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

the impact of taxation on the currency of denomination decision for long term foreign borrowing and lending this paper shows the distorting effects of different tax regulations on the effective absolute and relative costs of long term borrowing in different currencies in particular if expected borrowing costs are equal before tax then the process of minimizing expected after tax borrowing costs generally involves borrowing the weakest currency

elections and uk government expenditure cycles in the 1980s an empirical analysis this paper tests whether there exists any significant difference in the responsiveness of uk government expenditure policy to changes in national income and unemployment in pre and post election periods the absence of such a political effect would see the national income and unemployment elasticities for government expenditure being uniform over an election period the empirical analysis deliberately covers the three uk conservative governments between 1979 and 1992 when academic debate on the implications of discretionary policy for the economy and social welfare were particularly prominent and when it appeared that political rhetoric concurred with the academic prescriptions

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

full scale real tests of consumer behavior using experimental data abstract this paper reports on the results of three experiments based on the neoclassical theory of consumer behavior all these experiments were carried out with the aim of simulating real world behavior nonparametric tests applying the theory of revealed preference show that a significant number of individuals exhibit inconsistent behavior if nearly optimizing behavior is postulated then most of these inconsistencies disappear but random choices produce almost the same results the hypothesis of a representative consumer statistical average behavior seems a more fruitful approach

the arbitrage principle in financial economics abstract the importance of arbitrage conditions in financial economics has been recognized since modigliani and miller s classic work on the financial structure of the firm they showed that if a f

do rational demand functions differ from irrational ones evidence from an induced budget experiment various studies e g becker 1962 ariely et al 2003 have noted anomalies concerning the relationship between observed demand and the preferences presumed to motivate it we re examine these findings using experimental choice data after separating our subjects choices into rational and irrational subsets based on consistency with the axioms of revealed preference we estimate and compare demand coefficients mirroring ariely et al s coherently arbitrary choice both rational and irrational demand estimates exhibit negative price and positive endowment coefficients however a comparison of the full set of demand coefficients indicates significant differences between the two yielding an observable artefact of the preference hypothesis relaxing the goodness of fit of the revealed preference test afriat 1987 varian 1994 does not alter our findings

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

international capital structure equilibrium this paper develops a theory of capital structure in an international setting with corporate and personal taxes we generalize the miller analysis to an international equilibrium characterized by differential international taxation and inflation in otherwise perfect international capital markets our analysis highlights the key role that corporate tax arbitrage plays in generating an international capital structure equilibrium and we set forth a number of mechanisms for tax arbitrage transactions we close the paper by outlining some implications of our analysis for national differences in capital structure the international fisher effect and international tax effects on yield differentials among major questions regarding corporate capital structure which arise in an international setting are how or whether multiple tax jurisdictions and multiple currencies affect firm financing decisions and the international bond market equilibrium we examine some of these questions by way of generalizing miller s 1977 debt and taxes model into an international setting this setting allows for different tax regimes across countries as well as the possibility of differential inflation across currencies with consequent exchange rate movements in the first part of this paper we find that an international miller type equilibrium obtains under differential international taxation with capital market conditions which are otherwise analogous to those required for a domestic miller equilibrium our analysis particularly highlights the role that corporations play in miller s analysis as vehicles for tax arbitrage we show that if corporations engage in international tax arbitrage transactions on an equal footing no optimal capital structure exists for individual firms consequently without further restrictions differences in international tax rates alone are incapable of dictating a particular capital structure for an individual firm in the second part of the paper we extend the analysis to consider differential inflation rates with a consequent exchange rate movement and draw additional implications for the international analog of the miller equilibrium with differential inflation and taxation we begin by showing the existence of the international fisher effect for both equity and bonds although inflation and or exchange rate movements may affect real corporate tax subsidy rates and real

how basic are behavioral biases evidence from capuchin monkey trading behavior behavioral economics has demonstrated systematic decision making biases in both lab and field data do these biases extend across contexts cultures or even species we investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys and recovering their preferences over a range of goods and gambles we show that capuchins react rationally to both price and wealth shocks but display several hallmark biases when faced with gambles including reference dependence and loss aversion given our capuchins inexperience with money and trade these results suggest that loss aversion extends beyond humans and may be innate rather than learned

on the existence of a political monetary cycle this paper examines electoral influence on monetary policy as measured by ml money growth i find a significant four year electoral cycle in money growth even when controlling for the influence of interest rates income and budget deficits further the residual electoral cycle produces the income and inflation movements associated with the political business cycle when it is used in simulations of simple reduced form macro models the paper concludes by discussing the difficulties in rationalizing cyclical monetary policy with rational expectations

economic populism partial deregulation of transport fuels and electoral outcomes in india abstract the indian political class is known to employ populist albeit economically unsustainable measures to replace intrinsic valence especially shortly prior to election windows such measures include loan waivers interest rate concessions provision of free electricity for agriculturists etc the union government s leverage to maneuver and to micro manage retail fuel prices within partially deregulated environments is hypothesized to provide incumbents with an advantage over rival contestants in the electoral process this paper analyzes the evolution in the retail prices of diesel and petrol gasoline and the transfer of such evolution into the inflation index of the all commodity basket it is observed that when international benchmark prices are relatively low and domestic inflation is moderate the transfer occurs within about 42 weeks during periods of high oil prices frequently above usd 100 a barrel and high inflation higher than 5 00 5 50 prices of petroleum distillates tend to feed into overall inflation more rapidly within about 34 40 weeks the study covering a total of 82 elections for the central and state provincial governments during the period 2000 to 2013 concludes that even as patterns of manipulation of prices are apparent ceteris paribus such leverage does not necessarily seem to translate into favorable electoral outcomes this conclusion reiterates observations that economic im prudence may not necessarily determine electoral outcomes and that the basis for electoral choices made by the indian voter consumer remains subjective

