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UMI A Bell & Howell Information Company 300 North Zeeb Road, Ann Arbor MI 48106-1346 USA 313/761-4700 800/521-0600 THE IMPACT OF POLITICAL INSTITUTIONS ON PROGRESS WITH HSCAL REFORM: THE CASE OF ARGENTINA IN COMPARATIVE PERSPECTIVE DISSERTAHON Presented in Partial Fulfillment o f the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By John Mark Payne, B.A. ***** The Ohio State University 1998 Dissertation Committee: Approved by Professor Richard Gunther, Adviser Professor William Liddle Professor Felipe Agiiero Adviser Department of Political Science UMI Number: 9834045 UMI Microform 9834045 Copyright 1998, by UMI Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code. UMI 300 North Zeeb Road Ann Arbor, MI 48103 ABSTRACT Despite the tremendous costs to economic well being entailed by runaway inflation and severe economic recession, there was substantial variation among Latin American governments in their capacity to make the adjustments in fiscal policies necessary to avoid such outcomes in the 1980s and 1990s. This study examines the question of why some governments are more willing and able to withstand the heavy social costs associated with fiscal adjustment and reform. In examining this question, it focuses on the sharply contrasting experiences of the Raul Alfonsfn and Carlos Menem governments in Argentina analyzed within a broader comparative setting, which includes, in particular, the experiences of governments in Brazil. Colombia, and Uruguay. The contrasting capacities of governments to preemptively carry out fiscal adjustments and reforms cannot adequately be accounted for by approaches that center the attention on international economic and political pressures, societal group pressures, or the role of the state. Rather I argue that a political institutional approach, in which it is assumed that politicians, operating with a given set of political, social, and economic constraints, rationally weigh the political costs and benefits of different courses of action, can best explain the differences in the outcomes observed. The key political institutional factors which are found to affect governmental willingness and capacity to cany out fiscal adjustments and reforms are: the extent of the government's power to command a majority in the Congress and its power to influence the fiscal behavior of subordinate levels of government. The stance of these factors, however, is shaped by the degree of fragmentation and polarization of the party system, the cohesiveness and discipline of party organizations, the strength of the governing party’s electoral mandate, and the degree of centralization of central governmental authority over the public sector budget. Aside from the above factors, the security of the president’s mandate, which is potentially undermined by threats from the military or guerrilla groups or by mid-term elections, and nature of the relationship between the governing party and key interest groups, is also viewed to influence the willingness and capacity of governments to carry out fiscal adjustments and reforms. Ill ACKNOWLEDGMENTS I would like to thank the numerous people who contributed to my research, including all of those who generously offered their time to be interviewed, and the librarians, archivists, and public officials who provided me access to important documents. 1 would especially like to thank Mario Damill, Roberto Frenkel, and Guillermo Rozenwurcel at El Centro de Estudios del Estado y Sociedad in Buenos Aires for providing me a place in which to base my research, valuable advice, and logistical support in gaining access to key institutions and persons. Carlos Acuna also provided early written and oral feedback on my research ideas and helped orient me in Buenos Aires. I benefited enormously from the advice, comments, criticism, and support provided by my committee members, Felipe Agiiero, Richard Gunther, and William Liddle. They taught me a lot about the art of grant writing and helped me focus my ideas as 1 was preparing to do the field research. And, their criticisms and suggestions on earlier drafts of these chapters helped sharpen the clarity of the argument and made them more readable. But. tliey share none of the responsibility for whatever deficiencies that continue to exist in respect to the presentation of the argument or the conceptual and empirical rigor of the research. 1 gratefully acknowledge the generous financial support of the Tinker Foundation and the Latin American Studies Center at Ohio State University, the Graduate School at Ohio State University, and the Fulbright Commission. Grants from these institutions permitted me to go to Buenos Aires for an initial round of research and then a seven month trip the following year. The iv people at the Argentine Fulbright office were also particularly helpful in providing me important information and other forms of support during my stay in Buenos Aires. I also thank my good friends in Buenos Aires. Martin Pierrepont and Eduardo Feldman, who taught me a lot about Argentine politics and culture, helped improve my Spanish, and introduced me to several of the people with whom I interviewed or from whom I asked advice. Only through their friendship was the long time away from family made bearable. Tom Rotnem was also an inspirational friend in Columbus whose example showed me that diligent work pays off eventually. I also owe a debt of immense gratitude to my parents who provided me much guidance and support throughout my whole life and whose example motivated me to pursue an advanced degree. I am indebted greatly to Patty Me Andrew, who provided constant love, encouragement, and support despite my frequent, and at times, long physical absences from the family and the absorption of time and attention entailed by the thesis work. Finally, Andrew and Megan, who were bom while this project was underway, provided me much inspiration, helped keep my life in balance, constantly lifted my spirits, and provided much amusement. VITA May 17, 1963 Bom - Lynchburg, VA 1985 ........................................................................... B.A. Physics, Bates College 1988-1997 ................................................................ Graduate Teaching and Administrative Associate, The Ohio State University FIELDS OF STUDY Major Field: Political Science VI TABLE OF CONTENTS Abstract................................................................................................................................................... ii Acknowledgments ................................................................................................................................ iv Vita vi List o f Tables x Chapters 1. Explaining Progress with Fiscal Reform and Adjustment in Latin America: The Role of Political Institutions. ......................................................................................... 1 Introduction ............................................................................................................................................. 1 The Argentine Case: The Contrasting Experiences of Menem and Allons in .............................. 8 Political Dilemma: Choosing Between Unappealing Alternatives .............................................. 12 Redistributive Characteristics of Neo-Liberal Tax Reform. .......................................................... 16 Why in Many Cases Are Economically Beneficial Reforms Delayed? ..................................... 20 Approaches to Explaining Fiscal Policy Choices ............................................................................ 23 Societal Theories .................................................................................................................................... 24 The State in Economic Policy-Making. ............................................................................................ 27 A Political-Institutional Approach. .................................................................................................... 29 The Selection of Cases ........................................................................................................................