The current political decisions do not only affect the economy, additionally also future capital stocks and (infra-) structures are significantly influenced. Generally one should keep in mind that natural resources as well as price inflation for produced goods highly depend on the decision whether to consume now or save them for later.
One of the most important influence factors for the economical life is the government policy. The trade-off between the focus on present and future welfare (between consuming and saving) is mainly based on political decisions. Thus it is important to address the role of the government and understand how elections and voters might influence the decision of the political parties during their incumbency.
This paper describes the motivation of the politicians to influence the voters before the election takes place in order to win. Generally speaking, they use economical instruments (like the Phillips curve, aggregated demand, budgets, etc.) to increase their chance for the next election. However the usage of these instruments produces a downturn shortly after the election; the whole process is called a political business cycle.
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 1.1. Opportunistic Business Cycles
- 1.2. Macro-Economic Background
- 2. Related Literature
- 2.1. Opportunistic models
- 2.2. Empirical Analysis
- 2.3. Further Election Optimization
- 3. Opportunistic (Business Cycle) Models
- 3.1. Traditional Opportunistic Model
- 3.2. Rational Opportunistic Model
- 3.2.1. Assumptions
- 3.2.2. Business Cycles
- 3.3. Rational Equilibrium
- 4. Partisan Model
- 4.1. Assumptions
- 4.2. Partisan Business Cycles
- 5. Summary and Discussion
- 5.1. Overview
- 5.2. Review and Critics
- 5.2.1. Traditional opportunistic model
- 5.2.2. Rational opportunistic model
- 5.2.3. Partisan model
- 6. References
- 7. Appendix
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to analyze political business cycles, focusing on the rational opportunistic model. It explores how political parties manipulate economic instruments to influence voters before elections, leading to short-term economic gains followed by post-election downturns. The paper compares the rational opportunistic model with the partisan model, contrasting their assumptions about party motivations and voter rationality.
- Political manipulation of economic indicators before elections.
- The trade-off between unemployment and inflation (Phillips Curve).
- Comparison of opportunistic and partisan models of political business cycles.
- Rationality of voters and its impact on political strategies.
- Short-term economic gains versus long-term economic stability.
Zusammenfassung der Kapitel (Chapter Summaries)
1. Introduction: This introductory chapter establishes the context of political business cycles, highlighting how governmental decisions impact both the immediate economy and long-term investments in capital and infrastructure. It emphasizes the government's role in the trade-off between present and future welfare, using the Phillips curve as the primary macroeconomic framework for analyzing the interplay between unemployment and inflation in response to political decisions. The chapter lays the groundwork for understanding opportunistic and partisan models by outlining the basic assumptions and mechanisms involved in political business cycles.
1.1. Opportunistic Business Cycles: This section defines the key concepts of "opportunistic" and "rational" behavior within the context of political business cycles. Opportunistic behavior is characterized by parties prioritizing election victory, even if it means temporarily compromising long-term economic stability. Rational behavior, particularly relevant to the rational opportunistic model, describes voters who make informed decisions based on their individual preferences. The section describes the cyclical pattern where parties manipulate the economy to improve short-term economic conditions before elections, leading to a subsequent downturn after the election. This cycle is driven by informational asymmetry between the government and voters.
1.2. Macro-Economic Background: This section introduces the macroeconomic foundation of the paper, focusing on the Phillips curve and its implications for the trade-off between unemployment and inflation. The chapter explains the relationship between unemployment, worker demand, wage increases, and inflation, establishing that a lower unemployment rate generally leads to higher inflation due to increased worker bargaining power. It also notes the difference between short-run and long-run trade-offs, illustrating how different political parties might prioritize different points along the Phillips curve based on their ideological leanings (e.g., a left-leaning party might prioritize low unemployment, even at the cost of higher inflation). The discussion of Alesina's (1997) work underscores the distributional effects of these choices on various income quintiles. The chapter ultimately sets the stage for analyzing how political parties strategize within these macroeconomic constraints.
Schlüsselwörter (Keywords)
Political Business Cycle, Opportunistic Model, Rational Opportunistic Model, Partisan Model, Phillips Curve, Inflation, Unemployment, Elections, Voter Rationality, Macroeconomic Policy.
Frequently Asked Questions: A Comprehensive Language Preview on Political Business Cycles
What is the main topic of this paper?
This paper analyzes political business cycles, focusing on how political parties manipulate economic instruments to influence voters before elections. It particularly emphasizes the rational opportunistic model, comparing it with the partisan model.
What models of political business cycles are discussed?
The paper examines the traditional opportunistic model, the rational opportunistic model, and the partisan model. It compares and contrasts their assumptions about party motivations and voter rationality.
What are the key themes explored in this paper?
Key themes include political manipulation of economic indicators before elections, the trade-off between unemployment and inflation (Phillips Curve), a comparison of opportunistic and partisan models, voter rationality and its impact on political strategies, and the conflict between short-term economic gains and long-term economic stability.
What is the rational opportunistic model?
The rational opportunistic model describes a scenario where political parties strategically manipulate the economy to achieve short-term economic gains before elections, anticipating that voters will be influenced by these improvements. This is done even if it compromises long-term economic stability. It assumes voters are rational and act based on their individual preferences.
How does the Phillips Curve relate to the models discussed?
The Phillips Curve, representing the trade-off between unemployment and inflation, serves as the macroeconomic framework for understanding how political parties might prioritize different economic outcomes (e.g., low unemployment vs. low inflation) before elections, depending on their ideological leanings and strategic goals.
What is the difference between the opportunistic and partisan models?
The paper contrasts the assumptions underlying these models. While both concern manipulation of the economy for political gain, they differ in their assumptions about party motivations and voter rationality. The specific differences are detailed in the paper.
What is the structure of the paper?
The paper is structured with an introduction setting the context and defining key concepts. It then reviews relevant literature, details the different models of political business cycles, summarizes and discusses the findings, and concludes with references and an appendix. The Table of Contents provides a detailed chapter breakdown.
What are the chapter summaries?
The chapter summaries provide detailed overviews of each section, explaining the key concepts and arguments presented. They cover the introduction, the opportunistic business cycle concept, the macroeconomic background with the Phillips curve, and the models of political business cycles. The summary chapter reviews the models and their critiques.
What are the key words associated with this research?
Key words include: Political Business Cycle, Opportunistic Model, Rational Opportunistic Model, Partisan Model, Phillips Curve, Inflation, Unemployment, Elections, Voter Rationality, and Macroeconomic Policy.
What is the overall objective of this research?
The paper aims to analyze political business cycles, focusing on the rational opportunistic model and comparing it with the partisan model to provide a comprehensive understanding of how political parties might manipulate economic conditions for electoral advantage.
- Quote paper
- Dr. Tobias Fritsch (Author), 2006, Rational Opportunistic Political Business Cycles, Munich, GRIN Verlag, https://www.grin.com/document/142210