Eaton Front Matter
6/4/02
1:40 PM
Page i
Politicians and Economic Reform in New Democracies
Eaton Front Matter
6...
53 downloads
559 Views
6MB Size
Report
This content was uploaded by our users and we assume good faith they have the permission to share this book. If you own the copyright to this book and it is wrongfully on our website, we offer a simple DMCA procedure to remove your content from our site. Start by pressing the button below!
Report copyright / DMCA form
Eaton Front Matter
6/4/02
1:40 PM
Page i
Politicians and Economic Reform in New Democracies
Eaton Front Matter
6/4/02
1:40 PM
Page ii
Eaton Front Matter
6/4/02
1:40 PM
Page iii
Politicians and Economic Reform in New Democracies ARGENTINA AND THE PHILIPPINES IN THE 1990s
KENT EATON
T H E P E N N S Y LVA N I A S TAT E U N I V E R S I T Y P R E S S U N I V E R S I T Y PA R K , P E N N S Y LVA N I A
Eaton Front Matter
6/4/02
1:40 PM
Page iv
Disclaimer: Some images in the original version of this book are not available for inclusion in the eBook.
Library of Congress Cataloguing-in-Publication Data Eaton, Kent, 1968– Politicians and economic reform in new democracies : Argentina and the Philippines in the 1990s / Kent Eaton. p. cm. Includes bibliographical references and index. ISBN 0-271-02193-4 (cloth : acid-free paper) 1. Taxation—Developing countries—Case studies. 2. Taxation—Argentina. 3. Taxation—Philippines. 4. Fiscal policy—Political aspects—Case studies. 5. Elections—Argentina. 6. Elections—Philippines. 7. Democratization— Economic aspects—Case studies. I. Title. HJ2351.7 .E28 2002 336.2'009599—dc21 2001055297
Copyright © 2002 The Pennsylvania State University All rights reserved Printed in the United States of America Published by The Pennsylvania State University Press, University Park, PA 16802-1003 It is the policy of The Pennsylvania State University Press to use acid-free paper for the first printing of all clothbound books. Publications on uncoated stock satisfy the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48–1992.
Eaton Front Matter
6/4/02
1:40 PM
Page v
To the memory of my father and brother, MORRIS EATON and KEVIN EATON
Eaton Front Matter
6/4/02
1:40 PM
Page vi
Eaton Front Matter
6/4/02
1:40 PM
Page vii
Contents
List of Tables and Figures Acknowledgments xi
ix
PART I INTRODUCTION 1 2 3
Why Study Legislators and Economic Reform? 3 Legislators and the Politics of Reform 29 The Logic of Fiscal Adjustment in Developing Countries
61
PART II REFORM EXPERIENCES 4 5 6 7
Policy Reform in a Candidate-Centered Electoral System: The Philippines 91 Policy Reform in a Party-Centered Electoral System: Argentina Legislators and Bureaucratic Reform 169 Legislators and Decentralization 203 PART III CONCLUSION
8 9 10
Beyond Taxation: Other Reform Arenas in the Philippines and Argentina 237 Tax Reforms in Other Developing Countries 263 Theoretical Perspectives and Implications 289 Appendix: Interviews References 311 Index 333
307
vii
129
Eaton Front Matter
6/4/02
1:40 PM
Page viii
Eaton Front Matter
6/4/02
1:40 PM
Page ix
TA B L E S A N D F I G U R E S
TABLES 2.1 Reelection rates for legislators in a select group of countries 45 3.1 Contribution of tax receipts to the economic crisis in selected developing countries 70 3.2 Distribution of tax revenue among different levels of government in selected developing countries 77 3.3 Share of taxes on international trade in total tax revenue in Latin America 79 3.4 Comparison of the range of tax rates on personal and corporate income in Latin America 83 4.1 Business interests of legislators in the ninth House of Representatives, 1992–1995 99 4.2 EVAT exemptions and their cost in forgone revenue, 1993 and 1994 117 4.3 Exemptions approved at different stages in the IVAT legislation, 1996 124 5.1 Post held by deputies from the class of 1991–1995 as of mid-1998 138 5.2 Malapportionment in the Argentine legislature 139 5.3 District magnitude and percentage of individuals with unsatisfied basic needs by province 140
ix
Eaton Front Matter
x
6/4/02
1:40 PM
Page x
TABLES AND FIGURES
5.4 Deputies representing each province and provincial population, 1914–1991 142 5.5 The performance of the value-added tax in Argentina, 1989–1995 148 5.6 Percentage of seats held by the Peronists, 1989–1995 149 5.7 Revenue transfers by province in Argentina 152 5.8 Number and percentage of Peronist legislators by province 153 5.9 Six examples of policy exchanges between Peronist legislators and the president 158 6.1 Thirty enterprise-specific VAT exemptions repealed by the EVAT in the Philippines 177 6.2 Number of denunciations received by the DGI, 1989–1995 196 6.3 Closures of businesses suspected of tax evasion by DGI inspectors, 1989–1995 198 6.4 The size of the DGI budget approved by the legislature, 1990–1995 200 7.1 The impact of automatic revenue sharing on transfers to local governments in the Philippines, 1990–1994 208 7.2 Peronist legislative seats and gubernatorial offices in Argentina, 1983–1991 225 7.3 Automatic vs. nonautomatic revenue transfers in Argentina, 1992–1996 230
FIGURES 6.1 Organizational chart of the public finance bureaucracy before reform 184 7.1 Provincial shares in automatic revenue sharing in Argentina, 1934–1987 223
Eaton Front Matter
6/4/02
1:40 PM
Page xi
ACKNOWLEDGMENTS
In the course of writing this book, I was fortunate to count on the generous support of numerous institutions and individuals, which I gratefully acknowledge. The Fulbright Foundation, the Woodrow Wilson International Center for Scholars, and the Center for International and Area Studies at Yale University all provided financial support for my dissertation research in Argentina. Fieldwork in the Philippines was made possible by a dissertation grant from the National Security Education Program. Subsequent trips to each country were financed by the Program in Latin American Studies, the University Committee on Research in the Humanities and Social Sciences, and the Center of International Studies of the Woodrow Wilson School, all at Princeton. I owe a great debt to the many politicians, bureaucrats, and scholars in Argentina and the Philippines who shared with me valuable comments, suggestions, and resources. In Argentina, I am particularly to Juan Carlos Gomez-Sabaíni, Ana María Mustapic, Oscar Bertea, Jorge Macón, Raúl Cuello, Marcelo Bergman, Sergio Berensztein, Gabriel Casaburi, Carlos Gervasoni, Alberto Porto, Enrique Bulit Goni, Carlos Acuña, Rossana Surballe, Mariano Tommasi, Valeria Palanza, and Gisela Sin. The Instituto de Desarrollo Económico y Social and the Buenos Aires Fulbright staff provided useful administrative support. In the Philippines, I am particularly grateful to Finance Undersecretary Milwida Guevara for providing extremely valuable contacts and information, including her own dissertation on tax reform. I also wish to thank a number of others for facilitating my research in Manila, including Susan
xi
Eaton Front Matter
xii
6/4/02
1:40 PM
Page xii
ACKNOWLEDGMENTS
Bulan, Romulo Neri, Ronald Diaz, Amando Doronila, Eric Gutierrez, Rosario Manasan, Ponciano Intal, Alex Magno, Rachel Morala, Etta Rosales, Joel Rocamora, and Angel Yoingco. Paul Hutchcroft and Mark Thompson helped me plan my research trip to Manila, and Helen Mendoza’s guest house provided an excellent living and working space. I would also like to thank Tim Kessler and Nadia Roumani for enriching my followup research trip in 2000. Members of my dissertation committee gave generously in their support of the research on which this study is based. Sylvia Maxfield’s approach to comparative political economy profoundly shaped the way I designed and executed this project, and I owe much to her mentoring. Frances Rosenbluth guided me through the literature on electoral institutions at an important point in my graduate study. Like so many of the comparativists produced by Yale’s political science department, I depended greatly on David Cameron’s guidance and kindness. I am thankful for each of the many thought-provoking conversations I have had with Juan Linz, and for the example he provided in his remarkable dedication to graduate students. Allen Carlson, Marie Gottschalk, and Eva Bertram were terrific colleagues as graduate students, and I am especially grateful to Luz María de la Mora, whose friendship is one of the most valuable things I acquired in New Haven. I owe many personal and intellectual debts to my colleagues at Princeton, including Gary Bass, Sheri Berman, Kate McNamara, Anna Seleny, Kathryn Stoner-Weiss, Eric Thun, Atul Kohli, Jeffrey Herbst, Jeremy Adelman, Paul Sigmund, Nancy Bermeo, Michael Doyle, and most of all, Deborah Yashar. Edna Lloyd and Jerri Horner have provided much-appreciated administrative support. Mark Jones was a tremendous resource to me throughout this project, helping me plan the first stages of research in Buenos Aires and reading and commenting on the entire manuscript years later. I am also grateful to John Carey, Mathew Shugart, David Samuels, Karen Remmer, Barry Ames, Eliza Willis, Alberto Díaz-Cayeros, Scott Morgenstern, Benito Nacif, Eduardo Gómez, Gretchen Casper, and Carl Landé for comments on earlier papers or the final manuscript. I alone am responsible for any errors of fact or interpretation. I am also grateful to Scott Morgenstern, Benito Nacif, Victoria Murrillo, Arun Agarwal, and Courtney Jung for inviting me to present portions of my research in talks at their respective universities. This book draws on material that appeared in “Political Obstacles to Decentralization: Evidence from Argentina and the Philippines,” Development and Change 32, 1, (January 2001).
Eaton Front Matter
6/4/02
1:40 PM
Page xiii
ACKNOWLEDGMENTS
xiii
Throughout this project, I benefited enormously from the perspective offered by great friends who are not political scientists, including Camelia Baray, Lisa Nudel Bass, Adam Gwosdof, Susan Stellin, Julia Clarke, Katie Fleet, and especially Annie Kaufman. My sisters Kelly and Kim and brothers-in-law Andy and Mike have offered me constant encouragement over the years, and I am particularly thankful for the wonderful distractions provided by visits to and from their children, Rachel, Maggie, Cole, Kevin, and Megan. The amazing strength of character of my mother, Patricia Eaton, was a major inspiration in completing this project. Finally, I am especially grateful to Karl Britto for sharing with me the many ups and downs of life as a graduate student and assistant professor, and for putting up with the long commute between Berkeley and Princeton. Without his support and understanding, I could not have written this book.
Eaton Front Matter
6/4/02
1:40 PM
Page xiv
Eaton Part 1 5/13/02 12:08 AM Page 1
PART ONE INTRODUCTION
Eaton Part 1 5/13/02 12:08 AM Page 2
Eaton Chapter 1 5/13/02 12:09 AM Page 3
1 WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
In scores of developing countries, legislatures are emerging from dormant periods to claim much more central roles in national political life. Examples of this historic transformation can be seen in some of the most unlikely places. Thanks to electoral returns in the late 1990s that revoked the governing party’s seven-decade hold on the presidency, the Mexican legislature has shaken off its rubber-stamp image and become a site where real policy debates occur. In Indonesia, after three decades of one-man rule under Suharto, the democratic transition has shifted power to the assembly, which now regularly interpellates government ministers. In El Salvador, former combatants in the country’s long and brutal civil war now sit together in the same legislature. In most developing countries, the political transitions that opened or reopened legislatures occurred in tandem with an equally profound transition from one economic development model to another. The confluence of these political and economic transitions begs an important question: In the many new democracies that are undergoing economic reform, do legislators actually make economic policy? How do they influence policy decisions,
3
Eaton Chapter 1 5/13/02 12:09 AM Page 4
4
INTRODUCTION
and what might explain the content of their policy preferences? These questions about legislators are relevant because they have direct bearing on economic liberalization and democratic consolidation, two of the most important changes under way in the contemporary developing world. Investigating the policy role played by legislators provides a fresh analytical perspective on the market-oriented economic reforms that have rightly received so much attention from scholars. For example, verifying the extent of legislators’ participation in policy reforms sheds light on the question of their sustainability. When economic reforms are implemented despite the opposition of legislators and over their heads, questions arise about the degree to which these new economic policies can be considered consolidated in the long run. The extent to which legislators participate in policymaking strongly influences whether domestic and foreign investors perceive reforms as sustainable or temporary, which in turn may shape overall investment levels and growth possibilities. At the same time, the content of legislators’ policy preferences is an important place to look for explanations of the variation that characterizes different countries’ responses to common external pressures for economic reform. This variation in the outcome of similar reform efforts is not merely of academic interest––it has important implications for some of the most pressing economic issues of the day. For example, when countries that belong to the same regional trade group reduce the range of tariff rates and eliminate nontariff barriers to markedly different extents, such actions create challenges for the deepening of regional integration efforts.1 When developing countries endow their central banks with varying degrees of independence from political influence, this variation influences both the content and direction of international capital flows.2 When some developing countries significantly cut the marginal tax rate on corporate income, they may attract direct foreign investment away from other developing countries and trigger the adoption of beggar-thy-neighbor tax policies that degrade fiscal revenues overall.3 In an increasingly interdependent world, such variation in the adoption of pro-market policies has enormous direct and indirect consequences. Legislators and the legislative bodies they constitute can be understood as filters that help explain how general, systemic pressures like the globaliza1. Stephan Haggard, Developing Nations and the Politics of Global Integration (Washington, D.C.: Brookings Institution, 1995). 2. Sylvia Maxfield, Gatekeepers of Growth (Princeton: Princeton University Press, 1997). 3. Vito Tanzi, Taxation in an Integrating World (Washington, D.C.: Brookings Institution, 1995).
Eaton Chapter 1 5/13/02 12:09 AM Page 5
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
5
tion of capital markets are translated into different policies. Although reforms such as privatization, tariff liberalization, and tax reform are virtually everywhere the subject of great debate, they elicit different responses from legislators, with the result that actual policy outputs often vary crossnationally in important ways. Legislators also need to be integrated into the study of economic reform because of changes in the nature of the policies that now dominate the reform agenda. In scores of developing countries, reform efforts have shifted from macroeconomic stabilization measures that typically involve only a handful of officials in the executive branch to liberalization measures in which a broader set of actors participates. In the political struggles over these so-called second-stage reforms, legislators, along with a host of other state actors like judges, regulators, governors, and mayors, have become more rather than less important.4 In addition to explaining variation across time and space in the economic transition toward a more liberal development model, legislators can also help us better understand equally wrenching political transitions. How legislators participate in the making of critical policy decisions is likely to affect the prospects for democratic consolidation.5 In many developing countries, what Huntington has called the third wave of democratization more or less coincided with the onset of the foreign debt crisis in the 1980s, which gradually convinced policymakers to rethink previous, state-led development strategies. Economic crisis demanded drastic and profound responses at a time that legislators were just gaining or regaining their footing after sometimes-lengthy periods of nondemocratic rule. Unsurprisingly, the combination of democratization and economic crisis tended to result in the continued concentration of power over policy in the executive branch. Though the third wave of democratization has suffered fewer outright reversals than early observers feared, one of the chief obstacles to the consolidation of democracy has been the partial exclusion of representative institutions from key policymaking channels. Representative democracy requires
4. Moises Naim, “Latin America: The Second Stage Reform,” in Larry Diamond and Marc Plattner, eds., Economic Reform and Democracy (Baltimore: Johns Hopkins University Press, 1995), 28–44. 5. Linz and Stepan argued that a democracy is consolidated when all important actors “become subjected to, and habituated to, the resolution of conflict within the specific laws, procedures, and institutions sanctioned by the new democratic process.” Juan Linz and Alfred Stepan, Problems of Democratic Transition and Consolidation (Baltimore: Johns Hopkins University Press, 1996), 6.
Eaton Chapter 1 5/13/02 12:09 AM Page 6
6
INTRODUCTION
that the people’s elected representatives—legislators and not just chief executives—hold real policymaking authority. Limited policy roles for legislators may not lead to the actual breakdown of democracy, but in many cases the deepening of democracy requires more participation by legislators. In this respect, one challenge facing researchers is to substantiate the policy roles that legislators play in different countries and to explore how these differences help explain cross-national variation in the degree to which democracy is consolidated. Studying legislators as policy actors also promises to illuminate the nature of accountability and representation in new democracies. One of the chief dilemmas of democratic consolidation involves deepening two types of accountability: horizontal accountability among different state actors and vertical accountability of policymakers to citizens.6 By checking executive abuses in the policy arena, legislators can increase horizontal accountability; by delivering the policies that voters elect them to adopt, legislators can improve vertical accountability.7 With respect to the nature of representation, analysts can use legislators’ policy preferences for information about which sets of constituents tend to be privileged in the political system and which tend to be ignored. Investigating which interests get represented in legislative bodies and which have a more difficult time attracting the attention of legislators is a standard research question for the advanced industrial democracies, but rather new for the many democracies that became democratic in the last quarter of the twentieth century. Although legislators are critical participants in the twin phenomena of economic reform and democratic consolidation, this study focuses explicitly on the former question. Its main empirical goal is to demonstrate the impact that legislators’ institutional incentives have on the economic policy positions they adopt. How legislators exercise their policy roles is likely to influence democratic consolidation in a variety of ways, but an empirical analysis of this influence is beyond the scope of this study. As a result, it is variation in economic policy outcomes rather than variation in the level of democratic consolidation that receives most of the attention in this book. The first section of this chapter surveys the literature on legislators and the politics of economic reform. The second section briefly introduces my 6. Guillermo O’Donnell, “Horizontal Accountability in New Democracies,” in Andreas Schedler, Larry Diamond, and Marc Plattner, eds., The Self-Restraining State (Boulder: Lynne Rienner Press, 1999), 29–51. 7. Adam Przeworski, Susan Stokes, and Bernard Manin, eds., Democracy, Accountability, and Representation (New York: Cambridge University Press, 1999).
Eaton Chapter 1 5/13/02 12:09 AM Page 7
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
7
own argument about legislators and how they shape reform outcomes. The third section explains this study’s focus on legislators in two contrasting cases, Argentina and the Philippines, and the last section presents an outline of the chapters that follow.
Legislators in Developing Countries The Current Literature Initially, research on the democracies that emerged in the 1980s and 1990s focused on actors other than elected representatives. Chief executives, civil society actors, and military organizations all figured prominently in this early literature.8 More recently, however, legislators, the assemblies in which they serve, and their relations with the executive branch have all become primary objects of study, particularly for a group of scholars working in the new institutionalist paradigm. For example, in research that challenged the causal link between presidentialism and the breakdown of democracy, Shugart and Carey brought to light a great deal of variation among presidential systems in the ways that their constitutions divide legislative authority between presidents and legislators.9 A number of important studies have focused on Latin American legislatures in particular. Mainwaring and Shugart’s Presidentialism and Democracy in Latin America brought together much valuable information on the functioning of legislative and executive branches in the region.10 Focusing directly on legislatures, Morgenstern and Nacif’s Legislative Politics in Latin America explored variation in the electoral and partisan incentives 8. Samuel Huntington, The Third Wave of Democratization (Norman: University of Oklahoma Press, 1991); Terry Karl, “Dilemmas of Democratization in Latin America,” Comparative Politics (October 1990), 1–21; and Guillermo O’Donnell, Philippe Schmitter, and Laurence Whitehead, eds., Transitions from Authoritarian Rule (Baltimore: Johns Hopkins University Press, 1986). 9. Matthew Shugart and John Carey, Presidents and Assemblies (New York: Cambridge University Press, 1990). Their subsequent volume furthers the research agenda on legislators by positing and testing hypotheses about when and why legislators delegate decree authority to chief executives. John Carey and Matthew Shugart, Executive Decree Authority (New York: Cambridge University Press, 1998). 10. Scott Mainwaring and Matthew Shugart, eds., Presidentialism and Democracy in Latin America (New York: Cambridge University Press, 1997). See also Stephan Haggard and Matthew McCubbins, Presidents, Parliaments, and Policy (New York: Cambridge University Press, 2001).
Eaton Chapter 1 5/13/02 12:09 AM Page 8
8
INTRODUCTION
facing legislators in different Latin American countries and evaluated some policy consequences of these incentives.11 In addition to these multicountry volumes, a number of monographs have deepened the understanding of legislatures in developing countries.12 Together these works suggest that the study of legislators and legislative institutions in developing countries is now a vibrant subfield. The research challenges are considerable, however, because so many new legislatures have been instituted in recent years and so little is known about them. Despite this increasingly sophisticated body of research on legislators in developing countries, the sizable literature on the politics of economic reform has not given legislators much serious attention. Scholars in this literature generally employ either a state-centered or a society-centered framework in their approach to economic reform.13 For example, analysts working in a statist perspective have traced reform outcomes to the degree of autonomy enjoyed by executive-branch officials and to the choices made by technocratic policymakers in the state.14 In contrast, advocates of group- and sector-based approaches have generally looked to actors outside the state for explanations of reform.15 Still other scholars have focused on a series of 11. Scott Morgenstern and Benit Nacif, eds., Legislative Politics in Latin America (New York: Cambridge University Press, 2002). 12. Barry Ames, The Deadlock of Democracy in Brazil (Ann Arbor: University of Michigan Press, 2001); John Carey, Term Limits and Legislative Representation (New York: Cambridge University Press, 1998); Brian Crisp, Democratic and Institutional Design (Stanford: Stanford University Press, 2000); John Londregan, Legislative Institutions and Ideology in Chile (New York: Cambridge University Press, 2001); and Peter Siavelis, The President and Congress in Postauthoritarian Chile (University Park: The Pennsylvania State University Press, 2000). 13. For a review, see Merilee Grindle and John Thomas, Public Choices and Policy Change: The Political Economy of Reform in Developing Countries (Baltimore: Johns Hopkins University Press, 1991). 14. Examples include Miguel Centeno, Democracy Within Reason: Technocratic Revolution in Mexico (University Park: The Pennsylvania State University Press, 1994); Grindle and Thomas, Public Choices and Policy Change; Stephan Haggard and Robert Kaufman, eds., The Politics of Economic Adjustment (Princeton: Princeton University Press, 1992); John Waterbury, Exposed to Innumerable Delusions: Public Enterprise and State Power in Egypt, India, Mexico, and Turkey (New York: Cambridge University Press, 1993); and John Williamson, “In Search of a Manual for Technopols,” in John Williamson, ed., The Political Economy of Policy Reform (Washington, D.C.: Institute for International Economics, 1994), 9–28. 15. See, for example, Francisco Durand and Eduardo Silva, eds., Organized Business, Economic Change, and Democracy in Latin America (Miami: North-South Center Press, 1998); Jeffrey Frieden, Debt, Development, and Democracy (Princeton: Princeton University Press, 1991); Sylvia Maxfield and Ben Ross Schneider, Business and the State in Developing Countries (Ithaca: Cornell University Press, 1997); M. Victoria Murrillo, “From Populism to Neoliberalism: Labor Unions and Market Reforms in Latin America,” World Politics 52, 2 (January 2000): 135–74; Hector Schamis, “Distributional Coalitions and the Politics of Economic
Eaton Chapter 1 5/13/02 12:09 AM Page 9
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
9
variables including ideational change, external actors and forces, and the extent of capital flight.16 As Nelson argued, “There is no general theory of the politics of adjustment,” but instead “a number of different theories and bodies of research.”17 Yet for all their differences, participants in the debate over adjustment politics have endorsed, either explicitly or implicitly, similar views of legislators. Two related but distinct arguments about legislators are especially salient in the literature. The first concerns the content of legislators’ policy preferences vis-à-vis economic adjustment, and the second relates to the extent of legislators’ participation in the adjustment process. The Content of Legislators’ Policy Preferences The first view sees legislators as consistently and universally opposed to economic-reform measures in most policy areas. According to this homogeneous view of legislators and their policy preferences, legislators resist reform because they are everywhere beholden to the particular individuals, enterprises, and groups whose interests are threatened by reforms that shrink the state.18 As a result, legislators are either able to act on their preferences Reform in Latin America,” World Politics 51, 2 (January 1999): 236–68; and D. Michael Shafer, Winners and Losers: How Sectors Shape the Developmental Prospects of States (Ithaca: Cornell University Press, 1994). 16. On ideational change, see Jorge Domínguez, ed., Technopols: Freeing Politics and Markets in Latin America in the 1990s (University Park: The Pennsylvania State University Press, 1997); and Miles Kahler, “Orthodoxy and Its Alternatives: Explaining Approaches to Stabilization and Adjustment,” in Joan Nelson, ed., Economic Crisis and Policy Choice (Princeton: Princeton University Press, 1990), 33–61. On external factors, see Barbara Stallings, “International Influence on Economic Policy: Debt, Stabilization, and Structural Reform,” in Haggard and Kaufman, Politics of Economic Adjustment, 41–88. On capital flight, see James Mahon, Mobile Capital and Latin American Development (University Park: The Pennsylvania State University Press, 1996). 17. Joan Nelson, “Introduction: The Politics of Economic Adjustment in Developing Nations,” in Nelson, Economic Crisis, 17. 18. This “obstructionist” view of legislators as exclusively responsive to narrowly particularistic and geographical interests has deep roots in the earlier literature on modernization. Huntington, for example, saw legislatures in countries undergoing modernization as the quintessential example of weak political institutions, dominated by landowning elites who used them for parochial purposes. See Samuel Huntington, Political Order in Changing Societies (New Haven: Yale University Press, 1968), and Allan Kornberg and Lloyd Musolf, eds., Legislatures in Developmental Perspective (Durham: Duke University Press, 1970). Research on the causes of democratic breakdown likewise emphasized the parochial orientation of legislators in developing countries. For example, Linz found that disloyal behavior by legislators, often provoked by their desire to defend particularistic policies against the reform proposals of chief
Eaton Chapter 1 5/13/02 12:09 AM Page 10
10
INTRODUCTION
and successfully block reform efforts, or, alternatively, they are circumvented by reformers in the executive branch, who calculate that they must centralize policymaking authority to deliver reform. One important series of arguments that follows from this homogeneous view of legislators is that the prospects for reform are enhanced when representative institutions perform a limited policy role. According to this view, economic reform depends on the insulation of decision makers in the executive branch of the state and the sidelining of representative institutions like the legislature. For example, Haggard and Kaufman argued that the initiation of policy reforms is enhanced by the insulation of executive-branch decision makers.19 According to Nelson, “governments that adopted broadgauged adjustment programs shared a common syndrome of strong and autonomous central executive authority.”20 Waterbury attributed responsibility for the reform of public enterprises to technocratic “change teams” who operate outside routine decision-making channels.21 Acuña and Smith likewise traced the adoption of reform policies in Latin America to the concentration of decision-making authority in the executive branch.22 Finally, in its influential review of the East Asian economic miracle, the World Bank similarly traced the successful adoption of market-friendly policy reforms to a constrained policy role for legislatures.23 The argument that power must be concentrated for reform to occur has produced many critics, but even these critics make similar assumptions about legislators and economic reform. For example, responding to some of the scholars discussed above, Bresser Pereira, Maravall, and Przeworski argued that economic reforms are unsustainable and undermine democracy when representative institutions play less than an authentic role in shaping reform policies. They criticized the policy style associated with neoliberal reforms, according to which “legislators are trained to think they have no
executives, contributed to the breakdown of democracy in many countries. Juan Linz, The Breakdown of Democracy (Baltimore: Johns Hopkins University Press, 1978). 19. Haggard and Kaufman, Politics of Economic Adjustment, 19. 20. Nelson, Economic Crisis, 328. 21. John Waterbury, “The Heart of the Matter? Public Enterprise and the Adjustment Process,” in Haggard and Kaufman, Politics of Economic Adjustment, 183. 22. Carlos Acuña and William Smith, “The Political Economy of Structural Adjustment: The Logic of Support and Opposition to Neoliberal Reform,” in William Smith, Carlos Acuña, and Eduardo Gamarra, eds., Latin American Political Economy in the Age of Neoliberal Reform (Miami: University of Miami North-South Center, 1994), 22. 23. World Bank, The East Asian Miracle: Economic Growth and Public Policy (Washington, D.C.: Oxford University Press, 1993).
Eaton Chapter 1 5/13/02 12:09 AM Page 11
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
11
role to play in policy elaboration,” while executives simply ram reforms through legislatures.24 In arguing that legislators must be allowed to respond to their constituents’ preferences by actually modifying reform legislation, the authors assumed that these modifications necessarily involve attempts to weaken reform efforts. Absent from their analysis is a sustained discussion of possible sources of variation in the degree of legislators’ responsiveness to constituents and in the identity of these constituents (i.e., whether legislators privilege party leaders, businesses located in their electoral districts, or some other constituent group). Although Bresser Pereira, Maravall, and Przeworski significantly advanced the debate over how to evaluate the success of adjustment measures, their conception of the link between reform opponents and legislators is as undertheorized as it is in the work of the scholars they criticize. This view of legislators as implacable reform opponents pervades the literature on adjustment more generally. For example, in the significant body of research linking regime type with adjustment outcomes, scholars have increasingly noted that democracies are not so disadvantaged in their ability to pursue economic reform relative to authoritarian regimes as was once assumed.25 This finding, however, is generally interpreted as reflecting the reality that democracies can approximate the concentration of power characteristic of nondemocratic regimes, without challenging whether this concentration is indeed a condition for reform. The possibility that legislators in some democracies actually support reform is relatively unexplored.26 The undifferentiated view of legislators as reform opponents is also present in most work on political business cycles and the sequencing of reform efforts.27 Here the assumption is that legislators in different countries do not differ significantly in their policy preferences: As elections near, they all accelerate efforts to use the policy process to deliver particular policy favors. 24. Luiz Carlos Bresser Pereira, Jose María Maravall, and Adam Przeworski, Economic Reforms in New Democracies (New York: Cambridge University Press, 1993), 9. 25. Karen Remmer, “The Politics of Economic Stabilization: IMF Stand-by Programs in Latin America, 1954–1984,” Comparative Politics 19, 1 (1986): 1–24; and Stephan Haggard, “The Politics of Adjustment: Lessons from the IMF’s Extended Fund Facility,” International Organization 39, 3 (1985): 505–34. 26. Remmer offered a partial exception with her argument that voters in Latin America have rewarded the parties of presidents who implement reform. See Karen Remmer, “The Political Economy of Elections in Latin America,” American Political Science Review 87, 2 (1993): 393–407. 27. For example, see Sebastian Edwards, “The Political Economy of Inflation and Stabilization in Developing Countries,” Economic Development and Cultural Change 42 (1994): 235–66; and James Malloy and Mitchell Seligson, eds., Authoritarians and Democrats: Regime Transition in Latin America (Pittsburgh: University of Pittsburgh Press, 1987).
