Political business cycles in the parliamentary system

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Abstract

In the parliamentary system, the cabinet may call a general election before the term of the House members matures, if the timing is judged favorable. Econometric tests to differentiate the following two hypotheses are proposed and applied to the Japanese data. Under the manipulative cabinet hypothesis, the cabinet decides the timing of the election by political reasons and manipulates an economy to have a boom in time, i.e., elections cause booms, similar to the presidential system; while the opportunistic cabinet hypothesis states that the cabinet does not manipulate the economy, but calls an election, when positive private-sector shocks cause high growth and low inflation, i.e., booms trigger elections. Findings indicate that the Japanese cabinet has acted opportunistically rather that manipulatively.

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Most of reseach for this note was carried out when the first author was a visiting Associate Professor at Harvard University, teaching the Japanese Economy course, and the second author was a student in the class. The senior thesis of the second author formed the basis for some parts of this note. The authors are grateful to support given to this project by the Department of Economics, Harvard University. Discussions with David E. Bloom, Christopher Cavanough, Barry Eichengreen, Hidehiko Ichimura, Christopher Sims, and Neil Wallace have been very helpful.

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