Fiscal Decentralization and Government Size in Latin America

This paper explores the link between fiscal decentralization and government size in Latin America. While most related work attempts to test Brennan and Buchanan's "Liviathan" hypothesis, here the emphasis is placed on a different channel: the potential for decentralization to aggravate the common pool problem. In addition to the degree of expenditure decentralization, we consider the importance of vertical fiscal imbalance, as well as some institutional variables related to the nature of intergovernmental relations which can affect the ability of some jurisdictions to shift the cost of their local programs onto others: the degree to which intergovernmental transfers are discretional, and the degree to which subnational governments have borrowing autonomy. We find that decentralization tends to produce larger governments, but this effect is particularly important in cases where vertical imbalance is high, transfers are discretional and the degree of borrowing autonomy of subnational governments is large.Decentralization; government expenditures; fiscal discipline

Institutional Arrangements and Fiscal Performance: The Latin American Experience

This paper considers whether institutional factors, in this instance electoral systems and procedures, affect Latin American countries` fiscal performance as measured by the size of the public sector, fiscal deficits, the size of the public debt, and the degree of procyclality of fiscal policy. The authors find that electoral systems characterized by large district magnitude and high political fragmentation have larger governments, larger deficits, and more procyclical fiscal policies. Transparent and hierarchical budget procedures, on the other hand, lead to lower deficits and levels of debt.

The Political Economy of Exchange Rate Policy in Latin America: An Analytical Overview

Exchange rates have been central to the course of economic development in Latin America for decades. From the heyday of import substitution in the 1960s to the rapid expansion of foreign debt in the 1970s, from the debt crisis and its troubled aftermath in the 1980s to the rekindling of growth and borrowing in the 1990s, the exchange rate has been crucial to the mix of government policies that has shaped the region. Indeed, many analysts regard exchange rate policy as a major determinant of other economic outcomes, such as adjustment to the oil shocks of the 1970s and the debt crisis of the 1980s (Sachs, 1985). And currency policies have themselves been at the center of some of the regions most prominent economic processes and events, such as liberalizing reforms in the Southern Cone between 1976 and 1982, the Mexican crises of 1982 and 1994, Argentinas adoption of a currency board in 1991, Brazils 1999 currency crisis, and ongoing discussions of dollarization.

Evolución de la concentración urbana en todo el mundo: un enfoque de panel

(Disponible en idioma inglés únicamente) En este trabajo empleamos un enfoque de panel para estudiar el crecimiento de la población en las principales ciudades del mundo. Hallamos que las principales ciudades crecen con mayor rapidez en economías relativamente atrasadas y en economías más inestables y de crecimiento más rápido. También hallamos que los efectos de las políticas del comercio sobre el crecimiento de ciudades importantes depende considerablemente de la geografía. Mientras que el crecimiento demográfico en importantes ciudades ubicadas en puertos o cerca de ellos no cambia tras un repunte de los flujos de comercio, el crecimiento demográfico en ciudades importantes tierra adentro sí tiende a desacelerarse luego del mismo hecho. Por otro lado, no hallamos efecto alguno del régimen político sobre el crecimiento demográfico de ciudades importantes. Por último, hallamos algunos elementos de prueba de que, si todo lo demás se mantiene igual, las ciudades de mayor tamaño tienden a crecer a un menor ritmo.

Elections and the Timing of Devaluations

This paper presents a rational political budget cycle model for the open economy, in which devaluations are delayed in the run-up to elections, in order to increase the electoral chances of the party in office. By concentrating on the closed economy, previous political cycle models had overlooked the influence of elections on the behavior of exchange rates. We introduce voter uncertainty in two different dimensions. Not only are voters uncertain regarding the competency of the incumbent. They also ignore the degree to which the incumbent is opportunistic, i.e. willing to distort the economy for electoral gain. When there is only uncertainty about competence, we obtain a separating equilibrium, like in the previous political budget cycle literature. However, when uncertainty about opportunism is introduced, a partially pooling equilibrium emerges: an incompetent, opportunistic incumbent delays a devaluation until after elections, mimicking a competent incumbent, while the competent does not distort the optimal pattern of the exchange rate, regardless of the degree of opportunism. The model's prediction that there is a tendency to delay devaluations until after elections is used to look at the empirical evidence on devaluations around elections.devaluations, elections, political budget cycles, incomplete information.

Veto Players and Policy Trade-Offs- An Intertemporal Approach to Study the Effects of Political Institutions on Policy

The capacity to sustain policies over time and the capacity to adjust policies in the face of changing circumstances are two desirable properties of policymaking systems. The veto player approach has suggested that polities with more veto players will have the capacity to sustain policies at the expense of the ability to change policy when necessary. This paper disputes that assertion from an intertemporal perspective, drawing from transaction cost economics and repeated game theory and showing that some countries might have both more credibility and more adaptability than others. More generally, the paper argues that, when studying the effects of political institutions on policy outcomes, a perspective of intertemporal politics might lead to predictions different from those emanating from more a-temporal approaches.Political institutions, Public policies, Veto players, Policy adaptability, Policy stability, Intertemporal, Credibility, Repeated games

Political Institutions, State Capabilities and Public Policy - International Evidence

This paper introduces preliminary evidence from a cross-country database of policy characteristics and potential uses of that database. While most databases have emphasized either the content of policies (e.g., size of government deficits) or countries’ formal institutions (e.g., political regime, electoral system), the variables in this database reflect the policymaking capabilities of different polities. The paper attempts to explain these policy characteristics as depending on the workings of political institutions, using a logic emphasizing intertemporal political compromise. The paper also contrasts this logic with alternatives such as the veto players approach. The paper concludes by suggesting the use of these policy characteristics or state capabilities as explanatory variables for the effectiveness of public spending in various social areas.Political institutions, Public policies, Government capabilities, Veto players, Intertemporal cooperation, Development, Human Development Index, Public expenditures, Policy index, Adaptability, Stability, Judicial independence, Party institutionalization, Congress capabilities, Cabinet stability

Elections and the Timing of Devaluations

This paper presents a rational political budget cycle model for an open economy, in which devaluations are delayed in the pre-election period so as to increase the electoral chances of the party in office. By concentrating on closed economies, previous political cycle models had overlooked the influence of elections on the behavior of exchange rates. Voter uncertainty is introduced in two different dimensions. Not only are voters uncertain regarding the competency of the incumbent, but tey also ignore the degree to which the incumbent is opportunistic.