Do crises promote the extent of economic liberalization?: an empirical test

Pitlik, Hans; Wirth, Steffen

doi:10.1016/s0176-2680(03)00014-4

“…For instance, Pitlik and Wirth (2003) argue that poor macroeconomic conditions (e.g., an inflation crisis) create incentives for economic reform (resulting in higher levels of economic freedom). Therefore, we expect inflation to positively predict economic freedom.…”

Section: Additional Control Variablesmentioning

confidence: 99%

“…Previous empirical research suggests that these differences in economic freedom can be attributed to (i) differences in democratic development, with more democratic countries being more likely to promote market-friendly economic policies (De Haan and Sturm, 2003;Rode and Gwartney, 2012), (ii) differences in the speed of economic liberalization between different parts of the world, where the patterns of reform are driven by international economic competition and the policies of neighboring countries (Simmons and Elkins, 2004;Pitlik, 2007;Gassebner et al, 2011), (iii) experiences of economic crisis that consequently promote market-friendly reforms (Pitlik and Wirth, 2003), (iv) the influence of government ideology on economic policy-making (Potrafke, 2010) and (v) differences in national cultures, with cultures favoring autonomy and risk-taking being more likely to be economically free (Johnson and Lenartwoicz, 1998).…”

Section: Introductionmentioning

confidence: 99%

Political capitalism: The interaction between income inequality, economic freedom and democracy

Krieger

¹

,

Meierrieks

²

2016

European Journal of Political Economy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn this contribution we study the relationship between income inequality and economic freedom for a panel of 100 countries for the 1971-2010 period. From a panel causality study we find that income inequality has a negative causal effect on economic freedom, while causation does not run in the opposite direction. We argue that the negative effect of inequality on economic liberty is due to the elite's political power stemming from its disproportionate control over a country's economic resources. The elite uses this power to curtail economic freedom to defend its economic interests by discouraging innovation, competition and protecting its rents. Running a series of dynamic panel estimations, we show that the negative effect of income inequality on economic freedom is robust to different sets of controls and estimation techniques. Finally, we show that the dynamics of the inequality-freedom nexus are to some extent conditional upon a country's political regime. When inequality is low, democracies enjoy comparatively higher levels of economic liberty, in line with the interests of a large middle-class. By contrast, economic freedom is lower in democracies (compared to strongly autocratic regimes with the same income distribution) when inequality is high. We argue that the latter finding corresponds to a system of political capitalism or captured democracy, where a powerful economic elite cooperates with politicians and bureaucrats for their mutual benefit.JEL Classification: D31, D72

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“…The hypothesis is substantiated with respect to high inflation by Drazen and Grilli (1993) theoretically as well as by Drazen and Easterly (2001) and Pitlik and Wirth (2003) empirically. With regard to growth crises, Pitlik (2008), examining the joint effect of a country's economic performance and its political regime type, provides empirical evidence for negative growth to foster reforms in democracies, but not in autocratic polities.…”

Section: Control Variablesmentioning

confidence: 70%

“…With regard to growth crises, Pitlik (2008), examining the joint effect of a country's economic performance and its political regime type, provides empirical evidence for negative growth to foster reforms in democracies, but not in autocratic polities. Pitlik and Wirth (2003) find that -compared to a situation without a crisis -liberalization efforts are higher in countries suffering from a deep growth crisis, whereas a medium crisis delays steps of reform 3 . Drazen and Easterly's (2001) and Pitlik's (2007) results point in the direction of a growth crisis effect as well, but are (mostly) not statistically significant.…”

Section: Control Variablesmentioning

confidence: 89%

Does Regulatory Independence Translate into a Higher Degree of Liberalization? - Evidence from EU Energy Regulators

Lindemann

¹

2015

SSRN Journal

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: Independent regulatory authorities are a basic prerequisite for a successful liberalization process. However, contrary to what is expected, both graphical analyses and OLS regressions for a small sample of electricity and gas regulators operating in 16 European countries reveal a negative relationship between the authorities' formal autonomy from politicians and the scope of market reforms. These findings might suffer from endogeneity, though, so we draw on political scientists' explanations for diverging independence levels to construct appropriate instruments. The 2SLS-IV results then confirm conventional wisdom: the higher the degree of regulatory autonomy, the higher the level of liberalization. Terms of use: Documents in EconStor mayJEL-classification: L50, L94, L95, L98

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“…This implication is consistent with the work of, for instance, Høj et al (2006). Focusing on 21 OECD-countries between 1975 and 2003, Høj and colleagues find that economic crises, operationalized as output gaps larger than four per cent, are associated with more reform in both the labor market and the product market (see also Pitlik and Wirth 2003;Vis 2010).…”

mentioning

confidence: 99%

Voters’ commitment problem and reforms in welfare programs

Hollanders

¹

,

Vis

²

2011

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When will a vote-seeking government pursue unpopular welfare reforms that are likely to cost it votes? Using a game-theoretical model, we show that a government enacts reforms that are unpopular with the median voter during bad economic times, but not during good ones. The key reason is that voters cannot commit to re-elect a government that does not reform during bad times. This voters' commitment problem stems from economic voting, i.e., voters' tendency to punish the government for a poorly performing economy. The voter commitment problem provides an explanation for the empirical puzzle that governments sometimes enact reforms that voters oppose.

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Do crises promote the extent of economic liberalization?: an empirical test

Cited by 150 publications

References 19 publications

Political capitalism: The interaction between income inequality, economic freedom and democracy

Political capitalism: The interaction between income inequality, economic freedom and democracy

Does Regulatory Independence Translate into a Higher Degree of Liberalization? - Evidence from EU Energy Regulators

Voters’ commitment problem and reforms in welfare programs

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