Macroeconomic effects of elections: An application on Turkey

This study aims to explore the effects of election periods on the economy from the perspective of the "public choice theory". We selected our variables from among those focused by the research that examine elections from the standpoint of political business cycles; i.e., exports, Gross Domestic Product (GDP), Wholesale Price Index (TEFE), the number of unemployed, and non-performing loans. Then, we constructed simultaneous models in which these variables were explored as endogenous variables. We used dummy variables for general and local elections in these models and identified 2002:04-2020:04 as our study period. We estimated the coefficients for the econometric models we constructed by using the Engle-Granger and Dynamic Least Squares methods. In general, our analysis results suggest that general elections tend to reduce the exports and revenues (GDP) but increase the prices (TEFE). The number of unemployed and non-performing loans decrease during general elections. On the other hand, local elections lead to an increase in the exports, revenues (GDP), the number of unemployed, and prices (TEFE). Non-performing loans tend to decrease during local elections. The dummy variables in the models have statistically insignificant coefficients, which suggests that political business cycles do not apply for the election periods in Turkey. The theory of political business cycles assumes that policymakers usually pursue expansionist policies until the election day to remain in power but later start to implement restrictive policies after the elections to avoid any negative consequences of their former policies, thereby creating business cycles. However, our analysis results demonstrate that manipulative decisions and arrangements made before elections do not always create business cycles. Expenditures during election periods impose a permanent burden on the system and the economic arrangements during election periods may not result in political business cycles. Moreover, it is harder for the government in power to manipulate policy objectives than to manipulate policy instruments. Because policy instruments such as public expenditure and money supply are largely controlled by the government in power, while government intervention in indicators such as Gross National Product, exports, inflation, and unemployment is relatively limited.