Abstract
This essay argues that politically motivated business cycles could persist in a democratic society even if the electorate votes in a rational, fully informed manner, provided that government policymakers have the means to systematically generate macroeconomic fluctuations. This cyclic outcome reflects the pReferences of an electorate that is composed of imperfectly altruistic voters belonging to different overlapping generations. Since each generation has a different horizon over which it would like to have elected politicians provide an optimal economic policy plan, an intergenerational conflict of interests situation arises. This conflict is placed into an explicit political context, whereby cycles become generated under the institutional constraint of periodic elections.
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Earlier versions of this paper were presented in Workshops at Columbia University and the University of Maryland, from which many helpful impulses were obtained. Special thanks are also due to P. Aranson, G. Calvo, K. Johnson, M. Olson, E.S. Phelps, A. Ray, G. Schinasi and three anonymous referees for helpful comments and criticisms.
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Lächler, U. The political business cycle under rational voting behavior. Public Choice 44, 411–430 (1984). https://doi.org/10.1007/BF00119690
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DOI: https://doi.org/10.1007/BF00119690