IDEAS home Printed from https://ideas.repec.org/a/bla/ecopol/v6y1994i3p257-276.html
   My bibliography  Save this article

Distributional Conflict, Financial Adaptation And Delayed Stabilizations

Author

Listed:
  • Raúl Labán
  • Federico Sturzenegger

Abstract

In this paper we model delayed stabilizations as the rational outcome of a distributional conflict between two risk averse groups in the presence of post‐stabilization payoff uncertainty and costly policy reversion. We show that in the initial stages of an extreme inflation episode there is a bias towards maintaining the current inefficient (but certain) revenue collection system which prevents the adoption of the required fiscal adjustment program. The access by those with higher income to a financial adaptation technology increases the average rate of inflation through time for any given government deficit, raising the welfare costs of not reaching an agreement and increasingly redistributing the burden of inflation to those with lower income. This process, if strong enough, will eventually trigger the necessary political support for the required fiscal adjustment. Delayed stabilizations will, nevertheless, induce the poor into accepting conditions that they did not find optimal before.

Suggested Citation

  • Raúl Labán & Federico Sturzenegger, 1994. "Distributional Conflict, Financial Adaptation And Delayed Stabilizations," Economics and Politics, Wiley Blackwell, vol. 6(3), pages 257-276, November.
    • Handle: RePEc:bla:ecopol:v:6:y:1994:i:3:p:257-276
    DOI: 10.1111/j.1468-0343.1994.tb00100.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1468-0343.1994.tb00100.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1468-0343.1994.tb00100.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism in Latin America," NBER Books, National Bureau of Economic Research, Inc, number dorn91-1, October.
    2. Rudiger Dornbusch, 1991. "Credibility and Stabilization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 837-850.
    3. Velasco, A., 1992. "A Model of Fiscal Deficits and Delayed Fiscal Reforms," Working Papers 92-06, C.V. Starr Center for Applied Economics, New York University.
    4. Alberto Alesina & Alex Cukierman, 1990. "The Politics of Ambiguity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(4), pages 829-850.
    5. Eliana Cardoso, 1992. "Inflation and Poverty," NBER Working Papers 4006, National Bureau of Economic Research, Inc.
    6. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    7. Rodrik, Dani, 1993. "The Positive Economics of Policy Reform," American Economic Review, American Economic Association, vol. 83(2), pages 356-361, May.
    8. Rudiger Dornbusch & Ferico Sturzenegger & Holger Wolf, 1990. "Extreme Inflation: Dynamics and Stabilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 1-84.
    9. Federico A. Sturzenegger, 1992. "Inflation and Social Welfare in a Model with Endogenous Financial Adaptation," UCLA Economics Working Papers 658, UCLA Department of Economics.
    10. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 7-13, National Bureau of Economic Research, Inc.
    11. Mariano Tommasi, 1992. "The Welfare Effects of Inflation, The Consequences of Price Instability on Search Markets," UCLA Economics Working Papers 655, UCLA Department of Economics.
    12. Rudiger Dornbusch & Sebastian Edwards, 1991. "Introduction to "The Macroeconomics of Populism in Latin America"," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 1-4, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gilles Saint‐Paul & Davide Ticchi & Andrea Vindigni, 2021. "Engineering crises: Favoritism and strategic fiscal indiscipline," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 583-610, November.
    2. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    3. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    4. Fausto Panunzi & Nicola Pavoni & Guido Tabellini, 2020. "Economic Shocks and Populism: The Political Implications of Reference-Dependent Preferences," CESifo Working Paper Series 8539, CESifo.
    5. Giovanni B. Pittaluga & Elena Seghezza & Pierluigi Morelli, 2021. "The political economy of hyperinflation in Venezuela," Public Choice, Springer, vol. 186(3), pages 337-350, March.
    6. Guido Merzoni & Federico Trombetta, 2016. "The cost of doing the right thing. A model of populism with rent-seeking politicians and the economic crisis," DISEIS - Quaderni del Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo dis1602, Università Cattolica del Sacro Cuore, Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo (DISEIS).
    7. Mejia, Daniel & Posada, Carlos-Esteban, 2007. "Populist policies in the transition to democracy," European Journal of Political Economy, Elsevier, vol. 23(4), pages 932-953, December.
    8. Emilio Ocampo, 2021. "A Brief History of Hyperinflation in Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 787, Universidad del CEMA.
    9. Anand, Kartik & Gai, Prasanna & König, Philipp Johann, 2020. "Leaping into the dark: A theory of policy gambles," Discussion Papers 07/2020, Deutsche Bundesbank.
    10. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    11. Manuel Funke & Moritz Schularick & Christoph Trebesch, 2023. "Populist Leaders and the Economy," American Economic Review, American Economic Association, vol. 113(12), pages 3249-3288, December.
    12. Pablo García S. & Camilo Pérez N., 2017. "Desigualdad, inflación, ciclos y crisis en Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 44(2 Year 20), pages 185-221, December.
    13. Emilio Ocampo, 2020. "What Kind of Populism is Peronism?," CEMA Working Papers: Serie Documentos de Trabajo. 732, Universidad del CEMA.
    14. repec:spo:wpmain:info:hdl:2441/1divsbu8t888r9vqektjbmlqoa is not listed on IDEAS
    15. Feliz, Raul Anibal & Welch, John H., 1997. "Cointegration and tests of a classical model of inflation in Argentina, Bolivia, Brazil, Mexico, and Peru," Journal of Development Economics, Elsevier, vol. 52(1), pages 189-219, February.
    16. George Alogoskoufis, 2024. "Before and After the Political Transition of 1974 Institutions, Politics, and the Economy of Post-War Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 198, Hellenic Observatory, LSE.
    17. Alesina, Alberto & Angeletos, George-Marios, 2005. "Corruption, inequality, and fairness," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1227-1244, October.
    18. Georgy Egorov & Konstantin Sonin, 2013. "A Political Theory of Populism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 771-805.
    19. Jeffrey A. Frankel, 1993. "Monetary regime choices for a semi-open country," Pacific Basin Working Paper Series 93-02, Federal Reserve Bank of San Francisco.
    20. Joaquin Vial, 2018. "Globalisation and the Chilean economy," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and deglobalisation, volume 100, pages 83-100, Bank for International Settlements.
    21. Benczes, István & Szijártó, Norbert, 2024. "Államháztartási kiadások alakulása populista kormányok alatt Kelet-Közép-Európában [Public expenditure under populist governments in Central and Eastern Europe]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1001-1031.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecopol:v:6:y:1994:i:3:p:257-276. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.