Eaton Chapter 1 5/13/02 12:09 AM Page 12
12
INTRODUCTION
The failure on the scholarly front to theorize adequately legislators’ policy preferences vis-à-vis adjustment is complemented by a fair amount of “congress bashing” on the ground. In many newly established democracies, the misleading view that legislators are by definition opposed to economic reform is frequently propagated by individuals in the executive branch. Chief executives in developing countries often use the bully pulpit to excoriate the legislature for allegedly making reform impossible through normal democratic channels. Strategic concerns often encourage these actors to overstate the legislature’s hostility to reform as a means of justifying the further concentration of power. For example, the Peruvian president Alberto Fujimori cited the legislature’s hostility to reform in his April 1992 decision to close the legislature and usurp complete legislative powers for himself, despite the fact that legislators were more concerned with protecting their constitutional roles than with opposing the substance of the president’s proposals.28 In his August 1996 resignation speech, the Argentine economic minister Domingo Cavallo likewise bashed the legislature for dragging its feet on economic reform, despite the fact that it had accompanied the government on its most important policy proposals. According to Cavallo, “every congress in the world has a difficult time eliminating privileges that have already been granted.”29 Thus, the view that legislators take homogeneous positions against contemporary economic reforms is articulated by a broad and influential set of academics and policymakers alike. The Extent of Legislators’ Participation in Policy Reform According to the second view about legislators in the adjustment literature, legislators simply do not participate in the policy process in a substantive manner, no matter what their specific policy preferences might be.30 Because
28. Gregory Schmidt, “Presidential Usurpation or Congressional Preference? The Evolution of Executive Decree Authority in Peru,” in Carey and Shugart, Executive Decree Authority, 110–13. 29. Clarín, February 4, 1996, 2. 30. Though I attempt to keep these two views separate for analytical purposes, many scholars endorse both the “obstructionist” and “irrelevant” images of legislators. As an example, Cavarozzi argued that “Latin American legislatures tended to become subordinated appendages of executive power or, alternatively, barricades from which the most privileged economic and social sectors defended their prerogatives.” The barricade image refers to the content of legislators’ preferences, and the appendage view suggests the (insignificant) extent of their participation. See Marcelo Cavarozzi, “Politics: A Key for the Long Term in South America,” in Smith, Acuña, and Gamarra, Latin American Political Economy, 131.
Eaton Chapter 1 5/13/02 12:09 AM Page 13
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
13
of various factors, including alleged indifference to policy outcomes, insufficient resources, and lack of appropriate policy training, legislators in new democracies presumably fail to shape the process by which policies are adopted and implemented. They are thus deemed irrelevant for the study of contemporary economic reforms in developing countries. Adjustment policies are understood as the purview of chief executives and their top advisers, interest groups, sectoral representatives, and international financial institutions, but not of legislators. Legislators may be used by chief executives and bureaucrats to legitimate various policy decisions, but they do not significantly shape the content of those decisions or the subsequent policy implementation process. In this view, even ordinary citizens participating in demonstrations and protests can influence the reform process more significantly than can their elected representatives.31 The argument that legislators do not significantly shape policy outcomes is both implicit and explicit in contemporary research on economic liberalization. By simply not conducting much in the way of serious research into legislators and the nature of their response to adjustment policies, many scholars effectively deny a significant role for them.32 Others are more explicit in denying policy roles for legislators. For example, in their survey of policy elites in developing countries, Grindle and Thomas argued that legislators cannot accurately be thought of as policy elites. Though the authors’ central argument is that decision makers in the state enjoy much policy discretion and “are not simply forced by events, interest-group pressures, or external agencies to make particular choices,” heads of state, ministers, and bureaucrats are depicted as the relevant sets of decision makers. Legislators are important only to the extent that they are used by executives and bureaucrats to legitimize decisions that have already been made in the executive branch. Although legislators may have some role in policy implementation, 31. This second, “policy-irrelevant” view of legislators also has deep roots in the earlier literature. For example, advocates of functional-structural approaches in the 1960s and 1970s argued that, whereas legislators in developing countries performed a variety of legitimizing, integrating, and recruiting functions, they did not make policy. See Kornberg and Musolf, Legislatures in Developmental Perspective, 8; and Lloyd Musolf and Joel Smith eds., Legislatures in Development (Durham: Duke University Press, 1979). More recently, scholars have continued to view legislatures as safety valves for political pressures while denying them significant policy roles. For example, see David Close, ed., Legislatures and the New Democracies in Latin America (Boulder: Lynne Rienner, 1995). Only in Uruguay does the volume edited by Close find evidence of a legislature engaging in policymaking in other than a strictly obstructionist fashion. 32. Some exceptions include Carey and Shugart, Executive Decree Authority, and Morgenstern and Nacif, Legislative Politics.
Eaton Chapter 1 5/13/02 12:09 AM Page 14
14
INTRODUCTION
“when decisions about specific resource allocations can be influenced, and regional, ethnic, class, or other interests can be served directly,” they do not affect policy decisions themselves.33 In explaining the absence of legislators in key adjustment decisions, it is often assumed that significant technical expertise is necessary to participate in these decisions, and that bureaucrats have a monopoly on such expertise relative to legislators. In a similar vein, many scholars have subscribed to the “hyperpresidentialism” thesis, according to which decrees by chief executives completely supplant the constitutionally protected policy roles that legislators are supposed to play. O’Donnell described an arrangement in developing countries according to which legislators and others with stakes in the policy process simply abdicate their roles in policymaking in favor of the executive branch. That legislators abdicate their roles as policymakers suggests they have little at stake either in maintaining the policy status quo or in taking responsibility for legislating new policies. Furthermore, by concentrating power in the executive branch, the abdication of policymaking authority by legislators facilitates the subsequent policy swings and disasters that so often plague these “delegative democracies.”34 For many scholars, not only have legislators failed to shape adjustment outcomes, but the very process of economic adjustment has further weakened their already vulnerable positions in the policy process.35 Legislators, Their Policy Preferences, and How They Act on Them By arguing that representatives in national legislatures are an important source of variation in actual reform outcomes, the research presented in this book disputes these views of legislators and offers a new perspective on economic adjustment. In contrast to the homogenizing view of legislators’ policy preferences, I find that different institutional settings encourage ambitious legislators to prioritize the interests of different sets of actors, and that these different incentives lead them to respond differently to similar economic 33. Grindle and Thomas, Public Choices, 62. 34. Guillermo O’Donnell, “Delegative Democracy,” Journal of Democracy 5, 1 (1994): 55–69. 35. According to Roberts, for example, numerous Latin American presidents in the contemporary period have undermined legislatures as vehicles for the delivery of policy promises. See Kenneth Roberts, “Neoliberalism and the Transformation of Populism in Latin America: The Peruvian Case,” World Politics 48, 1 (October 1995): 82–116. See also Eduardo Gamarra, “Market-Oriented Reforms and Democratization in Latin America,” in Smith, Acuña, and Gamarra, Latin American Political Economy, 1–15.
Eaton Chapter 1 5/13/02 12:09 AM Page 15
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
15
reform proposals. As I argue in greater depth in the next chapter, the partisan and electoral incentives facing legislators offer important explanations for legislative behavior in the developing as in the developed world. Whether the party and electoral systems encourage legislators to cultivate personal reputations or loyalty to party leaders is a critical distinction. A central hypothesis that guides this analysis is that legislators who seek to develop personal reputations are more likely to respond positively to the appeals and protests of specific interests who stand to lose privileges in the reform process. Candidate-centered electoral contests place a premium on the development of these personal reputations. In contrast, legislators who privilege the concerns of party leaders over particular constituents may be able to ignore the inevitable protests that reform unleashes and to claim responsibility as a party for reform’s various benefits. In emphasizing this contrast between candidatecentered and party-centered electoral incentives, the study borrows heavily from research on party and electoral institutions by scholars in the American and comparative subfields of political science.36 The goal of the study is to apply these insights to the study of economic reform.37 The institutional account of legislative behavior adopted here is only one of many different approaches that might be used to explain how legislators 36. Barry Ames, Political Survival in Latin America (Berkeley and Los Angeles: University of California Press, 1987); Bruce Cain, John Ferejohn, and Morris Fiorina, The Personal Vote: Constituency Service and Electoral Independence (Cambridge, Mass.: Harvard University Press, 1987); John Carey and Matthew Shugart, “Incentives to Cultivate a Personal Vote: A Rank Ordering of Electoral Formulas,” Electoral Studies 14, 4 (1995): 417–39; Gary Cox, The Efficient Secret (New York: Cambridge University Press, 1987); Peter Cowhey and Matthew McCubbins, Structure and Policy in Japan and the United States (New York: Cambridge University Press, 1995); Morris Fiorina, Congress: Keystone of the Washington Establishment (New Haven: Yale University Press, 1989); Richard Katz, A Theory of Parties and Electoral Systems (Baltimore: Johns Hopkins University Press, 1980); D. Roderick Kiewiet and Matthew McCubbins, Logic of Delegation (Chicago: University of Chicago Press, 1991); Mainwaring and Shugart, Presidentialism and Democracy; and Rein Taagepera and Matthew Shugart, Seats and Votes: The Effects and Determinants of Electoral Systems (New Haven: Yale University Press, 1989). 37. Geddes employed a similar approach in her work on bureaucratic reform. See, for example, Barbara Geddes, “A Game Theoretic Model of Reform in Latin American Democracies,” American Political Science Review 85, 2 (June 1991): 371–92, and idem, Politician’s Dilemma: Building State Capacity in Latin America (Berkeley and Los Angeles: University of California Press, 1994). For an application of institutional arguments to budgetary outcomes in Latin America, see Brian Crisp, “Electoral Rules and Government Spending Patterns in Latin America,” (paper presented at the 1997 meetings of the American Political Science Association, Washington, D.C.). For an analysis of the impact of district magnitude on economic performance in Latin America, see Michael Coppedge, “District Magnitude, Economic Performance, and Party-System Fragmentation in Five Latin American Countries,” Comparative Political Studies 30, 2 (April 1997): 155–85.
Eaton Chapter 1 5/13/02 12:09 AM Page 16
16
INTRODUCTION
are shaping the policy process in new democracies. A number of additional interpretative approaches that do not place causal emphasis on legislators’ institutional surroundings appear promising. For example, one could attribute legislators’ policy preferences to the interest groups, business associations, and labor unions that lobby them, or to the ideological orientations and class backgrounds of legislators themselves.38 At various points in this study, I contrast some of these noninstitutional approaches with my own institutional account of different economic reform experiences. Though my contention is that institutional accounts offer greater leverage over legislative behavior, additional research on legislators from these different perspectives would contribute significantly to the larger project of challenging the dominant, homogenizing view of legislators in new democracies. In contrast to the second image of legislators as insignificant policy actors, this study also finds that legislators in developing countries in fact have a variety of opportunities to act on their various preferences by intervening in the process by which policies are adopted and implemented. In attempting to act on their heterogeneous policy preferences, elected representatives in new democracies undoubtedly face obstacles that are absent in the more established democracies, particularly considering the economic upheavals experienced in so many of these emerging democracies. Legislators, however, are rarely sidelined entirely by these obstacles. Instead, the options available to legislators are more numerous than one might imagine and are not limited to legislative acts on the floor of the assembly. One overlooked but potentially important way that legislators can affect reform outcomes is through the delegation of authority to presidents and bureaucrats in the executive branch.39 Though acts of delegation are often interpreted as further support for the view that legislators are not significant policy actors, under certain conditions delegation represents a viable option through which legislators can meaningfully exert influence over the policy process outside regular legislative channels. In virtually no developing country do legislators fulfill the proactive roles in policymaking that their counterparts routinely play in advanced industrial countries. In most developing countries, the design of all significant policy reforms begins in the executive branch, giving chief executives important agenda control over subsequent action in the legislature.40 Moreover, 38. For hypotheses about how interest-group arrangements might shape legislative behavior, see David Olson and Michael Mezey, Legislatures in the Policy Process: The Dilemmas of Economic Policy (Cambridge: Cambridge University Press, 1991), 12. 39. Carey and Shugart, Executive Decree Authority.
Eaton Chapter 1 5/13/02 12:09 AM Page 17
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
17
throughout the developing world, the chief executive is typically the first to articulate the case for a new development model based on macroeconomic stability and freer markets. Despite the leading roles played by chief executives, legislators in different developing countries have nevertheless shaped the reform process in ways that challenge homogenizing assumptions about their behavior and that indicate the need to conceptualize more carefully their policy roles. The purpose of this research is not to replace the dominant view of reform as a strictly executive branch affair with an equally exaggerated view of legislators in developing countries as robust policy actors. Instead, the goal is to strike a more balanced view of legislators and to integrate them more systematically into the study of the important economic policy transformation that has taken place in developing countries.
The Cases Given the overall goal of demonstrating and explaining the diversity of legislators’ roles in economic reform, this study focuses on two countries in which legislators face contrasting institutional settings. To evaluate the theoretical claims about institutional incentives, I compare what happens when reformist chief executives introduce similar policy proposals in a candidatecentered electoral system (the Philippines) and a party-centered electoral system (Argentina). Rather than offering a comprehensive or exhaustive account of economic reform in either country, the study treats the Philippines and Argentina as cases that illustrate the argument about party and electoral incentives and their impact on the policy stances legislators adopt. These party and electoral institutions are particularly important in analyzing the policymaking process in presidential democracies, in which chief executives and legislators share legislative authority over policy even as their separate elections by different electoral rules encourage them to develop different substantive preferences.41 The separation of powers associated with presidential democracy thus creates the potential for significant conflict over economic reform between the executive and legislative branches. Presidential systems enable a better test of the hypothesis that legislators’ electoral 40. See Scott Morgenstern, “Explaining Legislative Politics in Latin America,” in Morgenstern and Nacif, Legislative Politics. 41. Shugart and Carey, Presidents and Assemblies; Shugart and Haggard, Presidents, Parliaments, and Policy.
Eaton Chapter 1 5/13/02 12:09 AM Page 18
18
INTRODUCTION
incentives shape their policy preferences than do parliamentary systems. For example, in parliamentary systems that employ candidate-centered electoral laws, legislators in the governing coalition may genuinely prefer particularistic policies, but they are ultimately constrained by the need to support the government on major bills or possibly risk new elections and their jobs. Because legislators in separation of powers systems are free of this burden, the policies they support in the legislature more accurately reflect the nature of the party and electoral incentives they face. Moreover, students of comparative presidentialism have documented a significant degree of institutional variation in the countries that use presidential forms of democracy.42 To analyze the policy consequences of these institutional differences, this study focuses in depth on two presidential systems whose party and electoral institutions differ markedly. A focused comparison between two contrasting cases is the best way to evaluate the influence of legislators’ institutional settings on their policy preferences and policy relevance. Only a close analysis of complex and lengthy reform processes makes it possible to evaluate the impact of incentives on legislators’ behavior. One alternative would be to construct quantitative measures of the progress of a large set of countries toward economic reform and then regress this variable against a series of institutional factors, including a coding of partisan and electoral incentives. Such a study, however, would face serious obstacles and limitations, especially the requirement of inferring legislators’ policy preferences from policy outcomes, rather than actually investigating and substantiating what these preferences were, how legislators bargained over policy proposals, and what the impact of these bargains was on legislated outcomes. Only in-depth case studies enable us to determine whether electoral incentives have the anticipated impact on legislators’ policy preferences and how legislators acted on these preferences in the shaping of policy outputs. Although the in-depth study of contrasting cases offers the most promising way to evaluate claims about legislators and economic reform, this study expands the number of observable implications of the theory in a number of ways.43 First, because both Argentina and the Philippines are bicameral systems, it is possible to expand the number of cases by studying both the lower and upper chambers in each country. In the Philippines, for example, legislators in the upper and lower chambers face strikingly differ42. Shugart and Carey, Presidents and Assemblies; Mainwaring and Shugart, Presidentialism and Democracy. 43. Gary King, Robert Keohane, and Sidney Verba, Designing Social Inquiry (Princeton: Princeton University Press, 1994).
Eaton Chapter 1 5/13/02 12:09 AM Page 19
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
19
ent electoral incentives, and we can evaluate the different impact these have on legislative behavior while holding various factors constant such as the party system, interest-group arrangements, and political culture. In addition to using bicameralism to expand the number of cases, the study also makes use of changes in institutional incentives, such as the imposition of term limits on legislators, by analyzing whether these changes have the anticipated effect on legislative behavior. As another means of expanding the number of observable implications of the theory, Part II of this study investigates legislative behavior in three related but distinct areas of economic reform: tax policy, tax administration, and tax revenue sharing. As I explain in Chapter 3, in recent decades these three different areas have become critical to policymakers in developing countries in their efforts to stabilize key macroeconomic variables and to establish clear pro-market signals. Separating out these three distinct aspects of fiscal reform makes it possible to evaluate the hypotheses about legislative behavior more extensively. Part III of the study further explores some of the theory’s implications in two additional ways. First, it moves beyond fiscal policy to analyze an additional set of reforms in Argentina and the Philippines, to determine whether institutional incentives in these countries consistently shape legislative behavior. Second, it evaluates experiences with similar fiscal reforms in an additional set of candidate-centered and partycentered electoral systems. Throughout, the method employed in this study is a simple one, based on archival research and interviews with key politicians and bureaucrats in the Philippines and Argentina. To determine whether and how legislators participate in policymaking and implementation, the research compares the texts of bills proposed by chief executives with the legislation ultimately approved by legislators. The analysis traces these policy proposals through the various stages of the legislative process, including both the upper and lower chambers and committee and floor debates in each chamber. In using the proposal stage in the executive branch as the starting point of the analysis, I do not take into account the various ways that executives incorporate legislative preferences in anticipation of how legislators are likely to respond. According to the law of anticipated reactions, executives might incorporate legislators’ input at this early stage in the attempt to head off potential interbranch disputes down the line.44 This research design likely understates the influence that legislators wield in the legislative process, but a fuller and 44. Gary Cox and Scott Morgenstern, “Latin America’s Reactive Assemblies and Proactive Presidents,” in Morgenstern and Nacif, Legislative Politics.
Eaton Chapter 1 5/13/02 12:09 AM Page 20
20
INTRODUCTION
more accurate portrayal would require access to high-level negotiations behind closed doors. By paying close attention to the congressional record, which is the central primary source for this study, it should become clear that different institutional incentives do have predictable impacts on the policy preferences legislators adopt and act on in the policy arena. Because most countries employ electoral systems that encourage either personalism or party loyalty—hence the broader relevance and interest of this study—why select the Philippines and Argentina as representative examples of each? The Philippines Like so many developing countries, the Philippines experienced a transition to democracy in the 1980s and a conflict over economic liberalization in the 1990s. Unlike many developing countries, the Philippines had a lengthy and significant experience with legislatures and legislative elections that predated democracy’s third wave, beginning under U.S. colonial rule in 1903. Between independence in 1946 and the declaration of martial law by President Ferdinand Marcos in 1972, the country’s traditional agricultural elites easily dominated the congress, which became a powerful and proactive policymaking body. In this period, the Philippine congress developed a reputation as one of the most powerful legislatures in the third world.45 When Corazon Aquino’s people-power movement displaced Marcos from power and inaugurated a return to democracy in 1986, the legislature that reemerged was a copy of its predecessor in most important respects, including electoral rules and the predominance of traditional political families.46 Though post-1986 politics has seen the emergence of a multiparty system in contrast to the earlier two-party system, in both periods political parties have been notoriously weak, with little discipline, high levels of party switching, and party structures devoid of the tools that party leaders might use to control rank-andfile legislators. According to a coding of electoral incentives by Carey and Shugart, legislators in the lower Philippine house face some of the most particularistic 45. Robert B. Stauffer, The Philippine Congress: Causes of Structural Change (Sage Research Papers in the Social Sciences: Comparative Legislative Studies Series; Beverly Hills: Sage Publications, 1970). 46. Benedict Anderson, “Cacique Democracy in the Philippines: Origins and Dreams,” New Left Review no. 169 (1988): 3–31. One potentially important change is the introduction of term limits, discussed in Chapter 7.
Eaton Chapter 1 5/13/02 12:09 AM Page 21
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
21
incentives anywhere in the world, making it an excellent case for this study.47 Historically, all representatives have been elected in single-member districts, with leaders from the national parties playing virtually no role in the selection of candidates. The electoral system heavily encourages legislators to cultivate personal support networks to continue their political careers. If Philippine legislators in the lower chamber did not use the policy process as a means of creating these networks, then this finding would represent a serious challenge to the argument that electoral incentives are an important determinant of legislators’ policy preferences. Many new democracies, including Bolivia, Guatemala, and Venezuela, are moving in the direction of incorporating single-member districts into their previous system of party lists, along the lines of the German mixed system.48 This change has been driven by a desire to improve the accountability of legislators to the constituents they represent.49 Because the Philippines has such a long and exclusive history of single-member districts,50 this study’s findings may have relevance for countries that are contemplating the incorporation of single-member districts. There have been two complete administrations since the restoration of democracy in the Philippines, not counting the aborted administration of Joseph Estrada (1998–2001). With the exception of the Local Government Code that was the lodestar of her administration, President Aquino (1986– 1992) proposed little in the way of economic reform. Instead, redemocratizing the country and successfully resisting a series of military coup attempts were her main achievements. As a former Marcos-era military official, President Fidel Ramos (1992–1998) quickly consolidated the support of the military for continued democratization and was able to turn his attention to economic affairs. In contrast to Aquino, Ramos consistently articulated the case for an ambitious set of economic policy reforms, including trade and financial liberalization and privatization of state-owned enterprises. For this reason, it is the Ramos administration and the significant policy departures he proposed that are most relevant to this study. 47. Carey and Shugart, “Incentives to Cultivate.” 48. Matthew Shugart and Martin Wattenberg, eds., Mixed-Member Electoral Systems: The Best of Both Worlds? (Oxford: Oxford University Press, 2001). 49. Dieter Nohlen, “Electoral Systems and Electoral Reform in Latin America,” in Arend Lijphart and Carlos Waisman, eds., Institutional Design in New Democracies (Boulder: Westview Press, 1996), 43–57. 50. Beginning in 1998, legislative elections included a party-list component according to which up to fifty legislators may be elected outside the traditional single-member districts in national party lists.
Eaton Chapter 1 5/13/02 12:09 AM Page 22
22
INTRODUCTION
Argentina Argentina reopened its legislature in late 1983, after seven years of military rule characterized by state-sponsored terrorism and radical efforts to liberalize the economy. Unlike the Philippines’ first-ever breakdown of democracy in 1972, the 1976 coup in Argentina, which ushered in this military government and sent legislators into hiding, was the sixth breakdown of democracy since 1930. Regime instability has created enormous obstacles for the institutionalization of the Argentine legislature, which makes it an unlikely place to look for evidence of legislators’ policy significance.51 In addition to regime instability, legislators’ attempts to influence policymaking are complicated by a constitutional division of legislative authority between the executive and legislative branches that significantly favors the former. Comparative rankings of presidential powers over policymaking in different presidential systems consistently rank the Argentine presidency as one of the world’s most powerful.52 As a reflection of these considerable presidential powers, “hyperpresidential” is the adjective many scholars use to describe Argentina’s political system.53 Not surprisingly, Argentina is frequently invoked by those who dispute the importance of the legislature in contemporary economic reforms. According to this argument, comprehensive economic reform in the 1990s was the result of presidential decrees that bypassed the Argentine legislature.54 The present study challenges this interpretation by showing that legislators did participate in reform and that their participation altered reform outcomes in ways that were far from trivial. If it can be shown that the 51. For the wide-ranging effects of institutional instability, see Mariano Tommasi and Pablo Spiller, Las fuentes institucionales del desarrollo argentino (Institutional sources of Argentine development) (Buenos Aires: Editorial Universitaria de Buenos Aires, 2000). 52. Shugart and Carey, Presidents and Assemblies, 155; Mainwaring and Shugart, Presidentialism and Democracy in Latin America, 432. 53. Carlos Nino, ed., El presidencialismo puesto a prueba (Presidentialism put to the test) (Madrid: Centro de Estudios Constitucionales, 1992); and O’Donnell, “Delegative Democracy.” 54. See, for example, Carlos Acuña, “Politics and Economics in the Argentina of the Nineties,” in William Smith, Carlos Acuña, and Eduardo Gamarra, eds., Democracy, Markets, and Structural Reform in Latin America (New Brunswick: North-South Center Press, 1994), 17–66; Delia Ferreira Rubio and Matteo Goretti, “When the President Governs Alone: The Decretazo in Argentina, 1989–1993,” in Carey and Shugart, Executive Decree Authority, 33–61; Vicente Palermo and Marcos Novaro, Política y Poder en el Gobierno de Menem (Politics and power in Menem’s government) (Buenos Aires: Grupo Editorial Norma, 1996); and Liliana de Riz, “Democracy in Turmoil,” in Jorge Dominguez and Abraham Lowenthal, eds., Constructing Democratic Governance: South America in the 1990s (Baltimore: Johns Hopkins University Press, 1996), 147–65.
Eaton Chapter 1 5/13/02 12:09 AM Page 23
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
23
Argentine legislature did indeed shape the country’s policy transformation in this “least likely” case, then similar studies of legislative behavior in other countries are merited. Argentina is a particularly interesting example of a party-centered system because the party leaders who write party lists and control legislators’ career prospects represent both the national and provincial party organizations. In other party-centered systems, such as Venezuela’s after 1958, control over candidate selection remained more centralized among the leaders of the national party organization, who did not compete with subnational party leaders for influence over legislators. In Argentina, legislators face a hybrid incentive structure according to which they must take into account the preferences of both national and provincial party leaders, depending on their own career goals. Particularly for the Argentine fiscal reforms discussed in Part II of this study, leaders from the national and provincial levels of the same party often clash over how they want rank-and-file legislators to vote on policy. Determining how these conflicting loyalties to party and province shape legislators’ behavior offers an additional opportunity to evaluate this study’s central theoretical claims. There have been four administrations since the restoration of democracy in Argentina, one led by President Raúl Alfonsín (1983–1989), two led by President Carlos Menem (1989–1995 and 1995–1999), and one led by President Fernando de la Rua (1999–2001). As with the first democratic government in the Philippines, most of Alfonsín’s energies were devoted to recuperating democratic politics in the country and guiding the transition to democracy. Also like Aquino, Alfonsín’s administration was marked by repeated coup attempts and by the distinct absence of successful economic reform measures. These began in earnest only under the Menem administration in 1989, which is consequently the period of greatest interest for this analysis. Menem’s first term is particularly germane to this study because it offers an important corrective to the idea that legislators generally oppose reform. Though Menem’s second term witnessed greater resistance by governing-party legislators to his reform proposals, this resistance was the logical outcome of the president’s diminished control over legislators’ career opportunities subsequent to his 1995 reelection. Thus both periods offer support for an interpretation of legislative behavior that emphasizes the institutional incentives facing legislators. In addition to differences in party and electoral incentives, there are important structural differences between the Philippines and Argentina, ranging
Eaton Chapter 1 5/13/02 12:09 AM Page 24
24
INTRODUCTION
from gross domestic product per capita to the degree of fragmentation among economic elites. Arguing for the importance of institutional factors, however, does not require ignoring these structural differences. No one structural factor can offer as compelling an account of reform differences between these two countries as do the differences in party and electoral incentives, but certain structural conditions may accentuate or dampen the role of these incentives. To be persuasive, institutional approaches must remain sensitive to the various ways that institutional rules and structural realities interact. For example, some observers have traced the personalism of Philippine politics to the country’s significant levels of poverty. Widespread poverty may accentuate the tendency of the plurality rule in singlemember districts to lead to personalism and the absence of policy issues from political campaigns.55 In Argentina, in addition to the internal features of party organization, a more urban society may encourage politicians to focus on policy issues and to frame them in more programmatic as opposed to personalist terms. Beyond offering representative examples of candidate- and party-centered incentives, the Philippines and Argentina also lend themselves well to this study because of similarities and differences in the number of seats in the legislature held by the parties of reformist presidents in these two cases. In the lower chamber, the presidents’ co-partisans in the legislature enjoyed majorities or near-majorities in both countries. In the Philippines, Fidel Ramos pieced together a solid majority coalition in the lower house of representatives in his first year of office, before proposing economic reforms. When Carlos Menem came to power in Argentina in 1989, his Peronist party held half the seats in the lower chamber, which he augmented by negotiating additional support from legislators from small provincial parties. Without this similarity, we could attribute different reform outcomes in these two countries to the presence or absence of legislative majorities rather than to the content of party and electoral incentives. In fact, many more legislators in the lower chamber formally belonged to Ramos’s party than to Menem’s, and yet Ramos faced much greater resistance to his economic proposals in that chamber. In the upper chamber, Menem’s party held a solid majority throughout his two administrations; in the Philippines, Ramos faced a senate dominated by opposition legislators. However, as I show in Chapter 4, it was the senate in the Philippines that provided deep support for the president’s 55. Willem Wolters, Politics, Patronage, and Class Conflict in Central Luzon (Quezon City: New Day, 1984).
Eaton Chapter 1 5/13/02 12:09 AM Page 25
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
25
fiscal reform initiatives, which suggests that the presence or absence of partisan majorities for the president is itself insufficient as an explanation for how the legislature responds to reform proposals. The selection of Argentina and the Philippines also makes it possible to control for differences in the formal legislative powers that presidents can use to translate their policy proposals into laws. The Argentine and Philippine presidents have significant unilateral powers. The Philippine president has extraordinary legislative powers in the area of fiscal policy, including the line-item veto, the right to transfer funds between separate budgetary items, and the ability to withhold the disbursement of legislated monies subject to the availability of funds.56 Even before a 1994 constitutional reform sanctioned these practices, Argentine presidents have exercised both decree powers and partial vetoes. According to Shugart and Haggard’s survey of presidential power in Latin American and East Asian countries, only the Argentine and Philippine constitutions permit presidents to veto parts of a bill while promulgating others.57
The Chapters That Follow Chapter 2 presents the theoretical argument about party and elective incentives and how they might account for the diversity of legislators’ policy positions vis-à-vis economic reform. In addition to theorizing about the content of legislators’ policy preferences, I also discuss the various ways that legislators can act on these preferences in the policymaking and implementation process. The chapter borrows from the U.S. literature in arguing that legislators can try to use their formal control over the design of bureaucratic agencies to advance their policy preferences. After arguing that different institutional settings encourage similarly motivated legislators to adopt different policy and bureaucratic preferences, in Chapter 3 I focus on one particularly important area of policy: fiscal reform. The purpose of this chapter is to explain the nature of the transformation in fiscal policy that has been debated and legislated in scores of 56. Emil Bolongaita, “Presidential Democracy and the Separation of Powers: The Constitutional and Party Politics of the Philippine Democracy” (Ph.D. diss., University of Notre Dame, 1994). See also Angel Yoingco and Regina de Guzman, Public Finance and the Philippine Constitutions (Manila: Lyceum of the Philippines, 1994). 57. Matthew Shugart and Stephan Haggard, “Institutions and Public Policy in Presidential Systems,” in Haggard and McCubbins, Presidents, Parliaments, and Policy, 76.
