Hostname: page-component-78c5997874-j824f Total loading time: 0 Render date: 2024-11-09T06:28:06.037Z Has data issue: false hasContentIssue false

The Politics of Hard Choices: IMF Programs and Government Spending

Published online by Cambridge University Press:  25 October 2006

Irfan Nooruddin
Affiliation:
Ohio State University, [email protected]
Joel W. Simmons
Affiliation:
University of Michigan, [email protected]
Get access

Abstract

A central component of International Monetary Fund (IMF) programs is reducing government budget deficits. We ask how domestic political considerations shape the distribution of cuts made by governments in IMF programs. Our central finding is that IMF programs shrink the role played by domestic politics. While democracies allocate larger shares of their budgets to public services in the absence of IMF programs, the difference between democracies and nondemocracies disappears under IMF programs. This result has important implications for our understanding of government spending priorities under different resource constraints.We dedicate this article to the memory of Harold K. Jacobson. Robert Kaufman, Lisa Martin, Joan Nelson, and two anonymous reviewers for IO provided valuable comments on earlier drafts, and Chris Achen, Chris Adolph, Leah Anderson, Carew Boulding, Sarah Brooks, Chelsea Brown, Lawrence Broz, Eric Chang, Dan Corstange, Rob Franzese, Nate Jensen, Marcus Kurtz, Margaret Levi, Autumn Payton, Nita Rudra, Heidi Sherman, and James Vreeland offered helpful advice. We thank Autumn Payton for research assistance. Earlier versions were presented at the 2004 Midwest Political Science Association Meetings, the 2004 American Political Science Association Meetings, the 2005 workshop on “Distributive Politics and Social Protection in the 21st Century” at Ohio State's Mershon Center, and the 2005 International Studies Association Meetings. All errors remain our own.

