|Economic Cycle||Tufte||Mause I 281f
Economy/Political Elections/Tufte: Thesis: "Political economic cycles" (see Political Elections/Nordhaus) can be caused not only by monetary policy measures, but also by fiscal policy. Governments are being tempted to pursue an expansive fiscal policy: In the election year, taxes could be reduced, expenditure increased and budget deficits increased. After the election, the deficit will be reduced through spending cuts and tax increases. This would be an "electoral budget cycle". (1)
VsTufte: Objections are directed against the assumption that fiscal policy is being manipulated for re-election purposes. Such a policy should not be successful in the long run for rational individuals. In game theory, it can be argued that governments could use expansive fiscal policy as a signal to convey their competence to voters who cannot closely monitor budget developments in a year (see, for example, Rogoff 1990 (2); Rogoff and Sibert 1988 (3)). This would encourage particularly competent governments to adopt an expansive policy.
In general, countries that have not been democracies for long seem to have more electoral budget cycles than countries with a longer democratic tradition. (4)
1. Edward R. Tufte,. Political control of the economy. Princeton: Princeton 1978.2.
2. Kenneth Rogoff. 1990. Equilibrium political budget cycles. American Economic Review 80 (1), S. 21– 36.
3. Kenneth Rogoff & Anne Sibert. 1988. Elections and macroeconomic policy cycles. Review of Economic Studies 55 (1) S.1– 16.
4. Adi Brender & Allan Drazen. 2005. Political budget cycles in new versus established democracies. Journal of Monetary Economics 52( 7): 1271– 1295.
Edward R. Tufte
Political control of the economy Princeton 1978