political cycles in oecd economies this paper studies whether the dynamic behaviour of gnp growth unemployment and inflation is systematically affected by the timing of elections and of changes of governments the sample include the last three decades in 18 oecd economies we explicitly test the implication of several models of political cycles both of the opportunistic and of the partisan type also we confront the implication of recent rational models with more traditional approaches our results can be summarized as follows a the political business cycle hypothesis as formulated in nordhaus 1975 on output and unemployment is generally rejected by the data b inflation tends to increase immediately after elections perhaps as a result of pre electoral expansionary monetary and fiscal policies c we find evidence of temporary partisan differences in output and unemployment and of long run partisan differences in the inflation rate as implied by the rational partisan theory by alesina 1987 d we find virtually no evidence of permanent partisan differences in output growth and unemployment

political uncertainty and macroeconomic performance abstract it is often claimed that politically induced economic flucturations are harmful for the society in this paper we show that this conjecture is not necessarily correct and such fluctuations can actually improve society s macroeconomic performance

who targets inflation explicitly abstract several countries have recently adopted explicit inflation targeting eit this paper applies probit analysis on data for 22 countries to show that the degree of central bank independence is positively correlated with the probability that inflation targeting is adopted there is also evidence depending on whether iceland and norway are included in the sample that the probability that eit is introduced is influenced by membership in the european union the commodity concentration and composition of exports which are correlated with measures of the importance of supply and external shocks and the degree of openness

political risk and the expectations hypothesis abstract this paper develops and empirically supports using 3 and 6 month interest rates a theory that political risk can explain the shifting term premia found in u s data we find that incorporating these political regime shifts yield results that support the expectations hypothesis

cyclical and political influences on the size distribution of income in the us 1959 1989 the quesion of whether the size distribution of income is subject to cyclical fluctuations in unemployment and inflation has been investigated in several studies in these studies however the fact that unemployment inflation and distribution may be influenced intentionally by policy makers is ignored in order to investigate whether any political influence on the size distribution of income actually exists a model is formulated in which the distribution not only depends on unemployment and inflation but also on a variable representing the political process the model is tested using time series data pertaining to the case of the us in the period 1958 to 1989 the results indicate that inequality tends to be negatively influenced by democratic administrations

real sources of european currency policy sectoral interests and european monetary integration in the thirty years before economic and monetary union was achieved european currency policies varied widely among countries and over time in this article i argue that the sectoral impact of regional exchange rate arrangements in particular their expected real effects on european trade and investment exerted a powerful influence on the course of european monetary integration the principal benefit of fixing european exchange rates was facilitation of cross border trade and investment within the european union eu the principal cost of fixed rates was the loss of national governments ability to use currency policy to improve their producers competitive position empirical results indeed indicate that a stronger and more stable currency was associated with greater importance of manufactured exports to the eu s hard currency core while depreciations were associated with an increase in the net import competition faced by the country s producers this suggests a powerful impact of real factors related to trade and investment and of private interests concerned about these factors in determining national currency policies

political coalition breaking and sustainability of policy reform abstract this paper examines the need and potential for coalition breaking in policy reform efforts related to agriculture and the environment the objective is to consider traditional policy tools that can break existing political coalitions given the powerful noncompetitive role of strong interest groups such as government bureaucracy and large trading organizations choice of the policy mix is modeled as a cooperative game a modification of the nash bargaining solution is used to endogenize coalition formation this framework is then used to examine the potential for an external development agency to promote environmental interests in the policy formation process the results explain how in some countries a small increase in strategic aid may achieve a major breakthrough in policy reform even if past activities have been unproductive and how in other countries a major increase in aid may be fruitless

does lumpiness matter in an open economy studying international economics with regional data abstract this paper addresses the empirical question whether the regional distribution of production factors within countries is ever so uneven that it triggers specialization of production that makes regions produce different sets of goods at different factor prices due to the different welfare effects of trade policy in a country with regional specialization this is an important question in addition it is a question about the legitimacy of treating a country as a relatively homogenous unit in answering these questions i implement the concept of lumpiness as introduced by courant and deardorff j polit econ 100 1992 198 i find that lumpiness or an uneven regional distribution of production factors that induces intranational specialization and different regional factor prices is not an issue for japan the united kingdom and maybe not even for india

