Document Type : Research Paper

Authors

1 Ph.D.student of International Economics, Department of Economics, Faculty of Management & Economics, Shahid Bahonar university, Kerman, Iran.

2 Professor of Economics, Department of Economics, Faculty of Management & Economics, Shahid Bahonar university, Kerman, Iran.

Abstract

EXTENDED ABSTRACT
INTRODUCTION
The effect of economy on politics and the effect of politics on economy has always been considered by economists and politicians. A significant question in this area is related to the effects of elections on economy and the effect of the current economy status on individual choices. According to Nordhaus model, governments can provide political developments, especially victory in elections using economic policies, leading to economic instability. The empowered party selects economic policies during its tenure of office to maximize its popularity on the eve of the next election. Voters are influenced by the performance of macroeconomic variables, persuading officials to manipulate economic variables so that they can achieve desirable outcomes on the eve of election. Inflation and unemployment are among the most critical economic variables considered by voters and observed in their utility function.
Unemployment is considered as a destructive social, economic, and cultural phenomenon and its elimination has always been one of the main concerns of planners. In addition, unemployment has negative and adverse consequences in different fields. Unemployment is considered as a highly significant economic phenomenon for governments which always attempt to solve the socio-economic problem of unemployment. Furthermore, inflation, as one of the main variables, plays a considerable role in economic performance at the macroeconomic level. In general, unemployment and inflation are two target variables in economic policies and policymakers often have to sacrifice one of them to achieve the other one. Inflation and unemployment variables are more sensitive to electoral candidates and voters compared to other variables.
 
METHODOLOGY
This study simulated the optimal path of inflation and unemployment based on Nordhaus model in GAMS software for eight years during 1981-2029 and compared to their actual values during 1981-2020. Comparing the simulated values and actual values of inflation and unemployment, the strengths and weaknesses of different governments, as well as their opportunism rate are identified and can be used as a policy recommendation.
 
FINDINGS
The results of this study indicated that governments have often attempted to increase voter satisfaction and the possibility of their re-election by adopting different economic policies. In addition, the average inflation during the eight-year periods have been mostly lower in the first half than the second half. Further, it can be regarded as evidence of Nordhaus model, although proving this claim requires further investigation in the economic policies of different governments and may not be intentional.
 
CONCLUSION
In order to separate from this opportunism by governments, achieve ideal inflation and unemployment, and increase their likelihood of re-election, it is necessary to accurately identify the parameters affecting the Phillips curve and having information about the type of policy, implementation, policy size, and effectiveness of policy. Selecting the policy type can only be a necessary condition while implementation, policy size, and the effectiveness of policy are considered as sufficient conditions.
 

