WWW.THESIS.DISLIB.INFO
FREE ELECTRONIC LIBRARY - Online materials, documents
 
<< HOME
CONTACTS



Pages:     | 1 | 2 || 4 |

«Jacopo Ponticelli Hans-Joachim Voth UPF ICREA/UPF and CREI Abstract: Does fiscal consolidation lead to social unrest? From the end of the Weimar ...»

-- [ Page 3 ] --

Romer and D.H. Romer 1989). Table 7 gives the results. If we use the same specification as in Table 1 (where we analysed the dataset spanning the period 1919we find similar results. Increasing expenditure lowers levels of unrest (column 1). The key variable driving the relationship between budget balance and instability is expenditure, not taxes (columns 2 and 3). The results are robust to including country and year fixed effects. In column 6, we investigate what happens when we use all forms of demonstrations, not just those associated with austerity. The coefficient is small, positive, and insignificant.

Table 7: EPCD data on unrest and austerity – 1980 to 1995 We can strengthen this result further by conducting a placebo test. In Table 8, we use a set of alternative types of unrest, and test if they can be predicted by the same explanatory variables as in Table 7. Labour disputes and unrest inspired by the state of the economy are more frequent when budgets are being cut, but the link is not strong or statistically significant. Peace rallies, and unrest as a result of education issues, show the opposite sign of the coefficient on austerity – times of rising expenditure also seem to bring these issues to the fore. Overall, the placebo test shows that only in the case of anti-austerity demonstrations is there a strong and significant link with changes in government expenditure.

Table 8: Placebo tests

Another way to strengthen the argument for a causal link is to examine budget measures in more detail. Some of the variation in the budget balance that we have used so far will simply reflect revenue and expenditure changes that are driven by the economic cycle. A simple way to deal with the problem is to use Alesina and Ardagna’s (2010) cyclically-adjusted primary budget balance. In table 9, col. (2), we report the results. The coefficient on budget changes is almost identical to the baseline specification. In col. (3), we use the IMF measure of policy-action based changes in the budget balance.13 This also produces a large, significant coefficient. The closer we get to measuring the impact of policy measures, the larger coefficient becomes. This strengthens the case for a causal link between unrest and austerity.

Since Devries et al. (2011) only report positive changes in the budget balance, data from IMF International Financial Statistics has been used to proxy for negative changes in the budget position in the IMF (2011) series, sign and size of the coefficient are not affected by this assumption.

Table 9: Unrest and alternative measures of budget balance

4. Robustness and Extensions In this section, we examine the sensitivity of our results. We first examine interaction effects with institutional factors. Do countries with more accountable governments weather the storms of austerity better?. We also examine if the effect may be driven by outliers, whether positive or negative changes in expenditure matter more for the effect on unrest, and whether the effect is constant in all parts of the distribution of the dependent variable.

Greater constraints on the executive and more democracy should on the hand reduce social conflict; on the other, there will be less repression by the authorities as Polity scores improve. Which effect dominates is not clear ex ante. Table 10 demonstrates that in countries with better institutions, the responsiveness of unrest to budget cuts is generally lower. Where constraints on the executive are minimal, the coefficient on expenditure changes is strongly negative – more spending buys a lot of social peace. In countries with Polity-2 scores above zero, the coefficient is about half in size, and less significant. As we limit the sample to ever more democratic countries, the size of the coefficient declines. For full democracies with a complete range of civil rights, the coefficient is still negative, but no longer significant.

The link with growth is less clear-cut. Higher output hardly dents the tendency to riot, demonstrate, assassinate, or strike in countries with low institutional quality.

The opposite is true on average in countries with scores above zero, and throughout the range of scores. The only exception is for full democracies, where the connection is weaker.

Table 10: Unrest and Institutional Quality (dependent variable: CHAOS) When does the link between budget cuts and unrest become particularly strong? We examine which part of the distribution of CHAOS shows a particularly large impact of austerity measures. To do so, we estimate quantile regressions, where we estimate the conditional median, and then the effect from the 5th to the 95th percentile of the distribution of CHAOS. Figure 5 shows the size of effects. The estimated coefficient is zero for much of the range. Only from the 80th percentile upwards – for countryyear observations with two or more incidents – is the effect visible. It then grows rapidly as estimated coefficient on expenditure changes (and on output growth) increases at higher and higher percentiles of the distribution of CHAOS. This suggests that unrest reacts particularly strongly to budget cuts and growth when unrest levels are already high.

