Economic Institutions and Autocratic Breakdown: Monetary Constraints and Fiscal Spending in Dominant-Party Regimes

Abstract

In dominant party regimes, party cadres' participation in decision-making constrains dictators from arbitrarily changing policy. Party based regimes are also better at mobilizing supporters in exchange for extensive patronage. The conventional wisdom is that these two mechanisms work together to prolong dominant party regimes. However, under certain conditions, the elite-level constraints restrict autocratic leaders' ability to engage in patronage distribution. We focus on monetary institutions, arguing that when central bank independence overlaps with the collective decision-making in dominant party regimes, dictators have diminished control over the central bank. Thus the central bank is effective enough to restrict expansionary fiscal policy, reducing the mobilization of supporters through patronage and increasing authoritarian breakdown risk. Analyses on data from 1970 to 2012 in 94 autocracies find that high central bank independence in dominant party regimes increases the likelihood of breakdown. Moreover, independent central banks in partybased autocracies contribute to lower fiscal expenditures.

More effective than we thought: Central bank independence and inflation in developing countries

“…Finally, our results contribute to the growing literature studying the effects of political and monetary institutions in autocracies (Bodea et al, 2019;Boix and Svolik, 2013;Gandhi, 2008;Gandhi and Przeworski, 2007;Gehlbach and Keefer, 2012;Magaloni, 2008). Contrasting with previous work, which relied on small and less representative samples, we find robust evidence that CBI has a negative effect on inflation for a considerable set of non-democratic countries.…”

“…24 Predicted values from this table use specification from column (2) in Table 1. (Baerg et al, 2017;Bodea et al, 2019;Johnson, 2016). These results also speak to the longstanding debate on the effects of democracy on inflation (Desai et al, 2003), with studies showing that democracy is associated with higher (Gasiorowski, 2000) or lower (Doucouliagos and Ulubaşoğlu, 2008) inflation rates.…”

“…This opens avenues for further research of the mechanisms that make independent central banks effective even in countries with weak political constraints. As research suggests, it is possible that de jure protections to central bankers are effective in non-democratic regimes because they reflect other kinds of power-sharing agreements among authoritarian elites (Baerg et al, 2017), because authoritarian regimes have (weaker but effective) political constraints (Bodea et al, 2019), because of autocrats' preferences regarding international markets confidence (Maxfield, 1997), or the country's future political direction (Boylan, 1998), or because of the diffusion of norms that make CBI effective even in non-democracies (Johnson, 2016(Johnson, , 2006 Our analysis reinforces the importance of the independence of the central bank as an effective mechanism to reduce the inflation, but not as the only one. Capital account openness, fixed exchange rate, and the adoption of inflation targeting are associated with lower inflation as…”

Remittances, monetary institutions, and autocracies

“…Boylan (1998Boylan ( , 2001 sees central bank independence under Pinochet's rule as a way to tie the hands of future administrations. Other explanations include signalling creditworthiness to international markets (Maxfield, 1997), attempts to deflect responsibility for poor economic outcomes (Bodea et al, 2019), learning and competition (Bodea & Hicks, 2015a), norm diffusion (Johnson, 2016;McNamara, 2002), or power-sharing agreements (Baerg et al, 2017;Bodea et al, 2019). Figure 1 shows the distribution of CBI among democracies and autocracies in our sample.…”

Oil, elections and fiscal transparency

“…In this way, the article contributes to growing literature on how the ability of governments to obtain financing from international financial markets and other external financing sources in conjunction with domestic economic institutions both enables and constrains governments from engaging in opportunistic fiscal expansions (Bodea et al. ; Kaplan & Thomsson ; Hyde & O'Mahoney ). Furthermore, these results suggest that many of the previous findings on the political‐economic effects of oil wealth, especially regarding oil's effect on regime duration and incumbency advantage, might run through an election‐year spending channel.…”