money deficit and public debt in the united states this study estimates the underlying parameters in a dynamic game between the fiscal and monetary authorities over the determination of public debt these estimates reveal the policymakers attitude towards the goal of stabilizing the time path of public debt the central finding is that in the united states during the 1955 85 period this goal has been pursued by the fiscal authority but not by the central bank monetary policy has not monetized the stock of public debt outstanding whereas cyclically adjusted net of interest fiscal deficits have been reduced to offset increases in the stock of debt in circulation copyright 1989 by mit press

the political economics of agricultural price support in turkey an empirical assessment the present study is an attempt to explain the variations in the extent of protection provided to the producers of four selected agricultural crops in turkey by a set of independent variables representing various economic and political events of the 1962 1983 period the economic variables were selected in order to assess the divergence between the intentions of the policy makers and their actions as reflected in the level of support actually provided while the political variables were chosen to assess the impact of elections military takeovers and noticeable shifts in the underlying philosophy of the policy makers on the support provided the regression analysis suggested that the political power of the agricultural producers was an important determinant of the policies implemented especially during times of democratic practices that during times of military regimes the agricultural sector tends to be less protected that there is indirect evidence for the existence of political business cycles synchronized to political elections and that general conditions in the economy can influence the behavioral rule of the policy makers

investigating china s disaggregated processed exports evidence that both the rmb and exchange rates in supply chain countries matter china s trade surplus is entirely in processing trade processed exports are final goods produced using parts and components coming from supply chain countries many claim that because much of the value added of china s processed exports comes from other countries the renminbi should not affect china s processed exports to investigate these issues this paper disaggregates processed exports into their two main categories processing with imported materials pwim exports and processing and assembly paa exports for pwim exports much of the value added comes from china while for paa exports most of the value added comes from supply chain countries dols results indicate that exchange rates in supply chain countries affect both types of exports and that the renminbi significantly affects pwim exports but not paa exports these results indicate that both the renminbi and exchange rates in supply chain countries matter for processed exports

a dynamic analysis of the impact of fiscal policy on the money supply note although a positive accommodative fiscal policy money supply relationship is frequently suggested 3 5 often because of an hypothesized overriding concern by the federal reserve with stabilizing interest rates the availablae empirical evidence is mixed l with the exception of 4 the empirical studies have provided estimates of the impact multipliers for various fiscal variables on alternative monetary variables but they have not addressed the question of the impact of a sustained change in a fiscal variable upon the money supply over time in a world in which fiscal variables affect financial and product sector variables with a lag the examination of only the impact multipliers may give an incomplete and or misleading picture thus the aim of this paper is to extend the analysis to a dynamic setting in which the impact of the fiscal variables upon the time path of m1 is examined within the context of a small macroeconomic model in particular dynamic multipliers for the money supply are derived and analyzed

temporal aggregation in political budget cycles electoral cycles have been widely debated since the pioneering studies of the 1970s on monetary and fiscal policy 1 drazen sums up the evidence in terms of active fiscal policy and passive monetary policy while expansionary fiscal policy is the main impulse behind electoral cycles monetary policy has an accommodating role 2 recently there has been a flurry of empirical work on political budget cycles pbcs using cross country panels the most influential works concentrate on the budget surplus because it can capture both increases in expenditures and tax cuts before elections and is thus the most sensitive indicator of aggregate pbcs 3a drawback of these extant studies is their reliance on annual observations since elections take place between january and december annual data do not allow one to identify the election year precisely to get around this problem other schemes have been proposed for example by the rule of the semester the previous year is counted as the election year if elections take place before july 4 what are the consequences of temporal aggregation for the measurement of pbcs instead of being concentrated in the election year pre electoral effects may be spread out over the two years leading up to elections more important if the sign of policies is reversed after elections lower frequency data may mask pbcs because the effects in the election year cancel out as akhmedov and zhuravskaya point out in their country study of russia 5to illustrate the differences between using annual and quarterly data to identify the election year imagine that elections take place in june furthermore assume there is a pre electoral deterioration in the budget surplus surplus 1 during the four quarters running up to elections followed by an improvement surplus 1 the next four quarters in the calendar year in which elections take place the net effect on the budget surplus is zero elections are not always in june of course what happens if elections are evenly spread out over the year table 1 presents a simulation where y 0 is the calendar year of elections y 1 is the year before and y 1 is the year after for elections in the first quarter of the election year namely y 0 q 1 our textbook example of a pre electoral expansion in the deficit during the four quarters prior to elections followed by a contraction the next four quarters implies that the surplus equals 1 from y 1 q 2 to y 0 q 1 it equals 1 from y 0 q 2 to y 1 q 1 and it equals 0 otherwise when the budget surplus is at its average value normalized here at zero the same procedure is followed for elections in the other three quarters if we aggregate the effects by calendar year there is a serious underestimation of pbcs in the election year since pre electoral expansions are almost cancelled out by post electoral contractions leaving a net expansive effect that is only 25 percent of the total stimulus before elections the least affected by temporal aggregation are post electoral fiscal adjustments since 62 5 percent of the total effect is reflected the year after elections on the other hand if there were no post electoral fiscal adjustments the problem of temporal aggregation would be much less severe since 62 5 percent of the total expansive effect would be reflected the calendar year of elections and 37 5 percent the year before this paper tackles the issue of temporal aggregation in pbcs head on we build a cross country panel with annual and quarterly data from nineteen latin american countries and twenty member states of the organization for economic cooperation and development oecd over the 1980 2005 period 6 quarterly data allow us to identify the election year more precisely with annual data the election year is the calendar year in which elections take place with quarterly data the election year comprises the election quarter plus the three prior quarters we introduce two nonstandard features in our analysis

