The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments
Incumbents are more likely to be re-elected if they have a comparative advantage in the eyes of voters on some central issue. This paper argues that incumbents have an incentive to avoid reforms that reduce the government's role in deciding these issues, in order to increase their chances of re-election. This point is illustrated in the context of the choice of an exchange-rate regime in an economy characterized by an "inflation bias". A flexible exchange rate allows the government to use monetary policy as a stabilization tool, while fixed exchange rates remove the "inflation bias" of the economy. On the one hand, it is shown that a more inflation-averse government may refrain from choosing fixed exchange rates in order to capitalize on the "inflationary" reputation of its opponent. This incentive is contrasted with the opposite incentive to "tie the hands" of the future government should be incumbent be defeated. On the other hand, it is shown that electoral considerations may reinforce the incentive of the more "inflationary" government to "tie its own hands" with fixed exchange rates.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Mar 1993|
|Date of revision:|
|Contact details of provider:|| Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP|
When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0125. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.