NEITHER GONE NOT FORGOTTEN

THE DEVELOPMENT AND STRUGGLE OF POLITICAL BUSINESS CYCLE THEORY

Abstract

Research in political business cycles (PBCs) are part of a larger program related to the economic analysis of politics with a macroeconomic focus called New Political Macroeconomics. This article explores the historical evolution of the literature in political business cycles, starting with its first writers. The article emphasizes William Nordhaus’s contribution. Nordhaus transformed a problem that was seen as a microeconomic issue into a macroeconomic one. The model has come under criticism because of its hypotheses on voters, lack of empirical verification and lack of conforming with rational expectations theory, which made interest in PBCs diminish. The formalization of conditional PBCs “solved” the problem of empirical verification. These models predicted that PBCs need specific conditions to happen. The article concludes that PBCs have the capacity of reinventing themselves and analyze, with macroeconomic tools, issues of collective decision-making, a domain previously thought to be only microeconomic.