This paper documents the existence of electoral cycles in GDP growth forecasts released by governments. In a theoretical model of political selection, we show that governments release overly optimistic GDP growth forecasts ahead of elections to increase the reelection probability. The bias arises from lack of commitment if voters are rational and from manipulation of voters’ beliefs if they do not expect the incumbent to be biased. Using high-frequency forecaster-level data from the United States, the United Kingdom, and Sweden, we document that governments overestimate short-term real GDP growth by 0.1–0.3 percentage points.

Cipullo, D., Reslow, A., Electoral Cycles in Macroeconomic Forecasts, <<JOURNAL OF ECONOMIC BEHAVIOR &amp; ORGANIZATION>>, 2022; 202 (N/A): 307-340. [doi:10.1016/j.jebo.2022.08.016] [http://hdl.handle.net/10807/214206]

Electoral Cycles in Macroeconomic Forecasts

Cipullo, Davide
;
2022

Abstract

This paper documents the existence of electoral cycles in GDP growth forecasts released by governments. In a theoretical model of political selection, we show that governments release overly optimistic GDP growth forecasts ahead of elections to increase the reelection probability. The bias arises from lack of commitment if voters are rational and from manipulation of voters’ beliefs if they do not expect the incumbent to be biased. Using high-frequency forecaster-level data from the United States, the United Kingdom, and Sweden, we document that governments overestimate short-term real GDP growth by 0.1–0.3 percentage points.
Inglese
Cipullo, D., Reslow, A., Electoral Cycles in Macroeconomic Forecasts, <<JOURNAL OF ECONOMIC BEHAVIOR &amp; ORGANIZATION>>, 2022; 202 (N/A): 307-340. [doi:10.1016/j.jebo.2022.08.016] [http://hdl.handle.net/10807/214206]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/214206
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