Gasoline Price Manipulation for Political Gains?

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 skeptical, but now a pair of economists have done some related analysis and found some support for the conclusion that real gasoline prices tend to fall more during pre-election quarters than in other quarters.

It should be noted immediately that the research was not focused on the 2006 U.S. election -- they weren't directly examining the conspiracy theorists' claims -- but rather on the more general point of whether gasoline prices in democratic countries showed election-related patterns. The authors tested their theories against quarterly data from 32 countries over the period from 1978 to 2004. In short, they find:

In fact, point estimates suggest that the real price of gasoline declines by at least 0.8 percent and up to 1 percent, on average, during each of the two quarters of election campaign in the 32 countries covered by our sample, a relatively sharp decline compared to the average reduction of 0.3 percent in the entire sample period.

I haven't read the paper completely, just scanned through for the sexier parts like quoted above. Still, clearly the jury is out on our most recent election. If anything, this research suggests that the political price effect is relatively normal, and therefore nothing for which the current administration would be particularly blameworthy for.

The paper is here. [PDF] HT to the WSJ’s Washington Wire and Economist’s View.