Mark Hallerberg

Democracy and De Facto Exchange Rate Regimes

This paper explores the relationship between a countrys political regime type and its de facto exchange rate fixity. It argues that more democratic regimes should be associated with less de facto fixity because the median voter is likely to be a domestically oriented producer with a monetary preference for domestic policy autonomy, requiring more a more flexible exchange rate regime. Focusing on a broad sample of country–years in the post‐Bretton Woods era defined by international capital mobility, the statistical results show that not only are more democratic regimes negatively associated with de facto fixity using three different operational measures for this dependent variable, but that this negative relationship gets stronger as the median voter is more likely to be a domestically oriented producer and as societal groups are more able to influence public policy.

Fiscal federalism reforms in the European Union and the Greek crisis

Based upon existing fiscal federal arrangements, this article considers the options facing the European Union to reform its own framework. There are two plausible ways the EU can stabilize the finances of its member states over the longer term. The first is to take steps that complement the market discipline of individual member states. For market discipline to play this positive role, three conditions need to be met: (1) markets need to have accurate information on member state finances; (2) the market valuation of a given state also has to be an accurate valuation of the sustainability of that state’s finances; and (3) populations need to interpret market discipline as a signal about their government’s competence and punish governments that face market pressure. Such a system is possible under the current Stability and Growth Pact, and indeed it appears that all three conditions held in summer 2009. Any bailout of a member state, however, undermines this type of system. More political integration would be needed to prevent a state from getting into a situation where a bailout would be an option. The Brazilian model is a precedent that the European Union could emulate.

Political Power, Fiscal Institutions and Budgetary Outcomes in Central and Eastern Europe

This paper considers the effects of fiscal governance in Central and East European countries 1998–2008. The first part makes predictions about which form of fiscal governance fits which form of government. Under multi-party coalition governments, fiscal contracts where governments make political commitments to multi-annual fiscal plans work well. In countries where two political blocks face off against one another, delegation based around a strong finance ministry should be most effective. The second part examines electoral and party systems, which affect the form of government in place. The third part documents norms, rules, and institutions in place. The final section considers the joint effects of fiscal governance on fiscal outcomes. On balance, the underlying political climate is crucial for determining what types of fiscal norms, institutions, and rules function best. The more countries diverge from their expected form of fiscal governance, the greater the increase in a countrys debt burden.

When Do You Get Economists as Policy-Makers?

We analyze when economists become top-level “economic policy-makers,” focusing on financial crises and the partisanship of a country’s leader. We present a new dataset of the educational and occupational background of 1200 political leaders, finance ministers, and central bank governors from 40 developed democracies from 1973 to 2010. We find that left leaders appoint economic policy-makers who are more highly trained in economics and finance ministers who are less likely to have private finance backgrounds but more likely to be former central bankers. Finance ministers appointed during financial crises are less likely to have a financial services background. A leader’s exposure to economics training is also related to appointments. This suggests one crucial mechanism for affecting economic policy is through the selection of certain types of economic policy-makers.

Explaining Instability in the Stability and Growth Pact: The Contribution of Member State Power and Euroskepticism to the Euro Crisis

The Stability and Growth Pact clearly failed to prevent the euro crisis. We contend that the failure was due largely to the ability of the Member States to undermine the Pact’s operation. The European Commission served as a “watchdog” to monitor fiscal performance. The Member States themselves, however, collectively had the ability to change the content of the reports for individual states. We confirm the expectation that powerful Member States had the most success in undermining the role of the Commission. Perhaps more surprisingly, we find supporting evidence for our argument that governments with euroskeptic populations behind them were also more successful in weakening the Commission’s warnings. These results have broader theoretical implications concerning which mechanisms explain country-specific outcomes under a shared rule. Another contribution is the creation of a new data set of European Commission assessments of Member State economic programs and Council of Minister revisions.