Eaton Chapter 1 5/13/02 12:09 AM Page 26
26
INTRODUCTION
developing countries. This transformation has challenged the various ways that politicians used fiscal policy in the period of state-led industrialization to grant particular favors to their supporters. I explain how contemporary reforms in tax policy, tax administration, and tax revenue sharing all reduce the scope for particularism by broadening tax bases, empowering tax collectors, and making revenue transfers more automatic. Understanding some of the technical issues at stake in this transformation is necessary to make sense in subsequent chapters of how legislators responded to the content of presidential reform proposals. Having established in Part I the framework for the subsequent analysis, in Part II I turn to the discussion of reform experiences in both candidate-centered and party-centered electoral systems. Chapters 4 and 5 focus on similar changes in tax policy that reformist presidents in the Philippines and Argentina proposed to their respective legislatures. The comparative exercise conducted in these chapters seeks to explain why such similar proposals met such different ends, by focusing in depth on legislators’ varying responses to these same proposals. In Chapter 4, I argue that Filipino representatives faced sharp electoral incentives to resist the president’s base-broadening proposals. Though the president’s party held a majority in the house, he was unable to get it to approve his fiscal reforms. The Argentine tax reform recounted in Chapter 5 reveals a different dynamic, largely because governing-party legislators there faced strong electoral incentives to support the president’s base-broadening proposals. Because Argentine electoral rules encourage individual legislators to promote the party’s collective interests, governing-party legislators supported tax reform and claimed credit as a party for the historic onset of fiscal stability that reform made possible. Whereas national party discipline encouraged governing-party legislators to endorse Menem’s proposals, Chapter 5 shows that they often demanded in return changes in fiscal policy that would benefit their particular provinces. It would be difficult to make sense of the content of these changes without reference to legislators’ hybrid incentive structures, in which provincial party leaders figure prominently. Up to this point in Part II, the analytical focus is on the impact of institutional factors on legislators’ policy preferences, specifically on whether and how legislators modify or decline to modify the president’s tax-policy proposals. These same institutional incentives also influence how legislators approach the question of bureaucratic reform, an issue that is taken up in Chapter 6. Different electoral rules give legislators different incentives vis-àvis the bureaucratic reforms designed to improve the performance of tax-
Eaton Chapter 1 5/13/02 12:09 AM Page 27
WHY STUDY LEGISLATORS AND ECONOMIC REFORM?
27
collecting agencies. For base-broadening reforms to deliver the collective goods they can make possible, including lower fiscal deficits, interest rates, and inflation, legislators often need to rework the delegation of implementation responsibilities to the bureaucracy and to redesign administrative regulations. In the Philippines, representatives intent on preserving a particularistic tax system characterized by loopholes and evasion resisted attempts by the president to improve the performance of the tax bureaucracy. For governingparty legislators in Argentina, broader tax bases could deliver electoral benefits to the party label only if they were actually implemented, and for this reason reform of the tax bureaucracy became a priority they aggressively pursued. Chapter 7 turns to tax revenue sharing as another arena in which to evaluate this study’s claims about legislators and the economic reform process. Because legislators typically represent subnational jurisdictions, they have emerged as critical actors in the contemporary debate over fiscal decentralization to subnational governments. Electoral incentives help explain how legislators respond to decentralization and how they try to influence the form it takes. In the Philippines, candidate-centered electoral incentives traditionally encouraged representatives to claim personal credit for brokering all significant fiscal transfers from the central government to their home districts and consequently to resist automatic revenue sharing from the center. Legislators agreed to support automatic revenue sharing only after 1987, when a new constitution imposed term limits that gave legislators greater cause to anticipate careers down the line as mayors and governors. Legislators have also been central to Argentina’s experience with revenue decentralization. In the wake of the country’s most recent transition to democracy, opposition legislators from the Peronist party legislated new automatic revenue-sharing procedures in 1987. Because these new procedures reduced federal tax shares and increased transfers to the provinces, most of which were governed by the Peronists, they constituted a means of checking the president and his governing Radical party. When the Peronists won the presidency in 1989, however, and retained working majorities in both houses, the political need for decentralization lessened. Party discipline by Peronist legislators consequently facilitated the president’s attempt to reverse fiscal decentralization in the 1990s. Taken together, the chapters in Part II indicate that legislators are critical to the fiscal reform process in developing countries, from the design of tax policies to the collection of taxes and the division of tax revenues among different levels of government. Part III of the study further extends the research
Eaton Chapter 1 5/13/02 12:09 AM Page 28
28
INTRODUCTION
question to an additional set of empirical materials. Chapter 8 relaxes the focus on fiscal policies to ask whether institutional incentives in Argentina and the Philippines encourage legislators to adopt analogous preferences in other policy spheres, including trade and financial liberalization. In the same spirit of evaluating the argument’s reach, I consider in Chapter 9 how legislators have responded to similar tax reforms in Bolivia, Brazil, Colombia, and Venezuela. I conclude in Chapter 10 by placing the study’s findings in theoretical perspective and by contrasting legislators’ institutional incentives with other possible explanations of reform outcomes. These include approaches that are centered on interest groups, economic crisis, external actors and pressures, and the formal division of legislative authority between the legislative and executive branches.
Eaton Chapter 2 5/13/02 12:10 AM Page 29
2 LEGISLATORS AND THE POLITICS OF REFORM
A central claim of this study is that the same economic reform may pose different challenges to legislators in different countries. Even when these reforms create the same winners and losers, and even where legislators are primarily motivated by the same goals of advancing their careers, their responses to reform often differ dramatically. Furthermore, disparate reactions on the part of legislators to similar reforms have the potential to affect how reform proposals are actually legislated. What explains the heterogeneity of legislators’ policy preferences, and how do legislators try to transform these preferences into reality? This chapter tries to provide answers to both questions. First, it theorizes about the sources of legislators’ heterogeneous policy preferences, and second, it evaluates the mechanisms through which legislators can act on these preferences in the policy process. With respect to the question of policy preferences, political institutions like parties and electoral laws are an important source of the variation that characterizes legislators’ preferences. As in the more established democracies, legislators in newly democratic developing countries make their careers and relate to constituents
29
Eaton Chapter 2 5/13/02 12:10 AM Page 30
30
INTRODUCTION
in different institutional arrangements. Because these arrangements bind legislators to different winners and losers, they encourage legislators to take different positions on economic policies. Thus, although the pressures facing different developing countries to adjust their economies are broadly similar, the incentives facing politicians when they respond to these pressures can differ radically. In some institutional settings, legislators have much greater cause to respond to the protests of particular groups who stand to lose various policy favors as a result of reform. Consequently, legislatures should be seen not as bastions of opposition to reform but rather as arenas in which individual legislators pursue a variety of policy strategies, some of them compatible with economic reform. The argument presented in this chapter is not simply that legislators have different preferences with respect to economic policies, but that they act on these preferences in ways that shape the content of real policy outcomes. Even when legislators do not initiate policy change but instead merely react to executive-branch proposals, they can significantly alter policy outcomes by modifying these proposals both in committees and on the floor.1 Even when legislators are disadvantaged in their level of policy expertise relative to the technocrats in the executive branch, the legislators can often depend on affected interests to produce costly information about policies. Finally, even when legislators cannot depend on extensive and sophisticated support staffs, they may be able to use their constitutional prerogatives as legislative veto players in ways that satisfy their different career needs. In their attempts to shape policy outcomes, however, legislators are not limited to playing reactive roles in the legislature. How they delegate implementing authority to various actors in the executive branch represents another important but overlooked means by which legislators in developing countries can shape policy outcomes. Legislators who care about influencing actual policy outcomes—whether they want to claim credit for these outcomes as individuals or as parties—must concern themselves not just with the adoption of new policies but with whether and how these policies are implemented by bureaucrats. Consequently, the field of action open to legislators as they make their careers and advance the interests of constituents who matter to them is considerably wider than most scholars of developing countries allow. Different institutional incentives encourage legislators to 1. For additional evidence that the generally reactive roles played by Latin American legislatures do not prevent them from participating in policymaking, see the chapters in Morgenstern and Nacif, Legislative Politics.
Eaton Chapter 2 5/13/02 12:10 AM Page 31
LEGISLATORS AND THE POLITICS OF REFORM
31
act differently not just in the legislature, but also in the way they design relationships with bureaucrats. This observation turns on its head the popular view in the literature on developing countries, which argues that bureaucrats merely use legislators to legitimate the policy decisions they make behind closed doors.2 Instead, I argue that legislators in new democracies try to use bureaucrats in their attempt to influence the policy process, all the way from the design stage through to policy implementation. This chapter is organized as follows. The first section sets up the argument about legislators and their responses to reform by asking why chief executives in so many different developing countries have submitted similar reform proposals to legislatures. To replace the dominant image of legislators as universally opposed to reform, the next section offers in its place a theoretical framework for understanding variation in legislators’ responses to adjustment policies. To challenge the image of legislators as unimportant actors in the policy process, in the last section I discuss the various ways that legislators act on their preferences, including the question of delegation to bureaucratic agents.
Presidents as Policy Entrepreneurs Given the sweeping nature of the policy changes attempted in recent years, it is no wonder that economic reforms have faced considerable political obstacles in developing countries. Reformers have set their sights on such politically sensitive changes as tariff reduction, privatization, unification of exchange rates, and elimination of tax exemptions. Taken together, these reforms clearly constitute a major shift in development strategy away from the statist models that dominated in the postwar period. They also displease a broad range of interests, including industries formerly protected from foreign competition, firms that lived off lucrative contracts with state-owned enterprises, importers allowed to buy dollars at cheaper rates, and groups that were effectively excused from paying taxes. Chief among the obstacles to reform cited in the literature are collectiveaction dilemmas and distributive conflicts.3 According to the former, economic reforms may not occur even when they promise to improve the 2. Grindle and Thomas, Public Choices. 3. Stephan Haggard and Robert Kaufman, The Political Economy of Democratic Transitions (Princeton: Princeton University Press, 1995), 156–59.
Eaton Chapter 2 5/13/02 12:10 AM Page 32
32
INTRODUCTION
collective welfare of society. Salient examples include fiscal reforms that would reduce inflation and administrative changes that would improve the competence of the state bureaucracy.4 As Geddes showed, such reforms display the properties of public goods because no one can be excluded from the benefits these reforms provide and all interested parties face incentives to free ride rather than contribute to the reform. Concretely, in the case of fiscal reform, though society as a whole benefits from the growth-enhancing effects of lower interest rates and lower inflation, particular groups prefer retaining their fiscal benefits while every other group forgoes special benefits. When every group adopts similar self-protection strategies, reforms that would make everyone better off simply do not occur. As Haggard and Kaufman argued, “Solving collective-action problems requires either leadership or institutional mechanisms that coordinate the actions of different parties and provide credible assurances.”5 Not all contemporary reforms unambiguously improve collective welfare. Most divide groups into definite camps of losers and winners, though in some cases there may be considerable uncertainty about who loses and who wins. In this realm of distributive conflict, a major obstacle to policy change may be the uneven distribution of power resources among groups that stand to win or lose. It is standard in the reform literature to note that the likely beneficiaries of reform are geographically dispersed and politically unorganized, whereas the certain losers of reform tend to be both concentrated and organized. Tariff liberalization offers an excellent example of this dilemma. The main beneficiaries of lower tariffs on imports are the consumers who no longer have to pay higher prices for domestic manufactured goods of often-inferior quality. The main losers are the many domestic manufacturers who may go bankrupt in the event they must compete with more efficient foreign producers. Although the manufacturers are typically already organized into a variety of business chambers, would-be consumer groups face costs of organizing that are often insurmountable.6 According to Haggard and Kaufman, reform in these circumstances requires either compensating losers or overriding their objections.7 Chief executives are uniquely poised to overcome the obstacles to reform that are created by collective-action dilemmas and distributive conflicts. With 4. Barbara Geddes, Politician’s Dilemma. 5. Haggard and Kaufman, Political Economy of Democratic Transitions, 158. 6. Mancur Olson, The Logic of Collective Action (Cambridge, Mass.: Harvard University Press, 1965). 7. Haggard and Kaufman, Political Economy of Democratic Transitions, 157.
Eaton Chapter 2 5/13/02 12:10 AM Page 33
LEGISLATORS AND THE POLITICS OF REFORM
33
respect to the former, chief executives can use their status as media figures to shed light on the need for policy change and to draw public attention to groups whose behavior prevents collective-welfare-enhancing reform. Where the prospect of economic reform triggers distributive conflicts, chief executives can often count on far greater financial resources to compensate losers than are available to any other politician. As opposed to prime ministers in parliamentary systems, presidents may be especially empowered to articulate the case for economic reform. As the debate between presidential and parliamentary forms of government has underscored, unlike prime ministers indirectly elected by citizens and legislators directly elected in districts of varying sizes, the president is typically the only politician to be directly elected by the entire nation in a single constituency.8 This reduces the likelihood that any one group of reform losers, however organized or geographically concentrated, can dictate the president’s policy position. Instead, the president’s national constituency enables him or her to privilege the more diffuse and less organized interests who may benefit from reform and who credit the president for making reform possible. Simply put, presidents are more able to ignore reform losers. In addition to enjoying greater distance from those who oppose reform, the status of presidents as the sole representatives of national constituencies creates further incentives for them to push reforms. First, because presidents are typically the only actors elected in a nationwide district, voters hold them responsible for national economic performance. In the context of the profound fiscal and foreign debt crises that preceded and triggered the contemporary wave of reform in developing countries, improving national economic performance required macroeconomic stabilization and economic growth. In environments like these, the president faces incentives to push fiscal and other reforms as a necessary condition for the two outcomes that will benefit him or her disproportionately: the achievement of macroeconomic stability through the reduction of fiscal deficits, and the establishment of positive incentives for national economic growth. Presidents are well poised to take responsibility for any collective goods made possible by reform, such as lower budget deficits, interest rates, and inflation. Second, as the individuals who sit atop national governments, the many pressures that are exerted on behalf of reform by foreign governments and international financial institutions are largely targeted at chief executives rather 8. Shugart and Carey, Presidents and Assemblies; Shugart and Haggard, “Institutions and Public Policy,” 82.
Eaton Chapter 2 5/13/02 12:10 AM Page 34
34
INTRODUCTION
than other politicians. In the face of such pressures, it is little wonder that so many chief executives in developing countries from such different ideological backgrounds have implemented economic adjustment measures in office, often reversing populist campaign appeals in the process.9 Once presidents articulate the case for economic reform, what determines their ability to get the necessary policy changes legislated? Much undoubtedly has to do with such idiosyncratic factors as a president’s leadership style and communication skills or, following Neustadt, the president’s ability to persuade legislators “that what he wants of them is what their own appraisal of their own responsibilities requires them to do in their interest.”10 One-shot economic events such as a sudden worsening in the balance of payments or an increase in the risk premium assigned to that country by the international financial markets can also help the president transform reform proposals into legislated policies. In terms of systematic explanations, however, recent comparative work on presidentialism suggests that presidents can rely on two types of power resources in the legislative arena: formal legislative powers and partisan powers.11 Formal legislative powers refer to the various decree and veto powers with which the constitution endows the president, all of which affect his or her ability to act unilaterally on behalf of policy reform. In contrast, partisan powers refer to the president’s ability to control the behavior of co-partisans in the legislature through the various inducements that party leaders sometimes enjoy, including the power to punish legislators in the party for failing to support the president’s agenda in the assembly. In attempting to assess the level and quality of a president’s partisan powers, legislators’ own institutional incentives are a critical determinant.
Political Institutions and the Heterogeneity of Legislators’ Policy Preferences From privatization and tax reform to the liberalization of financial and trade policies, the shift away from statist development models fundamentally shrinks the policy tools available to politicians. Specifically, it reduces 9. On these reversals, see Susan Stokes, “What Do Policy Switches Tell Us About Democracy,” in Adam Przeworski, Susan Stokes, and Bernard Manin, eds., Democracy, Accountability, and Representation (New York: Cambridge University Press, 1999), 98–130. 10. Richard Neustadt, Presidential Power (New York: John Wiley and Sons, 1960), 35. 11. Mainwaring and Shugart, Presidentialism and Democracy in Latin America, chap. 11.
Eaton Chapter 2 5/13/02 12:10 AM Page 35
LEGISLATORS AND THE POLITICS OF REFORM
35
the ability of politicians to use the state to carve out divisible benefits for identifiable constituents and to make particularistic distinctions among recipients of policy favors. However, although contemporary economic reforms do reduce the scope for particularism, not all legislators are equally interested in using the state in this way. In many developing countries, nearly two decades of experience with adjustment and liberalization do in fact offer much evidence to support the view of legislators as steadfast and important reform opponents. Careful empirical research has documented numerous examples of legislative-branch opposition to both the content of economic reform proposals and to the centralization of reform authority that often accompanies these proposals.12 My purpose here is not to deny that legislators often oppose reforms, but rather to suggest why they sometimes adopt different policy preferences. If legislators participate in the policy reform process in ways that are characterized by much greater variation than is commonly acknowledged, understanding this variation becomes an important agenda for research in developing countries. This section argues that different political institutions encourage legislators to prioritize different sets of constituents when they intervene in the policy process. Political institutions such as electoral systems and political parties may shape economic reform outcomes in at least two important ways. First, as Haggard, Kaufman, and others have argued, electoral rules shape the politics of economic adjustment through their effects on a country’s party system, principally on the number of political parties. For example, electoral rules such as proportional representation in large districts tend to increase the number of political parties with representation in the political system.13 The fragmented party systems that often result amplify the protests of those groups that oppose economic reform and make it difficult for executivebranch reformers to piece together new coalitions that can sustain reform.14 In addition to fragmentation, as Mainwaring and Scully found in their survey of 12. See, for example, Catherine Conaghan and James Malloy, Unsettling Statecraft (Pittsburgh: University of Pittsburgh Press, 1994); Timothy Power, “The Pen Is Mightier Than the Congress: Presidential Decree Power in Brazil,” in Carey and Shugart, Executive Decree Authority, 197–230; and Kurt Weyland, Democracy Without Equity (Pittsburgh: University of Pittsburgh Press, 1997). 13. Arend Lijphart, Electoral Systems and Party Systems (Oxford: Oxford University Press, 1994). 14. Haggard and Kaufman, Political Economy of Democratic Transitions. See also Latin America After a Decade of Reforms (Washington, D.C.: Inter-American Development Bank, Economic and Social Progress in Latin America, 1997), 129.
Eaton Chapter 2 5/13/02 12:10 AM Page 36
36
INTRODUCTION
Latin American political parties, the ideological distance between parties tends to widen as their number increases.15 Ideological polarization further reduces the scope for substantive compromises that might facilitate reform. Alternatively, electoral systems that adopt the use of the plurality rule in single-member districts encourage the development of two-party systems, an arrangement that limits fragmentation and encourages political parties to adopt centrist orientations.16 Though, as Haggard and Kaufman noted, centrist parties in developing countries often depend on well-developed patronage networks, the absence of sharp ideological profiles and the limited number of parties are factors that have facilitated economic reform in a number of countries.17 But the impact of electoral rules on the number of parties is not the only means by which electoral and party systems shape adjustment politics. In a more direct way, how electoral rules and political parties are structured determines the strategies that individual legislators adopt in seeking to advance their careers.18 According to this version of rationalist institutionalism, institutions do not determine the goals of legislators, which are instead taken as given. The underlying assumption of this study is that legislators the world over are motivated by the similar goal of advancing their political careers. This common goal is exogenous to the different institutional settings in which politicians find themselves, but institutions do profoundly condition the strategies they adopt in pursuit of their goals.19 In this sense, electoral rules and political parties provide the microfoundations for the policy choices that individual legislators make. Thus the two key assumptions behind this study are that politicians seek to further their political 15. Scott Mainwaring and Timothy Scully, Building Democratic Institutions (Stanford: Stanford University Press, 1995), 28–32. 16. Maurice Duverger, Political Parties (New York: John Wiley and Sons, 1954); Douglas Rae, The Political Consequences of Electoral Laws (New Haven: Yale University Press, 1967); and Rein Taagepera and Matthew Shugart, Seats and Votes: The Effects and Determinants of Electoral Systems (New Haven: Yale University Press, 1989). 17. Haggard and Kaufman, Political Economy of Democratic Transitions. 18. For representative examples of this approach, see Ames, “Electoral Strategy”; Carey, Term Limits; Geddes, Politician’s Dilemma; Mainwaring and Shugart, Presidentialism and Democracy; and Mark Ramseyer and Frances Rosenbluth, Japan’s Political Marketplace (Cambridge, Mass.: Harvard University Press, 1993). 19. In contrast to rationalist institutionalism, historical institutionalism understands goals as endogenous to institutions. See Sven Steinmo, Kathleen Thelen, and Frank Longstreth, Structuring Politics: Historical Institutionalism in Comparative Perspective (New York: Cambridge University Press, 1992); and Peter A. Hall and Rosemary Taylor, “Political Science and the Three New Institutionalisms,” Political Studies 44, 5 (December 1996): 936–57.
Eaton Chapter 2 5/13/02 12:10 AM Page 37
LEGISLATORS AND THE POLITICS OF REFORM
37
careers and that their interventions in the policy process are calculated to help them accomplish this overriding goal. If we assume that legislators seek to build political careers, electoral and party incentives tell legislators how to intervene in the policy process so that these interventions may further their overall career goals. For example, where legislators’ career prospects are tightly controlled by party leaders, rank-and-file legislators find the policymaking process important as an arena where they can demonstrate party loyalty and collectively claim credit for policies as a party.20 Where legislators’ career prospects depend instead on developing personal reputations independent of their party labels, the policy process becomes a means by which legislators may distinguish themselves individually, particularly when legislating the broad range of policies that provide divisible goods.21 The important point is not that policy is more important to legislators in any one type of system, but rather that different party and electoral systems inspire legislators to use the policy process in different ways. In placing causal emphasis on how parties and electoral laws are structured, this study draws on two significant research traditions. First is the long line of scholars who have underscored the importance of the internal structure of parties as opposed to their location on the ideological spectrum. Michels for example, famously downplayed the differences between socialist and patriotic parties and emphasized instead the degree to which hierarchical organization led to oligarchic control in each.22 In a similar vein, Duverger found that “present-day parties are distinguished far less by their programme or the class of their members than by the nature of the organization.”23 Specifically, Duverger traced structure to the different origins of parties, weak in the case of parties originating in legislatures (cadre parties) and strong where parties emerged outside such bodies (mass-based parties). Panebianco likewise rejected ideology as the key determinant of party structure, attributing structure instead to attempts by dominant coalitions in parties to safeguard their organizational stability.24 Drawing on the theoretic understanding of institutions “as the constraints that human beings impose 20. Gary Cox and Matthew McCubbins, Legislative Leviathan: Party Government in the House (Berkeley and Los Angeles: University of California Press, 1993). 21. Cain, Ferejohn, and Fiorina, Personal Vote. 22. Robert Michels, Political Parties (New York: Free Press, 1962). 23. Duverger, Political Parties. 24. Angelo Panebianco, Political Parties: Organization and Power (New York: Cambridge University Press, 1988).
Eaton Chapter 2 5/13/02 12:10 AM Page 38
38
INTRODUCTION
on themselves,”25 Cox and McCubbins explained party structure as an institutional solution to the collective-action problem that faces all legislative parties, regardless of their ideological positions. According to this solution, party members delegate authority to party leaders so they can prevent the self-interested and individually rational behavior by party members that debases the reputation attached to the party label, a collective good.26 A second line of analysis emphasizes the independent effect that electoral rules have on politicians’ behavior. This approach is most closely associated with the study of legislative politics in the United States, where a first-pastthe-post electoral system encourages legislators to develop and compete on the basis of personal reputations. Scholars have used the personal vote incentives facing U.S. legislators to explain a wide variety of outcomes, including the legislature’s decentralized committee structure, particularistic economic policies, design of regulatory agencies, and pattern of intervening in the federal bureaucracy on behalf of constituents.27 More recently, students of politics in other developed countries have similarly looked to electoral incentives for explanations of a wide variety of political phenomena, including tariff formation, telecommunications policy, and budget deficits.28 Blending these two research traditions by focusing on both party structure and electoral laws offers a powerful perspective on legislative behavior. In the new democracies that have emerged in recent decades, party structure and electoral laws are subject to a great deal of empirical variation, ranging from systems that encourage legislators to cultivate personal votes to systems devoid of these incentives.29 According to Fiorina and Noll, “legislative systems probably can be arrayed along a rough continuum according to the 25. Douglas North, Institutions, Institutional Change, and Economic Performance (New York: Cambridge University Press, 1990), 5. 26. Cox and McCubbins, Legislative Leviathan. 27. Barry Weingast and William Marshall, “The Industrial Organization of Congress; or, Why Legislatures, like Firms, Are Not Organized as Markets,” Journal of Political Economy 96, 11 (1988): 132–63; Matthew McCubbins, “Legislative Design of Regulatory Procedures,” American Journal of Political Science 29 (1985): 721–48; Richard Fenno, Home Style: House Members and Their Districts (Boston: Little, Brown and Co., 1978). 28. See Fiona McGillivray, “Party Discipline as a Determinant of the Endogenous Formation of Tariffs,” American Journal of Political Science 41, 2 (1997): 584–609; Roger Noll and Frances Rosenbluth, “Telecommunications Policy: Structure, Process, Outcomes,” in Cowhey and McCubbins, Structure and Policy, 119–76; and Mark Hallerberg, “Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union” (paper presented at the 1996 meetings of the American Political Science Association, San Francisco). 29. Carey and Shugart, “Incentives to Cultivate.”
Eaton Chapter 2 5/13/02 12:10 AM Page 39
LEGISLATORS AND THE POLITICS OF REFORM
39
incentives they provide their members and voters to emphasize distributive policies and individual services relative to policy formation.”30 For the purposes of understanding adjustment politics, one simple and potentially critical distinction is the one between candidate-centered and party-centered legislative systems.31 Candidate-centered legislative systems produce special obstacles for the adoption of public-regarding policies, whereas party-centered systems create more room for legislators to support these same policies.32 Candidate-Centered Electoral Systems Where elections are candidate-centered affairs, voters are free to express their preferences for individual candidates rather than simply for parties. Consequently, furthering a political career in these systems requires legislators to cultivate personal-support networks rather than to rely predominantly on the party label.33 Legislators may develop personal reputations in a variety of ways. First, they can engage in personalized constituency service in response to the various demands made by citizens in their home districts.34 Responding to requests for assistance from constituents generally takes the form of running interference with bureaucrats in central government agencies. Responding to such requests may prove time consuming but generally delivers important political rewards in these systems. Second, during the annual appropriations process, legislators can attempt to insert funds into the national budget for projects in their home districts for which they can then take personal credit.35 Even after the appropriations process, legislators year round can try to persuade bureaucrats to expend resources
30. Morris Fiorina and Roger Noll, “Majority Rule Models and Legislative Elections,” Journal of Politics 41, 4 (November 1979): 1095. 31. Shugart and Haggard, “Institutions and Public Policy,” 85–86. 32. For the argument that public- and private-regarding policies are a function of the number of veto players in a political system, see Gary Cox and Matthew McCubbins, “The Institutional Determinants of Economic Policy Outcomes,” in Haggard and McCubbins, Presidents, Parliaments, and Policy, 21–63. 33. Ramseyer and Rosenbluth, Japan’s Political Marketplace. 34. Cain, Ferejohn, and Fiorina, The Personal Vote; Cox and McCubbins, “Institutional Determinants,” 38. 35. John Ferejohn, Pork Barrel Politics: Rivers and Harbors Legislation: 1947–1968 (Stanford: Stanford University Press, 1974); and Kenneth Shepsle and Barry Weingast, “Legislative Politics and Budget Outcomes,” in Alberto Alesina and Geoffrey Carliner, eds., Politics and Economics in the Eighties (Chicago: University of Chicago Press, 1991), 343–67.
Eaton Chapter 2 5/13/02 12:10 AM Page 40
40
INTRODUCTION
in the districts they represent, with the hope that they can claim responsibility for the jobs and other benefits such expenditures provide. The benefits conferred through the pork barrel and through constituency service are particularly valuable in many of the poorer districts in developing countries, where the private sector is often anemic. Third, beyond inserting funds into national budgets, intervening in the policy process more broadly so as to claim personal credit for policy favors is also an important strategy for legislators in candidate-centered systems.36 Relevant examples of divisible policy favors include tax breaks, subsidized interest rates, and preferential credits, all of which can be tailored to particular beneficiaries.37 Legislators in these systems are generally uninterested in claiming credit for policies as a party, because their own individual career prospects are largely de-linked from the party’s electoral fortunes. Because legislators are mostly concerned about accurately responding to particular interests in their home districts, they are relatively indifferent to the preferences of party leaders. Party leaders in these systems consequently have little control over the voting behavior of rank-and-file legislators. Even when individual legislators in this political system personally favor economic reforms that reduce state intervention, their ability to act on this commitment is reduced by the likelihood that too few of their colleagues support reform for it to stand a reasonable chance of being enacted. Given the structure of incentives facing all other legislators in these systems, one legislator’s support for reform is likely to earn him or her nothing but the enmity of groups who oppose reform.38 In candidate-centered systems, using policy to develop personal reputations is a necessary strategy that cuts across partisan stripe. Contemporary economic reforms that reduce the scope for particularism and make bureaucrats more independent of politicians threaten legislators no matter where their parties sit on the ideological spectrum. If legislators are to lose the policy process and the possibility of intervening in the bureaucracy as tools to develop personal reputations, then how else can they develop these reputations? In the absence of changes to their institutional incentives, evidence of legislators’ support for these reforms in candidate-centered systems constitutes a challenge to the theory evaluated here.
