Does policy conditionality worsen domestic welfare, as governments are forced to attempt unpopular reforms resulting in damaging protests, or does conditionality help implement reforms that otherwise would have been impossible? This paper analyzes these questions. Using a game-theoretic framework, it argues that the impact of conditional aid on welfare is nonmonotonic. Sufficiently conditioned aid can enhance the signaling power of reform announcements, thereby deterring protest and enabling reform. In contrast, inadequately conditioned aid may induce a "weak" government to mistakenly attempt reform, resulting in protest and a worsening of domestic welfare relative to the status quo.
We examine electoral cycles in tax reforms using monthly data over the period of 1990-2018 for 22 advanced economies and emerging markets. We show that governments tend to avoid announcing tax reforms during the months running up to elections. In addition, they become more likely to announce those reforms in the first few months following elections, indicating that “political capital” plays a role in the timing of reforms. These patterns are broad-based regarding the changes in tax base and rate, and for various types of taxes. We also find that the pre-election decrease in the likelihood of tax reform announcements is stronger in emerging markets, and weaker in the countries with relatively better institutional quality. Finally, our results indicate that neither fiscal rules nor IMF programs appear to have differential effects on electoral cycles in tax reforms.
The paper examines the short- and long-term effects of price liberalization in a reforming socialist economy. The analysis is based on an optimizing framework that highlights hoarding behavior and the existence of parallel goods markets. The behavior of official and parallel market prices, stock of durables, and the velocity of money in the transition period between reform announcement and reform implementation is characterized, in the presence and absence of uncertainty about the transition date.
-reform regime is represented in Figure 2 (see the Appendix for more details). The post-reform equilibrium level of the unified price p ˜ may or may not be located below the steady-state value of the parallel market price p * that prevails in the pre-reform regime, but it will be assumed that the condition p ˜ < p * holds. 15/ Similarly, there is no unambiguous relationship between d ˜ and d * . However, since the focus here is on a situation where agents may indeed be accumulating durable goods in the transition period between reformannouncement and
uncertain about the opposition’s cost of opposing reform. Both these assumptions seem reasonable. 7 As a result, reformannouncements can be costly, and common beliefs about the government’s commitment to reform determine whether a weak government announces reform, and in turn, whether the opposition chooses to protest against reform. Indeed, for a privately weak government, if perceptions about it’s commitment to reform are low enough, then it will be optimal for such a government to preserve the status quo rather than risk damaging protest. Conversely, if perceptions
electoral cycles by enabling us (i) to control for the influence of all economic and political factors on tax reforms at country level for a given year, and also (ii) to absorb the effects of common monthly shocks on reforms. Finally, our identification strategy relies on the fact that election dates are mostly predetermined relative to the announcement of tax reforms, i.e., it is unlikely that a tax reformannouncement will lead to an election in the time window that we are considering in our analysis. 1
We find that governments tend to avoid announcing tax reforms
The introduction of a new currency has often occurred as part of a program to fight hyperinflation. In this context, non-uniform conversion rates for different types of assets and liabilities have been used as a means of reducing an initial “excess” stock of liquidity. The paper examines the anticipatory dynamics associated with such reforms. The analysis suggests that monetary reforms of this type have a deflationary effect upon announcement as well as during the transition period. Under uncertainty about the reform date, the direction of the initial jump in prices upon announcement is a priori ambiguous. Upon implementation, a monetary reform leads to a downward jump in prices.