economics versus politics pitfalls of policy advice abstract the standard approach to policy making and advice in economics implicitly or explicitly ignores politics and political economy and maintains that if possible any market failure should be

the microeconomic dimensions of the eurozone crisis and why european politics cannot solve them the academic and policy debate about the crisis in europe s single currency area is usually dominated by macroeconomic and public sector considerations the microeconomic dimensions of the crisis and the private sector issues typically get much less attention however it is the private sector hiring choices of domestic and foreign firms that will ultimately be decisive this paper argues there are two main problems holding back private sector employment creation in the stressed eurozone countries first there is a persistent competitiveness problem in some of the eurozone countries due to high labor costs relative to underlying productivity second widespread structural barriers make job creation in these countries far more arduous than in many other advanced economies and even more arduous than in some key emerging economies and formerly planned economies structural barriers to private sector development are particularly widespread in the areas of labor market functioning goods market functioning and government regulation evidence from the world economic forum s global competitiveness index and the world bank s doing business dataset confirms the immense size and persistence of these barriers despite improvements in some countries in recent years the paper also presents a novel explanation for the difficulty of structural reforms in the eurozone tracing the challenge to the current trend to europeanize and politicize economic reform discussions in national policy fields where europe is not a legitimate actor and the european political level is not effective

foreign direct investment and the dark side of decentralization countries differ in their government architecture some countries are characterized by a high degree of concentration of fiscal administrative judicial executive and lawmaking powers whereas others have decentralized many functions and responsibilities of government to different jurisdictions and various levels of government the cross country differences in the organization of government are also not static but have been subject to substantial change in many countries the co existence of different organizational patterns of government has created an important debate regarding the determinants of particular government structures as well as questions regarding the optimality of different forms of organization

does competition for capital discipline governments decentralization globalization and public policy competition among countries or regions within them to attract mobile capital is often thought to discipline their governments motivating them to invest more in infrastructure reduce waste and corruption and spend less on non productive public goods the result should be convergence on business friendly policies we argue that this requires an assumption units start out very similar that is often unrealistic if units are heterogeneous in natural resources geographical location inherited human capital or infrastructure capital mobility often weakens discipline on the poorlyendowed units this may help explain disappointing results of liberalizing capital flows within russia and sub saharan africa jel f36 h73 h87

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

institutional quality and capital inflows theory and evidence abstract this paper analyzes both theoretically and empirically the link between capital inflows and the quality of economic institutions to this purpose we construct a small open economy model of the soft budget constraint syndrome wherein persistently cheap funding from abroad i raises the prevalence of extractive projects and ii expands their support by the benevolent government ex post while the government may in principle limit the prevalence of extractive projects ex ante the incentives to do so is limited when foreign borrowing is cheap using a large sample of countries and controlling for reverse causality and omitted variable bias we confirm empirically that capital inflows are followed by a decline in the quality of domestic economic institutions our model and empirical analysis help explain the divergence between southern european countries spain portugal italy and greece and the rest of oecd countries since the mid 1990s

political credit cycles the case of the euro zone we study the mechanisms through which the adoption of the euro delayed rather than advanced economic reforms in the euro zone periphery and led to the deterioration of important institutions in these countries we show that the abandonment of the reform process and the institutional deterioration in turn not only reduced their growth prospects but also fed back into financial conditions prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident we analyze empirically the interrelation between the financial boom and the reform process in greece spain ireland and portugal and by way of contrast in germany a country that did experience a reform process after the creation of the euro

international capital flows and the boom bust cycle in spain we study the joint dynamics of foreign capital flows and real activity during the recent boom bust cycle of the spanish economy using a three country new keynesian model with credit constrained households and firms a construction sector and a government we estimate the model using 1995q1 2013q2 data for spain the rest of the euro area rea and the rest of the world we show that falling risk premia on spanish housing and non residential capital a loosening of collateral constraints for spanish households and firms as well as a fall in the interest rate spread between spain and the rea fuelled the spanish output boom and the persistent rise in foreign capital flows to spain before the global financial crisis during and after the global financial crisis falling house prices and a tightening of collateral constraints for spanish borrowers contributed to a sharp reduction in capital inflows and to the persistent slump in spanish real activity the credit crunch was especially pronounced for spanish households firm credit constraints tightened later and more gradually and contributed much less to the slump