0.00 0.00

-5.00

-10.00

–  –  –

Figure 5: Quantile Regression Plot, Expenditure and Growth (95% confidence intervals) How much does our main finding depend on the way in which we aggregate unrest?





CHAOS is the simple sum of incidents. Instead, we can use the weighted conflict index, as compiled by Banks (1994) and collaborators. It encompasses a larger set of domestic conflicts including, in addition to the components of CHAOS, purges, major government crisis and guerrilla warfare. It also assigns different, fixed weights to each individual component. The correlation coefficient of the variable with CHAOS is 0.75, significant at the 1% level. Another alternative is to use the first principal component of the five indicators that go into CHAOS. They all enter with a positive weighting. The first principal component explains 0.42 of the overall variance. The correlation coefficient with CHAOS is 0.98.

In Table 11, we use both wci and the first principal as dependent variables. Since the dependent variable is no longer a count variable, we use panel OLS, and obtain large and significant coefficients for expenditure changes and the budget position. As before, the same is not true for tax changes. The results are largely identical in terms of magnitude and significance with the baseline results in Table 3. We conclude that the way in which we measure unrest does not matter for our main finding.

Table 11: Unrest and Budget Cuts – Alternative Indicators of Unrest

An additional factor that can be questioned involves the use of the sum of unrest in the baseline results. The variable CHAOS is designed to capture the intensity of unrest, but it may be that it is influenced by a number of outliers with a high count of incidents. This would then make it easier to find significant effects. To examine this potential issue, we transform CHAOS into a simple dichotomous variable, with unrest coded as equal to unity if there are one or more incidents in a country in a single year.

In table 12, we re-estimate the baseline regression with panel logit using country- and year-fixed effects. We find the same results as before – expenditure cuts wreak havoc, tax increases do so only to a small extent and insignificantly. Overall, the budget balance matters for predicting unrest. We conclude that the role of outliers is not decisive in underpinning the relationship we established in baseline results.

Table 12: CHAOS as a dichotomous variable

Which part of the variation in the explanatory variables is responsible for the link between austerity and unrest? Do increases in expenditure do as much to reduce unrest as cuts increase them? In Table 13, we look at the issue. Column (1) shows the results for expenditure changes that are positive. The coefficient is negative, but not large, and not significant. In contrast, if expenditure changes are negative, they matter a great deal for unrest, driving up CHAOS by 0.19 incidents for each standard deviation of expenditure cuts. Next, we repeat the exercise for output changes.

Increases in output do much to cut unrest (col. 3), with a one standard deviation increase in output (3.77%) reducing CHAOS by 0.2 incidents on average. In contrast, declines do not set off major disruptions to the same degree. Overall, the results in table 12 confirm that the relevant identifying variation for expenditure changes comes from cuts; for output changes, it comes from positive growth, not recessions.

Table 13: Instability, Expenditure Cuts and Growth

Does greater media penetration increase or reduce unrest? Events in the Arab world in 2010 and early 2011 have led many to believe that greater media availability tightens the link between discontent and unrest. Data on media penetration is available in the Banks dataset. Four indicators are suitable – phone penetrations per capita, radio and television take-up, and the number of telegrams sent per capita. Radio and television are unidirectional forms of media, allowing typically government-controlled messages to be broadcast to the population. If anything, they should make it easier for authorities to reduce unrest. Phones and telegrams, on the other hand, allow peer-topeer communication. All else equal, the expected effect is that they facilitate organized protest.

To analyse the data, and to avoid confusing results with the growing availability of broadcasting and telecommunications over time, we rank penetration rate in our sample in each year. We do separately for each category, and then sum the ranks for each country-year. This gives a rank ordering of media penetration in year y.

We then divide the sample at the median. Table 14, col. (1) and (2) presents the results. We find that below-average media penetration is associated with a strong effect of expenditure cuts on unrest. Above the median, the effect disappears. There is also some evidence that the opposite pattern obtains with respect to economic conditions – the responsiveness to output changes increases as media penetration grows. In col. (3)-(6), we differentiate between uni-directional information media (infomedia) and peer-to-peer telecommunications (peermedia). While there is some attenuation of the effect of expenditure changes, it is milder than for all media. For both types, the effect of economic conditions changes from insignificant (in the part of the sample with below-median penetration) to highly significant (above the median). These results do not suggest that countries which, at any one point of time, have greater availability of mass media (relative to their neighbors) experience a higher level of unrest.14

Table 14: Media Penetration and Unrest

5. Conclusions The political economy literature on austerity suggests a paradox. There is no significant punishment at the polls for governments pursuing cut-backs (Alberto Alesina, Roberto Perotti, and Tavares 1998; Alberto Alesina, Carloni, and Lecce 2010), and no evidence of gains in response to budget expansion (Brender and A.

