Political Cycles in Active Labor Market Policies

Mechtel, Mario and Potrafke, Niklas (2009): Political Cycles in Active Labor Market Policies.

Abstract

This paper examines a framework in which politicians can decrease unemployment via active labor market policies (ALMP). We combine theoretical models on partisan and opportunistic cycles and assume that voters are ignorant of the necessary facts to make informed voting decisions. The model predicts that politicians have incentives for a strategic use of active labor market policies that leads to a political cycle in unemployment and budget deficit. We test the hypotheses predicted by the theoretical model using data from German states from 1985:1 to 2004:11. The results illustrate that opportunistic behavior of politicians can explain the development of ALMP approximated by job-creation schemes.

• Item Type: MPRA Paper
• Language: English
• Keywords: active labor market policies, political cycles, labor market expenditures, opportunistic politicians, partisan politicians
• Subjects: J - Labor and Demographic Economics > J0 - General > J08 - Labor Economics Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures; H - Public Economics > H6 - National Budget, Deficit, and Debt > H61 - Budget ; Budget Systems; P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy

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