36. Douglas Arnold, The Logic of Congressional Action (New Haven: Yale University Press, 1990). 37. Geddes, A Game Theoretic Model. 38. Geddes, A Game Theoretic Model.
Eaton Chapter 2 5/13/02 12:10 AM Page 41
LEGISLATORS AND THE POLITICS OF REFORM
41
Chapters 4, 6, and 7 explore these hypotheses about legislators in candidate-centered systems by evaluating the Philippines’ experience with economic reform.39 Party-Centered Electoral Systems Where electoral systems are party centered, voters vote for parties rather than specific candidates. The classic example is closed-list proportional representation, which bars voters from expressing preferences for any one candidate on the lists that parties compile.40 Because they need not develop personal reputations independent of their parties, legislators in these systems have less reason to try to claim personal credit for divisible policy favors and, consequently, less reason to resist reforms that eliminate such policies. Rather than delivering particularistic benefits to supporters in a personalized fashion, legislators in these systems are most concerned with cultivating relationships with party leaders. These relationships are important because party leaders control such important matters as whether incumbent legislators are again selected to run for the party in future races, the order in which their names appear on the party list, and access to a host of other elective and appointive positions in the future.41 When the specific interests threatened by reform lodge their complaints, legislators look to party leaders for cues as to the policy positions they should adopt in the legislature. Nothing guarantees that parties in party-centered systems support reforms that reduce the scope for policy particularism. Indeed there are examples of legislators in party-centered systems who have resisted such reforms. As Fiorina and Noll noted, particularistic projects and services may provide benefits to a party and not just to a particular legislator.42 In partycentered electoral systems, parties as collective bodies can profit from the targeted delivery of particularistic policy favors to individuals and groups who support the party, just as certainly as individual legislators benefit from 39. For studies of how candidate-centered incentives shape policymaking in other countries, see Ames, Deadlock of Democracy; Ramseyer and Rosenbluth, Japan’s Political Marketplace; and Matthew Shugart and Daniel Nielson, “Constitutional Change in Colombia: Policy Adjustment Through Institutional Reform,” Comparative Political Studies 32, 2 (May 1999): 313–40. 40. Taagepera and Shugart, Seats and Votes, 24–26. 41. Carey and Shugart, Incentives to Cultivate; Mainwaring and Shugart, Presidentialism and Democracy, 421–29. 42. Fiorina and Noll, Majority Rule Models, 1094.
Eaton Chapter 2 5/13/02 12:10 AM Page 42
42
INTRODUCTION
these policy favors in candidate-centered systems.43 Furthermore, as elections become increasingly expensive in developing countries, parties can use particularistic policies to great advantage by exchanging them for campaign contributions. The chief difference between candidate- and party-centered systems, however, is that the structure of electoral incentives in party-centered systems makes it possible for legislators to claim credit as a party for the broad benefits that contemporary economic reforms can deliver, including higher growth rates and lower inflation. Closed-list proportional representation in particular enables legislators to internalize the collective-action costs associated with reforms that create powerful losers and diffuse winners. Because no individual legislator faces personal incentives to defect from the proreform stance of his or her party in response to lobbying by the specific interests that oppose reform, parties in party-centered systems can credibly commit to and deliver these reforms. In this institutional context, a legislator does not have cause to worry that his or her colleagues will pledge to support reform only to have them defect in committee or on the floor of the assembly. Because they internalize the costs of collectively acting in support of economic reform, party-centered incentives can actually make these reforms attractive to these legislators. In other words, institutional incentives tell us not just to whom legislators listen, but also what they are hearing.44 The argument is not that legislators in party-centered systems never support particularism, only that their incentive structures make it easier for them to support policies that create specific losers and diffuse winners, in contrast to legislators in candidate-centered systems. Rather than offering a deterministic account of the policies that legislators in party-centered systems adopt, I argue that these systems create the potential for the adoption of contemporary economic reforms. Whether legislators in party-centered systems actually come together to support such policies depends a great deal on how party leaders exercise their leadership, which varies from case to case. Particularly important is the ability of party leaders to convince backbenchers that significant benefits follow from reform and that, for the party, these benefits justify the risks associated with voting for new economic policies. The opportunity to take responsibility for reforms that provide broad benefits presents legislators with positive reasons to vote for reform in the 43. Carey demonstrated the compatibility of strong parties and legislators’ particularistic behavior in Costa Rica. See his Term Limits. 44. I am grateful to Gretchen Casper for phrasing the question in these terms.
Eaton Chapter 2 5/13/02 12:10 AM Page 43
LEGISLATORS AND THE POLITICS OF REFORM
43
legislature. Depending on the stance of party leaders, they may have negative reasons to support reform as well. If party leaders endorse economic reforms and have the means of disciplining rank-and-file members who prefer to oppose reforms on ideological or other grounds, these legislators face pressing reasons to support reforms in the legislature. Given the political significance of the shift in development strategy that these reforms constitute, failure to toe the party line is likely to have serious consequences for legislators’ careers in their parties. Thus, in a positive vein, legislators in partycentered electoral systems can look forward to claiming credit for the good things that reform makes possible. In a more negative vein, these same legislators may imperil their careers by not voting for reform. The analysis of economic reform in Argentina presented in Chapters 5, 6, and 7 provides empirical support for these hypotheses by showing that governing-party legislators there indeed faced strong positive and negative incentives to support their president’s reform proposals. Party and electoral incentives can be thought of as political institutions that protect legislators from or expose them to the particular interests that oppose reform. All legislators seek to please some constituents, but the identity of these constituents—whether influential party leaders or organized groups and enterprises in a legislator’s home district—is profoundly influenced by the party and electoral system. Comparing reform experiences in candidate-centered and party-centered electoral systems suggests that these systems differ from each other not in the amount of representation each offers—one is not necessarily more democratic than the other—but rather in the type of representation. Each links legislators to a different set of constituents, with important and observable implications for the policy positions they adopt. For some time now, the observation that executive-branch officials may be more or less autonomous from societal groups, depending on the relative insulation of bureaucrats, has been widely accepted in the comparative politics literature and sustained by a rich body of empirical work.45 The same observation, however, can usefully be applied to the case of legislators who may be more or less autonomous from these same groups, depending on their own institutional surroundings.
45. For representative examples, see Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton: Princeton University Press, 1995); Stephan Haggard, Pathways from the Periphery (Ithaca: Cornell University Press, 1990); Peter Katzenstein, Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States (Madison: University of Wisconsin Press, 1978).
Eaton Chapter 2 5/13/02 12:10 AM Page 44
44
INTRODUCTION
Reelection and Political Ambition The persuasiveness of this approach depends on the assumption that legislators are first and foremost politicians seeking to further their own political careers. This assumption has guided much of the rationalist literature on the U.S. Congress. In the United States, where incumbency advantage increased over the course of the twentieth century, reelection to the same office is the principal means by which legislators have sought to further their political careers.46 In the United States, as Mayhew postulated, U.S. legislators are “single-minded seekers of reelection.”47 Although little research has been systematically conducted on reelection rates in new democracies, preliminary evidence suggests that U.S. reelection rates are high relative to other countries.48 Table 2.1 presents data on reelection rates collected by John Carey, Mark Jones, and David Samuels. Though legislators in developing countries appear to be less singular seekers of reelection than their counterparts in the United States, it is nevertheless plausible to assume that they seek either to be reelected or to continue their political careers through other elective or appointive positions.49 In developing as in developed countries, politics is a career for the great majority of the men and women who find themselves in the legislature. In fact, because access to the state in developing countries has long served as one of the primary means of acquiring wealth and power, would-be politicians are likely to consider political careers more attractive and desirable than their counterparts in developed countries. In many important respects, whether or not reelection to the same office is the specific career goal does not meaningfully affect legislators’ policy preferences. For example, even when legislators in party-centered electoral systems do not seek reelection to the same position, they still face incentives to demonstrate party loyalty because party leaders control access to a variety of desirable appointive positions in the executive branches of both national and subnational governments as well as access to other elective
46. David Mayhew, “Congressional Elections: The Case of the Vanishing Marginals,” Polity 6 (1974): 295–317. 47. David Mayhew, Congress: The Electoral Connection (New Haven: Yale University Press, 1974), 5. 48. Scott Morgenstern, Daniel Nielson, and Stephen Swindle, “The Electoral Disconnection? A Comparative Look at Reelection Rates” (paper presented at the 1998 meetings of the American Political Science Association, Boston, Massachusetts). 49. Ames, Political Survival; Geddes, Politician’s Dilemma.
Eaton Chapter 2 5/13/02 12:10 AM Page 45
LEGISLATORS AND THE POLITICS OF REFORM
Table 2.1
45
Reelection rates for legislators in a select group of countries
Image not available
SOURCE: Morgenstern, “Explaining Legislative Politics,” in Morgenstern and Nacif, Legislative Politics (New York: Cambridge University Press, 2001). Reprinted with permission of Cambridge University Press. NOTE: Term limits prevent reelection in Mexico.
offices.50 Likewise, even when legislators in candidate-centered systems do not seek reelection, they still face incentives to cultivate personal support networks because these are useful in achieving other offices as well. Consequently, rather than assuming that reelection to the same office is the principal force driving legislators in new domocracies, I propose the looser assumption of political ambition.51 Lower reelection rates do have powerful implications for a variety of phenomena, including the degree to which the legislature is professionalized and the extent to which legislators invest in acquiring policy expertise. However, even where reelection rates are low by U.S. standards, legislators find that the logic of party and electoral incentives is pervasive in a country’s political system. It is unlikely that politicians escape the impact of these incentives by not seeking or gaining reelection. Alternative Explanations of Legislative Behavior: Interests and Ideology Although political institutions shape the policy stances that help legislators further their careers, emphasizing the institutional origins of policy choice does not mean that interest-group behavior is unimportant. Indeed, the various strategies employed by groups, firms, and sectors in response to economic reform are an important part of any satisfactory account of the politics of
50. See Mark Jones, “Explaining the High Level of Party Discipline in the Argentine Congress,” in Morgenstern and Nacif, Legislative Politics. 51. Scott Morgenstern, “Towards a Model of Latin American Legislatures,” in Morgenstern and Nacif, Legislative Politics in Latin America.
Eaton Chapter 2 5/13/02 12:10 AM Page 46
46
INTRODUCTION
adjustment.52 In pushing their own preferences with respect to economic reform, different groups, firms, and sectors are obviously not on an even playing field. As the sizable literature on corporatism in developing countries demonstrates, formalized bargaining between peak associations and the state regularly privileges certain interests over others.53 According to Bates and others, the logic of collective action suggests that industrial associations with large market shares and lower organizational costs enjoy better access to policymakers than do more numerous, medium-sized enterprises.54 Furthermore, as Frieden argued, holders of specific assets have greater cause to lobby the government for favorable policies than do holders of less specific assets, who can more easily shift assets in response to unfavorable policy climates.55 Differences in the relative strength or organization of groups that demand policy cannot tell us much, however, about why politicians in different countries might respond differently to demands by groups that are equally strong or organized. There are real limits to any attempt to interpret legislators’ policy preferences as the direct and unmediated result of group dynamics. Instead, the degree to which policymakers respond to the demands of interest groups very much depends on the institutions that constrain and enable politicians. Though we can focus directly on business enterprises, sectors, interest groups, and the relationships that bind legislators to them, it is a mistake to attempt to understand this relationship without first taking stock of legislators’ institutional incentives. As demonstrated in the empirical chapters of this book, some institutional arrangements mute the impact that interest groups can have on government decision makers, and others magnify this impact. An excellent example is the Philippines, where interest groups consistently focus their lobbying efforts on the lower house rather than the senate, because differences in electoral rules force legislators in the house to be far more responsive to these efforts than are senators. That different party and electoral incentives encourage legislators to privilege differ-
52. For example, see Schamis, “Distributional Coalitions.” 53. Ruth Berins Collier and David Collier, “Inducements vs. Constraints: Disaggregating Corporatism,” American Political Science Review 73, 4 (December 1979): 967–86; and James Malloy, ed., Authoritarianism and Corporatism in Latin America (Pittsburgh: University of Pittsburgh Press, 1977). 54. Robert Bates, “A Political Scientist Looks at Tax Reform,” in Malcolm Gillis, ed., Tax Reform in Developing Countries (Durham: Duke University Press, 1989), 473–91. 55. Frieden, Debt, Development, and Democracy.
Eaton Chapter 2 5/13/02 12:10 AM Page 47
LEGISLATORS AND THE POLITICS OF REFORM
47
ent interests has become increasingly important in recent decades with the decline of corporatist institutions that previously locked legislators out of key policymaking channels.56 After interest-group lobbying, the ideological orientations of legislators is an obvious place to look for explanations of the different policy positions they strike vis-à-vis economic reform. In such a project, party identity can be taken as an indicator of any one legislator’s propensity to support reforms that shrink the state. Rather than focus, as this study does, on the internal structure of parties, an explanation of legislators’ behavior that is based on their ideological orientations would emphasize the public stances taken by parties on key policy issues. For example, legislators belonging to parties on the left would probably oppose such reforms, and their counterparts on the right would probably support them. Cross-national variation in the legislature’s response to reform would thus be a function of electoral outcomes that give majorities either to parties of the right or left. Ideologically ambiguous parties in the developing world constitute a major problem for such an approach, however. Populist parties in particular have proved notoriously difficult to categorize in ideological terms.57 Perhaps an even greater difficulty in explaining policy preferences in terms of ideology is posed by the numerous cases of parties that abandoned their traditional statist positions and rushed to support the shift to market-based development models.58 The dramatic nature of these policy reversals plays havoc with any attempt to use a party’s ideological position as a reliable indicator of legislators’ preferences. At the same time, given the stickiness of ideology as a set of values and beliefs that are relatively slow to change, the suddenness of these reversals suggests that factors other than ideology are at play in explaining legislative behavior. Examples abound not just of legislators from allegedly left-wing parties who support economic liberalization, but of legislators from the right who resist market reforms in an attempt to 56. For a discussion of the differences between parliamentary and corporatist systems of representation, see Charles Maier, “Fictitious Bonds . . . of Wealth and Law: On the Theory and Practice of Interest Representation,” in Suzanne Berger, ed., Organizing Interests in Western Europe (Ithaca: Cornell University Press, 1981), 27–61. 57. See Kenneth Roberts, “Neoliberalism and the Transformation of Populism in Latin America”; Kurt Weyland, “Neopopulism and Neoliberalism in Latin America,” Studies in Comparative International Development 31, 1 (fall 1996): 3–31; and Paul Drake’s “Comment” in Rudiger Dornbusch and Sebastian Edwards, The Macroeconomics of Populism in Latin America (Chicago: University of Chicago Press, 1991), 35–40. 58. Stokes, “What Do Policy Switches Tell Us About Democracy?”
Eaton Chapter 2 5/13/02 12:10 AM Page 48
48
INTRODUCTION
defend special policy favors for valued constituents. Simply put, how policies might affect a legislator’s career goals seems a more robust predictor of legislative behavior than is ideological position. There are exceptions to this rule in the form of legislators whose policy preferences clearly reflect ideological motivations rather than strategic pursuit of career goals. A good example is the Argentine case discussed in Chapter 5, where a small group of Peronist legislators publicly rebuked the neoliberal policy proposals submitted to the legislature by the Peronist president. Arguing that these policies were deeply at odds with the party’s traditional defense of working-class interests and state intervention in the economy, this group of legislators consequently left the Peronist party and helped form a new, centerleft opposition party. In this case, ideology appears to have trumped self-interest because the legislators defended their ideological beliefs even though this effectively ended their careers in the highly disciplined Peronist party. The exception proves the rule in this case, however, because the behavior of this small group of ideologically motivated legislators can be contrasted with the great majority of Peronist legislators who quickly accommodated their ideological positions to the new policies endorsed by party leaders.
Legislators and the Transformation of Policy Preferences into Policy Outcomes In the previous section, I argued that legislators’ institutional surroundings are a better place to begin the search for explanations of the different policies they favor than are ideology or interest-group pressures. But legislators may adopt different policy preferences without effectively being able to transform these preferences into actual policy outcomes. As Bates and Collier found in their study of economic reform in Zambia, legislators favored economic liberalization but were prevented from acting on this preference by a policymaking process that denied them formal participation.59 If this were the case more generally, as much of the adjustment literature assumes, then the reality of heterogeneous policy preferences would be of scant interest. Worse, the theoretical argument developed in this chapter that legislators adopt different policy preferences precisely because they are trying to please different 59. Robert Bates and Paul Collier, “The Politics and Economics of Policy Reform in Zambia,” in Robert Bates and Anne Krueger, eds., Political and Economic Interactions in Economic Policy Reform (Oxford: Blackwell, 1993), 387–443.
Eaton Chapter 2 5/13/02 12:10 AM Page 49
LEGISLATORS AND THE POLITICS OF REFORM
49
constituents would not be plausible if legislators routinely failed to shape actual policy outputs. This section presents a more sanguine view of legislators’ attempts to shape the policymaking process in new democracies. For all their handicaps relative to chief executives, and these are numerous, legislators have two important options at their disposal when they attempt to translate policy preferences into legislated policies: They can either directly use the legislative authority with which they are endowed by the constitution, or they can delegate this authority to actors in the executive branch. In pursuing the first option of detailed lawmaking, legislators modify or decline to modify the proposals introduced by chief executives, depending on whether such modifications might satisfy the various constituents the legislators are trying to please. In pursuing the second option of delegation, legislators act as principals and delegate various policymaking authority to agents outside the legislative branch, who are then subject to the terms that legislators specify. Thanks to this second option of delegation, legislators do not necessarily have to participate in policymaking directly to shape the content of policy outcomes.60
Detailed Lawmaking by Legislators As in the more established democracies, attempts by legislators in new democracies to engage in detailed lawmaking are conditioned by a whole series of formal and informal rules.61 Some of these are internal rules in the legislature that legislators impose on themselves, and some are laid down by the constitution. Examples of the former include rules that stipulate which committees treat different bills and in what order, how votes on the floor are structured, and how bills passed by different chambers are reconciled. In some countries, internal congressional rules are permissive in the sense that they give individual legislators numerous opportunities to participate in the details of lawmaking, typically by offering amendments on the floor. In other countries, tighter control by legislative leaders reduces the scope for such participation. 60. For an example of this point, see Matthew McCubbins and Gregory Noble, “The Appearance of Power: Legislators, Bureaucrats, and the Budget Process in the U.S. and Japan,” in Cowhey and McCubbins, Structure and Policy, 56–80. 61. Kenneth Shepsle and Barry Weingast, “Positive Theories of Congressional Institutions,” Legislative Studies Quarterly 19, 2 (May 1994): 149–79.
Eaton Chapter 2 5/13/02 12:10 AM Page 50
50
INTRODUCTION
Examples of constitutional rules include the types of majorities that legislators must muster to override presidential vetoes, and articles that reserve for the chief executive the right to determine which issues the legislature shall discuss and when.62 In some cases, these agenda powers of the executive prevent legislators from becoming more aggressive policy actors in their own right.63 Many constitutions also impose limits on legislators’ behavior in certain policy areas. For example, in countries with histories of economic crisis provoked by chronic fiscal imbalances, constitutions often prevent legislators from increasing the size of budget line items beyond the levels proposed by the executive branch.64 Finally, constitutions also identify which actors have the right to initiate certain policy changes. Though the lower chamber is sometimes endowed with the exclusive right to initiate all revenue bills, chief executives are often given exclusive powers to initiate various types of legislation.65 Together with the special technical problems legislators face relative to the executive branch, these rules help explain why legislators have rarely initiated major economic reforms. This lack of initiative, however, should not be taken as evidence that legislators oppose the substance of reform. Instead, the question of whether legislators initiate reform should be kept separate from the question of whether they support reform on substantive grounds. Not only do many different rules shape legislators’ lawmaking prospects, but these rules have been subject to much change in recent decades. The recent and ongoing period of democratic transition and consolidation has proved to be a dynamic time for constitutional reform in general and in particular for the constitutional distribution of policymaking authority between the executive and legislative branches. In countries such as Chile, new constitutions written by authoritarian leaders expanded the powers of the chief 62. Cox and Morgenstern, “Latin America’s Reactive Assemblies”; and Mainwaring and Shugart, Presidents and Assemblies. 63. See Lisa Baldez and John Carey, “Budget Procedure and Fiscal Restraint in Post-transition Chile,” in Haggard and McCubbins, Presidents, Parliaments, and Policy, 105–48; and Peter Siavelis, “Executive-Legislative Relations in Post-Pinochet Chile: A Preliminary Assessment,” in Mainwaring and Shugart, Presidentialism and Democracy, 321–62. 64. Shugart and Carey, Presidents and Assemblies. Constitutions place some form of restriction on legislators’ budget authority in most Latin American countries, including Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela. See Cox and Morgenstern, “Latin America’s Reactive Assemblies.” 65. Morgenstern, “Explaining Legislative Politics”; and Shugart and Carey, Presidents and Assemblies.
Eaton Chapter 2 5/13/02 12:10 AM Page 51
LEGISLATORS AND THE POLITICS OF REFORM
51
executive relative to the legislature.66 On the other end of the spectrum, the transition to democracy in Brazil involved the writing of a new constitution that expanded congressional powers.67 Even countries that began the current phase of democratic rule with new constitutions have subsequently and, in some cases, repeatedly amended them in recent years. Partly as a result of the volatility in constitutional design and redesign, there is much cross-national variation in the formal rules that restrict or promote participation by legislators in policy reform. Despite this important variation, however, the constitutions that have been adopted in new democracies do endow legislators with at least some legislative powers, even if these are reduced to the right to review and approve proposals designed in the executive branch before they can become law. There are good reasons to doubt whether in practice legislators in new democracies fully exercise the formal powers with which they are endowed. In the uninstitutionalized environments of many new democracies, there is often a large gap between formal rules and informal practices, with the authority formally granted legislators exceeding the power they actually wield. Despite this gap, legislators usually serve as veto players whose agreement is either necessary for executive-branch proposals to become law or desirable so that new laws enjoy a greater degree of legitimacy. Even when chief executives correctly or incorrectly see the participation of legislators in policymaking as not strictly necessary from a legal standpoint, they may prefer their participation to broaden the support base for difficult adjustment measures. Though many chief executives have clearly used decrees to circumvent legislators, at the same time they are often willing to submit legislation to the assembly—even if this means delays or substantive policy compromises. Involving legislators in this way may prove attractive to chief executives not only to broaden support for economic reforms, but as a means of increasing the perceived legitimacy and sustainability of these reforms. When pro-market policies enjoy the support of legislators, the reversal of such policies becomes less likely, and many concerns of both domestic and foreign investors are assuaged. At the same time, avoiding decrees of dubious constitutionality and legislating through congress have the advantage of preventing possible lawsuits by individuals 66. Siavelis, “Executive-Legislative Relations.” 67. Scott Mainwaring, “Dilemmas of Multi-Party Presidential Democracy: The Case of Brazil,” in Mainwaring and Shugart, Presidentialism and Democracy, 55–109.
Eaton Chapter 2 5/13/02 12:10 AM Page 52
52
INTRODUCTION
who are negatively affected by reforms and who might otherwise challenge their legality. When legislators in developing countries review executive-branch proposals, they face serious obstacles, though these do not necessarily prevent them from shaping policy outcomes in important ways.68 As studies of legislators in established democracies reveal, detailed lawmaking is always costly for legislators, both in terms of the information they need to participate effectively and in terms of the time spent in policy deliberation that might be spent on other activities.69 In most developing countries, engaging in detailed lawmaking is particularly costly and difficult. Low reelection rates may undercut both the incentives facing legislators to develop policy expertise and the ability to do so over time.70 The lack of independent and robust media in many countries raises the cost of acquiring policy-relevant information. Frequent and recurrent closures of the legislature during periods of de facto rule by military governments further limit legislators’ professionalization, both because legislators are common targets of repression by these governments and because legislators come to see democratic policymaking as less than a consolidated practice.71 Whatever the cause, the staff and resources devoted to the legislative branch in many new democracies do not enable legislators to participate in policymaking at a very high level of sophistication.72 Compared with analogous bodies in developed countries, congressional committees in developing countries are frequently unable to count on professional staffers who enable them to compete in the policy process on a par with executive-branch actors. In attempting to acquire the public good of policy expertise, legislatures face an uphill battle. By contrast, the executive branch can bring to bear superior information in the policymaking process because of its direct role in policy 68. Morgenstern, “Explaining Legislative Politics.” 69. Kiewiet and McCubbins, Logic of Delegation; David Baron and John Ferejohn, “Bargaining in Legislatures,” American Political Science Review 83, 4 (December 1989): 1181–1206; and Keith Krehbiel, Information and Legislative Organization (Ann Arbor: University of Michigan Press, 1991). 70. Morgenstern and Nacif, Legislative Politics. 71. In addition to regime instability, import-substituting industrialization produced chronic balance-of-payments crises that had the effect of marginalizing legislatures by transforming executive-branch control over the exchange rate into the all-important policy lever. In advanced industrial economies, a number of developments like the Keynesian revolution and the rise of planning had a similar impact on legislators’ policymaking roles. See David Olson and Michael Mezey, Legislatures in the Policy Process: The Dilemmas of Economic Policy (Cambridge: Cambridge University Press, 1991), 2–5. 72. Musolf and Smith, Legislatures in Development.
Eaton Chapter 2 5/13/02 12:10 AM Page 53
LEGISLATORS AND THE POLITICS OF REFORM
53
implementation and because of the tendency of bureaucrats to be experts in their policy areas.73 Legislators may not need technically skilled staffers or specialized policy backgrounds to affect policy outcomes, however. For example, in candidatecentered party systems, the informational needs facing legislators are limited to the impact that policies have on constituents in the districts they represent. In the event that certain elements of a proposed bill negatively affect some subset of a legislator’s constituents, chances are good that these constituents will educate their legislator on the matter. In this respect, there is no reason to suppose that interest groups in new democracies do not play roles analogous to those they play in established democracies. In fact, the information that affected interests provide legislators is arguably more important in new democracies because it helps legislators overcome the resource and personnel constraints not commonly faced by their counterparts in more established democracies. Finally, knowing how and where to insert special-policy favors into large and complex pieces of legislation likewise requires little in the way of expertise. In the Philippine case discussed in Part II of this book, the extent of most representatives’ participation in fiscal reform was to propose exemptions for local industries and special funds for local projects. In party-centered systems, the informational needs facing legislators are perhaps even more limited. Critical here are the briefings that rank-and-file legislators receive from their party leaders. In a sense, these leaders tell legislators most of what they need to know about the policies they consider in congress. Legislators in party-centered systems need to know how the party leadership stands on the issue at hand, how important the issue is to the party leadership, and which if any areas are open to compromise in committee or on the floor. In the Argentine reform process explored in this study, party caucuses held before key votes were important events in which party leaders and rank-and-file legislators could share information about party stances and possible amendments. For all their handicaps relative to legislators in developed countries and relative to bureaucratic officials in their own countries, legislators in developing countries can still meaningfully affect the legislative process. Thus, although the argument that legislators can and do directly use their constitutional policy authority would be trivial in most studies of policymaking in 73. Jeffrey Banks and Barry Weingast, “Political Control of Bureaucracies Under Asymmetric Information,” American Journal of Political Science 36, 2 (May 1992): 509.
Eaton Chapter 2 5/13/02 12:10 AM Page 54
54
INTRODUCTION
developed countries, in the literature on developing countries it is not an obvious one. In Part II of this study, three main decision-making nodes are highlighted as sites where legislators can engage in detailed lawmaking: party caucuses; the standing or ad hoc committees charged with reviewing legislation in depth and reporting bills to be voted on by the full chamber; and the floor of the legislative chamber, where ordinary legislators may attempt to introduce modifications, depending on the rules of each chamber.
Delegation of Policymaking Authority by Legislators If legislators in new democracies want to act on their policy preferences, detailed lawmaking is not their only option. In addition to trying to use their legislative authority directly, legislators can delegate these powers to agents whom they empower to act on their behalf. Given the many obstacles associated with detailed lawmaking in new democracies, the delegation option is often an attractive one. According to principal-agent models as applied to a variety of political phenomena in a variety of settings, delegation can be an effective means through which principals, in this case legislators, can best advance their interests.74 Delegation does pose considerable risks, both because agents may try to use their authority in ways that are not sanctioned by principals, and because monitoring such abuses may be costly. For this reason, principals design these relationships to reduce the possibility that agents will fail to act on their preferences.75 Because delegation is specifically designed to advance the interests of principals, it is not equivalent to abdication. The classic example of the 1921 creation of the U.S. Budget Bureau is a good illustration of the difference between delegation and abdication. Some scholars see this action as a quintessential act of abdication because legislators approved the establishment in the executive branch of an agency with new policymaking skills that eventually eclipsed Congress’s role as the body where budgetary specifics are negotiated. To Sundquist, for example, this act was an important moment in the long twentieth-century decline of Congress relative to the executive branch.76 74. Terry Moe, “The New Economics of Organization,” American Journal of Political Science 28, 4 (1984): 739–77. 75. On the application of delegation models to legislative-executive relations, see Kiewiet and McCubbins, Logic of Delegation. 76. James Sundquist, The Decline and Resurgence of Congress (Washington, D.C.: Brookings Institution, 1981).
Eaton Chapter 2 5/13/02 12:10 AM Page 55
LEGISLATORS AND THE POLITICS OF REFORM
55
According to Kiewiet and McCubbins, however, delegating authority over the writing of the U.S. budget marks not the abdication of Congress but instead a conscious and effective strategy on the part of the majority party in the 1920s to achieve its policy objective of fiscal conservatism. Before delegation, Congress’s exclusive control over the budget encouraged profligate fiscal policies and led to the defeat of Republican party attempts to tighten expenditures. By delegating, Republicans could move policy toward their ideal point and, as the majority party in Congress, retain ultimate veto power over the Budget Bureau through the power of the purse.77 Though delegation models have helped illuminate politics in established democracies, can they be usefully applied to the institutionally more chaotic settings of new democracies?78 For many reasons, delegation is a much riskier activity for legislators in these democracies. In attempting to monitor how the executive branch is using delegated authority, watchdog groups, investigative journalists, and an active media are all helpful but often lacking in developing countries. If legislators are able to turn up evidence indicating the abuse of delegated authority, the absence of institutional protections such as independent courts limits their recourse. As the literature on delegation in more institutionalized settings like Japan and the United States shows, delegation does not tend to occur without such protections.79 Despite these many problems, delegation is still distinct from abdication and, in many cases, represents an attractive option for legislators in new democracies. Depending on how they are applied, delegation models can shed some light on the dynamics of economic reform in developing countries.80 Once legislators decide to let others use their formal legislative authority, delegation may take a number of forms. The more obvious type involves the explicit delegation of authority to the chief executive to legislate in a given matter. In Executive Decree Authority, Carey and Shugart posited and evaluated a number of hypotheses about the conditions under which legislators might delegate such authority.81 Central to their analysis are the extent of
77. Kiewiet and McCubbins, Logic of Delegation, chap. 7. 78. See the chapters in Carey and Shugart, Executive Decree Authority, for applications of delegation models in these contexts. 79. Cowhey and McCubbins, Structure and Policy. 80. Kent Eaton, “The Logic of Congressional Delegation: Explaining Argentine Economic Reform,” Latin American Research Review 36, 2 (2001): 92–117. 81. Carey and Shugart, Executive Decree Authority, chaps. 1 and 10. In addition to delegated decree authority, Carey and Shugart also explored the question of constitutional decree authority in the form of powers that are granted by the constitution rather than by congress.
