Alternative Approaches to the ‘Political Business Cycle’: An
Overview
In the theoretical literature on the political business cycle, which has developed
since the mid-1970s, we can distinguish four main approaches which
have evolved in two separate phases. The assumptions underlying these four
different approaches are summarized in Table 10.1 (see Alesina, 1988). During
the first phase, in the mid- to late 1970s, Nordhaus (1975) reawakened
interest in this area by developing an opportunistic model of the political
business cycle. This was followed by Hibbs (1977), who emphasized ideological
rather than office-motivated considerations. However, both the
Nordhaus and Hibbs models (the ‘old’ political macroeconomics) were swept
aside somewhat during the so-called rational expectations revolution which
Table 10.1 Politico-economic models of aggregate fluctuations
Assumptions about voters and economic agents
Assumptions Non-rational behaviour, Rational behaviour,
about politicians non-rational expectations rational expectations
Non-Partisan Nordhaus (1975) Rogoff and Sibert (1988)
opportunistic
politicians
Partisan Hibbs (1977) Alesina (1987)
ideological
politicians
Source: Alesina (1988).
dominated macroeconomic discussions during the mid- to late 1970s (see
Chapter 5). After a period of relative neglect a second phase of politicoeconomic
models emerged in the mid-1980s and research in this area has
continued to flourish ever since. Due to the influence of new classical theorists
these new models incorporate the assumption of rational economic
agents and voters. While economists such as Rogoff and Sibert (1988) developed
rational opportunistic models, Alesina (1987) produced a rational partisan
theory (the ‘new’ political macroeconomics).
In what follows we shall examine all four of these approaches (plus the
hybrid model of Frey and Schneider, 1978a, 1978b), each of which attempts
to endogenize the influence of political behaviour on the macroeconomy.
Overview
In the theoretical literature on the political business cycle, which has developed
since the mid-1970s, we can distinguish four main approaches which
have evolved in two separate phases. The assumptions underlying these four
different approaches are summarized in Table 10.1 (see Alesina, 1988). During
the first phase, in the mid- to late 1970s, Nordhaus (1975) reawakened
interest in this area by developing an opportunistic model of the political
business cycle. This was followed by Hibbs (1977), who emphasized ideological
rather than office-motivated considerations. However, both the
Nordhaus and Hibbs models (the ‘old’ political macroeconomics) were swept
aside somewhat during the so-called rational expectations revolution which
Table 10.1 Politico-economic models of aggregate fluctuations
Assumptions about voters and economic agents
Assumptions Non-rational behaviour, Rational behaviour,
about politicians non-rational expectations rational expectations
Non-Partisan Nordhaus (1975) Rogoff and Sibert (1988)
opportunistic
politicians
Partisan Hibbs (1977) Alesina (1987)
ideological
politicians
Source: Alesina (1988).
dominated macroeconomic discussions during the mid- to late 1970s (see
Chapter 5). After a period of relative neglect a second phase of politicoeconomic
models emerged in the mid-1980s and research in this area has
continued to flourish ever since. Due to the influence of new classical theorists
these new models incorporate the assumption of rational economic
agents and voters. While economists such as Rogoff and Sibert (1988) developed
rational opportunistic models, Alesina (1987) produced a rational partisan
theory (the ‘new’ political macroeconomics).
In what follows we shall examine all four of these approaches (plus the
hybrid model of Frey and Schneider, 1978a, 1978b), each of which attempts
to endogenize the influence of political behaviour on the macroeconomy.
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