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10.11 Opportunistic and Partisan Behaviour: A Synthesis

We have seen in our earlier discussion that opportunistic theories of the

political business cycle assume that politicians are only office-motivated.

Their macroeconomic policies are designed to win elections. Partisan theories

stress ideological considerations and reject the assumption made in

opportunistic theories that all parties will follow the same policies. Partisan

theory rejects policy convergence. An alternative hypothesis is to follow the

suggestion of Frey and Schneider (1978a, 1978b) that political parties behave

in an opportunistic way when their chances of re-election are perceived to be

low. Governments can use independent surveys to assess their popularity.

When a party is ‘popular’ and confident of winning the next election, it can

afford to indulge in ideological policies. Frey and Schneider (1978a) suggest

that ‘a government’s lead over the opposition is determined by both the state

of the economy and the election cycle’. This latter feature is the tendency of

the incumbents to become less popular between elections (see also Alesina

and Rosenthal, 1995). Incumbent politicians want to be re-elected in order to

implement their ideological programmes, but may face an incentive structure

which varies at each election. Because the temptation to use opportunistic

policies is strongest when governments do not feel confident they can win the

next election, opportunistic behaviour will be an increasing function of the

incumbents’ political insecurity. Such an approach can account for the lack of

systematic evidence in support of opportunistic behaviour. Where political

security is an important factor opportunistic policy manipulations should be

observed before some elections but not all (see Schultz, 1995).

When considering the use of policy manipulations which have as their

objective the maximization of re-election prospects, incumbents need to consider

the marginal benefits and marginal costs of such policies. The marginal

benefits of opportunistic behaviour, in the form of extra votes, are greatest

when the government has a large popularity deficit. However, policy manipulations

also generate extra costs to the incumbents in the form of loss of

reputation, and this could damage long-term partisan support (see Schultz,

1995). Schultz argues that ‘by engineering a pre-election boom, governments

already open themselves up to charges of irresponsibility and opportunism’.

However, ‘when governments feel insecure in the current election, they can

ill afford the luxury of being far-sighted and hence they discount the future

quite heavily’. From these observations Schultz formulates the following

hypothesis: ‘The degree to which the government manipulates the economy

prior to an election will be negatively correlated with its lead in public

opinion polls at the time.’ Given the potential costs of policy manipulations, it

is also the case that governments should only respond to popularity deficits

close to the next election. Schultz tested this hypothesis for the manipulation

of UK government transfer payments, which have significant and instantaneous

effects on real disposable income. Schultz found that, with the exception

of the October 1974 election, there is a clearly discernible negative correlation

between growth of real transfers and the pre-election poll lead of the

incumbents. These results are suggestive. The strength of the political business

cycle effect in generating opportunistic behaviour will differ from one

election to the next ‘because the government’s incentives also differ from one

election to the next’ (Schultz, 1995). Clearly more research is needed in this

area. Table 10.4 summarizes the main features of the five main politicoeconomic

models of aggregate fluctuations.

In his survey of what economists have learned from 25 years of research

into the political business cycle, Drazen (2000b) concludes with a ‘clear

message’ that:

monetary surprises are an unconvincing force for political cycles, either opportunistic

or partisan; research should concentrate on fiscal policy as the driving force,

especially for opportunistic cycles. Political monetary cycles are more likely the

effect of accommodation of fiscal impulses, that is, are passive while fiscal policy

is active in trying to affect election outcomes.