Alesina and Rosenthal: Partisan cycles in Congressional elections and the macroeconomy

Alesina and Rosenthal. 1989. Partisan cycles in Congressional elections and the macroeconomy. APSR 83:373-398.

Two Puzzles to Explain

1. In the postwar US, the president's party has almost always lost seats in midterm elections.
2. In the first half of presidential terms, Republican presidents see below-average (economic) growth but Democrats see above-average growth. In the second half, growth is equal.

Main Point

Voters use the midterm elections to moderate the president's excessive shift in economic policy. With a new president, the pendulum swings too far. With the midterm, we pull policy back towards moderation. Thus, this model contrasts with the retrospective voting models, in which voters reward the incumbent if the economy is doing well before the election. Instead, voters (in this model) vote based on rational expectations: how will policy shift if I vote for the opposition party?

Conclusions

1. Political polarization and uncertainty generate economic fluctuations. Voters use midterm elections to attenuate the policy swings engendered by polarization.
2. A model with an economic side and a political side:
   • The economic side of the model accounts for the notion that economic agents cannot be routinely fooled by the government. On the other hand, agents enter into contracts that are sufficiently long-term that they can only attempt more or less succesfully to hedge against the uncertainty generated by politics.
   • The political side of the model has three key features:
     1. A two-party system in which politicians are polarized
     2. Policy that reflects the influence of both the executive and the legislature
     3. An institutional structure with legislative elections held while the executive remains in power contrasts with the retrospective voting models, in which voters reward the incumbent if the economy is doing well before the election.

Data

Lots of it, but not fully satsifactory. If you throw in a couple of controls, their results fall apart.

Comments and Criticisms

The authors overlook an important coordination problem: If we all vote against the president's party, the pendulum swings too far again. How do we coordinate how many of us will vote against the president's party?