Document Type

Article

Journal/Book Title/Conference

European Journal of Political Economy

Volume

40

Issue

B

Publisher

Elsevier

Publication Date

12-2015

First Page

345

Last Page

359

DOI

10.1016/j.ejpoleco.2015.08.002

Abstract

The vintage political business cycle framework of Nordhaus (1975) represents the idea that the macroeconomic business cycle is manipulated opportunistically by an incumbent government to achieve re-election. A key assumption in this prototypical framework is that voters discount their memories about unemployment and inflation at a constant rate. Yet starting with Ebbinghaus (1885) and Jost (1897), a large body of research in psychology documents an empirical regularity that has come to be known as Jost's Second Law of Forgetting-individuals discount recent memories at a higher rate compared to the rate at which they discount older memories. I find that incorporating this insight from psychology (i.e., hyperbolic memory discounting) into the benchmark framework moderates the amplitude of the predicted political business cycle. © 2015 Elsevier B.V.

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