political business cycle

Syllable breakdown

Dictionary meaning

the theory that incumbent governments manipulate economic policy — particularly fiscal expenditure, monetary policy, and transfer payments — in ways that boost economic performance and employment before elections in order to maximise their chances of re-election, creating systematic patterns of economic expansion before elections and contraction or adjustment afterward; the concept, developed by Michał Kalecki and later formalised by William Nordhaus and others, predicts that democracies will tend to produce electorally timed economic booms at the cost of longer-term fiscal discipline and price stability; empirical evidence for political business cycles is mixed, being stronger in countries with less independent central banks, less transparent fiscal institutions, and weaker partisan political constraints; the theory raises fundamental questions about the compatibility of short-term democratic incentives with long-run economic management