ECONOMY

douglas a. hibbs, jr. 569
Taking averages over N voters (with N large enough to approximate an “infinity”
of votes) to find 1 N
∑ N
i=1 V it ≡ V t , yields the aggregate, linear voting function most
commonly used in empirical analysis
V t = · + X t β + u t (5)
where · = −d−Xb , β = b , u d−d d−d
t = − v t
∼ white-noise. Note that if the upper and
d−d
lower bounds of the distribution of electoral shocks are equal in absolute value, i.e.
d = −d, then the effects of ( X t − X ) would yield deviations of V t from an expected
vote share of 1/2.
3 Two Views of Economic Voting:
Prospective and Retrospective
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Macroeconomic voting divides naturally into two main views defined by voters’ time
horizons: prospective and retrospective. In the prospective view, the expected future
relative performance of contestants for office is all that matters. Prospective valuation
is akin to the pricing of financial assets in efficient markets: The parties’ stock of
votes at elections (current asset values) is determined completely by rationally formed
expectations of future benefits, calibrated in units of voter utility. Hence electoral
choice is a political investment in the future to which a party’s (candidate’s, political
bloc’s) past performance per se has no relevance. As Downs put it: “Each citizen ...
votes for the party he believes will provide him with higher utility than any other
party during the coming electoral period” (1957, 38).
By contrast, under pure retrospective voting, elections are referenda on the governing
party’s performance in office. Voters reward “good” performance and punish
“bad” performance. In the words of the original proponent of retrospective voting
assessments, V. O. Key: “Voters may reject what they have known; or they may
approve what they have known. They are not likely to be attracted in great numbers by
promises of the novel or unknown” (1966, 61). For retrospective voters, bygones are
never bygones (as they are under a purely forward-looking orientation), but rather
comprise the driving force of political valuation and electoral choice. 8
In the generation since the rational expectations revolution in economic theory,
with its strong and often compelling emphasis on forward-looking behavior, pure
retrospective voting frequently has been described as naive and irrational. Those characterizations
have a certain normative, even messianic quality about them, but from
a positive point of view are misguided. Building on a germinal paper of Barro (1973),
Ferejohn (1986) constructed a well-known micro-founded model of Key’s main arguments,
with aggregate implications that have received much stronger support in
⁸ See Fiorina 1981 for a comprehensive treatment of the history, mechanics, and survey-based
evidence concerning retrospective voting in the United States.