Eaton Chapter 2 5/13/02 12:10 AM Page 56
56
INTRODUCTION
the bargaining costs legislators face in trying to negotiate the details of policy themselves, and the potential for agency loss that legislators may suffer by delegating policy authority to the executive. According to Carey and Shugart, for example, when the president’s party has a majority in Congress, the possible agency losses posed by delegation may be insignificant because the president is likely to use such authority in ways that redound to the benefit of his or her co-partisans. Although agency loss varies indirectly with the likelihood of delegation, the bargaining costs associated with detailed lawmaking tend to vary directly; the harder it is for legislatures to directly use their lawmaking powers, the more they consider letting the president use their authority for them. Thanks to the bargaining costs associated with detailed lawmaking, delegation is often legislators’ most efficient strategy when they want to change the policy status quo. In addition to delegating authority in specific policy areas, delegation may take other, less visible forms. In practice, legislators are constantly delegating authority to bureaucrats in every democratic system, whether new or well established. Particularly for the complex technical matters central to contemporary economic reforms, legislators simply cannot write legislation that specifies all the policy details.82 Instead, bureaucrats typically play “policymaking” roles through issuing more specific regulations. In the contemporary world, the distinction between politicians who make policy and bureaucrats who implement it, long emphasized in the older public administration literature, has become blurry.83 According to the literature on political control over the bureaucracy, politicians face a number of dilemmas in their attempts to monitor how bureaucrats are using their de facto discretion over policymaking and implementation.84 Political control requires politicians to verify that bureaucrats are not using their special implementing roles to pursue their own interests rather than the interests of politicians. This monitoring is difficult to do because of the various informational advantages that bureaucrats enjoy rel-
82. McCubbins, “Legislative Design.” 83. Joel Aberbach, Robert Putnam, and Bert Rockman, Bureaucrats and Politicians in Western Democracies (Cambridge, Mass.: Harvard University Press, 1981). 84. Douglas Arnold, Congress and the Bureaucracy (New Haven: Yale University Press, 1979); John Ferejohn and Charles Shipan, “Congressional Influence on Administrative Agencies,” in Lawrence Dodd and Bruce Oppenheimer, eds., Congress Reconsidered (Washington, D.C.: Congressional Quarterly Press, 1989), 393–410; Matthew McCubbins, Roger Noll, and Barry Weingast, “Structure and Process, Politics and Policy,” Virginia Law Review 75 (1989): 431–82.
Eaton Chapter 2 5/13/02 12:10 AM Page 57
LEGISLATORS AND THE POLITICS OF REFORM
57
ative to politicians, which the latter must overcome to control bureaucrats effectively. As in all principal-agent relationships, the bureaucratic agents over whom politicians retain formal control have more accurate and complete information about their own performance than do politicians.85 This common informational asymmetry is exacerbated in the relationship between politicians and bureaucrats because the latter tend to have greater technical training than politicians usually have. According to the literature on established democracies, politicians try to overcome these informational disadvantages by depending on constituents and interest groups to supply information about the performance of various bureaucracies.86 These theories suggest that when the performance of bureaucratic agencies dissatisfies a legislator’s constituents, these constituents communicate their displeasure to the legislator. In the words of McCubbins and Schwartz, constituents and groups pull “fire alarms” that draw legislators’ attention to bureaucratic abuses in ways that obviate the need to monitor bureaucrats more heavily in “police patrol” fashion.87 All legislators want bureaucrats to respond to their political interests, but the substance of these interests is subject to a great deal of cross-national variation. The literature on political control of the bureaucracy in the United States assumes that legislators successfully exert political control only if they can force bureaucrats to serve their particular constituents. This assumption must be abandoned, however, if the theory of political control over bureaucrats is to be applied to a broader set of countries, particularly to those where legislators do not face particularistic electoral incentives. Asserting political control over bureaucrats takes different forms where legislators do not face the same party and electoral incentives as do members of the U.S. Congress. The same bureaucratic practices that threaten politicians’ interests in one country may actually be compatible with the interests of politicians in another country. As argued in Chapter 6, for example, lackluster tax collection by bureaucrats in the 1990s threatened
85. Moe, “New Economics of Organization.” 86. Banks and Weingast, “Political Control”; Barry Weingast and Mark Moran, “Bureaucratic Discretion or Congressional Control,” Journal of Political Economy 91, 5 (1981): 765–800; B. Dan Wood and Richard Waterman, “The Dynamics of Political Control of the Bureaucracy,” American Political Science Review 85, 3 (September 1991): 801–28. 87. McCubbins and Schwartz argued that regulatory policies that are incentive based, such as taxation, do not lend themselves well to “fire alarm” oversight. See Matthew McCubbins and Thomas Schwartz, “Congressional Oversight Overlooked: Police Patrol Versus Fire Alarms,” American Journal of Political Science 28 (1984): 176.
Eaton Chapter 2 5/13/02 12:10 AM Page 58
58
INTRODUCTION
the interests of legislators in Argentina but actually promoted the interests of legislators in the Philippines. The same party and electoral incentives that influence legislators’ policy preferences at the policymaking stage determine how they behave toward bureaucrats at the policy-implementation stage. Because they have different political interests, legislators in candidate-centered and party-centered electoral systems try to assert political control over bureaucrats in different ways. In candidate-centered systems, weak and porous bureaucracies allow legislators with greater interests in the personal vote to intervene on behalf of constituents petitioning for any manner of special treatment. Bureaucrats have discretionary authority over innumerable policy decisions that matter enormously to particular individuals, enterprises, or groups, including everything from the application process for tax incentives and tariff rebates to the granting of permits and imposition of fees. Because their constituents know that legislators control the purse strings relative to bureaucrats, legislators can reasonably be asked to perform such intervention service. Because legislators in candidate-centered systems must establish personal reputations, they have reason to respond to such requests, unlike their colleagues in party-centered systems. Given this incentive structure, legislators who face particularistic incentives have important reasons to resist reforms that would strengthen bureaucracies by making them more independent of politicians. In contrast, legislators in party-centered electoral systems have cause to support reforms that strengthen bureaucracies. When legislators seek to claim credit for policies as a party rather than as individuals, they must not only adopt new policies but must also ensure that these are correctly implemented by bureaucrats. The weakness of state capacity in many developing countries is a major challenge facing these legislators. As Geddes demonstrated, poor state capacity in developing countries usually results not because bureaucrats lack training or technical resources but rather because politicians have long used the bureaucracy for patronage purposes rather than for developmental goals.88 Legislators who want to take responsibility for policy reform as a party should support efforts to increase bureaucratic competence, even if this means fewer bureaucratic positions can be used for patronage. In addition to having positive reasons to strengthen bureaucracies, individual legislators in party-centered systems have little to fear from reforms that make bureaucrats less responsive to requests for constituency service. Because legislators in party-centered systems have less to gain by acting on these requests from constituents, they have no special preference 88. Geddes, Politician’s Dilemma.
Eaton Chapter 2 5/13/02 12:10 AM Page 59
LEGISLATORS AND THE POLITICS OF REFORM
59
for bureaucracies that respond to them. Chapter 6 explores this hypothesis in greater depth by contrasting the bureaucratic preferences of governingparty legislators in the Philippines and Argentina. Though perhaps banal in the literature on the U.S. Congress, the argument that legislators use bureaucrats is rare in the literature on developing countries and economic reform. It directly challenges the bureaucracy-centric view more commonly found in this work. According to this view, bureaucrats have legislators endorse policies crafted in the bureaucracy, but legislators do not use bureaucrats in the service of their own goals as politicians.89 Other scholars have suggested that when legislators in developing countries try to alter bureaucratic arrangements, bureaucrats can easily thwart these attempts.90 In contrast to the “iron triangles” concept developed in established democracies according to which bureaucrats, legislators, and interest groups together hammer out the details of policy, the literature on developing countries has depicted legislators as being excluded from these substantive negotiations. In looking for evidence that different institutional incentives encourage legislators to develop different attitudes toward bureaucrats, I do not assume that legislators in new democracies necessarily get the bureaucracies they want. As discussed in this chapter, constitutional limits on how much legislators can alter the president’s budget weaken the very tool that their counterparts in more established democracies have used to keep bureaucrats in check: legislative control over the purse strings. Many other factors also come into play, not the least of which is the cabinet appointment strategy of the chief executive, with its profound implications for the level of professionalism found in the bureaucracy.91 For example, legislators who seek to increase the competence of the bureaucracy may run up against presidents whose political problems force them to use coalitional politics rather than technical competence as the chief appointment criterion for cabinet posts. Nevertheless, explaining variation in the bureaucracies that different legislators prefer, and investigating how they act on these preferences, may contribute to a more balanced understanding of the economic reform roles that legislators play in developing countries.
89. Grindle and Thomas, Public Choices, 62. 90. For example, see Peter Cleaves, Bureaucratic Politics and Administration in Chile (Berkeley and Los Angeles: University of California Press, 1974). 91. Geddes, Politician’s Dilemma; and Octavio Amorim Neto, “Presidential Cabinets, Electoral Cycles and Coalition Discipline in Brazil,” in Morgenstern and Nacif, Legislative Politics, 48–78..
Eaton Chapter 2 5/13/02 12:10 AM Page 60
Eaton Chapter 3 5/13/02 12:11 AM Page 61
3 THE LOGIC OF FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
In the previous chapter, I presented a theoretical framework for understanding why legislators respond so differently to the broadly similar economic reforms under discussion in developing countries. According to this framework, candidate-centered electoral incentives encourage ambitious legislators to adopt policy preferences that reflect the concerns of the losers who are created by reform. By contrast, party-centered electoral systems enable legislators to support reform because they are free of the need to develop personal reputations independent of their party. As I also noted in Chapters 1 and 2, it is possible to generalize about legislators’ responses to reform precisely because so many reforms on the table in developing countries in recent years reveal a similar dynamic. In this chapter, I explore the dynamics of reform in greater depth to understand what is at stake for legislators as they consider whether to support reform proposals. In other words, understanding the politics of the policy transformation requires accurately characterizing the nature of the transformation itself. Despite their many important differences, most key policy reforms associated with the overall shift toward market-based
61
Eaton Chapter 3 5/13/02 12:11 AM Page 62
62
INTRODUCTION
development strategies do reveal a similar logic. Across the policy landscape, reforms tend to reduce the scope for discretion that previously enabled politicians to reward certain individuals at the expense of others. When the state is asked to do fewer things, the ability of policymakers in the state to make distinctions among individuals, firms, and groups is consequently compromised. Thus, whereas the previous shift toward statist development strategies beginning in the 1930s expanded the scope for discretionary behavior, the current and ongoing shift amounts to a serious scaling-back of this discretion. In the realm of commerce, trade liberalization has undercut the ability of politicians to reward supporters with special tariff rates, quotas, and other nontariff barriers.1 Likewise, the elimination of import licensing and the unification of exchange rates in countries that previously maintained different rates for different categories of importers and exporters also notably limit discretion.2 Though there is much evidence that politicians have used the privatization process to reward particular groups at the expense of consumers, reductions in the size of the parastatal sector prevent politicians thereafter from granting companies lucrative contracts with state-owned enterprises in exchange for political support.3 With respect to monetary policy, the dramatic shift toward central bank independence in developing countries has enabled central bankers to resist historically strong pressures from politicians to lend funds to particular banks and subnational governments.4 Finally, as I argue in this chapter, recent changes in fiscal policy similarly limit discretion by eliminating special tax loopholes, credits, deductions, and holidays, all in the interest of broadening tax bases. Though not all politicians are equally interested in offering these divisible policy favors, there are fewer and fewer favors to be handed out. The argument here is not that discretion has disappeared relative to the previous period of state-led industrialization, but rather that the general effect is to reduce discretion, often significantly. Neither does the argument about the diminished scope for discretion require any one set of views about the ends toward which policymakers previously used their discretion. Whether policymakers in the statist period were motivated primarily by 1. Vito Tanzi, ed., Fiscal Policy in Open Developing Economies (Washington, D.C.: International Monetary Fund, 1990). 2. Sebastian Edwards, Real Exchange Rates, Devaluation, and Adjustment: Exchange Rate Policy in Developing Countries (Cambridge, Mass.: MIT Press, 1989). 3. Waterbury, Exposed to Innumerable Delusions. 4. Maxfield, Gatekeepers of Growth.
Eaton Chapter 3 5/13/02 12:11 AM Page 63
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
63
tenure security5 or by more normative commitments to industrialization,6 the contemporary shift in development models appears to have shrunk the policy tools at politicians’ disposal. More controversial, perhaps, than the argument that current reforms create concentrated losers is the argument that these reforms can also create diffuse winners. After all, many scholars who study neoliberalism in developing countries have concluded that stabilization and structural adjustment worsen the position of the lower income groups in these societies, relative to their treatment in the previous statist period.7 Lower tolerance for inflation in the current period has translated into much greater tolerance for unemployment and much less room for active state policies to combat poverty. Others have responded that middle classes rather than low-income groups received the bulk of subsidies in the period of state-led industrialization, and, more important, that the lenient fiscal stance and antimarket policies of the statist period led to inflation and hyperinflation that hit the poorest groups the hardest.8 Consequently, reforms that significantly reduce inflation may have an important pro-poor component to them. Whether the shift in development paradigms has a positive or negative net impact on equity in the long run is a matter of much complexity. What does seem clear, however, is that under the previous development model, ordinary citizens subsidized the special policy treatment received by those with political connections. Tax breaks, special credits, subsidized exchange rates, and below-market interest rates all had costs that average citizens paid for in the form of higher taxes, higher interest rates, and, inevitably, higher inflation. These individuals may benefit from reforms that put greater distance between the government and politically powerful groups. In the end, much of the outcome depends on how governments use the revenues that are no longer squandered on rents for the politically well connected.
5. Ames, Political Survival. 6. Waterbury, Exposed to Innumerable Delusions. 7. For example, see Douglas Chalmers, Carlos Vilas, Katherine Hite, Scott Martin, Kerianne Piester, and Monique Segarra, The New Politics of Inequality in Latin America (New York: Oxford University Press, 1997); Smith and Acuna, Latin American Political Economy. 8. Werner Baer and William Maloney, “Neoliberalism and Income Distribution in Latin America” World Development 25, 3 (1997): 311–27. Weyland argued that in Brazil much of the policy intervention by the Brazilian state in the statist period had the effect of rewarding the upper end of the popular sector at the expense of the lower end. See Weyland, Democracy Without Equity.
Eaton Chapter 3 5/13/02 12:11 AM Page 64
64
INTRODUCTION
This study is designed to contribute to more general debates about economic reform, but for reasons of tractability it focuses on one area of economic reform—the fiscal side of adjustment. Because the dynamics of reform efforts are so similar across different policy areas, however, a study of policy reform in this one area may have broader relevance. There are three main reasons to focus on fiscal questions rather than on other reform areas. First, fiscal policymaking is an especially useful arena to evaluate the hypotheses about legislators discussed in the previous chapter. Second, fiscal policies in the previous era of import-substituting industrialization (ISI) played a critical role in provoking the dramatic movement toward market-oriented development strategies in the 1980s and 1990s. Third, in the near future, the sustainability of these new development strategies depends heavily on fiscal policies as well, particularly on the capacity of developing states to extract revenues domestically through taxes other than inflation. The remainder of this chapter is devoted to a detailed consideration of each of these three arguments.
Legislators and Fiscal Reform As demonstrated in Chapter 1, many writers on economic reform in developing countries have assumed that legislators are interested largely in particularistic policies. If this is truly the case, this interest should be clearly reflected in the fiscal preferences legislators adopt. Fiscal decision making is replete with excellent opportunities for legislators to pursue any particularistic preferences they may have. Thus the positions legislators actually take on tax policy, fiscal administration, and revenue sharing can be seen as an important test of the particularism argument.9 Tax policy is ideally suited to the pursuit of particularism. Politicians in developed and developing countries alike have conceived of a mind-boggling variety of ways to provide special tax treatment to constituents, often with a high degree of precision in terms of the identity of the beneficiary. Popular instruments include tax credits, deductions, exemptions, deferments, holidays, and accelerated depreciation allowances. Not only do the instruments vary, but the targets do as well. Policymakers can use these various instru9. For a study that interprets tax-policy choices in established democracies as the result of differences in electoral institutions, see Sven Steinmo, Taxation and Democracy (New Haven: Yale University Press, 1993).
Eaton Chapter 3 5/13/02 12:11 AM Page 65
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
65
ments to promote certain expenditures (e.g., purchases of intermediate goods, interest payments, and salary payments for new employees), certain sectors of the economy (e.g., industrial ventures, agroprocessing, nontraditional exports), and certain regions in the country (e.g., subnational jurisdictions including provinces and municipalities, specific regions within these jurisdictions, and special free trade zones). In the ISI period, the possibilities to design tax breaks to satisfy the interests of particular constituents, however policymakers wanted to define these categories, were nearly limitless. In their myriad forms, tax breaks are especially valuable for those legislators seeking to trade particular policy favors for political support. First, tax-policy favors can be designed to deliver enormous advantages in the marketplace to those who receive them. For example, in the highly inflationary environment characteristic of so many developing countries in the statist period, deferring tax payments without adjusting for inflation could effectively cancel the tax liabilities of beneficiaries. Tax incentives can make otherwise unprofitable ventures profitable, put efficient producers who do not enjoy the benefit out of business, and increase the risk associated with investing without incentives if competitors receive them in the future. As suggested in the rent-seeking literature, the initial granting of policy favors increases both the extent of lobbying for such favors and the price that recipients of tax breaks offer politicians who can tailor special tax treatment.10 Second, unlike budgeted subsidies that must be legislated every year, fiscal perks such as tax holidays do not depend on the continued favor of politicians in subsequent administrations, but instead are contractually binding on subsequent politicians.11 From a political standpoint, it is difficult to eliminate these rents once they have been granted, because incentives become capitalized into the market value of any enterprise benefiting from loopholes, deductions, and credits. As Summers noted, it can often appear unfair to take the benefit away later.12 These perks are consequently much more attractive to those who grant tax breaks and to those who receive them. Though none of these incentives appears in government budgets, all 10. Anne O. Krueger, “The Political Economy of the Rent-Seeking Society,” American Economic Review 64 (June 1974): 291–303; and James Buchanan, R. Tollison, and G Tullock, eds., Toward a Theory of the Rent Seeking Society (College Station: Texas A & M Press, 1980), 12–14. 11. Unlike budgeted subsidies, the fiscal cost of tax expenditures is determined only by the actual investment levels of the beneficiary, because more tax-free investment implies greater forgone revenues. 12. Lawrence Summers, “Foreword,” in Stephan Haggard and Steven Webb, eds., Voting for Reform (New York: Oxford University Press, 1994), x.
Eaton Chapter 3 5/13/02 12:11 AM Page 66
66
INTRODUCTION
are equivalent in economic terms to transfers from the national treasury and thus most accurately understood as expenditures. Third, legislators may be particularly interested in tax breaks because they lend themselves so well to geographic targeting. This aspect often proves irresistible for legislators seeking to develop reputations “back home” as individuals who can use their influence at the center for local gain. Because they attract investment, securing exemptions from centrally collected taxes for local projects brings many benefits, including increases in the size of local tax bases and more local jobs. Bringing home federal tax breaks for local firms in a given legislator’s district is an effective way of shifting fiscal burdens onto other jurisdictions. Fourth, tax breaks can be less visible than other policy favors such as budgeted subsidies.13 Special tax treatment can be inserted as amendments in larger pieces of legislation that may or may not relate to fiscal policy. Even in countries where watchdog groups and investigative journalists cannot be relied on to report on fiscal policymaking, politicians may prefer less visible tax breaks as a means of shielding themselves from public scrutiny. Fifth, many advocates of special tax treatment have argued that, unlike budgeted subsidies, tax breaks really cost the treasury nothing, because tax revenues are not produced by an investment project that fails to materialize if fiscal subsidies are unavailable. Such arguments neglect the opportunity cost of tax incentives in the form of tax revenues that would have been generated for the treasury if similar resources had been invested in alternative, regularly taxed activities.14 However, in many important cases this view of tax incentives infused debates over their merits and bolstered politicians’ enthusiasm for using tax as opposed to other policy interventions. In addition to tax policy, tax administration likewise offers countless opportunities for legislators to deliver special fiscal treatment for particular individuals and groups. In addition to directly legislating tax breaks, legislators can also pass general fiscal bills, which effectively delegate to bureaucrats specific targeting decisions. In the case of delegation, legislators can then influence the targeting of tax breaks in behind-the-scenes negotiations 13. Theories of fiscal illusion suggest there is plenty of scope to hide fiscal burdens from voter-taxpayers through mechanisms such as employer withholding of income taxes and bank collection of property taxes with mortgage payments. Dennis C. Mueller, Public Choice II (New York: Cambridge University Press, 1989), 342. 14. They also neglected the widespread tax avoidance and evasion behaviors triggered by the aggressive use of tax incentives to promote certain industrial sectors. See Jorge Macón, Las finanzas públicas argentinas (Argentine public finances) (Buenos Aires: Ediciones Macchi, 1985).
Eaton Chapter 3 5/13/02 12:11 AM Page 67
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
67
with bureaucrats and potential beneficiaries. Because they have varying degrees of authority over both funding levels for tax-collecting agencies and the salaries of tax collectors, legislators usually have important leverage over bureaucrats in these negotiations. As a result, legislators are routinely called on by would-be recipients of tax breaks for help in navigating the bureaucratic approval process. In other words, that the responsibility for actually granting tax incentives to specific beneficiaries often lies in the executive-branch bureaucracy presents no special obstacles for the creditclaiming imperatives of legislators who are oriented toward particularism. Furthermore, intervening with bureaucrats on behalf of constituents furthers legislators’ interest in making policy favors highly visible to beneficiaries and virtually hidden from those who subsidize the favors. If legislators value particularism, we should see them attempting to use tax-collecting agencies in this fashion. There is another way that legislators can use the tax bureaucracy for particularistic ends. In addition to channeling legal tax breaks to favored constituents, legislators can intervene with tax bureaucrats on behalf of constituents who are seeking to avoid or evade tax burdens. Legislators may be called on to influence negotiations between tax collectors and errant taxpayers. Though such acts are illegal, legislators are called on to exert such influence in many countries, developing and developed alike. Performing these services helps legislators acquire the reputation for being personally indispensable among the firms that ask them to play these roles. Because fiscal reform involves changes not only in the content of tax policies but also in the collection of these taxes by bureaucrats, fiscal policy is a particularly useful area in which to evaluate the hypotheses about legislators’ bureaucratic preferences that are presented in Chapter 2. In other economic-reform areas, altering the performance of bureaucrats appears less critical. For example, voting to decrease tariff rates or reduce the budget deficit does not require legislators to grapple with ways to improve bureaucratic performance. These votes consequently reveal much less information about legislators’ bureaucratic preferences than do votes on the reform of tax bureaucracies. Rather than simply trying to get bureaucrats to refrain from certain activities, legislators who want to improve tax administration must force bureaucrats to adopt actively new practices. This often involves fundamentally redesigning tax collection and the relationships that bind tax collectors to legislators. In addition to tax policy and tax administration, tax revenue sharing is a third area that lends itself well to the study of legislators and particularism.
Eaton Chapter 3 5/13/02 12:11 AM Page 68
68
INTRODUCTION
Once policymakers assign taxes to different levels of government and once taxes are collected by bureaucrats, central governments in most developing countries share some of the tax revenues they collect with lower levels of government. Throughout the developing world, revenue sharing is made necessary by high degrees of fiscal imbalance, according to which lower levels of government spend more than they collect from their own tax bases. One common response has been to design often-complicated systems of revenue sharing according to which centrally collected tax revenues are transferred to the governments of subnational jurisdictions. For legislators who seek to develop personal reputations, the stakes involved in revenue sharing can be high. One critical issue concerns the extent to which revenues are distributed to lower levels of government through the application of automatic criteria that are legislated beforehand (ex ante) or through the discretion of actors in the central government. There are many reasons to believe that legislators who value particularism favor the use of discretion over automatic procedures. So long as bureaucrats enjoy discretion in the distribution of tax revenues, legislators can attempt to claim personal credit with their constituents for having successfully negotiated transfers from these bureaucrats. These personal-brokering roles are obviated by the use of automatic revenue-sharing procedures. In view of the wide development gaps between congressional districts in or near capital cities and districts in often-poorer interior regions, making fiscal transfers possible is a particularly effective way of developing a personal reputation. In the event of the revenue shortfalls and cash-flow problems that so often occur in developing countries, legislators who can secure the timely release of transfers are deemed especially valuable. For legislators who value particularism, then, claiming credit for fiscal transfers may be just as important a part of their overall career strategies as taking responsibility for the granting of tax breaks and providing constituency service visà-vis tax collectors. This study’s focus on fiscal reform is also useful because it privileges neither the dominant, homogeneous view of legislators’ policy preferences nor the heterogeneous view advanced in this book. Politicians who face particularistic electoral incentives but eschew particularistic fiscal policies are obviously a challenge to the argument advanced here. Though it is a neutral arena in which to investigate hypotheses about the content of legislators’ policy preferences, the selection of fiscal reform may privilege my argument about the extent to which legislators successfully act on these preferences in shaping actual policy outputs. There are many reasons to suspect that legislators might shape fiscal policy more than other policies. First, legislators’
Eaton Chapter 3 5/13/02 12:11 AM Page 69
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
69
participation in fiscal policy is typically more extensive than their involvement in areas such as monetary and exchange-rate policy. Second, many constitutions limit the president’s ability to use decree powers in the area of taxation and instead reserve the power to initiate revenue bills in the lower chamber of the legislative branch. Even where such bills are really designed in the executive branch, this formal requirement may give legislators additional opportunity to influence policy content. Third, even where executives do enjoy the ability to adopt tax measures unilaterally, comprehensive tax reform does not lend itself well to decree instruments but instead tends to involve the participation of legislators in long-term negotiations.
Fiscal Policy and Administration in the Era of State-Led Industrialization In the previous section, I explained this study’s focus on fiscal policy by arguing for its usefulness as an arena in which to evaluate legislators’ behavior. But there is another important reason to pay particular attention to the fiscal side of adjustment: The content of fiscal-policy decisions in the era of state-led industrialization contributed enormously to the profound economic crisis that hit developing countries in the 1980s. As a consequence, these fiscal-policy decisions played a preponderant role in provoking the broad reorientation of development strategies that dominated policy debates in these countries ever since. There is remarkably wide agreement in the literature on economic reform about the great extent to which previous fiscal-policy decisions were an underlying cause of the 1980s economic crisis in developing countries. In Latin America, the chronic fiscal deficits produced by insufficient taxation and profligate spending are certainly central to the claims of those who attribute blame for the region’s crisis to macroeconomic populism.15 For developing countries generally, the so-called Washington Consensus that emerged in the 1980s likewise argued that “sustained fiscal deficits are a primary source of macroeconomic dislocation in the forms of inflation, payments deficits, and capital flight.”16 Even many of the critics of the 15. For example, see Rudiger Dornbusch and Sebastian Edwards, “The Macroeconomics of Populism in Latin America,” Journal of Development Economics 32 (1990): 247–77; and Sebastian Edwards, Crisis and Reform in Latin America (Washington, D.C.: World Bank, 1995), 83–91. 16. John Williamson, “What Washington Means by Policy Reform,” in John Williamson, ed., Latin American Adjustment: How Much Has Happened? (Washington, D.C.: Institute for International Economics, 1990), 10.
Eaton Chapter 3 5/13/02 12:11 AM Page 70
70
INTRODUCTION
Table 3.1 Contribution of tax receipts to the economic crisis in selected developing countries (changes as percentages of GDP)
Total Copper or oil Other direct VAT Fuels/excises Trade Other national
Chile 1980–1984
Colombia 1979–1983
Mexico 1985–1986
Argentina 1980–1983
0.1 0.7 2.0 0.7 2.7 1.3 0.5
2.0 0.1 0.7 0.1 0.1 0.8 0.8
1.9 2.4 0.2 0.1 0.1 0.2 0.0
2.3 0.0 1.6 0.7 0.1 0.9 1.0
SOURCE: Guillermo Perry and Ana Maria Herrera, Public Finances, Stabilization, and Structural Reform in Latin America (Washington, D.C.: Inter-American Development Bank, 1994), 14. Reprinted with permission of the Inter-American Development Bank.
