The political economy of IMF forecasts

We investigate the political economy of IMF forecasts with data for 157 countries (1999–2005). Generally, we find evidence of forecast bias in growth and inflation. Specifically, we find that countries voting with the United States in the UN General Assembly receive lower inflation forecasts as domestic elections approach. Countries with large loans outstanding from the IMF also receive lower inflation forecasts, suggesting that the IMF engages in “defensive forecasting.” Finally, countries with fixed exchange rate regimes receive lower inflation forecasts, suggesting the IMF desires to preserve stability as inflation can have detrimental effects under such an exchange rate regime.     

Domestic political determinants of inflation

Abstract. Political economists have advanced a variety of diverse and competing hypotheses to explain the domestic political dimension of inflation. With few exceptions, however, these hypotheses have been tested individually without regard to competing explanations. This study uses pooled time-series data on fifteen industrial democracies to examine five prominent political hypotheses that purport to explain either political pressures that cause inflation or institutional arrangements that insulate governments from these pressures. The results indicate that: (1) Central Bank independence provides an effective counterweight to inflation by insulating monetary policy making from inflationary (particularly, partisan) impulses; (2) Government spending increases caused by distributive and redistributive politics intensify inflationary pressures even in countries with independent Central Banks and neocorporatist arrangements; (3) Inflation is determined partially by the ideology of the party controlling government. Leftist governments in pursuit of income redistribution produce higher inflation than conservative governments; (4) Elections do not have significant effects on inflation under any structural circumstances; and (5) Neocorporatism does not consistently reduce inflation or contain the inflationary effects of partisan manipulation and fiscal expansion. However, neocorporatism may stop inflation if wage moderation by labour is accompanied by the government's commitment to pursue restrictive monetary policy.     

Does inequality cause inflation?: The political economy of inflation,taxation and government debt

Public Choice - A democratic society in which the distribution of wealth is unequal elects political parties that are likely to represent the interests of poor people. It is in the interests of the...     

Random timing of elections and the political business cycle

In his 1975 paper, Nordhaus formally proves that governments whose aim is to be reelected, will generate ‘political’ business cycles. Empirical results do not confirm this proposition, especially in countries used to early elections. We show that if there is a non-zero probability for elections to be called before the legal term, the political business cycle will be less pronounced, even if no early election actually takes place; moreover, if the normal electoral cycle is interrupted before the legal term, one might observe an inversion of the business cycle, or no cycle at all.     

On the political economy of national tax revenue forecasts: evidence from OECD countries

Sustainable budgets are important quality signals for the electorate. Politicians might thus have an incentive to influence tax revenue forecasts, which are widely regarded as a key element of national budget plans. Looking at the time period from 1996 to 2012, we systematically analyze whether national tax revenue forecasts in 18 OECD countries are biased due to political manipulation. Drawing on theories from the field of political economy, we test three hypotheses using panel estimation techniques. We find support for partisan politics. Left-wing governments seem to produce more optimistic, or less pessimistic, tax revenue forecasts than do right-wing ones. Contrary to the theoretical prediction based on the “common pool” problem, we find that more fragmented governments and parliaments tend to produce more pessimistic, or less optimistic, tax revenue forecasts. We find no empirical evidence that political business cycles play a role in tax revenue forecasts.     

Goods diversion and repressed inflation: Notes on the political economy of price liberalization

Most analyses of parallel markets in centrally-planned systems focus on queue-rationing as the mechanism whereby state-sector goods become available for second economy resale. This article takes into account employee diversion of goods as a second channel through which merchandise can move to private markets. Diversion of goods tends to temper the adverse distributional consequences of price liberalization. As repressed inflation increases, more goods are diverted out of the state sector, and the likelihood that an individual will be made worse off by a transition of free prices is diminished.     

