the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

new keynesian perspectives on labor market dynamics abstract we find that demand shocks play an important role for business cycle fluctuations in unemployment and job vacancies the reason is that those shocks give a strong incentive to demand constrained firms to adjust production and thereby labor input furthermore we argue that whether real wage rigidity a la hall 2005 employment fluctuations with equilibrium wage stickiness american economic review 95 50 65 helps explain the remaining part of the unemployment volatility puzzle depends critically on assumptions regarding the form of the wage bargain between firms and workers real wage rigidity tends to generate volatility in employment only in the case in which hours are chosen efficiently if on the other hand the real wage is allowed to affect firms s choices of hours directly the feature of real wage rigidity loses its ability to increase employment volatility

ethnic parties and public spending new theory and evidence from the indian states social scientists largely see ethnic politics as inhibiting public goods provisioning within developing democracies such parties are thought to uniformly rely on distributing excludable benefits t

productivity and unemployment over the business cycle abstract the low correlation between cyclical unemployment and productivity over the post war period hides a large sign switch in the mid 1980s from significantly negative the correlation became significantly positive using a search model of unemployment with nominal rigidities and variable labor effort i show that technology shocks can generate a positive unemployment productivity correlation whereas non technology shocks i e aggregate demand shocks tend to do the opposite in this context i identify two events that can quantitatively explain the increase in the correlation i a sharp drop in the volatility of non technology shocks in the mid 1980s and ii a decline in the response of productivity to non technology shocks which from procyclical became acyclical in the last 25 years

the institutional and psychological foundations of natural resource policies abstractthe pressures of political interests which drive the resource curse are well understood but ordinary citizens are usually cast both as the innocent victims of this process and as the potential solution if only governments could be made more accountable to them this paper draws upon recent developments in social psychology to discuss the formation of mass opinions on two aspects of resource ownership one is the spatial assignment of ownership between local and national claims which has been a significant cause of conflict the other is the assignment of revenues between current consumption and future investment which has usually been excessively biased towards the former i suggest why in the absence of an active government communications policy to offset them known psychological biases may interact with resource discoveries to generate mass opinions which contribute to these problems

the effect of remittances prior to an election the objective of the article is to assess whether remittances have an influence on political manipulation which may occur prior to an election through an increase in the government consumption to gdp ratio we combine data from the national elections across democracy and autocracy data set compiled and discussed in hyde and marinov 2012 and the world development indicators data set we focus on 70 developing countries over the period 1990 2010 it appears that the political budget cycle is reduced up to the point where it is fully cancelled out at a remittance threshold of 10 7 of gdp those findings are robust to different robustness checks

capture and governance at local and national levels 135 despite the importance of this issue not much systematic research appears to have been devoted to assessing the relative susceptibility of national and local governments to interestgroup capture here we describe a model of two party electoral competition with probabilistic voting behavior and lobbying by specialinterest groups based on david baron 1994 and gene grossman and elhanan helpman 1996 that helps identify determinants of relative capture at different levels of government these include relative levels of voter awareness and interest group cohesiveness electoral uncertainty electoral competition heterogeneity of districts with respect to inequality and the electoral system while some of these uphold the traditional madisonian presumption others are likely to create a tendency for lower capture at the local level so the net effect is theoretically ambiguous this suggests that the extent of relative capture may be context specific and needs to be assessed empirically

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

local political business cycles evidence from philippine municipalities abstract this paper establishes the existence of short term political business cycles in the philippines over the period 2003 2009 examining a balanced panel of 1143 municipalities shows that employment levels increase in the two pre electoral quarters and drop sharply in the two quarters following elections further results are consistent with the cycles being generated by incumbents attempts to increase their chances of re election cycles are stronger in sectors that incumbents are more able to influence and when they expect stronger electoral competition evidence suggests that these cycles are detrimental to development

