Fiscal consolidations and electoral outcomes in emerging economies: Does the policy mix matter? Macro and micro level evidence from Latin America

Do voters punish governments that introduce fiscal “austerity” measures? If so, does voter response vary according to the composition of fiscal adjustments? The empirical literature on the political economy of fiscal adjustments, which is mostly OECD-based, argues that consolidations do not have significant electoral consequences. In contrast, we find that voters punish fiscal consolidations at the polls in Latin America. To explain this result, we focus on the way fiscal adjustments episodes are implemented, both in terms of their design (taxes vs. spending) and timing. Such episodes rely fundamentally on increasing tax rates and bases of indirect taxes (such as the VAT) that hit broad segments of the population. Moreover, these policies are often implemented when politicians have no choice but to consolidate, that is, under severe economic circumstances. These macro results are corroborated with micro evidence from an original survey experiment that measures voter’s fiscal policy preferences over the business cycle in seven countries across Latin America. The experimental evidence shows that respondents prefer expenditure cuts to tax increases during downturns, which is the opposite of the type of consolidations that countries typically pursue.     

LAND DISTRIBUTION INEQUALITY AND ECONOMIC GROWTH: TRANSMISSION CHANNELS AND EFFECTS

Abstract.  Land reform in Asian countries is often mentioned as one explanation for the successful economic performance of several Asian countries. Latin American countries did not have land reform and therefore have had lower economic growth. However, this legitimate guess has only scarce evidences. We use a new analytical method to investigate some plausible channels and effects, and we find supportive evidences that part of the regional differential in economic performance of the East Asian and Latin American regions can be explained by their difference in land distribution inequality.     

Different Impacts of Scientific and Technological Knowledge on Economic Growth: Contrasting Science and Technology Policy in East Asia and Latin America

This paper conducts country‐panel econometric analysis with a focus on the different roles of scientific and technological knowledge on economic growth and on the knowledge production functions. It finds that it is not scientific knowledge (academic articles) but technological knowledge (patents) that matters for economic growth, and that generating scientific knowledge does not automatically lead to the generation of technological knowledge. We find that technological knowledge is primarily determined by corporate research and development efforts, which used to be more lacking in Latin American countries, compared with East Asia. This finding sheds new light on the question of why Latin American and East Asian countries have shown such divergent economic performances.     

The Political Economy of Growth in Latin America and East Asia: Some Empirical Evidence

This article examines the historical records of poor economic performance of Latin America compared to East Asia's relative success in the 1970s and 1980s. Although both regions adopted similar postwar protective inward-oriented development strategies, their experiences and economic outcomes diverged significantly in subsequent years. Some have argued that East Asian countries outperformed Latin American ones because they implemented appropriate policies that were adaptive to changes in the global market scene. This study shows that the respective sociopolitical and institutional environment of the two regions was also an important factor contributing to their economic outcomes. A growth model augmented with policy-driven and sociopolitical variables is developed. Using data for selected countries in both regions, the results confirm the hypothesis of a negative direct (efficiency) effect of sociopolitical instability on growth, with an additional indirect (accumulation) effect through investment, irrespective of a country's location. Policies adopted by governments, particularly to control inflation and foreign indebtedness and to enhance economic freedom and human capital accumulation, appear crucial for stability. Such policies influenced economic performance through both the direct and the indirect channels. (JEL B25 , E13 , F43 , H19 , O57 )     

Microdynamics,granularity and populism: The Finnish case

We study how measures of microdynamics such as job and worker flows, the job reallocation rate and the labor market churning rate are related to populism support. Moreover, we investigate the relation between employment shocks to large firms, granular shocks, and populism. To measure populism, we look at the municipal-level support toward the Finns Party, the Finnish right-wing populist party, during the 2011 and 2015 parliamentary elections. We find that the labor market churning rate and the granular shocks are negatively associated with support for populism. Hirings in continuing establishments are negatively correlated with populism, while hirings due to the entry of new establishments and the job reallocation rate are positively related with populism, a possible consequence of economic restructuring. We complete our analysis by looking at the link between local labor market conditions and the supply of populist candidates, and by examining the usefulness of microdynamics indicators in a predictive setting.     