partisan governments the international economy and macroeconomic policies in advanced nations 1960 93 this article examines the impact of parties domestic institutions and the international economy on the conduct of monetary and fiscal policies using time series cross section data from nineteen oecd countries for the years between 1960 and the mid 1990s the results are as follows partisan governments have affected alone and in interaction with the organization of labor markets the pattern of macroeconomic management still their impact has varied over time partly as a function of economic conditions but fundamentally as a function of the degree of financial liberalization and the exchange rate system in place after following broadly similar macroeconomic policies in the 1960s oecd governments pursued divergent monetary and fiscal policies in response to the economic slowdown of the 1970s even when they initially adopted countercyclical measures conservative governments quickly favored tight monetary policies and strove to achieve fiscal discipline by contrast taking advantage of generalized capital controls and floating exchange rates socialist cabinets embraced demand management policies in a systematic fashion mostly through budget deficits in corporatist countries and through both loose monetary and loose fiscal measures in noncorporatist settings as financial liberalization progressed in the early 1980s partisan and institution led differences in macroeconomic policies waned across countries

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

a many cone world abstract the breakdown of global factor price equalization or a single cone world is a central concern in various fields of economics this paper examines the empirical validities of the following two claims 1 the multiple cone heckscher ohlin ho model fits better than does the single cone ho model and 2 increases in the number of cones improve the fit of the model one of the contributions of this paper is that it focuses simultaneously on factor endowments production patterns and wage disparities across economies my empirical results support the first claim but not the second claim the results suggest that although the multiple cone model performs better than does the single cone model the increases in the number of cones do not necessarily result in better performance of the ho model

the political economy of inflation and stabilization in developing countries the traditional literature on inflation in developing countries has focused on three main determinants of inflationary pressures a money creation b fiscal imbalances and c cost push elements while the first two factors have been emphasized by authors of a monetarist persuasion cost factors have played a crucial role in the structuralist theories developed during the 1950s and 1960s however more recent analyses on inflation and stabilization have shifted their attention away from traditional direct economic causes of inflation such as money creation toward political and institutional determinants of inflationary forces this new literature which has come to be known as the political economy approach to macroeconomic policy has built on some important insights of game theory and the theory of public choice trying to explain why some governments decide to run large fiscal deficits and to rely heavily on the inflation tax typically in answering these questions this recent strand of the literature has emphasized the role of political instability credibility reputation and political cycles 2 in spite of providing some important new insights into the determinants of inflation this new literature is subject to two limitations first until recently most of the contributions have been theoretical without providing empirical tests on their most important implications and second the emphasis has been almost exclusively on the industrialized countries ignoring the developing nations the purpose of this article is to discuss selectively some of the most important insights of this new literature on policy making from the developing countries perspective i will emphasize the policy implications of this approach to inflationary analysis and discuss some of the limited empirical results

unemployment and inflation consequences of unexpected election results the empirical evidence toward rational partisan theory of business cycles is mixed and thus inconclusive this is due to the enormous heterogeneity of the existing empirical studies only a few of these test explicitly for the central theoretical innovation that post electoral blips in economic activity depend on the degree of the electoral surprise using polling data we present empirical evidence in favor of rational partisan theory for a panel of oecd countries

the politics of speculative attacks in industrial democracies recent models of speculative currency crises contend that market expectations of policy behavior can trigger a speculative attack we argue that political processes and partisan objectives inform expectations about the government s commitment to the exchange rate first market actors anticipate periods when the partisan identity of a government may change through an election or a cabinet collapse second party labels provide information to currency traders about the policy objectives of a potential government consequently we contend that the probability of a speculative attack will be higher when markets expect the cabinet to end and when the cabinet dissolution is likely to produce a leftward shift in policy a discrete timesurvival model is used to estimate the probability that a cabinet will dissolve in any given month for sixteen parliamentary democracies from 1970 to 1995 the predicted values are then used as a proxy for market expectations in a model of speculative currency crises

international trade with lumpy countries this paper explores the implications for the pattern of international trade of differences among regions within countries what we call lumpiness if factors of production are sufficiently unevenly distributed across regions then the pattern of trade of the country as a whole may depart from what it would have been had factors been evenly distributed thus lumpiness in the geographical distribution of factors can be a determinant of trade we show in particular that if other determinants of trade are absent then a country will tend to export the good that intensively uses its lumpier i e more unevenly distributed factor

