The political business cycle in the Czech Republic

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JEL classification

• Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
• Fiscal Policy
• Business Fluctuations; Cycles

Keywords

Election, Fiscal Policy, political business cycle, public choice theory

Abstract

One of the failures of the political market is the existence of the politically motivated cycle, which is driven by the tendency of politicians to maximise their profit in elections by influencing macroeconomic indicators. The pur-pose of this article is to prove or contradict the existence of the political business cycle and to define its type in the Czech Republic. Specific political business cycle models are tested by using estimates from linear regression models. With the addition of the tested political variable, the linear regression model has an autoregressive form. This article analyses data from the first quarter of 1993 to the fourth quarter of 2012. We conclude, based on our empiric analysis, that in the Czech Republic it is possible to influence macroeconomic indexes during the pre-election period. Indexes are influenced in the sense of the Nordhaus model of the political business cycle, which assumes the adaptive expectations of electors and opportunistic behaviour by the political authorities.