The periods that precede elections have often been characterized by high-intensity campaigns. As a consequence, greater focus during this period has mostly been on political communication that is unrelated to the real policy challenges that the country is faced with. Coupled with the recent history, this period causes anxiety to citizens and economic actors who think that this pre-election period exposes a country's fragility. Below are the effects of Elections on an Economy.
1. Government Debt
The first and most obvious impact of an election is a
significant increase in national debt being taken by the government. Elections
across the world are marked by the introduction of policies that are economic
disasters but have political benefits. The rollout of welfare schemes which
will become unsustainable in the long run is a common ploy that is used by
parties that are in power to woo the voters. Such manipulation would not work
if the voters were rational and were likely to elect a government based on its long-term
performance. However, unfortunately, that is not the case. Voters often focus
on the short-term benefits that they are likely to receive which causes
governments to spend a lot of money trying to look good just before the
elections.
2. Reduced Taxes
Taxes are an extremely touchy subject amongst all voters
across the world. The introduction of or increase in taxes is enough to make a
government unpopular. Conversely, repealing or reducing taxes is enough to
increase the popularity of any government. This is the reason why pre-election
budgets are often marked by tax breaks for the masses. Often, the
industrialists and the wealthy are made to pay for these tax breaks. A lot of
times, the government is just adding to the national debt which means that the
taxes are only reduced temporarily and will have to be increased later.
3. Decisions Postponed
Industrialists and businessmen are known to avoid taking key decisions during an election year. This is because a change in the government may also mean a change in the priorities of the government. Many times, the policies of a government entirely change the viability of a project. Businessmen want to avoid the risk of their projects becoming redundant thanks to government policies. Hence, they prefer to play the wait-and-watch game. This obviously has a negative impact on the economy since the economic output, and the jobs which could have been created now are being postponed.
4. Slower Credit Growth
Since industrialists and businessmen are undertaking fewer
projects, banks do not have to lend out too much money. This slows down the
rate of credit growth which affects the economy in a negative manner. In fact,
in many countries, during an election is the time when businessmen pull their
money out of bank accounts and use it to finance the election campaign of their
preferred political parties. Since the money is pulled out, the amount of bank
deposits reduces. Once again, since credit growth is limited by the number of
deposits on hand, it is drastically reduced during the election year.
5. Increased Inflation
The election period is marked by increased spending by each
of the political parties. Every political party spends millions of dollars. A
lot of this money is suddenly taken out of bank accounts and unleashed into
the market. This is the reason why suddenly there is a lot of money chasing
limited amounts of goods. This results in price inflation. Products like food
items, Oil and Gas, and drinks also tend to face shortages which leads to an
increase in their price.
From all the above points during an election year, neither
the government nor the citizens are looking at long-term results. They are only
concerned about the immediate impact that their policies can create. As a
result, the economy completely stops focusing on long-term imports. Instead,
the focus is on immediate consumption. Thus, long-term spending like
infrastructure projects takes a hit. This has led to slower economic growth in
every election year.
7. Increase in business/ Large-scale temporary employment
Not all industries face the negative impact of an election.
For some industries, the impact is very positive. For instance, companies that
provide rental equipment for organizing events see a brisk increase in business
because of political rallies. Similarly, manufacturers of certain types of
goods which are used by political parties as freebies also see a sudden spurt
in their business. Large-scale temporary employment is provided since a lot of
event management and security personnel is needed to conduct political rallies.
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