politíca e economia aula 12 ciencia politica cgae kurt von mettenheim

Politíca e Economia

Aula 12Ciencia Politica

CGAEKurt von Mettenheim

Topics

1) Review of “Political Economy” Sub-Discipline of Political Science

2) “Electoral Cycle” / “Fiscal Cycle”3) Downs´ Economic Theory of

Democracy Spatial Theories of Voting

4) Statecrafting Monetary Authority: Democracy & Financial Order in Brazil

Political Economy

2 Q’s • How do institutions evolve in

response to individual incentives, strategies, and choices?

• How do institutions affect the performance of political and economic systems?

Modern Classics Economics Politics

• Arrow (1951/1963) cycles in majority voting • Black's (1958) median voter theorem, • Downs (1957) party competition• Riker (1962) theory of coalition formation groundwork for contemporary models of

the role of distributive politics in government formation.

• Coase (1937; 1960) costly transactions• Schelling's (1960) co-ordination games, • Buchanan and Tullock's (1962) relationship

between supermajorities and externalities

Contested Views of Institutions

Models of institutions as

• (1) equilibria in some underlying social game or

• (2) rules, procedures, and choice mechanisms taken as product of political construction

Political-Electoral Cycles

Nordhaus (1975) Government stimulates economy before election

Hibbs (1977) "partisan" cycle :Left fights unemployment (not inflation)Right fights inflation (not unemployment)

(pre-rational expectations approach to macroeconomics).

Nordhaus (1975)

3 three assumptions: (i) economy = exploitable Phillips

curve with backward-looking expectations;

(ii) politicians = winning elections; and (iii)voters are retrospective and naïve

(reward incumbent if economy OK, growth high, before election).

Evidence from USA

1)  Nordhaus's model is WRONG about unemployment and growth;

2) “rational" version of the opportunistic model (short-run manipulations of policy instruments (monetary and fiscal) around elections), but EFFECTS SMALL (No regular cycles in unemployment as predicted by the traditional model)

3) partisan effects on growth and unemployment YES (but not persistent; disappear two years after the election of a new government);

4) left-wing governments permanently higher inflation

Politics of Budget Deficits

Grilli, Masciandaro, and Tabellini (1991) OECD countries 2 Groups

1) Belgium, Ireland, Italy, Greece, Netherlands, and Spain, HI Govt Debt / GNP

2) Australia, France, Germany, the United Kingdom, Japan, and Denmark, LOW debt to GNP

= Good old Days…

…of Fiscal Illusion

"public choice" (Buchanan and Wagner 1977; Buchanan, Rowley and Tollison 1986)

voters overestimate the benefits of current expenditures and underestimate the burden of future taxation.

politicians take advantage of this illusion by raising spending more than taxes

End of Political Economic Consensus in EU

Buitl paper: Two Naked Emperors in EU

Veto of Corporate Shareholding Reform

Veto of Growth and Stability Pact

Plebiscite on EU Constitution

Anthony Downs, An Economic Theory of Democracy (1957)

Presuppositions:1) Voters = Consumers2) Parties = Firms3) Ideologies = Goods Model 1 =

Democrats RepublicansLeft ---------------------------------------Right1

10 Model 2 = “Polarized Pluralism”

International Political Economy

LiberalismImperialismWorld System, WallersteinDependent Development, Cardoso &

Falleto“Regimes” = Institutions Intl Policy

Sectors

Return to Classics

Marx…

Shonfield, Andrew. Modern CapitalismOxford University Press, 1965

Hall & Soskice: Varieties of CapitalismOxford University Press, 2001

Shonfield & Lindblom Muddling Through Statecraft

“Postwar French planning can be regarded as a device that mobilized a number of instruments of public enterprise and pressure, which had been laying around for some time, and pointed them all in the same direction.” Shonfield, Modern Capitalism, p. 85

“Through a series of accidents starting with a desperate piece of salvage by the Fascist Government, the Italians arrived at an alternative formula.” ibid. p. 189-90

“A body of nationalized undertakings as extensive and varied, and as haphazardly put together as the Italian, is Austria.” ibid. p. 192

Politics of Economic Reform

Economic ReformWhy Delay Reform?

S-Term / Long Term welfareBig Bang (Mussa)Building the Ship at Sea

(Offe & Elster)

Unsettling Statecraft

Statecraft = Politics of Sustaining Economic Policy

Malloy & Conaghan Neo-Liberalism in the Andes: Paz Estenssoro vs Decretismo

Temporal Transactions FrameworkIADB Research Team

Tomassi/Spiller/Santiso OECD

Politics & Economics:Inertial Inflation

Simonsen, Trinta anos de Indexacao

Larida (Lara Rezende/Persio Arida)

F. Lopes, Choque

FHC: UVR, gradual policy(Mettenheim, RAE paper)

New Political Economy

Mettenheim “From the Economics of Politics to the Politics of Monetary Policy.”

www.brazil.ox.ac.uk/Commanding Heights The Politics of Federal

Government BankingFinancial Statecraft The Politics of Monetary

Policy in BrazilStatecrafting Monetary Authority: Democracy

and Financial Order in Brazil (Sola & Whitehead, eds)

New Political Theory & Political Economy

Stakeholding:Ackerman & AlstottUS$ 80.000,00 @ 18 Years

Basic Income:Van Parijs (2004)

Pateman: Citizenship & Sustainable Growth

Comparative Political Economy of Finance

Washington Consensus?

