Political economy of elections in East Asia: The sensitivity of money supply to elections (Japan, Korea, Taiwan, China)

This research investigates the relationship between elections and macroeconomic performance, especially the impact of elections on money supply in Japan, South Korea, and Taiwan. A variant of interrupted time-series models tests if there are any significant changes in macroeconomic performance before and after elections. Unlike most previous research, this study employs monthly data, and avoids arbitrary restrictions on a cycle's length. Money supply shows a pattern of preelectoral increase and postelectoral decrease in Japan and Korea. However, inflation and unemployment rate, often associated with elections in Western countries, do not have significant empirical relationships with elections in East Asia.; In Western countries, an increase of money before elections has been generally assumed as an outcome of governmental policy manipulation to make the economy look healthy for re-election purposes. However, according to this research, in East Asia, the election-related money fluctuation has been a response to the costliness of campaign activities. Private credit has a statistically significant relationship with money fluctuation, and governmental expenditure fails to show significant effect.; What makes for the East Asian countries' particularity is found in their incentive structures and institutional arrangements. Governments do not have strong motivation to manipulate their economies, and economic policy discussions are not lively during campaigns. Elections are conditioned mostly by candidates' personal factors and, at most, by political issues. East Asian economies have been very successful, and economic policymaking has been dominated by professional technocrats. Governmental parties have long secured their power position in predominant party systems. Major parties are predominantly conservative, and their economic policy programs are not saliently different. Voters also have not had experience with utilizing elections for meeting their policy preferences. Campaign regulations have even restricted policy discussion. In Japan (until recently) and Taiwan, single-vote, multi-member district election systems encouraging intraparty competition have made elections an arena of expensive organizational competition, not of policy competition.; Under these conditions, East Asian elections require a great amount of campaign expenses, and it leads to the fluctuation of money supply during elections.