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Electoral Incentives, Political Business Cycles and Macroeconomic Performance: Empirical Evidence from Post-War US Personal Income Growth

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  • KRAUSE, GEORGE A.
Abstract
Conventional wisdom suggests that macroeconomic outcomes do not follow a political business cycle (PBC) pattern. In this study, the nature of the electoral underpinnings of such opportunistic behaviour are investigated by analysing alternative formulations of PBC theory: (1) a naïve-unconditional PBC, (2) an electoral security-conditional PBC, (3) an electoral uncertainty-conditional PBC; and (4) a partisan-conditional PBC. Data on the US real personal income growth rate for the 1948:1–2000:4 quarterly period reveals support for both naïve-unconditional and partisan-conditional PBCs, yet rejects an electoral cycle attributable to the incumbent administration's ex ante re-election prospects. Simulation analysis reveals that while Democratic administrations enjoy higher income growth than Republican counterparts for non pre-election stimulus periods, Republican presidents are associated with larger pre-election economic expansions than Democratic presidents consistent with a partisan-conditional PBC theoretical model. This finding supports the notion that incumbent governments engage in partisan-based policy balancing with respect to the creation of opportunistic electoral cycles in real macroeconomic activity. On a broader level, these statistical findings provide strong support for adaptive models of the electoral cycle that emphasize partisan differences while refuting the policy neutrality proposition and rational-competence models predicated on the extent to which an incumbent administration experiences electoral vulnerability.

Suggested Citation

  • Krause, George A., 2005. "Electoral Incentives, Political Business Cycles and Macroeconomic Performance: Empirical Evidence from Post-War US Personal Income Growth," British Journal of Political Science, Cambridge University Press, vol. 35(1), pages 77-101, January.
    • Handle: RePEc:cup:bjposi:v:35:y:2005:i:01:p:77-101_00
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    Cited by:

    1. Eric Dubois, 2016. "Political business cycles 40 years after Nordhaus," Public Choice, Springer, vol. 166(1), pages 235-259, January.
    2. Chiu, Eric M.P., 2020. "Reexamining the Macroeconomic Policy Cycle in Taiwan: Evidence from the Central Bank’s Monetary Reaction Function," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 61(2), pages 89-110, December.
    3. Niklas Potrafke, 2018. "Government ideology and economic policy-making in the United States—a survey," Public Choice, Springer, vol. 174(1), pages 145-207, January.
    4. Canes-Wrone, Brandice & Park, Jee-Kwang, 2010. "Electoral Business Cycles in OECD Countries," Papers 9-12-2010a, Princeton University, Research Program in Political Economy.
    5. Gernot Sieg & Irem Batool, 2012. "Pakistan, Politics and Political Business Cycles," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(2), pages 153-166.
    6. Niklas Potrafke, 2017. "Government Ideology and Economic Policy-Making in the United States," CESifo Working Paper Series 6444, CESifo.
    7. repec:jes:wpaper:y:2012:v:4:p:853-865 is not listed on IDEAS
    8. Dodge Cahan & Niklas Potrafke, 2021. "The Democrat-Republican presidential growth gap and the partisan balance of the state governments," Public Choice, Springer, vol. 189(3), pages 577-601, December.
    9. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01291401, HAL.
    10. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Post-Print hal-01291401, HAL.
    11. Claudiu-Gabriel Tiganas & Claudiu Peptine, 2012. "Political Business Cycle And Economic Instability - Literature Review," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4(4), pages 853-865, December.
    12. Endrit Lami & Drini Imami, 2013. "Searching for Political Fiscal Cycles in Hungary," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(4), December.

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