THE IMPACT OF POLITICAL FACTORS ON THE INSTRUMENTS AND RESULTS OF ECONOMIC POLICY
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The paper examines the impact of political factors on the instruments and effects of economic policy. The author analyzes several theoretical models to determine the ways in which politicians seek to influence the economy. The analysis comprises both 'traditional' models based on irrational voter behaviors and 'new-generation' models that assume that, after all, voters behave in a rational way. Traditional models include an 'opportunistic political cycle' model developed by Nordhaus and a 'partisan cycle' model developed by Hibbs. Both these models are based on 'the Phillips curve'. Under the Nordhaus model, before parliamentary elections, the economy tends to grow fast and employment remains low; then, as election day approaches, inflation tends to rise. After the elections, the economy usually displays a recessionary trend. This pattern does not depend on the political orientation of those in power. On the other hand, under the Hibbs partisan model, there are differences in the inflation/unemployment pattern depending on the political orientation of the ruling party in terms of whether it is rightist or leftist. New-generation models assume that voters behave in a rational manner and cannot be 'fooled' all the time. The assumption of rationality reduces the extent and likelihood of regular political cycles, although it does not eliminate them, the author says. Instead of regular multi-year electoral cycles, there are short electoral cycles that involve monetary and fiscal policy instruments rather than economic policy outcomes.
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