Policies of:Privatization & Liberalization

Would Cause:

Convergence Toward Financial Market-Centered Political Economies?

Bank Credit, Stock and Bond Market Capitalization, Large Advanced Economies,

1980-2001 (% GDP annual average)

0,00

25,00

50,00

75,00

100,00

125,00

1980 1983 1986 1989 1992 1995 1998 2001

Year

% o

f GD

P Bank credit

Stock mkt

Cor. Bonds

Gov. Bonds

Bank Credit and Equity Market Capitalization

(1995-2000 Averages)

ARG

ARM

AUS

AUT

BEL

BGD

BGR

BOL

BRA

BRB

BWA

CAN

CHL

CHN

CIVCOLCRI

CYP

CZE

DEU

DNK

ECU

EGY

ESP

FIN

FJ I

FRA

GBR

GHA

GRC

GTM

HND

HRV

HUN

IDN

IND

IRL

IRN

ISL

ISR

ITA

J AM

J OR

J PN

KEN

KGZ

KOR

KWT

LKA

LTU

LUX

LVA

MAR

MEX

MNG

MUS

MYS

NAM

NGA

NLD

NOR

NPL

NZL

OMN

PAK

PAN

PER

PHL

POL

PRT

PRY

ROM

SAU

SGP

SLV

SVKSVN

SWE

SWZ

THA

TTO

TUN

TUR

URY

USA

VEN

ZAF

ZMB

ZWE

0%

25%

50%

75%

100%

125%

150%

0% 50% 100% 150% 200%

Stock Market Capitalization (% GDP)

Ban

k C

redi

t Cap

italiz

atio

n (%

GD

P)

Bank-Centered World Finance Centers

Equity-CenteredUnderdeveloped

Change by Type of Financial System, 1995-2000

2000

1995

2000

1995

2000

1995

20001995

0%

25%

50%

75%

100%

125%

150%

0% 50% 100% 150% 200%

Stock Market Capitalization (% GDP)

Ban

k C

red

it C

apit

aliz

atio

n (

% G

DP

)

Bank-Centered

World Finance Centers

Equity-Centered

Underdeveloped

Bank Credit, Stock and Bond Market Capitalization, Large Latin American

Economies, 1980-2001 (% GDP annual average)

0,00

5,00

10,00

15,00

20,00

25,00

30,00

35,00

40,00

1980 1983 1986 1989 1992 1995 1998 2001

Year

% o

f G

DP

Bank Credit

Stock Mkt

Cor. Bonds

Gov. Bonds

Bank Credit, Stock and Bond Market Capitalization, Large Asian

Economies, 1980-2001 (% GDP annual average)

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

1980 1983 1986 1989 1992 1995 1998 2001

Year

% o

f GD

P Bank credit

Stock mkt

Cor. Bonds

Gov. Bonds

Bank Credit and Stock Market Capitalization, Large African

Economies 1980-2001 (% GDP annual average)

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

1980 1983 1986 1989 1992 1995 1998 2001

Year

% o

f G

DP

Bank Credit

Stock Mkt

Income Distribution Market-Centred vs Bank-Centred

Political Economies

Market-Centred Economies Gini Coefficient Australia 1994 0.311

Ireland 1995 0.336UK 1995 0.344US 1994 0.355

Bank-Centred Economies Austria 1995 0.277Denmark 1995 0.263

Finland 1995 0.217Germany 1994 0.261Netherlands 1994 0.253Sweden 1995 0.221

Source: Vigols, 2004, from Luxembourg Income Study Key Figures (www.lisproject.org/keyfigures/)

Income Distribution1970s – 1990s

Germany US UK

--------------------------------------------------------------------------------------

Mid 1970s 2.64 3.18 2.68

Mid 1980s 2.49 3.35 3.03

Mid 1990s 2.61 3.55 3.44

Ca. 2000 2.52 3.68 3.45

-----------------------------------------------------------------------------------------

Source: Luxembourg Income Study Key Figures (www.lisproject.org/keyfigures/)

Income DistributionGini Indexes

1970 1980 1990 1990s

---------------------------------------------------------------

Brazil 57.6 58.4 63.7 58.1

Chile 46.0 54.5 55.4 56.4

Mexico 45.6 42.9 47.5 52.8

---------------------------------------------------------------Source: Luxembourg Income Study Key Figures

(www.lisproject.org/keyfigures/)

Explore Political Economy

www.lacea.org Latin American & Caribbean Economics Association

www.nber.org National Bureau of Economic Research

Bibliographies “political economy” intranet