Potrafke, Niklas (2010): Political cycles and economic performance in OECD countries: empirical evidence from 1951-2006.
This is the latest version of this item.
Download (415Kb) | Preview
This paper examines whether electoral motives and government ideology influence short-term economic performance. I employ data on annual GDP growth in 21 OECD countries over the 1951-2006 period and provide a battery of empirical tests. In countries with two-party systems GDP growth is boosted before elections and, under leftwing governments, in the first two years of a legislative period. These findings indicate that political cycles are more prevalent in two-party systems because voters can clearly punish or reward political parties for governmental performance. My findings imply that we need more elaborate theories of how government ideology and electoral motives influence short-term economic performance.
|Item Type:||MPRA Paper|
|Original Title:||Political cycles and economic performance in OECD countries: empirical evidence from 1951-2006|
|Keywords:||political cycles, partisan politics, electoral motives, government ideology, short-term economic performance, panel data|
|Subjects:||C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
O - Economic Development, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
|Depositing User:||Niklas Potrafke|
|Date Deposited:||12. Jul 2010 08:40|
|Last Modified:||13. Feb 2013 09:09|
Abrams, B. A., & Iossifov, P. (2006). Does the Fed contribute to a political business cycle? Public Choice 129, 249-262.
Abrams, B. A. (2008). A rejoinder to ‘A commentary on ‘Does the Fed contribute to a political business cycle?’” Public Choice 134, 489-490.
Aidt, T. S., Veiga, F. J., & Veiga, L G. (2011). Election results and opportunistic policies: A new test of the rational political business cycle. Public Choice, forthcoming.
Alesina, A. (1987). Macroeconomic policy in a two-party system as a repeated game. Quarterly Journal of Economics 102, 651-678.
Alesina, A., Roubini, N., & Cohen, G. D. (1997). Political cycles and the macroeconomy. The MIT Press, Cambridge.
Alesina, A., & Rosenthal, H. (1995). Partisan politics, divided government, and the economy. Cambridge University Press, Cambridge.
Alt, J. E., & Lassen, D. D. (2006). Fiscal transparency, political parties, and debt in OECD countries. European Economic Review 50, 1403-1439.
Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies 58, 277–297.
Barro, R. J. (2006). Rare disasters and asset markets in the twentieth century. Quarterly Journal of Economics 121, 823-866.
Barro, R. J., & Ursúa, J. F. (2008). Macroeconomic crises since 1870. Brookings Papers on Economic Activity.
Beck, T., Clarke, G., Groff, A., Keefer, P., & Walsh, P. (2001). New tools in comparative political economy: the database of political institutions. World Bank Economic Review 15, 165-176.
Behr, A. (2003). A comparison of dynamic panel data estimators: Monte Carlo evidence and an application to the investment function. Discussion paper 05/03, Economic Research Centre of the Deutsche Bundesbank.
Belke, A. (2000). Partisan political business cycles in the German labour market? Empirical tests in the light of the Lucas-critique. Public Choice 104, 225-283.
Berger, H., & Woitek, U. (1997). Searching for political business cycles in Germany. Public Choice 91, 179-197.
Bjørnskov, C. (2005). Does political ideology affect economic growth? Public Choice 123, 133-146.
Bjørnskov, C. (2008a). The growth-inequality association: government ideology matters. Journal of Development Economics 87, 300-308.
Bjørnskov, C. (2008b). Political ideology and the structure of national accounts in the Nordic Countries, 1950-2004. Paper presented at the annual meeting of the European Public Choice Society, Jena 27-30 March 2008.
Blanchard, O., & Perotti, E. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes and output. Quarterly Journal of Economics 117, 1329-1368.
Bloom, D., Canning, D., Mansfield, R. K, & Moore, M. (2007). Demographic change, social security systems, and savings. Journal of Monetary Economics 54, 92-114.
Blundell, R. W., & Bond, S. R. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87, 115–143.
Blyth, M., & Katz, R. (2005). From Catch-all politics to cartelisation: the political economy Of the cartel party. West European Politics 28, 33-60.
Brender, A., & Drazen, A. (2009). How do budget deficits and economic growth affect Reelection prospects? Evidence from a large panel of countries. American Economic Review 98, 2203-2220.