Keywords

Main Subjects

Aklin, M. (2018). How robust is the renewable energy industry to political shocks? Evidence from the 2016 US elections. Business and Politics, 20(4), 523-552. https://doi.org/10.1017/bap.2018.15.
Alpha C. Chiang. (2000). Elements of dynamic optimization. Waveland Press.‏
Amiri, H., & Samadian, F. (2020). The impact of electoral cycle occurrence on macroeconomic environment: Case study of Iran. The Journal of Planning and Budgeting, 25(2), 3-24. http://jpbud.ir/article-1-1804-en.html (In Persian)‏.
Brechler, J., & Geršl, A. (2014). Political legislation cycle in the Czech Republic. Constitutional political economy, 25(2), 137-153.‏ https://doi.org/10.1007/s10602-013-9149-4.
Caporale,T., & Poitras, M. (2014). Voter turnout in US presidential elections: does Carville’s law explain the time series?. Applied  Economics , 46(29) , 3630-3638 .‏ https://doi.org/10.1080/00036846.2014.937037
Eghbali, A., Jorjor Zadeh, A., Ghobeyshavi, A., & Abdollahi, F. (2017). Estimating the Political Business Cycles (Case Study of Iran: 1978-2016). Economic Development Policy, 5(2), 129-146.‏ doi: 10.22051/edp.2018.17671.1123 (In Persian)
Eslamloueyan. K & Ostadzad.A.H, (2014). Estimating the rate of time preference for Iran: A recursive algorithm, Tahghighate Eghtesadi, 107, 267-294. doi: 10.22059/jte.2014.51794 (In Persian)
Hibbs, D. A. (1977). Political parties and macroeconomic policy.   American political science review, 71(4), 1467-1487.‏ DOI: https://doi.org/10.2307/1961490
Izadkhasti, H. (2020). Applying Political Business Cycle to Explain Macroeconomic Policies in Iran: A Public Choice Perspective. International Journal of New Political Economy, 1(2), 175-197.‏ 20.1001.1.27171485.2020.1.2.10.5
Karimzadeh, M., Nasrollahi, K., Samadi, S., & Dallali Isfahani, R. (2013). The Optimal Path of Investment, Consumption and Gross National Production: An Application of Generalized Ramsey Model in Economy of Iran. The Economic Research, 12(4), 1-25.‏ 20.1001.1.17356768.1391.12.4.7.8  (In Persian)
Komijani, A., Gorji, E., & Eghbali, A. (2014). New political business cycle: The case of Iran. Iranian Journal of Trade Studies, 18(71), 1-34.‏ 20.1001.1.17350794.1393.18.71.1.2 (In Persian)
MacRae, C. D. (1977). A political model of the business cycle. Journal of political economy, 85(2), 239-263.‏ https://doi.org/10.1086/260561
Monjazeb, M & Alimardani, M. (2021). Investigating the impact of inflation expectations on consumption in Iran: Adaptive Expectations versus Rational Expectations(Kalman Filter Approach). Quarterly Journal of Quantitative Economics(JQE) (former Economic Studies), 18(2), 27-42. 10.22055/jqe.2021.26608.1914. (In Persian)
Mozayani A.H. (2006).The Study Of Electoral Cycles In Iran, The Case Of Exchange Rate. Iranian Journal Of Trade Studies (Ijts)  Summer,Number39; Page(S) 215 To 236. (In Persian)
Nazeman, H., & BAKY, H. M. (2010). Optimum allocation of oil income: a dynamic CGE model. Journal of Quantitative Economics ( Quarterly Journal of Economics Review), 6(4), 23.‏ doi: 10.22055/jqe.2009.10684. (In Persian)
Nordhaus, W. D. (1975). The political business cycle. The review of economic studies, 42(2), 169-190.‏ https://doi.org/10.2307/2296528
Pástor, Ľ., & Veronesi, P. (2020). Political cycles and stock returns. Journal of Political Economy, 128(11), 4011-4045.‏ https://doi.org/10.1086/710532
Pourkazemi, M. H., Darvishi, B., & Shahiki, T. M. (2008). Political business cycle (case study of Iran), Quarterly Journal of Quantitative Economics, 4(4), 137. (In Persian)
Shahabadi, A., Nilforoushan, N., & Khaleghi, M. (2016). The Effect of Political Cycle on Unemployment Growth Rate in Selected Developed and Developing Countries ,The Journal of Planning and Budgeting, 20(4), 3-30.‏ 20.1001.1.22519092.1394.20.4.4.1  (In Persian)
Shahabadi, A., Karami, B & Arghand, H. (2022). The Impact of Economic
Complexity on Inflation in the Selected Countries of Organization of Islamic Cooperation. Quarterly Journal of Quantitative Economics(JQE), (former EconomicStudies), 18(4), 67-91. 10.22055/JQE.2021.32056.2197. (In Persian)
Sieg, G., & Batool, I. (2012). Pakistan, politics and political business cycles. The Pakistan Development Review, 153-166.‏ https://www.jstor.org/stable/23733836
Snowdon, B., & Vane, H. R. (2005). Modern macroeconomics: its origins, development and current state. Edward Elgar Publishing.‏
Souri, A. (2007). Mathematical Economics Methods And Applications: samt. (In Persian).