Alternative Approaches to the Political Business Cycle
This paper reviews the theory and evidence concerning Political Business Cycles (PBC), which are based on the obvious facts of democratic life that voters care about the economy while politicians care about power. The ﬁrst section provides an overview of diﬀerent approaches to political cycles, describing ﬁve models that have been used in diﬀerent contexts. The next two sections review major theoretical issues, with attention to the “microfoundations” of politico-economic systems, an exploration of the implications of ideological parties for political equilibria, and a formal analysis of a number of diﬀerent PBC models. The empirical sections begin with an analysis of two important empirical questions in PCB models: whether voters are ultrarational and whether parties are ideological or opportunistic. The ﬁnal section then examines historical and econometric evidence to determine the importance of political cycles in macroeconomic activity.
Nordhaus, William D., "Alternative Approaches to the Political Business Cycle" (1989). Cowles Foundation Discussion Papers. 1170.