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Why should politicians be mindful of economic data when calling an election?

Publishing date
03 June 2024
Authors
Jonathan Ostry
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When British Prime Minister Rishi Sunak announced that the United Kingdom will hold a general election on 4 July, many observers were reminded of the links between election timing and the quality of recent economic news. It is not that the recent economic news was overly positive. But even benign outcomes that are somewhat better than people expect, or better than what might be coming down the line, can be used as a strategic advantage in deciding when to go to the polls. With the UK economy recovering, the recent IMF growth forecast upgrade and inflation reverting to target, Rishi Sunak may have decided that there was unlikely to be a better opportunity.

The related question of how economic policy reforms affect electoral outcomes, and how the overall state of the economy plays into the electoral effects is explored in a new Bruegel working paper. Because reforms take time to deliver aggregate economic gains, even as they give rise to concentrated losses for some segments of society (because of dislocations and job redundancies), politicians should implement reform early in the electoral term (to ensure that aggregate gains are apparent ahead of the next election). Election-eve reforms are far more likely to be penalised at the ballot box than honeymoon-period reforms (right after the election).  

Politicians should also take advantage of the state of overall economic conditions— fix the roof while the sun is shining. When reforms are implemented during recessions (when people facing redundancy will find it difficult to find new jobs), the electoral penalty from reform is far larger. And politicians should be especially wary when reforms generate a sizable growth-equity tradeoff: a small growth gain in the presence of a large distributional cost. Such an unfavorable tradeoff is especially likely to earn the ire of the electorate at the polls.

For more on the topic of economic policy reforms and their electoral effects, read 'Navigating the treacherous political economy of structural reform' by Davide Furceri, Jonathan D. Ostry, Chris Papageorgiou and Dennis P. Quinn.

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

About the authors

  • Jonathan Ostry

    Jonathan D. Ostry if Professor of Economics, Global Affairs and Public Policy at the University of Toronto, jointly appointed to the Department of Economics and the Munk School of Global Affairs & Public Policy. He is a non-resident fellow at Bruegel, a Research Fellow at the Center for Economic Policy Research (CEPR) in London and serves on the advisory board of the World Economic Forum's Global Risk Report in Geneva. Ostry previously served as a Professor in the Department of Economics at Georgetown University in Washington DC and in various senior roles at the International Monetary Fund, including as Deputy Director of the Research Department and Acting Director of the Asia and Pacific Department. Professor Ostry received his PhD in Economics from the University of Chicago, an MSc from the London School of Economics and a BA in PPE from Oxford University.

    Professor Ostry’s recent academic and policy work has focused on the management of international capital flows; this work has been influential in bringing about a shift in the institutional position of the IMF on capital controls. Ostry has also published influential studies on the relationship between income inequality and economic growth, where his work suggests that high income inequality and a failure to sustain economic growth may be two sides of the same coin. Ostry’s work has also focused on the issue of fiscal sustainability, and in particular on the role of a country’s track record of fiscal management in determining access to international capital markets. This work is used by the main credit rating agencies for their sovereign credit rating analysis.

    Professor Ostry is a highly cited economist in scholarly journals (ranked in the top 1 percent of economists worldwide over the past ten years, according to RePEc), and his writings have featured prominently in the financial press (the Economist, the Financial Times, the New York Times, the Washington Post, the Wall Street Journal, Bloomberg, Time, Forbes, Fortune, CNBC, NPR, and the BBC). Earlier in his career, Ostry led the team at the IMF that produces its flagship publication, the World Economic Outlook, and was mission chief for Japan. His recent books include Taming the Tide of Capital Flows (MIT Press, 2018) and Confronting Inequality (Columbia University Press, 2019).
     

Keyword
WhyAxis newsletter
Language
English

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