Washington Consensus agreed on the importance of domestic fiscal-policy choices, though they often criticized the Consensus for downplaying the role of other factors, including the large foreign debts that foreign bankers encouraged developing countries to run up in the 1970s. According to the former Brazilian finance minister Luiz Carlos Bresser Pereira, Latin America’s economic crisis was really a fiscal crisis of the state, which transformed the state into “an obstacle rather than an effective agent of growth.”17 Table 3.1 documents the impact of decreasing tax receipts on the economic crisis in four Latin American countries. How did fiscal policies set the stage for such a profound and prolonged crisis? The following paragraphs demonstrate the contributing role played by narrow taxes, complex tax rates, lackluster tax collection, and heavily centralized control over tax revenues. The purpose of this discussion is not to explain these fiscal practices in an exhaustive way, but to characterize them in enough detail to make it clear why they contributed to the crisis and how contemporary fiscal-reform proposals can be understood as a response to these earlier practices. The fiscal practices discussed were adopted in most middle-income developing countries, though some of them were common in developing countries generally. Although the attempt to characterize fiscal policy in a “typical” case glosses over variation in the countries included in this category, there are enough similarities in these countries’ fiscal-policy choices in the statist period to make discussion of a typical case possible and useful. 17. Bresser Pereira, Maravall, and Przeworski, Economic Reforms, 24
Eaton Chapter 3 5/13/02 12:11 AM Page 71
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
71
Narrow Tax Bases and Complex Tax Rates Before the adoption of market-based development models in the 1980s, most developing states sought to lead and direct the process of industrialization, with powerful consequences for tax policy. Although tariff and exchange-rate policies were indeed central to the promotion of importsubstituting industrialization, national tax systems were also manipulated in the service of ISI. In scores of developing countries, policymakers used the tax system to achieve two central ISI goals: wealth redistribution to broaden the domestic market for manufactured goods, and promotional incentives to protect infant industries.18 Redistribution demanded highly progressive individual and corporate income tax rates and lower sales tax rates on goods produced domestically. Special tax treatment for infant industries came in the form of exemptions, deferments, and credits on these same income and sales taxes.19 In periods of democratic rule, politicians in developing countries can establish populist credentials by advocating high income tax rates because the median voter in such countries was and still is unlikely to have taxable income at all. Having gone on record in support of highly progressive statutory tax rates, politicians can then use the bureaucracy to provide less visible tax exemptions for important upper-income supporters. Although the experience of the developed economies shows that progressive income taxation can be a remarkable generator of fiscal revenues, in developing countries pursuing ISI, the widespread use of these tax incentives effectively narrows the tax base subject to highly progressive rates. Exemptions from corporate income taxes in particular play havoc with progressivity, because taxing corporations and not individuals is often an easier way of collecting taxes on personal incomes in developing countries.20 Though politically rational, the strategy of publicly supporting progressive taxation while privately undermining it serves to constrain the generation of fiscal revenue. In the period of state-led development, tax policies were used not just to promote industrialization but also to promote investment in economically 18. Richard Goode, Government Finance in Developing Countries (Washington, D.C.: Brookings Institution, 1984). 19. Richard Bird and Oliver Oldman, Taxation in Developing Countries, 4th ed. (Baltimore: Johns Hopkins University Press, 1990); and Malcolm Gillis, “Toward a Taxonomy of Tax Reform,” in Malcolm Gillis, ed. Tax Reform in Developing Countries (Durham: Duke University Press, 1989), 7–26. 20. Ehtisham Ahmad and Nicholas Stern, Theory and Practice of Tax Reform in Developing Countries (Cambridge: Cambridge University Press, 1991), 82.
Eaton Chapter 3 5/13/02 12:11 AM Page 72
72
INTRODUCTION
backward regions in the country.21 In fact, politicians at the center often used these regional tax incentives as a means of placating the many regions left behind by patterns of industrial growth that were highly concentrated around capital cities.22 One way of responding to the growing divide between the more- and less-developed regions in developing countries was to offer tax exemptions or lower tax rates for enterprises that agreed to locate in less-developed areas. Though regional tax incentives were usually initially focused on the poorest regions, profound political pressures from other regions made it difficult to keep these programs limited in scope. In one such country noted for its heavy reliance on regional tax incentives, Argentina, the World Bank estimated that by 1987 virtually all investment activity outside the federal capital was subsidized to some extent.23 Regional tax incentives, combined with tax incentives to promote industry, narrowed the tax base and compromised tax revenues.24 The tax system in the ISI period was loaded with goals and objectives other than the primary objective of revenue generation. Burdening the tax code with other objectives undermined the tax system’s ability to perform the critical service of producing revenue for the government. Multiple rates and narrow bases triggered a series of vicious cycles, encouraging behavior on the part of economic actors and responses by economic policymakers that seriously weakened the tax system. On the one hand, high marginal rates of taxation encouraged tax avoidance and evasion. On the other, the demands of implementing complex income tax codes decreased the ability of tax collectors to counter evasion and increased the scope for corruption between collectors and taxpayers. Furthermore, when high rates encouraged tax evasion and depressed revenue levels, policymakers often responded by further increasing rates. As Gillis concluded, the fiscal reality in most developing countries can be summarized as “high tax rates on constricted tax bases under complex legislation in the presence of weak tax administration.”25 21. Albert Hirschman, A Bias for Hope: Essays on Development and Latin America (New Haven: Yale University Press, 1971). 22. Shah and Toye disputed that tax incentives can increase the aggregate level of investment in developing countries, but they found that incentives “may be somewhat more influential in steering investment . . . to the location which policy makers prefer.” S. Shah and J. Toye, “Fiscal Incentives for Firms in Some Developing Countries,” in Bird and Oldman, Taxation in Developing Countries, 159. 23. See World Bank, Argentina: From Insolvency to Growth (Washington, D.C.: World Bank, 1993), 39; and Eaton, “The Logic of Congressional Delegation.” 24. Charles McLure, “Administrative Considerations in the Design of Regional Tax Incentives,” National Tax Journal 33 (1980): 177–202. 25. Gillis, “Toward a Taxonomy,” 2.
Eaton Chapter 3 5/13/02 12:11 AM Page 73
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
73
In practice, the inability of multiple rates and narrow bases to produce sufficient revenue means that developing countries depended on trade and excise taxes as tax handles, much as they had under the previous development phase geared toward the export of primary products. Depending on trade taxes for revenue also served to protect the internal market, as ISI allowed little room for the use of internal consumption taxes like the valueadded tax (VAT).26 In 1980, the industrial countries raised only 3.7 percent of their central-government revenues through trade taxes, but semi-industrial countries raised 14.5 percent, middle-income countries raised 28.9 percent, and the least-developed countries raised 41.6 percent.27 Though administratively easy, the dependence on import tariffs and export taxes undermined the stability of government revenues, which could rise and fall precipitously with the terms of trade. Over the course of the postwar period, in the context of a gradual but certain expansion in the activity of the state in developing countries, the mix of narrow bases, complex tax rates, and dependence on volatile trade and excise taxes helped spawn chronic budget deficits and fiscal instability. Because of the thinness of domestic capital markets in this period, developing countries could close the fiscal gap through either foreign borrowing or money creation. In the period of easy commercial finance in the 1970s, foreign borrowing kept governments afloat despite the worsening domestic fiscal situation. When these capital inflows were shut off in the early 1980s, developing countries increasingly turned to the inflation tax to do what explicit taxes could not. Thus the policy mix of narrow bases and complex rates was strongly implicated in the foreign indebtedness and inflation that plagued developing countries in the 1980s and 1990s. Poor Tax Collection By narrowing tax bases and fragmenting tax-rate structures, incentives for industrialization and regional development have directly negative implications for the quality of tax administration. By definition, administering a complex tax code is more difficult than applying a single tax rate to a broad base from which few activities are exempted. Accurately determining which 26. Many developing countries adopted the value-added tax (VAT) before the recent shift to supply-side taxation, but the VAT rarely figured as an important revenue source before such reforms. See Richard Bird, “Tax Reform in Latin America,” Latin American Research Review 27, 1 (1992): 8. 27. International Monetary Fund, Government Finance Statistics Yearbook 6 (Washington, D.C.: International Monetary Fund, 1982).
Eaton Chapter 3 5/13/02 12:11 AM Page 74
74
INTRODUCTION
firms, activities, or both are eligible for which exemptions, rates, or both requires a great deal of a bureaucrat’s time and information that is costly to acquire. Specifically, it requires detailed and up-to-date knowledge of a variety of different markets, from the production to the wholesale and retail stages. Monitoring compliance with regional tax incentives, in particular whether recipients of tax breaks actually relocate to the poorer regions being promoted, severely tests the administrative capabilities of many taxcollecting agencies. While complexity of tax policy creates numerous problems for tax collectors, so does the frequency of tax policy changes. In the ISI period, as successive governments came to power and fell from power, they often expanded tax incentives to benefit the groups and activities they deemed most important. Frequent changes make tax collectors’ work more difficult by forcing them constantly to issue new regulations, gain mastery of the new regulations, and then abandon them in the face of new directives. The history of tax incentives in Argentina illustrates this volatility. In the 1940s, tying tax deductions to the expansion of productive industrial capacity reflected Perón’s role in pushing first-stage import-substituting industrialization. Subsequently, 1958 legislation establishing sectoral targets for tax breaks underlined the then-president Frondizi’s pursuit of second-stage ISI. Nationalist legislation excluding foreign enterprises from tax incentives signaled the return of Perón to power in 1973, just as the inclusion of foreigners in the system after 1976 reflected the pro-foreign investment orientation of the military government that took power that year. 28 In the early 1990s, Menem promoted tax breaks for privatized state-owned enterprises to make them more attractive to potential buyers. Tax laws that were complex and frequently changed also compromised tax-collection goals by encouraging tax evasion. Complexity led to what public-finance experts call horizontal inequality: Economic actors at similar income levels bear significantly different tax liabilities because of the special tax treatment afforded certain activities.29 These differences often had more to do with the political connections of recipients than with any defensible 28. Ricardo López Murphy, Gustavo Kippes, and Nestor Lew, “Regimenes de Promoción en la Argentina” (Promotional regimes in Argentina), Jornadas de Finanzas Públicas 14 (1981): 9.5; and Ricardo J. Ferrucci, La Promoción Industrial en Argentina (Industrial promotion in Argentina) (Buenos Aires: Editorial Universitaria de Buenos Aires, 1986), 116–33. 29. Richard Bird, Tax Policy and Economic Development (Baltimore: Johns Hopkins University Press, 1992); and Richard Musgrave and Peggy Musgrave, Public Finance in Theory and Practice, 4th ed. (New York: McGraw-Hill, 1984).
Eaton Chapter 3 5/13/02 12:11 AM Page 75
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
75
technical criteria. For this reason, enterprises that were unsuccessful in lobbying for legal tax breaks often decided to act as though they had indeed received such breaks and simply evaded their legal tax burdens. If caught, tax evaders could cite the dizzying frequency of changes in tax law to defend their failure to pay the right amount of tax. In addition to complexity and volatility, highly progressive marginal tax rates that in some cases reached 75 percent also encouraged evasion by the same high-income actors who could so easily hide their real taxable income. Although the nature of tax policy gives economic actors both cause and opportunity to evade taxes, tax-collecting agencies in most developing countries have been poorly prepared to check evasion. The incentives encouraging bureaucrats to collude with tax evaders are particularly strong.30 As the World Bank has argued, delegating to tax bureaucrats the authority to approve applications for tax incentives and perform tax audits places bureaucrats in an ideal position to accept bribes from tax evaders.31 As Jenkins noted, “tax collection” routinely involves interactions between poorly paid tax bureaucrats and well-paid lawyers and accountants representing the country’s most powerful firms.32 Precisely because the policy-implementation process endows them with varying degrees of discretion, bureaucrats everywhere are asked to provide special treatment for various individuals, firms, and groups. Such requests are not necessarily illegal; they often take the form, for example, of negotiations between bureaucrats and businesses over how the former should write regulations to implement the general legislation passed by legislators. Tax collection, however, is particularly amenable to collusion between would-be tax evaders and low-level tax officials who are expected to discover evidence of evasion. Complexity in the tax code increases the scope for such acts of collusion and decreases the likelihood that they come to light. Other factors further compromised the performance of tax-collecting agencies in the ISI period. In response to chronic fiscal deficits, many countries have developed a dependence on tax amnesties, according to which individuals and firms that had evaded taxes in the past can regularize their situation by paying back taxes, typically free of interest or penalty charges. 30. Richard Bird, “The Administrative Dimension of Tax Reform in Developing Countries,” in Malcolm Gillis, ed., Tax Reform in Developing Countries (Durham: Duke University Press, 1989), 315–46. 31. World Bank, Lessons of Tax Reform (Washington, D.C.: World Bank, 1991), 51. 32. Glenn Jenkins, “Modernization of Tax Administrations,” Bulletin for International Fiscal Documentation 48, 2 (February 1994): 75–80.
Eaton Chapter 3 5/13/02 12:11 AM Page 76
76
INTRODUCTION
Though this is a certain means of producing revenue in an emergency, over time the repeated declaration of tax amnesties encourages widespread evasion.33 In addition to amnesties, tight banking-secrecy laws seriously challenge the ability of tax collectors to verify the accuracy of self-assessed tax claims. The result of all these constraints is that tax bureaucracies in the pre-reform period were rarely structured in ways that reflected their critical importance as the agency that greased the wheels of the entire bureaucratic machinery. Ultimately, that tax-collecting agencies are allowed to perform in this lackluster fashion reflects the deeper fiscal realities of the statist period, according to which foreign borrowing and domestic inflation were acceptable means of closing the fiscal gap. Limited and Discretionary Tax Revenue Sharing Porous tax codes and weak fiscal administration were central to the state’s profound fiscal crisis that broke out in developing countries in the 1980s. The revenue-sharing rules that these countries commonly adopted in the statist period contributed less directly to the fiscal crisis, though there were heavy costs associated with these rules. For the most part, revenue transfers from the central government to lower levels of government were limited and discretionary in the statist period. In contrast, the contemporary period of economic liberalization discussed later in the chapter has witnessed reforms that increased the size of transfers and made them more automatic. In the statist period, once bureaucrats collected the taxes, most of the revenues were deposited in the national treasury, which released them to central-government ministries in line with the orders of chief executives. Table 3.2 documents the highly centralized patterns of tax revenue distribution in selected developing countries. Revenue transfers to lower levels of government were limited for some of the same reasons that most of the important taxes were assigned to the central government—lower levels of government were simply denied significant expenditure responsibilities in the period of state-led development. Limited revenue sharing reflected the dominant, centralizing tendencies of the statist period, according to which policy authority had to be expanded and concentrated at the central level to overcome the many obstacles in the way of development. Modernizers at the center were more interested in wresting power from the leaders of subnational governments than in giving them an 33. Bird, Tax Policy.
Eaton Chapter 3 5/13/02 12:11 AM Page 77
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
77
Table 3.2 Distribution of tax revenue among different levels of government in selected developing countries (tax revenue in percentage of central government tax) Central Government Argentina (1989) Brazil (1991) Chile (1988) Hungary (1990) India (1990) Israel (1990) Kenya (1991) Mexico (1987) Poland (1988) South Africa (1990) Thailand (1990) Zimbabwe (1986)
60.4 65.0 96.2 92.4 65.8 93.1 Image 98.3 85.5 78.7 94.5 95.6 96.4
State Government
not available
39.6 30.9 n.a. n.a. 34.2 n.a. n.a. 11.6 — 1.2 — —
Local Government 0.0 4.1 3.8 7.6 0.0 6.9 1.7 2.9 21.3 4.3 4.4 3.6
SOURCE: John Norregaard, “Tax Assignment,” in Teresa Ter-Minassian, ed., Fiscal Federalism in Theory and Practice (Washington, D.C.: International Monetary Fund, 1997), 56. Reprinted with permission from the publisher.
independent stake in centrally collected tax revenues. For the most part, lower levels of government were deemed insufficiently prepared to participate in the difficult tasks of industrialization and modernization. According to the public finance literature, there are major costs associated with such centralized practices. Assigning most important tax bases and expenditure responsibilities to the central level encouraged the overconcentration of industry and population in and around the cities that serve as national capitals. In many developing countries, such strategies have led to the virtual abandonment of the interior regions, whose residents are forced to migrate to these capitals in search of employment opportunities. In addition to encouraging highly concentrated development patterns, centralized control over expenditure and revenue also failed to realize the efficiency gains made possible by local provision of services such as education and health care.34 Not only were intergovernmental transfers limited in the statist period, they also usually occurred on a discretionary basis as the result of ad hoc political negotiations between central and subnational governments.35 Though laws stipulating the automatic distribution of revenue were not uncommon, 34. Richard Bird and Francois Vaillancourt, eds., Fiscal Decentralization in Developing Countries (New York: Cambridge University Press, 1998). 35. Shahid Javed Burki, Guillermo Perry, and William Dillinger, Beyond the Center: Decentralizing the State (Washington, D.C.: World Bank, 1999), 29.
Eaton Chapter 3 5/13/02 12:11 AM Page 78
78
INTRODUCTION
the lack of judicial independence from executive-branch control and frequent interludes of nondemocratic government meant that even in these cases much discretion infused the system of revenue transfers. Though legislators in some systems preferred discretion because it enabled them to claim credit for brokering transfers, the highly political distribution of revenues compromised the efficiency and transparency of fiscal policy. With respect to officials in subnational jurisdictions, discretion encouraged them to devote precious time and energy to lobbying officials in the central government. The use of ad hoc negotiations also meant that subnational officials never knew from one year to the next how much revenue would be transferred from the center, an uncertainty that undermined the development of local capacity.36 With respect to politicians at the center, discretion meant that they could use revenue transfers for the purpose of sustaining their own political support coalitions, even if this strategy jeopardized the achievement of the country’s development priorities.
The Nature of Fiscal Reform in the Era of Economic Liberalization The tax policy, administration, and revenue-sharing practices described in the previous section all contributed to discrediting the statist approach to development in the 1980s and 1990s and to its replacement with a new paradigm. As a result, recent decades have witnessed a profound fiscal transformation in many developing countries with respect to how taxes are assigned, how they are collected, and how the proceeds are distributed among different levels of government. Gillis identified one hundred attempts at major tax reform since 1945, with a flurry of tax reform activity beginning in the mid1980s. 37 Despite important and politically significant variation in the extent and depth of this transformation in different developing countries, it is possible to characterize the general thrust of these reforms. Central tenets of the new development model include fiscal balance, a limited tolerance for inflation, expenditure and revenue decentralization, and tax policies that are neutral with respect to private-sector investment decisions. According to the new model, overreliance on tax incentives and underperformance of tax collectors inevitably lead to chronic fiscal deficits and inflation. Because of the concerns they raise with both foreign and 36. Interview with Hugo Garnero, Economic Minister of the province of Santa Fé, Buenos Aires, July 22, 1996. 37. Malcolm Gillis, “Toward a Taxonomy of Tax Reform,” in Gillis, Tax Reform in Developing Countries, 7.
Eaton Chapter 3 5/13/02 12:11 AM Page 79
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
79
Table 3.3 Share of taxes on international trade in total tax revenue in Latin America (percentage) 1980 Argentina Bolivia Brazil Chile Colombia Costa Rica Dominican Rep. Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela
45.8 39.2 6.8 5.8 27.2 30.3 41.1 Image 32.1 38.9 38.7 39.9 9.5 15.2 18.0 32.3 29.9 21.4 9.5
1985
not
16.7 22.4 3.9 39.5 19.7 35.5 30.3 available 41.0 29.7 28.7 41.5 6.3 5.9 18.8 16.1 24.9 15.0 20.4
1990
1990–1995
12.1 11.8 2.5 14.1 33.7 27.8 38.7 30.8 22.4 40.6 38.6 8.0 15.8 22.0 25.5 17.3 15.3 7.6
5.6 10.1 2.8 12.5 15.0 24.4 34.5 24.1 19.1 42.2 19.7 8.6 12.5 23.9 20.0 14.8 9.5 12.8
SOURCE: Inter-American Development Bank, Economic and Social Progress in Latin America: 1996 Report, 126. Reprinted with permission of the Inter-American Development Bank.
domestic investors, high levels of inflation are a major obstacle to marketdriven growth. In the long run, eliminating inflation requires governments to improve their ability to extract explicit taxes from the domestic economy. The promotion through the tax system of such goals as industrialization, redistribution, and regional development has largely been abandoned. Not only have policymakers had to refocus on the initial, revenuegenerating role of the tax system, they have also had to make fiscal reforms compatible with all of the other reforms that have occurred in this period of great policy change. Most notably, as seen in Table 3.3, trade liberalization forced policymakers to look for other, domestic sources of tax revenue. In addition to tariff liberalization, other policy reforms have influenced the nature of fiscal reform. According to Perry and Herrera, in the long term, the objectives of the structural reform process made it necessary to increase receipts of basic taxes as a result of: (1) the growing conviction that a permanent and credible fiscal adjustment was necessary for the equilibrium of an open
Eaton Chapter 3 5/13/02 12:11 AM Page 80
80
INTRODUCTION
economy, (2) the need to increase or sustain investment in physical infrastructure and human capital in order to improve the international competitiveness of the productive sector, which precluded fiscal adjustments based on additional cuts in public spending, . . . (3) the temporary nature of the inflow of capital from privatization and the use and abuse of minor taxes that have adverse effect on economic efficiency, . . . and (5) the need to avoid taxes on financial transactions, given the objectives of financial deregulation.38 For developing countries that want to maintain macroeconomic stability in the context of market-based development strategies, three fiscal-policy challenges have been particularly pressing. The first is to alter tax policy by streamlining the tax code. The second is to reorganize the tax bureaucracy to facilitate revenue collection. The third is to promote efficiency by decentralizing revenues and expenditure responsibilities. The following sections discuss each of these three reforms in turn. Streamlining the Tax Code In the area of tax policy, simplification is the order of the day as reform efforts have centered on broadening tax bases, eliminating tax breaks, and flattening tax-rate schedules. In this respect, comprehensive tax reform in developing countries is not so different from the logic of recent reforms in the developed economies.39 A classic example is the 1986 tax reform in the United States, which for a time eliminated many of the loopholes that riddle the famously porous American tax code.40 According to the economic rationale behind tax simplification as provided by the World Bank, the combination of fewer and broader bases subject to flatter rates decreases tax-induced distortions in the allocation of resources.41 Where profit-maximizing economic actors previously had to 38. Perry and Herrera, Public Finances, 108. 39. See Michael Boskin, “New Directions in Tax Policy,” in Michael Boskin and Charles McLure, eds., World Tax Reform (San Francisco: ISC Press, 1990), 3–7. 40. See Jeffrey Birnbaum and Alan Murray, Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform (New York: Vintage Books, 1988); and Charles Stewart, “The Politics of Tax Reform in the 1980s,” in Alberto Alesina and Geoffrey Carliner, eds., Politics and Economics in the Eighties (Chicago: University of Chicago Press, 1991), 143–73. 41. World Bank, Lessons of Tax Reform, 30.
Eaton Chapter 3 5/13/02 12:11 AM Page 81
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
81
weigh their investment decisions against tax considerations that varied widely and often randomly between investment activities, increasing the neutrality of the tax system ensures the flow of investment to its most productive uses. Politically speaking, increasing the neutrality of the tax system decreases both the rents enjoyed by favored groups of industries and individuals and policymakers’ use of discretion for political gain. A brief discussion of what tax simplification means for indirect and direct taxes exposes the nature of the stakes involved for politicians. First, with respect to indirect taxation, tax simplification involves shifting the tax system from a complex array of import tariffs, excises, and single-stage sales taxes to a broader and more streamlined consumption tax, principally through the expansion of the base of the VAT.42 The VAT’s popularity is due to its promise as a tax that can eliminate the cascading effect of turnover taxes, according to which the full value of a good, rather than just the value added at that particular stage, is taxed at every stage in its production.43 Whereas turnover taxes reward vertically integrated firms relative to other firms, the VAT can achieve greater neutrality between economic activities that happen to be organized differently. The VAT’s neutrality appeals to policymakers who are critical of heavy state intervention in economic markets, but its promise as a streamlined revenue generator appeals to policymakers looking for more sustainable solutions to chronic fiscal deficits than the repeated enactment of short-term emergency tax handles. At the same time, because the VAT can be extended to services, unlike the typical retail sales tax that it replaces, a broader consumption-tax base theoretically enables a lower tax rate to produce the same amount of revenue.44 With respect to direct taxes, the logic of tax simplification likewise demands broader bases and simplified tax rates. Broadening the base of the personal income tax involves reductions in family and personal allowances and “the spectrum of exemptions and deductions for education, life insurance, provident fund and savings, mortgage interest, charity, medical expenses, and the like.”45 42. According to Shome, the number of developing countries using the VAT in his sample nearly doubled between 1980 and 1991 from eight to fifteen. See Parthasarathi Shome, “Trends and Future Directions in Tax Policy Reform,” Bulletin for International Fiscal Documentation 46, 11 (September 1992): 452–65. 43. Carl Shoup, “Choosing Among Types of VATs,” in Malcolm Gillis, ed., Value Added Taxation in Developing Countries (Washington, D.C.: World Bank, 1990), 4. 44. Alan Tait, “VAT Policy Issues: Structure, Regressivity, Inflation, and Exports,” in Alan Tait, ed., Value-Added Tax: Administrative and Policy Issues (Washington, D.C.: International Monetary Fund Occasional Paper no. 88, 1991), 3. 45. Shome, Trends and Future Directions, 453.
Eaton Chapter 3 5/13/02 12:11 AM Page 82
82
INTRODUCTION
Increasing the revenue produced by personal income taxes also means applying it to a broad definition of capital income, including interest, dividends, and capital gains.46 Broadening the base of corporate taxation requires the reduction or elimination of tax incentives for specific investment activities and for investment in specific geographic regions. According to advocates of tax simplification, broadening tax bases through the reduction of incentives enables policymakers to flatten rate structures by both limiting the range of tax rates and lowering top rates. Because lowering income tax rates and simplifying rate schedules reduce the incentives and opportunities to evade taxes, the impact of these changes on revenue generation may actually be positive.47 Table 3.4 shows a significant narrowing between the late 1970s and the early 1990s in the range of tax rates applied to personal and corporate income in Latin American countries. Of the eighteen countries included in this set, only four did not narrow the range of personal income tax rates. All of the leading economies experienced a significant constriction in the range of personal income tax rates. The trend is also clear, though less pronounced, in the case of corporate income taxation. Finally, the reduced scope for tax particularism is also seen in the recent adoption of minimum taxes on corporate assets, usually in the 1 to 2 percent range. Because it is easier for tax collectors to generate independent measures of a company’s assets as opposed to its income, using such taxes reduces the possibility that corporations can continue to avoid tax liability entirely. Because a company’s asset tax liability is typically deducted from its income tax liability, minimum asset taxes encourage compliance with the income tax. In a sense, they ensure that corporations contribute tax revenues to the national treasury in some form. Although asset taxes are inefficient and inegalitarian in the burden they place on new companies, small companies, and companies experiencing temporary difficulties, they significantly reduce businesses’ incentives to pursue exemptions and evade the corporate income tax. Because asset taxes make no sectoral distinctions, they are an excellent example of the base-broadening logic. Improving Tax Collection The growing intolerance for inflation in the contemporary period has transformed tax-collecting agencies into far less prosaic parts of the governmen46. World Bank, Lessons of Tax Reform, 38. 47. Shome, Trends and Future Directions.
Eaton Chapter 3 5/13/02 12:11 AM Page 83
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
83
Table 3.4 Comparison of the range of tax rates on personal and corporate income in Latin America (percentage)
Image not available
Venezuela
7.1–48.1
6.5–35.4
18–68
20–68
SOURCES: Shome, “Trends and Future Directions,” 454; Edwards, Crisis and Reform, 87.
tal bureaucracy than they used to be. In the attempt to avoid the chronic budget deficits of the past, policymakers have become increasingly aware of the importance of tax collection. In a variety of ways, recent reforms have emphasized the need to facilitate the work of tax collectors.48 First, merely simplifying tax laws by broadening bases and flattening rates helps improve tax collection by making it easier for collectors to monitor compliance with the tax code. Reducing exemptions and rate differentials encourages confidence in the equity and efficiency of the system, lowering levels of tax evasion.49 Streamlining the tax code also reduces the scope for collusion between corrupt tax collectors and would-be tax evaders. One of the specific merits of the VAT is that its very design makes evasion difficult. According to the logic of the VAT, tax is due only on the value added at each stage, which creates incentives for taxpayers to report the taxes they 48. Bird, Tax Policy, 25–26. 49. Goode, Government Finance, 305.
Eaton Chapter 3 5/13/02 12:11 AM Page 84
84
INTRODUCTION
paid on inputs because these are credited against the taxes they must deposit in the national treasury. This procedure automatically creates an audit trail that collectors can follow. Eliminating VAT exemptions and reducing multiple VAT rates can significantly improve the quality of this trail. Because the VAT automatically produces information about taxpaying, it reduces the mutual suspicions of cheating among taxpayers that previously gave rise to evasion. Broadening the base of the VAT and income taxes also makes it possible to eliminate the many minor taxes that proved so difficult for tax bureaucrats to administer accurately.50 Whereas streamlining the tax code and eliminating exemptions have eased the work of tax collectors, reformers have pushed a number of other changes to improve tax collection. For example, reformers in many countries have significantly increased the penalties associated with tax evasion to send a strong signal about the increased importance of fiscal balance. Another common reform involves rewriting administrative procedures to expand the tools available to tax inspectors, including the ability to close businesses immediately when inspectors find evidence of tax violations such as failing to emit receipts for customers.51 Toward the same end, some reforms have relaxed banking-secrecy laws so that tax collectors can cross-check the information reported on tax forms against taxpayers’ own bank deposits. An organizational change that has received much attention is the creation of units charged with the monitoring of large taxpayers that have historically accounted for a high proportion of corporate tax revenues in developing countries. Finally, reformers in some countries have decided to circumvent the tax bureaucracy and have actually privatized aspects of tax collection as a means of limiting the scope for collusion among bureaucrats, politicians, and evaders. What is striking is the extent to which these reforms in tax administration reveal essentially the same dynamic as recent changes in tax policy: All of these changes extend the reach of the tax system to cover particular individuals and groups who previously enjoyed special tax treatment. Attempts to improve tax collection face special obstacles, however. If theories of political control over the bureaucracy are correct and interest groups routinely help politicians monitor bureaucrats by producing information, it follows that the tax-collecting agency may be a particularly diffi50. Though a broadened VAT has emerged as an important revenue generator in many countries, one of the problems with VAT revenues is that they are very elastic in response to downturns in the economy, much more so than the income tax. 51. Jenkins, “Modernization of Tax Administrations.”