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

using electoral cycles in police hiring to estimate the effect of police on crime comment previous empirical studies have uncovered little evidence that police reduce crime possibly due to simultaneity problems this paper uses the timing of mayoral and gubernatorial elections as an instrumental variable to identify a causal effect of police on crime increases in the size of police forces are shown to be disproportionately concentrated in mayoral and gubernatorial election years increases in police are shown to substantially reduce violent crime but have a smaller impact on property crime the null hypothesis that the marginal social benefit of reduced crime equals the costs of hiring additional police cannot be rejected

does electoral competition exacerbate interethnic or interpartisan economic discrimination evidence from a field experiment in market price bargaining does political competition exacerbate economic discrimination between citizens on ethnic or partisan cleavages individuals often discriminate on group lines in ordinary economic activities especially in low income settings political competition and thus mobilization of partisan and ethnic groups waxes and wanes over the electoral cycle this study therefore investigates discrimination over the electoral cycle in a commonplace yet consequential economic activity market price bargaining by conducting field experiments on taxi fare bargaining at three points in time around ghana s 2008 election the research reveals that drivers accept lower prices from coethnics regardless of temporal proximity to the election however only at election time drivers accept lower prices from copartisans and demand higher prices from noncopartisans in sum political competition affects commonplace economic transactions between citizens on the partisan cleavage this study is the first to show evidence of interpartisan discrimination in everyday behavior and expands our knowledge of electoral cycle effects

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

election cycles and electricity provision evidence from a quasi experiment with indian special elections abstract we present evidence from india showing that state governments induce electoral cycles in electricity service provision our data and research strategy allow us to build on models of political business cycles and targeted distribution in two important ways first we demonstrate that by manipulating the flow of critical inputs into economic activity like electricity elected leaders can influence economic outcomes even in contexts where they have constrained fiscal capacity second we identify the effect of elections on electricity provision by focusing on special elections held for exogenous reasons our results show that state governments induce substantive increases in electricity service to constituencies that hold special elections manipulation of the power supply is stronger in contested constituencies and during special elections held in states where the government commands only a small majority overall we find no evidence of positive welfare effects from the electoral manipulation of electricity supply

menu costs and phillips curves this paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation sellers can change price only by incurring a real menu cost we calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new u s data set of individual prices due to klenow and kryvtsov the prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with international evidence from various studies the model is also used to conduct numerical experiments on the economy s response to various shocks in none of the simulations we conducted did monetary shocks induce large or persistent real responses

clientelism contagious voting and governance this paper explains inferior quality of governance in less affluent countries in terms of a patron client relationship between political parties and a large section of voters the client voters resort to strategic voting which is shown to be contagious leading to suboptimal effort choice by the incumbent government and a higher probability for the incumbent to remain in power the possibility of competition between the incumbent and the opposition in terms of expenditure on political propaganda actually helps the incumbent and reinforces these results

does delegation of fiscal policy to an independent agency make a difference evidence from intergovernmental transfers in india abstract one area of fiscal policy in which several countries have delegated responsibility to an independent agency is the distribution of national resource transfers across regional and local governments such delegation is expected to promote equity and efficiency and mitigate distortions created by political incentives this paper tests whether delegation to an independent agency indeed makes a difference by contrasting the impact of partisan politics on two types of fiscal transfers to states in the indian federation over a period of time 1972 1995 the pattern of evidence shows that while the transfers that are determined by the central political executive are indeed distributed to favor particular states that are politically important for the central ruling party the transfers that are delegated to an independent agency serve to constrain such partisan impact

the size and scope of government comparative politics with rational politicians we try to demonstrate how economists may engage in research on comparative politics relating the size and composition of government spending to the political system a downsian model of electoral competition and forward looking voting indicates that majoritarian as opposed to proportional elections increase competition between parties by focusing it into some key marginal districts this leads to less public goods less rents for politicians more redistribution and larger government a model of legislative bargaining and backward looking voting indicates that presidential as opposed to parliamentary regimes increase competition between both politicians and voters this leads to less public goods less rents for politicians less redistribution and smaller government we confront these predictions with cross country data from around 1990 controlling for economic and social determinants of government spending we nd strong and robust support for the prediction that the size of government is smaller under presidential regimes and weaker support for the prediction that majoritarian elections are associated with less public goods

