The Electoral Consequences of the Washington Consensus

Abstract

This paper assesses how electoral outcomes both in presidential and legislative elections in Latin America have been affected by the adoption of economic policies aimed at improving macroeconomic stability and easing the functioning of markets. The database includes 17 Latin American countries for the period 1985-2002, and a total of 66 presidential elections and 81 legislative elections. The set of testable hypotheses are derived from a literature review, and structured around the hypothesis of economic voting. It is found that (i) the incumbent's party is rewarded in presidential elections for reductions in the rate of inflation and in legislative elections for increases in the rate of growth; (ii) the more fragmented or the more ideologically polarized the party system, the higher the electoral pay-off of reductions of the inflation rate or increases in the rate of economic growth; (iii) the electorate cares not only for the economic outcomes but also for some of the policies: while the electorate seems to be blind to macroeconomic policies such as fiscal or exchange rate policies, it is adverse to pro-market policies, irrespective of their effects on growth or inflation; and (iv) the electorate is more tolerant to pro-market reforms when the incumbent's party has a more market-oriented ideology. These results suggest that reforming parties have paid a hefty price for the adoption of pro-market reforms, except when adopted in conjunction with stabilization policies in high-inflation economies.

Keywords: Latin America, Washington Consensus, structural reforms, presidential elections, legislative elections, economic voting

JEL Classification: D72, D81