Young democracies and government debt: evidence from South America

I test the hypothesis that when democracies are young, or still fragile and unconsolidated, government debt tends to increase, presumably because of increased demand for redistribution, or to buy out the electorate, so that democracy becomes acceptable and “the only game in town”. I use a sample of all South American young democracies during the 1970–2007 period and the results, based on dynamic panel time-series analysis, suggest that those young democracies are indeed associated with larger government debt. Furthermore, I test the hypothesis that the outgoing dictatorships of the day bequeathed the young democracies with large government debt. This hypothesis is not confirmed by the analysis. Lastly, there is no evidence that, as those democracies mature over time, government debt tends to decrease. Given how I conduct the exercise, that is, the nature of the sample, the methodology I use and the counterfactuals I run, and also that there are always new episodes of democratisation being experienced by different countries around the world, with some being economically successful and others less so, the results I report are informative of what to expect in terms of government debt during political transitions into democracy when particular institutions are still not in place.     

Does Democracy Lead to a Better Environment? Deforestation and the Democratic Transition Peak

The relationship between democracy and environment is subject to controversy. Some scientists find that democracy has a positive impact in reducing environmental disruption. Other scholars claim that democracy tends to accelerate environmental degradation. By using deforestation rates as a proxy for environmental disruption, we suggest that both sides might be right. Our quantitative analysis has three important outcomes. First, there is evidence of an inverted U-shaped relationship between deforestation and democracy. Second, countries in democratic transition experience the highest deforestation rates, compared to non-democracies and mature democracies. Third, in explaining deforestation rates democracy has larger explanatory power than income. This last result implies that in reducing deforestation rates the emphasis should not only be on economic development but even more on democratization.     

Democracy in the neighborhood and foreign direct investment

The determinants of foreign direct investment (FDI) have been extensively studied. Even though there is extensive research in the area, most of it is based on analyzing the effects of host country characteristics on FDI flows, and yet there is little research on how neighboring country characteristics play a role in facilitating FDI flows to host countries. This paper analyzes the association between the democracy level in neighboring countries and FDI flows to host countries. Using bilateral FDI flows from the OECD countries, with a large host country sample, we find that countries surrounded by democratic countries attract higher FDI flows. Furthermore, we find evidence that countries that are surrounded by neighboring countries with good institutions tend themselves to have better institutions, experience lower civil conflict, and have higher political stability and hence indirectly attract higher FDI flows. Our findings suggest that if neighboring countries act in such way as to become more democratic, FDI flows to these countries would be higher since not only does improving the quality of democracy attract more FDI inflows, but also being surrounded by neighboring advanced democratic countries will also lead to higher FDI flows to them.     

Sovereign credit ratings in the European Union: A model-based fiscal analysis

We present a model-based measure of sovereign credit ratings derived solely from the fiscal position of a country: a forecast of its future debt liabilities, and its potential to use fiscal policy to repay these. We use this measure to calculate credit ratings for 14 European countries over the period 1995–2012. This measure identifies a European sovereign debt crisis almost two years before the official ratings of the credit rating agencies.     

Democracy and Education in twentieth‐century Latin America

Do democratic electoral systems strengthen a country's outcomes in education? Does the degree of inclusiveness of a democratic system matter? This article offers evidence that political competition and the inclusion of marginalized populations in electoral systems transformed education over an 80‐year period in Latin America. It finds that democracy has a positive effect on education enrollment and illustrates how current work on democracy and development has overlooked important democratic subcomponents, specifically, who votes and how. Our results deepen current work on democracy, operationalizing the impact of electoral expansion in comparative analysis and showing how democracies respond to specific education demands.     

Democracy Evolving: A Diversity of Institutional Contradictions Transforming Political Economy

I analyze democracy as an evolving socio-historical process of autonomy, participative governance, social learning, and institutionalization. I discuss a variety of institutional contradictions, ranging from protective versus developmental democracy, socialist versus capitalist democracy, transcendental versus comparative institutionalism, and utilitarian versus pragmatist democracy. I argue that these contradictions are inherent in the agonistic nature of democracy that is transforming political economy along with the antagonistic interests of its members and institutions. I also present a basic synthesis of some dynamic aspects of democracy that enable and enhance social emancipation and transformation.     

Global capital markets,housing prices,and partisan fiscal policies

In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run‐ups in house prices, whereas most surplus countries that exported capital exhibited flat or slow house price growth. We first use new house price data and a novel instrumental variable design to show the causal relationship between housing prices and capital inflows, particularly through debt bonanzas. We then argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly‐provided social insurance because rising house prices allow homeowners to self‐insure against income loss. In contrast, declining house prices produce greater demands for social insurance, particularly among those most exposed to housing market risk. We present evidence from two cross‐national surveys that supports these claims, as well as a “before and after” analysis of the housing crash in Eastern Europe. We also show that the connection between house prices and social policy also manifests itself in government spending outcomes, mediated by partisan control.     

