Electoral incentives, political business cycles and macroeconomic performance: Empirical evidence from post-war US personal income growth

British Journal of Political Science

Volumn 35, Issue 1, 2005, Pages 77-101

  Krause, George A ^a  

^a UNIVERSITY OF SOUTH CAROLINA   (United States)

Author keywords

[No Author keywords available]

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EID: 13444261270     PISSN: 00071234     EISSN: None     Source Type: Journal    
DOI: 10.1017/S0007123405000049     Document Type: Review

References (101)

1. Allan Drazen, Political Economy in Macroeconomics (Princeton, N.J.: Princeton University Press, 2000), p. 238.
2. James E. Alt and Alec Chrystal, Political Economics (Berkeley: University of California Press, 1983), p. 125.
3. William R. Keech, Economic Politics: The Costs of Democracy (New York: Cambridge University Press), p. 64.
4. Drazen, Political Economy in Macroeconomics, p. 244. But see Stephen E. Haynes and Joe A. Stone, 'An Integrated Test for Electoral Cycles in the Economy', Review of Economics and Statistics, 71 (1989), 426-34; Edward R. Tufte, The Political Control of the Economy (Princeton, N.J.: Princeton University Press, 1978), for notable exceptions.
5. Drazen, Political Economy in Macroeconomics, p. 244. But see Stephen E. Haynes and Joe A. Stone, 'An Integrated Test for Electoral Cycles in the Economy', Review of Economics and Statistics, 71 (1989), 426-34; Edward R. Tufte, The Political Control of the Economy (Princeton, N.J.: Princeton University Press, 1978), for notable exceptions.
6. Drazen, Political Economy in Macroeconomics, p. 244. But see Stephen E. Haynes and Joe A. Stone, 'An Integrated Test for Electoral Cycles in the Economy', Review of Economics and Statistics, 71 (1989), 426-34; Edward R. Tufte, The Political Control of the Economy (Princeton, N.J.: Princeton University Press, 1978), for notable exceptions.
7. William Nordhaus, 'The Political Business Cycle', Review of Economic Studies, 42 (1975), 169-90. See also Alberto Alesina and Nouriel Roubini (with Gerald D. Cohen), Political Cycles and the Macroeconomy (Cambridge, Mass.: MIT Press, 1997), Chap. 2.
8. William Nordhaus, 'The Political Business Cycle', Review of Economic Studies, 42 (1975), 169-90. See also Alberto Alesina and Nouriel Roubini (with Gerald D. Cohen), Political Cycles and the Macroeconomy (Cambridge, Mass.: MIT Press, 1997), Chap. 2.
9. Bruno S. Frey and Friedrich Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States', Review of Economics and Statistics, 60 (1978), 174-83; David Golden and James Poterba, "The Price of Popularity: The Political Business Cycle Reexamined', American Journal of Political Science, 24 (1980), 696-714; Kenneth A. Schultz, 'The Politics of the Political Business Cycle', British Journal of Political Science, 25 (1995), 79-99.
10. Bruno S. Frey and Friedrich Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States', Review of Economics and Statistics, 60 (1978), 174-83; David Golden and James Poterba, "The Price of Popularity: The Political Business Cycle Reexamined', American Journal of Political Science, 24 (1980), 696-714; Kenneth A. Schultz, 'The Politics of the Political Business Cycle', British Journal of Political Science, 25 (1995), 79-99.
11. Bruno S. Frey and Friedrich Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States', Review of Economics and Statistics, 60 (1978), 174-83; David Golden and James Poterba, "The Price of Popularity: The Political Business Cycle Reexamined', American Journal of Political Science, 24 (1980), 696-714; Kenneth A. Schultz, 'The Politics of the Political Business Cycle', British Journal of Political Science, 25 (1995), 79-99.
12. Frederik Carlsen, 'Inflation and Elections: Theory and Evidence for Six OECD Economies', Economic Inquiry, 37 (1999), 120-35; Simon Price, 'Comment on "The Politics of the Political Business Cycle"', British Journal of Political Science, 28 (1998), 201-10.
