Political business cycle theories predict that the occurrence and outcome of elections affect the timing of business cycle turning points. Opportunistic political business cycle theory predicts that a contraction is more likely to end soon after an election than at other times. Rational partisan political business cycle theory predicts differences in the likelihood of the end of an expansion after an election depending upon the party of newly-elected president. This paper directly tests the effect of elections on the turning points of the United States business cycle during analysis. The prediction that a contraction is more likely to end in the period before an election than in other periods is not supported by our empirical results. There is significant evidence. however. that an expansion is significantly more likely to end after the election of a Republican president but not after the election of a Democratic president in the post-World War I and post-World War II periods. This is consistent with the predictions of rational partisan political business cycle theory.
*Published:
Journal of Money, Credit and Banking, vol. 28, no. 1, February 1996,pp. 84-101.
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