As a result, the regular holding of elections will produce cyclical fluctuation of economic activity because of recurring patterns of government stimulus and restraint in order to induce an artificial boom in the election time. Thus, after the election is over, politicians will often reverse course, which may include cutting spending, slowing the growth of money supply, and allowing interest rates to rise. However, being aware of adverse effects of expansionary policies, they will not intend to keep those measures after they get elected. Thought to be rational actors with short-term horizons of calculation, politicians will pursue popular expansionary monetary and fiscal policies immediately before an election. Thus, they can harm the long-term growth potential of the economy. However, the same policies, especially if pursued to excess, are found to have unpleasant consequences in the long term, such as accelerating inflation and damaging the foreign trade balance. Despite numerous attempts to establish their existence, empirical evidence of political business cycles remains rather equivocal.Įxpansionary monetary and fiscal policies have politically popular consequences in the short run, such as falling unemployment, economic growth, and benefits from government spending on public services.
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The term political business cycle is used mainly to describe the stimulation of the economy just prior to an election in order to improve prospects of the incumbent government getting reelected. Political business cycle, fluctuation of economic activity that results from an external intervention of political actors. This Time in History In these videos, find out what happened this month (or any month!) in history.Britannica Explains In these videos, Britannica explains a variety of topics and answers frequently asked questions.#WTFact Videos In #WTFact Britannica shares some of the most bizarre facts we can find.Demystified Videos In Demystified, Britannica has all the answers to your burning questions.Britannica Classics Check out these retro videos from Encyclopedia Britannica’s archives.