Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19057
Authors: 
Malley, Jim
Philippopoulos, Apostolis
Woitek, Ulrich
Year of Publication: 
2005
Series/Report no.: 
CESifo Working Paper 1593
Abstract: 
In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.
Subjects: 
political uncertainty
business cycles & growth
optimal policy
hybrid maximum likelihood estimation
JEL: 
E6
D9
H5
H1
Document Type: 
Working Paper

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