From Spendthrifts to Misers: Globalization and Opportunistic Politicians

This paper seeks to explain a fascinating puzzle: why have many of Latin Americas chief executives maintained macroeconomic discipline in the lead-up to elections? Political-economic theory uniformly assumes that politicians operating in settings like Latin America are oppor-tunistic and institutionally weakly constrained, and will use whatever means necessary to secure an electoral victory. Given weak legislatures, less than fully autonomous central banks, and a constrained media, the prediction is that leaders will employ macroeconomic policy as a electoral weapon. They are expected to hit the economys gas pedal before elections, calculating that an accelerated economy-even at the cost of higher price instability- will yield more votes. But Latin American economies do not shift into a high-growth, high-ination phase before elections. In fact, I show that politicians often take the opposite actions from the ones this theory would predict: in recent decades, before elections they hit the brakes. My large-N test of 17 Latin American countries (observed between 1961 and 2006) \u85 nds that after the 1980s Latin Ameri-can economies did not undergo political business cycles. What explains this surprising fact? I argue that two key structural shocksthe regions 1990 debt restructurings and its past struggles with hyperinationaccount for this unexpected change in political behavior. DRAFT- Please do not cite or circulate without authors permission