Erik Wibbels

Dependency Revisited: International Markets, Business Cycles, and Social Spending in the Developing World

While increased exposure to the global economy is associated with increased welfare effort in the Organization for Economic Cooperation and Development (OECD), the opposite holds in the developing world. These differences are typically explained with reference to domestic politics. Tradables, unions, and the like in the developing world are assumed to have less power or interests divergent to those in the OECD—interests that militate against social spending. I claim that such arguments can be complemented with a recognition that developed and developing nations have distinct patterns of integration into global markets. While income shocks associated with international markets are quite modest in the OECD, they are profound in developing nations. In the OECD, governments can respond to those shocks by borrowing on capital markets and spending countercyclically on social programs. No such opportunity exists for most governments in the developing world, most of which have limited access to capital markets in tough times, more significant incentives to balance budgets, and as a result cut social spending at the times it is most needed. Thus, while internationally inspired volatility and income shocks seem not to threaten the underpinnings of the welfare state in rich nations, it undercuts the capacity of governments in the developing world to smooth consumption (and particularly consumption by the poor) across the business cycle.The author would like to thank Steph Haggard, Kristin Bakke, Wongi Choe, Tim Jones, and seminar participants at Duke University, Penn State University, Washington University, MIT, and the University of New Mexico for their helpful comments. Nancy Brune, Mark Hallerberg and Rolf Strauch, and Nita Rudra were very generous in providing their capital account, OECD fiscal, and potential labor power data, respectively.

Diversity, Disparity, and Civil Conflict in Federal States

Policymakers 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 federalisms ability to prevent civil conflict. This article 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, and second, while some studies acknowledge that there is no one-size-fits-all federal solution, the conditional ingredients of peace-preserving federalism have not been theorized. The authors make the argument that the peace-preserving effect of specific federal traits—fiscal decentralization, fiscal transfers, and political copartisanship—are conditional on a societys income level and ethnic composition. The argument is tested across twenty-two federal states from 1978 to 2000.

Globalization, Taxation, and Burden-Shifting in Latin America

Most researchers interested in the relationship between global markets and public policy focus on advanced industrial democracies. In contrast, we examine competing hypotheses as to globalizations effect on governments by expanding the scope of the discussion to include developing nations. More specifically, we investigate the relationship between international market integration and the evolving burden of taxation on capital, as well as the subsequent response of markets to shifts in tax policy in Latin America since the late 1970s. Consistent with our theoretical expectations, we find that global market forces are more constraining vis-a-vis tax policy in Latin America than in the worlds wealthiest nations. Despite these market-based pressures, however, national politics continue to influence tax policy in Latin America in a manner consistent with findings on advanced industrial democracies. As such, developing nations continue to have some room to manipulate policy, though within the context of a more strictly neoliberal context than their counterparts in advanced industrial democracies.

Lessons from Strange Cases Democracy, Development, and the Resource Curse in the U.S. States

The work linking natural resource wealth to authoritarianism and under-development suffers from several shortcomings. In this article, the authors outline those shortcomings and address them in a new empirical setting. Using a new data set for the U.S. states spanning 73 years and case studies of Texas and Louisiana, the authors are able to more carefully examine both the diachronic nature and comparative legs of the resource curse hypothesis than previous research has. They provide evidence that natural resource dependence contributes to slower economic growth, poorer developmental performance, and less competitive politics. Using this empirical setting, they also begin parsing the mechanisms that might explain the negative association between resource wealth and political and economic development. They draw implications from intranational findings for resource abundant countries across the world and suggest directions for future cross-national and cross-state work.

Fiscal Decentralization and the Business Cycle: An Empirical Study of Seven Federations

Although fiscal policies of central governments sometimes provide modest insurance against regional income shocks, this paper shows that procyclical fiscal policy among provincial governments can easily overwhelm these stabilizing effects. We examine the cyclicality of budget items among provincial governments in seven federations, showing that own-source taxes are generally highly procyclical, and contrary to common wisdom, revenue sharing and discretionary transfers are either acyclical or procyclical. Constituent governments are thus left alone to smooth their own shocks, and we document the extent to which various restraints on borrowing and saving undermine their ability to do so. The resulting procyclicality of provincial fiscal policy is likely to have important implications in a world where demands for countercyclical fiscal policy are increasing but considerable fiscal responsibilities are being devolved to subnational governments.

Bailouts, Budget Constraints, and Leviathans Comparative Federalism and Lessons from the Early United States

Recent research on federations, particularly in the developing world, emphasizes the importance of hard budget constraints and a strong central government to attenuate intergovernmental economic conflicts. Such research fails on two counts. First, it does not explain how hard budget constraints emerge or become self-enforcing. Second, it does not take into account the insight of the market-preserving federalism literature that central governments strong enough to impose restraint on regions are likely too powerful to be checked in a manner consistent with the longterm health of markets. Unfortunately, the market-preserving federalism literature itself provides little insight into how to move from a market-distorting to a market-preserving equilibrium. This article answers these theoretical shortcomings with reference to the evolution of political competition at the regional level and the representation of those regions at the national level. More specifically, whereas regional competition determines the subnational demand for soft budget constraints, the coalition of those regions at the national level determines the likelihood of their provision. Empirically, the research relies on a case study of the state debt crisis of the 1840s when the United States made a definitive movement toward market-preserving federalism.