Type
Research Article
Copyright
© 2006 The IO Foundation and Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Achen, Christopher H. 1986. The Statistical Analysis of Quasi-Experiments. Berkeley: University of California Press.
Achen, Christopher H. 2000. Why Lagged Dependent Variables Can Suppress the Explanatory Power of Other Independent Variables. Paper presented at the 17th Annual Summer Political Methodology Meeting, July, University of California, Los Angeles.
Anderson, Stephen H., and Natalia V. Smirnova. 2004. ‘Optimal’ Budget Deficit Reduction Plans: Modeling Executive Decisions. Unpublished manuscript, Office of Management and Budget, City of New York.
Avelino, George, David S. Brown, and Wendy Hunter. 2005. The Effects of Capital Mobility, Trade Openness, and Democracy on Social Spending in Latin America, 1980–1999. American Journal of Political Science 49 (3):625641.CrossRefGoogle Scholar
Beck, Nathaniel, David Epstein, Simon Jackman, and Sharyn O'Halloran. 2002. Alternative Models of Dynamics in Binary Time-Series Cross-Section Models: The Example of State Failure. Unpublished manuscript, New York University, Columbia University, and Stanford University.
Bienen, Henry S., and Mark Gersovitz. 1985. Economic Stabilization, Conditionality, and Political Stability. International Organization 39 (4):729754.CrossRefGoogle Scholar
Biersteker, Thomas J. 1990. Reducing the Role of the State in the Economy: A Conceptual Exploration of IMF and World Bank Prescriptions. International Studies Quarterly 34 (4):477492.CrossRefGoogle Scholar
Bird, Graham. 1996. The IMF and Developing Countries: A Review of the Evidence and Policy Options. International Organization 50 (3):477511.CrossRefGoogle Scholar
Bird, Graham. 1997. External Financing and Balance of Payments Adjustment in Developing Countries: Getting a Better Policy Mix. World Development 25 (9):14091420.CrossRefGoogle Scholar
Bird, Graham. 2003. The IMF and the Future: Issues and Options Facing the Fund. New York: Routledge.
Birn, Anne-Emanuelle, Sarah Zimmerman, and Richard Garfield. 2000. To Decentralize or Not to Decentralize, Is That the Question? Nicaraguan Health Policy Under Structural Adjustment in the 1990s. International Journal of Health Services 30 (1):111128.CrossRefGoogle Scholar
Bound, John, David A. Jaeger, and Regina M. Baker. 1995. Problems with Instrumental Variables Estimation When the Correlation Between the Instruments and the Endogenous Explanatory Variable Is Weak. Journal of the American Statistical Association 90 (430):443450.Google Scholar
Brown, David S., and Wendy Hunter. 2004. Democracy and Human Capital Formation: Education Spending in Latin America. Comparative Political Studies 37 (7):842864.CrossRefGoogle Scholar
Bueno de Mesquita, Bruce, Alastair Smith, Randolph M. Siverson, and James D. Morrow. 2003. The Logic of Political Survival. Cambridge, Mass.: MIT Press.
Buira, Ariel. 2003a. An Analysis of IMF Conditionality. In Challenges to the World Bank and IMF: Developing Country Perspectives, edited by Ariel Buira. London: Anthem Press.
Buira, Ariel, ed. 2003b. Challenges to the World Bank and IMF: Developing Country Perspectives. London: Anthem Press.
Cho, Hye Jee. 2004. Do IMF Programs Discipline Budget Deficits? The Effects of IMF Programs on Government Budget Balance, Expenditure, and Revenue. Paper presented at the 62nd Annual Meeting of the Midwest Political Science Association, April, Chicago.
Conway, Patrik. 2003. Endogenous IMF Conditionality: Theoretical and Empirical Implications. Unpublished manuscript, University of North Carolina, Chapel Hill.
Cornia, Giovanni Andrea. 1987. Adjustment Policies 1980–1985: Effects on Child Welfare. In Adjustment with a Human Face. Vol. I, edited by Giovanni Andrea Cornia, Richard Jolly, and Frances Stewart, 4872. Oxford, England: Oxford University Press.
Crisp, Brian F., and Michael J. Kelly. 1999. The Socioeconomic Impacts of Structural Adjustment. International Studies Quarterly 43 (3):533552.CrossRefGoogle Scholar
Darrow, Mac. 2003. Between Light and Shadow: The World Bank, the International Monetary Fund and International Human Rights Law. Portland, Ore.: Hart.
Drazen, Allan. 2001. Conditionality and Ownership in IMF Lending: A Political Economy Approach. Unpublished manuscript, Tel-Aviv University, University of Maryland, and National Bureau of Economic Research.
Dreher, Axel, and Nathan Jensen. Forthcoming. Independent Actor or Agent? An Empirical Analysis of the Impact of U.S. Interests on IMF Conditions. Journal of Law and Economics 50 (1).
Garuda, Gopal. 2000. The Distributional Effects of IMF Programs: A Cross-Country Analysis. World Development 28 (6):10311051.CrossRefGoogle Scholar
Greene, William H. 2003. Econometric Analysis. 5th ed. Upper Saddle River, N.J.: Prentice Hall.