Eaton Chapter 3 5/13/02 12:11 AM Page 85
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
85
cult part of the bureaucracy to control. In contrast to those bureaucratic agencies providing services that recipients actually desire, tax collectors perform a service that recipients seek to avoid. Individuals are unlikely to complain to their representatives about bureaucrats who fail to collect taxes from them, which eliminates a vital source of information for legislators about the performance of tax-collecting agencies. Though tax evasion effectively increases the burden on those who do pay their taxes, particularly because it often results in higher tax rates to compensate for revenues lost through evasion, taxpayers as a group are diffuse and hard to organize. Individual businesses may complain about the evasion of competitors who evade their taxes and thus gain a competitive edge, but in the context of widespread tax evasion, the more likely response is to join the game and evade taxes as well. Sharing Tax Revenues The broad reorientation of development strategy that has encouraged efforts to streamline tax codes and strengthen tax collection has also had profound implications for intergovernmental fiscal relations in developing countries. The clear trend, though again subject to much cross-national variation, is toward increased decentralization of fiscal-policymaking authority. Changes in revenue-sharing procedures are as important as changes in tax policy and administration for the sustainability of the fiscal transformation underway in the developing world. Whereas centralized control over expenditures and revenue was at the heart of the previous statist development model, the current market-centered paradigm embraces decentralization. Shifting policymaking authority to lower levels of government can enhance the efficiency of policy outcomes, one of the main goals of economic liberalization.52 In scores of countries, liberalizers have proved to be expenditure decentralizers.53 According to theories of fiscal federalism, people in different subnational jurisdictions often develop different preferences vis-à-vis the mix and level of goods and services provided by government. The decentralization of expenditure responsibilities can thus 52. Bird and Vaillancourt, Fiscal Decentralization; Burki, Perry, and Dillinger, Beyond the Center. 53. Kent Eaton, “Decentralisation, Democratisation, and Liberalisation: The History of Revenue Sharing in Argentina, 1934–1999,” Journal of Latin American Studies 33, 1 (February 2001): 1–28; Eliza Willis, Christopher Garman, and Stephan Haggard, “Decentralization in Latin America,” Latin American Research Review 34, 1 (1999): 7–56.
Eaton Chapter 3 5/13/02 12:11 AM Page 86
86
INTRODUCTION
mimic the market by providing a greater match between demand for and supply of governmental outputs. Not only does shifting responsibility for expenditures onto lower levels of government reflect the logic of the market, it is also one more way that reformist chief executives have tried to defend macroeconomic stability at the center. Every expenditure responsibility taken over by subnational governments represents less expenditure by the national government and less pressure on the national budget deficit. In this sense, expenditure decentralization is analogous to measures like streamlining the tax code and improving tax collection, which reformers use to decrease budget deficits and inflationary pressures. What are the implications of expenditure decentralization for the revenue side of intergovernmental relations? How, according to the new development paradigm, are subnational governments supposed to pay for the greater number of things they have been asked to do? First, many developing countries have both eased previous restrictions on the contracting of debt by subnational governments and assigned greater tax-collecting responsibilities to these governments.54 Clearly the hope is that subnational governments will raise or borrow their own revenues to pay for their new expenditures. However, despite the trend toward revenue decentralization, most important taxes such as individual and corporate income taxes have remained and will probably remain at the national level, for good reason. Public-finance experts fear that giving subnational governments control over such tax bases would encourage beggar-thy-neighbor tax policies among them, leading to basemigration problems that would seriously compromise overall revenue levels.55 Even were subnational governments to exert much greater effort vis-à-vis the taxes they currently control (e.g., property taxes, sales taxes, taxes on autos), the cost of providing decentralized services far exceeds current revenue-raising capacities in most countries. Because of this growing fiscal imbalance between where taxes are collected and where expenditures are made, recent decades have witnessed sharp increases in the size of intergovernmental fiscal transfers.56 In many countries, successful changes in tax policy and administration along the lines described in this chapter have had the effect of bolstering the size of 54. Teresa Ter-Minassian and John Craig, “Control of Subnational Government Borrowing,” in Teresa Ter-Minassian, ed., Fiscal Federalism in Theory and Practice (Washington, D.C.: International Monetary Fund, 1997), 156–72. 55. Musgrave and Musgrave, Public Finance. 56. Bird and Vaillancourt, Fiscal Decentralization.
Eaton Chapter 3 5/13/02 12:11 AM Page 87
FISCAL ADJUSTMENT IN DEVELOPING COUNTRIES
87
real tax revenues collected by the central government and available for transfer to lower levels of government.57 For example, in the region that has experienced the most decentralization, Latin America, increases in fiscal transfers made possible the steady increase in subnational expenditure. According to the Inter-American Development Bank, spending by subnational governments in Latin America as a percentage of total government spending rose from an average of 15.6 percent in 1985 to 17.2 percent in 1990 and 19.3 percent in 1995.58 Fiscal imbalance is not the only factor at play here—democratization in the form of the election rather than appointment of subnational officials including mayors and governors has also encouraged this trend in revenue sharing.59 As a result, political conflict over the size of revenue transfers has become an increasingly salient reality. By the late 1990s, the increasing size of fiscal transfers led analysts to worry that revenue decentralization might put into jeopardy the newly acquired and hard-won fiscal stability in many developing countries. Thus although the decentralization of expenditures is compatible with the new development model, the place of automatic revenue sharing in this model is more ambiguous. A central challenge facing reformers is to reverse the overcentralizing patterns they inherited without threatening the fiscal balance and macroeconomic stability of the central government. The sheer size of revenue transfers is not the only source of conflict in the area of revenue sharing: Politicians have also come to fight increasingly over the terms of these transfers. The clear trend here is a shift away from the ad hoc, arbitrary, and discretionary distribution of tax revenues to lower levels of government. Thus not only have revenue transfers increased in size in scores of countries, they have also become more automatic and transparent. Automatic transfers promise to improve the efficiency of public budgeting at the local level by reducing uncertainty. Unsurprisingly, in the battles over the terms of revenue sharing, chief executives have often tried to keep revenue transfers discretionary, whereas subnational officials have sought greater automaticity. As the individuals who bridge local and national spheres, legislators in national assemblies have emerged to play critical roles in revenue-sharing struggles.
57. Shome, Trends and Future Directions. 58. Inter-American Development Bank, Latin America After a Decade of Reforms. 152. 59. Inter-American Development Bank, Latin America After a Decade of Reforms, 152. In Latin America, for example, mayors in only three out of twenty-six Latin American countries were elected in 1980, whereas only three did not have elected mayors in 1997.
Eaton Chapter 3 5/13/02 12:11 AM Page 88
88
INTRODUCTION
Implications for Politicians As this discussion shows, the three areas of tax policy, tax administration, and tax revenue sharing are highly interrelated. Change in each of these three areas clearly affects the others. For example, when tax policy is designed to provide special tax treatment for a variety of purposes, this design has significant implications for the functioning of the tax bureaucracy. When tax collectors are given the tools necessary to crack down on tax evasion, this action has direct consequences for the amount of revenue that is then available for fiscal transfers to lower levels of government. More important, recent changes proposed by reformers in each of these three areas reflect the logic of the shift in development strategy away from statist approaches and toward liberal ones. Common to each change is a reduced scope for discretion by politicians. With respect to tax policy, reforms that broaden bases and eliminate multiple tax rates make it difficult for politicians to claim personal credit for special tax treatment. Likewise, constituency service for constituents who have problems with the tax-collecting agency is harder for politicians to perform when these agencies have been strengthened. Finally, shifting from discretionary to automatic revenue transfers removes the possibility that legislators can claim credit for personally making these transfers possible. The stakes associated with reform in each of these areas are high. Reforms in tax policy, administration, and revenue sharing upset individuals, firms, and groups who benefited from previous fiscal practices. These reforms also have enormous power to create new winners. As the following empirical chapters demonstrate, how legislators actually respond to these important and interrelated fiscal reforms is largely determined by the nature of the institutional incentives they face.
Eaton Part 2 5/13/02 12:11 AM Page 89
PART TWO REFORM EXPERIENCES
Eaton Part 2 5/13/02 12:11 AM Page 90
Eaton Chapter 4 5/13/02 12:12 AM Page 91
4 POLICY REFORM IN A CANDIDATE-CENTERED ELECTORAL SYSTEM: THE PHILIPPINES
When legislators need to develop personal reputations to have careers in politics, how do they respond to contemporary economic reforms? According to the argument presented in Chapter 2, these reforms directly threaten the interests of legislators who rely on the policy process to claim personal credit for policy favors granted. When they challenge the continued viability of electoral strategies that successful politicians have already mastered, economic reforms profoundly upset some of the central dynamics of national political systems. This chapter presents supporting evidence for the argument by analyzing in depth the experience with fiscal-policy reform in a candidate-centered electoral system, the Philippines. The following chapter offers a parallel account of reform in a party-centered electoral system, Argentina. Like most developing countries, politicians in the Philippines and Argentina have recently debated a series of changes in tax policy that have much in common; most important, they limit the possible uses of policy for particularistic ends. As discussed in the previous chapter, these changes in tax policy are the first step in a broader fiscal transformation that
91
Eaton Chapter 4 5/13/02 12:12 AM Page 92
92
REFORM EXPERIENCES
also involves changes in tax administration and tax revenue sharing. In both countries, reformist presidents in the 1990s asked legislators to approve broader tax bases, simpler tax rates, fewer tax breaks, and a more neutral tax system that would decrease the state’s ability to guide investment decisions. Legislators responded differently to these similar proposals, and close attention to the party and electoral incentives they faced helps account for the substance of these differences. That legislators responded so differently in these two cases has important implications because their different responses paved the way for different reform outcomes. The Argentine legislature facilitated major tax-policy changes, whereas the Philippine legislature posed numerous obstacles. In addition to the central focus on cross-national variation, I also engage in this chapter in a comparative analysis of the Philippine case. This withincase comparison is possible because of the symmetric bicameralism of the Philippine legislature: The two chambers have roughly equal powers but different political compositions.1 Legislators in the lower and upper chambers of the country’s bicameral system face sharply different electoral incentives. As explained in greater detail below, legislators in the lower chamber face far greater electoral incentives to engage in particularistic policymaking than do their counterparts in the senate. Recurrent attempts by a reformist president in the 1990s to revamp fiscal policy regularly gave rise to interchamber conflict between a lower house intent on preserving tax breaks and a senate in favor of deep reforms. That the president’s own party held a majority in the lower chamber while the opposition dominated the senate provides particularly strong support for an explanation of policy reform based on legislators’ electoral incentives. Thanks to policy compromises hammered out by conference committees between the two chambers, some tax reform was achieved, though it fell far short of the president’s hopes. The important points for this study, however, are that these compromises accurately reflect the different incentives facing legislators in the lower and upper chambers, and that such compromises are likely to be unnecessary when neither chamber has such an abiding interest in particularism. This chapter has three main parts. The first part describes the Philippines’ party system and party and electoral incentives, as a preliminary step 1. George Tsebelis and Jeanette Money, Bicameralism (New York: Cambridge University Press, 1997); and Arend Lijphart, Patterns of Democracy (New Haven: Yale University Press, 1999).
Eaton Chapter 4 5/13/02 12:12 AM Page 93
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
93
in evaluating how these institutional factors shape legislative behavior. The second part uses the historical record to increase the number of observable implications of the theory advanced in this study. From the first legislative elections held during the colonial period in the early twentieth century, Philippine representatives have faced particularistic incentives. Out of a deep interest in protecting particular constituents from taxation, they consistently resisted attempts to broaden tax bases throughout the century. The third and largest part turns to the more recent efforts of President Fidel Ramos (1992–1998) to overhaul tax policy. This section focuses on the one tax, the value-added tax (VAT), which Ramos prioritized and which occasioned over four years of often-intense political conflict between the executive and legislative branches and between the two legislative chambers. Though the president expended significant political capital on the VAT, reform results were ultimately meager.
Political Institutions in the Philippines Since independence in 1946, political institutions in the Philippines have experienced both radical changes and remarkable resilience. In the last thirty years, the country has experienced the breakdown of democracy, its reemergence under a new constitution, the shift from a two-party system to a multiparty system, and the imposition of term limits on legislators. At the same time, despite these significant changes, a great deal of continuity has characterized the institutional incentives facing legislators at the microlevel. To uncover the structure of incentives facing Philippine legislators as they make policy, the following discussion focuses on aspects of both change and continuity. It distinguishes carefully between the electoral incentives facing representatives in the lower chamber and senators in the upper chamber. Though they operate in the same inchoate national party system, legislators in the lower and upper chambers confront different electoral incentives, and these institutional differences are central to the understanding of fiscalreform outcomes in the Philippines. The Party System In their study of party systems in the new democracies of Latin America, Mainwaring and Scully posited a continuum between institutionalized and
Eaton Chapter 4 5/13/02 12:12 AM Page 94
94
REFORM EXPERIENCES
uninstitutionalized or inchoate party systems.2 Like many of the Latin American systems they analyzed, the party system in the Philippines has experienced a process of deinstitutionalization in recent decades, marked by the rapid appearance and disappearance of political parties and the erosion of their formerly stable roots in society. The shift from a two-party system to a highly volatile multiparty system is one of the most noticeable differences between the democratic regime of 1946–1972 and the current regime initiated in 1986. Until the breakdown of democracy in 1972, the party system was composed of two elite-dominated, cadre-type parties, the Nacionalistas and the Liberals. The Nacionalista party was founded in 1907 to compete in legislative elections against the American-sponsored Federal party, and it quickly became the dominant party of the colonial period. The Liberal party, originally a faction of the Nacionalista party, emerged in the aftermath of independence in 1946 as the electoral vehicle of Manuel Roxas, the Philippines’ first president. For the next two decades, these two parties dominated the country’s political system, with control of the presidency regularly alternating between them. Third parties failed to gain much headway in this period, impeded by single-member districts and legislative rules that barred members of third parties from electoral tribunals.3 Throughout this period, the individual politicians who made up the ranks of the Liberals and Nacionalistas frequently shifted their allegiance back and forth between the two parties. In part as a result of party switching, the two main parties were virtually indistinct in ideological terms.4 As de Quiros stated, “The fundamental difference between the Nacionalistas and the Liberals . . . was that one was in power and the other was not.”5 Though the Philippine party system never became highly institutionalized in this period, the two main parties established roots in society over time and achieved a certain degree of organizational stability, two markers of institutionalization.6
2. Scott Mainwaring and Timothy Scully, eds., Building Democratic Institutions: Party Systems in Latin America (Stanford: Stanford University Press, 1995). 3. David Wurfel, Filipino Politics: Development and Decay (Ithaca: Cornell University, 1998), 95. 4. Gabriella Montinola, “Parties and Accountability in the Philippines,” Journal of Democracy 10, 1 (January 1999). 5. Conrado de Quiros, “Guns, Goons, and Government,” in 1992 & Beyond: Forces and Issues in Philippine Elections (Quezon City: Philippine Center for Investigative Journalism, 1992), 22. 6. Mainwaring and Scully, Building Democratic Institutions, 6.
Eaton Chapter 4 5/13/02 12:12 AM Page 95
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
95
The process of party-system deinstitutionalization began with the suspension of political party activities under martial law in 1972 and continued with the replacement of the two traditional parties with a pro-Marcos party, the Kilusang Bagong Lipunan (KBL, New Society Movement), created in 1978.7 Deinstitutionalization accelerated with the transition to democracy in the mid-1980s and the emergence or reemergence of dozens of political parties, including former Liberals and Nacionalistas, KBL factions, and a host of small parties that supported the opposition candidacy of Corazon Aquino in the 1986 snap elections. In the 1987 congressional elections, an alliance of pro-Aquino politicians from more than ten different political parties won nearly three-fourths of the seats available in the house of representatives. The party system has continued to fragment further in the years since the transition. As a reflection of this fragmentation, Fidel Ramos won the presidency in 1992 with less than a quarter of the vote in a field of seven candidates. Party fragmentation and volatility are so severe that they make it difficult to determine the exact number of effective parties in the current party system at any one time.8 Despite the explosion in the number of parties, a familiar pattern reemerged in the 1980s and 1990s, according to which legislators switch to the party of the president shortly after elections, only to abandon that party when the president leaves office. As a result, though the Philippine party system looks like a multiparty system during elections, it sometimes resembles a single-party system for the duration of a president’s administration.9 In recent years, the fortunes of presidential parties have waxed and waned in an easily discernible pattern. For example, the Laban ng Demokratikong Pilipino (LDP, Fight for Philippine Democracy) emerged as President Aquino’s main support party in the legislature after 1987, only to experience a serious reversal when its candidate failed to win the 1992 presidential elections.10 Though LDP legislators won eighty-four seats in the 1992 congressional races, sixty-four of these legislators left the party within three
7. Mark Thompson, The Anti-Marcos Struggle: Personalistic Rule and Democratic Transition in the Philippines (New Haven: Yale University Press, 1995), 60. For a study of the implications of Marcos’s rule for democratic politics, see Gretchen Casper, Fragile Democracies: The Legacies of Authoritarian Rule (Pittsburgh: University of Pittsburgh Press, 1995). 8. John McBeth, “House of Defections,” Far Eastern Economic Review, June 10, 1993, 28. 9. Interview with Etta Rosales, Executive Director of the Institute for Political and Electoral Reform, Quezon City, April 15, 1997. 10. Charlie Querijero, “The Philippine Political Party System: A Sad, Bad Tale,” Politik 3, 3 (February 1997).
Eaton Chapter 4 5/13/02 12:12 AM Page 96
96
REFORM EXPERIENCES
years.11 Shortly after Fidel Ramos won the 1992 election, his small Lakas party quickly replaced Laban as the largest party in the house of representatives. It too experienced a sharp decline in representation in the house, however, when the Lakas candidate José de Venecia failed to win the 1998 presidential election. The victory of Joseph Estrada in that election predictably triggered an immediate series of defections to his Laban ng Masang Pilipino (PMP, Fight for the Philippine Masses).12 In addition to dramatic changes in the number of seats parties hold within legislative terms, there has been much volatility in the shares of votes won by parties from one election to the next. Though the current party system is less institutionalized and much more fragmented than its pre-1972 predecessor, there are important continuities. Most important, parties are no more ideologically consistent than before. A legislator’s party label carries neither more nor less information about his or her policy preferences than it did under the previous two-party system. In both periods, as the next section describes, party leaders have been equally devoid of the tools that help their counterparts in other countries keep legislators in line. Party Incentives Despite the breakdown of the traditional party system and its replacement by a volatile and fragmented one, the internal structure of parties has not substantially changed. Philippine parties are loosely organized, with few powers reserved for the individuals who occupy party leadership positions at the national level. Philippine parties are best understood as extremely fluid amalgamations of preexisting local groups that come together as parties simply in the attempt to capture the executive branch of the national government.13 Landé has noted that provincial factions built around prominent families are the building blocs of national parties. As a result, power in the parties is widely dispersed among local elites.14 11. Angel Patriarca, “The Representatives,” Philippine Business (Makati Business Club), January–February 1995, 6; and Congress Watch Report 3, June 15, 1993, 1–2. 12. Business World, September 3 and September 16, 1998. 13. Party conventions attended by legislators and local officials belonging to the party are used to select presidential candidates. 14. Carl H. Landé, Leaders, Factions, and Parties: The Structure of Philippine Politics (New Haven: Yale University Southeast Asia Studies Monograph Series 6, 1965), 1. See Anderson, “Cacique Democracy”; and Joel Rocamora, “Classes, Bosses, Goons, and Guns,” in Joseph Lacaba, ed., Boss: Five Case Studies of Local Politics in the Philippines (Pasig: Philippine Center for Investigative Journalism, 1995), vii–xxx.
Eaton Chapter 4 5/13/02 12:12 AM Page 97
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
97
Candidate selection procedures in the Philippines reflect the insignificant extent to which legislators are beholden to party leaders, particularly in the house of representatives. According to Miranda, “parties play a minor, if at all any, role in the recruitment of candidates, in financing their campaigns, and in shaping the political careers of their members. In general the reverse is usually the case: the party’s fate rests in the hands of the candidate.”15 Unlike in the United States, where voters in primaries select the candidates who run under a given party label, in the Philippines, candidate selection is much more informal, involving neither primaries nor party conventions.16 National party leaders are largely absent from the candidate selection process for house races.17 Instead, candidates are more commonly selected from the ranks of a district’s politically powerful family clans, which subsequently affiliate themselves with one or more political parties in arrangements that are highly volatile.18 As a result of these arrangements, 145 of the 199 representatives elected in 1992 were members of traditional political families.19 These traditional politicians, commonly referred to as trapos or “dishrags” in Tagalog, owe little to political parties. In the Philippines, candidates who enjoy independent bases of wealth and family connections routinely run under a given party label whether or not they have the official blessing of party leaders to do so.20 Furthermore, candidates can affiliate with multiple party labels. In the 1992 elections, for example, the Isabela congressman Antonio Abaya was listed as standing for four separate parties (NPC-KBL-PP-NP).21 Party leaders also fail to exert much influence over candidate selection for senate races. As explained in greater detail later in this chapter, senators 15. Salvador Miranda, “The Politics of Pork: or Why the CDF, the CIA, and PWA Are Here to Stay,” Politik 3, 2 (November 1996): 37. 16. A. B. Villanueva, “Parties and Elections in Philippine Politics,” Contemporary Southeast Asia 18, 2 (September 1996): 175–92. 17. Interview with Ronaldo Diaz, legislative assistant to Senator Ernesto Herrera, Manila, March 10, 1997. 18. According to de Castro, candidates enter into alliances with political power brokers for the vote blocs they can deliver. “Normally these powerful provincial patrons support a mixed slate of candidates, depending on their alliances with individuals rather than political parties”: Isagani de Castro, “Money and Moguls: Oiling the Campaign Machinery,” in Sheila Coronel and Lorna Kalaw-Tirol, eds., 1992 and Beyond: Forces and Issues in Philippine Elections (Quezon City: Philippine Center for Investigative Journalism and Ateneo de Manila University, 1992), 37. 19. Eric Gutierrez, The Ties That Bind: A Guide to Family, Business, and Other Interests in the Ninth House of Representatives (Pasig: Philippine Center for Investigative Journalism, 1994), 4, 313. 20. Wurfel, Filipino Politics, 96. 21. McBeth, “House of Defections.”
Eaton Chapter 4 5/13/02 12:12 AM Page 98
98
REFORM EXPERIENCES
are elected in a single, nationwide district. Though parties and alliances of parties put together slates of candidates to run for the senate, voters have twelve votes to cast in each senatorial election, with the result that party leaders’ control over list order does not constitute a power resource. The one exception to the leadership’s generally weak control over candidates in senate races occurs when the party leader is also the president.22 During midterm elections for the senate, the president typically influences who can run for the senate using his or her party’s label, and he or she can campaign aggressively for particular candidates.23 Though presidential influence over candidate selection in midterm senate races can increase a president’s leverage over senators in the first half of the president’s six-year administration, this leverage disappears in the second half. The nature of campaign finance in the Philippines further reflects the limited leverage that party leaders enjoy relative to legislators. Philippine elections are notoriously expensive, but the funds that candidates need to finance successful campaigns do not filter through political parties. Instead, prospective candidates and incumbent legislators alike must secure sufficient funding on their own. Detailed information about the exact sources of campaign finance are not available because legislators rarely disclose this information. According to de Castro, however, the same local power brokers who select candidates to represent their interests in congress also serve as important campaign financiers.24 Magno cited four particularly important sources of campaign finance: large landowners, ethnic Chinese capitalists who use campaign contributions to buy political protection, illegal smuggling and gambling operations, and timber and other natural resource industries that depend on state-issued licenses and permits.25 As seen in Table 4.1, many of the two hundred representatives in the lower chamber have extensive business interests in their own right, which they can use to finance their campaigns. If political parties are largely irrelevant in the nomination and election of legislative candidates, they are also largely irrelevant after the election because of party switching. In the Philippines, few costs are imposed on legislators for leaving their parties, and important benefits accrue to legislators who affiliate with the president’s party. According to the phenomenon of party switching, 22. Interview with Ronaldo Diaz, Manila, March 10, 1997. 23. Amando Doronila, “A Season for Coalitions,” Philippine Daily Inquirer, August 28, 1994, 1. 24. de Castro, “Money and Moguls.” 25. Francisco Magno, “State, Patronage, and Local Elites,” Kasarinlan (first quarter 1989): 10–11.
Eaton Chapter 4 5/13/02 12:12 AM Page 99
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
99
Table 4.1 Business interests of legislators in the ninth House of Representatives, 1992–1995
Image not available
Insurance
4
SOURCE: Gutierrez, Ties That Bind, 44. NOTE: Some representatives have interests in more than one sector.
the ranks of the president’s party swell shortly after elections, as legislators abandon the party label they ran under to join the party of the president, who retains control over the distribution of pork barrel funds.26 In the tenth congress elected in 1995, 76 percent of the victorious candidates (151 out of 200 races) were reelected from the previous term, and over half of those reelected (58 percent) ran under different parties in the 1992 and 1995 elections.27 Thanks to party switching, within a year of Ramos’s election in 1992, the president’s Lakas party experienced a nearly 400 percent increase in the number of representatives it counted among its ranks. 26. Caridad Semana, “Philippine Politics and Economic Development,” Philippine Journal of Public Administration 11, 1 (1967); Wufel, Filipino Politics. In the post-1986 period, the chief instruments of pork barrel have been countrywide development funds (CDF) and congressional insertion allocations (CIA). CDF are distributed evenly among legislators, who receive the right to identify local projects eligible for the funds up to a certain amount––approximately U.S.$750,000 for senators and U.S.$520,000 for house members in fiscal year 1996. CIA funds are inserted into the president’s budget proposal by the appropriations committees of both chambers and are not evenly distributed among legislators. In financial terms, CIA funds are more important than CDF, ranging in 1996 from a low of U.S.$670,000 to a high of U.S.$154 million for the chair of the appropriations committee. Miranda, “Politics of Pork,” 35; Eric Gutierrez, “The Public Purse,” in Coronel, Pork and Other Perks. 27. From data collected by the commission on elections and presented in Querijero, “The Philippine Political Party System,” 42.
Eaton Chapter 4 5/13/02 12:12 AM Page 100
100
REFORM EXPERIENCES
Such high levels of party switching appear to facilitate efforts by the president to implement policy change. Particularly at the beginning of a president’s term, party switching undercuts the operation of effective opposition parties. In practice, however, because it is the legislators’ interest in porkbarrel funds for their home districts that brings them to the president’s party, party switching creates new problems for the president. Simply put, party discipline tends to evaporate in the absence of these funds. The dependence on pork to maintain some semblance of party as unity helps explain why Ramos appointed the secretary-general of his party head of the department of public works and highways, the traditional dispenser of patronage funds, despite charges that the budget for public works would be turned into “a pork barrel of the ruling party.”28 Unsurprisingly, the only systematic study of how members of the same party vote on different bills reveals low levels of party discipline, often reflected in the absence of governingparty legislators from the floor during votes on bills that are supported by the president.29 In the Philippines, there are no party leaders who can promise and deliver votes other than through pork-barrel practices. As a further indicator of the weakness of Philippine parties, neither of the two main parties established any standing committees to study national issues between presidential elections during the entire pre-martial law period.30 Although in the 1990s President Ramos attempted to found a party institute that would study policy issues––a major departure in this regard––these attempts were ultimately unable to help the party resist the fate that is common to presidential parties after the president leaves office.31 Given the frequency with which parties appear and disappear, legislators have few incentives to invest in the institutionalization of any one party. That political parties and their leaders exert little influence over the careers of individual legislators in the Philippines is reflected in voting patterns in the legislature. According to a study by the Institute for Political and Economic Reform (IPER), the type of district represented by house members is a principal determinant of how they vote on economic policies. 28. Philippine Daily Inquirer, April 10, 1993, 1. 29. For example, 36 percent of Lakas members were absent when the expanded valueadded tax (EVAT) bill first passed the house. See Inside the Chambers (Quezon City: Institute for Political and Economic Reforms, 1996), 33. 30. Manuel Montes, Financing Development: The Political Economy of Fiscal Policy in the Philippines (Makati: Philippine Institute for Development Studies Monograph Series 13, 1991), 25. 31. Clarita Carlos, “RP Political Parties in Search of a Form,” Philippine Daily Inquirer, October 24, 1994, 9.
Eaton Chapter 4 5/13/02 12:12 AM Page 101
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
101
IPER found a correlation between the type of legislative district that legislators represent and how they voted on 41 percent of the laws passed by the ninth congress (1992–1995). 32 Particularly in the lower chamber, legislators take the concerns of their districts much more seriously than they do any party consideration. Electoral Incentives in the House of Representatives Except for the authoritarian phase of Ferdinand Marcos’s government between 1972 and 1986, members of the lower chamber have been elected by plurality rule in single-member districts ever since the election of the first Philippine legislature under American colonial rule in 1907.33 Scholars have noted the near-perfect fit between the American first-past-the-post system, with its emphasis on personalized constituency service, and the preexisting Philippine institution of clientelism.34 As Stauffer argued, “the transportation of the American pork barrel system to the Philippines simply modernized traditional clientelism.”35 According to this updated practice of legislative clientelism, representatives claim personal credit for the delivery of divisible, particularistic goods to local patrons in their districts, and these patrons in exchange deliver the votes of their clients. In some districts, important local patrons are the same landlord families who have dominated local politics for decades.36 In other districts, characterized by greater differentiation of the local economy, political machines have supplanted landlords.37 In still other districts, a new class of warlords has emerged who broker power at the local level, often with a heavy dose of political violence.38 Although the content of the policy favors 32. As a specific example, although 62.4 percent of legislators voted to increase the minimum wage in 1994, 80 percent of legislators representing the poorest municipalities voted in favor of the bill. From Inside the Chambers, 4, 33. 33. Between 1935 and 1941, the Philippines had a unicameral system of government. 34. John Sidel, “Beyond Patron-Client Relations: Warlordism and Local Politics in the Philippines,” Kasarinlan 4, 3 (1989): 19–30. 35. Robert Stauffer, The Philippine Congress: Causes of Structural Change (Beverly Hills: Sage, 1975), 15. 36. Lacaba, Boss. 37. Kit Machado, “From Traditional Faction to Machine,” Journal of Asian Studies 33, 4 (August 1974); and Amando Doronila, “Transformation of Patron-Client Relations and Its Political Consequences in Postwar Philippines,” Journal of Southeast Asian Studies 16, 1 (1985): 99–116. 38. John Sidel, “Coercion, Capital, and the Post-Colonial State: Bossism in the Postwar Philippines” (Ph.D. diss., Cornell University, Ithaca, New York, 1995).
