It's the economy stupid: Macroeconomics and federal elections in Australia

I Introduction

There is a large theoretical and empirical literature which examines the effect of elections and of partisan politics on macroeconomic performance. The two seminal articles in the field are Nordhaus (1975) and Hibbs (1977). Nordhaus posited that incumbent governments would try and stimulate the economy before elections to enhance their electoral performance. As a result, the macroeconomy would exhibit political cycles. Hibbs (1977) recognized that governments of different persuasions have differing desired economic outcomes and so the 'type' of government would determine macroeconomic conditions. Nordhaus's model gives rise to `political business cycles', while Hibbs's is associated with partisan cycles. Empirical support for these models is mixed, with recent examples of some international evidence being Alesina and Roubini (1992), while Crosby, Brown and Malady (1997) provide some Australian evidence.