13. Frederik Carlsen, 'Inflation and Elections: Theory and Evidence for Six OECD Economies', Economic Inquiry, 37 (1999), 120-35; Simon Price, 'Comment on "The Politics of the Political Business Cycle"', British Journal of Political Science, 28 (1998), 201-10.
14. Alberto Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies', Economic Policy, 8 (1989), 55-98; Douglas A. Hibbs Jr, The American Political Economy: Electoral Policy and Macroeconomics in Contemporary America (Cambridge, Mass.: Harvard University Press, 1987); Assar Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians', American Economic Review Papers and Proceedings, 66 (1978), 1-19.
15. Alberto Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies', Economic Policy, 8 (1989), 55-98; Douglas A. Hibbs Jr, The American Political Economy: Electoral Policy and Macroeconomics in Contemporary America (Cambridge, Mass.: Harvard University Press, 1987); Assar Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians', American Economic Review Papers and Proceedings, 66 (1978), 1-19.
16. Alberto Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies', Economic Policy, 8 (1989), 55-98; Douglas A. Hibbs Jr, The American Political Economy: Electoral Policy and Macroeconomics in Contemporary America (Cambridge, Mass.: Harvard University Press, 1987); Assar Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians', American Economic Review Papers and Proceedings, 66 (1978), 1-19.
17. Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Keech, Economic Politics, p. 17, 214; Schultz, "The Politics of the Political Business Cycle'.
18. Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Keech, Economic Politics, p. 17, 214; Schultz, "The Politics of the Political Business Cycle'.
19. Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Keech, Economic Politics, p. 17, 214; Schultz, "The Politics of the Political Business Cycle'.
20. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Torsten Persson and Guido Tabellini, Macroeconomic Policy, Credibility, and Politics (Chur: Harwood Academic Publishers, 1990); Kenneth Rogoff, 'Equilibrium Political Business Cycles', American Economic Review, 80 (1990), 21-36; Kenneth Rogoff and Anne Sibert, 'Elections and Macroeconomic Policy Cycles', Review of Economic Studies, 55 (1988), 1-16.
21. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Torsten Persson and Guido Tabellini, Macroeconomic Policy, Credibility, and Politics (Chur: Harwood Academic Publishers, 1990); Kenneth Rogoff, 'Equilibrium Political Business Cycles', American Economic Review, 80 (1990), 21-36; Kenneth Rogoff and Anne Sibert, 'Elections and Macroeconomic Policy Cycles', Review of Economic Studies, 55 (1988), 1-16.
22. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Torsten Persson and Guido Tabellini, Macroeconomic Policy, Credibility, and Politics (Chur: Harwood Academic Publishers, 1990); Kenneth Rogoff, 'Equilibrium Political Business Cycles', American Economic Review, 80 (1990), 21-36; Kenneth Rogoff and Anne Sibert, 'Elections and Macroeconomic Policy Cycles', Review of Economic Studies, 55 (1988), 1-16.
23. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Torsten Persson and Guido Tabellini, Macroeconomic Policy, Credibility, and Politics (Chur: Harwood Academic Publishers, 1990); Kenneth Rogoff, 'Equilibrium Political Business Cycles', American Economic Review, 80 (1990), 21-36; Kenneth Rogoff and Anne Sibert, 'Elections and Macroeconomic Policy Cycles', Review of Economic Studies, 55 (1988), 1-16.
24. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Hibbs, The American Political Economy.
25. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Hibbs, The American Political Economy.
26. Robert S. Erikson, 'Economic Conditions and the Presidential Vote', American Political Science Review, 83 (1989), 563-73; Hibbs, The American Political Economy; Keech, Economic Politics, pp. 133-7; Christopher Wlezien and Robert S. Erikson, 'Temporal Horizons and Presidential Election Forecasts', American Politics Quarterly, 24 (1996), 492-505. It should be noted that Wlezien and Erikson constitute an exception to this observation by emphasizing the importance of the Commerce Department's Index of Leading Economic Indicators in forecasting presidential elections. They also acknowledge, however, that this measure and the objective real income growth measure are highly correlated with one another at the end of the election cycle ( Wlezien and Erikson, 'Temporal Horizons', p. 500).
