Who Adjusts and When? On the Political Economy of Stabilizations


Alesina, Alberto, Silvia Ardagna, and Francesco Trebbi. 2006. “Who Adjusts and When? On the Political Economy of Stabilizations.” IMF Staff Papers 53: 1-49.
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Why do countries delay stabilizations of large and increasing budget deficits and inflation? And what explains the timing of reforms? We use the war-of-attrition model to guide our empirical study on a vast sample of countries. We find that stabilizations are more likely to occur when times of crisis occur, when new governments take office, when governments are “strong” (that is, presidential systems and unified governments with a large majority of the party in office), and when the executive branch faces fewer constraints. The role of external inducements like IMF programs has at best a weak effect, but problems of reverse causality are possible.


Mundell-Fleming Lecture

Last updated on 04/03/2013