Vote Buying or (Political) Business (Cycles) as Usual?

54 Pages Posted: 20 Mar 2015

See all articles by Toke Skovsgaard Aidt

Toke Skovsgaard Aidt

University of Cambridge - Faculty of Economics and Politics

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research; University of Freiburg

Lusine Badalyan

University of Bremen

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research; University of Heidelberg - Alfred Weber Institute for Economics

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Date Written: March 9, 2015

Abstract

We provide new evidence on the short-run effect of elections on monetary aggregates. We study month-to-month fluctuations in the growth rate of M1 in a sample of 85 low and middle income democracies from 1975 to 2009. The evidence shows an increase in the growth rate of M1 during election months of about one tenth of a standard deviation. A similar effect can neither be detected in established OECD democracies nor in the months leading up to the election. The effect is larger in democracies with many poor and uneducated voters, and in Sub-Saharan Africa and in East-Asia and the Pacific. We show that the election month monetary expansion is demand driven and can be best explained by systemic vote buying. Systemic vote buying requires significant amounts of cash to be disbursed right before elections. The finely timed increase in M1 that we observe in the data is consistent with this. The timing is inconsistent with a monetary cycle aimed at creating an election time boom and it cannot be, fully, accounted for by other possible explanations.

Keywords: Political business cycles, vote buying, monetary economics

JEL Classification: D72, E51, O10

Suggested Citation

Aidt, Toke Skovsgaard and Asatryan, Zareh and Badalyan, Lusine and Heinemann, Friedrich, Vote Buying or (Political) Business (Cycles) as Usual? (March 9, 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-017, Available at SSRN: https://ssrn.com/abstract=2580781 or http://dx.doi.org/10.2139/ssrn.2580781

Toke Skovsgaard Aidt

University of Cambridge - Faculty of Economics and Politics ( email )

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Zareh Asatryan (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

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University of Freiburg ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
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Germany

Lusine Badalyan

University of Bremen ( email )

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Bremen, D-28334
Germany

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research ( email )

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Germany

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University of Heidelberg - Alfred Weber Institute for Economics ( email )

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