Measures of financial openness and interdependence

Purpose - The purpose of this paper is to review concepts and measurements related to financial globalization such as financial openness, financial integration, monetary interdependence, and the mobility and movement of capital. Design/methodology/approach - This paper surveys the theoretical and empirical literature on monetary interdependence and financial globalization. The major ways in which these concepts are measured empirically are presented and critiqued. Findings - Disagreements about the degree of financial integration and capital mobility are, in part, explained by the different approaches to measuring these concepts. One major challenge in obtaining a good measures is controlling for other major factors that may influence observed correlations among financial variables. While these relationships still cannot be estimated precisely, it can be safely said that while high for many countries, few if any financial markets are perfectly integrated across countries. Originality/value - By offering a comprehensive analysis of these different measurements, the paper underscores the different implications for national policies and the operation of the international monetary system of different dimensions of globalization. In particular, the proposition that financial globalization has left most countries with little autonomy for domestic monetary policy is subject to serious debate, at least in the short run.

Empirical Applications of Veto Player Analysis and Institutional Effectiveness

Many studies consider the veto players in government and move directly to discussions of policy choice and policy change. Institutions in such studies are relevant only to the extent that they determine whether a given player is truly a veto player, and they are exogenously determined. In this chapter, I begin with a review of this research and of the veto player agenda more generally. The review indicates that veto player analysis is a powerful tool in a variety of institutional settings. In the second part of the chapter, I argue that veto players affect the institutions that are chosen to structure decision making. Moreover, the effectiveness of those institutions depends on the ideological distance among veto players. Institutions put in place under a government with low ideological distance may not function well if the ideological distance increases under the next government. This chapter gives examples from the making of fiscal policy, but the concepts are applicable to other policy areas as well.

Explaining the evolving role of national parliaments under the European Semester

ABSTRACT This contribution examines and explains the role of national parliaments in the European Semester process. It builds on original survey-based evidence and traces whether national parliaments discuss and vote on Stability/Convergence and on National Reform Programmes; how their involvement changed over time; and what might condition national varieties of parliamentary scrutiny over European Union (EU) affairs. We find significant cross-country variation in whether the debate is taking place at the parliamentary level; whether it is European Affairs or finance committees that are involved; and whether there is involvement ex ante (before submission) and/or ex post (after country-specific recommendations). From 2012 to 2015, finance committees played an increasingly prominent role. Traditional measures of the strength of parliament do not explain what we observe. We do find that non-euro area member states were most likely to monitor EU recommendations under the European Semester and that this effect increased over time.

Explaining Changes in Tax Burdens in Latin America: Does Politics Trump Economics?

This paper examines whether elections, which are generally held on fixed dates, and banking crises explain the timing of tax reforms and the allocation of the additional tax burden. Using an original fine-grained data set of tax reforms, the paper finds support for the role of these two sources of variation. In particular, the probability of reform is higher during banking crises. During electoral periods, increasing taxes becomes highly unlikely, even if the government is facing financing problems. Interestingly, politics seem to trump economics: banking crises do not affect the probability of having a reform during electoral times. Moreover, the presence of an IMF program affects the tax instruments chosen: countries with a program increase the value-added tax, while those without raise the personal income tax. Finally, the ideology of the president does not explain who bears the additional tax burden.

The Role of Parliamentary Committees in the Budgetary Process in the Central and Eastern European Countries

Do parliamentary procedures affect political outcomes? In many European countries, such as in Greece or the United Kingdom, it would seem that parliament now plays the role of a mere “rubber stamp” that approves the executive’s proposals. This would suggest that details about how parliament makes laws are essentially irrelevant. Addressing this question, the two Doring edited volumes (Doring 1995a; Doring/Hallerberg 2004) broadly combined rational choice theory with empirical data. They found both considerable variation in institutional settings and behaviour across parliaments. These volumes together suggest that parliamentary procedures indeed have important consequences for the laws that countries do, and do not, enact.1