Macroeconomic Policy and Elections in OECD Democracies

Abstract

The purpose of this paper is to test for evidence of opportunistic "political business cycles" in a large sample of 18 OECD economies. Our results can be suninarized as follows: 1) We find very little evidence of pre-electoral effects of economic outcomes, in particular, on GDP growth and unemployment; 2) We see some evidence of "political monetary cycles." that is, expansionary monetary policy in election years; 3) We also observe indications of "political budget cycles," or "loose" fiscal policy prior to elections; 4) Inflation exhibits a postelectoral jump, which could be explained by either the preelectoral "loose" monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.