Rationalizing the Political Business Cycle: A Workhorse Model

摘要: An incumbent policymaker has incentives to expand the money supply prior elections stimulate economy and thereby further her chances of re-election. In its original formulation, Nordhaus political business cycle hypothesis relies on adaptive inflation expectations naive retrospective voting. This article develops a simple model in output growth, assuming rational voting. Voter scrutiny incumbent's economic performance policy selection effects, with ambiguous consequences for welfare: manipulates electoral purposes, but an above average quality is more likely remain office.