Institutions, democratization, and public finance reform: Latin America after the debt crisis

In the wake of the debt crisis, public finance reform became the key public policy issue facing Latin America. This dissertation examines the role of democratic political institutions in affecting response to the public finance crisis of the 1980s and 1990s.; I contend that political institutions affect policy outcomes to the extent that they facilitate or hinder cooperative mediation of public policy problems such as public finance reform. Two distinct, but often overlapping, sources of conflict in the policymaking arena are identified, distributional and procedural conflict: I emphasize the role of the latter in policy outcomes. It is argued here that procedural conflict is likely to intensify in the wake of a transition from an authoritarian polity toward more democratic rule. Procedural conflict deepens, and is likely to be more prolonged, as the scope of institutional change widens and as decision-making power is less hierarchically structured, as may occur where sub-national actors (governors, mayors) challenge central government authority or where political parties are highly fragmented. In such situations, the resolution of procedural conflict will be hampered by the lack of routines for mediating conflict and the uncertainty generated by the appearance of new actors and the conflicting preferences among them.; The link between political institutions and public sector reform is examined through two methods in this dissertation: first, through a case study of Brazil during the period 1985-1992, and second, through an econometric model that examines the links between institutions and monetary financing of deficits in nine Latin American countries during the period 1982-1991. I find that procedural conflict arising from Brazil's prolonged democratic transition played a significant role in that country's inability to elaborate a comprehensive approach to its public finance crisis. This finding has a counterpart in the cross-national study, where it is argued that, all things being equal, the time horizons of public finance in transitional democracies are shorter than in more established regimes. In particular, transitional administrations experience a "liability of newness" that tends toward the short-term, passive accommodation of fiscal deficits via seignorage (monetary financing of deficits).