The Political Economy of US Aid to Pakistan

Variations of bilateral aid flows are difficult to explain on the basis of official development objectives or recipient need. Based on the example of US aid to Pakistan, this paper suggests alternative political economic explanations, notably the relevance of ethnic lobbying and the relevance of US business interests. Time series regressions for the period from 1980 to 2002 and logistic regressions based on votes for the Pressler and the Brown Amendment confirm the significance of these political economic determinants. While in case of the Pressler Amendment, the direct influence of population groups of Indian and Pakistani origins seems to have played a predominant role, the role of ethnic business lobbies appears to have dominated in the context of the Brown Amendment. Time series analysis also provides some evidence for the impact of US business interests based on FDI and exports, but these effects appear to be comparatively small.     

Political Economy of Conditional Aid in a Federal Economy

This paper employs a political economy approach to model the joint determination of national and subnational sectoral protection in an open federal economy. Political interactions between special interest groups and policymakers as well as economic interrelationships between federal and state government policies are analyzed. The model is applied to study the effects of conditional financial assistance on policy‐making in the aid‐receiving federal economy. We find that policy‐based financial assistance to the federal government tends to reduce the extent of distortions resulting from the federal government policy. However, if federal and state government policies are strategic substitutes, state government induced policy distortions would increase, thereby detracting from the effectiveness of conditionality in reducing overall policy distortions in the recipient economy.     

Keynes's last time at the Political Economy Club: Editorial Introduction

Maynard Keynes died on Easter Morning 1946. Since 1937, he hadbeen a sick man but had nevertheless carried a huge load duringthe war years in the Treasury. There, he advised and workedon wartime finances and represented Britain through the Treasuryat Bretton Woods and     

The New Comparative Political Economy

With the collapse of communism in the late 1980s the field of comparative political economy has undergone major revision. Socialism is no longer considered the viable alternative to capitalism it once was. We now recognize that the choice is between alternative institutional arrangements of capitalism. Progress in the field of comparative political economy is achieved by examining how different legal, political and social institutions shape economic behavior and impact economic performance. In this paper we survey the new learning in comparative political economy and suggest how this learning should redirect our attention in economic development.JEL classification: B53, O10, O20, P0     

The Political Economy of Argentina's Debacle

In this paper I argue that political economy considerations and, in particular, the identity of the reformers, are central to understanding the Argentine crisis that culminated in sovereign default in January 2002. During the 1990s, the main political parties remained attached to populism, and no strong party emerged at the center of the political spectrum. This had two effects in the reform process. First, it severely deteriorated it (efficiency, corruption), reducing the support of the population. Second, when a series of shocks hit the economy the anti‐reform camp tried to undo most reforms, and thus convey a message to the population about the “right” model of the world.     

The Political Economy of Trade Preferences

This articles tests the implications the Grossman and Helpman "protection for sale" model. The goal is to address some of the problems associated with previous empirical studies. These problems are addressed using a data set derived from decisions reached by the president in cases involving product or beneficiary eligibility under the Generalized System of Preferences. The results provide some support for the Grossman and Helpman model, but they also indicate that factors not accounted for in this model play an important role in GSP eligibility decisions. (JEL F13 , F14 )     

The Political Economy of the IRS

This paper tests a multiple principal–agent model of the Internal Revenue Service. Using data for 33 IRS districts over six tax years, 1992–1997, we report evidence that the fraction of individual income tax returns audited is significantly lower in districts that are important to the president electorally and that have representation on key congressional committees. These findings suggest that the IRS is not a rogue government agency, but rather is an effective bureaucratic agent of its political sponsors. "Reforming" the IRS by subjecting it to an independent oversight board appointed by the president would therefore seem to be redundant.     

The Political Economy of Fiscal Consolidations

In the context of recent research in political economy, this paper addresses the policy problem of fiscal consolidation in terms of three types of issues: i) the macroeconomic effects of alternative strategies to consolidate; ii) the institutional setups conducive to a consolidation; and iii) the best strategy for implementing a consolidation in order to maximize its political feasibility. One methodological feature of this survey is an emphasis on policy feasibility. One methodological feature of this survey is an emphasis on policy issues in order to bridge the gap between the level of abstraction of politico-economic models of fiscal policy and the issues faced by a policymaker when attempting a fiscal consolidation.     

The Political Economy of Clientelism*

In this paper, we argue that the political‐commitment problem provides an explanation for why much income redistribution takes an inefficient form, particularly employment in the public sector. A job is a credible way of redistributing when it provides rents (such as in situations with moral hazard), and employment is optimal ex post. Moreover, a job is selective and reversible, and thus ties the continuation utility of a voter to the political success of a particular politician. We show that the need to make offers of employment incentive‐compatible leads to inefficiencies in the supply of public goods. We also show that such inefficient redistribution becomes relatively attractive in situations with high inequality and low productivity. Inefficiency is increased when the stakes from politics are high, when inequality is high, and when money matters less than ideology in politics.