Mark Hallerberg

Hertie School

The Political Economy of Taxation in Latin America - edited by Gustavo Flores-Macías June 2019

During the 2008–09 financial crisis, many states were forced to nationalize faltering private banks. But also public banks ran into trouble and market actors continue to worry about their stability and crisis resilience. During the crisis, German public Landesbanken and Spanish public Cajas were hit hard. Yet, German public Sparkassen emerged stren...

Recent events in international finance illustrate the close connection between the viability of a country's major private financial institutions and the sustainability of its sovereign debt. We explore the precise nature of this connection and the ways in which it shapes investors’ expectations of sovereign creditworthiness. We consider how investo...

Some European Union member states’ financial regulators choose to make some of the data they routinely collect on individual banks publicly available. Others treat this data as confidential. What explains this difference? This paper considers the possible effects of crises, path-dependent legal institutions, and the design of deposit insurance sche...

The Measurement of Real-Time Perceptions of Financial Stress: Implications for Political Science - Christopher Gandrud, Mark Hallerberg

We analyze when economists become top-level “economic policy-makers,” focusing on financial crises and the partisanship of a country’s leader. We present a new dataset of the educational and occupational background of 1200 political leaders, finance ministers, and central bank governors from 40 developed democracies from 1973 to 2010. We find that...

This contribution examines and explains the role of national parliaments in the European Semester process. It builds on original survey-based evidence and traces whether national parliaments discuss and vote on Stability/Convergence and on National Reform Programmes; how their involvement changed over time; and what might condition national varieti...

In the European Union, the creation of public debt statistics starts with member state governments’ reports. The EU’s statistical agency – Eurostat – then revises. How do these actors’ incentives shape reported numbers? Governments have incentives to take a more favourable view of often ambiguous accounting rules than Eurostat. Lower debt improves...

This paper examines whether elections, which are generally held on fixed dates, and banking crises explain the timing of tax reforms and the allocation of the additional tax burden. Using an original fine-grained data set of tax reforms, the paper finds support for the role of these two sources of variation. In particular, the probability of reform...

The Stability and Growth Pact clearly failed to prevent the euro crisis. We contend that the failure was due largely to the ability of the Member States to undermine the Pact’s operation. The European Commission served as a “watchdog” to monitor fiscal performance. The Member States themselves, however, collectively had the ability to change the co...

This article demonstrates the important role that the European statistical agency – Eurostat – plays in shaping tools for responding to banking crises. From 2009, Eurostat used its position as the interpreter of member state budget statistical rules to implement increasingly stringent rules for how financial crisis responses would affect public bud...

When studying the politics of taxation it is important to evaluate changes to the tax code in terms of rates, bases, and exemptions instead of just revenues. With that objective in mind, we have compiled a more comprehensive database of tax reforms for Latin America. In this article, we present a description of the database as well as the stylized...

Do crises really lead to more institutional reforms? This paper explores the con- nection between nancial crises and one type of reform frequently advocated during the recent global nancial crisis, namely, scal institutional reforms. Some authors expect that crises lead to reforms, but we demonstrate that the relationship is not so straightforward....

Political budget cycles (PBCs), namely the manipulation of taxation or government spending close to elections, are an enduring topic in the study of economic policy-making. While the literature explains their occurrence based on information asymmetries between incumbents and voters, we argue that a source of variation in the extent of PBCs is, via...

How do elections affect the costliness of financial crises to taxpayers? Previous research contends that more electorally competitive countries choose policies that are less costly to taxpayers. In this paper, we update Keefer’s seminal 2007 article published in International Organization with revised data. The original article found that more elec...

Does banking union exacerbate the European Union's democratic deficit? Using Scharpf's ‘input’ and ‘output’ legitimacy concepts, it is argued in this article that its design does worsen the democratic deficit. There are good reasons to limit ‘input legitimacy’ for politically independent institutions. ‘Output legitimacy’ is then even more relevant....

We examine government decisions to support troubled banks. Our contribution is the examination of how federalism can affect decisions to classify banks as systemically important. Whether a bank is viewed by politicians as 'systemically important' varies based on how its failure would affect supporters of the government. How a federation is designed...