fiscal rules and discretion in a world economy governments are present biased toward spending fiscal rules are deficit limits that trade off commitment to not overspend and flexibility to react to shocks we compare coordinated rules chosen jointly by a group of countries to uncoordinated rules if governments present bias is small coordinated rules are tighter than uncoordinated rules individual countries do not internalize the redistributive effect of interest rates however if the bias is large coordinated rules are slacker countries do not internalize the disciplining effect of interest rates surplus limits enhance welfare and increased savings by some countries or outside economies can hurt the rest

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

the political geography of the eurocrisis the european union provided a mixed response to the 2008 financial crisis on the one hand it refused to pursue fiscal integration through a common budget on the other it introduced significant transfers between countries that were designed to produce financial stabilization the authors analyze this response as the outcome of democratic constraints on eu leaders given the eu s current institutional structure citizens preferences pose a binding constraint on what leaders can do as these preferences limit the scope of risk pooling among members and the degree of political tolerance for different courses of action the authors show that citizens preferences reflect differences in the geography of income production regimes and institutional organization the heterogeneity of constituencies redistribution preferences combined with a diverse economic geography helps to explain why political constraints on national governments prevent them from engaging in further fiscal integration by contrast externalities among member states shift the preferences of citizens who may experience negative effects and make international redistribution politically feasible the authors analyze these two mechanisms and present novel empirical results on the determinants of preferences for fiscal integration and international redistribution in the aftermath of the eurocrisis

the role of subnational politicians in distributive politics political bias in venezuela s land reform under chavez this article examines how the partisanship of empowered subnational politicians can affect within district benefit distribution i present a theory of the role of subnational politicians in distributive politics and then test this theory on a distributive venezuelan land reform initiative by leveraging unique individual level data on revealed voter preferences and the receipt of particularistic benefits using data from a list of millions of voters who signed petitions to recall former president chavez i match information on recent land grant applicants to petition signers to measure how political preferences affect the likelihood of applying for and receiving land and how state governors condition this relationship i find evidence for both strategic core voter targeting and blockage of benefits to opposition voters these effects however are modified by the political affiliation of governors the findings point to the importance of considering how intervening subnational politicians influence distr

understanding the greek crisis this paper focuses on the distortions that the greek public debt has imposed on the greek banking system and suggests how these can be unwound the low level of competitiveness of the greek economy which is well below the competitiveness of the developed countries poses a great challenge for the greek banks at the same time it puts at risk greece s economy ability to service both the private and public debt which as an aggregate are comparable to the indebtedness of the developed nations an adjustment of economic activity to match the current low level of competitiveness will increase the risks faced by the financial system and make an orderly servicing of the debt of the economy very challenging it follows that only one reasonable policy option remains to increase the competitiveness of the economy through an aggressive reform agenda so that it will match its level of indebtedness and through the resulting growth shift the excessive debt of the public sector to the private sector

catalonia and spain at the crossroads financial and economic aspects in some large european countries in recent decades economic globalization has gone hand in hand with a powerful trend to political decentralization this has been the case in the united kingdom france italy and spain in spain and after years of apparent stability the relations between catalonia and spain are experiencing troubled times this paper examines particularly the main economic effects of both the staying together and the secession scenarios following the introduction the second section reviews some aspects of the relations between catalonia and spain the third and fourth sections analyse different scenarios with a particular focus on the main issues that the secession scenario raises the fifth section contains a concluding remark

diversity disparity and civil conflict in federal states both policy makers and scholars have turned their attention to federalism as a means for managing conflicts between central governments and subnational interests but both the theoretical literature and the empirical track record of federations make for opposing conclusions concerning federalism s ability to prevent civil conflict this paper argues that the existing literature falls short on two accounts first it lacks a systematic comparison of peaceful and conflict ridden cases across federal states second many studies seem to suggest that there is one optimal mix of decentralization and centralization while others acknowledge that there is no one size fits all federal solution but leave this without further theorizing our argument is that the peace preserving effect of specific federal traits fiscal decentralization fiscal transfers and political co partisanship are conditional on a society s income level and ethnic composition the argument is tested across 22 federal states from 1978 to 2000

