The Applicability of Political Business Cycle Theories in Transition Economies

Abstract

Abstract The paper focuses the applicability of political cycles theories in specific circumstances of economies in transition which are at the same time the new democracies. Economic and political transition in these countries change both people’s and politicians’ preferences, institutions and generate specific politically motivated misuse of economic policymaking. Theories of political cycles in macroeconomics have been developed since 1970s, when the fact that policymakers could use economic policy as an efficient tool for increasing their chances for reelection became obvious. In countries with parliamentary democracies, incentives of policymakers to influence election results could be opportunistically motivated (opportunistic models) or ideologically motivated (partisan models). On the other side, voters could be naïve or rational, with different economic outcomes, as argued in extensive political cycles literature. The paper studies specific political motives of politicians in transition economies which are faced, especially in first fazes of transition with weak institutional mechanism and rules, and naïve voters. Consequently, opportunistic motives dominate ideological ones. The paper also focuses how the development of the institutional environment, especially in the context of international integration, such as accession to the European Union, reflects on the political business cycles in these countries.