Political turnover and economics

In our dynamic election model, a voter and two parties have distinct ideologies, but their policy preferences reflect a common trade-off between the need to adapt the policy to a changing state and a desire for policy stability captured by a cost of policy change. We show that the voter elects more often the party whose ideology is aligned with the status quo. Hence, consistent with the empirical evidence, a liberal (conservative) incumbent is more likely to be reelected after having implemented a liberal (conservative) policy. Expecting this electoral bias, the party in office tends to be less responsive to the state and instead tilts policy making towards its ideology in order to be reelected.

We find that when economic growth is low, high-trust countries are much less likely to experience leader turnover than low-trust ones. For example, the presence of a recession (defined as GDP growth below the tenth percentile) is 43.6 percentage-points more likely to cause political turnover in Greece than in Denmark. Similarly, it is 31.5 percentage points more likely to cause turnover in Italy than in Norway. These effects are economically significant, especially when compared to the mean turnover rate in the sample, which is 24 percent. The findings are consistent with our hypothesis that citizens from low-trust countries are more likely to vote leaders out of office than those from high-trust countries.