Should voters be afraid of hard budget constraint legislation? fiscal responsibility law in brazilian municipalities

This manuscript demonstrates that voters have nothing to be afraid of when new hard budget constraint legislation is implemented. Our claim is that this kind of legislation reduces the asymmetry of information between voters and incumbents over the budget and, as a consequence, the latter have incentives to increase the supply of public goods. As a nationwide institutional innovation, the Fiscal Responsibility Law (FRL) is exogenous to all municipalities; therefore, there is no self-selection bias in its implementation. We show that public goods expenditure increases after the FRL. Second, this increase occurs in municipalities located in the country’s poorest region. Third, our findings can be extended to the supply of public goods because the higher the expenditure with health and education, the greater the probability of incumbents being re-elected. Finally, there exists a “de facto” higher supply of public goods in education (number of per capita classrooms) after the FRL.

Moral hazard and nonlinear pricing in a general equilibrium model

The paper analyzes a two period general equilibrium model with individual risk and moral hazard. Each household faces two individual states of nature in the second period. These states solely differ in the household's vector of initial endowments, which is strictly larger in the first state (good state) than in the second state (bad state). In the first period households choose a non-observable action. Higher leveis of action give higher probability of the good state of nature to occur, but lower leveIs of utility. Households have access to an insurance market that allows transfer of income across states of oature. I consider two models of financiaI markets, the price-taking behavior model and the nonlínear pricing modelo In the price-taking behavior model suppliers of insurance have a belief about each household's actíon and take asset prices as given. A variation of standard arguments shows the existence of a rational expectations equilibrium. For a generic set of economies every equilibrium is constraíned sub-optímal: there are commodity prices and a reallocation of financiaI assets satisfying the first period budget constraint such that, at each household's optimal choice given those prices and asset reallocation, markets clear and every household's welfare improves. In the nonlinear pricing model suppliers of insurance behave strategically offering nonlinear pricing contracts to the households. I provide sufficient conditions for the existence of equilibrium and investigate the optimality properties of the modeI. If there is a single commodity then every equilibrium is constrained optimaI. Ir there is more than one commodity, then for a generic set of economies every equilibrium is constrained sub-optimaI.

Using a panel structure to discuss the Feldstein-Horioka puzzle in developing countries

The purpose of this paper is to test the implications of current account solvency for the savinginvestment correlation in developing countries. Since solvency is a long-run phenomenon, and given that the power of the standard unit root and cointegration tests is low, we exploit the panel structure of the sample of 29 developing countries. We find evidence that saving and investment are cointegrated and that the current account is stationary. Therefore, the Feldstein-Horioka correlations are not a puzzle in the sense they reflect the intertemporal budget constraint. The same results are obtained for different subsamples (Africa, Asia, and Latin America) and for different periods of time (1960-74 and 1975-96). We, then, suggest that an error correction model should distinguish between the long-run correlation, which reflects the solvency condition, and the short-run correlation, which could measure capital mobility.

Política fiscal, crédito subsidiado e seus efeitos sobre a política monetária

Neste trabalho apresentamos um modelo DSGE de pequena escala com economia fechada para estudar os efeitos de um aumento do crédito subsidiado e de uma política fiscal expansionista sobre as decisões de política monetária. O modelo, construído com base na literatura nacional e internacional, é constituído por uma economia fechada, com formação de hábito dos consumidores, firmas atuando em um mercado de competição monopolística (NEISS; NELSON, 2003) e rigidez de preços a la Calvo (CHRISTIANO; EICHENBAUM; EVANS, 2005). O governo é inserido no modelo através da autoridade monetária, que segue a Regra de Taylor definida por Vasconcelos e Divino (2012), e através da autoridade fiscal, que segue uma meta de superávit primário como em Castro et al. (2011). Por fim, o volume de investimento financiado por crédito subsidiado e a taxa deste crédito são definidos exogenamente pela autoridade fiscal, afetando sua restrição orçamentária. Os resultados obtidos sugerem que a política fiscal expansionista é mais importante que o aumento do subsídio ao crédito para o aumento da taxa de juros real neutra. Estes efeitos, porém, explicam pouco da variância das variáveis macroeconômicas quando comparados aos choques de demanda e de produtividade. Além disso, o modelo mostra evidências de um caráter inflacionário recente da política monetária no Brasil.

Consumption-wealth ratio and expected stock returns: evidence from panel data

This paper investigates the role of consumption-wealth ratio on predicting future stock returns through a panel approach. We follow the theoretical framework proposed by Lettau and Ludvigson (2001), in which a model derived from a nonlinear consumer’s budget constraint is used to settle the link between consumption-wealth ratio and stock returns. Using G7’s quarterly aggregate and financial data ranging from the first quarter of 1981 to the first quarter of 2014, we set an unbalanced panel that we use for both estimating the parameters of the cointegrating residual from the shared trend among consumption, asset wealth and labor income, cay, and performing in and out-of-sample forecasting regressions. Due to the panel structure, we propose different methodologies of estimating cay and making forecasts from the one applied by Lettau and Ludvigson (2001). The results indicate that cay is in fact a strong and robust predictor of future stock return at intermediate and long horizons, but presents a poor performance on predicting one or two-quarter-ahead stock returns.