Dual accountability and the nationalization of party competition: Evidence from four federations

This paper assesses the extent to which party systems are nationalized in four federations. In doing so, the research addresses two questions. First, is dual accountability operational across decentralized countries, or do sub-national voters turn to national cues as a means to economize in a complex information environment? By bringing a cross-national dataset to bear on this question, we are able to provide insight into where and why dual accountability might operate. Second, what explains variation in the extent to which party systems are nationalized across countries and time? We build on previous literature to suggest a number of factors likely to impact the extent of nationalization. We examine those factors in the context of provincial-level elections in Argentina, Canada, Germany and the United States. Using national and sub-national economic data, we find little evidence of dual accountability in any of our countries. We find that economic performance matters little for regional electoral outcomes, and where it does, sub-national outcomes reflect national rather than sub-national conditions. More important are the roles of partisan relations across levels of government and election timing. Sub-national co-partisans of the nationally governing party lose votes, particularly as the time from the most recent national election grows. The strength of these effects varies across our cases in predictable ways.

Federal politics and market reform in the developing world

Prior research on the politics of market reform in developing nations has generally ignored the significant role of federal political and economic arrangements in shaping adjustment processes. In contrast, this research develops a model of macroeconomic reform that accounts for the significance of subnational economic policy in the developing world’s nine major federations. I examine five hypotheses which are expected to influence the capacity of developing federations to conduct polity consistent with the exigencies of market pressures. With the use of a cross-sectional time-series analysis of fiscal and monetary policies, I show that the policy divergence between levels of government shrinks when provincial governments have greater fiscal power and there are high degrees of party centralization across levels of government. These findings have important implications for the political economy of market reform, the widespread move toward fiscal decentralization, and the design of regional supranational institutions.

“The Behavioral Foundations of Social Politics: Evidence from Surveys and a Laboratory Democracy”

The dominant theoretical approaches in the comparative political economy of the welfare state provide alternative accounts for why some governments spend more on social policies than others. In the first, poor voters seek to increase their current income by taxing the rich, and social policy serves to redistribute income from the rich to the poor. In the second account, voters seek social insurance against future job loss, and social policy serves as an insurance mechanism rather than a redistributive one. Both of these accounts share the assumption that voters can clearly distinguish between the redistributive and insurance elements of public policy and, therefore, that individual-level characteristics (income, labor market risks) systematically shape preferences over social policy. Our goal is to examine the soundness of that behavioral assumption. We do so with a laboratory experiment that involves economic production, voting on taxation and fiscal transfers. We treat subjects with social policies that vary in their level of redistribution and insurance to examine how this impacts their preferred tax rate. We complement the experimental evidence with data from original survey questions that assess voters’ knowledge of the distributive characteristics of different social policies in the U.S. Evidence from both settings suggest only marginal support for behavioral underpinnings of the standard insurance model, particularly as the empirical setting more closely approximates the real world.

The Origins of Dualism

From Spain and Greece to Brazil and South Africa, dualized labor markets are a worldwide phenomenon. In many countries, workers are divided between those with permanent contracts that include valuable benefits and extensive labor market protections and those who work under contingent contracts or no contracts at all. This latter group receives few or no labor market protections and lower levels of social benefits. They are the worlds labor market outsiders. Recent research has suggested that this pool of outsiders has important implications for the nature of democratic politics in the twenty-first century, an argument that is perfectly in line with the core idea of this book, namely, that coalitional alignments among different labor market groups are at the heart of postindustrial reform strategies. Yet the extent of dualization varies hugely across countries. Data on the size of the informal sector around the world (from Schneider et al. 2010) show that while there is clearly a negative association between the wealth of societies and the extent of dualization, there is also huge variation both within and across rich and developing nations. In the OECD context, the process of dualization has been linked to a number of political and economic processes: increasing competition in manufacturing, the rise of the service sector, the decline of unionization, political choices by Left governments, and others. Echoes of these arguments are present in work on developing countries, where dualization is closely linked to the informal sector and has received a lot of attention from economists and sociologists (if not political scientists). Indeed, a long tradition of models in development economics emphasize the stark income and productivity gaps inherent in “dual economies” and the uneven growth that characterizes broad swaths of the developing world (Rosenstein-Rodan 1943; Ray 2010). Yet while all of these arguments emphasize important features of dualization, they often focus on the consequences rather than the causes of labor market dualism.