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

decentralization institutional ambiguity and mineral resource conflict in mindanao philippines based on an analytical framework that builds on theories of incremental institutional change this article interrogates the relationship between decentralization and mineral resource conflict in the philippines here efforts to decentralize control over mineral resource wealth have resulted in a highly ambiguous institutional arena wherein heterogeneous actor coalitions are attempting to influence trajectories of institutional change and the associated distribution of mineral wealth on the ground this institutional renegotiation produces a diverse range of conflicts emerging on top of these institutional struggles are local elected politicians which raises important concerns over elite capture of the decentralization process

politicians taxes and debt the standard analysis of the efficient management of income taxes and debt assumes a benevolent government and ignores potential distortions arising from rent seeking politicians this paper departs from this framework by assuming that a rent seeking politician chooses policies if the politician chooses extractive policies citizens throw him out of power we analyse the efficient sustainable equilibrium unlike in the standard economy temporary economic shocks generate volatile and persistent changes in taxes along the equilibrium path this serves to optimally limit rent seeking by the politician and to optimally generate support for the politician from the citizens taxes resembling those of the benevolent government are very costly since the government over saves and resources are wasted on rents political distortions thus cause the complete debt market to behave as if it were incomplete however in contrast to an incomplete market economy in the long run taxes do not converge to zero and under some conditions they resemble taxes under a benevolent government

tax competition and leviathan abstract attitudes towards downward pressure on tax rates from international tax competition depend on attitudes towards government this paper synthesises the two extremes which as in other areas of public finance have dominated the debate typically being presented as stark alternatives the view of government as a leviathan from which tax competition emerges as a useful constraint on policy makers and the view of government as a benevolent maximiser of their citizens welfare from which it emerges as a source of inefficiency conditions are derived under which when policy makers are neither entirely benevolent nor wholly self serving tax coordination benefits the representative citizen

economic integration and political disintegration in a world of trade restrictions large countries enjoy economic benefits because political boundaries determine the size of the market under free trade and global markets even relatively small cultural linguistic or ethnic groups can benefit from forming small homogeneous political jurisdictions this paper provides a formal model of the relationship between openness and the equilibrium number and size of countries and successfully tests two implications of the model firstly the economic benefits of country size are mediated by the degree of openness to trade secondly the history of nation state creations and secessions is influenced by the trade regime

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

can foreign aid accelerate stabilization this paper studies the effect of foreign aid on economic stabilization following alesina and drazen 1991 we model the delay in stabilizing as the result of a distributional struggle reforms are postponed because they are costly and each distributional faction hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies since the delay is used to signal each faction s strength the effect of the transfer depends on the role it plays in the release of information we show that this role depends on the timing of the transfer foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization but aid decided or transferred too late is destabilizing and encourages further postponement of reforms

decentralization fueling the fire or dampening the flames of ethnic conflict and secessionism political decentralization is widely believed to reduce ethnic conflict and secessionism in the world today yet decentralization is more successful in reducing conflict and secessionism in some countries than in others in this article i explore why this difference occurs i demonstrate using a statistical analysis of thirty democracies from 1985 to 2000 that decentralization may decrease ethnic conflict and secessionism directly by bringing the government closer to the people and increasing opportunities to participate in government but that decentralization increases ethnic conflict and secessionism indirectly by encouraging the growth of regional parties regional parties increase ethnic conflict and secessionism by reinforcing ethnic and regional identities producing legislation that favors certain groups over others and mobilizing groups to engage in ethnic conflict and secessionism earlier versions of this article were presented at harvard university and the center for the study of democratic politics at princeton university the author would like to thank sandra alfonso leon james alt micah altman barry friedman shigeo hirano simon hug gary king rose rozaghian tulia falleti and two anonymous reviewers for their very helpful comments

