FORGETFULNESS AND THE POLITICAL CYCLE*

Ron Shachar

Economics and Politics, 1993, vol. 5, issue 1, 15-25

Abstract: This paper examines a mechanism that underlies both the political business cycle and the cycle in non‐economic policies executed by politicians. We show that if rational voters suffer from forgetfulness (a noise in the memory). then government expenditure on the production of public good increases as elections approach. Hence, the model describes a cycle that is observed in the government expenditures of democratic societies. Unlike previous models, this model does not require that the government have information superiority over rational voters with respect to its competency. According to this model, incumbents transfer resources from the beginning of their terms of service and use them near the end of their terms. We also find that the less concave the production function, the wider the cycle.

Date: 1993
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