Do political parties foster business cycles? An examination of developed economies

Koyin Chang, Yoonbai Kim (), Marc Tomljanovich and Yung-Hsiang Ying

Journal of Comparative Economics, 2013, vol. 41, issue 1, 212-226

Abstract: This paper explores different possible factors that have impacted business cycle synchronization across industrialized countries in the past quarter century. We employ a comprehensive model that includes as the main determinants of output co-movements not only trade and financial integration, but also similarities of economic policies and political preferences across countries. Focusing on 14 developed countries from 1980 to 2010, our main finding is that economic policies and the political environment have strong influences on business cycles in each country and their correlations across countries. In particular, we find that having differing political parties between two countries lowers business cycles correlations, but only when we allow for partisan effects to dissipate several quarters after political elections. Our results hold while also controlling for economic determinants of business cycle correlations, including trade, finance, geography and measures of policy convergence. Our findings therefore demonstrate a more comprehensive link between these factors and business cycle synchronization than prior studies.

Keywords: Business cycle correlation; Trade and financial integration; Political business cycle (search for similar items in EconPapers)
JEL-codes: E32 F15 F43 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:41:y:2013:i:1:p:212-226

DOI: 10.1016/j.jce.2012.04.005

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