Electoral Uncertainty, Fiscal Policy and Macroeconomic Fluctuations
CESifo, Munich, 2005
CESifo Working Paper No. 1593
![](https://cesifo.org/DocImg/cesifo1_wp1593.jpg?c=1689237170)
In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.
Fiscal Policy, Macroeconomics and Growth