Fiscal Deficit Sustainability and Fiscal Policy Persistence In The West African Monetary Zone

The Economic Community of West African States launched the name of its proposed currency, eco, in June, 2019 for its proposed monetary union. The Regional body stipulated certain convergence criteria to be met before member countries could be admitted to the proposed union. One such criteria is that the budget deficit-to-Gross domestic product ratio be less than or equal to three percent. Available data for the past two decades indicate the non-compliance of many of these West African countries to this condition despite having control over both fiscal and monetary policies. This study investigates the sustainability of fiscal deficits in a group of six countries known as the West African Monetary Zone. This study has two objectives: First, to investigate the sustainability of deficits in the West African Monetary Zone and secondly, to examine the absence or presence of fiscal policy persistence. Fiscal deficits are sustainable when an increase in public debt is associated with a corresponding increase in the primary surplus. Using panel data, a fiscal reaction model was estimated. The findings of this study showed that deficits are weakly sustainable and fiscal policy is highly persistent. The implication of weak sustainability is that they are easily vulnerable to external shocks and the possibility of becoming unsustainable is very high. Meanwhile, a highly persistent fiscal policy leaves little or no room for fiscal policy discretion and this is a high risk because it means government won’t respond swiftly as at when due. Based on these findings, the study recommends a suspension of the proposed single currency union

Policy Persistence and Drift in Organizations

This paper models the evolution of organizations that allow free entry and exit of members, such as cities and trade unions. In each period, current members choose a policy for the organization. Policy changes attract newcomers and drive away dissatisfied members, altering the set of future policymakers. The resulting feedback effects take the organization down a “slippery slope” that converges to a myopically stable policy, even if the agents are forward‐looking, but convergence becomes slower the more patient they are. The model yields a tractable characterization of the steady state and the transition dynamics. The analysis is also extended to situations in which the organization can exclude members, such as enfranchisement and immigration.

The polarization dynamics of electoral reforms

Electoral reforms affect legislative outcomes by influencing incumbent legislators’ behavior, new entrants’ behavior, and the probability that incumbents are replaced with new entrants. Empirical work on electoral reforms and polarization has focused on new entrants’ behavior. We employ a simple decision theoretic framework with partial incumbent policy persistence and spatial voting to examine the three channels jointly. We show that a reform designed to encourage ideological moderation produces larger effects on polarization when the reform is implemented than when it is removed. The key insight is that implementing a moderation-inducing reform generates a set of challengers who are more likely to defeat incumbents while the incumbents are more likely to win reelection when the reform is removed. We then empirically examine how elections and legislative polarization respond to unlimited PAC contributions in state legislatures. Examining incumbents’ decisions to stand for reelection, the electoral performance of incumbents who do run, and partisan polarization, we find empirical support for our predictions.

Policy persistence: REDD+ between stabilization and contestation

At this time of rapid global environmental change and demands for sweeping societal transformation, we call for greater scrutiny of the persistence of particular policies and ideas. In this Special Section we focus on REDD+, which for long has enjoyed remarkable global support in spite of poor outcomes and widespread criticisms. The central policy proposition of REDD+, that is, forest-based emissions reduction through market-based instruments and non-market means, are now carried forth under the new banner of Natural Climate Solutions. We examine REDD+ to understand how and why some environmental policies and ideas persist despite dubious impacts. We conceptualize policy persistence by drawing on three strands of political ecology literature - critical policy studies, assemblage studies, and political economy - that illuminate the dynamics of policy persistence in different yet complementary ways. We argue that the persistence of policies and policy ideas rests in a tentative balance of the counteracting processes of stabilization and contestation, which precipitate both intended and unintended outcomes. We show how the stabilization of REDD+ itself lends stability to broader ideas of forest-based climate change mitigation. We suggest that policy persistence is an area of political ecological research, which now calls for renewed engagement.Keywords: Policy persistence, REDD+, climate change mitigation, Natural Climate Solutions, political ecology

Spending-Biased Legislators: Discipline Through Disagreement *

We study legislators who have a present bias for spending: they want to increase current spending and procrastinate spending cuts. We show that disagreement in legislatures can lead to policy persistence that attenuates the temptation to overspend. Depending on the environment, legislators’ decisions to be fiscally responsible may either complement or substitute other legislators’ decisions. When legislators have low discount factors, their actions are strategic complements. Thus, changes of the political environment that induce fiscal responsibility are desirable as they generate a positive responsibility multiplier and reduce spending. However, when the discount factor is high, the same changes induce some legislators to free ride on others’ responsibility which may lead to higher spending.