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Political Cycles in Active Labor Market Policies

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  • Mechtel, Mario
  • Potrafke, Niklas

Abstract

This paper examines how electoral motives and government ideology influence active labor market policies (ALMP). We present a model that explains how politicians strategically use ALMP to generate political cycles in unemployment and the budget deficit. Election-motivated politicians increase ALMP spending before elections irrespective of their party ideology. Leftwing politicians spend more on ALMP than rightwing politicians. We test the hypotheses derived from our model using German state data from 1985:1 to 2004:11. The results suggest that ALMP (job-creation schemes) were pushed before elections.

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  • Mechtel, Mario & Potrafke, Niklas, 2009. "Political Cycles in Active Labor Market Policies," MPRA Paper 22780, University Library of Munich, Germany, revised May 2010.
    • Handle: RePEc:pra:mprapa:22780
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    More about this item

    Keywords

    active labor market policies; political cycles; labor market expenditures; opportunistic politicians; partisan politicians;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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