the regional economic consequences of tariffs and domestic transportation costs a small open economy is assumed to consist of two regions where interregional transport costs are higher than international transport costs cross hauling of identical commodities occurs and things such as terms of trade changes tariffs and domestic taxes have distinctly regional effects if tariffs generate interregional trade a welfare loss equal to the previous tariff collection occurs tariffs may also increase welfare for one region and may reverse the trade pattern for the economy tariffs and domestic taxes subsidies are not equivalent in this model tariffs also generate regional factor price differences which will not be eliminated by migration unless relative endowments are equalized les effets economiques regionaux des tarifs douaniers et des coats de transport domestique l auteur examine le cas d une petite 6conomie ouverte faite de deux regions entre lesquelles les couits de transport sont plus 6lev6s que les couits de transport internationaux on observe des mouvements de biens identiques entre pays dans les deux directions et des changements dans les termes d echange dans les tarifs douaniers et dans la fiscalit6 domestique ont des effets regionaux distincts si les tarifs douaniers engendrent un commerce interregional une perte de bien etre 6gale a la perte des droits de douane collect6s ant6rieurement se produit l introduction de tarifs douaniers peut accroftre le bien etre d une region et renverser le pattern de commerce international pour l 6conomie dans son ensemble dans ce modele tarifs douaniers et taxes subventions ne s 6quivalent pas les tarifs douaniers peuvent engendrer des diff6rences regionales dans le prix des facteurs qui ne s 6limineront pas par les mouvements migratoires a moins que les dotations relatives de facteurs ne soient 6galis6es

a positive theory of discretionary policy the cost of democratic government and the benefits of a constitution we offer an explanation of government s preference for discretionary policy action the main elements are asymmetric information and the ability and desire of governments to maximize reelection prospects discretionary policy imposes a social cost we show that the cost is eliminated if all voters have the same information as the government an optimal state contingent policy rule that precommits government through a constitution eliminates the cost by removing government s opportunities to exploit its informational advantage rules of this kind and constitutional restrictions are difficult to enforce in the presence of uncertainty and different information available to government and the public

political parties and optimum government financing empirical evidence for industrialized economies mankiw 12 argues that governments should equate the marginal losses of both taxation and seigniorage revenues to finance their spending his model the revenue smoothing hypothesisimplies that governments tax and seigniorage revenues must move together however different types of political parties might be more concerned about creating seigniorage the partisan theory argues that right wing parties adopt less inflationary policies than left wing parties this theory assumes that there is a short term exploitable relationship between inflation and output growth as the phillips curve suggests the theory also assumes that left wing parties are more concerned with the unemployment rate than are right wing parties therefore to decrease the unemployment rate left wing administrations adopt more expansionary policies at the expense of higher levels of inflation 1 3 4 7 furthermore burdekin 6 notes that countries which have a fixed exchange rate regime may face additional costs as they increase their seigniorage revenues increasing seigniorage revenue which causes inflation worsens the balance of payment deficit this paper analyzes the optimal government financing under different types of political and institutional considerations and argues that when governments must create additional resources to finance their spending they will then use both their seigniorage and tax revenues simultaneously moreover it incorporates the idea that right wing governments and countries which have a fixed exchange rate regime are more reluctant to create seigniorage revenue than left wing governments or countries which have a flexible exchange rate regime to finance their spending the revenue smoothing hypothesis assumes that a government uses its monetary policy to create resources to finance its spending however such a government also uses its monetary policy to decrease the effects of business cycles and the variation of interest rates 9 barro and gordon 5 show that a government may increase the levels of employment and of the gnp by increasing the money supply cukierman 8 argues that a government is concerned with the stability of financial markets a government may increase its money supply to decrease the interest rates when they are too high so that the financial system s likelihood of collapse will decrease later in this paper the implication of the revenue smoothing hypothesis with the partisan and

searching for political business cycles in germany one reslt of the revitalised literature on political business cycles is that there are signs in german data that elections and ideology have an impact however using monthly data for the period 1950 1989 and standard methods of time series analysis we reject both the nordhaus hypothesis of opportunistic cycles and the partisan approaches by hibbs ans alesina we show that some results are sensitive to the assumption of stationarity there are signs of policy cycles in m1 it is hard though to bring this in line with the rogoff hypothesis of rational opportunistic cycles because of the german institutional setting

futures markets price stabilization and efficient exploitation of exhaustible resources markets for natural resource futures contracts and cash forward contracts experience a rapid growth according to theory this should result in more efficient resource depletion implying that price formation is more consistent with hotelling s rule the rationale of this stabilization effect is briefly discussed next we analyze the impact of expanding futures markets on the behaviour of individual resource owners trading on the cash market using a simple pulse extraction model we demonstrate that the expected time of depletion can shift to the present or the future and that utility of exploitation can go up or down as market prices are stabilized

the european central bank independence accountability and strategy a review this paper reviews research on central banking and monetary policy with special emphasis on the position of the future european central bank nowadays it is often thought that an independent central bank with an explicit mandate to aim for price stability constitutes an important institutional device to assure price stability indeed the ecb will be one of the most independent central banks as follows from the codings of various indicators measuring legal independence still it does not follow straightforwardly from the literature that the statute of the ecb is optimal it is also argued that the accountability of the ecb is poorly arranged for in comparison with that of several national central banks finally the discussion about the monetary strategy of the ecb is reviewed

