Rational Partisan Theory with fiscal policy and an independent central bank

Abstract

The empirical evidence testing the validity of the rational partisan theory (RPT) has been mixed. In this article, we argue that the inclusion of other macroeconomic policies and the presence of an independent central bank can partly contribute to explain this inconclusiveness. This article expands Alesina s (1987) RPT model to include an extra policy and an independent central bank. With these extensions, the implications of RPT are altered signi ficantly. In particular, when the central bank is more concerned about output than public spending (an assumption made by many papers in this literature), then the direct relationship between in flation and output derived in Alesina (1987) never holds. Keywords: central bank, conservativeness, political uncertainty. JEL Classi fication: E58, E63.