do voters demand responsive governments evidence from indian disaster relief abstract using rainfall public relief and election data from india we examine how governments respond to adverse shocks and how voters react to these responses the data show that voters punish the incumbent party for weather events beyond its control however fewer voters punish the ruling party when its government responds vigorously to the crisis indicating that voters reward the government for responding to disasters we also find evidence suggesting that voters only respond to rainfall and government relief efforts during the year immediately preceding the election in accordance with these electoral incentives governments appear to be more generous with disaster relief in election years these results describe how failures in electoral accountability can lead to suboptimal policy outcomes

do matching frictions explain unemployment not in bad times this paper models unemployment as the result of matching frictions and job rationing job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor during recessions job rationing is acute driving the rise in unemployment whereas matching frictions contribute little to unemployment intuitively in recessions jobs are lacking the labor market is slack recruiting is easy and inexpensive so matching frictions do not matter much in a calibrated model cyclical fluctuations in the composition of unemployment are quantitatively large

employment hours and the welfare effects of intra firm bargaining intra firm bargaining between a multiple worker firm and an individual employee leads to overhiring taking advantage of the decreasing returns to scale in employment the firm can reduce the marginal product by hiring an additional worker thereby reducing the bargaining wage paid to all existing employees we show that this externality is amplified when firms can adjust hours per worker as well as employment hours are too low at the steady state this misallocation of labor leads to sizeable welfare losses our finding is important for economies in which hours adjustment play an important role as it does in many euro area countries

preferential resource spending under an employment guarantee the political economy of mgnregs in andhra pradesh are ostensibly demand driven public works programs with high levels of safeguards nonetheless susceptible to political influence this conjecture is investigated using expenditure data at the local level from india s national rural employment guarantee scheme focusing on one state where accountability and transparency mechanisms have been employed and implementation efforts have been widely applauded there is no evidence of partisan influenced spending before the 2009 election however a statistically significant but small in magnitude effect after the 2009 election most variation in public works expenditures is explained by the observed needs of potential beneficiaries as the scheme intended

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

political parties electoral competition government expenditures and economic reform in india political analysis of economic policy making in india has tended to downplay the role of political parties while stressing the influence of classes and the state this article reports the results of an attempt to understand policy making in india in terms of political parties and their electoral concerns the analysis will illustrate the extent to which changing patterns of government expenditures can be understood as a result of the emergence of electoral competition to the congress party this focus on political parties will also offer an additional perspective on the ability of the ruling party in india to undertake the economic reform necessary for sustained economic growth

evaluating the performance of the search and matching model abstract does the search and matching model fit aggregate u s labor market data while the model has become an important tool of macroeconomic analysis recent literature pointed to some significant failures in accounting for the data this paper aims to answer two questions i does the model fit the data and if so on what dimensions ii does the data fit the model i e what are the data which are relevant to be explained by the model the analysis shows that the model fits certain specifications of the data on many dimensions though not on all this includes capturing the high persistence and high volatility of most of the key variables the negative co variation of unemployment and vacancies and the behavior of the worker job finding rate a key role in this fit is played by the convexity of hiring costs and the stochastic properties of the separation rate the latter is a major component of the rate discounting the future value of the job worker match the paper offers a workable empirically grounded version of the model for the analysis of aggregate u s labor market dynamics

market efficiency and cointegration an application to the sterling and deutschemark exchange markets abstract the assumption that the foreign exchange market is efficient that is that agents are risk neutral and use all available information rationally so that the forward exchange rate is an unbiased predictor of the future spot rate is a property often imposed in theoretical international macroeconomic models although a vast empirical literature has evolved to test market efficiency we use recent developments in the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency we ffind evidence inconsistent with market efficiency for both germany and the united kingdom

re election incentives and deforestation cycles in the brazilian amazon abstract despite expansive research on amazonian deforestation and its drivers the role of local politics is not well understood using a panel data set that combines municipal level deforestation and election data from 2002 to 2012 i estimate the effect of an incumbent mayor running for re election on deforestation rates in election periods i find that deforestation rates increase 8 10 in election years when an incumbent mayor runs for re election an amount equivalent to four percent of the total forest lost since the 2004 elections electoral deforestation cycles do not appear to be driven by changes in agricultural policy implementation and activity but are linked to corruption and campaign finance suggesting that weak institutional constraints facilitate electoral manipulation of forest resources this phenomenon is not likely limited to amazonian forests re election incentives could very well lead to misallocation of other natural resources in alternate geographies

