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Journal Article
On the emergence of parliamentary government: the role of private information
The way many dictators have been deposed in the 20th century resembles the way a parliamentary form of government emerged in 13th-century England. This medieval example is worth examining because the features that led to its political reform are particularly clear. Despite what many think, that reform cannot be understood simply as a shift in military power from ruler to subjects. Rather, understanding the reform requires understanding that the English king had recently acquired private information crucial to his subjects. Such private information became important after England lost Normandy ...
Working Paper
Politics, economics and investment: explaining plant and equipment spending by U.S. direct investors in Argentina, Brazil, and Mexico
Few economists or laymen would deny that political events can have an important, sometimes even overwhelming, impact on economic decisions in general, and investment decisions in particular. The first goal of this paper was to integrate a number of political and non-traditional economic variables into the standard theory of investment based on the maximization of the expected value of the firm. The second goal was to test this generalized investment theory on a particularly fertile field for gauging the interaction of political and economic factors: the plant and equipment spending of foreign ...
Report
The politics of central bank independence: a theory of pandering and learning in government
We propose a theory to explain why, and under what circumstances, a politician endogenously gives up rent and delegates policy tasks to an independent agency. Applied to monetary policy, this theory (i) formalizes the rationale for delegation highlighted by Alexander Hamilton, the first Secretary of the Treasury of the United States, and by Alan S. Blinder, former Vice Chairman of the Board of Governors of the Federal Reserve System; and (ii) does not rely on the inflation bias that underlies most existing theories of central bank independence. Delegation trades off the cost of having a ...
Report
Finite horizons, political economy, and growth
This paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A "representative" government (that is, one whose preferences reflect those of its constituents) endowed merely with the ability to tax and transfer can improve somewhat on the market allocation but cannot achieve first-best growth. Efficiency requires in addition the ability to bind future governments. We argue that this ability is related to political stability, and provide empirical evidence that stability and growth-related policies (namely ...
Working Paper
A theory of political cycles
We study how the proximity of elections affects policy choices in a model in which policymakers want to improve their reputation to increase their reelection chances. Policymakers' equilibrium decisions depend on both their reputation and the proximity of the next election. Typically, incentives to influence election results are stronger closer to the election (for a given reputation level), as argued in the political cycles literature, and these political cycles are less important when the policymaker's reputation is better. Our analysis sheds light on other agency relationships in which ...
Report
Effect of redrawing of political boundaries on voting patterns: evidence from state reorganization in India
This paper analyzes the effect of a redrawing of political boundaries on voting patterns and investigates whether it leads to closer conformity of an electorate's voting patterns with its political preferences. We study these issues in the context of a reorganization of states in India. In 2000, Madhya Pradesh, the biggest state in India before the reorganization, was subdivided into Madhya Pradesh and Chhattisgarh, the latter accounting for less than one-fourth of the electorate of undivided Madhya Pradesh. Using socioeconomic composition and traditional voting patterns, we argue that there ...
Working Paper
Politics and exchange rate forecasts
Standard exchange rate models perform poorly in out-of-sample forecasting when compared to the random walk model. We posit part of the poor performance of these models may be due to omission of political factors. We test this hypothesis by including political variables that capture party-specific, election-specific and candidate-specific characteristics. Surprisingly, we find our political model outperforms the random walk in out-of-sample forecasting at one to twelve month horizons for the pound/dollar, mark/dollar, pound/mark and the trade-weighted dollar, mark, and pound exchange rates.
Working Paper
On the fluctuations induced by majority voting