| By: |
Rodrigo Moita;
Claudio Paiva |
| Abstract: |
This paper develops a model of political regulation in which politicians set
the regulated price in order to maximize electoral support by signaling to
voters a 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. The
paper also provides empirical support for the theoretical model. Using
quarterly data from 32 industrial and developing countries over 1978-2004, we
find strong statistical and econometric evidence pointing toward the existence
of electoral price cycles in gasoline markets. |
| Keywords: |
Political cycle , regulated prices , gasoline prices , Political economy , Price controls , Gasoline prices , |
| Date: |
2006–11–27 |
| URL: |
http://d.repec.org/n?u=RePEc:imf:imfwpa:06/260&r=ind |