Political Cycles in Nontraditional Settings : Theory and Evidence from the Case of Mexico

We adapt the model of McGuire & Olson (1996), creating a rotating bandit model to investigate the economic effects of a polity consisting of a regularly changing autocrat with an encompassing interest but a finite time horizon. We apply our model by studying the relationship between electoral cycles and economic growth and inflation uncertainty in Mexico, a country with a highly centralized and powerful government, no re-election, and until recently, little political competition. We find a significant post-election economic collapse but no pre-election boom, which is contrary to the predictions of the traditional PBC model. We also find evidence that elections create, rather than resolve, inflation uncertainty, which contradicts the predictions of the rational partisan model