the political determinants of fiscal policies in the states of india an empirical investigation abstract using data from the 14 major states of india we investigate whether state governments fiscal policy choices are tempered by political considerations our principal findings are twofold first we show that certain fiscal policies experience electoral cycles state governments raise less commodity tax revenue spend less on the current account and incur larger capital account developmental expenditures in election years than in all other years second we show that coalition state governments raise less own non tax revenues and spend less on the current account than state governments that are more cohesive in composition in sum the dispersion of political power affects government size

political business cycles democratization and economic reform the case of africa abstract this paper presents cross country evidence that political business cycles are alive and well in the nascent democracies of the developing world africa provides fertile ground for the study of political business cycles this paper uncovers systematic electorally timed interventions in five monetary and four fiscal policy variables in a panel of african countries these findings are consistent with the predictions of rational opportunistic political business cycle theory if africa s increasingly frequent elections are associated with reversals of fiscal and monetary policy reform there is a potential conflict between political and economic reform

global samaritans donor election cycles and the allocation of humanitarian aid abstract this paper finds a large causal donor election cycle effect in humanitarian aid allocations on average humanitarian aid increases by 19 in the year before elections our identification strategy consists of focusing on donors with fixed election dates making elections clearly exogenous furthermore we find large interaction effects with natural and human disasters this evidence is consistent with our theory that incumbent governments responding to humanitarian disasters can increase voter support for their party and insure against the political fall out of not being seen as representatives of a country with global interests and influence however it is important to stress that despite our findings human and natural disasters explain a substantially larger share of the overall variation in humanitarian aid observed in the data

straight time and overtime in equilibrium abstract we formulate an equilibrium model of straight time and overtime wages by imposing restrictions on agents consumption sets and using a commodity space that includes employment lotteries we extract some time series implications from a linear quadratic approximation to our model evaluated at particular parameter values we use our model informally to interpret some features of observed time series for wages and employment

party politics and fiscal discipline in a federation evidence from the states of india theoretical and empirical analysis suggests that federations are prone to fiscal indiscipline because of intergovernmental bargaining over the allocation of national resources what role do political parties play in mediating this bargain if the national government is dominated by a single political party does the party discipline those states where its affiliates are in power if the national government consists of a coalition of political parties do states ruled by coalition partners bargain for higher deficits this article provides evidence on these questions from india a large federation in the developing world that serves as a valuable laboratory for this purpose the authors find that those state governments that belong to the same party as that leading the national government run higher than average deficits correspondingly states governed by rival political parties have lower deficits even if these parties are members of a coalition government at the center

land reforms and social unrest an empirical investigation of riots in india abstract this paper considers the effect of agrarian reforms on rioting in india i find that the adoption of agrarian reforms was associated with a decline in the overall riot rate but the hindu muslim riot rate an urban phenomenon was largely unaffected by the program

transparency political polarization and political budget cycles in oecd countries we investigate the effects of fiscal transparency and political polarization on the prevalence of electoral cycles in fiscal balance while some recent political economy literature on electoral cycles identifies such cycles mainly in weak and recent democracies in contrast we show conditioning on a new index of institutional fiscal transparency that electoral cycles in fiscal balance are a feature of many advanced industrialized economies using a sample of 19 oecd countries in the 1990s we identify a persistent pattern of electoral cycles in low er transparency countries while no such cycles can be observed in high er transparency countries furthermore we find in accordance with recent theory that electoral cycles are larger in politically more polarized countries

labor market participation unemployment and monetary policy models of unemployment and monetary policy usually assume constant participation incorporating a participation decision into a standard new keynesian model with matching frictions we show that market tightness becomes endogenously more volatile because both the opportunity cost of home production and the reservation wage vary with participation the model can simultaneously explain the low volatility of participation the high volatility of unemployment and a procyclical workers outside option of working a policy of strict inflation targeting is close to optimal and increasing the response of the interest rate to inflation does not have a large impact on the volatility of unemployment because of the endogenous response of participation

business cycles unemployment insurance and the calibration of matching models this paper theoretically and empirically documents a puzzle that arises when an rbc economy with a job matching function is used to model unemployment the standard model can generate sufficiently large cyclical fluctuations in unemployment or a sufficiently small response of unemployment to labor market policies but it cannot do both variable search and separation finite ui benefit duration efficiency wages and capital all fail to resolve this puzzle however either sticky wages or match specific productivity shocks can improve the model s performance by making the firm s flow of surplus more procyclical which makes hiring more procyclical too

