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Policy Reform Under Electoral Uncertainty

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  • Dalibor Eterovic

Abstract

How does uncertainty affect the process of policy reform? Our investigation identifies two types of uncertainties, one at the electoral level and another at the implementation level. When voters abstain from the electoral process, electoral uncertainty emerges. Implementation uncertainty arises whenever the politician is unable to guarantee a positive outcome from a policy implementation. Using a political agency model where two groups of voters delegate to a politician the decision to implement reform or maintain the status quo of the economy, we show that both implementation uncertainty and electoral uncertainty affect policy implementation in different ways. Implementation uncertainty might introduce disagreement between voters about the (ex-ante) convenience of implementing the project. On the other hand, with electoral uncertainty in the political system, political power may be detached from the group’s relative size, thus linking it to the citizens’ probability of being the decisive vote. In short, a highly disciplined minority group could gather enough political power to impose their preferred policies over a less disciplined majority group.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 546.

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Date of creation: Dec 2009
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Handle: RePEc:chb:bcchwp:546

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  1. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  2. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  3. Stephen Coate & Stephen Morris, . ""Policy Persistence ''," CARESS Working Papres 95-19, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  4. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-69, August.
  5. Aidt, Toke S. & Magris, Francesco, 2006. "Capital taxation and electoral accountability," European Journal of Political Economy, Elsevier, vol. 22(2), pages 277-291, June.
  6. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
  7. Torsten Persson & Gerard Roland & Guido Tabellini, . "Separation of Powers and Political Accountability," Working Papers 100, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. Aidt, T.S. & Dutta, J., 2004. "Strategic Consensus," Cambridge Working Papers in Economics 0403, Faculty of Economics, University of Cambridge.
  9. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  10. Dani Rodrik, 1989. "Policy Uncertainty and Private Investment in Developing Countries," NBER Working Papers 2999, National Bureau of Economic Research, Inc.
  11. Sanjay Jain & Sharun W. Mukand, 2003. "Redistributive Promises and the Adoption of Economic Reform," American Economic Review, American Economic Association, vol. 93(1), pages 256-264, March.
  12. Alberto Chong & Mauricio Olivera, 2008. "Does Compulsory Voting Help Equalize Incomes?," Economics and Politics, Wiley Blackwell, vol. 20(3), pages 391-415, November.
  13. Dani Rodrik, 1988. "Promises, Promises: Credible Policy Reform via Signaling," NBER Working Papers 2600, National Bureau of Economic Research, Inc.
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Cited by:
  1. Pablo Pincheira, 2010. "A Real Time Evaluation of the Central Bank of Chile GDP Growth Forecasts," Working Papers Central Bank of Chile 556, Central Bank of Chile.
  2. Rodrigo A. Alfaro & Rodrigo Cifuentes S., 2011. "Financial Stability, Monetary Policy, and Central Banking: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 1, pages 001-010 Central Bank of Chile.
  3. Aikman, David & Alessandri, Piergiorgio & Eklund, Bruno & Gai, Prasanna & Kapadia, Sujit & Martin, Elizabeth & Mora, Nada & Sterne, Gabriel & Willison, Matthew, 2009. "Funding liquidity risk in a quantitative model of systemic stability," Bank of England working papers 372, Bank of England.
  4. Pablo Pincheira & Hernán Rubio, 2010. "The Low Predictive Power of Simple Phillips Curves in Chile: A Real-Time Evaluation," Working Papers Central Bank of Chile 559, Central Bank of Chile.
  5. Alberto Naudon, 2010. "A Stochastic Assignment Model," Working Papers Central Bank of Chile 558, Central Bank of Chile.

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