political economic chaos abstract this paper investigates the political business cycle when interest group pressure on fiscal policy is incorporated two cases are investigated one in which only autonomous investment is included and one in which a kaldor type induced investment function is incorporated in both cases chaotic fluctuations can emerge even when the politically motivated fiscal forcing term is fairly small

federal reserve independence abstract the federal reserve is always called an independent agency the term independent is rarely defined the only attempt in the literature and internal records is based on chairman martin s statement that the federal reserve is independent with the government not independent of the government martin explained several times that independence within government meant that the federal reserve helped to finance government budget because they were approved by congress and signed by the president financing budget deficits is the very opposite of the principle adopted when congress approved the federal reserve act in 1913 in fact the federal reserve has supported treasury operations many times i conclude that it is far more important to have an enforceable policy rule such as the taylor rule but any rule must have a provision that permits the rule to be set aside

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

are chinese trade flows different abstract we find that chinese trade flows respond to economic activity and relative prices as represented by a trade weighted exchange rate but the relationships are not always precisely or robustly estimated chinese exports are generally well behaved rising with foreign gdp and decreasing as the chinese renminbi rmb appreciates however the estimated income elasticity is sensitive to the treatment of time trends estimates of aggregate imports are more problematic in many cases chinese aggregate imports actually rise in response to an rmb depreciation and decline with chinese gdp this is true even after accounting for the fact a substantial share of imports are subsequently incorporated into chinese exports we find that some of these counter intuitive results are mitigated when we disaggregate the trade flows by customs type commodity type and the type of firm undertaking the transactions however for imports we only obtain more reasonable estimates of elasticities when we allow for different import intensities for different components of aggregate demand specifically consumption vs investment or when we include a relative productivity variable

general economic conditions and national elections the fact that economic conditions influence voters is a leading commonplace of conversation in election years the question is is this fact in fact a fact despite the overwhelming popularity of the fact it has received neither an explicit theoretical analysis presumably because it is so obvious that economic adversity should create political adversaries nor until recently a satisfactory statistical analysis gerald h kramer has presented a multivariate analysis of congressional elections which would strongly suggest that fluctuations in the rate of unemployment have no appreciable effect upon elections but that fluctuations in per capita real income are influential in the following pages i propose to 1 reaffirm his finding on the electoral unimportance of ordinary fluctuations in unemployment 2 argue that contrary to kramer fluctuations in real income also do not have important electoral effects and 3 present an argument based upon rational voter behavior for the unimportance of general economic conditions in national elections

an essay on the rationality of economic policy the test case of the electional cycle the literature on electional cycles is discussed in the light of the empirical findings by in particular the author two basically different types of explanations of such cycles are compared explanations based on the maximizing behavior of governments aiming at re election explanations building on the insufficiently controlled pressures of events in a democracy it is demonstrated that even when the most well known theory under the nordhaus macraemodel is a rather fragile construction a more robust argument termed the popularity investment argument can be constructed yielding the same basic result from the empirical literature it is concluded that almost the opposite pattern actually occurs in the data it is finally demonstrated that the weak but significant empirical pattern is easy to explain by the elections generate promises which give most real expansion in the second governmental year and most inflation in the third year an average behavior which hardly implies even medium term maximization by governments as assumed under

the labor market effects of sex and race discrimination laws westudytheeffectsofstatesexandracediscriminationlawsthatwerepassedprior to federal antidiscrimination legislation state sex discrimination laws targeted discrimination in pay only because an equal pay constraint raises the relative price of female labor we would expect the relative employment of females to decline we find robust evidence that state equal pay laws for women reduced relative employment of both black women and white women we also find some evidence of positive effects of race discrimination laws on earnings of blacks relative to whites although no evidence of employment effects jel j15 j16 j18 j23 i introduction public policies to narrow the gaps in labor market outcomes between men and women and between whites and minorities have a long and controversial history two pieces of federal legislation stand out as perhaps the most significant such policies the first was the equal pay act of 1963 which requires equal pay for equal work noting some exceptions but explicitly prohibiting a worker s sex as one of them the second was title vii of the civilrightsactof1964 makingitillegaltodiscriminate in hiring discharge compensation and so on on the basis of race color religion sex or national origin two other important landmarks in the evolution of these policies at the federal level were amendments to title vii embodied in the equal employment opportunity act eeoa of 1972 which expanded coverage and increased the enforcement powers of the equal employment opportunity commission eeoc and executive orders 10925 1961 11246 1965 and 11375 1967 which laid the groundwork for affirmative action although the phrase has its origins in title vii 1

deficits money and inflation abstract this paper examines the interrelationships between monetary and fiscal policy specifically it seeks to determine whether government budget deficits influence monetary growth using a money supply model originally developed by barro we find that deficits have had a significant impact on the growth of the u s money supply throughout most of the period since 1961 such a relationship need not always hold it depends on whether government deficits place upward pressure on interest rates and whether the central bank monetizes the debt in an effort to stabilize interest rates

popular protest and political budget cycles a panel data analysis we test the hypothesis that governments facing popular protest are more likely to use fiscal policy for re election purposes employing data of 65 democratic countries both developed and developing over the period 1975 2005 using the number of anti government demonstrations and general strikes in pre election years as measures of popular protest our results lend support to this hypothesis the effect of protest on the manipulation of fiscal policy for re election purposes is strongest in young democracies