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

electoral goals and center state transfers a theoretical model and empirical evidence from india we construct a model of redistributive politics where the central government is opportunistic and uses its discretion to make transfers to state governments on the basis of political considerations these considerations are the alignment between the incumbent parties at the central and state levels and whether a state is a swing state or not a testable prediction from the model is that a state that is both swing and aligned with the central government is especially likely to receive higher transfers we test this prediction using indian data for 14 states from 1974 75 to 1996 97 we find that a state which is both aligned and swing in the last state election is estimated to receive 16 higher transfers than a state which is unaligned and non swing

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

electoral cycles in electricity losses in india abstract a third of electricity in india is lost each year where losses refer to power that is supplied but not billed utilizing data from the power corporation of uttar pradesh india s most populous state we study the politics of electricity losses examining annual data over four decades we document that up s electricity losses tend to increase in periods immediately prior to state assembly elections drawing upon geographically disaggregated data for the period 2000 09 we observe higher line losses just prior to the 2002 and 2007 state elections our analysis shows that the incumbent party was more likely to retain the assembly seat as line losses in the locality increased we interpret these results as corroboration that political parties deliberately redirect electricity to flat rate and unbilled users in a context of chronically inadequate supply political factors appear to affect line losses in ways that technical and economic factors alone cannot explain

political budget cycles and divided government abstractpolitical budget cycles and divided government regional studies this study empirically examines the effect of divided governments on the existence of political budget cycles it uses a setting at the german municipality level where divided governments occur frequently and can be clearly disentangled from the underlying political system in this setting the executive does not have full discretion over expenditures and tax rates and needs support from the legislative to manipulate policy before executive elections the study shows that political budget cycles in expenditures and tax rates are more likely when the same party controls executive and legislative under divided government policy manipulation is significantly smaller

electoral competition and special interest politics have fixed positions on some issues but vary their positions on others in order to attract votes and campaign contributions in this context we examine whether special interest groups are governed by an electoral motive or an influence in their campaign giving and how their contributions affect the equilibrium platforms we show that each party is induced to behave as if it were maximizing a weighted sum of the aggregate welfares of informed voters and members of special interest groups the party that is expected to win a majority of seats caters more to the special interests

inflation dynamics and labor market specifications a bayesian dynamic stochastic general equilibrium approach for japan s economy i introduction inflation dynamics have been investigated using dynamic stochastic general equilibrium dsge models with sticky prices in the models inflation is determined by the new keynesian phillips curve nkpc where real marginal cost of producing output is the main driving force and varies with changes in labor cost therefore the specification of the labor market plays a crucial role in describing inflation dynamics many previous studies use sticky wage models e g christiano eichenbaum and evans 2005 levin et al 2006 smets and wouters 2003 2007 in this specification of the labor market workers set wages on a staggered basis la calvo 1983 while firms employ all workers and adjust labor input by changing hours per worker i e intensive margin of labor consequently the cost involved to adjust employment is absent in sticky wage models recently there has been a surge of interest in the role of the extensive margin of labor i e employment for inflation dynamics walsh 2005 krause and lubik 2007 and trigari 2009 for instance incorporate sticky prices in a labor market search model that has been analyzed in the literature starting from mortensen and pissarides 1994 merz 1995 and andolfatto 1996 1 in this labor market specification firms adjust labor input by changing employment while wages are determined through bargaining between workers and firms these characteristics of the labor market differ radically from those in sticky wage models despite this fundamental difference existing literature lacks the formal comparison of sticky wage models and labor market search models the present article fills this gap specifically we estimate a sticky wage model and a labor market search model with japan s data using a bayesian likelihood approach and compare these two models in terms of marginal likelihood and out of sample forecast performance the estimation results show that the labor market search model is superior to the sticky wage model in terms of both marginal likelihood and out of sample forecast performance particularly regarding inflation why is the former model better able to fit the data and forecast inflation because the non labor market part is identical between these two models the key difference is the relationship between real wages and inflation or output in the sticky wage model real wages are highly correlated with output in the presence of monopolistically competitive labor markets and unit labor cost under full employment is identical with real marginal cost and thus drives inflation dynamics however the cross correlation between real wages and output in the data is not so high as in the sticky wage model besides the data of real wages and output determine the unit labor cost which lags far behind inflation by more than 3 years whereas a high contemporaneous correlation between inflation and real marginal cost is represented in the nkpc in the labor market search model labor bargaining generates a mild cross correlation between real wages and output moreover real marginal cost is determined by both hiring cost and unit labor cost that varies with employment fluctuations which gives rise to a high contemporaneous correlation between inflation and real marginal cost therefore the labor market search model is better able to fit the data and forecast inflation in related literature rabanal and rubio ramirez 2005 show that a sticky wage model matches u s data far better in terms of marginal likelihood than a flexible wage model christoffel linzert and linzert 2006 gertler sala and trigari 2008 and krause lopez salido and lubik 2008 estimate a labor market search model with u s or euro area data to our knowledge the present article is the first to compare a sticky wage model and a labor market search model in terms of marginal likelihood and out of sample forecast performance