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

a rational voter explanation of the cost of ruling it is well known that the average government loses votes the so called cost of ruling we show that the loss can be explained as a perfectly rational demand for change in a median voter model once the model is amended to let the two parties be visibly different

the influence of political distortions on economic performance alberto alesina is the nathaniel ropes professor of political economy and chairman of the department of economics at harvard university in this interview he discusses with brian snowdon his views on several important contemporary issues including politics and the business cycle budget deficits currency unions the european union the size of nations economic growth inequality democracy foreign aid ethnic fractionalisation and the welfare state in the us and europe

government partisanship labor organization and macroeconomic performance governments of the left and right have distinct partisan economic policies and objectives that they would prefer to pursue their propensity to do so however is constrained by their desire for reelection we argue that the ability of governments to further their partisan interests and preside over reelectable macroeconomic outcomes simultaneously is dependent on the organization of the domestic economy particularly the labor movement we hypothesize that there are two different paths to desirable macroeconomic performance in countries with densely and centrally organized labor movements leftist governments can promote economic growth and reduce inflation and unemployment conversely in countries with weak labor movements rightist governments can pursue their partisan preferred macroeconomic strategies and achieve similarly beneficial macroeconomic outcomes performance will be poorer in other cases these hypotheses are supported by analysis of pooled annual time series data for 16 advanced industrial democracies between 1967 and 1984

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

the lens condition for factor price equalization abstract deardorff 1994 provides a condition that is necessary for factor price equalization across countries this is a generalization of the condition that country endowments should lie in the diversification cone from the standard 2 2 2 heckscher ohlin model to the case of many goods countries and factors he also shows that this condition is sufficient in the case of two countries and conjectures that the sufficiency might hold in general in this paper we establish the sufficiency in further cases however we show by a counterexample that the sufficiency does not hold in general

electoral and partisan cycles between us economic performance and presidential popularity empirical voting popularity research examines parameters that relate economic performance to voting and popularity not the interaction of these parameters with movements in economic performance which is what actually influences voting and popularity this paper examines that interaction for the usa from 1953 1 1990 4 by decomposing the response of popularity to economic performance by both political party and the quarter of the electoral term averaged over the electoral term economic performance increases the popularity of democrats but decreases it for republicans whereas near the election the opposite occurs overall the results appear consitent with a mix of partisan and electoral influences so that no single approach seems fully adequate

another look at the evidence for rational partisan cycles in presenting evidence in favor of rational partisan cycles where electoral victories by leftist parties are expected to create temporary expansions and electoral victories by rightist parties are expected to create temporary recessions alesina cohen and roubini 1999 rely upon autoregressive time series intervention regressions these regressions however are not consistent with their model in this paper a model is derived which is consistent with the intervention approach in its reduced form the differences between the models are highlighted and new empirical estimates are presented on a panel of seven oecd nations which generally does not support the rational partisan cycle implications

political parties and the supply side of the economy the provision of physical and human capital in advanced economies 1960 90 theory partisan tenure of government in contrast to institutionalist and structural approaches is used to explain the nature of governmental strategies to affect the supply side of the economy the provision of the input factors capital and labor hypotheses supply side economic strategies are a function of the party in office left wing governments spend heavily in physical and human capital formation to raise the productivity of factors and the competitiveness of the economy rightwing governments rely instead on private agents to maximize economic growth the organization of the domestic political economy and the international economy which place heavy limits on the capacity of parties to affect the conduct of macroeconomic policies hardly constrain the choice of supply side economic strategies methods regression analysis of data for levels of public spending on gross fixed capital formation and on education in oecd nations from 1960 to 1990 results supply side policies conform to partisan preferences throughout the period examined the institutional configuration of the economy affected policies jointly with government partisanship until the oil shock but not afterwards economic openness does not constrain the choice of supply side policies