Drazen 2008). Also, the empirical evidence on the economic effects of budget cuts is mixed, with some studies finding an expansionary effect, and others, a contractionary one.15 Why, then, is fiscal consolidation often delayed, or only implemented halfheartedly?

The obvious alternative is to condition on the absolute level of, say, phone penetration. Most of the variation in phone penetration, however, simply reflects GDP growth and the declining cost of telephones relative to all other goods; no clear pattern emerges.

Alesina and Silvio Ardagna 2010; Alesina, Silvio Ardagna, et al. 2002; Pescatori, Leigh, and Guajardo 2011. An early example in the literature is Giavazzi and Pagano (1990).

This paper suggests one possible reason why austerity measures are often avoided – fear of instability and unrest.16 Expenditure cuts carry a significant risk of increasing the frequency of riots, anti-government demonstrations, general strikes, political assassinations, and attempts at revolutionary overthrow of the established order. While these are low-probability events in normal years, they become much more common as austerity measures are implemented. This may act as a potent brake on governments. In line with our results on expenditure, Woo (2003) showed that countries with higher levels of unrest are more indebted. High levels of instability show a particularly clear connection with fiscal consolidation.

We demonstrate that the general pattern of association between unrest and budget cuts holds in Europe for the period 1919-2009. It can be found in almost all sub-periods, and for all types of unrest. Strikingly, where we can trace the cause of each incident (during the period 1980-95), we can show that only austerity-inspired demonstrations respond to budget cuts in the time-series. Also, when we use recentlydeveloped data that allows clean identification of policy-driven changes in the budget balance, our results hold. Finally, the results are not affected by using alternative measures of unrest. Contrary to what might be expected, we also find no evidence that the spread of mass media facilitates the rise of mass protests.

Alesina, Carloni and Lecce (2010) also suggest that implementation of budget measures may be harder if the burden falls disproportionately on some groups. War-of-attrition models of consolidation are one alternative (Alberto Alesina and Drazen 1991).

References:

Acemoglu, Daron, and James Robinson. 2000. “Why did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective.” Quarterly Journal of Economics 115 (4): 1167-1199.

Alesina, A., and R. Perotti. 1996. “Income distribution, political instability, and investment.” European Economic Review 40 (6): 1203-1228.

Alesina, Alberto, Silvio Ardagna, Roberto Perotti, and F. Schiantarelli. 2002. “Fiscal policy, profits, and investment.” American Economic Review 92 (3): 571–589.

Alesina, Alberto, Dorian Carloni, and Giampaolo Lecce. 2010. “The electoral consequences of large fiscal adjustments.” Harvard University, mimeo.



Pages:     | 1 | 2 || 4 |


Similar works:

«Roberts at 10: Campaign Finance and Voting Rights: Easier to Donate, Harder to Vote By David H. Gans Introduction As we noted in our introductory chapter, the story of John Roberts’s first decade as Chief Justice is, at least superficially, a complicated one. But the story of his decisions in the area of campaign finance and voting isn’t. Since becoming Chief Justice in 2005, John Roberts and his conservative colleagues have transformed our democracy, moving the law dramatically to the...»

«Annual Report 2013 Letter from our Director Main Projects 2013/14 The Kronospan Scholarship Our Sponsors Letter from our Director April, 2014 I have had the honor of being part of the Kronospan Foundation since it was founded in 2011. From this time on, we have been tirelessly working on giving back to the communities in which Kronospan is local in and have engaged in various projects promoting social, economic and cultural development. While we first started out as a locally focused foundation...»

«July 31, 2015 The Honourable Monica Ell Minister Responsible for the Nunavut Development Corporation PO Box 2410 Iqaluit, NU X0A OHO Dear Minister: I am now in receipt of the Nunavut Development Corporation’s Letter of Expectation for 2015-16; thank you. I will point out that as of March 9th 2015 I assumed the Chairmanship of the Nunavut Development Corporation (NDC); I do want to recognize the excellent work and commitment of outgoing Chairperson Ms. Karetak-Lindell however. The Letter of...»