the political manipulation of macroeconomic policy conventional wisdom and some research indicate that macroeconomic policies follow cycles corresponding to political as well as economic forces using vector autoregression analysis i test three models of monetary policy determination for the united states 1953 1984 the electoral cycle model that reelection motivations on the part of presidents create a policy cycle the party differences model that policy changes reflect revolving presidential party administrations and the referendum model that changes in presidential approval create in effect a continuing referendum allowing presidents to monitor their success and change macroeconomic policies when necessary analysis shows that monetary policies as measured by the monetary base and short term interest rates respond to the election cycle and presidential approval although the effect on macroeconomic outcomes is ambiguous party differences are found in real income but are not very significant in other variables

tax effect on the debt denomination decision of multinational projects in this paper we examine the effect of differential corporate taxes on the debt denomination decision of u s multinational firms facing stochastic project cash flows and exchange rates assuming to international interest arbitrage opportunity we show that u s based multinational firms can maximize projects expected npvs by borrowing in the foreign currency as long as the excess foreign tax credit can be fully utilized by the parent firm otherwise multinational firms should borrow the weaker currency when a lower exchange rate is expected the effect of differential tax rates on the risk of multinational projects with different debt denomination alternatives also is examined

nonparametric comparative revealed risk aversion abstract we introduce a nonparametric method to compare risk aversion of different investors based on revealed preference methods using yaari s 1969 50 definition of more risk averse than we show that it is sufficient to compare the revealed preference relations of two investors this makes the approach operational the central rationalisability theorem provides strong support for this approach we also provide a measure of economic significance to quantify the differences in risk aversion which can also help to interpret differences in risk aversion in parametric models the approach is an alternative or complement to parametric approaches and a robustness check as a necessary first step towards this comparative approach we show how to test data for consistency with stochastic dominance relations which can also be used to recover larger parts of preferences we include an application to experimental data by choi et al 2007 10 11 which demonstrates the potential of the comparative approach

stabilization policy and public sector prices abstract this paper analyzes the impact of public sector price increases combined with employment cuts in a dynamic optimizing model if the government adopts a tough layoff policy the real wage is highly flexible and the reforms are perceived to be permanent there is a strong presumption that real output will be higher and inflation lower over all time horizons problems may arise during the adjustment process however when the reforms are not credible or the real wage adjusts slowly to clear the labor market

the currency of denomination decision for debt financing this paper examines the currency of denomination decision for long term debt financing in the presence of corporate income taxes and flotation costs the numerical analysis provides convincing evidence that the tax effect dominates the flotation cost effect unless the firm operates in tax haven countries hence the conventional decision rule still applies to the choice of currency in which to borrow or to lend borrow in the weakest currency and lend in the strongest

obstacles to disinflation what is the role of fiscal expectations persistently high expected inflation often makes it difficult for policy makers to recover from inflationary episodes without substantial output losses using survey data from eleven disinflation episodes we can assess whether the more or less sluggish decline of inflation rates towards lower target levels is related to backward looking pricing behavior or to imperfect credibility of the stabilization efforts we find that expectations of future inflation play a much more important role than past inflation in shaping the inflation process second we find that an improvement in various measures of fiscal balances significantly reduces inflation expectations this evidence suggests that when attempting to stabilize inflation priority should be given to building fiscal credibility oya celasun r gaston gelos and alessandro prati

exchange rates market structure and price cost margins evidence from a developing country this paper analyses the sensitivity of firm performance to exchange rate fluctuations in a two country world consisting of a developing domestic country and a developed foreign country we show that this sensitivity is closely related with market structure and the share of imported inputs in total cost when the share of imported inputs is low depreciation leads to an increase in price cost margin this increase intensifies in more competitive industries when the imported input share is high the price cost margin may decrease as a result of depreciation and this effect becomes pronounced in more competitive industries the empirical test where we used 3 digit turkish manufacturing industry data support most of the findings of our model

foreign currency denominated debt an empirical examination we examine the determinants of debt issuance in 10 major currencies by large u s firms using the fraction of foreign subsidiaries and tests exploiting the disaggregated nature of our data we find strong evidence that firms issue foreign currency debt to hedge their exposure both at the aggregate and the individual currency levels we also find some evidence that firms choose currencies in which information asymmetry between domestic and foreign investors is low we find no evidence that tax arbitrage liquidity of underlying debt markets or legal regimes influence the decision to issue debt in foreign currency

public sector price increases credibility and welfare abstract this paper examines the dynamics of inflation and unemployment when the government increases public sector prices and wage indexation prevents the labor market from clearing in the short run credible reforms are virtually certain to be immediately deflationary and welfare improving even when the labor market clears very slowly temporary price increases however usually produce higher inflation after a short period of time and often reduce welfare when higher inflation provokes the government to reverse the reform there exist multiple self fulfilling equilibria