Prepping midterm and next Tues

Dear all:

The midterm is due on March 26th. Please keep in mid that if you are not keen to participate in the IMF project you can do so at will before the midterm. Come see me to talk alternative projects if that’s the case.

To get started, by next Tuesday I want all teams to fill in the empty columns of the attached table that focuses on a specific aspect of fiscal affairs: tax policy. The task is to check if the policies advocated in the headquarters’ Global Fiscal Monitor in 2014 are also applied by field teams in the article IV consultation reports with Ireland in the same year as well as in the country’s latest loan agreement with the Troika. I used copy/paste to fill in the relevant doctrinal statements on taxation from GFM. Your job is to do the same for article IV and loan agreement.

After you finish the table, prepare a power point ready with the main findings on what migrated into IMF practice and what did not. The presentation’s main question is: Has the IMF’s official doctrine on taxes in advanced economies traveled into its field practice? Each team will do a presentation in PP. We will have fun comparing the results.

Please email me if you have any questions.

Global Fiscal Monitor 2014_Ireland_exercise

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Prepping the midterm: Team work for Tuesday

Dear all:

The midterm is due on March 26th. Please keep in mid that if you are not keen to participate in the IMF project you can do so at will before the midterm. Come see me to talk alternative projects if that’s the case.

To get started, by Tuesday I want all teams to fill in the empty columns of the attached table that focuses on a specific aspect of fiscal affairs: tax policy. The task is to check if the policies advocated in the headquarters’ Global Fiscal Monitor in 2014 are also applied by field teams in the article IV consultation reports with Ireland in the same year as well as in the country’s latest loan agreement with the Troika. I used copy/paste to fill in the relevant doctrinal statements on taxation from GFM. Your job is to do the same for article IV and loan agreement.

After you finish the table, prepare a power point ready with the main findings on what migrated into IMF practice and what did not. The presentation’s main question is: Has the IMF’s official doctrine on taxes in advanced economies traveled into its field practice? Each team will do a presentation in PP. We will have fun comparing the results.

Please email me if you have any questions.

Global Fiscal Monitor 2014_Ireland_exercise

PS: Please note that each GFM has a useful glossary list at the end.

TUESDAY’S VOCAB

  1. Capital freedom/ Liberalization of capital controls
    • Capital freedom – to permit the free flow of investments
    • Liberalization of capital controls – to uplift restrictions on capital transactions
  2. Principal-agent theory – agent is incentivized to act in principal’s interest.
  3. Hypothesis-confirming bias – inclined to favor information that conforms to ‘beliefs’ or hypothesis
  4. Keynesian capital account theory versus gradualism versus big bang approach on capital controls
  • Keynesian: supports capital controls to prevent large flows either into or out of their capital account;
  • Gradualism – in favor of short-term capital controls to ensure stability
    • Big-bang – in favor of removing capital controls in support of capital freedom

5. Neoclassical synthesis :

  • combination of Neoclassical economics and Keynesian economics;
  •  
    1. Neoclassical advocates that supply and demand are determined by individual/firms seeking to maximize their utility/minimize costs; and
      1. Keynesian in a nutshell: markets on its own are flawed and government intervention through both fiscal and monetary policies to ensure stability is essential.

Public Goods or Political Pandering: Evidence from IMF Programs in Latin America and Eastern Europe.

Public Goods or Political Pandering: Evidence from IMF Programs in Latin America and Eastern Europe.
By Grigore Pop-Eleches

Overview provided by Lauren Peyton

The author analyzed the extent and reasons for preferential lending practices by the IMF.  He examined three periods:

 

Latin America from 1982-1989 – the debt crisis

Latin America from 1990 – 2001

Eastern Europe from 1990-2001 – the transition away from Communism

 

He gauged whether the IMF acted in in one of three ways:

  1. Impartial technocratic logic (what it says it does and is supposed to do)
    • Programs driven solely by financial need 

     2.  Systemically motivated preferential treatment (for the greater global good)

  •         Gauges the economic importance of a country and the intensity of the crisis to judge whether they should receive easier access to IMF funds
    3.  Narrow economic/geopolitical concerns of its largest shareholders (what everybody believes it does)

Countries with close economic & political ties to powerful western countries (the US, namely) receive more funds and “breaks” in their interactions with the IMF

The dependent variables, or how he decided that the countries were receiving preferential treatment, were (1) the number of programs initiated, (2) loan size, (3) number of program waivers, and (4) program compliance evaluation.  (ex: there were 43 programs with 21 Latin American countries from 1982 – 1989, higher frequency than in 1990s, lower frequency than in Eastern Europe). 