Harris, Geoffrey, Mark Kelly, and Pranowo. 1988. Trade-Offs Between Defence and Education/Health Expenditures in Developing Countries. Journal of Peace Research 25 (2):165177.CrossRefGoogle Scholar
Heckman, James J. 1978. Dummy Endogenous Variables in a Simultaneous Equation System. Econometrica 46 (4):931959.CrossRefGoogle Scholar
Heckman, James J. 1979. Sample Selection Bias as Specification Error. Econometrica 47 (1):153161.CrossRefGoogle Scholar
International Monetary Fund (IMF). Independent Evaluation Office. 2003. Evaluation Report: Fiscal Adjustment in IMF-Supported Programs. Washington, D.C.: IMF. Available at 〈http://www.imf.org/External/NP/ieo/2003/fis/pdf/all.pdf〉. Accessed 15 June 2006.
Jaggers, Keith, and Ted Robert Gurr. 1995. Tracking Democracy's Third Wave with the Polity III Data. Journal of Peace Research 32 (4):469482.CrossRefGoogle Scholar
Jensen, Nathan M. 2004. Crisis, Conditions, and Capital: The Effects of IMF Agreements on Foreign Direct Investment Inflows. Journal of Conflict Resolution 48 (2):194210.CrossRefGoogle Scholar
Kahler, Miles. 1993. Bargaining with the IMF: Two-Level Strategies and Developing Countries. In Double-Edged Diplomacy: International Bargaining and Domestic Politics, edited by Peter Evans, Harold K. Jacobson, and Robert D. Putnam, 363394. Berkeley: University of California Press.
Kaufman, Robert R., and Alex Segura-Ubiergo. 2001. Globalization, Domestic Politics, and Social Spending in Latin America: A Time-Series Cross-Section Analysis, 1973–97. World Politics 53 (4):553587.CrossRefGoogle Scholar
Killick, Tony. 1995. IMF Programmes in Developing Countries: Design and Impact. New York: Routledge.
Krueger, Anne O. 1998. Whither the World Bank and the IMF? Journal of Economic Literature 36 (4):19832020.Google Scholar
Lake, David, and Matthew Baum. 2001. The Invisible Hand of Democracy: Political Control and the Provision of Public Services. Comparative Political Studies 34 (6):622650.CrossRefGoogle Scholar
Lindert, Peter H. 2004. Growing Public: Social Spending and Economic Growth Since the Eighteenth Century. Vols. I and II. Cambridge: Cambridge University Press.
Lustig, Nora. 2000. Crises and the Poor: Socially Responsible Macroeconomics. Economía 1 (1):130.CrossRefGoogle Scholar
Mahdavi, Saeid. 2004. Shifts in the Composition of Government Spending in Response to External Debt Burden. World Development 32 (7):11391157.CrossRefGoogle Scholar
Marshall, Monty, Keith Jaggers, and Ted Robert Gurr. 2004. Polity IV Project: Political Regime Characteristics and Transitions, 1800–2003. Available at 〈http://www.cidcm.umd.edu/inscr/polity/〉. Accessed 15 June 2006.
Milleron, Jean-Claude. 2004. Enhancing the Learning Culture. Finance and Development 41 (1):4849.Google Scholar
Olson, Mancur. 1982. Rise and Decline of Nations. New Haven, Conn.: Yale University Press.
Pinstrup-Andersen, Per, Maurice Jaramillo, and Frances Stewart. 1987. The Impact on Government Expenditures. In Adjustment with a Human Face. Vol. I, edited by Giovanni Andrea Cornia, Richard Jolly, and Frances Stewart, 7389. Oxford, England: Clarendon Press.
Remmer, Karen L. 1986. The Politics of Economic Stabilization: IMF Standby Programs in Latin America, 1954–1984. Comparative Politics 19 (1):124.CrossRefGoogle Scholar
Rodrik, Dani. 1999. Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses. Journal of Economic Growth 4 (4):385412.CrossRefGoogle Scholar
Rudra, Nita, and Stephan Haggard. 2005. Globalization, Democracy, and Effective Welfare Spending in the Developing World. Comparative Political Studies 38 (9):10151049.CrossRefGoogle Scholar
Schattschneider, E. E. 1960. The Semisovereign People. Hinsdale, Ill.: Dryden Press.
Snyder, James M., and Irene Yackovlev. 2000. Political and Economic Determinants of Changes in Government Spending on Social Protection Programs. Unpublished manuscript, Massachusetts Institute of Technology, Cambridge, Mass.
Stasavage, David. 2005. Democracy and Education Spending in Africa. American Journal of Political Science 49 (2):343358.CrossRefGoogle Scholar
Stone, Randall W. 2002. Lending Credibility: The International Monetary Fund and the Post-Communist Transition. Princeton, N.J.: Princeton University Press.
Sturm, Jan-Egbert, Helge Berger, and Jakob de Haan. 2005. Which Variables Explain Decisions on IMF Credit? An Extreme Bounds Analysis. Economics & Politics 17 (2):177213.CrossRefGoogle Scholar
Ul Haque, Nadeem, and Mohsin S. Khan. 1998. Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence. Working Paper WP/98/169. Washington, D.C.: International Monetary Fund.
Vreeland, James R. 2003. The IMF and Economic Development. New York: Cambridge University Press.
World Bank. 2004. World Development Indicators 2004 CD-Rom. Washington, D.C.: World Bank.