the applicability of the traditional theory of economic policy abstract the traditional theory of economic policy requires targets instruments an empirical economic model and a social welfare or criterion function to be specified in order to derive the optimal economic policy empirical studies of reaction functions suggest that economic policy is carried out in some systematic manner subject to interference from political factors this survey addresses the problems of specifying estimating and applying an economic model when economic policy is following a path specified by a reaction function attention is paid to rational expectations the lucas critique and the policy neutrality proposition lack of knowledge of the policy maker s objective function poses the most serious difficulty when applying the theory of economic policy various methods of determining this function are reviewed and the possibility that policy makers might be satisficing is discussed the role played by political factors is considered in the light of the public choice literature

fiscal policy cycles and public expenditure in developing countries the paper studies empirically the fiscal policy instruments by which governments try to influence election outcomes in 24 developing countries for the 1973 1992 period the study finds that the main vehicle for expansionary fiscal policies around elections is increasing public expenditure rather than lowering taxes and public investment cycles seem particularly prominent institutional mechanisms which constrain discretionary expenditure policies and which strengthen fiscal control are therefore worthwhile considering to prevent opportunistic policy making around elections

intermediate inputs external rebalancing and relative price adjustment abstract the traditional multi sector macro model without production inputs is a value added trade model this paper shows that calibrating such a misspecified value added trade model to available gross flow trade data a common practice in the literature can lead to mismeasured i preference weights and ii price elasticities further the calibrated model can give substantially different predictions regarding the relative price response to external rebalancing when compared to a preferred alternative model with inputs that is consistent with gross flow trade data we find that mismeasured preference weights and price elasticities both contribute sizably to deviations in model predictions and estimate correctly measured parameters for the value added trade model

does there exist a political business cycle a box tiao analysis theories of the political business cycle are by now common they range from the elegant theoretical work of nordhaus 1975 to the essentially empirical work of tufte 1978 they all assume that politicians manipulate the economy to aid their reelection efforts in particular politicians manipulate macroeconomic policy to create a boom just before election day golden and poterba 1980 provide an excellent review of this literature both tufte and nordhaus provide casual evidence for the existence of a political business cycle using inflation and unemployment rates as indicators of macroeconomic outcomes tufte and nordhaus predict at a minimum that unemployment should be decreasing before election day if presidents are really manipulating the economy very well then unemployment should be at a minimum in the october before the election and hence should be rising after the election in the nordhaus version the economy pays for the pre election boom with a post election surge in the inflation rate nordhaus also suggests that the president should engineer a recession early in his term to reduce inflationary expectations tufte 1978 20 presents graphs of the unemployment series and claims that visual examination shows them to be generally consistent with the hypothesis however he provides no statistical tests of the hypothesis nor does he estimate the quantitative impact of elections on unemployment tufte does not examine the inflation series nordhaus restricts himself to comparing unemployment rates in the two years preceeding and following an election with a simple nonparametric test supporting the hypothesis the literature provides several good empirical tests of the political business cycle hypothesis both paldam 1979 and mccallum 1978 test for the existence of four year cycles and find none however they do not test for discontinuous changes in the series around election day golden and poterba examine whether the use of policy instruments changes near election day and

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

the keynesian and political determinants of unbalanced budgets u s fiscal policy from eisenhower to reagan the political business cycle proposition that politicians manipulate fiscal policy for political advantage is largely untested more often than not such manipulation is only assumed to occur on the basis of observed movements in inflation and unemployment and the few direct tests of the manipulation hypothesis are characterized by limited consideration of the full possibilities for political influence inadequate control for nonpolitical stabilization policy and inconsistent results this paper constructs several models of political fiscal policy incorporates them into a simple model of keynesian stabilization policy and tests the combined models using u s budget surplus deficit data from fy54 to fy83 the results provide little support for either the electoral motivation or partisan differences interpretations of the political business cycle the implications of these findings for the political business cycle literature long term economic management and deficit directed proposals for institutional reform are discussed

global value chains and trade elasticities we investigate whether global value chains have increased the sensitivity of chinese trade to foreign income shocks this may occur through either composition or supply chain effects we find evidence for the former but not the latter

the political theory of the business cycle two strands of recent empirical work pose a challenge for the macro theorist when brought together one is the rational expectations interpretation of the business cycle the other is the political theory of the business cycle this paper attempts a reconciliation of these two strands in a theory where national political parties have to satisfy the preference of their own supporters as well as the floating voter the implications are that party voters evaluate government performance with respect to expected inflation and output and their variances and that parties will pursue different feedback rules

public sector price controls and electoral cycles public enterprise prices are important policy instruments in developing economies this is why public sector price polices constitute a key element of stabilization programmes implemented in these economies however this significance is not specific to stabilization episodes first this study questions whether an opportunistic politician can manipulate public prices to win elections it analyses the impact of such price controls on budget deficits and the repercussions of alternative financing mechanisms of these deficits on the inflation rate and voters behaviour it is shown that electoral inflation cycles are obtained under domestic debt financing whereas money financing does not permit such a manipulative policy second by focusing on data of the turkish economy for the 1987 1 2003 12 period empirical evidence for such manipulative policies is given

overview of the special issue on policy implications of and lessons from the global financial crisis this paper reviews the special issue policy implications of and lessons from the global financial crisis and its themes global liquidity and the use of international reserves real and financial economic patterns before and during the global financial crisis

