Political Price Cycles in Regulated Industries: Theory and Evidence
IMF Working Papers, November 1, 2006
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- Political Price Cycles in Regulated Industries: Theory and Evidence
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Bibliographic details
- Authors: Claudio A Paiva, Rodrigo Moita
- Published: November 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865202.001
Summary and theoretical findings
- Paper develops a model of political regulation in which politicians set the regulated price to maximize electoral support by signaling pro-consumer behavior.
- Political incentives and welfare constraints interact in the model, yielding an equilibrium in which the real price in a regulated industry may fall in periods immediately preceding an election.
Empirical evidence and data
- Uses quarterly data from 32 industrial and developing countries over 1978-2004.
- Empirical result: strong statistical and econometric evidence pointing toward the existence of electoral price cycles in gasoline markets.