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The Electoral Consequences of the Washington Consensus

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  • Eduardo Lora

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  • Mauricio Olivera

Abstract

This paper assesses how electoral outcomes in both presidential and legislative elections in Latin America have been affected by the adoption of economic policies that seek to improve macroeconomic stability and facilitate the functioning of markets. The database includes 17 Latin American countries for the period 1985-2002, and a total of 66 presidential and 81 legislative elections. The set of testable hypotheses is derived from a review of the literature and is structured around the hypothesis of economic voting. It is found that (i) the incumbent’s party is rewarded for reductions in the rate of inflation and, to a lesser extent, for increases in the rate of growth; (ii) the more fragmented or ideologically polarized the party system, the higher the electoral rewards of reducing the inflation rate or raising the economic growth rate; (iii) voters care not only about economic outcomes, but also about some of the policies adopted: while the electorate seems blind to macroeconomic policies such as fiscal or exchange-rate policies, it is averse to pro-market policies, irrespective of their effects on growth or inflation; and (iv) the electorate is more tolerant of pro-market reforms when the incumbent’s party has a more market-oriented ideology. These results suggest that reforming parties have paid a hefty price for the adoption of pro-market reforms, except when such reforms have been undertaken in conjunction with stabilization policies in high-inflation economies.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4405.

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Date of creation: May 2005
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Handle: RePEc:idb:wpaper:4405

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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  2. Rafael Di Tella & Robert MacCulloch, 2004. "Why doesn't Capitalism flow to Poor Countries?," Others 0404005, EconWPA.
  3. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, vol. 88(1), pages 180-97, March.
  4. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," IDB Publications 39858, Inter-American Development Bank.
  5. Torsten Persson & Gerard Roland & Guido Tabellini, . "Separation of Powers and Political Accountability," Working Papers 100, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Thaler, Richard H, et al, 1997. "The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 647-61, May.
  7. Eduardo Lora & Ugo Panizza & Myriam Quispe-Agnoli, 2004. "Reform fatigue: symptoms, reasons, and implications," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 1 - 28.
  8. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  9. Sergio Pernice & Federico Sturzenegger, 2004. "Culture and social resistance to reform: a theory about the endogeneity of public beliefs with an application to the case of Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 275, Universidad del CEMA.
  10. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  11. Wolfers, Justin, 2002. "Are Voters Rational? Evidence from Gubernatorial Elections," Research Papers 1730, Stanford University, Graduate School of Business.
  12. Londregan, John & Alesina, Alberto, 1993. "A Model of the Political Economy of the United States," Scholarly Articles 4552529, Harvard University Department of Economics.
  13. 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.
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Cited by:
  1. Eduardo Lora, 2008. "El Futuro de los Pactos Fiscales en América Latina," IDB Publications 7653, Inter-American Development Bank.
  2. Carro Fernandez, Martha, 2007. "Welcoming Foreign Direct Investment? A Political Economy Approach to FDI Policies in Argentina and Brazil," MPRA Paper 47252, University Library of Munich, Germany.
  3. Di Tella, Rafael & Galiani, Sebastian & Schargrodsky, Ernesto, 2012. "Reality versus propaganda in the formation of beliefs about privatization," Journal of Public Economics, Elsevier, vol. 96(5), pages 553-567.
  4. Carol Graham, 2008. "Measuring Quality of Life in Latin America: What Happiness Research Can (and Cannot) Contribute," Research Department Publications 4598, Inter-American Development Bank, Research Department.
  5. Jeffrey A. Frankel, 2005. "Contractionary Currency Crashes in Developing Countries," NBER Working Papers 11508, National Bureau of Economic Research, Inc.
  6. Bonnet, Céline & Dubois, Pierre & Martimort, David & Straub, Stéphane, 2009. "Empirical Evidence on Satisfaction with Privatization in Latin America: Welfare Effects and Beliefs," IDEI Working Papers 566, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Bussolo, Maurizio & De Hoyos, Rafael E. & Medvedev, Denis, 2008. "Is the developing world catching up ? global convergence and national rising dispersion," Policy Research Working Paper Series 4733, The World Bank.
  8. Rafael Di Tella & Juan Dubra & Robert MacCulloch, 2008. "A Resource Belief-Curse? Oil and Individualism," NBER Working Papers 14556, National Bureau of Economic Research, Inc.

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