Searching for political business cycle in Albania

Abstract

In our search for Political Business Cycles in Albania, we found clear evidence of the attempts made by the incumbent to manipulate the economy. There is a statistically significant increase of public expenditures before elections aiming at reducing unemployment and increasing output, in order to please the voters. Regarding the macroeconomic outputs, we have found, evidence of PBC in GDP and unemployment but not in inflation. The fiscal expansionary policy before elections, leads to higher GDP and lower unemployment before/during elections. However, the inflation does not significantly increase as expected. That might be attributed to the mature monetary policy conducted by the Central Bank which enjoys a relatively high level of independence.