electoral politics and monetary policy does the bank of canada contribute to a political business cycle in this paper i apply the work of abrams and iossifov public choice 129 249 262 2006 to monetary policy in canada to see if same political party affiliation is needed to produce evidence of political opportunism after modifying their analysis to maintain the time series consistency of their variables for canada i find that both an error correction model and a taylor rule reformulation of their test generate evidence consistent with same party political opportunism but only weakly so on the other hand i also find the presence of more traditional indicators of political influence in particular the data suggest that the election of a liberal party government a decrease in the degree of political competition and to a lesser extent the election of a minority government all positively influence the expansiveness of canadian monetary policy

political budget cycles the case of the western german lander this paper focuses on the issue of the electoral andideological cycles in state government budget for the elevenwestern german lander we verify this hypothesis over theperiod 1974 1994 for the following budgetary variables totalexpenditures surplus deficit administration health care education roads and social security benefits while overallour results seem to show that generally the party variabledoes not play a systematic role in spending decisions theyprovide some support to the opportunistic cycle theory showingthat the only relevant phenomenon is the effect of theupcoming election on the government spending inclinations

behavioral and institutional determinants of political business cycles the link between business cycles and the democratic politicalsystem has long been recognized by economists however thedeterminants of political business cycles are not well understood we discuss several institutional and behavioral determinants ofthose cycles such as revolving door appointments term limits andpreferences of the incumbent politician electorate and businesscommunity concerning the intertemporal pattern of publicexpenditure we show how they affect the cycle s amplitude in thecontext of a rational expectations model

was china the first domino assessing links between china and other asian economies abstract several commentators have suggested that competition from china in particular its 1994 devaluation and strong export performance during 1994 95 may have contributed to the asian crisis of 1997 98 we provide evidence against this view we show that the devaluation was not important in economic terms and china s strong export performance in 1994 95 was matched by other asian economies we also show that the period 1993 and 1996 was marked by relative stability in the export shares of china and other asian economies in various geographical regions and industries the paper concludes by outlining channels through which the asian crisis could affect china

currency appreciation and current account adjustment abstract a central aspect of the recent debate on global imbalances and the us current account deficit is the role of the exchange rate peg being followed by china and other asian economies while one view has stressed the need for asian currency appreciation another focuses on the importance of fiscal adjustment and more generally adjustment in relative savings rates in the us and asian economies this paper develops a simple two region open economy macroeconomic model to analyze the alternative impacts of currency appreciation and fiscal adjustment on the current account we stress a number of structural features of emerging asian economies that may make currency appreciation an ineffective means of current account adjustment relative to fiscal policy changes in addition we note that there may be a welfare conflict between regions on the best way to achieve adjustment

the economic progress of black women 1940 1980 occupational distribution and relative wages this paper uses census data on women s wages and occupations from the years 1940 80 to examine long term trends in black women s relative economic status the paper links black women s increased relative wages after 1940 to their entry especially after 1960 into occupations and industries in which they were previously unrepresented most notably factory jobs and clerical work the authors find little evidence that convergence in the characteristics of black and white women increasingly similar education for example is responsible for black women s increased relative wages and occupational status and conclude that black women s improved economic status after 1940 was largely due to decreases in racial discrimination by occupation and industry they also find that in the south racial discrimination had greater adverse effects on black women and began to decrease later than in the rest of the country

presidential politics budget deficits and monetary policy in the united states 1960 1976 this paper has focused on the extent to which the traditional tools of macroeconomic management in the united states monetary and fiscal policy have contributed to a political business cycle regardless of whether politicians can successfully influence real economic variables to their own ends the evidence presented here suggests that they tried and that they enjoyed some at least indirect aid from their independent monetary authorities in doing so several major conclusions emerge

the relationship between budget deficits and money demand evidence from a small economy a considerable number of empirical studies exploring the links between budget deficits and the demand for money have led to mixed results by using annual data of the greek economy and previous empirical studies this paper empirically evaluates the sensitivity and validity of the keynesian proposition and the ricardian equivalence hypothesis the paper employs cointegration ecm methodology and several diagnostic and specification tests the empirical findings show a significant and positive relationship between budget deficits and the demand for money supporting the keynesian model

the political timing of errors in inflation forecasts errors in inflation forecasts do not display a regular electoral rhythm over the entire post war period these results are consistent with the work of mccallum 1978 who explored a sample of similar length and failed to find an electoral pattern in unemployment rates however if unanticipated inflation is regarded as a lagging indicator of policy effectiveness then the data do suggest that three of the four most recent administrations have enjoyed a certain success in manufacturing a pre election upturn

political instability and economic fluctuations in the republic of korea this paper investigates the interaction between political instability and economic fluctuations during the late president chung hee park s regime the timings and outcomes of the elections are juxtaposed with the phases of business cycles and analyzed since no korean data that are comparable to gallup poll popularity indices for the u s presidents exist indices to measure popular discontent with park s regime and to measure international tensions are devised these indices are statistically analyzed with economic indicators for the business cycles and with economic policy measures

