Unemployment, inflation and government popularity — are there partisan effects?

doi:10.1016/S0261-3794(99)00044-X

Electoral Studies

Volume 19, Issues 2–3, June 2000, Pages 141-150

https://doi.org/10.1016/S0261-3794(99)00044-X Get rights and content

Abstract

The paper employs quarterly vote intention or approval rate series for the US, Canada, the UK and Australia to examine whether the sensitivity of government popularity to unemployment and inflation depends on the government's ideology. In all four countries, right governments are hurt by unemployment but not by moderate inflation. The results for left governments are less conclusive.

Section snippets

Three hypotheses

According to the responsibility hypothesis, governments are punished for high unemployment and high inflation and rewarded for low unemployment and low inflation. Voters do not distinguish between left and right governments; the two types of incumbent are held to the same standard on both dimensions. Rogoff and Sibert (1988), Rogoff (1990) and Alesina and Rosenthal (1995) show that retrospective voting of the type featured by the responsibility hypothesis is consistent with forward-looking,

Data description

In multi-party systems, the link between government formation and the election vote is weak; a party may loose a considerable share of voters and still continue in office. I therefore confine the analysis to four countries where two big parties compete for office; the US, Canada, the UK and Australia.

Quarterly or, when available, monthly vote intention/approval rate polls are gathered for each country.² For all

Estimation procedure

Attention must be paid to the time series properties of popularity, unemployment and inflation. If popularity and one or both macroeconomic variables are nonstationary, regressions using level variables may produce spurious results unless the variables cointegrate. A solution might be to respecify the model in first differences, but then potential valuable information about the long-run relationship is thrown away.

The analysis proceeds as follows. I first perform augmented Dickey–Fuller tests

Unit root tests

Perron, 1989, Perron, 1990 has shown that conventional unit root tests can be misleading when time series are characterized by structural breaks. Since opinion polls reflect all aspects of the ruling party or parties, not only macroeconomic competence and preferences, it is possible that a change in government will cause a permanent shift in the level of popularity even when we condition on unemployment and inflation.

Let PÔP_t be the residuals from a regression of POP_t on dummy variables for

Long-run model

Since the unit root tests indicate that popularity and the macroeconomic variables may be nonstationary time series, we should verify whether the variables cointegrate. If this is the case, it is only necessary to estimate the static model to achieve a consistent estimate of the long-run steady-state relationship due to the superconsistency property of the OLS estimator. The following long-run model is estimated: $POP_{t} =δ_{0i} +δ_{1} LEFT_{t} ∗UN_{t} +δ_{2} LEFT_{t} ∗UN_{t} ∗HIGH^{LU}_{t} +δ_{3} RIGHT_{t} ∗UN_{t} +δ_{4} RIGHT_{t} ∗UN_{t} ∗HIGH^{RU}_{t} +δ_{5} LEFT_{t}$

Error-correction model

To examine whether the short-run effects of unemployment and inflation on government popularity are different for left and right governments, the following error-correction model is estimated: $ΔPOP_{t} =δ_{0} +δ_{1} ΔPOP_{t−1} +δ_{2} ΔPOP_{t−2} +δ_{3} LEFT_{t} ∗ΔUN_{t} +δ_{4} RIGHT_{t} ∗ΔUN_{t} +δ_{5} LEFT_{t} ∗ΔINF_{t} +δ_{6} RIGHT_{t} ∗ΔINF_{t} +δ_{7} ECT_{t−1},$ where ECT_t−1 is the error-correction term.¹⁰

As can seen from Table 5, the coefficients of the macroeconomic

Conclusion

The paper presents evidence suggesting that the relationship between popularity, unemployment and inflation indeed depends on party ideology. In general, the clientele hypothesis performs better than the salient goal hypothesis. The results for right governments are broadly supportive of the clientele hypothesis; in all four countries, there is a negative long-run relation between government popularity and unemployment, whereas inflation has a neutral or positive impact on popularity when the

Acknowledgements

Comments from participants at the Sandbjerg conference on “Economics and Elections: Comparisons and Conclusions” are gratefully acknowledged.

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View full text

Unemployment, inflation and government popularity — are there partisan effects?

Abstract

Section snippets

Three hypotheses

Data description

Estimation procedure

Unit root tests

Long-run model

Error-correction model

Conclusion

Acknowledgements

European Journal of Political Economy

Partisan Politics, Divided Government and the Economy

Political parties and the business cycle in the U.S., 1948–1984

Journal of Money, Credit and Banking

Co-integration, Error-correction and the Econometric Analysis of Non-stationary Data

The unemployment rate consequences of partisan monetary policies

Southern Economic Journal

A partisanship theory of fiscal and monetary regimes

Journal of Money, Credit and Banking

The American Political Economy

The partisan model of macroeconomic cycles: more theory and evidence for the United States

Economics and Politics