Fiscal Policy and Presidential Elections Robert McGill Macroeconomics BA206

Fiscal Policy and Presidential Elections Robert McGill Macroeconomics BA206

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Fiscal Policy and Presidential Elections BA206 Macroeconomics Robert McGill 28 October 2011 Fiscal Policy 1
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Abstract This paper discusses the definition of the political business cycle. The first and classic Political Business Cycle theory was developed by William Nordhaus in 1975. This paper discusses the effect of “outside lag” and how Presidents are subject to the effect of “outside lag”. Finally, conclusions are drawn about the validity of the political business cycle as a financial model. ________________________________________________________________________ A political business cycle is a business cycle that results primarily from the manipulation of policy tools (fiscal policy, monetary policy) by incumbent politicians hoping to stimulate the economy just prior to an election and thereby improve their own and their party's reelection chances. Expansionary monetary and fiscal policies have politically popular consequences in the short run (tax cuts, falling unemployment, falling interest rates, new government spending on services for special interests, etc.). Unfortunately these very policies, especially if pursued to excess, can
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This note was uploaded on 11/16/2011 for the course BUSINESS BA206 taught by Professor Various during the Spring '11 term at Grantham.

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Fiscal Policy and Presidential Elections Robert McGill Macroeconomics BA206

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