Voters and Macroeconomics: Are They Forward Looking or Backward Looking?

David J Smyth, Pami Dua and Susan Washburn Taylor

Public Choice, 1994, vol. 78, issue 3-4, 283-93

Abstract: The political business cycle hypothesis has been criticized on the grounds that it is impossible for governments to generate a vote winning boom because voters judge political candidates by the performance they expect in the future. In this paper, the authors directly test the hypothesis that voters are forward rather than backward looking. They compare the conventional view that presidential popularity depends on recently observed inflation and unemployment to three alternative models that assume varying forms of forward looking behavior. Nonnested hypothesis tests reject the forward looking models in favor of the one with the recent actual variables. Copyright 1994 by Kluwer Academic Publishers

Date: 1994
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