There were multiple independent variables, or reasons why they might receive preferential treatment, but the three main ones were (1) similarity in UN General Assembly voting records with a powerful western country like the US, (2) US imports into Latin American countries and EU imports into Eastern European countries, and (3) amount of bilateral foreign aid.  

He, found, basically, that during periods of extreme crisis, like the Latin American debt crisis in the 1980s, where the failure of large countries could cause extreme global financial instability, the IMF acted strongly in a systemically motivated manner.  Large countries, with high foreign debt and low reserves, had easier access to IMF funds during the crisis, but less access to the funds during low crisis times.  This was independent of political alliances, trade relations, and foreign aid, which means that the IMF was making a judgment call to help a country whose failure would harm the international global financial system, not because the US wanted to help their friend.

However, in the 1990s, the Latin American countries that received the most bilateral aid from the West had the easiest access to IMF funds, and in Eastern Europe the geopolitical allies and trade partners to the West did (though there were still some clear systemic concerns).  So, in the absence of global instability threats, the Fund allows more realist views to guide its actions.  He does, however, maintain that “narrow political” aid is not as widespread as many other researchers seem to believe.

In other words, yes, the IMF strays from its stated mission of impartiality.  However, in times of extreme crisis, this could be attributed to the Fund’s other mission of ensuring international financial stability and orderly trade expansion.  If a country that is “too big to fail” is allowed to do so during such a crisis, the global effect could be catastrophic.  So we can conclude that preferential treatment of economically important countries is justified as long as it is confined to crisis situations. 

If his argument is true, then the IMF is actually right to give preferential lending opportunities to larger economies, but only during times of extreme crisis.  If their failure might cause a global financial crisis, then the IMF is actually fulfilling its mission to ensure their stability.  The author recommends setting the bar of “too big to fail” higher, however, so it becomes more difficult to gain aid.  This should also only apply in global crisis situations.  If the countries in trouble will not have a hugely destabilizing effect on the global market, then the IMF should proceed impartially, giving no preference to allies, trading partners, or aid recipients of Western powers.  Preferential treatment wastes IMF resources and undermines the credibility and effectiveness of the IMF, and should only be used in times of global crisis. 

           

Heterodox

Cornel Ban and Daniela Gabor “The Politics of Collateral Damage: Finance and Varieties of Capitalism in the Eurozone Crisis” forthcoming)

“Constructivist political economists argue that the analysis of policy shifts should focus on the political battles that define the origins of crises and the solutions that are institutionally available (Widmaier, Blyth and Seabrooke 2007: 748; Blyth 2002; 2012; Lindwall 2009; 2011; Mandelkern and Shalev 2012; Biswas 2011; Vali 2011; Hay 2011; Schmidt 2011; Carstensen 2011; Radula and Kattel 2011; Ban 2011; Bell 2012; Matthijs 2012; Yee 2012; Widmeier and Park 2012; Baker 2012; Finlayson 2012). When applied to the fiscal outcomes studied in this paper, the constructivist approach yields the hypothesis that the adoption of austerity measures throughout the Eurozone has been the result of the victory of anti-Keynesian ideas in pivotal nodes of the European policy field. Specifically, they seek for evidence of the intellectual skepticism of New Consensus…

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Heterodox

A recent paper by Farrel and Quiggin puts it bluntly:

“In 2008-2009, it was important that a relatively small number of ‘star’ economists, mostly based in the US, made vigorous arguments for Keynesianism. It was also important that some key figures who previously had not been favorably disposed to Keynesianism changed their minds. This helped prop- agate the idea of Keynesian stimulus to economists who otherwise would likely have been inoculated against it. Some of these economists – such as members of the Council of Eco- nomic Experts – played a key role in changing the field of debate within Germany and other European countries. Even if the actual consensus among economists was rather less solid than it appeared to outside observers, the appearance of an emerging consensus was what mattered.

In 2010 in contrast, it mattered that there was a greater degree of disunity among economists in the US…

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