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Political Cycles and the Macroeconomy

Опубликовано на портале: 01-09-2003
New York: MIT Press, 2002
This book examines how electoral laws, the timing of election, the ideological orientation of governments, and the nature of competition between political parties influence unemployment, economic growth, inflation, and monetary and fiscal policy. The book presents both a thorough overview of the theoretical literature and a vast amount of empirical evidence.

Book Description
"This book is an important achievement in Political Economy, by two of the most creative researchers in the field. The ideas here, developed over many years by Alesina and Roubini, have already stimulated considerable new research and important empirical findings. This book deserves a wide readership."
Jeffrey D. Sachs, Director, Harvard Institute for International Development; Galen L. Stone Professor of International Trade, Department of Economics, Harvard University
The relationship between political and economic cycles is one of the most widely studied topics in political economics. This book examines how electoral laws, the timing of elections, the ideological orientation of governments, and the nature of competition between political parties influence unemployment, economic growth, inflation, and monetary and fiscal policy. The book presents both a thorough overview of the theoretical literature and a vast amount of empirical evidence.
A common belief is that voters reward incumbents who artificially create favorable conditions before an election, even though the economy may take a turn for the worse immediately thereafter. The authors argue that the dynamics of political cycles are far more complex. In their review of the main theoretical approaches to the issues, they demonstrate the multifaceted relationships between macroeconomic and political policies. They also present a broad range of empirical data, from the United States as well as OECD countries. One of their most striking findings is that the United States is not exceptional; the relationships between political and economic cycles are remarkably similar in other democracies, particularly those with two-party systems.
This text refers to the Paperback edition.

Reviewer: William R. Keech, The Independent Review (Fall 1998)
Alberto Alesina is one of the leading scholars to adapt that new theory of macroeconomics to the possibility of political goals and motivations on the part of policy makers. And "Political Cycles and the Macroeconomy" is the most comprehensive and authoritative statement of scholarship in this field. It is a theoretical and empirical statement of the state of the art in political macroeconomics. It contains a review of alternative theories and fresh empirical tests. It builds on a decade or more of empirical work by Alesina, with the present colleagues and others, and by many other scholars.
Alesina and his colleagues begin with an intellectual map of opportunistic and partisan theories, for each of which there are traditional models with an exploitable Phillips curve and models that are consistent with rational expectations. The conclusions are that the rational choice and rational expectations theories are more successful than their more traditional predecessors and that the partisan model is more successful than the opportunistic model in explaining macroeconomic behavior. That is, the designated winner on both theoretical and empirical grounds is "rational partisan theory," of which the leading scholar is Alberto Alesina himself. The theories are tested with data for the United States and for most of the developed economies in the Organization for Economic Cooperation and Development (OECD)....
Although the book's empirical work pertains to most OECD nations, there is a separate chapter devoted to political cycles in the United States. Descriptive data regarding inflation, unemployment, and growth are presented, organized by party and position in the electoral cycle. Hypotheses are tested on data for the period from 1947 through 1994. Results support the rational partisan theory and fail to support opportunistic electoral cycle hypotheses. For nonspecialists the most telling evidence in favor of the "rational partisan" theory, as opposed to the traditional theory, is that differences between the parties on unemployment and growth are confined to the first half of administrations, in response to the element of surprise in electoral outcomes, but the differences dissipate in the second half.
"Political Cycles and the Macroeconomy" is a state-of-the-art presentation of an important field bridging economics and political science. Although the technical level of the book is high (some chapters have more than a score of equations), the book is accessible to serious readers and will be rewarding to them. It simultaneously advances the study of macroeconomics and the study of political processes and institutions. It is a fine book.

Acknowledgments

1 Overview
1.1 Organization of the Book
1.2 How Does This Book Relate to Previous Research?
1.3 Technical Level of This Book

2 Opportunistic Models
2.1 Introduction
2.2 The Traditional Opportunistic Model: The Political Business Cycle
2.3 Rational Opportunistic Models
2.4 Rational Retrospective Voting
2.5 Conclusions
Appendix

3 Partisan Models
3.1 Introduction
3.2 The Traditional Partisan Model
3.3 The Rational Partisan Model
3.4 Welfare Properties of Partisan Cycles
3.5 A Rational Partisan Model with Retrospective Voting
3.6 Discussion and Conclusions
Appendix

4 Political Cycles in the United States
4.1 Introduction
4.2 Previous Empirical Results
4.3 Data and Basic Statistics
4.4 Specification of the Empirical Tests
4.5 Evidence on the Partisan Theories
4.6 Evidence on Political Business Cycles
4.7 Political Cycles in Monetary Policy
4.8 Political Cycles in Fiscal Policy
4.9 Discussion: Alternative Hypotheses
4.10 Conclusions
Appendix

5 Polls, Electoral Uncertainty, and the Economy
5.1 Introduction
5.2 The Electoral Option and Its
Application to Models of Partisan Politics
5.3 Political Information and Financial Markets: An Overview
5.4 Conclusion
Appendix A
Appendix B
Appendix C

6 Political Cycles in Industrial Economies
6.1 Introduction
6.2 Previous Empirical Results
6.3 Data and Specification of Empirical Tests
6.4 Evidence on the Rational Partisan Theory
6.5 Traditional Partisan Theory
6.6 Level versus Growth Effects
6.7 Evidence on Political Business Cycles
6.8 Endogenous Elections and Opportunistic Policy-makers
6.9 Conclusions
Appendix

7 Political Cycles and Macroeconomic Policies: Evidence from Industrial Democracies
7.1 Introduction
7.2 Data and Specification of Empirical Tests for Monetary Policy
7.3 Evidence on Partisan Effects in Monetary Policy
7.4 Evidence on Political Business Cycle Effects in Monetary Policy
7.5 Electoral and Partisan Determinants of Fiscal Policy and Budget Deficits
7.6 Conclusions
Appendix

8 Political Cycles and Central Bank Independence
8.1 Introduction
8.2 Independent Central Banks
8.3 Political Cycles and Central Bank Independence
8.4 A Note on the "Contracting" Approach
8.5 Conclusions
Appendix

9 Political Parties, Institutions, and Budget Deficits
9.1 Introduction
9.2 Political Models of Budget Deficits
9.3 Opportunistic and Partisan Effects on Fiscal Policy Revisited
9.4 Normative Implications
9.5 Conclusions
Appendix


10 Conclusions
10.1 Summary of Results
10.2 Are Political Cycles Going to Disappear?

Notes
References
Index

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