Modern Macroeconomics.pdf

The new political macroeconomics 54510.11 Opportunistic and Partisan Behaviour: A SynthesisWe have seen in our earlier discussion that opportunistic theories of thepolitical business cycle assume that politicians are only office-motivated.Their macroeconomic policies are designed to win elections. Partisan theoriesstress ideological considerations and reject the assumption made inopportunistic theories that all parties will follow the same policies. Partisantheory rejects policy convergence. An alternative hypothesis is to follow thesuggestion of Frey and Schneider (1978a, 1978b) that political parties behavein an opportunistic way when their chances of re-election are perceived to below. Governments can use independent surveys to assess their popularity.When a party is ‘popular’ and confident of winning the next election, it canafford to indulge in ideological policies. Frey and Schneider (1978a) suggestthat ‘a government’s lead over the opposition is determined by both the stateof the economy and the election cycle’. This latter feature is the tendency ofthe incumbents to become less popular between elections (see also Alesinaand Rosenthal, 1995). Incumbent politicians want to be re-elected in order toimplement their ideological programmes, but may face an incentive structurewhich varies at each election. Because the temptation to use opportunisticpolicies is strongest when governments do not feel confident they can win thenext election, opportunistic behaviour will be an increasing function of theincumbents’ political insecurity. Such an approach can account for the lack ofsystematic evidence in support of opportunistic behaviour. Where politicalsecurity is an important factor opportunistic policy manipulations should beobserved before some elections but not all (see Schultz, 1995).When considering the use of policy manipulations which have as theirobjective the maximization of re-election prospects, incumbents need to considerthe marginal benefits and marginal costs of such policies. The marginalbenefits of opportunistic behaviour, in the form of extra votes, are greatestwhen the government has a large popularity deficit. However, policy manipulationsalso generate extra costs to the incumbents in the form of loss ofreputation, and this could damage long-term partisan support (see Schultz,1995). Schultz argues that ‘by engineering a pre-election boom, governmentsalready open themselves up to charges of irresponsibility and opportunism’.However, ‘when governments feel insecure in the current election, they canill afford the luxury of being far-sighted and hence they discount the futurequite heavily’. From these observations Schultz formulates the followinghypothesis: ‘The degree to which the government manipulates the economyprior to an election will be negatively correlated with its lead in publicopinion polls at the time.’ Given the potential costs of policy manipulations, itis also the case that governments should only respond to popularity deficitsclose to the next election. Schultz tested this hypothesis for the manipulation