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Policy Reform Under Electoral Uncertainty

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  • Dalibor Eterovic

Abstract

How does uncertainty affect the process of policy reform? Our investigation identifies two types of uncertainties, one at the electoral level and another at the implementation level. When voters abstain from the electoral process, electoral uncertainty emerges. Implementation uncertainty arises whenever the politician is unable to guarantee a positive outcome from a policy implementation. Using a political agency model where two groups of voters delegate to a politician the decision to implement reform or maintain the status quo of the economy, we show that both implementation uncertainty and electoral uncertainty affect policy implementation in different ways. Implementation uncertainty might introduce disagreement between voters about the (ex-ante) convenience of implementing the project. On the other hand, with electoral uncertainty in the political system, political power may be detached from the group’s relative size, thus linking it to the citizens’ probability of being the decisive vote. In short, a highly disciplined minority group could gather enough political power to impose their preferred policies over a less disciplined majority group.

Suggested Citation

  • Dalibor Eterovic, 2009. "Policy Reform Under Electoral Uncertainty," Working Papers Central Bank of Chile 546, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:546
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    References listed on IDEAS

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    5. Aidt, Toke S. & Magris, Francesco, 2006. "Capital taxation and electoral accountability," European Journal of Political Economy, Elsevier, vol. 22(2), pages 277-291, June.
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    8. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
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    10. Alberto Chong & Mauricio Olivera, 2008. "Does Compulsory Voting Help Equalize Incomes?," Economics and Politics, Wiley Blackwell, vol. 20(3), pages 391-415, November.
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    12. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
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    Cited by:

    1. David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2011. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Central Banking, Analysis, and Economic Policies Book Series,in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 12, pages 371-410 Central Bank of Chile.
    2. Rodrigo A. Alfaro & Rodrigo Cifuentes S., 2011. "Financial Stability, Monetary Policy, and Central Banking: An Overview," Central Banking, Analysis, and Economic Policies Book Series,in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 1, pages 001-010 Central Bank of Chile.
    3. Alberto Naudon, 2010. "A Stochastic Assignment Model," Working Papers Central Bank of Chile 558, Central Bank of Chile.
    4. Pablo Pincheira, 2010. "A Real Time Evaluation of the Central Bank of Chile GDP Growth Forecasts," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 37-73, January-J.
    5. Pablo Pincheira & Hernán Rubio, 2010. "The Low Predictive Power of Simple Phillips Curves in Chile: A Real-Time Evaluation," Working Papers Central Bank of Chile 559, Central Bank of Chile.

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