Thursday, May 26, 2005

Political Business Cycles

Bryan Caplan discusses a recent article on political business cycles. Here is one interesting finding:
After going over a lot of data, they bluntly report:
It is clear that election outcomes are more strongly correlated with short-term GDP growth than with long-term GDP growth.

In fact, it is hard to statistically improve on a simple model in which voters care only about income growth in the last two quarters before the election.
My thought is that if you think of voters as generally being rationally ignorant and myopic, then this statistical finding may not be too surprising.

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