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Elections and Macroeconomic Policy Cycles

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  • Kenneth Rogoff
  • Anne Sibert

Abstract

There is an extensive empirical literature on political business cycles, but its theoretical foundations are grounded in pre-rational expectations macroeconomic theory. Here we show that electoral cycles in taxes, government spending and money growth can be modeled as an equilibrium signaling process. The cycleis driven by temporary information asymmetries which can arise if, for example,the government has more current information on its performance in providing for national defense. Incumbents cheat least when their private informationis either extremely favorable or extremely unfavorable. An exogenous increase in the incumbent partyts popularity does not necessarily imply a damped policy cycle.

Suggested Citation

  • Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1838
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