27. Robert S. Erikson, 'Economic Conditions and the Presidential Vote', American Political Science Review, 83 (1989), 563-73; Hibbs, The American Political Economy; Keech, Economic Politics, pp. 133-7; Christopher Wlezien and Robert S. Erikson, 'Temporal Horizons and Presidential Election Forecasts', American Politics Quarterly, 24 (1996), 492-505. It should be noted that Wlezien and Erikson constitute an exception to this observation by emphasizing the importance of the Commerce Department's Index of Leading Economic Indicators in forecasting presidential elections. They also acknowledge, however, that this measure and the objective real income growth measure are highly correlated with one another at the end of the election cycle ( Wlezien and Erikson, 'Temporal Horizons', p. 500).
28. Robert S. Erikson, 'Economic Conditions and the Presidential Vote', American Political Science Review, 83 (1989), 563-73; Hibbs, The American Political Economy; Keech, Economic Politics, pp. 133-7; Christopher Wlezien and Robert S. Erikson, 'Temporal Horizons and Presidential Election Forecasts', American Politics Quarterly, 24 (1996), 492-505. It should be noted that Wlezien and Erikson constitute an exception to this observation by emphasizing the importance of the Commerce Department's Index of Leading Economic Indicators in forecasting presidential elections. They also acknowledge, however, that this measure and the objective real income growth measure are highly correlated with one another at the end of the election cycle ( Wlezien and Erikson, 'Temporal Horizons', p. 500).
29. Robert S. Erikson, 'Economic Conditions and the Presidential Vote', American Political Science Review, 83 (1989), 563-73; Hibbs, The American Political Economy; Keech, Economic Politics, pp. 133-7; Christopher Wlezien and Robert S. Erikson, 'Temporal Horizons and Presidential Election Forecasts', American Politics Quarterly, 24 (1996), 492-505. It should be noted that Wlezien and Erikson constitute an exception to this observation by emphasizing the importance of the Commerce Department's Index of Leading Economic Indicators in forecasting presidential elections. They also acknowledge, however, that this measure and the objective real income growth measure are highly correlated with one another at the end of the election cycle ( Wlezien and Erikson, 'Temporal Horizons', p. 500).
30. Robert S. Erikson, 'Economic Conditions and the Presidential Vote', American Political Science Review, 83 (1989), 563-73; Hibbs, The American Political Economy; Keech, Economic Politics, pp. 133-7; Christopher Wlezien and Robert S. Erikson, 'Temporal Horizons and Presidential Election Forecasts', American Politics Quarterly, 24 (1996), 492-505. It should be noted that Wlezien and Erikson constitute an exception to this observation by emphasizing the importance of the Commerce Department's Index of Leading Economic Indicators in forecasting presidential elections. They also acknowledge, however, that this measure and the objective real income growth measure are highly correlated with one another at the end of the election cycle ( Wlezien and Erikson, 'Temporal Horizons', p. 500).
31. Real personal income growth for the 1948:1-2000:4 sample period is correlated with real GDP growth at 0.86, and real per capita disposable income growth at 0.90. Real personal income growth and real disposable personal income growth are correlated at 0.91. Moreover, real disposable personal income growth and its per capita variant are correlated at 0.99.
32. Drazen, Political Economy in Macroeconomics, p. 239.
33. Formal exposition of these competing theoretical perspectives are unnecessary here since the analytics are discussed in the relevant literature discussed in this study and cited therein.
34. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy, chap. 2.
35. Schultz, 'The Politics of the Political Business Cycle', p. 81.
36. See Persson and Tabellini, Macroeconomic Policy, Credibility, and Politics; Rogoff, 'Equilibrium Political Business Cycles'; Rogoff and Sibert, 'Elections and Macroeconomic Policy Cycles'.
37. See Persson and Tabellini, Macroeconomic Policy, Credibility, and Politics; Rogoff, 'Equilibrium Political Business Cycles'; Rogoff and Sibert, 'Elections and Macroeconomic Policy Cycles'.
