BPEA | 1989 No. 2

Alternative Approaches to the Political Business Cycle

discussants: Charles L. Schultze and
Charles L. Schultze Former Brookings Expert
Alberto Alesina
Alberto Alesina Nathaniel Ropes Professor of Political Economy - Harvard University

1989, No. 2

WHILE political economy has increasingly concentrated upon the behavior
of markets, in some areas it is impossible to ignore the interaction
between economic motivation and political decisions. The theory of the
political business cycle, which analyzes the interaction of political and
economic systems, arose from the obvious facts of life that voters care
about the economy while politicians care about power.
Thisp aperr eviews the theorya nde vidence abouti nteractingp oliticoeconomic
systems in the theory of the political business cycle (PBC).
The first section begins with an overview of different approaches to
political cycles. The following two sections review some theoretical
issues, with attention to the issue of the behavior of political parties and
a formal examination of PBC models. The final sections assess whether
the PBC models are consistent with historical evidence.