Neighbor's political business cycle: a cross-border study of the effects of U.S. presidential elections on Mexico's consumption

Abstract

Regarding the effect of politics on economics, the opportunistic political business cycle theory studies have struggled finding significant effects on the general GDP level, or its components, due to a political business cycle.1 However, scholars have recently sought to distinguish between the impact of politicians’ opportunistic policy choices ahead of elections on economic outcomes, and the impact of general electoral uncertainty on economic outcomes. While studying the effects of electoral uncertainty on economic agents’ decisions, research has surged on how elections affect GDP components. The effect of political events on private consumption has been examined. Specifically, an electoral cycle has been shown to exist in private consumption. However, scholars have not yet examined the impact of elections on GDP components across borders. In this paper, I will test whether uncertainty surrounding presidential elections in the United States of America affects private consumption in Mexico.