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

some policy lessons from the opening of the korean insurance market this article examines the recent dispute between the united states and the republic of korea over the opening of korea s insurance market to u s companies the article assesses the interests and motivations of both countries that lay behind the formal arguments presented during the negotiation process it also analyzes whether the longrun interests of both developing and industrial countries would be well served by the approach to the opening of the market adopted in this case sharing the rent while continuing to regulate the insurance market the analysis suggests that the opening of a developing country s insurance market or the wider financial services market would serve the long run interests of both developing and industrial countries only if it were accomplished in the context of overall domestic liberalization of the finance industry opening of the market if this means only the sharing of the rents that were generated by regulation of the market is unlikely to be beneficial to developing countries this examination of the recent united states korea trade dispute over the limitations placed on the access of u s firms to the korean insurance market provides an opportunity to investigate the interests and motivations of industrial and developing countries with respect to international transactions in financial services the article also derives some policy lessons for other developing countries that may face a similar trade negotiation environment section i of the article briefly discusses the policies of the government of the republic of korea with respect to the insurance market describes the structure and size of the market and suggests some reasons for the strong interest of u s firms in entering the market section ii introduces the trade dispute and describes the issues between the two countries and their respective positions on these issues during the negotiations pursued under section 301 of the u s trade act see appendix it also investigates the motivations underlying the formal arguments during negotiations and describes the bargaining counters the author is an economist in the technical department of the asia region of the world bank this article was prepared for the world bank conference on developing countries interests and international transactions in services washington d c july 15 16 1987 the author is grateful to j michael finger and brian hindley for their valuable suggestions to jagdish bhagwati and andrej olechowski for helpful comments and to peter bocock for editorial assistance

economic hardship and policy preferences in the eurozone periphery evidence from spain what is the impact of economic suffering on support for euro membership and austerity policies in the eurozone periphery this article uses original public opinion and firm surveys conducted in spain in the midst of the great recession to describe the structure of preferences toward the euro as a common currency and austerity policies focusing on the specific impact of crisis exposure we find that in spite of the depth and the duration of the economic crisis support for spain s membership in the eurozone is strong however while economic suffering divides the electorate on support for the euro and austerity it does not do so for firms surprisingly individuals who have suffered due to the crisis in terms of higher income loss are more skeptical of tax and spend programs but are more critical of the euro moreover individuals who are skeptical of the euro and austerity are demographically distinct groups of people one implication of our joint individual and firm level findings is that a coalition t

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

discussion of can structural reforms help europe by gauti eggertsson andrea ferrero and andrea raffo w s gilbert abundantly proves he is still the legitimate monarch of the realm of topsy turvydom in such marvelous terms the times of london in 1884 reviewed the premiere of princess ida by w s gilbert and arthur sullivan the critic had captured concisely the basic plot of many of the wonderful creations of gilbert and sullivan the premise of those works was to turn around the conventional rules of society and to push the unusual arrangements to their logical consequences with this trick the artists created amusing pieces that the audiences of the era and not a few of our contemporaries adored thinking about the zero lower bound zlb of the nominal interest rate is similar to listening to gilbert and sullivan all our intuitions about economic policy can switch and in the process we are entertained eggertsson ferrero and raffo hereafter efr have presented an original and carefully crafted argument that structural reforms may be counterproductive at the zlb exactly opposite to their effect under normal conditions thus their thought provoking and immensely interesting article is an outstanding member of what i would like to call the economics of gilbert and sullivan why does the zlb cause this rumpus for a market economy to work properly a central piece of the machinery the savings investment market must operate satisfactorily this market through its price the real interest rate ensures that the desire of households and firms to postpone consumption savings is equal to their desire to accumulate capital investment unfortunately the presence of cash complicates the response of the interest rate to changes in the desire to save and invest all modern economies have found that a convenient trading arrangement is the use of noninterest bearing nominal notes issued by a sovereign which we refer to as cash or call deposits easily redeemed for cash this is not the place to review why this is the case suffice it to say that these notes are the root of all evil here since i started by talking about 19th century art i fast forward to the early 21st century and to reflect geopolitical realities i travel from old england to contemporary new jersey where i write these lines to introduce the tony soprano technology in a famous episode tony unforgettably interpreted by the recently departed james gandolfini hides his

