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Jihad Dagher
Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.
Mr. Muthukumara Mani and Mr. Per G. Fredriksson
This paper seeks to contribute to the unresolved issue of the effect of economic integration on environmental policy. In particular, we discuss the joint impact of trade openness and political uncertainty. Our theory predicts that the effect of trade integreation on the environment is conditional on the degree of political uncertainty. Trade integration raises the stringency of environmental policies, but the effect is reduced when the degree of political uncertainty is great. Political uncertainty has a positive effect on environmental policy as it reduces lobbying efforts. Applying our model to a unique data set of primarily developing countries, the empirical findings support the theory and are robust under alterntive specifications.
Mr. Alex Mourmouras and Mr. Wolfgang Mayer
Understanding of the domestic political environment is key to building broad country ownership and the successful implementation of reform programs supported by international financial institutions (IFIs). But recipient countries are not unitary actors: policymakers are influenced by special interest groups (SIGs) opposing reforms, leading to distorted policies. Using a new model of the financial relations between a benevolent IFI and a sovereign borrower subject to influence by SIGs, we analyze the determinants and welfare impacts of conditional and unconditional assistance. While conditionality may raise IFI welfare, economize on the amount of assistance, and lower domestic distortions, it may not always raise recipient country welfare. Recipient governments are always better off if assistance is provided unconditionally.
Jihad Dagher and Maria Soledad Martinez Peria

-crisis Ireland, the local election results of 2009 represented an emphatic rejection of an incumbent governments policies. 48 Fianna Fail witnessed its worst historical electoral loss, losing 135 seats. In the first post-crisis general elections of 2011, Fianna Fail also suffered a crushing loss to a coalition of the conservative Fine Gael and smaller left-leaning Labor Party, which secured a historically large share (68 percent) of the parliament (See, e.g., Kriesi, 2012, Hardiman and MacCarthaigh, 2013). In light of the EU-IMF funding deal signed in the waning days of