38. See Persson and Tabellini, Macroeconomic Policy, Credibility, and Politics; Rogoff, 'Equilibrium Political Business Cycles'; Rogoff and Sibert, 'Elections and Macroeconomic Policy Cycles'.
39. Carlsen, 'Inflation and Elections'. Carlsen analytically demonstrates this point in a rational PBC model used to predict increases associated with post-election inflation. This line of reasoning, however, is also applicable to non-rational PBC models involving macroeconomic outcomes because price and wage rigidities might exist. In turn, economic agents act as 'imperfect optimizers' (see, for example, N. Gregory Mankiw, 'Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly', Quarterly Journal of Economics, 100 (1985), 529-38; and 'The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment', Economic Journal, 111 (2001), C45-C61; David Romer, Advanced Macroeconomic Theory (New York; McGraw-Hill, 2001), chap. 6), thus resulting in PBC effects in real macroeconomic activity. Similar arguments are also made in a generic sense in the form of the electoral security (see Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle') and electoral uncertainty hypotheses (Price, 'Comment on "The Politics of the Political Business Cycle" '), respectively.
40. Carlsen, 'Inflation and Elections'. Carlsen analytically demonstrates this point in a rational PBC model used to predict increases associated with post-election inflation. This line of reasoning, however, is also applicable to non-rational PBC models involving macroeconomic outcomes because price and wage rigidities might exist. In turn, economic agents act as 'imperfect optimizers' (see, for example, N. Gregory Mankiw, 'Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly', Quarterly Journal of Economics, 100 (1985), 529-38; and 'The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment', Economic Journal, 111 (2001), C45-C61; David Romer, Advanced Macroeconomic Theory (New York; McGraw-Hill, 2001), chap. 6), thus resulting in PBC effects in real macroeconomic activity. Similar arguments are also made in a generic sense in the form of the electoral security (see Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle') and electoral uncertainty hypotheses (Price, 'Comment on "The Politics of the Political Business Cycle" '), respectively.
41. Carlsen, 'Inflation and Elections'. Carlsen analytically demonstrates this point in a rational PBC model used to predict increases associated with post-election inflation. This line of reasoning, however, is also applicable to non-rational PBC models involving macroeconomic outcomes because price and wage rigidities might exist. In turn, economic agents act as 'imperfect optimizers' (see, for example, N. Gregory Mankiw, 'Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly', Quarterly Journal of Economics, 100 (1985), 529-38; and 'The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment', Economic Journal, 111 (2001), C45-C61; David Romer, Advanced Macroeconomic Theory (New York; McGraw-Hill, 2001), chap. 6), thus resulting in PBC effects in real macroeconomic activity. Similar arguments are also made in a generic sense in the form of the electoral security (see Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle') and electoral uncertainty hypotheses (Price, 'Comment on "The Politics of the Political Business Cycle" '), respectively.
42. Carlsen, 'Inflation and Elections'. Carlsen analytically demonstrates this point in a rational PBC model used to predict increases associated with post-election inflation. This line of reasoning, however, is also applicable to non-rational PBC models involving macroeconomic outcomes because price and wage rigidities might exist. In turn, economic agents act as 'imperfect optimizers' (see, for example, N. Gregory Mankiw, 'Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly', Quarterly Journal of Economics, 100 (1985), 529-38; and 'The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment', Economic Journal, 111 (2001), C45-C61; David Romer, Advanced Macroeconomic Theory (New York; McGraw-Hill, 2001), chap. 6), thus resulting in PBC effects in real macroeconomic activity. Similar arguments are also made in a generic sense in the form of the electoral security (see Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle') and electoral uncertainty hypotheses (Price, 'Comment on "The Politics of the Political Business Cycle" '), respectively.
