Election results and opportunistic policies: A new test of the rational political business cycle model
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Authors
Aidt, TS
Veiga, FJ
Veiga, LG
Publication Date
2009-09-24Journal Title
Public Choice
Series
Cambridge Working Papers in Economics
ISSN
1573-7101
Publisher
Faculty of Economics
Type
Working Paper
Metadata
Show full item recordCitation
Aidt, T., Veiga, F., & Veiga, L. (2009). Election results and opportunistic policies: A new test of the rational political business cycle model. Public Choice https://doi.org/10.17863/CAM.5626
Abstract
The literature on the rational political business cycle suggests that politicians systematically manipulate economic and fiscal conditions before elections to increase their chance of gaining reelection. Most tests of this theory look for evidence of pre-
election distortions in fiscal policy. We propose a new test that, instead, explores the implied two-way interaction between the magnitude of the opportunistic distortion and the margin of victory. The test is implemented using a panel of 278 Portuguese
municipalities (from 1979 to 2005). The results show that (1) opportunism pays off, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when their win-margin is small. These results are consistent with the theoretical model.
Keywords
Voting and popularity functions, opportunism, rational political business cycles, local government, system estimation, Portugal
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