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Democracy: A Determinant Factor in Reducing Inflation

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  • Mohamed Fenira

    (University of Economic Sciences and Management of Nabeul, Tunisia)

Abstract

The economic literature has often explained the causes of macroeconomic instability by purely economic arguments. Monetary and fiscal policies have been considered as the exclusive tools for ensuring macroeconomic stability and reducing inflation. The purpose of this paper is to extend the range of explanatory factors in explaining macroeconomic pathologies and to demonstrate that democracy is an important instrument in reducing inflation. The paper firstly provides a critical analysis to the median voter theory, which claims the existence of a positive relationship between democracy and inflation, by relating the Tunisian case study and then presents a literature review that sustains our point of view. The paper finally develops an empirical study that measures the impact of democracy on inflation under a heterogeneous sample of countries and a sample consisting only of developing countries, for the period 1996-2012. The estimation results show that democracy is statistically significant in reducing inflation in both samples.

Suggested Citation

  • Mohamed Fenira, 2014. "Democracy: A Determinant Factor in Reducing Inflation," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 363-375.
  • Handle: RePEc:eco:journ1:2014-02-13
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    References listed on IDEAS

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    1. Rodrik, Dani, 1999. "Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses," Journal of Economic Growth, Springer, vol. 4(4), pages 385-412, December.
    2. Robert Lavigne, 2006. "The Institutional and Political Determinants of Fiscal Adjustment," Staff Working Papers 06-1, Bank of Canada.
    3. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
    4. Arvind Subramanian & Shanker Satyanath, 2008. "The Political Economy of Nominal Macroeconomic Pathologies," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(1), pages 3-37, March.
    5. Berg, Andrew & Sachs, Jeffrey, 1988. "The debt crisis structural explanations of country performance," Journal of Development Economics, Elsevier, vol. 29(3), pages 271-306, November.
    6. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    7. Benedict J. Clements & Sanjeev Gupta & Erwin H Tiongson & Emanuele Baldacci, 2003. "What Sustains Fiscal Consolidations in Emerging Market Countries?," IMF Working Papers 03/224, International Monetary Fund.
    8. Jeffrey D. Sachs, 1989. "Social Conflict and Populist Policies in Latin America," NBER Working Papers 2897, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Nyoni, Thabani, 2019. "Modeling and forecasting inflation in Burundi using ARIMA models," MPRA Paper 92444, University Library of Munich, Germany.
    2. Nyoni, Thabani, 2019. "Modeling and forecasting inflation in Lesotho using Box-Jenkins ARIMA models," MPRA Paper 92428, University Library of Munich, Germany.
    3. Nyoni, Thabani & Mutongi, Chipo, 2019. "Modeling and forecasting inflation in The Gambia: an ARMA approach," MPRA Paper 93980, University Library of Munich, Germany.
    4. Nyoni, Thabani, 2019. "Understanding inflation patterns in Thailand: An ARMA approach," MPRA Paper 92451, University Library of Munich, Germany.
    5. Hapanyengwi, Hamadziripi Oscar & Mutongi, Chipo & Nyoni, Thabani, 2019. "Understanding Inflation Dynamics in the kingdom of Eswantini: A Univariate Approach," MPRA Paper 94560, University Library of Munich, Germany, revised 18 Jun 2019.
    6. Nyoni, Thabani, 2019. "Inflation dynamics in Jamaica: Evidence from the ARMA methodology," MPRA Paper 92449, University Library of Munich, Germany.
    7. Nyoni, Thabani, 2019. "Understanding inflation dynamics in the United States of America (USA): A univariate approach," MPRA Paper 92460, University Library of Munich, Germany.
    8. Nyoni, Thabani, 2019. "Predicting inflation in Senegal: An ARMA approach," MPRA Paper 92431, University Library of Munich, Germany.
    9. Nyoni, Thabani, 2019. "Modeling and forecasting inflation in Tanzania using ARIMA models," MPRA Paper 92458, University Library of Munich, Germany.
    10. Nyoni, Thabani, 2019. "Demystifying inflation dynamics in Rwanda: an ARMA approach," MPRA Paper 93982, University Library of Munich, Germany.
    11. Nyoni, Thabani, 2019. "Inflation dynamics in Niger unlocked: An ARMA approach," MPRA Paper 92450, University Library of Munich, Germany.
    12. Nyoni, Thabani & Mutongi, Chipo & Nyoni, Munyaradzi & Hamadziripi, Oscar Hapanyengwi, 2019. "Understanding inflation dynamics in the Kingdom of Eswatini: a univariate approach," MPRA Paper 93979, University Library of Munich, Germany.
    13. Nyoni, Thabani, 2019. "Uncovering inflation dynamics in Morocco: An ARIMA approach," MPRA Paper 92455, University Library of Munich, Germany.
    14. Mohamed Fenira, 2015. "Trade Openness and Growth in Developing Countries: An Analysis of the Relationship after Comparing Trade Indicators," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(3), pages 468-482, March.
    15. Nyoni, Thabani, 2019. "Predicting inflation in Sri Lanka using ARMA models," MPRA Paper 92432, University Library of Munich, Germany.
    16. Nyoni, Thabani, 2019. "Understanding inflation trends in Finland: A univariate approach," MPRA Paper 92448, University Library of Munich, Germany.
    17. Nyoni, Thabani, 2019. "Predicting inflation in the Kingdom of Bahrain using ARIMA models," MPRA Paper 92452, University Library of Munich, Germany.
    18. Nyoni, Thabani, 2019. "Understanding inflation trends in Israel: A univariate approach," MPRA Paper 92427, University Library of Munich, Germany.
    19. Nyoni, Thabani, 2019. "Forecasting inflation in Burkina Faso using ARMA models," MPRA Paper 92443, University Library of Munich, Germany.
    20. Nyoni, Thabani, 2019. "Modeling and forecasting inflation in Philippines using ARIMA models," MPRA Paper 92429, University Library of Munich, Germany.

    More about this item

    Keywords

    Democracy; Median voter theory; Kaufmann; Kraay and Mastruzzi (2012) democracy index; inflation; macroeconomic stabilization;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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