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Electoral uncertainty, fiscal policy and macroeconomic fluctuations


Malley, J; Philippopoulos, A; Woitek, U (2007). Electoral uncertainty, fiscal policy and macroeconomic fluctuations. Journal of Economic Dynamics and Control, 31(3):1051-1080.

Abstract

In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The setup is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The latter are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.

Abstract

In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The setup is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The latter are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.

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10 citations in Web of Science®
11 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:07 Faculty of Science > Institute of Mathematics
Dewey Decimal Classification:510 Mathematics
Uncontrolled Keywords:Political uncertainty; Business cycles and growth; Optimal policy; Hybrid maximum likelihood estimation
Language:English
Date:2007
Deposited On:15 Dec 2009 13:05
Last Modified:06 Dec 2017 20:43
Publisher:Elsevier
ISSN:0165-1889
Publisher DOI:https://doi.org/10.1016/j.jedc.2006.06.004

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