How do markets discipline governments? The most direct way is through sovereign borrowing costs. Investors charge more interest when they anticipate that the risks of default increase. Where markets get their information from and how they use this information, however, is not well documented. In this paper, we argue that markets consider more than...

This paper examines whether elections, which are generally held on fixed dates, and banking crises explain the timing of tax reforms and the allocation of the additional tax burden. Using an original fine-grained dataset of tax reforms, the paper finds support for the role of these two sources of variation. In particular, the probability of reform...

Much of our understanding about possible links between systemic financial crises and political institutions -- such as democracy, electoral accountability, and checks and balances -- is based on empirical work with data that does not include the recent 2007/09 financial crisis. This is an important problem as countries affected by the recent crisis...

How do elections affect the costliness of financial crises to taxpayers? Previous research contends that more electorally competitive countries choose policies less costly to taxpayers. In this paper we update Keefer’s seminal 2007 article published in International Organization with new data. The original article found that more electorally compet...

The literature on taxes and public finance generally focuses on revenues, an easily observable and generally available variable, as the observable measure of tax policy. Still, revenues depend on many determinants other than the political will and policy objectives of the government. It is therefore important, when studying the politics of taxation...

Many countries have used public asset management companies (AMCs, or “bad banks”) as part of strategies to restore their banking systems after crises. This includes the United States in the late 1980s, countries in East Asia and Latin America in the 1990s, and countries in Europe and Africa more recently. AMC structures, however, vary widely. Using...

When do governments appoint “technically competent” economic policy-makers? Our model focuses on why governments would normally want a specialist in economics over a generalist with more political skills (the demand side) and when such leaders are available (the supply side). Our analysis of data for 1200 economic policy-makers from EU and OECD dem...

This article compares the ‘competence’ of the principal economic policymakers in 27 European Union (EU) member states with those in other advanced economies. Following earlier work on ‘specialists’ in government, we consider whether prime ministers, finance ministers and central bank governors have an education in economics or a related field like...

This paper reviews developments in Europe from the eve of the introduction of the euro through the euro crisis. The paper begins with a discussion of the tax reform agenda. Although there are differences in the literature on specific taxes, and while European countries vary in their preferred levels of taxation, there is general consensus on the sh...

Purpose The purpose of this paper is to review concepts and measurements related to financial globalization such as financial openness, financial integration, monetary interdependence, and the mobility and movement of capital. Design/methodology/approach This paper surveys the theoretical and empirical literature on monetary interdependence and fi...

Purpose The latest generation of research into macroeconomic policy has turned from more technical aspects of optimal control and expectations formation to consideration of the policymaking institutions themselves. More and more countries have moved towards greater degrees of central bank independence, including many developing economies as well th...

This paper explores the relationship between a country's political regime type and its de facto exchange rate fixity. It argues that more democratic regimes should be associated with less de facto fixity because the median voter is likely to be a domestically oriented producer with a monetary preference for domestic policy autonomy, requiring more...

Based upon existing fiscal federal arrangements, this article considers the options facing the European Union to reform its own framework. There are two plausible ways the EU can stabilize the finances of its member states over the longer term. The first is to take steps that complement the market discipline of individual member states. For market...

The recent financial crisis has initiated pressures for not only policy reform but also fundamental institutional fiscal reforms. This paper explores the connection between economic crises and fiscal institutional reforms in a region that has experienced plenty of both in recent years, namely Latin America. For that purpose it reviews the literatur...

The recent financial crisis has initiated pressures for not only policy reform but also fundamental institutional fiscal reforms. This paper explores the connection between economic crises and fiscal institutional reforms in a region that has experienced plenty of both in recent years, namely Latin America. For that purpose it reviews the literatur...

The European Semester is a new institutional process that provides EU member states with ex-ante guidance on fiscal and structural objectives. The Semesterâ??s goals are ambitious and it is still uncertain how it will fit into the new EU economic governance framework. We find that member states are only slowly internalising the new procedure. Furth...

Many studies consider the veto players in government and move directly to discussions of policy choice and policy change. Institutions in such studies are relevant only to the extent that they determine whether a given player is truly a veto player, and they are exogenously determined. In this chapter, I begin with a review of this research and of...

