One of the most important empirical propositions to emerge in the political economy literature is the political control of the economy hypothesis. This hypothesis states that political life affects macroeconomic outcomes in a regular persistent fashion. However, according to Tufte (1978, 138), it has been limited to studies of economic consequences of public intervention. In the private sector of the economy it was claimed: "...the political control of the economy operates at the margin--a shift in the inflation rate here, a fluctuation in unemployment there--rather than on the underlying structure of the economy, public and private" (Tufte, op. cit.). I propose to extend and refine this hypothesis so as to include private economic activity that transpires outside the scope of political control within the 'political control' hypothesis.;At the empirical level the interaction model developed here proves superior to other political models, insensitive to structural changes in the underlying political arena namely, administration changes. It is more inclusive in its identification of the Legislative constraint and relevant economic determinants on macroeconomic outcomes. Predictions about the future levels of both inflation and unemployment manifest the interdependency of the political and economic sets of determinants employed in the private political control of the economy hypothesis. Policy recommendations implied by the model as to the sole directly manipulated determinant, the budget, are obvious yet discouraging. The model provides also with a set of hypotheses pertaining to the feedback loop and a fuller assessment of the Eastonian system approach.;The private political control of the economy hypothesis departs from previous research attempts to confront the "politics versus economics" dilemma in public policy literature. It offers a synthesis to one-sided, economic or political, conclusions made in prior endeavors. The hypothesis presents political determinants with a new meaning, an expectational one, in the macroeconomic field. Politics has no direct stimuli effects on macroeconomic outcomes when controlled for economic conditions, policy activated as well as environmental factors. The applicability of an expectational theory, like ratex, is thus of primary import to political research aiming at macroeconomic explanations.
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