«Journal of Business Finance & Accounting, 37(9) & (10), 1281–1308, November/December 2010, 0306-686X doi: 10.1111/j.1468-5957.2010.02222.x Governance and Politics: Regulating Independence and Diversity in the Board Room ØYVIND BøHREN AND R. ØYSTEIN STRøM∗ Abstract: This paper analyzes the economic rationale for board regulation in place and for introducing new regulation in the future. We relate the value of the firm to the use of employee directors, board independence, directors with...»

«G20 Inclusive Business Workshop Africa 29-30 October 2013 – Nairobi, Kenya Programme Location: Hotel Hilton Nairobi 29 October 2013: Business-to-Business Workshop Moderator: Minu Hemmati, Senior Associate adelphi 9.00 – 9.30 Registration & Coffee 9.30 – 9.50 Welcome and introduction to the day Speaker: Susanne Dorasil, Head, Economic Policy & Financial Sector Division German Federal Ministry for Economic Cooperation and Development (BMZ) Context of the G20 Challenge on Inclusive Business...»

«EMERGENCY PREPAREDNESS CAPACITY BUILDERS Hazard Identification & Business Impact Analysis EMERGENCY PREPAREDNESS CAPACITY BUILDERS Hazard Identification & Business Impact Analysis Guideline  emergencyriskmanagement.com PO Box 484 Blackwood SA 5051 Australia Phone +61 0417 050 910 Table of Contents Introduction: Business Impact Analysis Step 1: Develop an entity profile Introduction: Business Impact Analysis How well informed are your emergency plans and business continuity arrangements? Are...»

«Federal Reserve Bank of New York Staff Reports Rethinking the Measurement of Household Inflation Expectations: Preliminary Findings Wilbert van der Klaauw Wändi Bruine de Bruin Giorgio Topa Simon Potter Michael Bryan Staff Report no. 359 December 2008 This paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in the paper are those of the authors and are not necessarily...»

«Munich Personal RePEc Archive Equilibrium Vengeance Daniel Friedman and Nirvikar Singh University of California, Santa Cruz June 2007 Online at http://mpra.ub.uni-muenchen.de/4321/ MPRA Paper No. 4321, posted 1. August 2007 Equilibrium Vengeance Daniel Friedman and Nirvikar Singh Economics Department University of California, Santa Cruz June 2007 Abstract The efficiency-enhancing role of the vengeance motive is illustrated in a simple social dilemma game in extensive form. Incorporating...»

«September Central Park Tennis Club The Baseline Newsletter When you think of Central Park Tennis Club, what comes to your mind as our brand? President I read an article the other day that intrigued me about our brand and the strategy we have to promote and grow our business (http://www.entrepreneur.com/ Randy Gerth article/77408). If you have a few minutes I encourage you to read it. The article does a good job of breaking down the questions to ask of CPTC to include what is our mission, what...»

«NBER WORKING PAPER SERIES EXPLAINING THE MAGNITUDE OF LIQUIDITY PREMIA: THE ROLES OF RETURN PREDICTABILITY, WEALTH SHOCKS AND STATE-DEPENDENT TRANSACTION COSTS Anthony W. Lynch Sinan Tan Working Paper 10994 http://www.nber.org/papers/w10994 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 2004 The authors would like to thank Viral Acharya, George Constantinides, Joel Hasbrouck, John Heaton, Lasse Pedersen, Hans Stoll and the participants of the NBER...»

«Estimating obsolescence risk from demand data a case study Willem van Jaarsveld* and Rommert Dekker Econometric institute, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands Report Econometric Institute EI 2010-03 January 18, 2010 Abstract In this paper obsolescence of service parts is analyzed in a practical environment. Based on the analysis, we propose a method that can be used to estimate the risk of obsolescence of service parts. The method distinguishes groups...»

«Customs Marine Centre, Neutral Bay, NSW Customs Marine Centre, Neutral Bay Source: Environment Resources Management, 2014 Finance ID DFD-61019 Number Commonwealth 105249 Heritage List (CHL) Place ID Number Current Status The Customs Marine Depot is included on the Commonwealth Heritage List (including CHL (CHL) (Place ID: 105249). Place ID Number) Ownership The Customs Marine Depot at Neutral Bay is managed by the Department of Finance on behalf of the Commonwealth and is currently leased to...»





 
<<  HOME   |    CONTACTS
2017 www.thesis.dislib.info - Online materials, documents

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.