Political budget cycles

Frank Bohn, Lamar Crombach and Jan-Egbert Sturm

Chapter 70 in Elgar Encyclopedia of Public Choice, 2025, pp 493-500 from Edward Elgar Publishing

Abstract: This chapter introduces political business cycles (PBCs), i.e., macroeconomic and budgetary fluctuations induced by monetary and/or fiscal policy. They are caused by the government, either through manipulation with the intention of winning upcoming elections (opportunistic PBCs) or because different party priorities lead to policy shifts (partisan PBCs). We begin by reviewing the conceptual and theoretical literature from Nordhaus (1975) to Rogoff (1990). The literature evolves from adaptive to rational expectations, shifting the focus from macroeconomic effects to fiscal policy implications. Second, we highlight empirical gaps and conceptual weaknesses and show how this leads to the development of third and fourth-generation models that incorporate information asymmetries and alternative rationality frameworks.

Keywords: Political Business Cycles; Political Budget Cycles; Fiscal Policy; Monetary Policy; Opportunistic Strategies; Partisan Interests (search for similar items in EconPapers)
Date: 2025
ISBN: 9781802207743
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