This paper considers the effects of fiscal governance in Central and East European countries 1998–2008. The first part makes predictions about which form of fiscal governance fits which form of government. Under multi-party coalition governments, fiscal contracts where governments make political commitments to multi-annual fiscal plans work well. I...

This book is a breakthrough in the application of institutional economics to budgeting and public expenditure decisions. It is truly comparative in scope and probes beneath the formal rules of budgeting to determine how the process actually works. The studies published in this volume focus on Latin America, a region in which informality dominates p...

This document reviews the evidence from ten countries studies that look in detail at the political economy of the budget process. It concentrates on reviewing the evidence on the role of fiscal institutions and the relationship among different acotrs over the many stages of the process. It ends by providing recommendations for the implementation of...

Do parliamentary procedures affect political outcomes? In many European countries, such as in Greece or the United Kingdom, it would seem that parliament now plays the role of a mere “rubber stamp” that approves the executive’s proposals. This would suggest that details about how parliament makes laws are essentially irrelevant. Addressing this que...

This chapter uses a new data set on budgetary institutions in Europe to examine the impact of fiscal rules and budget procedures in EU countries on public finances. It briefly describes the main pattern of budgetary institutions and their determinants across the EU-15 Member States. Empirical evidence for the time period 1985–2004 suggests that the...

The Maastricht Treaty set a series of convergence criteria that Member States have to meet to join the euro area. The Treaty is not specific, however, about how to prevent free-riding fiscal behaviour once Economic and Monetary Union (EMU) is in place. The Stability and Growth Pact (SGP) represents an institutional response.1 Its design includes pr...

The paper presents a new and comprehensive data set of all bonds issued by the sixteen German federal states (L�nder) since 1992. It thus provides a complete picture of a capital market comparable in size to the combined corporate bond and commercial paper market in Germany. The quantitative analysis reveals that L�nder follow different issuing str...

Governance indicators are now widely used as tools for conducting development dialogue, allocating external assistance and influencing foreign direct investment. This paper argues that available governance indicators are not suitable for these purposes as they do not conceptualize governance and fail to capture how citizens perceive the governance...

We investigate the effect of fiscal institutions such as the strength of the finance minister in the budget process and deficits on interest spreads contained in bond yields of the countries now belonging to the Eurozone. Deficits significantly increase risk premia measured by relative swap spreads. The effect of deficits is significantly lower und...

This paper uses a new data set on budgetary institutions in Europe to examine the impact of fiscal rules and budget procedures in EU countries on public finances. It briefly describes the main pattern of budgetary institutions and their determinants across the EU 15 member states. Empirical evidence for the time period 1985–2004 suggests that the c...

Recent scholarship on budgeting in Latin American and Caribbean (LAC) countries indicates that political institutions impact the level of budget discipline. Building upon this previous research, we argue that the principal problem that must be addressed in both the government and the legislature to insure strong fiscal discipline is the common pool...

This paper proposes and tests a new formal model of the competition for capital, using the analogy of a "tournament" as a substitute for the "race-to-the-bottom" model. Our key insight is that political costs that accompany legislating have both direct and indirect effects on the likelihood and scale of reforms. While countries with higher politica...

We analyse the performance of budgetary and growth forecasts of all stability and convergence programmes submitted by EU member states over the last decade. Differences emerge for the bias in budgetary projections across countries. As a second step we explore whether economic, political and institutional factors can explain this pattern. Our analys...

Since unification, the debate about Germany's poor economic performance has focused on supply-side weaknesses, and the associated reform agenda sought to make low-skill labour markets more flexible. We question this diagnosis using three lines of argument. First, effective restructuring of the supply side in the core advanced industries was carried...

It is indisputable that the government s economic institutions areimportant. Scholars have focused considerable attention on theimplications of exchange-rate regimes, the relative independence ofcentral banks, open versus closed capital markets, and the in uence ofthe structure of labor markets on economic policy and economicperformance. An innovat...

Under EMU, monetary policy is oriented toward the euro area as a whole and fiscal policy is an important instrument remaining in the hands of national governments to cushion economic shocks to individual countries. The current paper analyses the cyclical pattern of public finances in Europe and addresses the question of whether fiscal policies have...