43. Carlsen, 'Inflation and Elections'. Carlsen analytically demonstrates this point in a rational PBC model used to predict increases associated with post-election inflation. This line of reasoning, however, is also applicable to non-rational PBC models involving macroeconomic outcomes because price and wage rigidities might exist. In turn, economic agents act as 'imperfect optimizers' (see, for example, N. Gregory Mankiw, 'Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly', Quarterly Journal of Economics, 100 (1985), 529-38; and 'The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment', Economic Journal, 111 (2001), C45-C61; David Romer, Advanced Macroeconomic Theory (New York; McGraw-Hill, 2001), chap. 6), thus resulting in PBC effects in real macroeconomic activity. Similar arguments are also made in a generic sense in the form of the electoral security (see Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle') and electoral uncertainty hypotheses (Price, 'Comment on "The Politics of the Political Business Cycle" '), respectively.
44. Carlsen, 'Inflation and Elections'. Carlsen analytically demonstrates this point in a rational PBC model used to predict increases associated with post-election inflation. This line of reasoning, however, is also applicable to non-rational PBC models involving macroeconomic outcomes because price and wage rigidities might exist. In turn, economic agents act as 'imperfect optimizers' (see, for example, N. Gregory Mankiw, 'Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly', Quarterly Journal of Economics, 100 (1985), 529-38; and 'The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment', Economic Journal, 111 (2001), C45-C61; David Romer, Advanced Macroeconomic Theory (New York; McGraw-Hill, 2001), chap. 6), thus resulting in PBC effects in real macroeconomic activity. Similar arguments are also made in a generic sense in the form of the electoral security (see Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle') and electoral uncertainty hypotheses (Price, 'Comment on "The Politics of the Political Business Cycle" '), respectively.
45. Carlsen, 'Inflation and Elections'. Carlsen analytically demonstrates this point in a rational PBC model used to predict increases associated with post-election inflation. This line of reasoning, however, is also applicable to non-rational PBC models involving macroeconomic outcomes because price and wage rigidities might exist. In turn, economic agents act as 'imperfect optimizers' (see, for example, N. Gregory Mankiw, 'Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly', Quarterly Journal of Economics, 100 (1985), 529-38; and 'The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment', Economic Journal, 111 (2001), C45-C61; David Romer, Advanced Macroeconomic Theory (New York; McGraw-Hill, 2001), chap. 6), thus resulting in PBC effects in real macroeconomic activity. Similar arguments are also made in a generic sense in the form of the electoral security (see Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle') and electoral uncertainty hypotheses (Price, 'Comment on "The Politics of the Political Business Cycle" '), respectively.
46. Price ('Comment on "The Politics of the Political Business Cycle" ', p. 204) echoes this point by stating that 'Both unpopular and popular governments should act responsibly' in reference to macroeconomic policy making by incumbent governments.
47. T+1 = 1 if the incumbent wins election). When γ = 1, however, the incumbent cares about such social welfare losses irrespective of the impending election outcome. These particular cases involving a conditional PBC effect are unique from the naïve PBC hypothesis in so far as incumbent politicians do not care about welfare losses resulting from a transitory pre-election economic expansion in the latter type of PBC, whereas they do to varying degrees in the former pair of hypotheses.
48. Carlsen, 'Inflation and Elections', p. 121. See also, Price, 'Comment on "The Politics of the Political Business Cycle" ', p. 201.
49. Carlsen, 'Inflation and Elections', p. 121. See also, Price, 'Comment on "The Politics of the Political Business Cycle" ', p. 201.
50. Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies'; Hibbs, The American Political Economy; Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians'.
51. Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies'; Hibbs, The American Political Economy; Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians'.
52. Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies'; Hibbs, The American Political Economy; Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians'.
53. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy, pp. 198-9.
54. For example, see Keech (Economic Politics, pp. 36-8) for a nice introductory treatment of the policy neutrality/ineffectiveness proposition in macroeconomic policy making.
55. Robert E. Lucas Jr, 'Expectations and the Neutrality of Money', Journal of Economic Theory, 4 (1972), 103-24; Karl Brunner and Allan H. Meltzer, eds (Amsterdam: North-Holland, 1976); Thomas J. Sargent and Neil Wallace, ' "Rational Expectations", the Optimal Monetary Instrument, and the Optimal Money Supply Rule', Journal of Political Economy, 83 (1975), 241-54.