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

the influence of elections on federal reserve behavior a political business cycle is tested in a monetary reaction function positive evidence is a result of the 1930s and 1940s and not post war elections in addition there is no evidence of such a cycle in a rational expectations model

unanticipated money and the political business cycle six different series of one period forecasts for money growth are generated for each year 1960 through 1984 the prediction errors are analyzed to see whet herthe authorities attempted to expand the economy in election years by unexpectedly raising money growth while there is no evidence of attempts to fool the public throughout the entire 1960 84 period such fooling may have been tried through 1974 it is speculated that the public discussion of expectations formation and of politicians motivations since then may have signaled officials that further attempts to mislead the public would be prohibitively costly copyright 1986 by ohio state university press

fiscal constraints and electoral manipulation in american social welfare a merican social welfare policy involves a politically significant fiscal interaction between short run pay as you go constraints and long run equilibrium constraints motivated by the contributory principle and the concept of actuarial soundness the fiscal constraints induce conflict between benefit recipients and payroll tax payers to support small election year reductions in payroll taxes means tested program benefits are slightly reduced in election years compared to non election year levels under similar economic conditions the existence of the constraints and of the election year changes is tested using a multivariate time series regression model of monthly transfer payments and contributions for social insurance during years 1948 87 short run dynamics arefound to be weakly incrementalist but otherwise the results support the argument extraordinary manipulations are identified during 1972 special technical features of the econometric analysis are a nonlinear dynamic specification robust generalized method of moments estimation and near cointegration

international transmission of us macroeconomic policy and the inflation record of western europe abstract the interaction between monetary policy government budget deficits and inflation is examined for the four largest western european economies comprising france italy the united kingdom and west germany in order to assess the possible impact of us macroeconomic policy past us monetary base growth deficits and inflation rates are included in the set of explanatory variables for each of the european countries empirical results for the 1962 2 1985 4 sample period reveal interplay between domestic monetary and fiscal policy to be augmented by a significant impact of the us variables across all four countries in the sample

the electoral budget cycle this article begins with a review of the now substantial literature on the thesis that polticians manipulate governmental outputs so as to favor their chances of reelection it concludes that while this electoral cycle thesis was initially overstated by its proponents it retains more plausibility than recent critics have allowed this conclusion is then demonstrated through an analysis of expenditures by the ten provincial governments in canada between 1951 and 1984

tax structure turbulence in oecd countries this paper analyses whether and to what extent politiciansmanipulate tax structures strategically in order to winelections or for ideological purposes we introduce anindicator for tax structure turbulence which measures thedegree to which a country s tax structure changes from oneyear to another using data on 18 oecd countries over theperiod 1965 1995 we find clear evidence of a politicalbudget cycle in national tax structures more precisely wefind that in election years tax structures are changedsignificantly less than in other years further thedispersion of political power significantly lowers the abilityof governments to change the tax structure we do not however find any evidence of partisan budget cycles innational tax systems following political regime changes

determining the impact of federal antidiscrimination policy on the economic status of blacks a study of south carolina this paper evaluates alternative explanations for the dramatic increase in black employment in south carolina manufacturing that occurred in the mid 1960s black progress in traditionally segregated sectors of manufacturing in operation at the time jim crow laws were passed cannot be attributed to tight labor markets the decline of agriculture or the growth of education of the black workforce the only plausible explanation is federal government civil rights and affirmative action policy for newer industries that entered the state on a large scale after world war ii the growth of skills among blacks accounts for black economic progress copyright 1989 by american economic association

endogenous elections electoral budget cycles and canadian provincial governments the existence of manipulative electoral budget cycles and opportunistic election setting is examined in the framework of a parliamentary democracy empirical tests are conducted using a pooled time series cross section data set derived from canadian provincial governments over the 1962 1992 period evidence in support of the electoral budget cycle hypothesis but not the opportunistic election timing hypothesis is obtained

in search of yardstick competition a spatial analysis of italian municipality property tax setting this paper uses italian local government data to test for fiscal interaction arising from yardstick competition to discriminate yardstick competition from competing theories of strategic interaction we account for the incentives and constraints generated by the electoral system in particular for the presence of term limits and the size of the majorities supporting the mayors estimation of a local property tax setting equation uncovers positive spatial auto correlation in local tax rates of jurisdictions where the mayors run for re election in uncertain contests while interaction is absent where either mayors face a term limit or are backed by large majorities

are money growth and inflation related to government deficits evidence from ten industrialized economies abstract we present empirical evidence on the relation between the government debt growth money growth and inflation for ten industrialized countries over the post world war ii period non parametric and parametric tests reveal little evidence that government debt growth is either related to money growth or permanently related to inflation over periods of a decade or less but the level of debt is significantly associated with subsequent inflation from 1974 to 1983 these results are consistent with the hypothesis that central banks in developed economies can conduct independent monetary policy over long periods notwithstanding government deficits

congress and the federal reserve we examine legislative activity targeting the federal reserve to determine when congress takes an interest in the fed and whether this interest has an effect on monetary policy using a keyword search of the thomas catalogue for the period from january 1973 through december 2010 we identify 1575 bills in the house and 728 bills in the senate pertaining to the federal reserve we classify these bills into several categories including those that expand fed powers and those that threaten or usurp fed powers using the romer and romer 2004 series of monetary policy shocks we find that prior to the early 1980s the fed responded to bills credibly threatening fed powers by lowering the federal funds target below that prescribed by current and forecast economic conditions however this accommodation ceased following the end of the non borrowed reserves targeting period in october 1982 analyzing the determinants of bill sponsorship we find that high unemployment high inflation and high long term real borrowing costs failures of the fed along the three dimensions of its mandate all lead to a greater number of bills seeking to alter the fed s powers importantly we also find that the relative importance of these three dimensions has changed over time under chairmen burns and miller congress took greater interest when unemployment was high under chairman greenspan congress took greater interest when inflation was high we believe that these findings are consistent with the view that the lessons of the great inflation changed the public perception of the fed s macroeconomic responsibilities which in turn better aligned congressional views on policy with those of the fed and allowed the fed to better resist remaining congressional pressure to its independence

