1. “Are you better off today than you were four years ago?”
Voters consider, among other factors, economic conditions when voting for president
Misery Index = Unemployment Rate + Inflation Rate
Incumbent party reelected when MI falls (*2000)
Incumbent party voted out when MI rises (except 1972)
Election Calculator (2016)
[Ray Fair]

2. Party
Year
UNEMP
INFL MI
∆MI
Vote R
1956
4.1
2.9
7.0
1960
5.5
1.5
0.0
49.9 D
1964
5.2
1.2
6.4
-0.6
61.3
1968
3.6
4.7
8.3
1.9
49.6
1972
5.6
4.4
10.0
1.7
61.8
1976
7.7
4.8
12.5
2.5
48.9
1980
7.1
12.4
19.5
44.7
1984
7.5
3.9
11.4
-8.1
59.2
1988
9.9
-1.5
53.9
1992
10.4
0.5
46.5
1996
5.4
3.3
8.7
-1.7
54.7
2000
4.0
3.4
7.4
-1.3
50.3
2004
2.7
8.2
0.8
51.5
2008
5.8
3.8
9.6
1.4
2012
8.1
2.1
10.2
0.6
51.1
2016
4.9
2.2
-3.1

3. Macroeconomic Formulations
Lucas supply function
Y = YN + a*(Inflation – Expected Inflation), a>0
Phillips Curve representation
U = UN + b*(Inflation – Expected Inflation), b<0

4. Phillips Curve
Inflation I1
Unemployment UN

5. Political Business Cycles William Nordhaus
Inflation I2 I1
Unemployment UE UN

6. Political Business Cycles William Nordhaus
Inflation I2 I1
Unemployment UE UN

7. Political Business Cycles William Nordhaus
Inflation I3 I2 I1
Unemployment UE UN

8. Political Business Cycles William Nordhaus
Inflation I3 I2 I1
Unemployment UE UN

9. Political Business Cycles (variant)
Inflation I3 I2 I1
Unemployment UE UN UH

10. Political Business Cycles (variant)
Inflation I3 I2 I1
Unemployment UE UN UH

11. Partisan Business Cycles Douglas Hibbs
Inflation
Democrats ID
Republicans IR
Unemployment UD UR

12. Partisan Economic Performance
Democrat
Republican
D Unemployment
D Inflation
level %
60-64
-0.3
-5.5
-20.0
68-72
2.0
55.6
-6.4
64-68
-1.6
-30.8
3.5
291.7
72-76
2.1
37.5
0.4
9.1
76-80
-0.6
-7.8
7.6
158.3
80-84
5.6
-8.5
-68.5
92-96
-2.1
-28.0
13.8
84-88
-2.0
-26.7
0.5
12.8
96-00
-1.4
-26.4
0.1
4.1
88-92
36.4
-1.5
-34.1
08-12
2.3
48.4
-1.7
-55.7
00-04
1.5
38.4
-0.7
-21.4
12-16
-3.2
-56.6
3.1
04-08
0.3
5.3
1.1
33.8
Avg
-1.0
-17.2
1.4
21.1
21.5
-1.2
-14.1

13. Rational Partisan Business Cycles Alberto Alesina
Inflation
IE = average ( ID , IR ) ID IE IR
Unemployment UD UN UR

14. Rational Partisan Business Cycles Alberto Alesina
Inflation
election: IE = average ( ID , IR )
Dems win: IE = ID
Reps win: IE = IR ID IE IR
Unemployment UD UN UR

15. Evidence for Partisan Business Cycles Truman (1948) through Obama (2016)
Partisan Growth Cycles
Democrats 3.6 > Republicans 2.8
Democrats 1st half 3.7 > Republicans 1st half 2.0
Democrats 2nd half 3.5 ≈ Republicans 2nd half 3.5
But annual record does not fit
Partisan Unemployment Cycles
Democrats 5.7 ≈ Republicans 5.9
Democrats 1st half 6.2 > Republicans 1st half 5.6
Democrats 2nd half 5.2 < Republicans 2nd half 6.2

16. Growth by term year

17. Unemployment by term year

18. Evidence for Electoral Cycles in OECD Economies
Political Business Cycles
Not for output or unemployment
Policy cycles in money, deficits, some fiscal
Partisan Business Cycles
Mixed for output and unemployment
Policy cycles in money and fiscal

19. India – Cole (2009)
Comparison of districts w/ and w/o election, and over time
Agricultural credit higher where elections
Agricultural credit contractions in years prior
Ag Credit targeted toward “swing” districts
Greater difference for public vs private banks
Wasteful (no correlation b/w ag credit and productivity)
Write-offs greatest where majority party had most success

20. A Political Business Cycle?

22. Strategic Election Timing
PBC tests valid for US
PPC tests valid for fiscal---money ?
RPT valid for US
RPT varies for others (VRPT – Heckelman 2001)
Uncertainty over election timing
Greater divergence in output, unemployment over the course of an administration
Election effects depend on when election called (uncertainty)
Evidence supports for Germany, not UK or Canada
Evidence supports for pooled sample of Australia, France, Germany, Sweden, UK, US (Berlemann and Markwardt, EJPE 2006)