| Publication |
2009.
|
| Summary/Abstract |
Politicians are often assumed to be opportunistic. This article examines both whether there is a limit to this opportunism and whether voters reward policy makers for opportunistic behaviour. By looking at currency crisis situations, the article presents a graphic rational opportunistic political business cycle model in which incumbents face a tradeoff between their wish to signal competence and the economic constraints imposed by the crisis. It analyses how electoral incentives affect policy makers' management of currency crises and how this management in turn affects the subsequent election outcome. The empirical results of probit models with selection using a sample of 122 crises in 48 industrial and developing countries between 1983 and 2003 confirm the model's prediction that under certain circumstances some types of policy makers do indeed have incentives to deviate from optimal policy in the run-up to elections - and that voters reward this behaviour by re-electing policy makers who follow such strategies. However, there is a limit to the readiness to manipulate: when speculative pressure is too severe, incumbents no longer manipulate policy but implement the least painful policy option instead.
|