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Political Business Cycles and Endogenous Elections
Author(s) -
Heckelman Jac C.,
Berument Hakan
Publication year - 1998
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.1998.tb00115.x
Subject(s) - endogeneity , business cycle , instrumental variable , economics , politics , discretion , inflation (cosmology) , estimation , monetary economics , simultaneous equations model , control function , empirical evidence , macroeconomics , econometrics , control (management) , political science , philosophy , physics , management , epistemology , theoretical physics , law
Empirical research of political business cycles (PBCs) may suffer from endogeneity bias when incumbent governments have discretion to call for an early election. Using an instrumental variable (IV) routine on data from Japan and the U.K., we find strong evidence to support the notion that election timing is a function of the economy rather than the macroeconomy being driven by elections as assumed in PBC. In single‐equation regressions, no evidence of political cycles are found, but Hausman tests suggest elections are endogenous in our regressions. A monetary cycle in Japan and an inflation cycle in the U.K. are uncovered through IV estimation.