This paper reconsiders German unification during the period 1815-1871. First, it makes explicit the comparison between the German Empire and the European Union. Actors faced remarkably similar institution-building problems in both organisations. The second part of the paper evaluates the usefulness of three arguments from two theoretical traditions...

This paper examines the political economy of taxation in the Bundesstaat of Prussia during the Kaiserreich period. It examines how different factors of production with different levels of relative mobility, organized roughly along party lines, interacted with one another on taxation issues. It pays particular attention to the institutional composit...

We offer a theoretical framework that sheds light on firm preferences for more co-operative structures at the European level. We argue that the magnitude of external threat to the industry, combined with the level of the industry's transaction costs, plays a crucial role in determining firms' preferences for greater integration at the European leve...

This paper considers whether political business cycles exist in Eastern European accession countries. Section I introduces the overall objectives of the work. Section II provides a short introduction to the political business cycle literature. It also considers the role of exchange rates, capital mobility, and central bank independence in restricti...

The literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics - capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible. Similarly, examinations of the electoral determinants of monetary and fiscal policy typi...

Recent theoretical work on the US Congress has focused on two different conceptions of the function of committees. The “distributional” perspective posits that committees are established to guarantee deals made among legislators to distribute spending across different policy areas. The “informational” perspective in contrast contends that committee...

Why and how did the two European Union countries with the worst debt levels and with yearly deficit levels double the Maastricht target in 1993 manage to get their financial affairs in shape to qualify for Economic and Monetary Union? This paper presents an explicitly institutional approach to the political economy of budget deficits. It discusses...

This article examines the role that economic and political factors played in tax reform in Organization for Economic Cooperation and Development (OECD) countries from 1986 to 1990. Some writers argue that economic integration forced states to reform their tax systems. The authors' findings indicate that economic openness had an indirect effect on t...

This article examines the role that economic and political factors played in tax reform in Organization for Economic Cooperation and Development (OECD) countries from 1986 to 1990. Some writers argue that economic integration forced states to reform their tax systems. The authors' findings indicate that economic openness had an indirect effect on t...

A rough consensus has emerged that states with proportional representation systems are" likely to run larger deficits than plurality states. We argue that electoral institutions matter because" they restrict the type of budgetary institution at the governmental phase which a state has at its" disposal. Cabinet members may willingly delegate authori...

Conventional wisdom argues that spending levels and, by extension, budget deficits will be higher for governments using bottom-up instead of top-down methods of budgeting. Ferejohn and Krehbiel (1987) appear to debunk this argument. They indicate that the superiority of one method over the other in lowering the size of the budget depends on the dis...

Two literatures in political economy argue that differences in political institutions help explain variation in the fiscal performance of countries. They indentify electoral systems and institutions that structure the formation of the budget as important determinants of the budget deficit. In this paper we indicate that these two arguments compleme...

The twenty-five German states from 1871 to 1914 present a useful data set for examining how increasing economic integration affects tax policy. After German unification the national government collapsed six currencies into one and liberalized preexisting restrictions on capital and labor mobility. In contrast, the empire did not directly interfere...

This paper examines the role that economic and political factors played in tax reform in OECD countries from 1986 to 1990. Some writers argue that economic integration forced states to reform their tax systems. We examine this argument and consider the relevance of other possible factors, such as inflation and growth rates, the partisanship of the...

This book presents a theoretical framework to discuss how governments coordinate budgeting decisions. There are two modes of fiscal governance conducive to greater fiscal discipline, a mode of delegation and a mode of contracts. These modes contrast with a fiefdom form of governance, in which the decision-making process is decentralized. An importa...

In order to assess whether the process of Europeanization in the area of fiscal policy has been beneficial, we present a game that first models the relationship among a population, a government and a watchdog. The focus is on the incentives that the government faces when making fiscal policy decisions. The population has incomplete information abou...

We present a game that first models the relationship among a population, a government and a watchdog. The focus is on the incentives that the government faces when making fiscal policy decisions. The population has incomplete information about the type of government that is in office, but an independent watchdog can reveal whether it is competent o...

We present a game that first models the relationship among a population, a government and a watchdog. The focus is on the incentives that the government faces when making fiscal policy decisions. The population has incomplete information about the type of government that is in office, but an independent watchdog can reveal whether it is competent o...