capital market liberalization economic growth and instability summary this paper reviews briefly the arguments for capital market liberalization and identifies their theoretical and empirical weaknesses this provides the foundations for the argument for intervention in short term capital flows the paper concludes with a brief discussion of the various ways in which such interventions may be implemented 2000 elsevier science ltd all rights reserved

domestic credit growth and international capital flows during the pre crisis period europe experienced substantial cross country variation in domestic credit growth and cross border capital flows we investigate the inter relations between domestic credit growth and international capital flows during the period 1993 2008 with a special focus on the boom period of 2003 2008 we establish that domestic credit growth in european countries is strongly related to net debt inflows but not to net equity inflows this pattern also holds for an extended sample of 54 advanced and emerging economies

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

u s trade threats rhetoric or war working paper 95 7 the international agricultural trade research consortium is an informal association of university and government economists interested in agricultural trade its purpose is to foster interaction improve research capacity and to focus on relevant trade policy issues it is financed by united states department of agriculture ers fas and csrs agriculture canada and the participating institutions

the impact of ecb policy on structural reforms abstract we estimate the impact of monetary policy on structural reform adoption in the euro area we identify exogenous ecb policy changes through an event study that extracts the unexpected variation in euro area interest rates on policy announcement days we find that surprise monetary expansions increase the number of reforms significantly and that the effect is stronger for countries with weaker macroeconomic fundamentals or tighter public budget constraints these findings are consistent with the hypothesis that expansionary monetary policy by attenuating the short run costs of reforms and increasing governments financial leeway spurs competition friendly supply side policy

the european sovereign debt crisis the origin and propagation of the european sovereign debt crisis can be attributed to the flawed original design of the euro in particular there was an incomplete understanding of the fragility of a monetary union under crisis conditions especially in the absence of banking union and other european level buffer mechanisms moreover the inherent messiness involved in proposing and implementing incremental multicountry crisis management responses on the fly has been an important destabilizing factor throughout the crisis after diagnosing the situation we consider reforms that might improve the resilience of the euro area to future fiscal shocks

what drives the german current account and how does it affect other eu member states we estimate a three country model using 1995 2013 data for germany the rest of the euro area rea and the rest of the world row to analyse the determinants of germany s current account ca surplus after the launch of the euro our results suggest that the german surplus reflects a succession of distinct shocks mono causal explanations of the surplus are thus insufficient the most important factors driving the german surplus were positive shocks to the german saving rate and to row demand for german exports as well as german labour market reforms and other positive german aggregate supply shocks the key shocks that drove the rise in the german ca tended to worsen the rea trade balance but had a weak effect on rea real activity our analysis suggests these driving factors are likely to be slowly eroded leading to a very gradual reduction of the german ca surplus an expansion in german government consumption and investment would raise german gdp and reduce the ca surplus but the effects on the surplus would be weak

explaining african economic performance africa has had slow growth and a massive exodus of capital in many respects it has been the most capital hostile region we review and interpret the aggregate level and microeconomic literatures to identify the key explanations for this performance there is a reasonable correspondence of the two sets of evidence pointing to four factors as being important these are a lack of openness to international trade a high risk environment a low level of social capital and poor infrastructure these problems are to a substantial extent attributable to government behaviour and the paper includes a review of the political economy literature which addresses that behaviour

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

inequality and insurgency maldistribution of land in agrarian societies is commonly thought to be an important precondition of mass political violence and revolution others argue that because of the difficulty of mobilizing rural populations for political protest land maldistribution is irrelevant except as part of an inegalitarian distribution of income nationwide these rival inequality hypotheses have significant implications with respect to the kinds of reforms likely to reduce the potential for insurgency in a society they are tested using the most comprehensive cross national compilation of data currently available on land inequality landlessness and income inequality support is found for the argument that attributes the greater causal import to income inequality moreover the effect of income inequality on political violence is found to hold in the context of a causal model that takes into account the repressiveness of the regime governmental acts of coercion intensity of separatism and level of economic development

political booms financial crises political booms measured by the rise in governments popularity predict financial crises above and beyond better known early warning indicators such as credit booms this predictive power howev

