Public Finance under Political Instability and Debt Conditionality

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Public Finance under Political Instability and Debt Conditionality

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Frank Bohn ()

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Frank Bohn

Abstract

This paper presents an intertemporal political economy model of sustainable public finance relevant for many developing or transition countries: instability is inherent to the political structure and foreign debt is a crucial source of government revenue. The main results are: First, political instability causes myopic government behaviour as it induces higher debt levels, but it does not lead to an increase in inflation taxation as in Cukierman, et al. (1992). Second, debt conditionality aiming at monetary stability is particularly effective in heterogeneous societies with unstable governments. Third, it is shown that IMF policies requiring debtor countries to achieve both monetary and fiscal stability are suboptimal.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 540.

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Date of creation: 10 Jun 2002
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Handle: RePEc:esx:essedp:540

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Paper
- Bohn, Frank, 2003. "Public Finance under Political Instability and Debt Conditionality," Royal Economic Society Annual Conference 2003 25, Royal Economic Society. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-07-04 (All new papers)
NEP-LAM-2002-07-04 (Central & South America)
NEP-PUB-2002-07-04 (Public Finance)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Devereux, Michael B. & Wen, Jean-Francois, 1998. "Political instability, capital taxation, and growth," European Economic Review, Elsevier, vol. 42(9), pages 1635-1651, November. [Downloadable!] (restricted)
Alesina, Alberto & Tabellini, Guido, 1989. "External debt, capital flight and political risk," Journal of International Economics, Elsevier, vol. 27(3-4), pages 199-220, November. [Downloadable!] (restricted)
Other versions:
- Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," NBER Working Papers 2610, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Alesina, Alberto F & Tabellini, Guido, 1988. "External Debt, Capital Flight and Political Risk," CEPR Discussion Papers 253, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," UCLA Economics Working Papers 538, UCLA Department of Economics. [Downloadable!]
Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-55, June. [Downloadable!] (restricted)
Other versions:
- Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Christiano, Lawrence J, 1987. "Cagan's Model of Hyperinflation under Rational Expectations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 33-49, February. [Downloadable!] (restricted)
Cavalcanti Ferreira, Pedro, 1999. "Inflationary financing of public investment and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 539-563, February. [Downloadable!] (restricted)
Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March. [Downloadable!] (restricted)
Schultz, Christian, 2002. "Policy biases with voters' uncertainty about the economy and the government," European Economic Review, Elsevier, vol. 46(3), pages 487-506, March. [Downloadable!] (restricted)
Morris Goldstein, 2001. "IMF Structural Conditionality: How Much is Too Much?," Peterson Institute Working Paper Series WP01-4, Peterson Institute for International Economics. [Downloadable!]
Roemer, J.E., 1992. "The Emergence of Party Ideology when Voter Are Uncertain about How the Economy Works," Papers 396, California Davis - Institute of Governmental Affairs.
Oliver Hart & John Moore, 1998. "Default And Renegotiation: A Dynamic Model Of Debt," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 1-41, February. [Downloadable!] (restricted)
Other versions:
- Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," Harvard Institute of Economic Research Working Papers 1792, Harvard - Institute of Economic Research.
- Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," NBER Working Papers 5907, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," STICERD - Theoretical Economics Paper Series 321, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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Sargent, Thomas J, 1977. "The Demand for Money During Hyperinflations under Rational Expectations: I," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(1), pages 59-82, February. [Downloadable!] (restricted)
Other versions:
- Thomas J. Sargent, 1976. "The demand for money during hyperinflations under rational expectations: II," Working Papers 60, Federal Reserve Bank of Minneapolis. [Downloadable!]
- Salemi, Michael K & Sargent, Thomas J, 1979. "The Demand for Money during Hyperinflation under Rational Expectations: II," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 741-58, October. [Downloadable!] (restricted)
Schultz, Christian, 1999. "Monetary Policy, Delegation and Polarisation," Economic Journal, Royal Economic Society, vol. 109(455), pages 164-78, April. [Downloadable!] (restricted)
Other versions:
- Christian Schultz, 1998. "Monetary Policy, Delegation and Polarization," Discussion Papers 98-17, University of Copenhagen. Department of Economics.
- Christian Schultz, . "Monetary Policy, Delegation and Polarization," EPRU Working Paper Series 98-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
Aghion, P. & Bolton, P., 1990. "Government Domestic Debt And The Risk Of Default: A Political-Economic Model Of The Strategic Role Of Debt," DELTA Working Papers 90-11, DELTA (Ecole normale supérieure).
Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Frank Bohn, 2004. "The Trade-off between Monetary and Fiscal Solidity - International Lenders and Political Instability," Working Papers 200408, School Of Economics, University College Dublin. [Downloadable!]

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