The most popular misconception in economics and politics is that if the economy is humming along, the government must be doing a good job – it must be a capable economic manager and its policies must be working. â€¦ The truth, however, is that politicians have much less control over the economy than they would have us believe.
Andrew points to evidence showing that 57% of respondents in the 2004 Australian Election Study didn’t think the government is currently making much difference to the economy. But I’m not sure this is the right counterfactual. Another way of thinking about it is to ask the question: if the economy boomed for reasons entirely outside the government’s control, would its chances of re-election rise? Here’s my attempt at answering that question.
Does the World Economy Swing National Elections?
Do voters reward national leaders who are more competent economic managers, or merely those who happen to be in power when the world economy booms? According to rational voting models, electors should parse out the state of the world economy when deciding whether to re-elect their national leader. I test this theory using data from 268 democratic elections held between 1978 and 1999, comparing the effect of world growth (â€œluckâ€) and national growth relative to world growth (â€œcompetenceâ€). In the preferred specification, which allows for countries to have different degrees of global integration, an extra percentage point of world growth boosts incumbentsâ€™ chances of re-election by 9 percent, while an extra percentage point of national growth relative to world growth only boosts an incumbentâ€™s chances of re-election by 4 percent. Voters are more likely to reward competence in countries that are richer and better educated. Controlling for income, higher rates of newspaper readership reduce the returns to luck, while higher rates of television viewing reduce the returns to competence.
Since elections are won with 50+e% of the vote, just a small group of swing voters who believe that Howard and Costello deserves credit for the current economic boom can make a big difference to the outcome.