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While there exists a large literature characterizing the political determination of the size of the government, much less attention has been paid to the political determination of the scope of government (i.e., what activities are undertaken by public rather than private entities). While there are economic costs and benefits to privatization, there is also a political benefit to incumbents: by privatizing today, politicians transfer future revenues (when they might not be in office) to the present. This political benefit leads to overprivatization. We show that this political benefit persists even if politicians are able to borrow against public assets. We analyze the relationship between privatization and the political environment, as well as complete a normative analysis of the costs and benefits to society of allowing politicians to privatize assets. [ABSTRACT FROM AUTHOR]

How do approaching elections affect the security policy states conduct? We build on classic political economy arguments and theorize that one problem likely faced by democratic policy makers near elections is that of time inconsistency. The time-inconsistency problem arises when the costs and benefits of policy are not realized at the same time. We develop an application of the argument to the case of allied troop contributions to Operation Enduring Freedom and the International Security Assistance Force mission in Afghanistan. In that case, we argue that the expectation should be one of fewer troops committed close to elections. The exogenous timing of elections allows us to identify the effects of approaching elections on troop levels. Our finding of significantly lower troop contributions near elections is arguably the first identified effect of electoral proximity on security policy. [ABSTRACT FROM AUTHOR]

The political economy literature finds that stock markets drop after left-wing and increase after right-wing electoral victories. This study shows that the size of this reaction strongly depends on the political constraints that the incoming government faces. When constraints are high, the discretion of governments to implement their preferred policies is low, which implies that election outcomes are less relevant for financial investors. The analysis of an original dataset of stock market reactions to 205 elections since the 1950s confirms this conjecture. Stocks drop considerably after the election of a left government and increase after the election of a right government, but only in low-constraints countries. These partisan effects on stocks are highly persistent and even become stronger over time when additional information about the composition of the incoming government becomes available. However, the effects of elections on stocks fully disappear when political constraints are high. [ABSTRACT FROM PUBLISHER]

We propose that major powers give foreign aid to developing countries to facilitate politically costly economic reforms that preferential trading agreements prescribe. Democratic developing countries (1) need adjustment assistance more than autocracies and (2) can credibly commit to using fungible revenue to compensate the domestic losers, so a side payment for deeper reforms should only be available for democracies. A quantitative test lends support to the theory. Fully democratic developing countries that form a preferential trading agreement with the European Union or the United States obtain a large increase in foreign aid in the short run. These results imply that donors have used foreign aid to strengthen the effect of preferential trading agreements on economic reforms. [ABSTRACT FROM PUBLISHER]