56. Robert E. Lucas Jr, 'Expectations and the Neutrality of Money', Journal of Economic Theory, 4 (1972), 103-24; Karl Brunner and Allan H. Meltzer, eds (Amsterdam: North-Holland, 1976); Thomas J. Sargent and Neil Wallace, ' "Rational Expectations", the Optimal Monetary Instrument, and the Optimal Money Supply Rule', Journal of Political Economy, 83 (1975), 241-54.
57. Robert E. Lucas Jr, 'Expectations and the Neutrality of Money', Journal of Economic Theory, 4 (1972), 103-24; Karl Brunner and Allan H. Meltzer, eds (Amsterdam: North-Holland, 1976); Thomas J. Sargent and Neil Wallace, ' "Rational Expectations", the Optimal Monetary Instrument, and the Optimal Money Supply Rule', Journal of Political Economy, 83 (1975), 241-54.
58. The rational-competence PBC models generally view electoral manipulation of the fiscal instruments before an election as having no impact on real economic activity, yet resulting in an inflation surge for the few quarters immediately following the election (see, for example, Drazen, Political Economy in Macroeconomics, p. 245). Whether these effects transpire for macroeconomic outcomes crucially depends upon whether the policy neutrality proposition holds. I thank Henry Chappell for mentioning this point to me.
59. t-4)] × 100, where RPI is US real personal income. The data source is the National Income and Product Accounts (NIPA), Table 2.1: Personal Income and its Disposition (seasonally adjusted and adjusted for inflation by the personal consumption expenditures implicit price deflator in Table 7.1 Quantity and Price Indexes for Gross Domestic Product) and can be located at http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp?Selected = Y.
60. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Carlsen, 'Inflation and Elections'; Bennett T. McCallum, 'The Political Business Cycle: An Empirical Test', Southern Economic Journal, 44 (1978), 504-15.
61. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Carlsen, 'Inflation and Elections'; Bennett T. McCallum, 'The Political Business Cycle: An Empirical Test', Southern Economic Journal, 44 (1978), 504-15.
62. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Carlsen, 'Inflation and Elections'; Bennett T. McCallum, 'The Political Business Cycle: An Empirical Test', Southern Economic Journal, 44 (1978), 504-15.
63. 2 ∼ (14) = 19.25, p = 0.16). Further, an Augmented Dickey-Fuller test with four lags (ADF(4) t-statistic: - 4.80, p = 0.0001) clearly rejects the unit root hypothesis for the real personal income growth series.
64. Such non-political business cycles are captured by these autoregressive coefficients containing both positive and negative signs. This pattern occurs in all models estimated in this study. There is not enough space to report this information in this article but it can be obtained by contacting the author directly.
65. Stuart Allen, 'The Federal Reserve and the Electoral Cycle', Journal of Money, Credit, and Banking, 18 (1986), 88-94; Willie J. Belton Jr and Richard J. Cebula, 'Does the Federal Reserve Create Political Monetary Cycles?' Journal of Macroeconomics, 16 (1994), 461-77; Kevin B. Grier, 'Presidential Elections and Federal Reserve Policy: An Empirical Test', Southern Economic Journal, 54 (1987), 475-86; McCallum, 'The Political Business Cycle"; John T. Williams, 'The Political Manipulation of Macroeconomic Policy', American Political Science Review, 84 (1990), 767-95.
66. Stuart Allen, 'The Federal Reserve and the Electoral Cycle', Journal of Money, Credit, and Banking, 18 (1986), 88-94; Willie J. Belton Jr and Richard J. Cebula, 'Does the Federal Reserve Create Political Monetary Cycles?' Journal of Macroeconomics, 16 (1994), 461-77; Kevin B. Grier, 'Presidential Elections and Federal Reserve Policy: An Empirical Test', Southern Economic Journal, 54 (1987), 475-86; McCallum, 'The Political Business Cycle"; John T. Williams, 'The Political Manipulation of Macroeconomic Policy', American Political Science Review, 84 (1990), 767-95.
