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I am looking to observe and possibly quantify private investment during election periods.

I am interested in any studies, particularly empirical, which discuss the impacts elections can have on the economy in the lead up to them. From what I can tell, there is typically a suppressing impact on investment but I'd like to see some work on it.

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There are many ideas to look into and some research:

IDEAS

  • Elections are presumably a time where the future becomes uncertain in the sense that there is a likelihood the new leader will change the course of a nation. From that point of view its about increased uncertainty.

  • Elections are often about corruption. The current political party will use corruption to remain in power. Often this means an increase in public expenditure or a loosening of monetary reins.

  • Potentially, some elections change the mood of a country because they absorb lots of people's energy, make them fight each other, as the candidates sometimes expose the least likable instincts in order to try and win.

EMPIRICS

  • Some of the work of Nick Bloom consists of structural estimation of a model of a firm that adjusts to changes in the amount of uncertainty in the environment. This kind of work suggests that for a fixed productivity level, investment (and disinvestment) rates fall in response to increases in uncertainty. The intuition is that of the threshold for exercising stock options: you are more likely to wait to exercise a call option if volatility is greater. Under the assumption that there is more uncertainty about future policy during elections, these models will tell you that investment will be lower during these periods.

  • Canes-Wrone and Park describe survey results in terms of people delaying purchases during election times.

  • Julio and Yook stuy cross- border capital flows in response to policy uncertainty, which is often the result of election periods.

SUGGESTIONS

  • Maybe, a way to go about this empirically is simply to look at the responsiveness of investment to q, as a function of how far elections are. If the coefficient of q in investment regressions is lower in the quarters right before presidential elections, you would have a reasonable and yet interesting result.
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  • $\begingroup$ I would also add works coming from the Public Choice theory: rent-seeking (Tullock), collective action (Olson) for example $\endgroup$ – Alexis L. May 5 '16 at 17:44
  • $\begingroup$ from @Teroid: B., first of all thank you for your elaborate answer. I was wondering if know any papers regarding this part of your answer: "Potentially, some elections change the mood of a country because they absorb lots of people's energy, make them fight each other. Just as the candidates sometimes expose their least likable instincts in order to try and win, people also get angry and divisive. You could think that people spend more of their time in political activism, producing less output." $\endgroup$ – Jamzy May 30 '16 at 1:48

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