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By Dong Wang


Generally, Political Business Cycles happens in western economy, which reflects that macro-economy fluctuating is according with election cycles. The reason is that statesmen and citizens often do not have the same interest. And also, there is information asymmetry between them. Consequently, final solution is a suboptimum one. China is a socialist country whose political regime is quite different from others in western world , however, China’s business cycles are also coincidence with political cycles. This paper analyzed a hypothesis based on China’s real political and economic cycle. Firstly, we examined China’s election cycles and compared it with business cycles. Secondly, chose variables to formulate a short-run equilibrium model on consumer choice theory and game theory according to actual conditions, At last, through long-term and medium-term discussion, we concluded that in every political cycle, the curve of GDP growth is U shape, and fiscal revenue growth curve is over U shape. Based on GDP data from 1977 to 2010, made up a stationary time series, decomposed it into trend component and cyclical component by H-P method. Using OLS model with dummy variables, we get the liner relationship between political elements and economic fluctuating. Furthermore, Granger test outcome testifies the hypothesis. This paper proved that a real relationship between political and economic cycle in China, summarized its characteristics and a mechanism, and presented the lessons to China.

Topics: H11 - Structure, Scope, and Performance of Government, P2 - Socialist Systems and Transitional Economies, P26 - Political Economy; Property Rights, P35 - Public Economics, P48 - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
Year: 2011
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