IMF arrangements, politics and the timing of stabilizations

This paper analyses the effects of International Monetary Fund (IMF) arrangements on the timing of inflation stabilization programs. Essentially, we test the hypothesis that IMF aid accelerates stabilization using probit and proportional hazards models. As in theoretical models, results are mixed: larger withdrawals of the amounts agreed to seem to hasten stabilization, but there is weak evidence that IMF arrangements lead to greater delays. Concerning other effects, greater fragmentation of the political system delays stabilization while higher inflation tends to hasten it. Other political and economic variables do not seem to have significant effects on the timing of stabilizations.IMF, stabilization, timing, politics.

The Political Economy of Failed Stabilization

This paper is an empirical analysis of the likelihood of failure of inflation stabilization programs. Logit models are estimated on a dataset of 39 programs implemented in 10 countries since the late 1950s, in order to determine which economic and political variables affect the probability of failure of stabilizations. Besides the well-known effects of real exchange rate appreciation, decreasing foreign reserves, budget deficits and slower GDP growth, I find that political instability, party fractionalization, less pluralism or democracy (greater autocracy), longer time in office and leftist incumbents also increase the probability of failure of inflation stabilization plans.Inflation stabilization, failure, political economy.

Does Opportunism Pay Off?

This article tests the hypothesis that the opportunistic manipulation of financial accounts by mayors increases their chances of re-election. Working with a large and detailed dataset comprising all Portuguese mainland municipalities, which covers the municipal elections that took place from 1979 to 2001, we clearly show that increases in investment expenditures and changes in the composition of spending favouring highly visible items are associated with higher vote percentages for incumbent mayors seeking re-election. Our results also indicate that the political payoff to opportunistic spending increased after democracy became well-established in the country.Voting functions, opportunism, local governments, elections, Portugal.

Political Business Cycles at the Municipal Level

This article tests for the existence of rational political business cycles models using a large and unexplored data set of Portuguese municipalities. The data set is well-suited for this purpose because it provides a high level of detail on expenditure items, because Portuguese municipalities are homogeneous with respect to policy instruments and institutions and follow an exogenously determined election schedule. Estimation results clearly reveal the existence of opportunistic behaviour by local governments. Expenditures increase in pre-election periods, especially on items that are highly visible to the electorate (e.g., highways and streets). This suggests an effort to signal competence and improve chances of re-election.Political business cycles, public finance, local governments.

Popularity functions, partisan effects and support in Parliament

This paper analyzes the popularity of the main political entities in Portugal. After describing the recent evolution and structure of the Portuguese political system, we present estimations of popularity functions for the Assembly, Government, Prime Minister, and President using several estimation techniques to incorporate the timeseries and cross-equation aspects of the models. The results strongly favor the responsibility hypothesis, with unemployment, and to a lesser extent inflation, affecting popularity levels. There is also evidence that voters’ evaluations of incumbents’ economic performance depends on the ideology and support in Parliament of the latter. Finally, there is evidence of popularity erosion over consecutive terms and of honeymoon effects.

The determinants of vote intentions in Portugal

This paper offers additional insights on the interactions between economics and politics in Portugal. We use an unexplored data set consisting of monthly polls on vote intentions for the main political parties in Portugal, since 1986. Results indicate that: (1) socialist governments had less electoral support than social democratic governments; (2) social democratic governments enjoyed a honeymoon period with the electorate while socialist governments did not; (3) vote intentions for incumbent parties tend to decrease with time in office; (4) voters hold incumbents responsible for the evolution of the economy; (5) the socialists are more penalized for rises in unemployment than are the social democrats.voting functions, responsibility hypothesis, Portugal, vote intentions.

Political Business Cycles and Inflation Stabilization

When the choice of the nominal anchor and timing of inflation stabilization is analyzed with models of political business cycles, there is room for political opportunism of policymakers. The different business cycles associated with exchange rate-based (ERBS) and money-based stabilizations (MBS) imply that the decision regarding the timing and nominal anchor of stabilization may be affected by the timing of elections. Namely, an opportunistic policymaker is more likely to implement an ERBS than a MBS before elections, while the opposite happens after elections. Empirical results obtained when estimating a multinomial logit model for a sample of 35 stabilization programs implemented in chronic inflation countries clearly support this hypothesis.Inflation stabilization, nominal anchors, political business cycles.

Does Political Instability lead to higher and more volatile inflation? A Panel Data Analysis

Economists generally accept the proposition that high and volatile inflation rates generate inefficiencies that reduce society’s welfare. Furthermore, studies have shown that inflation is harmful to economic growth. However, determining the causes of the worldwide diversity of inflationary experiences is an important challenge not yet satisfactorily confronted by the profession. Based on a broad dataset covering over 100 countries for the period 1975-1997 and using dynamic and static panel data econometric techniques, this paper shows that a higher degree of political instability is associated with both higher inflation levels and volatility. Not only does this paper advance the political economy literature establishing a relationship between inflation moments and political instability, but it also has important policy implications regarding the optimal design of inflation stabilization programs and of the institutions favorable to price stability.Inflation, volatility, political instability, institutions.

Political Instability and Inflation Volatility

The purpose of this paper is to empirically determine the causes of the worldwide diversity of inflation volatility. We show that higher degrees of political instability, ideological polarization and political fragmentation are associated with higher inflation volatility.Inflation, volatility, political instability, institutions.

Economic Voting in Portuguese Municipal Elections

This paper analyses the impact of economic conditions on Portuguese local electoral outcomes. We use two extensive datasets to estimate an economic voting model which accounts for the possibility that different levels of government have different levels of responsibility for economic outcomes and for clarity of government responsibility. Empirical results indicate that the performance of the national economy is important especially if local governments are of the same party as the central government. The municipal situation is also relevant particularly in scenarios of higher clarity of government responsibility.Local governments, Elections, Portugal, Voting, Economic conditions