American and British Political Business Cycles: A Time Series Approach

Recent research in the economics and political science literature suggests that, in democratic societies, there is the potential for politically motivated business cycles. A number of hypotheses suggest that politically motivated actions occurring during the electoral process actually result in economic policies that induce fluctuations. Analyses of policy cycles focus on fluctuations in 2 economic variables: the rate of unemployment and real disposable personal income per capita. In a recent study, the US and the UK are selected for analysis of policy cycles since they offer both similarities and contrasts to each other. The models analyzed provide strong support for the existence of a political or policy cycle in the rate of unemployment for both the US and the UK. In the US, changes in unemployment are related to a state of war, an incumbent running for reelection, the party in power, and the occurrence of a presidential election. The models indicate little support for a policy cycle in real income.