I. INTRODUCIION In this paper we examine the extent to which political factors affect macroeconomic variables in the Australian economy. In particular, we answer three related sets of questions. Firstly, to what extent do incumbent governments manipulate the economy in order t raise their probability o of winning an election? Secondly. to what extent do policy makers take advantage of economic circumstances in choosing the timing of elections? Finally, is there any difference in the performance of the macroeconomy under Liberal, and under Labor governments in Australia? We use time-series econometric techniques t address these questions, and focus on Federal o elections in post-war Australia. These techniques allow us to uncover any statistically significant differences in the performance of the economy around election times, and under different political parties. While the (statistically) small number of elections makes inference somewhat hazardous, we find little evidence of political manipulation of the economy. or of partisan differences in the performance of the economy. The only exception to this conclusion is a statistically significant rise in government consumption and government capital investment in the four quarters prior to elections. The finding that there is little evidence of political or electoral cycles in
Australian Economic Papers – Wiley
Published: Jun 1, 1997
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