INFLATION DYNAMICS IN LATIN AMERICA

This article studies the mean and the persistence of inflation in the 10 largest Latin American countries for the period 1980–2007. We find multiple shifts in the mean, with inflation in the region increasing throughout the eighties and decreasing in the nineties, thus documenting that the rise and fall of inflation in Latin America occurred a decade later than in industrial countries. Regarding the persistence, we find that it is high but that it decreases when the shifts in the mean are taken into account, as in developed countries, while it appears to have decreased recently in more than half of the countries in our sample. Finally, we find that only about a third of the total variation of inflation in Latin America can be explained by a common factor and, therefore, that most of the variation in the region has been related to idiosyncratic factors. We discuss the relation of our findings with economic policies implemented in the region . ( JEL E31, E42, C22)     

Cyclicality of Fiscal Policy in Latin America over the period 1990 ‐ 2015

Latin American countries experienced important changes in the 2000s. The implementation of fiscal reforms, public debt reduction and the high level of accumulated reserves gave them more policy space than in the past. As a result, Latin American countries were able to implement countercyclical policies to face the negative economic and social consequences associated with the recent macroeconomic shock. Some countries performed better than others. In particular, Social Democratic and Centrist governments enjoyed more fiscal space; they had realized larger budget surpluses over the good years and were able to cope with the crisis without impairing their fiscal conditions. Yet, Latin America has experienced a public finance deterioration in the most recent years. While governments are showing an increasing ability on taxation they are still facing some problems on the expenditure side. As a result, fiscal policy returned acyclical after the period of the crisis. The sustainability of public accounts may be strengthened increasing tax pressure on the richest, reducing tax evasion and improving current spending efficiency. However, the increasing political problems are putting many questions about future trends of public finance in the region.     

Do unhappy citizens vote for populism?

This paper explores the dynamics behind the surge in populist voting across Europe. It employs individual-level cross-sectional data from 8 waves of the European Social Survey (2002–2016). I attempt to shed light on one particular perspective of viewing populist voting – the role of psychological discontent. I examine robustness to (i) different ways of defining populism, (ii) a selection of alternative specifications and (iii) estimation methods. The results suggest that generalized unhappiness with one's personal well-being – and not merely dissatisfaction with governments – could play a significant role in the rise of European populism. As such, low levels of subjective well-being are proposed as a valid predictor of shifts towards extreme movements.     

Managing real exchange rate for economic growth: Empirical evidences from developing countries

Abstract

This article analyses macroeconomic policies capable of influencing the long-run real exchange rate (RER). In this vein, it identifies economic policy tools that can devalue RER, covering a theoretical issue neglected by the economic literature, which argues that competitive exchange rate enhances growth. After discussing the “Trilemma,” we identify those variables that could affect RER without constraining monetary policy or exchange rate regime choice. In what follows, we model the probability of achieving an undervalued (small or large) RER for a sample of 14 developing countries from 1980 to 2010 (30?years) by applying econometric techniques for discrete choice and censored data. Afterwards, we compare the results for Latin American nations with Asian ones. They suggest that competitive exchange rate requires different approaches depending on the region. Moreover, Latin American countries need to take on additional policies so that interventions in the foreign exchange market become effective.     

Monetary union in Latin America: an assessment in the context of optimum currency area

The article applies the optimum currency area (OCA) theory to Latin America to assess the potential of a monetary union in Latin America and in its major existing regional trade agreements (RTAs). According to OCA criteria we find that Latin America is far from being an optimum currency area, as its countries’ exposure to asymmetric shocks is high and their capacities to adjust in response to macroeconomic disturbances are limited. Using a panel of 20 Latin American countries from 1990 to 2014, we apply the dynamic OLS estimation techniques to estimate the costs and benefits of a potential monetary union in Latin America and in its various RTAs. to estimate the costs and benefits of a potential monetary union in Latin America and in its various RTAs. We find that the costs are high, because Latin America’s economies are vulnerable to severe macroeconomic disturbances and its RTAs differ significantly in their response to negative demand shocks. Most of the monetary efficiency gains are shown to be the result of a common restrictive monetary policy which would result in higher FDI inflows and, to a more limited extent, increased GDP, both overall and per capita. Although Central American countries are shown to be most suitable for further monetary integration, we conclude that Latin American countries should head first towards greater economic and political integration.     

