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Tuesday, November 28, 2006

Political Price Cycles in Gasoline Markets?

Are oil prices manipulated prior to elections? This paper provides evidence that they are based upon a sample of legislative elections for 32 countries over 27 years:

Do Politicians Manipulate Gasoline Prices?, by David Wessel WSJ Washington Wire: Before the recent U.S. congressional election, there were widespread, unsubstantiated assertions that the Bush administration somehow had manipulated gasoline prices so they’d fall before the November congressional elections. Economists pooh-poohed them. Now a couple of International Monetary Fund economists, looking through data on gas prices and legislative elections from 1978 to 2004 in 32 countries from Australia to the U.S., say there may be something to this conspiracy theory.

“Focusing on real” – inflation-adjusted – “gasoline prices alone, we observed that they declined 0.3%, on average, during ‘normal’ quarters and about 0.7% during quarters of electoral campaign. Moreover, in 15 countries of the sample, this difference exceeded 2 percentage points, whereas it exceeded 6 percentage points in seven countries,” economists Claudio Paiva and Rodriga Moita write in new IMF working paper. ...

Though the paper appears to be carefully done, I'm skeptical. In particular, though there is a theoretical model in the paper, how the price manipulation is carried out isn't completely clear. The paper says:

[A]nother assumption we make in using the gasoline market in the empirical part of our paper [is] that governments either determine gasoline prices directly through price regulation or exert strong influence on them through regulatory stocks, importation, taxes, subsidies, and when setting environment and safety standards.

Thus, the connection between government action prior to elections and gas price changes is assumed, not established empirically. I'm not saying the connection is or isn't there for the countries in the sample, just that it hasn't been shown to exist for the U.S.

Update: Here are the countries:

Australia, Austria, Belgium, Brazil, Canada, Switzerland, Denmark, Finland, France, Germany, Greece, India, Indonesia, Ireland, Italy, Japan, Korea, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovak Republic, South Africa, Spain, Sweden, Thailand, Turkey, United Kingdom, United States

    Posted by on Tuesday, November 28, 2006 at 12:05 AM in Academic Papers, Economics, Oil, Politics | Permalink  TrackBack (1)  Comments (19)

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    Michael Giberson Falling gasoline prices in the few months before the recent U.S. election led some observers to conclude that the oil industry (or possibly the Bush administration) was cutting prices in an effort to manipulate election results. I'm sk... [Read More]

    Tracked on Wednesday, November 29, 2006 at 04:47 AM


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