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

seeing the forest through the trees a meta analysis of political budget cycles despite a vast number of articles the political budget cycle literature contains many conflicting theories and empirical results i conduct the first ever meta analysis of this literature in order to establish whether a link between elections and government budgets exists using data on 1198 estimates across 88 studies published between 2000 and 2015 i find evidence of a statistically significant yet substantively small increase in government expenditures and public debt around elections and reductions in revenues and fiscal balance using meta regression analysis combined with bayesian model averaging i find support for some of the context conditional theories in the literature although the findings of political budget cycles are robust to publication bias as well as some of the methodological and study specific choices authors are forced to make they also shed light on how certain decisions may affect a study s findings this has implications for current and future research on political budget cycles

political budget cycles and the civil service evidence from highway spending in us states abstract we study political budget cycles in infrastructure spending that are conditional on bureaucratic organization bureaucrats can facilitate or hinder politicians ability to engage in voter friendly spending around elections to test this idea we use civil service reforms undertaken by us states in the second half of the 20th century to study political budget cycles in highway spending under civil service and patronage we find that under patronage highway spending is 12 higher in election years and 9 higher in the year before an election by contrast under civil service highway spending is essentially smooth over the electoral cycle these findings provide a novel way through which civil service rules can stabilize government activity

political cycles in a developing economy effect of elections in indian states the author studies the effect of state legislative assembly elections on the policies of state governments in 14 major states of india from 1960 to 1996 she identifies the effect of the timing of elections using an instrument for the electoral cycle that distinguishes between constitutionally scheduled elections and midterm polls she contrasts two levers of policy manipulation fiscal policy and public service delivery to distinguish between alternative models of political cycles the predictions of three models are tested 1 populist cycles to woo uninformed and myopic voters 2 signaling models with asymmetric information 3 a moral hazard model with high discounting by political agents the empirical results for fiscal policy show that election years have a negative effect on some commodity taxes a positive effect on investment spending but no effect on deficits primarily because consumption spending is reduced with regard to public service delivery elections have a positive and large effect on road construction by state public works departments strikingly the fiscal effects are much smaller than the effect on roads the author argues that the pattern of evidence is inconsistent with the predictions of models of voter myopia and asymmetric information she explores an alternative moral hazard model in which the cycle is generated by high political discounting and career concerns persuade politicians to exert greater effort in election years on the management of public works

electoral manipulation via voter friendly spending theory and evidence abstract we present a model of the political budget cycle in which incumbents try to influence voters by changing the composition of government spending rather than overall spending or revenues rational voters may support an incumbent who targets them with spending before the election even though such spending may be due to opportunistic manipulation because it may also reflect sincere preference of the incumbent for types of spending voters favor classifying expenditures into those which are likely targeted to voters and those that are not we provide evidence supporting our model in data on local public finances for all colombian municipalities our findings indicate both a pre electoral increase in targeted expenditures combined with a contraction of other types of expenditure and a voter response to targeting

