Fighting Past Economic Wars: Crisis and Austerity in Latin America

Institute for International Economic Policy (IIEP) Working Paper Series (no. 2015-13)

29 Pages Posted: 18 Jul 2014 Last revised: 13 Oct 2016

Stephen B. Kaplan

George Washington University - Department of Political Science; George Washington University - Institute for International Economic Policy (GWIIEP)

Date Written: September 22, 2016

Abstract

Political economy theory expects that changes in macroeconomic governance are often catalyzed by institutional factors, such as partisanship, elections, or IMF conditionality. I challenge and contextualize this view by incorporating the role of technocratic advisors into a domestic policymaking framework. I contend that presidents from countries with crisis legacies are more likely to appoint mainstream economists that pursue budget discipline. Employing an originally constructed dataset, the Index of Economic Advisors, I conduct an econometric test of 16 Latin American countries from 1961 to 2011. I find that politicians are most likely to appoint mainstream economists who embrace fiscal rectitude in countries with inflation-crisis legacies. Furthermore, these crisis legacies are sticky given the severity of inflationary trauma relative to other types of domestic economic volatility in Latin America. In fact, these effects hold when controlling for both historical and contemporaneous shocks to unemployment.

Keywords: Political Economy, Development, Austerity, Latin America, Economic Crises, Political Psychology, Technocrats, Fiscal Policy, Macroeconomic Policy

JEL Classification: B22,E31, E60, E62, E65, H30, H60, N16, O54, O57

Suggested Citation

Kaplan, Stephen B., Fighting Past Economic Wars: Crisis and Austerity in Latin America (September 22, 2016). Institute for International Economic Policy (IIEP) Working Paper Series (no. 2015-13). Available at SSRN: https://ssrn.com/abstract=2467216 or http://dx.doi.org/10.2139/ssrn.2467216

Stephen B. Kaplan (Contact Author)

George Washington University - Department of Political Science ( email )

Department of Political Science
Monroe Hall 470, 2115 G Street, N.W.
Washington, DC 20052
United States
202-994-6680 (Phone)

George Washington University - Institute for International Economic Policy (GWIIEP) ( email )

1957 E Street, N.W.
Suite 502
Washington, DC 20052
United States

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