The political-business cycle is a political science concept thought to be applicable in different ways in most liberal democracies, although the research in this area applies most obviously to the USA and the United Kingdom. The basic idea is that government intervention in the economy is inevitably influenced in part by electoral considerations. Depending on how near a government is to facing a general election, its attitude to economic decisions changes. At its simplest, it has long been thought in the UK that governments are prepared to be fairly tough in economic decision making for the first two or three years after an election but much less prepared to make decisions that may lead to short-term unpopularity as the parliamentary term, a maximum of five years, nears its end. Decisions on interest rates, for example, or on government expenditure and tax changes, may be made even though they could lead to inflationary pressure in the last year or so before an election, when the same government might have been more financially conservative shortly after winning an election. In popular language, this is often referred to as a Chancellor of the Exchequer being pressured by his cabinet colleagues into a ‘give-away’ budget six months or so before a likely election date.
There is some evidence for this, as there is for a political-business cycle in the US, tied to the fixed two-yearly congressional elections and, to a much greater extent, to the four-yearly presidential election cycle. The problems of such a cycle are often alluded to in electoral rhetoric when one party will blame the other for causing ‘stop-go’ or ‘boom-bust’trends in the economy by their predilection for mass electoral bribery of this form. It may have been a more serious problem in the days when Keynesian economic policies, which stressed demand management by tax and expenditure policies, were in vogue. However any such political imposition on the inherent cyclic nature of the capitalist economy is clearly best avoided. This is one of the reasons highly independent central banks along the US and German models are often recommended. Nothing, however, can prevent a government from tailoring its expenditure plans to an election cycle, except the fear of gaining a reputation for fiscal irresponsibility. The memories of the electorate, and their general preference for short- rather than long-term satisfaction probably makes it more dangerous not to run a generous budget before an election than to risk such a reputation.
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