Why do countries as similar as the industrialized OECD countries go through such different experience in terms of public deficits and debts or in terms of inflation? The answer cannot come from macroeconomic policy responses to different disturbances, nor from the principles of optimal taxation, but rather from politics. This article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers. The electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts. What seems to matter most, it is found, is the effect of the durability of governments. Governments with short horizons act myopically and never quite tackle the hard choices. Such governments typically exist in countries with an electoral system favouring many small political parties. Central bank independence promotes low inflation with no apparent costs in terms of real economic performance, irrespective of the political institutions. In fact there is no link between monetary and fiscal discipline. These findings carry powerful implications for countries facing high indebtedness or stubborn inflation, but also
This paper presents an analysis of recent trends and determinants in the architectures of financial supervision, focused on the authorities design. We propose a path dependence approach to study the single authority versus multi-authority dilemma, considering the level of financial supervision consolidation as the dependent variable. In particular, in a movement towards full consolidation in supervision, one can think of two sharp alternatives: a monopolist central bank or a pure single financial authority. Given that the degree of supervision consolidation seems to be inversely correlated with central bank involvement in supervision itself, the paper sheds light on the possible explanation of this trade-off. The trade off is tested using Probit techniques with a sample of 68 countries. Copyright Springer Science + Business Media, Inc. 2006financial supervision, single authority, central bank,
Following the 2007-09 Global Financial Crisis many countries have changed their financial supervisory architecture by increasing the involvement of central banks in supervision. This has led many scholars to argue that financial crises are an important driver in explaining the evolution of the role of central banks as supervisors. We formally test this hypothesis employing a new database that captures the full set of supervisory reforms implemented during the period 1996-2013 in a large sample of countries. Our findings support the view that systemic banking crises are important drivers of reforms in supervisory structure. However, we also highlight an equally important peer effect, namely a tendency of countries to reform their financial supervisory architecture when others do so as well. We construct several measures of spatial spillover effects and show that they can explain institutional similarities among countries and impact the probability of reforming the role of the central bank in financial sector supervision.
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