Information on economy and the influence to voter decision

economy and voter

Information on economy and the influence to voter decision

The issue of how democracy and electoral process affects economic growth has received a great deal of interest in researchers of economix and political economy in Europe and around.

We have approached this issue by examining the effect of political elections on economic growth and macro indicators. There have been large differences in economic growth between WB6 countries and there are also several studies that suggest that governance differs between them and makes the difference. However, our results do not find any evidence that these differences are caused by differences in the degree of democracy, because the level of democratization in WB6 countries does not differ much. There is no general effect of direct local elections on local economic growth[1], but the same is valuable also for the political elections.  There is an important and positive statistical effect of the election in some estimates, but the result is very fragile to the changes as we refer to economic and fiscal indicators. The most equivocal interpretation is that citizens do not choose high-quality people as their representatives and accept without so much resistance those policy candidates who are directly appointed through the party’s participation in parliament.

Trust potentially can influence economic performance through either of two major channels, “micro-economic” and “macro-political.” At the micro level, social ties and interpersonal trust can reduce transactions costs, enforce contracts, and facilitate credit at the level of individual investors. At the macro level, social cohesion underlying trust may strengthen democratic governance[2], improve the efficiency and honesty of public administration, and improve the quality of economic policies[3].

Economic Voting Studies argue that assessments of the impact on economic perceptions (economic agents) in voting are affected by voter selection of the program and promises that are presented to them as a political solution for economic development. If voters intend to vote for the incumbent political force, then they justify their response to the question of how the perception of the economy is, stating that the economy has been good. But if this perception is clearly presented by other political forces than there are serious distortions of perception from reality, then we could say that economic perceptions affect the choice of voters, as long as there is a sincere and trustworthy relationship between politicians in the interpretation of reality.

What indicators of economy are voters looking when they decide to reward or punish the politician?

The first answer is related with the well-being of the voters, which is translated in more money in bank accounts or cash in hand, and also more valuable national currency, when they go abroad. The second answer is linked with macro indicators, explained by the government statistics and also by other actors in society, like the political forces, and CSOs together with the think tanks and analysts of economy and finance. There are many economic indicators in between the level of an individual voter’s bank account, and an aggregate measure of the macro economy such as GDP or real disposable per capita income. Voters might choose to consider the distribution of changes in economic performance. Rewarding a political party for an increase in income that has gone entirely to members of a different part of the economic stratum might make little sense. If real disposable per capita income goes up 5 percent, but 90 percent of the increase goes to the top 1 percent of the income distribution why should voters in the bottom 99 percent of the income distribution reward the political wing which is governing the country?

If we want a little bit to go beyond with the argument, we can say that voters in general understanding are not like “the stakeholders” in a big company (public or private one). Not all voters are simply interested in maximizing the value of their “shares” in public assets. When we take in consideration exactly the fact about the heterogeneity in voters, we think that some voters probably pay more attention than other voters to economic and financial topics such as the monetary policy including inflation, government revenues, the public expenditures and their destination, the public debt, the quality of life and the public order, or the sovereignty and the use of public trust to deal with investors about the natural resources.

In this context of analysis, it is important to know better what constitutes the economic perception of voters, in the conditions when all countries have heterogeneous voters.

Until now, the researches in these topics are not so enough to find the proper answers and deliver the proper choices, but we know that the impact of media coverage of the economy on economic perceptions is one of the elements which influences the economic perception of voters. But it is obviously that this analysis does not fill the gap in the lack of studies for the WB6 region.

Research on the impact of the media generally would suggest that by talking about economy the media could get attention of voters to put more emphasis on the economy, but the media cannot tell voters how to think about the economy without consulting the experts studying the economy.

In WB6 countries media market there is no room for economics and finance experts. This bitter fact is far from what voters’ demand, and reason is part of the lack of rule of law and malfunctioning of democratic rules. The current media market is fraught with fairly unfair competition, but also with media that are the proliferation of major party propaganda policies.

Leaving this market to run chaotic and without applying the laws adopted by politics is also why the media does not reflect the expertise lacking in the narrow interests of the political leaders. Instead of the experts, this role has also led to the patronage of old politics, which introduces its experts who are actually paying for this role by the leaders of old political parties.

