Page 62 - Management Digest Udyama Vol 1 Isuue 2

According to

the political

business cycle

theory, both The best

fiscal policy “political report

and monitory card” would be

policy variables something that shows

can be affected better economic

by elections. performance...

Herein,

macroeconomic

variables like

economic The hypothesized tendency Research studies indicate that to

growth, of governments to adopt have an attractive “political report
card,” the incumbent party would
expansionary fiscal and monitory
inflation, policies in election years pull the economy down slightly
symbolizes the presence of
in the initial years of governing
money supply, political business cycle effects. but introduce policies so that
The political business cycle
economic growth reappeared in
unemployment, theory argues that in and around later years or in time for the next
an election year, economic
election.
interest rate, activities tend to improve, According to the political
partly because of the large
amounts of spending on political
business cycle theory, both
and exchange campaigning. On the other hand, fiscal policy and monitory
economic activities will improve
policy variables can be
rate can be as the incumbent party take affected by elections. Herein,
macroeconomic variables like
every action to show a better
observed “political report card” before an economic growth, inflation,
money supply, unemployment,
election. It can sometimes be the
for possible election year itself or the prior interest rate, and exchange rate
year. However, the best “political
can be observed for possible
political report card” would be something political business cycle effects.
that shows better economic
Therefore, this analysis focuses
performance. For instance,
on Sri Lanka’s inflation for the
business cycle whether economic growth has period starting from 1995 to
2020. During this period, several
remained strong or whether the
effects. ruling party has succeeded in presidential elections, general
bringing growth or reviving the
elections, and provincial elections
economy from recession. were held.

60 September 2021