explaining the size of the public sector this paper aims at providing an explanation for the size of the public sector based on the idea of social insurance the main assumption made is that the public sector is less efficient but also less volatile than the private sector the demand driven level of the public sector that is derived as the one that maximizes the utility of the representative employed consumer depends positively on the variance of private output an increase in the size of the public sector has a positive effect on expected employment and a negative effect on expected consumption the size of the public sector set by the government which maximizes the probability of being re elected will be higher than the demand driven level if voters preferences for employment is higher than the consumption loss associated with public employment

political business cycles in the parliamentary system abstract in the parliamentary system the cabinet may call a general election before the term of the house members matures if the timing is judged favorable econometric tests to differentiate the following two hypotheses are proposed and applied to the japanese data under the manipulative cabinet hypothesis the cabinet decides the timing of the election by political reasons and manipulates an economy to have a boom in time i e elections cause booms similar to the presidential system while the opportunistic cabinet hypothesis states that the cabinet does not manipulate the economy but calls an election when positive private sector shocks cause high growth and low inflation i e booms trigger elections findings indicate that the japanese cabinet has acted opportunistically rather that manipulatively

monetary policy signaling from the administration to the federal reserve this chapter employs the index of monetary policy signaling from the administration to the federal reserve safer that was developed in chapter two the safer index is a simple weekly sum of articles that appeared in the wall street journal in which administration officials expressed a desire for easier 1 or tighter 1 monetary policy a key assumption is that systematically over time the financial media capture the essence of communication that is going on between the executive branch and federal reserve officials 1 the signaling index is employed in ordinary least squares regressions for the period from january 1964 to november 1991 cumulative values of the safer index over a three week period as an explanatory variable are found to have a statistically significant effect on the average federal funds rate during the third week as the dependent variable further evidence suggests that the safer index is granger causal with respect to the federal funds rate after classifying the signals by sources within the administration oval office council of economic advisers treasury and other and unidentified sources it is shown that for the overall 1964 1991 period signals from the treasury department and from other and unidentified sources have a statistically significant effect on the federal funds rate while signals from the oval office and the council do not when the data are segmented according to who was the chairman of the federal reserve board at the time ordinary least squares results indicate that the federal reserve did not systematically respond to executive branch signaling in a statistically significant way when william mcchesney martin g william miller and alan greenspan were chairmen but did respond statistically significantly to administration signaling during portions of the periods during which arthur burns and paul volcker were chairmen

party differences in macroeconomic policies and outcomes although the nature of the differences between parties in democratic electoral politics is an enduring question in political science surprisingly little is understood about the subject but substantial progress has been made in recent years most notably in understanding party differences in macroeconomic policies and outcomes the first breakthrough was douglas hibbs s 1977 analysis of party related differences in the unemployment rate in his time series analysis for the united states hibbs modeled the path of unemployment as an autoregressive moving average process subject to a dummy variable intervention term indicating party of the president his analysis indicated that democratic administrations were associated with lower unemployment than republicans by 2 36 points after eight years in office and even larger differences in long run equilibrium a subsequent article by nathaniel beck 1982 addressed the same issue and found the party differences less sharp when administration specific policy differences are considered the techniques employed by hibbs and beck focus directly on an outcome unemployment rather than on the policy instruments that are presumably responsible for altering outcomes this approach can be misleading when there are long lags between implementation of policies and ultimate effects or when shocks occasionally intrude upon the regular connections between instruments and outcomes macroeconomic theories can provide information about constraints linking macroeconomic variables but hibbs and beck fail to incorporate theoretical constraints such constraints could help determine what kinds of outcomes are feasible and sustainable and to what extent outcomes are induced by policies as opposed to shocks our purpose here is to consider how one might go about estimating party differences in a framework that takes advantage of some insights offered by macroeconomic theories and to report some preliminary results a more complete description of the analysis is provided in our working paper available upon request

an integrated test for electoral cycles in the u s economy this paper offers the first integrated test of the electoral model of business cycles the test begins with unrestricted estimates of presidential electoral patterns in u s economic outcomes real gnp unemployment and inflation and policies money growth and the adjusted budget surplus these estimates are then used to determine whether the estimated electoral patterns in macropolicy yield predicted electoral patterns for macro outcomes that are consistent with estimates of both actual electoral patterns in outcomes and voting behavior the results indicate that four year electoral cycles in macroeconomic outcomes and policies are strongly significant for the united states for the period 1951i to 1986ii copyright 1989 by mit press

is there a dead spot new evidence on fomc decisions before elections using new data that chronicle the fed s internal forecast of the output gap from 1973 to 1998 this paper tests for an electoral cycle in the decisions of the federal open market committee fomc the paper provides evidence of a dead spot in the committee s decisions before presidential elections for given values of these internal forecasts the fomc is less likely to decide to tighten monetary policy in the year preceding a presidential election than at other times

international and domestic constraints on political business cycles in oecd economies the effect of increased capital mobility on the national control of macroeconomic policy continues to be a topic of debate empirical contributions to this debate share the assumption that domestic macroeconomic policy is driven by either partisan or countercyclical motivations and that the effects of international financial flows have roughly similar effects in all countries this article reevaluates the integration hypothesis in a framework in which manipulations of the macroeconomy derive from opportunistic motivations the article emphasizes the ways in which prior institutional choices effect the way these motivations are translated into actions evidence from individual country and pooled time series tests suggests that opportunistic cycles are less likely to occur when 1 a government maintains a fixed exchange rate in the presence of highly mobile capital or 2 when the central bank enjoys above average independence

