Lecture 12

Question 1

What are the 2 opposite arguments about the financial openness (globalisation) ?

Answer 1

1. supply side = state is dead

2. demand side = long live the state

Question 2

Explain the supply side argument about globalisation

Answer 2

According to the supply side argument, the globlisation undermines (affaiblir) autonomy. Capital mobility implies the search for always higher yields (money is going where the profit is the highest), which means countries are in tax competition, leading to deregulation and the decline of labor unions.

Question 3

What are the implications of the supply side argument ?

Answer 3

There is a shift of burden from the corporations to the citizens. Taxation, labour regulations and environmental regulations represent obstacles to profit so they will be reduced. –> there is a race to the bottom.
Moreover there is also a problem of government accountability: if the citizens demand something, governement cannot always provides it.

Question 4

What is the critique of the supply side argument ?

Answer 4

An investor cares about political risks in emerging markets. There is also a higher risk of crisis.

Question 5

Explain the demand side argument about globalisation

Answer 5

The argument is that compensation is the prerequisite for openness. Indeed, globalization increases social risk. The causal mechanism:
There is a social risk > population objects trade > governement needs to insure voters against risk thanks to compensation > population supports openness.

Question 6

What are the implications of the demand side argument ?

Answer 6

This perspective implies the prevalence of welfare state. There should not be a “race at the bottom”. Left parties should benefit from globalisation as they should offer the policy needed by the loosers. Therefore democracy should works.

Question 7

What is the critique of the demand side argument ?

Answer 7

This perspective ignores economic constraints and assume international cooperation.

Question 8

What supports the demand side argument ?

Answer 8

In a study by Rodrik there is a strong correlation between openness and governement spending.

Question 9

What found out Rhem in his study about demand for compensation ?

Answer 9

Rhem studied the relation between the demand for compensation and 4 characteristics:
1. household income
2. educational degree
3. occupational unemployment rate
4. skill specificity
He found out that
- the bigger the household income, the smaller will be the demand for compensation
- the higher the educational degree, the smaller will be the demand for compensation
- the higher the unemployment rate, the bigger will be the demand for compensation
- the higher the skill specificity, the bigger will be the demand for compensation

Question 10

Which study supports that there is no decline in state capacity

Answer 10

Looking at the fiscal policies, Garrett and Swank demonstrate that there is an increase of corporate tax rates and an increase in governement spending. Consequently there is no decline in state capacity.

Question 11

What can we critique about Garrett and Swank study ?

Answer 11

Their study is too old (1998). Indeed, since the 1990s, government spending has declined.

Question 12

What demonstrates the study of Hays and Franzese ?

Answer 12

The governement spending declined and we see a shift in the tax burden: capital is less taxed compared to the labor. This argument speaks for the supply side argument.

Question 13

Do elections have effects on the financial markets ?

Answer 13

According to Mosley the investors care less about policy variation but more about headline indicators (microevidence).
However a study by Sattler and Phillips found the contrary. Indeed, they demonstrated that markets responded strongly to politics (macroevidence).

Question 14

In developing countries on what do influence trade and finance ?

Answer 14

Trade only effects pensions, health and education as it low social spending. (Kaufman)
Spending and labor institutions: according do Rudra, globalization clearly affects welfare spending. The varable that determines the changes in the spending is labor power.
Tax burden: as developing countries rely a lot on portfolio capitals and FDIs, the tax burden is low on capital, in order to attract foreign investors,

Question 15

What are the 3 types of voting ?

Answer 15

1. retrospective/prospective voting
2. personal, sociotropic voting
3. objective and subjective voting

Question 16

What are the accountability mechanisms ?

Answer 16

• voters hold policymakers accountable retrospectively for past performance
• voters select policymakers propsectively depending on expected future performance
• voters infer information about policymaker competence and hence future performance from past performance

Question 17

In the accountability mechanisms what do we have to care about ?

Answer 17

We have to care about the interfering factors in the responsibility distribution: is the system bi- or multicameral, is the CB dependent or not … ?

Question 18

What are the 2 points of view developed by Hellwig and Samuels ?

Answer 18

1. Constraint view

2. Competence view

Question 19

Explain the constraint view

Answer 19

Accountability declines due to the loss of domestic control over economy by policy makers
+ strategic use

Question 20

Explain the competence view

Answer 20

accountability because governements make a difference: sophisticated voters distinguish between international and domestic causes of economic performance

Question 21

What do we conclude about globalisation and voting ?

Answer 21

the race to the bottom hasn’t happened yet, the suppy side argument was to pessimistic
BUT there are indeed serious constraints imposed on governements by globalization