Do elites benefit from democracy and foreign aid in developing countries?

A popular argument for the absence of any beneficial effects of foreign aid is that it is skimmed by political elites in recipient countries. However, studies also suggest that aid may be more effective in relatively democratic developing countries. By exploring data on income quintiles derived from the World Income Inequality Database for 88 developing countries, a set of results indicate that foreign aid and democracy in conjunction are associated with a higher share of income held by the upper quintile. It thus appears that foreign aid, contrary to popular beliefs, leads to a more skewed income distribution in democratic developing countries while the effects are negligible in autocratic countries. The paper closes with a discussion of potential mechanisms generating this perverse effect.     

Gig Work and the Discourse of Autonomy: Fictitious Freedom in Japan’s Digital Economy

ABSTRACT

The introduction of ‘gig work’ has been accompanied by an official discourse which highlights the benefits for ‘gig workers’, especially as arises from the more autonomous nature of this particular type of employment. In contrast, this paper draws upon the cultural political economy approach to argue that the move towards gig work is more accurately conceptualised as an attempt to legitimate the further flexibilisation of labour markets within advanced industrial democracies, seeking to construct economic imaginaries that are best described as a form of ‘fictitious freedom’. In drawing on the cultural political economy approach, the paper explores the interaction between the structural, discursive and technological selectivities which have generated these outcomes. This is done through a discussion of the case of Japan, which is selected as a key case that highlights the tensions and pressures leading to the introduction of gig work in this way across the advanced industrial democracies. The article shows how gig work sees new digital technologies used in an attempt to increase productivity and thereby further growth, locking gig workers into low-skilled and low-paid super-fragmented tasks, whilst at the same time heralding the benefits that gig work can provide for a range of contemporary problems.     

Government Spending and Taxation in Democracies and Autocracies

The paper develops a theoretical rationale for a non-linear relationship between the level of democracy and government spending. A model is presented showing why and how political participation influences the spending behavior of opportunistic governments that can choose an optimal combination of rents and public goods to attract political support. If the level of democracy remains low, governments rationally prefer rents as an instrument to assure political support. With increasing democratic participation, however, rents become an increasingly expensive (per unit of political support) instrument while the provision of public goods becomes more and more efficient in ensuring the incumbent government's survival in power. As a consequence, an increase in democracy, which drives a country from a pure autocracy to a semi-participatory system, tends to reduce government spending, while an increase in political participation from a semi-participatory country to a full democracy tends to raise the size of the public sector.     

Contagion effects of sovereign credit rating revisions on the real economy: is it trade or finance?

We analyse the contagion effects of sovereign credit rating revisions on the real economy, with particular emphasis on the intensity of trade and finance channels. Our findings show that event countries that experienced rating revisions cause substantial contagion effects on the real output growth rates of nonevent countries. Nonevent countries with a high export ratio, high external debt levels, or those that are more dependent on common bank credit relative to other nonevent countries are more likely to be infected by event countries’ adverse credit shocks. The results remain after accounting for alternative real economy indicators, financial liberalization, financial crises, and economic development status.     

CORRUPTION AND ELECTIONS: AN EMPIRICAL STUDY FOR A CROSS-SECTION OF COUNTRIES

In this paper, we study whether voters are more likely to "vote out" a corrupt incumbent than to re-elect him. Specifically, we examine whether they retract their support from political candidates who they think are corrupt by looking at changes in an index of corruption perceptions between the current and the last elections. Our results suggest that corruption in public office is effectively punished by voters. Furthermore, our findings support the idea that both the political system and the democratic experience are important determinants of the voters' reaction and control of corruption; while voters in countries with parliamentary systems or with relatively low levels of democracy react negatively to an increase in corruption, no perceptible effect of this kind was found in countries with mature democracies, and the evidence is inconclusive in the case of countries with presidential systems.     

Political credit cycles

This paper tests the existence of political credit cycles, the positive comovement between credit and elections. While several single‐country studies point to the existence of this relationship, the link between electoral cycles and credit expansion has seen little exploration at the multicountry level. Using a comprehensive dataset covering bank and non‐bank credit in 165 countries from 1960 to 2013, we show that both government and private credit significantly increase in election years. This finding suggests the possibility that politicians use not only fiscal and monetary policy to court voters, but also implement credit policies such as interest rate subsidies and tax breaks for debt to enhance credit growth. We also find that a higher degree of financial openness weakens the frequency and magnitude of political credit cycles; yet, the conditional effect of financial openness is stronger for developing countries than developed economies.     

Are semi-presidential constitutions bad for democratic performance?