However, voters have both local and general sources of information about the economy. They can observe how their peers or friends and family are thinking about the economy. But they cannot depend only on a range of government statistics, and the media bringing those statistics to them, to learn about the macro‐economy. Again, we note the heterogeneity of voters here. There is obviously a set of financially tuned‐in voters who know the state of the economy whether the media emphasizes it or not. However, many voters are more passive about seeking information on the economy, and will not know of economic change unless it is reported via mainstream media.

On the other side, based on the historical membership of the parties is depended also the respond in group to economic environment. For example, the political left wing in Albania are more sensitive to employment rate, economic growth and inflation than political right wing is more concerned about the privatization of economy, land ownership rights, and founding and reforming and liberal and market economy.

Among different evaluation of drivers of economy, they find the common understanding to anticorruption policy, anti-evasion and anti-informality tools and fiscal reforms, although they aim different way to address and finalize the unfinished reforms.

When the voters assess the influence of economic assessments on the vote, they must not only consider the macroeconomic national conditions, but we must also consider the fact that voters assess the past, the present and aim to look forward and make plans for the future of their families and friends. Based on these findings, but also in the many scholars and researchers, the voters vote retrospectively[4], assessing past economic performance, but also, they vote prospectively, basing votes on expectations of the future, based on politics promises. The time management in function of economy is very relevant to voters and has important implications both for the sophistication of voters and the interpretation of election outcomes.

Underlying each point of view, which is believable for the voter, then, comes the understanding from him, what choices demand from the voters, and also what economics choices are to say according to their perception. In the case of prospective voting, voters are relatively sophisticated as they have expectations of future performance of the economy interpreting better the policy and economic programs of the different political parties. Their votes reflect the best direction for the future, as they return to the mandate for the party that gets the majority by gaining the right to rule.

Under retrospective voting, much less sophistication is required of voters, they need only reflect on the past performance of the parties, the outcomes. Elections in the retrospective case are then referenda on party performance. Overall, the evidence is mixed, suggesting some directions for both retrospective and prospective evaluations.

In WB6 countries, however, the political forces they have governed at various levels of government (central and local) have been trying to make it more difficult to make economic voting by introducing unrealistic or fanatical analysis of the responsibility for economic outcomes. Yet it is important to note that voters in WB6 countries tend to keep the government accountable for economic conditions even when the government is divided into a federal model (Bosnia and Herzegovina), but also when there are problems with territorial administration (North of Kosovo). When a party’s leader is highly individualized, not all voters will only blame the party or politics, but they will also start blaming the problems directly to the political leader, which strongly urges personalization of the economy and state reform.

One thing appears to be clear from the practice from WB6 countries politics.

Different levels of government may perplex the voter’s decision for at least part of the electorate, but the democratic system leaves little room for its continuity beyond an electoral mandate, considering elections to be free and fair.

The negative effect of ruling party politics is large and harmful when next elections (extraordinary ones) are held in periods of time shorter than a 4-year mandate since bad governance loopholes can be justified with mandated government termination and the problem can be more oriented not as a result of bad or hasty politics.

The national economic situation has been shown to have had less impact on the share of votes won by each party at the regional level, as the regional economic situation has had much stronger influence on the voter decision. In particular, for example, rising national per capita income and unemployment rates have strong effects on election results at the national level if they would be clarified and translated into the context of profitability of voters at regional level. On the other side, the level per capita income growth and inflation rates determine vote shares if the voters will be part of the decision made by central government/Parliament for the important economic issues and strategic investments (for example like the experience with referendums held for every important issue in Switzerland). Meanwhile, for expenditures that affect large amounts of money collected from taxes should be information that should be guaranteed for each citizen without the need for a request. However, when verifying available budget data, facts can strengthen or weaken more or less arguments that are supposed and deformed in the absence of analysis on them.

After the check by the authors of this study, we checked that the public spending data from every WB6 country, in last ten years does not give any particular pattern in terms of increase or decrease before and after the elections. However, public spending in pre-election and election years is slightly higher than the years before or after the election process.

Governments have increased the budget spending in election time, which specially seem to have affected also the inflation in the market for services and basic spending of families. But this effect should be taken not seriously, since the informality in economy is above the normal rate compared with the average of the EU countries.

