Political and Monetary Institutions and Public Financial Policies in the Industrial Countries

Abstract

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

The Limits of Delegation: Veto Players, Central Bank Independence, and the Credibility of Monetary Policy

“…21 Otherwise this variable would give as much weight to a change from 1 to 2 veto players as from 4 to 5; since our model speaks to the first case and is silent about the second, the log formulation is more appropriate. 22 See for example Alesina and Summers (1993), Cukierman, Webb, and Neyapti (1992) and Grilli, Masciandro and Tabellini (1991). 23 In contrast, in our Table 1 regressions the dependent variable, inflation, is not a direct measure of the frequency of policy change, and as a result, predictions about the effect of checks and balances on inflation depend on other intervening variables.…”

Blame-Game Politics in a Coalition Government

“…Otherwise, the first-period policy remains in place. 19 Hence, for each issue, a policy different from the status quo is implemented only if all the parties in office agree on it. 16 Ego rents are exogenously given and equal for each party in office.…”

In Search of Monetary Policy Measures: the Case of Italy in the 90s

“…35 This ceiling" rate in the money market is established by the central bank analogously to the discount rate. The two o cial interest rates de ne a corridor that normally contains the every-day uctuations of all other moneymarket rates.…”

“…This is motivated by the fact that Anticipazioni Ordinarie: a are of limited amount, established by the central bank; b should rationally be used rst as the least-costly source of nance; 36 and c can in principle be cancelled by the Bank of Italy with short notice. 37 In terms of innovations, the demand for xed-term advances can beexpressed as a positive function of the spread between the overnight rate and the rate on xed-term advances: 35 These xed-term advances are similar to Lombard loans in Germany. 36 In reality, though, this credit line is never completely used since many cash managers keep a portion of the line as a bu er stock.…”