Does Democracy Affect Cyclical Fiscal Policy? Evidence From Developing Countries
Macroeconomics usually prescribes counter-cyclical fiscal policies to stabilise the economy: government spending should increase above trend in the economic downturns, and decrease below trend during booms. Yet, empirical research has documented pro-cyclical fiscal policy in several democratic developing countries. This article uses updated data to analyse 63 developing countries from 1980 to 2013 and robustly shows that pro-cyclical fiscal policy does exist in both democratic and non-democratic developing countries. The essence of this paper is controlling endogeneity issue by the instrumental variable method and investigating the interaction between democracy, its maturity and quality of institutions in affecting fiscal policy cyclical.We provide 3 main findings. Firstly, an improvement in the level of institutions quality plays an important role to restrain pro-cyclical fiscal policy and these effects are larger in democratic countries than non-democratic ones. Additionally, more mature and stable democratic countries tend to implement less pro-cyclical fiscal policy.
Economic impacts of Political Uncertainty in Thailand
This paper aims to analyze political uncertainty in Thailand by looking at various dimensions of political uncertainty and quantifying the economic impacts. Based on keyword search in Thai-language newspapers, the paper proposes five measures related to different aspects of political uncertainty. These are: (1) political protest (2) official measures in dealing with political violence (3) coup d’état (4) parliament dissolution or election and (5) political structural reform, including the aggregate index of political uncertainty. We find that the overall political uncertainty in Thailand has been in the rising trend during the past 20 years. In particular, during the past 10 years, the main source of Thai political uncertainty comes from uncertainty related to political structural reform. Based on various econometric specifications, rising political uncertainty is found to have significant negative impacts on the Thai economy both in the short run – particularly, private investment – and economic growth in the long run. Nevertheless, we find that the degree of the economic impact and statistical significance on different components of macroeconomy is quite varied, reflecting complicated interaction between political factors and economic outcome.
Targeting Credit through Community Members
Delegating the allocation of public resources to community members is an increasingly popular form of delivering development programs and are associated with a tradeoff between improved information about potential beneficiaries and favoritism towards local elites. Unlike targeting cash transfers to the poor, the optimal targeting of credit is a more complex problem involving issues of productivity, repayment, and market responses: This paper analyzes this problem using a large-scale lending program, the Thai Million Baht Credit Fund, which decentralizes the allocation of loans to an elected group of community members, and provides three main results. First, exploiting a long and detailed panel, I recover pre-program structural estimates of household total factor productivity and find that resources from the program were not allocated to high-productivity, poor households, which is inconsistent with poverty and productive efficiency as targeting criteria. Second, using socioeconomic networks data, I show that actual targeting is strongly driven by connections to village elites and is related to lower program profitability, which suggests favoritism as a reason for mistargeting. Finally, I exploit quasi-experimental variation in the rollout of the program and uncover evidence that, in general equilibrium, informal credit markets compensate for targeting distortions by redirecting credit towards unconnected households, albeit at higher interest rates than those provided by the program. The results highlight the limitations of community-driven approaches to program delivery and the role of markets in attenuating potential targeting errors.
Does Money Make People Right-Wing and Inegalitarian? A Longitudinal Study of Lottery Winners
The causes of people’s political attitudes are largely unknown. We study this issue by exploiting longitudinal data on lottery winners. Comparing people before and after a lottery windfall, we show that winners tend to switch towards support for a right-wing political party and to become less egalitarian. The larger the win, the more people tilt to the right. This relationship is robust to (i) different ways of defining right-wing, (ii) a variety of estimation methods, and (iii) methods that condition on the person previously having voted left. It is strongest for males. Our findings are consistent with the view that voting is driven partly by human self-interest. Money apparently makes people more right-wing.