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(How) Do electoral surprises drive business cycles? Evidence from a new dataset

Author

Listed:
  • Fetzer, Thiemo

    (University of Warwick, University of Bonn, ECONtribute, STICERD, CAGE, NIESR, CESifo and CEPR)

  • Yotzov, Ivan

    (University of Warwick, CAGE, and the Bank of England)

Abstract
This paper documents that surprise election outcomes – measured as deviations between realised vote shares and expected vote shares based on a newly constructed dataset of opinion polls and party and candidate vote shares close to election day – are causing non-negligible short-term contractions in economic activity. We find that, on average, a percentage point higher surprise is associated with a 0.37 percentage point lower year-on-year growth rate one year after the election. These effects are only present in countries with strong democracies and seem to operate mainly through increased economic policy uncertainty and lower investment growth over a window of up to eight quarters after an election. In addition, surprise performances of left-wing political parties and in elections with transitions to left-wing governments (pre-defined from the Parlgov Database) are associated with the largest effects on the economy.

Suggested Citation

  • Fetzer, Thiemo & Yotzov, Ivan, 2023. "(How) Do electoral surprises drive business cycles? Evidence from a new dataset," The Warwick Economics Research Paper Series (TWERPS) 1468, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1468
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    References listed on IDEAS

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    Cited by:

    1. Eleonora Alabrese & Thiemo Fetzer, 2024. "Opinion Polls, Turnout and the Demand for Safe Seats," CESifo Working Paper Series 11063, CESifo.
    2. Fetzer, Thiemo & Rauh, Christopher & Schreiner, Clara, 2024. "The hidden toll of the pandemic: Excess mortality in non-COVID-19 hospital patients," Journal of Health Economics, Elsevier, vol. 95(C).

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    More about this item

    Keywords

    macroeconomic fluctuations ; elections ; structural reforms ; surprises ; uncertainty JEL codes: E02 ; E3 ; F5 ; E32;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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