The effects of trade,aid, and investment on China's image in Latin America

Using repeated cross-sectional survey data, we analyze whether China's growing economic engagement in Latin America has an effect on citizens’ perceptions of China within 18 Latin American countries over the 2002–2013 period. Our instrumental-variables regressions exploit exogenous variation in the supply of Chinese exports, aid, and investment. Specifically, we use China's market penetration of developing countries outside of Latin America as the instrumental variable. In contrast to the widespread criticism, we do not find evidence that China's growing economic activities in the respective countries diminish average attitudes towards China—neither at the national nor at the provincial level. However, China's economic engagement appears to contribute to more polarized opinions on China: more individuals develop either very positive or very negative opinions on China. We interpret this as suggestive evidence that China's economic engagement creates winners and losers.     

Regional Integration and Intra-industry Trade in Latin America, 1980–90

The decade of the 1980s saw profound changes in the political economy of Latin America. The stabilisation and debt crises forced many countries in the region to re-examine their economic policies individually as well as collectively. The consequence was both a movement in the direction of neoliberal reform that included an emphasis on export promotion as well as a revival of interest in regional integration. The specific purpose of the present paper is to examine the consequences of these changes for the structure of intra-regional trade among and between Latin American countries. More specifically, we are interested in assessing the region's performance in terms of intra-regional, intra-industry trade over the period 1980–90.     

The importance of government commitment in attracting firms: A dynamic analysis of tax competition in an agglomeration economy

Agglomeration tendencies of industrial firms significantly affect the nature of tax competition. This paper analyzes tax competition between two countries over an infinite time horizon in an economy with trade costs and internationally mobile industrial firms. Most of the previous studies on tax competition in the ‘new economic geography’ framework employ static models. In this study, two governments dynamically compete with each other to attract firms through their choices of taxes and subsidies. It is shown that the commitment of the governments to their policies is crucial in determining the distribution of firms in the long run. Specifically, if governments find each others׳ tax policies credible, then one country will attract all the firms when trade costs are low enough to make agglomeration forces dominant. If policies are not credible, both countries may attract an equal share of firms even when trade costs are low, as the lack of commitment by governments acts as a dispersion force.     

Spectrum allocation in Latin America: An economic analysis

As elsewhere, wireless markets play a crucial role in Latin American economic growth. Mobile telephone networks increasingly provide the communications infrastructure that has largely been lacking throughout the region. Yet, governments have generally made only modest allocations of bandwidth available to Latin American wireless operators, either absolutely (in terms of spectrum each country could allocate at modest opportunity cost) or relative to countries in North America, Asia and the European Union. Using an empirical model estimated on mobile phone data for international markets, we show that very large social benefits are available to countries that make more spectrum available for mobile phone markets. We conduct simulations using our calibrated model to provide lower bounds for country-by-country gains from larger allocations. We also discuss the impact of alternative regulatory regimes on the feasibility to achieve those social gains.     

Populism,Fairness and Competition: Should We Care and What Could We Do?

The rise of populism in a number of countries is one of the most visible signs of the weakening of enthusiasm for trade liberalization and market competition. Market competition is increasingly denounced as leading to unfair results by those who lose jobs, and in some cases risk losing their employment prospects because of the pressure of competition, or those who see their wages stagnate or be reduced. Their perception is that pro‐competitive policies benefit capitalists and a small coterie of highly skilled workers to the detriment of the low‐skilled majority. In a number of countries there have been calls by politicians to reconsider the trade liberalization policy which was actively pursued in recent decades and to change the standard applied by competition law enforcers from a strict consumer welfare standard to a consideration of the trade‐off between efficiency and fairness. The competition community has, to a large extent, strongly resisted such possibilities, arguing that protectionist policies had failed in the past and that the concept of fairness is at best vague, lack economic foundation, and could lead to a weakening of incentives to achieve efficient static and dynamic performances. The article examines three issues related to this debate. First, we examine the theoretical and practical reasons for which some categories of workers lose in the competitive process. Second, we discuss the relationship between inequality and fairness and the contribution of behavioural economics to the exploration of what people consider to be fair or unfair in vertical relationships (i.e. between employees and employers or between consumers and suppliers). Third, we discuss alternative ways in which competition authorities could reconcile fairness and efficiency in their advocacy or enforcement activities.     