Dinâmica política e política de gestão: partidos de esquerda e a adoção das parcerias com organizações sociais no Brasil 2007 a 2015

O objetivo desta Tese é compreender a atuação de partidos à esquerda do espectro político face à agenda de reformas da gestão pública. Especificamente, este estudo busca entender as motivações e interesses de governos liderados por partidos de esquerda ao expandirem e consolidarem parcerias com Organizações Sociais (OS) para provisão de serviços públicos – política voltada para a gestão pública, criticada por aqueles partidos e que contraria o interesse de parte de sua base social: o funcionalismo público. A pesquisa contribui para o debate ao intricar ao tema da gestão pública o debate político. Para alguns autores, esta é uma das principais lacunas dos estudos da área. Para atingir este objetivo foi realizado um estudo de casos múltiplos nos estados da Bahia e Pernambuco durante os governos do Partido dos Trabalhadores (PT) e Partido Socialista Brasileiro (PSB). Dentre as experiências estaduais recentes, os casos selecionados se destacam pela rápida expansão das parcerias com OS. Os resultados da pesquisa apontam que a expansão da parceria com as Organizações Sociais nos dois governos foi motivada pelas restrições orçamentárias, pela ineficiência dos equipamentos públicos e pelas características intrínsecas ao modelo, principalmente aquelas com poder de torná-lo mais ágil. A situação de grave crise setorial – saúde, nos dois casos estudados – foi fator chave para a expansão do modelo. A pesquisa também identificou que as resistências políticas foram minimizadas através da ampliação das alianças políticas e da distribuição de cargos e, para diminuir as resistências da base social dos partidos, os governos se aproximaram dos sindicatos e das categorias de classe mais afetadas por essa política de gestão.

Economic growth with foreign saving?

Highly indebted countries, particularly the Latin American ones, presented dismal economic outcomes in the 1990s, which are the consequence of the ‘growth cum foreign savings strategy’, or the Second Washington Consensus. Coupled with liberalization of international financial flows, such strategy, which did not make part of the first consensus, led the countries, in the wave of a new world wide capital flow cycle, to high current account deficits and increase in foreign debt, ignoring the solvency constraint and the debt threshold. In practical terms it involved overvalued currencies (low exchange rates) and high interest rates; in policy terms, the attempt to control de budget deficit while the current account deficit was ignored. The paradoxical consequence was the adoption by highly indebted countries of ‘exchange rate populism’, a less obvious but more dangerous form of economic populism.

Political budget cycles in a fiscal federation : the effect of partisan voluntary transfers

This article first presents an econometric study suggesting that intergovernmental transfers to Brazilian municipalities are strongly partisan motivated. In light of that stylized fact, it develops an extension to Rogoff (1990)’s model to analyze the effect of partisan motivated transfers into sub-national electoral and fiscal equilibria. The main finding is that important partisan transfers may undo the positive selection aspect of political budget cycles. Indeed, partisan transfers may, on one hand, eliminate the political budget cycle, solving a moral hazard problem, but, on the other hand, they may retain an incompetent incumbent in office, bringing about an adverse selection problem.

Signaling in political budget cycles: How far are you willing to go?

This paper analyzes how heterogeneity in two dimensions, competency and character, a¤ects political budget cycles. Competency is the e¢ciency in running the government. Character is the degree of opportunism. In this expanded space, previous results in the literature on the separating nature of the signaling equilibrium hold if heterogeneity in opportunism is low. With high heterogeneity in opportunism, no separating equilibrium exists. Rather, the equilibrium is partially pooling: only extreme types can be distinguished.

The power of the purse : what do the data say on US federal budget allocation to the states?

This paper provides new evidence on the determinants of the allocation of the US federal budget to the states and tests the capability of congressional, electoral and partisan theories to explain such allocation. We find that socio-economic characteristics are important explanatory variables but are not sufficient to explain the disparities in the distribution of federal monies. First, prestige committee membership is not conducive to pork-barrelling. We do not find any evidence that marginal states receive more funding; on the opposite, safe states tend to be rewarded. Also, states that are historically "swing" in presidential elections tend to receive more funds. Finally, we find strong evidence supporting partisan theories of budget allocation. States whose governor has the same political affiliation of the President receive more federal funds; while states whose representatives belong to a majority opposing the president party receive less funds.

Neutralizing the tendency to the overvaluation of the exchange rate or assuming a foreign constraint and asking for foreign savings

The objectives of these notes are two. The first objective is to analyze whether the strategy of growth with absorption of foreign savings leads to a trajectory of the economy that is sustainable in the long run. The second one is to evaluate the possibility of success of a policy of administered devaluation of the exchange rate in Brazil.