monopoly capital organized labor and military expenditures in the united states 1949 1976 in this paper we systematically assess the neo marxian view that military expenditures are used by the state as a countercyclical fiscal policy either to forestall a serious recession or to facilitate economic recovery in particular we examine the post world war ii political economic experience of the united states because the military expenditures thesis was most fully developed initially in an attempt to explain postwar american prosperity we evaluate what we term the naive model of baran and sweezy which suggests that the degree to which national output is absorbed by military spending should be dependent on aggregate economic conditions such as unemployment finding only inconsistent evidence to support the naive view we incorporate the insights of recent neo marxists especially o connor on the linkages among the monopoly corporate sector the unionized sector of labor and the state the empirical evidence appears consistent with this modified view with unemployment in the unionized sect

military keynesianism in the united states 1949 1976 disaggregating military expenditures and their determination this paper examines military expenditures in the united states 1949 1976 at a less aggregate level than was done by griffin devine and wallace assuming that distinctive and independent causal processes generate each of four subcategories that include nearly all military spending griffin devine and wallace s model can be transposed with little modification to the two most generously financed subcategories equipment and personnel however their model casts little light on the determination of spending for operations and maintenance and research and development still the level of industrial concentration emerges as an important source of spending on military research development and this fact is consistent with suggestions in galbraith s discussion of the planning sector preelection increases in military spending appear to be efficiently earmarked for increases in the pay of military personnel

optimum electoral areas should europe adopt a single election day abstract the paper lies at the intersection between the literature on macroeconomics and politics and the literature on coordination it uses models of political business cycles in an open economy setting to investigate the costs and benefits of forming electoral areas i e regions where countries share the same electoral calendar both opportunistic and partisan models are considered the main finding of the paper is that the desirability of an electoral area between two countries is enhanced when the spillovers between these countries are large and positive and when they face symmetric shocks or are of comparable size

racial differences in access to high paying jobs and the wage gap between black and white women the authors examine the role that racial differences in access to high paying occupations played in determining the racial wage gap in the 1980s analyzing data on black and white women aged 34 44 from the national longitudinal surveys for 1968 88 they estimate the effects of human capital characteristics and discrimination on segregation into high and low wage jobs by race they find that differences in workers measured characteristics explain little of either the observed occupational segregation by race or the racial wage gap in 1988 further analysis suggests that several changes in the wage structure for women during the 1980s notably a widening of occupational wage differentials and an increase in the returns to education abetted direct discrimination in enlarging the racial wage gap among women

the effects of politics on local tax setting evidence from france this paper investigates the hypothesis that local politics has an impact on local taxation in the french public sector by using a cross sectional dataset on departments in 1999 political variables are included in a tax setting equation to provide empirical evidence whether local governments in france adopt business taxation behaviour closer to the leviathan government hypothesis with higher tax rates when political competition decreases or to the partisan government hypothesis with differences in tax rates according to partisan variables it is shown that the wider the seat s margin the lower the tax rates and that this cut is weaker in the case of a left wing local majority than a right wing majority it is therefore concluded that the partisan government hypothesis is more supported by the french data than the leviathan one even after controlling for tax interdependencies between departments

political models of the business cycle should be revived political models of the business cycle have typically been ignored because they appear inconsistent with rational behavior and because empirical evidence is inconclusive this paper addresses the second issue demonstrating for u s real gnp unemployment and inflation that electoral cycles persistent patterns across electoral terms are significant but apparently only for republican incumbents and that partisan cycles persistent differences between parties are also significant these findings are consistent with the conjecture that a minority party is more constrained by electoral concerns whereas a majority party is freer to pursue partisan objectives

the congress and fiscal policy although the common belief is that the congress has paid little attention to fiscal policy the same kinds of political economic models which have been used to explain presidential budgetary policy may be used equally well to explain congressional budgetary behavior the congress fiscal policy appears to be systematically sensitive to both economic and political factors changes in the unemployment rate have a major impact on congressional budgetary policy as for political factors the president s lead is followed most closely on revenue proposals and not at all on the expenditure side the electoral cycle in particular the off year congressional election year is also important inducing larger deficits and smaller increases in revenues

monetary policy and presidential elections a nonpartisan political cycle this paper develops a federal reserve reaction function which relates policy intentions to forecasts of policy objectives pre and postpresidential election estimates of this reaction function for the post accord period of 1953 1984 suggest two conclusions

presidential elections and federal reserve policy an empirical test traditional macro economic models of federal reserve fed behavior typically assume that the fed enjoys a well defined objective function based on social welfare and generally predict counter cyclical monetary policy the increasing observation of procyclical monetary policy has led many researchers to investigate new models of fed behavior several recent papers imply that procyclical fed behavior is due to a lack of political accountability friedman 7 toma 23 and shughart and tollison 21 all attribute considerable bureaucratic discretion to the fed and seek to explain monetary policy by examining typical bureaucratic objectives other papers such as pierce 19 20 weintraub 26 and kane 10 11 argue that the fed operates in an arena filled with political constraints that cause sub optimal monetary policy but these constraints are not modeled explicitly one possible political constraint on fed behavior is the incumbent president s desire for re election in the political business cycle pbc literature presidential re election opportunities are enhanced by the production of a precise set of inflation and unemployment outcomes leading up to the election thus to the extent that presidents desire cyclical macro economic outcomes there will be executive pressure on the fed to create or accommodate such outcomes the effect this pressure will have on fed policy is ultimately an empirical question but most models deal with it by assumption traditional macro modeling assumes a zero effect while the pbc models implicitly assume that a favorable election cycle is a primary goal of all economic policymakers this paper examines presidential influence on the federal reserve by testing for an election cycle in money growth the major result is the identification of a regular 16 quarter cycle in money growth corresponding with presidential elections this cyclical effect is found to be stable over time and significant under a wide range of model specifications further when the cyclical component of money growth is used to simulate a simple macro model it produces a classic political business cycle in inflation and real output growth