Government ideology and economic freedom

This paper tests the widespread belief that right-wing governments tend to promote economic freedom while left-wing ones prefer more control over the economy. Using annual data for 106 countries over the period 1975-2015 and a two-step system GMM estimator, this study shows that right-wing governments are indeed more prone to promote economic freedom and to deregulate the economy. It also finds that this effect seems to be stronger in developing/emerging economies than in more developed countries. Moreover, the analysis of the broad dimensions of economic freedom indicates that right-wing governments tend to act by improving monetary soundness and freedom to trade internationally and by easing regulations that restrict entry into markets. Mainstream left-wing governments do not seem to affect economic freedom, however populist left-wing parties, when in office, are found to have a detrimental effect.     

Latin America after the global crisis: the role of export-led and tradable-led growth regimes

Is the ongoing economic slowdown in industrialized countries likely to impact Latin American growth negatively in the medium- to long-run? This paper considers various transmission channels that work through trade in goods and services, and finds econometric evidence suggesting that shrinking global imbalances may create problems for Latin America. Specifically, using panel data analysis, we find that the trade balance as a proportion of GDP is positively associated with Latin American economic growth over the period 1953–2009. We then develop a simple dynamic model to help explain our main finding through investment and saving behaviour.     

《2012年美国新经济指数》报告述评

《2012年美国新经济指数》报告为了测量美国各州的经济结构,根据新经济的典型特征和发展重求,使用一系列指标对美国50个州的经济情况进行了综合评价。马萨诸塞州因拥有众多由世界项级大学支持的软件、硬件和生物制药公司而排名第一。基于评价结果,报告提出了减少零和竞争、刺激“双赢”经济效果、支持制造业竞争等一系列有针对性的政策建议。该报告带给我们的启示是：创新是推动经济发展的主要引擎,地方经济发展应关注开放和协同,新经济发展应关注经济结构的合理性、应重视人才培养,高科技企业是引领新经济的主力舰。     

A spatial model of corporate tax incidence

Using a unique, self-compiled data-set on international tax rates, we explore the link between taxes and manufacturing wages for a panel of 66 countries over 25 years. We find, controlling for other macroeconomic variables, that wages are significantly responsive to corporate taxation. Higher corporate tax rates depress wages. Using spatial modelling techniques, we also find that tax characteristics of neighbouring countries, whether geographic or economic, have a significant effect on domestic wages. We test for, and reject, spatial autocorrelation in our model using a modification of the Moran-I test statistic that accounts for country-specific fixed effects in a panel data setting. Our article fits in with the new economic geography literature as well as the urban economics literature which attempt to explain the spatial distribution of wages.     

Productive efficiency and growth policies for the Caribbean

Productive (economic) efficiency and factors affecting it was evaluated in the Caribbean between 1983 to 1992. Results from non-parametric programming indicated that efficiency (i.e. pure technical, allocative and economic) measures were lower and more variable in Caribbean than in other Western Hemisphere countries (i.e. North America and Latin America). Tobit regression analysis indicated higher levels of private and foreign investments, productive infrastructure, credit availability, education level, and consumption of domestically produced goods had positive impacts on the efficiency measures. On the other hand, higher levels of public expenditure, income tax, and export taxes, and higher inflation rates had negative effects. These results support the current trend towards advocating more open economies (i.e. letting the free market work) and encouraging governments to confine their functions to facilitative/regulatory type roles and to undertaking tasks that are not generally undertaken by the private sector (e.g. developing infrastructure, providing education). Although, generally, the same factors were associated with efficiency in the Caribbean and Latin America, their relative impacts differed. Consequently, in order to improve efficiency in the Caribbean countries, relatively greater emphasis should be placed on encouraging foreign and private investment and developing infrastructure than would be the case in Latin American countries.