the political economy of deficit spending in nine industrialized parliamentary democracies the role of fiscal institutions this article analyzes the influence of four sets of factors on deficit spending in 9 industrialized parliamentary democracies during 1958 1990 this article analyzes the influence of these factors and introduces and tests the importance of an additional potential influence on the size of a country s fiscal deficit the strength of fiscal bureaucracy it is argued that the stronger a country s fiscal bureaucracy the lower its deficit ceteris paribus empirically the authors find that the state of a nation s economy heavily affects its deficit little systematic relationship is found between the ideology of the ruling political party and a nation s deficit or between the political strength of the ruling party and deficits in contrast to the findings of roubini and sachs finally it is found that the strength of a country s fiscal bureaucracy is an important influence on the deficit in these 9 industrialized parliamentary democracies

in search of the motives behind us fiscal macroeconomic policy in this paper optimal control tehniques are applieed to estimate the motives behind us fiscal macroeconomic policy starting from a range of possible objesctives and given the perception of policy makers about the environment in which they operate the priorities of policy makers are estimated on the basis of their past actions our statistical approach allows for testing the empirical relevance of alternative hypotheses with respect to the objectives of governments demoeratic and republican administrations are found to aim at different targets some support is also found to political business cycle theories the views expressed here are not necessarily those of the ductch central bank

a political explanation of variations in central bank independence although central banks possess a similar function across the industrial democracies their institutional structures their levels of independence differ greatly my explanation of this variation emphasizes the informational asymmetries of monetary policymaking government ministers have informational advantages in the policy process potentially creating conflicts with backbench legislators and in a multiparty government coalition partners an independent central bank can help alleviate these conflicts politicians will choose an independent bank 1 if government ministers party legislators and coalition partners have different monetary policy incentives and 2 if government ministers fear that party legislators and coalition partners will withdraw their support over a policy dispute i statistically test the argument against the cross national variation of central bank institutions i also use the theoretical framework to examine episodes of institutional choice and reform in germany britain and italy

politics and business cycles in industrial democracies politics alberto alesina influences from political competition on macroeconomic policy are often thought to be a source of economic fluctuations politicians are described as being driven by two not mutually exclusive main motivations they want to be reelected and they harbour political or ideological biases when such theories are confronted with actual cycles in a number of industrial countries the pattern of inflation unemployment output and budget deficits indicates that partisan policy making is a fairly widespread phenomenon with more limited evidence that electoral preoccupations result in major fluctuations the combination of partisanship and electoral cycles may easily result in socially undesirable outcomes in particular the degree of politico institutional stability and the independence of the central bank have a bearing on macroeconomic outcomes these observations raise a number of important questions about the design of political institutions

the markup and inflation evidence in oecd countries in this paper we evaluate the dynamic inconsistency argument put forth by kydland and prescott 1977 and barro and gordon 1983 as an explanation for differences in the average inflation experience across oecd countries the focus is on the empirical evidence relating the overall degree of competition among firms as measured by the markup of price over marginal cost and inflation over the 1973 88 period the prediction is that higher markups raise the monetary authority s incentive to increase output leading to higher equilibrium rates of inflation we find that the markup does well in explaining cross country differences in average inflation jel classification e31 e58 d43 l ecart du prix par rapport au cout marginal et l inflation resultats pour les pays de l ocde ce memoire examine l argument mis de l avant par kydland et prescott 1977 et barro et gordon 1983 pour expliquer les differences dans le taux moyen d inflation entre les pays de l ocde on porte une attention speciale aux resultats empiriques qui relient le degre general de concurrence entre les entreprises mesure par l ecart du prix par rapport au cout marginal et le niveau d inflation entre 1973 et 1988 la prediction est que des ecarts prix cout marginal plus eleves augmentent l incitation des autorites monetaires a accroitre le niveau de production ce qui entraine des taux d inflation d equilibre plus eleves il s avere que l ecart du prix par rapport au cout marginal tend a expliquer bien les differences dans le niveau moyen d inflation entre pays

distributive politics and spatial equity the allocation of public investment in chile abstractdistributive politics and spatial equity the allocation of public investment in chile regional studies this paper analyzes the influence of electoral concerns on investment distribution from the central government to chilean municipalities drawing upon panel data it shows that investment is mediated by pork barrel and political budget cycles as well as favouring the relatively better off areas estimations also reveal that resources are channelled to the municipalities where the vote margin in local elections is larger whereas national results are not relevant indicating that local governments lobbying capacity is prioritized over national electoral interests based on these results the implications for regional governance and for reducing the margin of arbitrary allocations are discussed