Bruno, G.S.F. (2005a). Approximating the bias of the LSDV estimator for dynamic unbalanced panel data models. Economics Letters 87, 361-366.
Bruno, G.S.F. (2005b). Estimation and inference in dynamic unbalanced panel data models with a small number of individuals. Stata Journal 5, 473-500.
Budge, I., Keman, H., & Woldendorp, J. (1993). Political data 1945-1990. Party government in 20 democracies. European Journal of Political Research 24, 1-119.
Cogan, J. F., Cwik, T., Taylor, J. B., & Wieland, V. (2010). New Keynesian versus old Keynesian government spending multipliers. Journal of Economic Dynamics and Control 34, 281-295.
Cwik, T., & Wieland, V. (2009). Keynesian government spending multipliers and spillovers In the euro area. Working Paper, Goethe University Frankfurt.
Denzau, A. T., & North. D. C. (1994). Shared mental models: ideologies and institutions. Kyklos 47, 3-31. Drazen, A. (2000). Political economy in macroeconomics. Princeton University Press: Princeton, New Jersey.
Dreher, A. (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics 38, 1091-1110.
Dreher, A., Gaston, N., & Martens, P. (2008). Measuring globalization – Gauging its consequences. Springer, Berlin.
Easterly, W. (2006). Reliving the 1950s: the big push, poverty traps, and takeoffs in economic development. Journal of Economic Growth 11, 289-318.
Faust, J., & Irons, J. S. (1999). Money, politics and the post-war business cycle. Journal of Monetary Economics 43, 61-89.
Ferris, J. S. (2008). Electoral politics and monetary policy: does the Bank of Canada Contribute to a political business cycle? Public Choice 135, 449-468.
Ferris, J. S., & M.-C. Voia (2010). Does the risk or realization of a federal election precipitate Canadian output growth? Canadian Journal of Economics, forthcoming.
Füss, R., & Bechtel, M. (2008). Partisan politics and stock market performance: the effect of expected government partisanship on stock returns in the 2002 federal German election. Public Choice 135, 131-150.
Franzese, R. (2000). Electoral and partisan manipulation of public debt in developed democracies, 1956-1990. In: Strauch, R., von Hagen, J. (Eds.) Institutions, politics and fiscal policy. Kluwer Academic Press, Dordrecht; 61-83.
Franzese, R. (2002). Electoral and partisan cycles in economic policies and outcomes. Annual Reviews of Political Science 5, 369-421.
Franzese, R., & Jusko, K. L. (2006). Political-economic cycles. In: Weingast, B. R., Wittman, D. A. (Eds.), The Oxford Handbook of Political Economy. Oxford University Press: Oxford; 545-564.
Frey, B. S., & Schneider, F. (1978a). An empirical study of politico-economic interaction in the United States. Review of Economics and Statistics 60, 174-183.
Frey, B. S., & Schneider, F. (1978b). A politic-economic model of the United Kingdom. Economic Journal 88, 243-253.
Grier, K. (2008). US presidential elections and real GDP growth. Public Choice 135, 337-352.
Heckelman, J. C. (2002a). Electoral uncertainty and the macroeconomy: the evidence from Canada. Public Choice 113, 179-189.
Heckelman, J. C. (2002b). Variable rational partisan business cycles: theory and some evidence. Canadian Journal of Economics 35, 568-565.
Heckelman, J. C. (2006). Another look at the evidence for rational partisan cycles. Public Choice 126, 257-274.
Helland, L. (2010). Partisan conflicts and parliamentary dominance: the Norwegian political business cycle. Public Choice, forthcoming.
Henisz, W. (2000). The institutional environment for growth. Economics and Politics 12, 1-31.
Hibbs, D. A. Jr. (1977). Political parties and macroeconomic policy. American Political Science Review 71, 1467-1487.
Hibbs, D. A. Jr. (1987). The political economy of industrial democracies. Harvard University Press: Cambridge.
Hibbs, D. A. Jr. (1992). Partisan theory after fifteen years. European Journal of Political Economy 8, 361-373.
Hibbs, D. A. Jr. (2006). Voting and the macroeconomy. In: Weingast, B. R., Wittman, D. A. (Eds.), The Oxford Handbook of Political Economy. Oxford University Press: Oxford; 565-586.
