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Democracy, Populism and Hyperinflation[s]: Evidence from Latin America

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  • Bittencourt, Manoel

Abstract

We test for the populist view of inflation in Latin America between 1970 and 2007. The empirical results - based on the relatively novel panel time-series data and analysis - confirm the theoretical prediction that recently elected governments coming into power after periods of political dictatorship, and which are faced with high economic inequality, end up generating high inflation and macroeconomic instability. All in all, we suggest that the implementation of democracy as such requires not only the 'right political context' - or an appropriately constrained executive - to work well, but it also must come with certain economic institutions (e.g. central bank independence and a credible and responsible fiscal authority), institutions which would raise the costs of pursuing populist policies in the first place. --

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Hannover 2010 with number 47.

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Date of creation: 2010
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Handle: RePEc:zbw:gdec10:47

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Keywords: Polarisation; populism; hyperinflation; Latin America.;

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  1. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
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  7. Desai, Raj M. & Olofsgard, Anders & Yousef, Tarik M., 2005. "Inflation and inequality: does political structure matter?," Economics Letters, Elsevier, Elsevier, vol. 87(1), pages 41-46, April.
  8. Pushan Dutt & Devashish Mitra, 2008. "Inequality and the Instability of Polity and Policy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(531), pages 1285-1314, 08.
  9. Francisco José Veiga, 2000. "Delays of Inflation Stabilizations," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 12(3), pages 275-295, November.
  10. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, Elsevier, vol. 140(1), pages 97-130, September.
  11. Aisen, Ari & Veiga, Francisco Jose, 2006. "Does Political Instability Lead to Higher Inflation? A Panel Data Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(5), pages 1379-1389, August.
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