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Political Economy of Macroeconomic Policymaking: Economic Crises and Technocratic Governance

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  • Stephen B. Kaplan

    (Department of Economics/Institute for International Economic Policy, George Washington University)

Abstract

How do economic crisis affect national-level policy choices? Are technocratic advisors more likely to enter government during periods of severe economic volatility? If so, how does such governance affect economic policymaking and social responsiveness? In this paper, I evaluate the role of technocratic advisors on Latin American reforms. Building on the political psychology literature, I argue that collective crisis memories in technocratic communities have a disproportionate influence on elite-level policymaking. Employing an originally constructed data index, the Index of Economic Advisors, I conduct a large-N cross-national test from 1960-2011 to examine whether economic crisis lead to more technocrats serving in presidential cabinets, and find that crises often professionalize presidential teams. The statistical results also show that technocrats' governance approaches are conditioned by the nature of past shocks. An inflationary crisis history makes budget austerity more likely. Deflationary spirals have been far less common in Latin America, but comparative case study evidence of Argentina in the early 2000s shows that these shocks often catalyze sustained fiscal expansion. This investigation has significant implications for the study of democrazy and development. Technocratic governance might help provide economic stability following crises, but an enduring political focus on past crises can limit policy flexibility and social responsiveness.

Suggested Citation

  • Stephen B. Kaplan, 2014. "Political Economy of Macroeconomic Policymaking: Economic Crises and Technocratic Governance," Working Papers 2014-18, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2014-18
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    References listed on IDEAS

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    More about this item

    Keywords

    Political Economy; Development; Austerity; Latin America; Economic Crises; Political Psychology; Technocrats; Fiscal Policy; Macroeconomic Policy;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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