Maddison, A. (2003). The World Economy: Historical Statistics. Paris, OECD.
Mechtel, M., & Potrafke, N. (2009). Political cycles in active labor market policies. Paper presented at the annual meeting of the European Public Choice Society, Athens 2-5 April 2009.
Mountford, A., & Uhlig, H. (2009). What are the effects of fiscal policy shocks? Journal of Applied Econometrics 24, 960-992.
Newey, W. K., & West, K. D. (1987). A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55, 703-708.
Nordhaus, W. (1975). The political business cycle. Review of Economic Studies 42, 169-190. OECD (2009). Economic Outlook. Paris.
Potrafke, N. (2008). The growth of public health expenditures: do government ideology and electoral motives matter? Paper presented at the annual meeting of the European Public Choice Society, Jena 27-30 March 2008.
Potrafke, N. (2009a). Did globalization restrict partisan politics? An empirical evaluation of social expenditures in a panel of OECD countries. Public Choice 140, 105-124.
Potrafke, N. (2009b). Does government ideology influence political alignment with the U.S.? An empirical analysis of voting in the UN General Assembly. Review of International Organizations 4, 245-268.
Potrafke, N. (2010). Does government ideology influence product market deregulation? Empirical evidence from OECD countries. Public Choice 143, 135-155.
Potrafke, N. (2011). Public expenditures on education and cultural affairs in the West German states: does government ideology influence the budget composition? German Economic Review, forthcoming.
Price, S. (1997). Political business cycles and macroeconomic credibility: a survey. Public Choice 92, 407-427.
Reinhart, C. M., & Rogoff, K. (2004). The modern history of exchange rate arrangements: a reinterpretation. Quarterly Journal of Economics 119, 1-48.
Rogoff, K. (1990). Equilibrium political budget cycles. American Economic Review 80, 21-36.
Rogoff, K., & Sibert, A. (1988). Elections and macroeconomic policy cycles. Review of Economic Studies 55, 1-16.
Romer, C., & Bernstein, J. (2009). The job impact of the American recovery and reinvestment plan. http://www.economy.com/mark-zandi/documents/The_Job_Impact_of_the_American_Recovery_and_Reinvestment_Plan.pdf
Roodman, D. (2006). How to do xtabond2: An introduction to “Difference” and “System” GMM in Stata. Center for Global Development. Working Paper 103.
Roodman, D. (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics 71, 135-158.
Sakamoto, T. (2008). Economic policy and performance in industrial democracies – party governments, central banks and the fiscal-monetary policy mix. Routledge, London and New York.
Schneider, C. J. (2010). Fighting with one hand tied behind the back: political budget cycles in the German states. Public Choice 142, 125-150.
Shi, M., & Svensson, J. (2006). Political budget cycles: Do they differ across countries and why? Journal of Public Economics 90, 1367-1389.
Stock, J. H., & Watson, M. W. (2008). Heteroskedasticity-robust standard errors for fixed effect panel data regression. Econometrica 76, 155-174.
Summers, R., & Heston, A. (1991). The Penn World Table (Mark 5): an expanded set of international comparisons, 1950-1988. Quarterly Journal of Economics 106, 327-369.
Tempelman, J. H. (2007). A commentary on “Does the Fed contribute to a political business cycle?” Public Choice 132, 433-436. United Nations (2010). United Nations Commodity Trade Statistics Database. New York.
Vergne, C. (2009). Democracy, elections and allocation of public expenditures in developing countries European Journal of Political Economy 25, 63-77.
Woldendorp, J., Keman, H., & Budge, I. (1998). Party government in 20 democracies: an Update 1990-1995. European Journal of Political Research 33, 125-164.
Woldendorp, J., Keman, H., & Budge, I. (2000). Party government in 48 democracies 1945- 1998: composition, duration, personnel. Kluwer Academic Publishers, Dordrecht.
Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. MIT Press, Cambridge.
Available Versions of this Item
Political cycles and economic performance in OECD countries: empirical evidence from 1951-2006. (deposited 10. Jul 2010 08:34)
- Political cycles and economic performance in OECD countries: empirical evidence from 1951-2006. (deposited 12. Jul 2010 08:40) [Currently Displayed]