The limits and rewards of political opportunism: How electoral timing affects the outcome of currency crises

Politicians are often assumed to be opportunistic. This article examines both whether there is a limit to this opportunism and whether voters reward policy makers for opportunistic behaviour. By looking at currency crisis situations, the article presents a graphic rational opportunistic political business cycle model in which incumbents face a tradeoff between their wish to signal competence and the economic constraints imposed by the crisis. It analyses how electoral incentives affect policy makers' management of currency crises and how this management in turn affects the subsequent election outcome. The empirical results of probit models with selection using a sample of 122 crises in 48 industrial and developing countries between 1983 and 2003 confirm the model's prediction that under certain circumstances some types of policy makers do indeed have incentives to deviate from optimal policy in the run-up to elections – and that voters reward this behaviour by re-electing policy makers who follow such strategies. However, there is a limit to the readiness to manipulate: when speculative pressure is too severe, incumbents no longer manipulate policy but implement the least painful policy option instead.     

Political distortions in state forecasts

This study provides evidence that political incentives lead state budget officials to make biased forecasts. Specifically, the budget in the year that ends right before an election is based on overly optimistic forecasts. Similarly, the budget that starts right before an election is also based on optimistic forecasts. These biases are even larger if the incumbent party is more likely to lose the gubernatorial election. Accordingly, budget deficits are $27 per capita higher in election years and $26 per capita higher the following year.     

小康社会的政治定位

政治文明是小康社会不可或缺的组成部分 ,全面建设小康社会的现代化进程要求把政治文明建设放到突出的战略地位上来。定位全面小康社会的政治文明要确立政治民主化、政治公开化、政治公正化、政治科学化、政治法治化、政治效率化、政治廉洁化、政治秩序化八个方面的政治价值指标。小康社会的政治文明建设应转移到制度文明的重心上来。     

The political economy of hyperinflation in Venezuela

Public Choice - We study the Venezuelan hyperinflation as a political phenomenon with distributional and efficiency effects. The hyperinflation originated in publicly financed benefits for the...     

The regulation of political financing in Portugal

The regulation of political financing in Portugal has taken place through successive waves of reform since the adoption of the first decree which gave legal recognition to parties in 1974. The incremental nature of adjustments and the overall inefficacy of instruments adopted, often introduced without a clear understanding of the problems and opportunities for impropriety and corruption, can be interpreted as an attempt by the political class to anticipate the worst, that is, scandal and the threat this would represent to the normal performance of democracy. In spite of the legislators' increased knowledge about successes and failures of foreign regulatory experiences and the importation of instruments tested abroad, Portuguese regulatory efforts are shaped by specific lines of legal-historical development and the dominant attitudes of Portuguese society towards that sort of illegality.     

The political legislation cycle

The economic theory of legislation holds that laws, even when they do not involve financial resources, redistribute property rights. Politicians supply legislation to groups with the highest political return. By the same logic, politicians should supply legislation when doing so has the highest political return. The dynamics of the supply of legislation should follow the pattern suggested by the political business cycle theory. We develop a model of government’s and voters’ behavior where a legislation cycle is the strategy to hold the government (coalition) together. Under certain assumptions, the model predicts that the approbation of laws should be concentrated at the end of the legislature and be positively related to the fragmentation of the government coalition. We test these restrictions on data about the supply of legislation by the Italian Parliament during legislatures from I to XIII (1948 to 2001). The empirical analysis provides strong support to the theory: a legislation cycle occurs when the conditioning phenomena that the model indicates are satisfied.     

The mobilization of political discontent

Although political discontent has risen substantially among Americans since the mid-sixties, there is considerable disagreement about the implications of this trend for individual political behavior and system performance. This paper develops a conceptual and theoretical framework within which this question can be examined. Two dimensions of political discontent, low diffuse support and external inefficacy, are hypothesized as motivations for political action when certain other conditions are met. In addition, because each of these orientations should be associated with different styles of political behavior, the mobilizing potential of political discontent may be greater than previous studies have indicated.     

The political economy of fertility

This paper studies the political economy of fertility. Specifically, I argue that fertility may be a strategic choice for ethnic groups engaged in redistributive conflict. I first present a simple conflict model where high fertility is optimal for each ethnic group if and only if the economy’s ethnic diversity is high, institutions are weak, or both. I then test the model in a cross-national dataset. Consistent with the theory, I find that economies where the product of ethnic diversity and a measure of institutional weakness is high have increased fertility rates. I conclude that fertility may depend on political factors.