Reverse Electoral Business Cycles And Housing Markets
Source: Princeton University
The authors argue that the political uncertainty generated by elections encourages private actors to delay investments that entail high costs of reversal, creating a pre-election decline in economic activity entitled a "Reverse electoral business cycle." This incentive for delay becomes greater as policy differences between parties/candidates increase. Using new survey and observational data from the United States, they test these arguments. The individual-level analysis assesses whether respondents' perceptions of presidential candidates' policy differences increased the likelihood of postponing certain actions and purchases. For one of these items, housing, they collected observational data to examine whether electoral cycles indeed induce a pre-election decline in economic activity. The findings support the predictions and cannot be explained by existing theories of political business cycles.