Economics on Elections

by Audrey Rose G. Gelomina

May 19, 2014

The relationship between elections and economics is of interest to political economists. A number of studies have dealt with explaining the interaction between the two. Studies on their relationship may be divided into two.

TECHNICAL BRIEF

First is the impact of economic indicators on the voting behavior of the electorate and the other is the impact of elections on economic outcomes and economic policies of the elected officials. This study will focus on the second relationship of elections and economics.

THE POLITICAL BUSINESS CYCLE

The first one to formalize the framework for the relationship between
economic policy making and political objectives is Nordhaus ( 1975 ) . He introduced the term political business cycle wherein he explained that political
system causes fluctuations in the long-term movement of an economy. The
assumption is that incumbent politicians manipulate policy instruments to improve the probability of their re-election.
The PBC theory has two basic variations. The opportunistic model tries
to explain that because of the opportunistic government seeking reelection,
systematic policy expansions exist before elections. while the partisan model
tries to explain that ideological differences between different parties affect economic outcomes ( Evangelista and Libre, 2008, 125 ) .
Studies have shown that the opportunistic model is more appropriate
for analysis in the developing countries like the Philippines than the partisan
model because in the Philippine context, political parties do not have specific
ideological differences. They do not have specific preference between inflation
and unemployment.

TECHNICAL BRIEF

May 19, 2014

THE OPPORTUNISTIC MODEL

This model asserts that politicians who are mainly driven by their desire to be reelected
would try to stimulate the economy and most incumbent politicians may, before elections, employ expansive macroeconomic policies ( K aplan, 2006 ) . The assumption of this model is
that the electorate is basically retrospective who only look at the immediate past information in
order to form their expectations regarding future inflation. Meanwhile, politicians are concerned
on the ways on how to improve their chances of winning the election. With this, incumbent
politicians are assumed to employ expansionary policies before elections in order to gain support from the electorate and once the election is over, they will now employ policies which are
contractionary or policies to reduce inflation.

APPLYING PBC IN THE PHILIPPINE CONTEXT

There has been few studies on the relationship between elections and economics in the
Philippines relative to the Western countries. In a previous study on the factors affecting electoral outcomes at the provincial level in the Philippines, it was observed that unemployment
was a significant factor affecting the electorate s decision ( Gelomina, 2013 ) . Hence, this
may show that incumbent politicians are induced to manipulate policies prior to election in order to persuade the electorate. This study will test this hypothesis.
Using the opportunistic model of the PBC theory, the study will determine the impact of
electoral cycle in the Philippines on economic policy-making of the incumbent officials and on
the economic outcome. It would gather empirical evidence on the existence of the political
business cycle in the Philippines.

REFERENCES:
Evangelista, D. P. and Libre, P. A. (2008). Electoral Cycles in Philippine Fiscal and Monetary Policy. The Philippine
Review of Economics, 45(2): 119-159
Gelomina, A.R.G. (2013). The Significnce of the Economy and Politics on Incumbent Re-election in the Philippines
(Undergrad Thesis). University of the Philippines Los Banos.
Kaplan, S. B. (2006). Do elections hurt developing economies. papers.ssrn.com/sol3/papers.cfm?abstract_id=1121488.
(accessed May 9, 2013)
Kramer, G. H. (1971). Short-Term Fluctuations in U.S. Voting Behavior. The American Politcal Science Review, 65(
1): 131-143.
Nordhaus, W. (1975). The Political Business Cycle. Review of Economics Studies, 42(2): 169-190.
1987 Philippine Constitution
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