overlapping political budget cycles we advance the literature on political budget cycles by testing for cycles in expenditures for elections to the legislative and the executive branches using municipal data we identify cycles independently for the two branches evaluate the effects of overlaps and account for general year effects we find sizable effects on expenditures before legislative elections and even larger effects before joint elections to the legislature and the office of mayor in the case of coincident elections we show that it is important whether the incumbent chief executive seeks reelection to account for the potential endogeneity of that decision we apply an iv approach using age and pension eligibility rules

legislative turnover fiscal policy and economic growth evidence from u s state legislatures an examination of how increased turnover among legislators in the fifty u s states affects fiscal policy and economic growth finds that it makes legislators short sighted turnover increases the size of government by increasing the shares of both total spending and taxes in income in particular turnover increases capital expenditure and income taxes both of which may cause long run distortions in the economy further increased turnover by resulting in inefficient fiscal policy reduces long term economic growth

political cycles in nontraditional settings theory and evidence from the case of mexico abstract we create a rotating bandit model of executive turnover in politics with autocratic presidents large and centralized governments and limited reelection the model is an extension of mcguire and olson s 1996 work we apply our model by studying the relationship between electoral cycles and economic growth and inflation uncertainty in mexico a country with a highly centralized and powerful government no reelection and until recently little political competition we find a significant postelection economic collapse but no preelection boom which is contrary to the predictions of the traditional political business cycle model we also find evidence that elections create rather than resolve inflation uncertainty which contradicts the predictions of the rational partisan model while our rotating bandit model is largely consistent with the results we find more work is needed on the real effects of politics in the developing world

can analytic narrative inform policy change the political economy of the indian electricity irrigation nexus abstractagricultural electricity subsidisation has led to high electricity demand groundwater depletion and public financial burdens the policy persists although paralleled by fundamental changes in electricity governance how can lock in and policy trajectories be explained theories of institutional public choice and regulation are reviewed two game models are built to analyse narratives based on interviews and secondary historical data the findings reveal path dependencies inherent in the existing action situations resolving the current equilibrium requires changes outside the political or regulatory process such as the electricity distribution level where coordination failure impedes infrastructure improvements contributing to resistance among the agricultural electorate

idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics we examine a model of lumpy investment wherein establishments face persistent shocks to common and plant specific productivity and nonconvex adjustment costs lead them to pursue generalized s s investment rules we allow persistent heterogeneity in both capital and total factor productivity alongside low level investments exempt from adjustment costs to develop the first model consistent with available evidence on establishment level investment rates reassessing the implications of lumpy investment for aggregate dynamics in this setting we find that they remain substantial when factor supply considerations are ignored but are quantitatively irrelevant in general equilibrium the substantial implications of general equilibrium extend beyond the dynamics of aggregate series while the presence of idiosyncratic shocks makes the time averaged distribution of plant level investment rates largely invariant to market clearing movements in real wages and interest rates we show that the dynamics of plants investments differ sharply in their presence thus model based estimations of capital adjustment costs involving panel data may be quite sensitive to the assumption about equilibrium our analysis also offers new insights about how nonconvex adjustment costs influence investment at the plant when establishments face large and weakly persistent idiosyncratic productivity shocks consistent with existing estimates we find that nonconvex costs do not cause lumpy investments but act to eliminate them

the political economy of fiscal deficits a survey this paper surveys recent literature both theoretical and empirical regarding political explanations for fiscal deficits political economy suggests conflicts of interest may lie behind the emergence of deficits 1 opportunistic politicians generate deficits to win elections even in conflict with general welfare 2 conflicts of interests between politicians partisan preferences create incentives for at least some incumbents to run deficits and 3 conflicts of interest between different social groups or regions generate tensions in the allocation of government resources leading to overspending this paper reviews these different strands of the literature it also covers contributions that highlight the crucial role of budget institutions in determining the extent to which the political motivations to generate deficits are indeed translated into poor fiscal outcomes promising avenues for future research are highlighted