The original political business cycle theories focused on incumbent presidents trying to manipulate the economy in their favor to gain reelection. Subsequent research began to incorporate other, more realistic factors.
The first innovation was to recognize that political parties could have different goals or preferences. In particular, in the United States, Republicans historically have been more concerned about fighting inflation, whereas Democrats have placed more weight on reducing unemployment. Economists and political scientists began to incorporate these partisan effects into their analyses.
The second major innovation was to recognize that the public would anticipate that politicians will try to manipulate the economy. Suppose that, if elected, Republicans will contract the economy to fight inflation, whereas Democrats will stimulate the economy to lower unemployment. If the public is not sure who will win the election, the outcome will be a surprise to them a contractionary surprise if Republicans win and an expansionary surprise if Democrats win. As Professor Alberto Alesina of Harvard University first pointed out, this suggests that economic growth should be less if Republicans win and greater if Democrats win. The postwar U.S. evidence is generally supportive of this theory.