Routledge Dictionary of Economics, Second Edition
political business cycle (E3)
Fluctuations in economic activity brought about by democratically elected governments seeking to win successive elections. It has been argued that political parties have a choice between unemployment and inflation so that in the period before an election they will stimulate a boom to reduce unemployment at the expense of price rises but after the election will deflate when returned to power. This discretionary use of fiscal policy destabilizes an economy The theory appears to be more applicable to some ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT economies, e.g. the USA and Germany, than others. In 2001 in the UK large accumulated tax revenues were released to coincide with the General Election.
See also: Phillips curve
References
Lachler, U. (1982) ‘On political business cycles with endogenous election dates’, Journal of Public Economics 17:111–17.
MacRae, C.D. (1977) ‘A political model of the business cycle’, Journal of Political Economy 85:239–63.
Minford, P. and Peel, D. (1982) ‘The political theory of the business cycle’, European Economic Review 10:253–70.
Nordhaus, W.D. (1975) ‘The political business cycle’, Review of Economic Studies 42:169–90.
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