Rogoff

No 2428, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Prior to elections, governments (at all levels) frequently undertake a consumption binge. Taxes are cut, transfers are raised, and government spending is distorted towards highly visible items. The "political business cycle" (better be thought of as "the political budget cycle") has been intensively examined, at least for the case of national elections. A number of proposals have been advanced for mitigating electoral cycles in fiscal policy. The present paper is the first effort to provide a fully-specified equilibrium framework for analyzing such proposals. A political budget cycle arises here via a multidimensional signaling process, in which incumbent leaders try to convince voters that they have recently been doing an excellent job in administering the government. Efforts to mitigate the cycle can easily prove counterproductive, either by impeding the transmission of information or by inducing politicians to select more costly ways of signaling. The model also indicates new directions for empirical research.

Date: 1987-11
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (379)

Published as The American Economic Review, Vol. 80, No. 1, pp. 21-36, (March 1990).

Downloads: (external link)
http://www.nber.org/papers/w2428.pdf (application/pdf)

Related works:
Journal Article: Equilibrium Political Budget Cycles (1990)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2428

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2428

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().