Despite some evidence of both partisan cycles (cycles in which political incumbents pursue partisan economic policies) and electoral cycles (in which incumbent parties manipulate the economy to improve the prospect of reelection), satisfactory theoretical models consistent with this evidence have not been developed. This two-year project develops and tests such models, concentrating on reconciling the partisan and electoral models and on resolving the inconclusiveness of previous tests. More specifically, the project (1) develops and simulates a simple stochastic model of an economy in which gents are rational, markets are efficient, but information is incomplete, where an incumbent government with given preferences over inflation and unemployment can generate stochastic business cycles; (2) extends this model to account for partisan cycles by introducing a second party, elections, and heterogeneous voters; (3) tests the partisan model against observed policies, central macrovariables, and micro-level voter behavior; (4) extends the partisan model to include a forward-looking incumbent party which induces electoral cycles to signal its preferences so as to increase the probability of reelection; (5) explores the natures of the partisan equilibrium with electoral cycles; and (6) tests the synthesized partisan electoral model against data for the United States (both pre and post-World War II) and for other countries with fixed electoral terms.