an empirical investigation of the strategic use of debt the paper examines the accumulation of debt by swedish local governments i find that right wing governments accumulate more debt when facing a higher probability of defeat whereas the opposite occurs for left wing governments these effects are sizable a right wing government increases its level of debt by 15 percent whereas a left wing government decreases its debt by 11 percent if they are both certain of being replaced as compared to when they are certain of remaining in office the results are consistent with the predictions from a strategic debt model developed by persson and svensson

elections and the fed is there a political monetary cycle to understand the political causes of macroeconomic policy it is necessary to examine the institutions that actually make such policy and the incentives those institutions face an explanation of the political causes of united states monetary policy must treat the various institutions that are influential in the monetary policy process which are at a minimum the federal reserve fed and the executive including the president the treasury department and other advisors in the executive office of the president the reelection motive has proven useful in modeling presidential incentives in this article i investigate whether electoral incentives associated with the theory of the political business cycle pbc can help to explain the behavior of the fed over the last quarter century the political business cycle has had a curious hold on modern political economy while the empirical evidence in favor of the cycle is far from overwhelming its theoretical importance leads to continuing empirical

deficits politics and money growth the authors examine the linkage between federal deficits and money growth by allowing the fed s resp onse to any given deficit to vary systematically according to how the deficit is generated and the party affiliation of the current presid ent in equations for m1 and monetary base growth the structural def icit is consistently significant and invariant across political chang es while the cyclical component of the deficit or a direct measure of the business cycle is significant only during the tenure of democ ratic presidents copyright 1987 by oxford university press

opinion polls and political business cycles theory and evidence for the united states the paper shows that the frey schneider schultz hypothesis that there is a negative relation between the government s popularity and the government s incentives to engineer political business cycles is consistent with rational forward looking voting provided one makes appropriate assumptions about the incumbent s preferences the empirical part of the paper presents evidence favourable to the hypothesis using quarterly data on us money growth

the labor market impact of state level anti discrimination laws 1940 1960 by the time congress passed the 1964 civil rights act 98 of non southern blacks 40 of all blacks already resided in states with fair employment laws prohibiting labor market discrimination using census data from the integrated public use microdata series the author assesses the impact of fair employment legislation on black workers relative income unemployment labor force participation migration and occupational and industrial distributions in general the fair employment laws adopted in the 1940s appear to have had larger effects than those adopted in the 1950s and the laws had considerably smaller effects on the labor market outcomes of black men than on those of black women

money and politics in a small open economy a time series analysis indicates monetary growth and the gallup poll in canada are systematically related at electoral cycle periodicities 5 to 20 quarters under flexible exchange rates and demonstrates the absence of an electoral component in canadian monetary growth under fixed rates these results confirm empirically a widely accepted extension of the mundell fleming argument that monetary policy is effective only under flexible rates which to my knowledge has not before been directly investigated international constraints on the small open economy under fixed rates lead to the abandonment of monetary policy as an active instrument in electoral politics

political budget cycles in indonesia at the district level we find significant political budget cycles pbcs for indonesian districts only for direct not for indirect elections pbcs are significantly stronger if the incumbent runs for reelection they are well identified due to the exogenously different timing of elections

interaction between central bank behaviour and fiscal policy the us case federal reserve behaviour is analysed using a model which incorporates an effect an effect of iscal pressure on monetary policy formulation incentive structures are hypothesized to be such that the central bank plans over a longer horizan than that relevant to the administration with the cyclically adjusted deficit proxying for fiscal pressure from the administration the response to the deficit then plays an interactive role in affecting the trade off weights applied to the competing goals of monetary policy the model performs well for the usa and provides a pattern of policy that is stable over the full 1961ndash 83 period

psychological traits and earnings differentials among men a study of second generation immigrants in sweden the purpose of this study is to analyse the impact of psychological traits on earnings differentials between second generation immigrants and individuals with native born parents the study is base

the federal reserve s response to aggregate demand and aggregate supply shocks evidence of a partisan political cycle the orthodox approach to modeling the fed s response to economic conditions is to employ a monetary policy reaction function most reaction functions are estimated by regressing a policy indicator possibly the federal funds rate or a monetary aggregate on variables that describe the state of the economy such as unemployment inflation and growth in output under certain conditions which we discuss below estimated coefficients from a reaction function provide information about the fed s monetary policy priorities moreover extending the model to include election and partisan dummy variables may provide information about the fed s response to political pressures there are two problems with interpreting the coefficients in a standard reaction function as the weights that the fed attaches to its policy objectives first the monetary policy decision may not be represented accurately by an aggregate reaction function one that models the fed as a whole because there are twelve voting members on the fomc chappell havrilesky and mcgregor 10 have recently addressed this issue by employing a disaggregated set of reaction functions the second problem with interpreting reaction function coefficients as the weights the fed places on its policy objectives is that this interpretation implicitly assumes structural stability of the underlying macroeconomy abrams froyen and waud 1 31 acknowledge this shortcoming when they state coefficients from estimated reaction functions do not provide direct information on policymaker utility functions rather than being the solution to an unconstrained optimization dependent only on policymaker preferences reaction functions are the output of a constrained maximization where the constraints are the reduced form equations that characterize