Natural tural reso esourc rces, es, el electo ectoral ral beh ehaviour viour and social ial spendi ding ng in Latin in America rica Miguel uel Niño-Zaraz arazúa, úa, UNU-WID WIDER R (with T. Addison, UNU-WIDER and JM Villa, IDB)
Ove verview view • Background • The model • Data • Empirical approach • Results • Concluding remarks
Back ckgroun ground • Latin America witnessed an important democratization process since the late 1980s and early 1990s (end of Cold War) that saw many countries in region moving from mili litar tary y dictator ctatorshi hips ps (Bolivia, Chile, Argentina, Brazil, Paraguay, Uruguay) and autho horitar ritarian an regime gimes (Mexico and Central America) towards more competitive political systems • The ‘politisation’ of poverty became a feature of political processes, with civil society more actively demanding a change in the ‘status quo’ • Over the past two decades, social ial assistance istance has emerge erged d as a new welfare lfare paradigm adigm in the figh ght t again ainst st poverty erty and vuln lnerab erabili lity ty. Nearly 900 million people worldwide currently receive income support from SA, 25% of which live in Latin America • Governme vernment nt spending ding on the social ial sector tors s (educ ucati ation on, , health alth and soci cial al assis istance) tance) incre creas ased ed substanti tantiall ally y in LA, from 9.5% of GDP in 1990s to 14% in the first decade of the 2000s
Cumulative flagship social assistance programmes by type Cumulative flagship transfer programme starts by type 180 160 140 120 Number of P rogrammes 100 80 60 40 20 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 In Kind HD-CCT Employment Categorical -- ‐ pension Categorical -- ‐ Other
Ba Back ckground ground • Understanding the underlying mechanisms that drive redistribution decisions of NRR is critical for the development trajectories of resource- rich countries • The use of tax reven enues ues is subject ject to stro rong nger er press ssures res than non-tax ax reven enues ues, especially when non-tax revenues are determined by a windfall of NRR. • Collier and Venables (2010) and Collier (2010) suggest that the reductio ction in accoun untab tability ility for the incumben umbent t that results ults from the abundan ance ce of NNR R leads ds to rent-seek eeking ing behaviou viour and patronag onage • Social cial spending, nding, as a form rm of redistrib istributio ution, can thus be a profitable fitable tool l to acco compli plish sh the political litical object ectives ives of opport rtunistic unistic incumbents umbents
Back ckgroun ground • While in the 1960s, 1970s and early 1980s, Latin in Am America rican authoritar oritarian ian regi gimes es used NRR RR to subsidis sidise e the impo port-sub substit stitut ution ion industriali strialisatio sation model del (Ross, 1999), since ce the 200 000s 0s NRR RR have been used, at least ast partly, ly, to expand nd soci cial al policies licies • This coincided with favo vourab rable le macro roecono economi mic c cond nditions itions, and a demo mocrat cratiza izatio tion n proces cess that favoured redistribution via social spending – In Bolivia, for instance, Evo Morales’ government introduced in 2007 Renta Dignidad, a non-contributory old-age pension scheme. Before 2007, 90% of <65 year old population was unprotected to life cycle contingencies. By decree, it has been funded with a 30% tax on revenues from hydrocarbons = 1.1% of the country's GDP • NRR RR allo low w the incumbent umbent to bypass ss the interdependen erdependent t preference erence problem blem, insofar levying taxes on high income HHs is not a key element in the delivery of income transfers to the poor (Currie and Gahvari, 2008)
Ba Back ckground ground • Robinson (2010) and Caselli and Cunningham (2009) show that a windfall dfall of NRR RR leads ds to high gher er incen entives tives for r the incumb umbent ent to remain main in power wer but it also so lowe wers rs the probab bability ility of survival vival as it results in higher political competition • Recent literature from Latin America and South East Asia (sho hort t term m experiment erimental al and quasi si-exp experim erimental ental resea search rch design signs) s) seem to suggest that cash transfers have been politically profitable insofar they are associated with significant increases in electoral participation and favourable outcomes for the incumbent in Brazil (Zucco 2009), Mexico (De La O, 2013), Colombia (Baez et al., 2012), Indonesia (Julia et al., 2014), and the Philippines (Labonne, 2013) • The microeconomic evidence on the subject remains contested both on methodological and theoretical grounds (Imai, King and Velazco 2017; and Filipovich, Niño-Zarazúa and Santillan, forthcoming)
Ba Back ckground ground • Incumbents in resource-rich countries could decide to redistribute via direct taxation (with a high political cost) or skip accountability and opposition in the redistribution of income by allocating non-tax revenues from natural resources to social spending • How do natura ral l resource ource rent nts s affect t socia cial l spend nding ng decisions, isions, and how these decisions influence the ‘electoral returns’ to the incumben umbent?