beyond the fiction of federalism macroeconomic management in multitiered systems recent research on federalism is extremely divided while some tout the benefits of market preserving federalism others point to the fragmentation and incoherence of policy in federal states this research bridges the divide by analyzing the political and fiscal structures that are likely to account for the highly divergent economic experiences of federal systems around the world to test these propositions the authors use an original data set to conduct analyses of budget balance and inflation in fifteen federations around the world from 1978 through 1996 the empirical research suggests that the level of fiscal decentralization the nature of intergovernmental finance and vertical partisan relations all influence macroeconomic outcomes the findings have broad implications for the widespread move toward greater decentralization and for the theoretical literatures on federalism and macroeconomics

unpacking the effect of decentralized governance on routine violence lessons from indonesia summary we study the effect of decentralization on routine violence in indonesia we unpack decentralization along multiple dimensions and consider the individual effects of local elections the creation of new administrative units fiscal transfers and local public service delivery we use comprehensive data from indonesia s national violence monitoring system nvms a new dataset that records the incidence and impact of violence in indonesia we use these data to examine the relationship between the different dimensions of decentralization and different types of local violence in indonesian districts during 2001 10 our analyses suggest that there is a positive association between local service delivery and at least some forms of violence we argue that the positive effect of service delivery on violence is due to newly generated distributive conflicts among local ethnic groups around the control over and access to services by comparison district splitting and the introduction of direct elections of district heads are negatively associated with some forms of violence there is little evidence that fiscal transfers in general mitigate conflict

improving forecasts of state failure this article offers the first independent scholarly evaluation of the claims forecasts and causal inferences of the state failure task force and its efforts to forecast when states will fail state failure refers to the collapse of the authority of the central government to impose order as in civil wars revolutionary wars genocides politicides and adverse or disruptive regime transitions states that sponsor terrorism or allow it to be organized within their borders are all failed states this task force set up at the behest of vice president gore in 1994 has been led by a group of distinguished academics working as consultants to the u s cia state failure task force reports and publications have received attention in the media in academia and from public decision makers the article identifies several methodological errors in the task force work that cause its reported forecast probabilities of conflict to be too large its causal inferences to be biased in unpredictable directions and its claims of forecasting performance to be exaggerated however the article also finds that the task force has amassed the best and most carefully collected data on state failure to date and the required corrections provided in this article although very large in effect are easy to implement the article also demonstrates how to improve forecasting performance to levels significantly greater than even corrected versions of its models although the matter is still a highly uncertain endeavor the authors are nevertheless able to offer the first accurate forecasts of state failure along with procedures and results that may be of practical use in informing foreign policy decision making the article also describes a number of strong empirical regularities that may help in ascertaining the causes of state failure

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

federalism chinese style the political basis for economic success in china china s remarkable economic success rests on a foundation of political reform providing a considerable degree of credible commitment to markets this reform reflects a special type of institutionalized decentralization that the authors call federalism chinese style this form of decentralization has three consequences first it fosters competition not only in product markets but also among local governments for labor and foreign capital this competition in turn encourages local government experimentation and learning with new forms of enterprises regulation and economic relationships second it provides incentives for local governments to promote local economic prosperity finally it provides a significant amount of protection to local governments and their enterprises from political intrusion by the central government

fiscal competition and the pattern of public spending much attention has been given to the impact of fiscal competition on the level of public expenditure but relatively little to the impact on its composition using a broadly familiar and reasonably rich model of fiscal competition in the presence of mobile capital this paper establishes a systematic bias in public spending patterns starting from the non cooperative equilibrium and holding tax rates constant welfare would be improved by a coordinated reduction in the provision of local public inputs and a corresponding increase in the public provision of local public goods benefiting immobile consumers c 1997 elsevier science s a

monetary policy under emu this paper considers a number of issues connected with the implementation of monetary policy in the euro zone these include the techniques of monetary control whether to adopt an explicit inflation target and if so for what index the politics of decision making within the governing council of the european system of central banks the likelihood of there being conflicts of interest between the member countries of the euro zone the interaction of monetary and fiscal policy and the role of the escb in maintaining financial stability copyright 1998 by oxford university press