Economic Consequences of Political Approval Managementin Comparative Perspective

We develop a dynamic, stochastic, computable general equilibrium model of political approval management and fiscal policy in order to analyze how political approval management affects United States’ Presidential and United Kingdom’s parliamentary business cycles. We find that governments in both systems respond to declining political approval by pursuing suboptimal fiscal policies that stimulate household consumption expenditures. Relative to a baseline optimal policy, we estimate that politically motivated fiscal policy reduces aggregate output in the United Kingdom and United States by 0.35 and 0.20%, respectively. Moreover, we find that most of the difference in output costs can be explained by differences between the American and British polities. J. Comp. Econ., December 2001, 29(4), pp. 692–721. University of Arizona, 401 McClelland Hall, Tucson, Arizona 85721; Department of Political Science, University of Minnesota, 1414 Social Sciences Building, Minneapolis, Minnesota 55455. C © 2001 Elsevier Science