Model del: : NR NRR and nd el elec ector toral al be beha haviour viour • We develop a model here left- and right-win politicians interact with liberal and conservative voters in a two periods framework • In the first period, politicians signal their tax policy, while in the second period, the winning incumbent does not have the same redistributive incentives as in the first period. Thus, a tax policy licy stand d may y be modifi dified ed by the presenc sence e of NRR RR that does s not affect ct voters ers dispo posable sable income ome • Voters’ characteristics are given by 𝑥, 𝜀 in which wealth, 𝑥 , varies in the range 𝑥, 𝑥 . The parameter 𝜀 is defined by two political ideologies: 𝜀 𝑑 for conservatives that reject redistribution via direct taxes and 𝜀 𝑚 for liberals who have higher preferences for taxes and redistribution. • Information on 𝑥 is public, while information on 𝜀 is private
Mod odel: el: NR NRR and nd el elec ectoral toral be beha haviour viour • Left- and right-wing candidates are denoted by 𝑥 𝑀 , 𝜀 and 𝑥 𝑆 , 𝜀 𝑙 , respectively, for 𝑘 which, 𝑥 𝑀 < 𝑥 𝑆 . • Conserv servati ative ve voters ters will ill bear r the brunt nt of redi distri stribu bution tion via a direc rect t taxes es more re than liber beral al voters, ers, while ile none e will ll be affected ected by redi distri tribu bution tion via a NRR • The redistribution policy is given by a linear income tax function 𝑈 = 𝛾 ∙ 𝑡𝑡𝑢, 𝑢 − (1 − 𝛾) ∙ 𝑡𝑡𝑢 where 𝒖 𝐣𝐭 a constan nal tax rate, 0 ≤ 𝑢 ≤ 1 stant t margi ginal sst sst is the per-cap capita ta social ial spend ndin ing g transfe nsfer r financed by nrr that are function of exogenous competitive commodity prices, 𝑞 𝑓 , i.e. 𝑡𝑡𝑢 = 𝑡𝑡𝑢 𝑜r𝑠(𝑞 𝑓 , with 𝑜𝑠𝑠′ > 0 and 𝑜𝑠𝑠′′ < 0 .
Model del: : NR NRR and nd el elec ector toral al be beha haviour viour • nt can use 𝒐𝒔𝒔 to reduc The incu cumbe mbent uce the tax burde den n on voters ers due to incre reas ases es in soci cial al g, with the parameter 0 < 𝛾 < 1 . Conservative candidates will choose 𝛾 s close to spend ndin ing, zero while liberal candidates will choose 𝛾 s levels close to 1 • The government budget constraint is thus given by 𝛾 ∙ 𝑡𝑡𝑢 = 𝑢 − 1 − 𝛾 𝑡𝑡𝑢 ∙ 𝜈 , where 𝜈 is mean income • Voters ers utility ility is given ven by: − 1 2 𝑊 𝑗𝑘 𝑢 − 1 − 𝛾 𝑡𝑡𝑢 = 𝜄 𝑑 1 − 𝑢 𝑥 + 𝑢𝜈; 𝛾 ∙ 𝑡𝑡𝑢 𝑢 − 1 − 𝛾 𝑡𝑡𝑢 𝜈 − 𝜀 𝑘 𝜈 2 where 𝑑(∙) is priva sumption and 𝜄 is a param vate te consumption amete eter r indi dicati cating ng the exten tent t to whic ich h voters ers valu lue e consumpti sumption on over er tax policy licy. . The second term indicates a quadratic dratic prefe fere renc nce e for the tax x polic licy y accord cordin ing g the politic litical al orien entat tation on
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