An essay on the rationality of economic policy: The test-case of the electional cycle

Martin Paldam

Public Choice, 1981, vol. 37, issue 2, 287-305

Abstract: The literature on electional cycles is discussed in the light of the empirical findings by, in particular, the author. Two basically different types of explanations of such cycles are compared: (α) explanations based on the maximizing behavior of governments aiming at re-election. (β) explanations building on the insufficiently controlled pressures of events in a democracy. It is demonstrated that even when the most well known theory under (α) — the Nordhaus-MacRaemodel — is a rather fragile construction, a more robust argument, termed the ‘popularity investment argument,’ can be constructed yielding the same basic result. From the empirical literature it is concluded that almost the opposite pattern actually occurs in the data. It is finally demonstrated that the weak, but significant, empirical pattern is easy to explain by (β): The elections generate promises, which give most real expansion in the second governmental year and most inflation in the third year. An average behavior which hardly implies even medium-term maximization by governments as assumed under (α). Copyright Martinus Nijhoff Publishers 1981

Date: 1981
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DOI: 10.1007/BF00138248

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