67. Stuart Allen, 'The Federal Reserve and the Electoral Cycle', Journal of Money, Credit, and Banking, 18 (1986), 88-94; Willie J. Belton Jr and Richard J. Cebula, 'Does the Federal Reserve Create Political Monetary Cycles?' Journal of Macroeconomics, 16 (1994), 461-77; Kevin B. Grier, 'Presidential Elections and Federal Reserve Policy: An Empirical Test', Southern Economic Journal, 54 (1987), 475-86; McCallum, 'The Political Business Cycle"; John T. Williams, 'The Political Manipulation of Macroeconomic Policy', American Political Science Review, 84 (1990), 767-95.
68. Stuart Allen, 'The Federal Reserve and the Electoral Cycle', Journal of Money, Credit, and Banking, 18 (1986), 88-94; Willie J. Belton Jr and Richard J. Cebula, 'Does the Federal Reserve Create Political Monetary Cycles?' Journal of Macroeconomics, 16 (1994), 461-77; Kevin B. Grier, 'Presidential Elections and Federal Reserve Policy: An Empirical Test', Southern Economic Journal, 54 (1987), 475-86; McCallum, 'The Political Business Cycle"; John T. Williams, 'The Political Manipulation of Macroeconomic Policy', American Political Science Review, 84 (1990), 767-95.
69. Stuart Allen, 'The Federal Reserve and the Electoral Cycle', Journal of Money, Credit, and Banking, 18 (1986), 88-94; Willie J. Belton Jr and Richard J. Cebula, 'Does the Federal Reserve Create Political Monetary Cycles?' Journal of Macroeconomics, 16 (1994), 461-77; Kevin B. Grier, 'Presidential Elections and Federal Reserve Policy: An Empirical Test', Southern Economic Journal, 54 (1987), 475-86; McCallum, 'The Political Business Cycle"; John T. Williams, 'The Political Manipulation of Macroeconomic Policy', American Political Science Review, 84 (1990), 767-95.
70. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy, p. 93.
71. Michael S. Lewis-Beck, Economics and Elections (Ann Arbor: University of Michigan Press, 1988). In a different vein, Daniel Treisman and Vladimir Gimpelson ('Political Business Cycles and Russian Elections, or the Manipulation of the "Chudar" ', British Journal of Political Science, 31 (2001), 225-46) contend that the paucity of PBC effects might be due to a focus on a single policy instrument rather than several at the disposal of incumbent politicians.
72. Michael S. Lewis-Beck, Economics and Elections (Ann Arbor: University of Michigan Press, 1988). In a different vein, Daniel Treisman and Vladimir Gimpelson ('Political Business Cycles and Russian Elections, or the Manipulation of the "Chudar" ', British Journal of Political Science, 31 (2001), 225-46) contend that the paucity of PBC effects might be due to a focus on a single policy instrument rather than several at the disposal of incumbent politicians.
73. This point is valid for manipulation of policy instruments and their subsequent impact on real economic activity leading up to an election event. PBC effects, however, might have consequences well after the election. For instance, a pre-election expansion in macroeconomic activity will often produce a post-election surge in the inflation rate that can last from one to several quarters beyond this event (see, for example, Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy, pp. 94-5; Carlsen, 'Inflation and Elections').
74. This point is valid for manipulation of policy instruments and their subsequent impact on real economic activity leading up to an election event. PBC effects, however, might have consequences well after the election. For instance, a pre-election expansion in macroeconomic activity will often produce a post-election surge in the inflation rate that can last from one to several quarters beyond this event (see, for example, Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy, pp. 94-5; Carlsen, 'Inflation and Elections').
75. For example, Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; and Hibbs, The American Political Economy.
76. For example, Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; and Hibbs, The American Political Economy.
77. The subsequent empirical results remain substantively identical if the post-election quarter assumption is relaxed for the PARTY measure. In all but a handful of instances, these results were substantively identical to those reported when this assumption was relaxed for the ELEC measures. In the handful of exceptional cases, the PBC effect is attenuated by a significant degree as one would expect since it accounts for a considerable amount of time following the election event as noted earlier.