As a consequence of the “electoral” expenditures, the fiscal deficits had some increases in the elections years and an aggressive fiscal policy was observed in the post-election year.

Chauvet and Collier (2008) have mentioned that there is always a chance that elections affect the economic policies with different scenarios before and after the election time.

We have focused on share of public spending on GDP for the election’s years. Political business cycle models predict that before an election year, revenue receipts will fall and revenue expenditure will rise. But official fiscal statistics show that budget deficits, according to the budget policy implemented by current governments has been due to increased spending or tax cuts in every election, but it’s a fact that not both happened at the same time.

The political party in power always tries to introduce economic benefits and reforms that is particularly an incentive for the voters in the pre-election period to attract more votes. Investments and reforms mostly in this period can be referred to as short term political costs for long term benefits. For example, in elections of 2014 in Bosnia-Hercegovina, Serbia and in 2018 in Kosovo saw a 10% to 12% percent increase in social spending[5].

This level of expenditure shows clearly that the comparison between WB6 countries and Western European countries and other developed countries, in cases of increased social class spending or capital investment more than in normal budget years, cannot be the same rationale as in the findings mentioned in various studies related to expenditure shift for electoral benefit purposes. The fact of minimal increase in social and capital expenditure is related to the level of informality and corruption, which in WB6 countries, which is high and as such creates space to directly receive electoral benefits by including informal funds other than public funds.

In case of public expenditures, which are implemented in short-term projects might gradually start losing effect till the next elections. But voters are rational and they care about post-election economic performance implemented by the government. Given this logic tested over the years, the government does not have enough incentive from the voter to inflame with investments that may not be absorbed by economic infrastructure.

Income taxes play an important role in electoral policy manipulation. In WB6, governments prefer to monetize the pre-election increase in the current account deficit than capital expenditure adjustments. The “secret” lies in the fact that in WB6 countries, like in other countries, governments prefer to earn money from pre-election growth by leaving growth opportunities for the upcoming year, not wanting to affect capital spending, as in any case they are the most vulnerable part of government spending.  If this investment policy is planned to be postponed to several future budget years, then electoral politics becomes even more complicated for voters, as current budget spending capitalizes for the future when perhaps the current government may not be in government to pay the cost of the decisions it has taken. Meanwhile, the income tax for these expenses is taken at the time the expenditures are made, which corresponds to the period of government that has made the decisions for these capital expenditures.

One characteristic of economic effect based on electoral offers made by politicians of WB6 countries are the electoral investments. These investments are ones that would be impossible or quite expensive to turn back, once undertaken, but with economic loss to the country’s image in the eyes of serious investors. For example, consider a company that is deciding whether to construct a plant to produce hydro energy. Once the plant is constructed, it cannot be used for other purposes without expensive modifications.

According to the feasibility study the ROI ratio is OK. But, if the ROI will be in difficulty, the policy uncertainty that inherently arises from an election can induce the firm to postpone the decision over whether to construct the plant, assuming the costs of delay are lower than the utility from learning the electoral result. So, if the major parties hold different positions on renewable energy, and there is uncertainty about who will win the election, the firm might rationally choose to delay the decision, assuming the election is not too far away[6].

Taken together, the opportunistic and electoral investment decision shows the impact of elections varying across different components of GDP. For private investment such as gross fixed capital formation, elections will induce a slowdown. For government spending and most of private consumption, elections will encourage a temporary expansion. One category, private consumption of long-term goods, faces countervailing pressures.

Personal consumption should rise while the electoral investment should fall. Anyhow, it is not clear which effect should dominate. Elections should induce a greater increase in personal consumption of short terms than in long terms, if long term consumption even increases.

[1] Singh Charan – CCS India – Effect of elections in Indian Economy, August 2015

[2] Almond and Verba, 1963

[3] Easterly and Levine, 1997

[4] Linn Suzanna, Nagler Jonathan, A. Morales Marco – Oxford Handbook of American Elections and Political Behavior – Economics, Elections, and Voting Behavior, February 2010

[5] IMF Country reports for Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia 2009 – 2018

[6] Canes-Wrone and Park 2012; Julio and Yook, 2012

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