Many countries since 1990 have adopted semi-presidential constitutions, which are often considered to be problematic, primarily because of the potential for conflict between the assembly-supported government and the popularly elected president. Such conflicts are said to lead to unstable governments, policy paralysis and the eventual undermining of the democratic regime. Using data for all parliamentary and semi-presidential democracies between 1946 and 2006, we examine the effect of semi-presidential constitutions on the duration of prime ministers’ tenure in office, government accountability with respect to economic outcomes, and democratic survival. We also examine (for a smaller sample of post-communist countries) the impact of these constitutions on the progress of structural reforms. We find that the observed higher instability of prime ministers in semi-presidential democracies is more due to the electoral system than to the presence of a popularly elected president. We also find that semi-presidential constitutions have little impact on the government’s accountability to economic outcomes and on the survival of democratic regimes. Finally, we find that neither a weak president nor a weak government is optimal for the progress of economic reforms in post-communist countries. Regarding economic reforms, the optimal allocation of constitutional powers between the president and the government grants both significant powers.     

British colonialism and democracy: Divergent inheritances and diminishing legacies

Did British colonial rule promote post-independence democracy? We provide evidence that the relationship follows a strong temporal pattern. Former British colonies were considerably more democratic than other countries immediately following independence, but subsequent democratic convergence has largely eliminated these differences in the post-Cold War period. Existing theories expounding superior British culture or alternative colonial institutions cannot account for divergent inheritances and diminishing legacies. To explain the time-varying pattern, we analyze European powers’ varying policy approaches to decolonization as well as changes in the international system. Britain more consistently treated competitive democratic elections as a prerequisite for gaining independence, leading to higher initial democracy levels. However, nascent democracies that lacked deep-rooted societal transformation faced challenges to democratic consolidation because of Cold War superpower competition. Later shifts in the international system toward promoting democracy further contributed to convergence by destabilizing colonially rooted dictatorships.     

Do democracies have higher current account deficits?

In this paper we argue that democracies tend to run (larger) current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis is tested on a dataset of 121 countries over the period 1980–2012, using 5 year averages and a fixed effects panel data model. Special focus is given on the issue of endogeneity by estimating an IV Fixed Effects model. Relying on the idea of the regional waves of democratization and the special role of the Christian Church on the third wave of democratization, we use as instruments of Democracy the level of democracy in neighboring countries and also the share of Christian adherents in each country. Both instruments turn out to be valid determinants of democracy. The empirical findings suggest that autocracies run lower current account deficits than democracies. These results are found to be robust across alternative empirical specifications.     

Economics for substantive democracy

In this paper, I sustain that the discourse of economics has become one of the most substantial contributors to the erosion of the democratic ideal. The first argument used in this case against economics concerns its attempt to be considered a neo-naturalistic science; the second, the fact that economics considers democracy contradictory to the expression of its scientific rationality and; the third, the fact that economics crowds out people from decision-making processes by pushing them into the hands of experts. Because partisan political programmes have essentially become economic programmes, economics should contribute to substantive democracy. In order to do so, an alternative discourse to mainstream economics must be proposed. An economics favourable to substantive democracy should, thereby, be political rather than naturalistic, pluralist rather than monist and, instead of crowding out people from decisions processes, should aim at the co-production of economic knowledge with those concerned by the outcome of economic decisions.     

The relationship between Turkey’s foreign debt and economic growth: an asymmetric causality analysis

Tackling foreign debt that arises as a result of limited and ineffective use of resources is an item that remains on the agenda particularly for developing countries. In this study, we examine the foreign debt debates to date in terms of economic growth and using the time series for the period 2003Q1 to 2017Q1. We used unit root tests to determine the maximum integration degree of series, and we conducted causality analysis. We found a causality relationship between net foreign debt stock and economic growth in causality analyses performed for Turkey. The empirical results of this study indicate that there is a causality relationship, including both positive and negative aspects, between net foreign debt stock and economic growth. The results of our testing showed a significant causal relationship between the variables.     

PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies

This paper asks whether rating agencies played a passive role or were an active driving force during Europe??s sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equations to decompose actual ratings into systematic and arbitrary components that are not explained by previously observed procedures of rating agencies. Finally, we check whether systematic, as well as arbitrary, parts of credit ratings affect credit spreads. We find that both do affect credit spreads, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecies that may drive even relatively healthy countries towards default.     

Capital income taxation in a growing world economy

This paper deals with dynamic adjustment in large economies to changes in the rate of capital income taxation or in the rate of investment tax credit in one country. The framework applied in the paper is a continuous-time, overlapping generations model with two countries. It features population growth and debt non-neutrality. We address impact and steady state effects of capital income tax and investment subsidy changes in the home country on consumption per capita, the capital intensity, and the per capita net foreign asset position in both countries. We also briefly consider individual welfare consequences of these policies.