78. Heteroscedastic-consistent robust standard errors are reported in all regression analyses given the rejection of the homoscedasticity assumption displayed in the White tests appearing in each table (Halbert A. White, 'A Heteroskedastic-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity', Econometrica, 48 (1980), 817-38). The autoregressive coefficients and corresponding standard errors are not reported here for brevity purposes, but are available upon request from the author.
79. i] → 0, ̃β ∞. Put simply, as the cumulative persistence in the autoregressive relationships increases, the magnitude of the dynamic impact becomes larger relative to that of its corresponding immediate impact.
80. Predicted expected values of real personal income growth are computed via stochastic simulation using CLARIFY 2.0 (Michael Tomz, Jason Wittenberg and Gary King, CLARIFY: Software for Presenting and Interpreting Statistical Results (Cambridge, Mass.: Harvard University, 1 June 2001, Version 2.0), http://gking.harvard.edu) in conjunction with STATA 8.0. Each model is based on 1,000 draws from a multivariate normal distribution for the coefficient vector and an inverse chi-square distribution for the variance-covariance matrix, respectively.
81. ELECT-1)- These differences are the same across partisan administration for a given model specification and time horizon (k) since the ELEC variables do not conditionally vary as a function of the PARTY variable in the naïve-unconditional PBC empirical tests.
82. Dem = 52.14%, t-statistic = 0.33, p = 0.75). The issue of re-election prospects and how it affects macroeconomic activity in an electoral cycle fashion is addressed in further detail in the next two sections.
83. This logic has also been applied elsewhere to explain the probability of war initiation by the United States in the post-war era (Gregory D. Hess and Athanasios Orphanides, 'War Politics: An Economic, Rational-Voter Framework', American Economic Review, 85 (1995), 828-46).
84. 2 statistic. Such overfitting might result in artificially extreme - i.e., overly optimistic or pessimistic - assessments of ex ante election odds for the incumbent government. I thank Larry Bartels for bringing this point to my attention.
85. 2 statistic. Such overfitting might result in artificially extreme - i.e., overly optimistic or pessimistic - assessments of ex ante election odds for the incumbent government. I thank Larry Bartels for bringing this point to my attention.
86. Carlsen, 'Inflation and Elections'; Price, 'Comment on "The Politics of the Political Business Cycle" '.
87. Carlsen, 'Inflation and Elections'; Price, 'Comment on "The Politics of the Political Business Cycle" '.
88. Since we cannot reject β= 0 and δ = 0, and they possess opposite signs, plotting the conditional relationships are of modest utility. This is because neither term in isolation or expressed as a linear combination comes close to obtaining statistical significance, save for the ELECCYC: k = 8 model.
89. Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle'.
90. Frey and Schneider, 'An Empirical Study of Politico-Economic Interaction in the United States'; Schultz, 'The Politics of the Political Business Cycle'.
91. Carlsen, 'Inflation and Elections'; Price, 'Comment on "The Politics of the Political Business Cycle" '.
92. Carlsen, 'Inflation and Elections'; Price, 'Comment on "The Politics of the Political Business Cycle" '.
93. *l* = δ/(- 2θ) = 0.012/[- 2 × (- 0.0001)] = 0.012/0.0002 = 60.
94. Alberto Alesina and Howard Rosenthal, Partisan Politics: Divided Government and the Economy (New York: Cambridge University Press, 1995).
95. Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies'; Hibbs, The American Political Economy; Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians'.
96. Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies'; Hibbs, The American Political Economy; Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians'.
97. Alesina, 'Inflation, Unemployment, and Politics in Industrial Democracies'; Hibbs, The American Political Economy; Lindbeck, 'Stabilization Policies in Open Economies with Endogenous Politicians'.
98. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Chappell and Keech, 'The Unemployment Consequences of Partisan Monetary Policy'; Hibbs, The American Political Economy.
99. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Chappell and Keech, 'The Unemployment Consequences of Partisan Monetary Policy'; Hibbs, The American Political Economy.
100. Alesina and Roubini (with Cohen), Political Cycles and the Macroeconomy; Chappell and Keech, 'The Unemployment Consequences of Partisan Monetary Policy'; Hibbs, The American Political Economy.
101. Alesina and Rosenthal, Partisan Politics.