Eaton Chapter 4 5/13/02 12:12 AM Page 102
102
REFORM EXPERIENCES
that representatives seek to deliver may vary among these different districts, the particularistic form that policy interventions take does not; particularistic policies are helpful to build the personal networks demanded in each district. Throughout, the need to win a plurality of votes in small districts has encouraged representatives to do the bidding of the patrons who dominate these districts, to the detriment of any other concern, including party discipline or ideological consistency.39 An additional institutional incentive for house members to develop personal reputations is provided by the structure of ballots in the Philippines. Ballots include neither the candidate’s name nor any listing of parties. Instead, voters must write in the name of the candidate for whom they want to vote. In practice, this rewards incumbent personalities who have already successfully developed their reputations as brokers of particular goods and favors from the central government.40 The write-in feature of ballots is particularly important in the less-developed regions of the Philippines, where traditional patron-client relations are more common and independent information about candidates and parties more costly to acquire. Thanks to this ballot structure, personal reputations may be even more important in house races in the Philippines than they are in the United States. Without strong parties to facilitate the relationship between the executive and legislative branches, the particularistic concerns of house members have obstructed the policy agendas of modernizing or reforming presidents from the beginning of Philippine independence in 1946. Throughout the 1950s and 1960s, the Philippine congress conformed to the parochial and reactionary picture painted of all third-world legislatures by the modernization literature.41 The legislature’s particularistic orientation explains why many Filipinos cheered Marcos’s abolition of congress in 1972, including many who were critical of martial law itself. When Marcos sought to legitimate martial law in the 1970s by holding elections for a new legislative assembly, he decided to use multimember districts for these races rather than singlemember districts. This change in electoral rules reflects the political reality that the traditional political elites who so easily dominated races in singlemember districts were among Marcos’s most important opponents.42 Though 39. See Gutierrez, Ties That Bind; Villanueva, “Parties and Elections”; Querijero, “The Philippine Political Party System.” 40. Wurfel, Filipino Politics, 93. 41. Stauffer, Philippine Congress. 42. Gary Hawes, The Philippine State and the Marcos Regime: The Politics of Export (Ithaca: Cornell University Press, 1987).
Eaton Chapter 4 5/13/02 12:12 AM Page 103
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
103
the differences in regime type make it difficult to compare legislative politics under martial law with earlier and later democratic periods, the use of these larger districts appears to have reduced legislators’ appetite for particularism. According to Magno, this difference is explained by the fact that “petty politicians who owned haciendas here and rice granaries there can win congressional districts with tight voting bases, but they cannot win large voting bases—like in Central Luzon for instance.”43 When the people-power revolution toppled Marcos in 1986 and paved the way for a new constitution the following year, reformers introduced to electoral institutions several changes designed to reduce the parochial and particularistic orientations of house members. Few of these innovations succeeded in their intent, however, with the result that the post-martial law congress closely resembles its pre-martial law predecessor. In the most significant of these innovations, the 1987 constitution stipulated term limits of three consecutive terms for members of the house and two consecutive terms for senators. Thus, in the tenth congress elected for a three-year term beginning in 1995, 83 of 200 members were third-term legislators facing term limits in 1998. According to reformers, severing the electoral connection would reduce or eliminate the particularistic behaviors that legislators adopted to win reelection. For a number of reasons, however, these limits do not significantly weaken traditional incentives to engage in particularism, because members of the house still find personal reputations useful should they run again for congress after sitting out for one term. Congressional refusal to pass the antidynasty bill proposed by the executive branch, which would have prevented persons related within the third civil degree of consanguinity from succeeding an incumbent official, further weakens the intended effect of term limits.44 When term limits first took effect in 1998, term-limited representatives in many districts were replaced by their spouses, children, and other relatives in elections that continued to turn on the outgoing legislator’s personal reputation. A record of delivering particularistic benefits is also highly desirable for those legislators who decide to run for a local government office when term limits prevent their running for reelection in the house. After the 1991 adoption of the decentralizing changes that are the subject of Chapter 43. See Alex Magno’s comments in “Legislative-Executive Relations in the Philippines and the Parliamentary Alternative,” in Olivia Caoli, ed., Views on the Parliamentary Versus Presidential Government (Quezon City: University of the Philippines, 1994), 29. 44. Philippine Center for Investigative Journalism, “Measures’ Fate Depends on House Rules Committee,” Philippine Daily Inquirer, October 18, 1994, 1.
Eaton Chapter 4 5/13/02 12:12 AM Page 104
104
REFORM EXPERIENCES
7, this latter option has become an increasingly attractive one for house members. In addition to term limits, the 1987 constitution endorsed another institutional change designed to strengthen Philippine parties and weaken the stranglehold on congress held by traditional politicians oriented toward particularism. According to this change, up to 50 of the 250 representatives would be elected on party lists rather than in the traditional single-member districts, and voters would have two votes for house elections, one for the single-member district races, and one for party-list races.45 Though the framers of the constitution endorsed these party-list seats as a way of opening the political system to groups long marginalized by the elite-dominated parties, legislators were subsequently able to weaken this reformist impulse when they passed implementing legislation in 1995. For example, over the opposition of every nongovernmental organization that was actively involved in the issue, legislators voted to enable existing parties to set up satellite parties to compete in party-list races.46 The write-in nature of Philippine ballots further sabotaged reformers’ intent to expand participation to new actors. Many ballots were spoiled when voters incorrectly copied the names of their preferred parties from the list of 123 parties accredited to compete in the party-list race, which was posted in each polling station by electoral authorities.47 Others simply failed to indicate any preference at all. Largely as a result of poorly designed implementing legislation, in the first-ever 1998 party-list elections, only thirteen of fifty possible seats were filled. To date, then, institutional innovations adopted in the 1987 constitution, including the imposition of term limits and the inclusion of party-list seats, have yet to meaningfully alter the electoral incentives facing the great majority of legislators in the lower chamber. The Election of Senators Unlike in most presidential democracies, the president in the Philippines is not the only politician elected to represent the entire country. The Philippine senate is composed of twenty-four members who are also elected in a single, 45. Article 6, Section 5, of the 1987 Constitution. 46. Institute for Political and Electoral Reform, “Working Paper on the Party-List System of Voting” (roundtable discussion on the Party-List Conference Bill, Ateneo de Manila University, 1995). 47. Agustin Rodriguez and Djorina Velasco, Democracy Rising? The Trials and Triumphs of the 1998 Party-List Elections (Quezon City: Institute of Politics and Governance, 1998).
Eaton Chapter 4 5/13/02 12:12 AM Page 105
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
105
nationwide district. As Shugart and Haggard noted, such extreme congruence between presidential and congressional constituencies is rare and encourages presidents and legislators to share a common sense of purpose despite the separation of powers.48 In electing senators, voters in the Philippines have as many votes as there are senate seats to be filled—twelve in each election. Senators serve for six years, with staggered elections held every three years. The twelve candidates who receive the most votes win senate seats. These free-for-all elections are similar to those for some U.S. state legislatures and are distinct from elections employing the single nontransferable vote whereby voters have just one vote and legislators thus face incentives to cultivate narrow constituencies.49 In the free-for-all senate race, a candidate’s national visibility is a critical factor in determining electoral success, as seen in the number of senators who are former actors (Ramon Revilla, Vicente Sotto), former star athletes (Freddie Webb), and children of former presidents (Gloria Macapagal and Ramon Magsaysay Jr.). Because of their national elections, senators face relatively few incentives to deliver particularistic goods to narrowly defined sets of constituents. Stated in a more positive sense, the electoral law encourages senators to respond to interests that are more geographically dispersed and less concentrated than those that receive the attention of representatives in the lower chamber. For example, in the area of fiscal policy, senators know that narrow tax bases and special tax rates are highly attractive to house legislators, whereas the cumulative effect of special tax breaks is to compromise the nation’s macroeconomic performance, for which they are more likely to be held responsible by voters. Senators are not entirely indifferent to particularistic policies, which may be useful in integrating local officials into their national support networks. This interest in particularism, however, is less geographically specific than that of house members and, more important, is offset by their interest in national policy. As Doronila argued, “The senate and its debates were the national forum, par excellence, in which qualities for national leadership were demonstrated—or showed up.”50 Throughout 48. Matthew Shugart and Stephan Haggard, “Institutions and Public Policy in Presidential Systems,” in Haggard and McCubbins, eds., Presidents, Parliaments and Policy, 90. Other countries that have experimented with nationwide constituencies for legislators include Colombia and Peru. 49. I thank John Carey for drawing this distinction to my attention. 50. Amando Doronila, The State, Economic Transformation, and Political Change in the Philippines, 1946–1972 (Singapore: Oxford University Press, 1992), 125.
Eaton Chapter 4 5/13/02 12:12 AM Page 106
106
REFORM EXPERIENCES
the fiscal reform process discussed later in this chapter, the national election of senators appears to be a much more important determinant of senators’ policy preferences than the occasional influence that presidents assert over candidate selection in midterm elections. As a consequence of their electoral incentives, Philippine senators invest much more heavily in acquiring policy expertise than do their counterparts in the lower chamber. For this reason, senators are commonly portrayed in the press as “little presidents.” Trying to look presidential takes different forms, depending on how voters view the current president. During President Aquino’s crisis-prone and often ineffectual administration (1986–1992), a national constituency gave senators incentives to oppose the president simply as a means of building their own statures as potential presidential candidates in the future. During the Ramos administration (1992–1998), particularly once economic stability and positive growth rates returned to the Philippines, senators aimed to look “presidentiable” not by opposing the president but rather by supporting and promising to continue his economic reform agenda as his successor.51 The national election and policy orientation of senators is reflected in comments made by finance department officials to the effect that the senate can often weaken particularistic legislation passed by the house, thanks to the senate’s constitutional right to review all house-initiated revenue and expenditure bills.52 Indeed, throughout the several stages of VAT reform discussed below, the senate consistently preferred, along with the president, a wider VAT base with fewer exemptions than that preferred by the house. The interest of the senate in checking the particularistic preferences of the house in turn helps explain house proposals beginning in 1988 to abolish the senate altogether and to adopt a unicameral system based on plurality rule in single-member districts.53 Opposition to policy particularism by the upper chamber is clearly a threat to the careers of legislators in the lower chamber, and conflict between the chambers is as important to the story that follows as conflict between the branches. 51. Two examples are the 1998 presidential campaigns of Senators Gloria MacapagalArroyo and Edgardo Angara, neither from President Ramos’s party. 52. Interviews with Milwida Guevara, Undersecretary of Finance, March 20, 1997, and Angel Yoingco, former head of the Finance Department’s National Tax Research Center, Manila, April 1, 1997. 53. Amando Doronila, “A Season for Coalitions,” Philippine Daily Inquirer, August 28, 1994, 1.
Eaton Chapter 4 5/13/02 12:12 AM Page 107
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
107
A Brief History of Congressional Opposition to Tax Reform Resistance to tax reform by the house of representatives has a long history in the Philippines and reflects representatives’ broader desire to use the policy process in ways that help particular constituents. It was not just in the 1990s that this stance gave rise to conflict between the executive and legislative branches. Golay found essentially similar conflict at play in the American colonial period, when the American-dominated Philippine Commission operated as a quasi-executive branch that proposed greater tax revenues to provide more and better services. The legislative assembly, composed largely of a Filipino elite that acquired land via Spanish land grants and the sale of church lands during the American occupation, saw taxes as burdens that disproportionately favored American colonists.54 Because legislators were themselves landowners, opposition to broader tax bases coincided with both ideological stances and personal self-interest. According to Montes, the political dominance of Filipino landowners in the lower chamber helps explain why the real property tax system was not even codified until 1973.55 Legislators’ opposition to broader tax bases continued past independence in 1946. Only in the 1950 special session of congress, confronted by the prospect of a wide-scale peasant rebellion, did legislators “finally face up to the pressing need for minimal fiscal responsibility and enact a number of revenue measures, primarily higher excise taxes.”56 But legislators’ interest in special tax treatment for constituents did not abate. Writing in 1961, Golay concluded that the reliance on tax incentives explains why there was no increase in tax revenues as a percentage of gross domestic product (GDP) between 1950 and 1959, despite increasing rates of import duties on American goods.57 In his study of the pre-martial law legislature, Stauffer noted that “Congress consistently held back from enacting laws to tax the export industries, which in an analogous sense would compare with an industrial
54. Frank Golay, “The Search for Revenues,” in Peter Stanley, ed., Reappraising an Empire (Cambridge, Mass: Harvard University Press, 1984), 231–60. See also Arthur Williams, “Politics and the Purse: Fiscal Politics in the Philippines from 1907 to 1916,” Bulletin of the American Historical Collection 7 (April–June 1979): 46–52. 55. Montes, Financing Development, 15. 56. Frank Golay, The Philippines: Public Policy and National Economic Development (Ithaca: Cornell University Press, 1961), 184. 57. Golay, The Philippines.
Eaton Chapter 4 5/13/02 12:12 AM Page 108
108
REFORM EXPERIENCES
nation refusing to tax its manufacturing industries.”58 In 1963 President Macapagal had to force congress into seven special sessions before it passed his agrarian reform, which it did only after eliminating the tax component of the bill that would finance the reform.59 Congressional opposition to taxes ultimately proved fatal to congress because this opposition encouraged Marcos to turn abroad for the loans to finance his own pork-barrel infrastructure program, bypassing congress and paving the way for its closure in 1972. According to Montes’ comparison of the fiscal-policymaking process before and after martial law, tax reforms that increased the burden on the wealthier classes of society, “which never could have been instituted under the previous sociopolitical arrangements, were finally adopted through presidential decrees” after the declaration of martial law. Despite initial moves to a broader base, however, Marcos increasingly relied on tax exemptions for his own set of cronies, with the result that the survival imperatives of his authoritarian government constricted its ability to raise the tax effort.60 Despite the chronic fiscal crises and crushing debt burden inherited from the Marcos period, congress once again proved deeply reluctant to enact tax reform after the transition back to democracy in 1986. Because of the house’s continued opposition to tax reform, Presidents Aquino and Ramos were each forced to rely on tax surcharges such as import levies, over which they had decree power. Yoingco attributed the slight improvements in revenue effort under the Aquino government to this use of executive orders to impose import levies, not to congressional support for tax reform.61 For example, when congressional refusal to pass Aquino’s tax program in fall 1990 led to the suspension of the International Monetary Fund (IMF) facility, the president imposed an import levy of 9 percent in January 1991. This move was widely unpopular, particularly among business interests. Though she agreed to lower the levy by 1 percent for every U.S.$100 million the congress passed in additional tax revenues, plummeting foreign investment forced her to cut the levy to 5 percent in August 1991 and to eliminate it entirely before the May 1992 elections. In the interim, not even a small 58. Stauffer, Philippine Congress, 40. Only in 1970, a period of executive dominance, did congress finally pass an export tax. See Gerardo P. Sicat, Taxation and Progress (Manila: National Economic Council, Republic of the Philippines, 1972). 59. Doronila, The State, 125. 60. Montes, Financing Development, 35, 37–39, 44–45. 61. Angel Yoingco, “Gearing Tax Policy and Tax Administration for the Year 2000,” Philippine Journal of Public Administration 38, 2 (April 1994): 98.
Eaton Chapter 4 5/13/02 12:12 AM Page 109
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
109
expansion in the tax base was approved by congress. Though Ramos was also forced to increase surcharges to close fiscal gaps, he was more successful at using both pork-barrel disbursements and widespread resistance to import levies as a means of forcing congress to accept some increases in tax bases. Representatives’ preferences for tax particularism are reflected in the fact that the most common type of tax bill passed between 1987 and 1994 was designed expressly to grant tax exemptions. Many of these exemptions provided targeted benefits, either for specific enterprises (e.g., the People’s Television Network in Republic Act 7306) or for geographically concentrated activities (e.g., the Subic Special Economic Zone in Republic Act 7227). In contrast to their fondness for exemptions, house members have shown a distinct disinterest in supporting the passage of broad-based taxes. Only one of the seventy-six tax bills that the congress passed between 1987 and 1994 was a base-broadening reform, and this bill (the expanded value-added tax [EVAT]) was later partially reversed as discussed below.62 This pattern in tax policy is part of a more general disinterest in legislation that produces public goods for the nation as opposed to particular benefits for special constituents. Evidence that granting exemptions to particular interests is what legislators most like about tax policy supports the broader studies of particularistic legislation across policy type. As true today as when stated by a legislator in 1970, “aid to the constituent by means of national legislation would be depersonalized and that to most congressmen is politically pointless.”63 With respect to the 1946–1972 democratic period, Stauffer found a consistent preference in the house for particularistic bills, which made up between 60 and 75 percent of total bills passed in that period.64 The more general preference for particularistic legislation also characterizes the period after the restoration of democracy in 1986. The Institute for Political and Electoral Reform estimated that three-fourths of the bills filed in the ninth congress (1992–1995) were of local application, whereas Gutierrez estimated that as many as nine of ten bills filed in the chamber were of local application.65
62. “Major Tax and Tariff Legislations from 1980 to the First Half of 1994” (mimeographed paper, Senate Tax Research Office, July 25, 1994). 63. S. E. Frantzich, “A Comparative Study of Legislative Roles and Behavior” (Ph.D. diss., University of Minnesota, 1971), quoted in Stauffer, Philippine Congress, 13. 64. Stauffer, Philippine Congress, 13–14. 65. Inside the Chambers, 11; and Gutierrez, The Ties That Bind, 9.
Eaton Chapter 4 5/13/02 12:12 AM Page 110
110
REFORM EXPERIENCES
The Tortuous Path to a Broader VAT Base This section provides an in-depth analysis of the most important tax reform issue of the 1990s: President Ramos’s attempt over a four-and-a-half-year period to expand the base of the VAT. By documenting politicians’ behavior from the proposal stage all the way through to the final policy outcome, this reform episode provides empirical support for the two main claims of this study about the content of legislators’ policy preferences and the extent of their participation in economic policy reform. With respect to the first claim, different electoral incentives led legislators in the lower and upper chambers to adopt consistently and predictably different policy preferences throughout the long VAT reform process. With respect to the second claim, legislators were successful in seeing that actual policy outcomes reflected their policy preferences. First, I evaluate the economic and political circumstances surrounding the election of President Ramos in 1992, which directly influenced his proposals for tax reform. Then I detail the legislative response in 1993 and 1994 to the president’s proposed EVAT. In this first round of reform, members of the house agreed only to a token expansion of the VAT base, whereas the senate approved a much broader VAT base. In response to the major discrepancies between these two versions of the EVAT bill, the president used accelerated pork releases to encourage house legislators to sign onto this broader base in a bicameral conference committee. As the third part of this discussion reveals, however, the reform coalition did not hold together. In the second and final round of reform in 1995 and 1996, house legislators bolted from the tax reform coalition pieced together by the president and successfully legislated an “improved” value-added tax (IVAT), through which they reinserted exemptions for various goods and services. Presidential Proposals for Broad-Based Tax Reform On his election to the presidency in May 1992, Fidel Ramos faced an economic crisis characterized by two years of nearly zero economic growth, falling average incomes, and daily power outages of up to eight hours.66 At
66. For a description of this crisis, see Emmanuel S. de Dios, Poverty, Growth, and the Fiscal Crisis (Makati, Philippine Institute for Development Studies, 1993), 15. See also “RP Proves Democracy Doesn’t Impede Growth,” The Party Line (Official Organ of the Lakas Party) 3, 9 (October–November 1996): 7, 14.
Eaton Chapter 4 5/13/02 12:12 AM Page 111
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
111
14 percent of GDP, tax revenues were the lowest in Southeast Asia. 67 This crisis was largely the legacy of misguided fiscal policy under the previous Marcos and Aquino administrations. Thanks to enthusiastic external support, Marcos had been able to depend heavily on foreign borrowing. The failure to use these funds for development purposes, such as in energy and other public infrastructure projects, is reflected both in the crippling power crisis that plagued the Philippines in the early 1990s and in the tremendous debt burden that Marcos passed along to the Aquino government.68 President Aquino responded to the fiscal bind she inherited by turning to domestic borrowing, which allowed her to avoid the difficult political and economic decisions involved either in repudiating the Marcos debt or in pursuing comprehensive tax reform.69 In this respect, Aquino’s stand-pat fiscal agenda reflected the policy immobilism that characterized her entire government. The fact that Aquino used her sweeping legislative powers in the wake of the people-power revolution in 1986 to decree a narrow-based VAT, restricted to manufactures alone, captures her ambivalence about fiscal reform.70 In the absence of more aggressive fiscal reform efforts, Aquino could not alleviate poverty through social spending, which fed the popularity of the increasingly violent military coups against her government and earned the country the continued title of “Sick Man of Asia.” In addition to lackluster tax reform and heavy domestic borrowing, the termination of the U.S. military bases negotiated at the end of Aquino’s government further constrained the fiscal situation of the government elected in 1992.71 Though perhaps not as dramatic as the hyperinflationary experiences of many South American countries in the late 1980s, the fiscal crisis inherited by President Ramos clearly demanded immediate attention to fiscal revenues if he was to do more than simply survive in office, as Aquino had barely done. As de Dios warned, “The new administration may stand or fall depending on whether it achieves the goal of . . . raising tax revenues to 20 67. Rosario Manasan, Breaking Away from the Fiscal Bind: Reforming the Fiscal System (Makati: Philippine Institute for Development Studies, 1994), 7. 68. Debt service increased from 5.8 to 10.4 percent of gross national product in Aquino’s first year in office. See Fiscal Statistics Handbook, 1980–1994 (Manila: Republic of the Philippines, Department of Budget and Management), 167. 69. By the time Ramos came to power, domestic debt service was the main preemptor of public resources, according to de Dios, Poverty, 43. 70. Interview with senior Budget Department official, Manila, January 31, 1997; Yoingco, “Gearing Tax Policy.” 71. Paul Hutchcroft, “The Philippines at the Crossroads: Sustaining Economic and Political Reform,” Asian Update (Asia Society, November 1996): 17.
Eaton Chapter 4 5/13/02 12:12 AM Page 112
112
REFORM EXPERIENCES
percent of GNP by the end of its term in 1998.”72 And Ramos clearly wanted to do more than survive in office, given the seriousness of his attempts in 1996 and 1997 to lift the constitutional ban on a second presidential term. To further his vision of “the Philippines 2000,” according to which Ramos promised to turn the “Sick Man of Asia” into an East Asian-style newly industrialized country by the end of his term, Ramos immediately formulated comprehensive tax reform proposals. As explained by José Almonte, the national security adviser and ideologue of the Ramos administration, the president considered tax reforms as national security policy, believing that years of special tax treatment for the well-connected few had helped create the conditions for socioeconomic conflict in the Philippines.73 According to Almonte’s analysis, tax breaks for well-organized interests had led to fiscal deficits, government borrowing, high interest rates, and high inflation, outcomes that harmed particularly the poor majority. Having come to these conclusions about the causes of the country’s ills, Ramos proposed as a solution the broadening of the narrow VAT base that Aquino had introduced in 1986.74 To solve the problems created by a narrow VAT base and a porous tax code, Ramos proposed replacing twelve different sales and excise taxes with a VAT that would be expanded to cover additional goods and services.75 Thus Ramos asked the congress to expand the single-rate VAT to include such different activities as telecommunications; cargo transport; the lease and sale of real estate; hotels and restaurants; books; newspapers; and broadcasting. According to internal finance department documents, the government’s central concern was to decrease tax evasion by strengthening the incentives of consumers of services to ask for receipts in their various transactions. For example, a broader base that included services would increase the VAT compliance of manufacturers, because these would be able to claim tax credit for 72. de Dios, Poverty, 15. 73. Interview with José Almonte, Quezon City, April 3, 1997; and Criton Zoakos, “Making More Room for RP Development,” in The Party Line (Official Organ of the Lakas Party) 3, 9 (October–November 1996): 1, 14. 74. Guevara and Yoingco argued that “the failure of the government to make the VAT base as broad as possible has considerably weakened its revenue productivity, as well as its efficiency”: Milwida Guevara and Angel Yoingco, “The VAT Experience in the Philippines” (paper presented at the International Conference on Tax Reform, November 5, 1992, Hotel Istana, Kuala Lumpur), 4. 75. These specific taxes abolished include taxes on hotels, caterers, dealers of securities, common carriers, and franchises.
Eaton Chapter 4 5/13/02 12:12 AM Page 113
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
113
the services they consumed. The finance department hoped that, by improving the self-policing mechanism of the VAT, compliance would increase even in the absence of reform in the tax-collecting agency.76 In view of the house’s historic hostility to base broadening, the president faced a considerable gap between the political support necessary to enact these proposed reforms and the degree of political support he enjoyed on his election in 1992. Ramos was elected by only 23.7 percent of those who voted in the presidential elections, the smallest mandate ever won by a Philippine president. Perhaps more problematic for his legislative agenda, Ramos’s Lakas party was a mere electoral vehicle whose members won only thirty-five seats in the congress.77 Faced with insufficient political support for such an ambitious economic agenda, Ramos turned to tactics traditionally used by presidents in his position: He invited legislators from opposition parties to join his party, and he used the promise of committee chairs to build support for his candidate for house speaker, the most important position in the congress. Once Ramos secured as house speaker his long-time ally Jose de Venecia, the speaker used the promise of presidential patronage to further bolster the ranks of Lakas as the new governing party. As another means of building congressional support, Ramos increased the countrywide development funds from U.S.$420,000 to U.S.$520,000 per house member and made their application so flexible that they could be used for practically any pork-barrel project, whether infrastructure, scholarships, medicines, vehicle acquisition, or training.78 Ramos also supported a Public Works Act in 1996 that allotted approximately U.S.$1 million to deputies, exclusively for infrastructure projects.79 Thanks to these tactics, the pro-government “rainbow coalition” numbered 170 members by April 1993.80 In the senate, where the opposition LDP party held sixteen of twenty-four seats, Ramos successfully backed the replacement in December 1992 of senate president Neptali Gonzalez with Edgardo Angara, in large part because the latter articulated an “emerging consensus” among senators that tax and other economic reforms were necessary.81 76. Interview with Finance Undersecretary Milwida Guevara, Manila, March 20, 1997. 77. See “The Party (Jumping) Goes On,” Congress Watch Report 3 (Makati Business Club), June 15, 1993, 1. 78. Miranda, “Politics of Pork,” 35. 79. Miranda, “Politics of Pork,” 35. See also Earl Parreño, “Pork,” in Sheila Coronel, ed., Pork and Other Perks (Pasig: Philippine Center for Investigative Journalism, 1998), 32–55. 80. Congress Watch Report no. 3, June 15, 1993. 81. Interview with Ronaldo Diaz, March 10, 1997.
Eaton Chapter 4 5/13/02 12:12 AM Page 114
114
REFORM EXPERIENCES
As Ramos focused his attention on the construction of the “rainbow coalition” in his first year in office, his proposed fiscal reforms sat in congress. In this first year, legislators balked at the president’s vision of a broadbased VAT, agreeing only to minor changes such as shifting the collection of the VAT from a quarterly to a monthly basis and applying the VAT to contractors for public infrastructure projects. As the following paragraphs suggest, having a party majority does not solve the president’s legislative problems when the party is weak and is composed of members with deepseated interests that run counter to reform. Confronted with the congress’s continuing hostility to tax measures, Ramos faced a dilemma similar to Aquino’s: Either run up the fiscal deficit and risk a break with the IMF, or decree temporary tax surcharges, like the import levy of 1991, which can be implemented through presidential authority alone. In response to this dilemma, Ramos chose the latter option and imposed a surcharge on crude oil imports. It was this unpopular measure that finally forced governingparty legislators to begin debating the president’s VAT proposals. Round One: The EVAT, 1992–1994 After refusing even to consider the EVAT for a year, the house of representatives finally acted on the president’s proposal, though legislators successfully altered it in ways that promoted their interests and undermined presidential goals. First, they inserted numerous changes designed to benefit either the goods produced in legislators’ districts or the enterprises in which they or their patrons had a stake. For example, lawmakers from the sugar-producing province of Negros Occidental authored a bill seeking to free molasses from VAT coverage. Similarly, three representatives who owned coconut plantations in their home districts proposed expanding the exemption of copra to include its processed form, copra meal.82 Representative James Chiongbian, who in addition to his legislative duties served as president of Eastern Shipping Lines, pushed for the exclusion of passenger ships from the VAT and for the continued application of a lower sales tax rate. These and other particularistic amendments were all accepted by the chair and vice-chair of the ways and means committee, charged with guiding the bill through the dis-
82. The investigative journalist Malou Mangahas identified the three “coconut” representatives as Teresa Almario (Davao Oriental), Maria Clara Lobregat (Zamboanga City), and James Chiongbian (South Cotobato): Malou Mangahas, “Quid pro Quo Clinches Passage of Tax Bill,” Business World, May 4, 1994, 1.
Eaton Chapter 4 5/13/02 12:12 AM Page 115
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
115
cussion and vote on the floor of the house. Significantly, though both the chair and vice-chair of this committee were key leaders of President Ramos’s party in the house, neither had the resources to defend the president’s policy proposals against changes that would effectively kill reform.83 In addition to defending special tax treatment for economic activities in their home districts, representatives modified the president’s bill so that any incremental revenue produced by the EVAT would be automatically channeled to a special infrastructure fund. According to this amendment, legislators could use this fund “for the construction and repair of roads, bridges, and other infrastructures.”84 In effect, members of the house agreed to a small expansion of the VAT base provided that the additional revenues would exclusively fund their pork-barrel projects. After these exemptions and amendments were approved by the ways and means committee leadership, the house approved the EVAT with overwhelming support in November 1993, with 115 voting in favor and only 12 opposed.85 By refusing to expand significantly the VAT base, and by earmarking additional revenues for special funds they could control, house legislators created an immediate fiscal problem for the revenue-strapped president. Just as the house’s refusal to consider a broad-based VAT had led to the July 1993 oil surcharge, in early 1994 Ramos responded to the house’s approval of a narrow VAT base by increasing this surcharge.86 The consequent increase in the price of oil set off a massive public reaction: a series of bomb explosions at the offices of the three main oil companies, a call for a one-day general strike, and the formation of a coalition of politicians, business leaders, and organized labor opposed to the increase (the so-called Kilusang rollback).87 In response, the president suspended the oil price hike on February
83. Vice-Chair Renato Diaz argued that he and the chair approved these exemptions because they were confident that they would be eliminated by a bicameral conference committee. As conference committees produce compromise bills, however, extensive exemptions set the parameters for these later discussions and probably enabled house representatives to the committee to exact a higher price (in the form of pork-barrel funds) for the suppression of these exemptions. Interview with Renato Diaz, Quezon City, March 4, 1997. 84. Record of the House of Representatives, November 11, 1993, second regular session, vol. 3, 143. 85. Record of the House of Representatives, November 17, 1993, second regular session, vol. 3, 223–25. 86. Guillermo Luz, “Anatomy of a Rollback,” Philippine Business (Makati Business Club), February 1994, 9–10. 87. FDC Oil Campaign Resource Manual (Quezon City: Freedom from Debt Coalition, 1998).
Eaton Chapter 4 5/13/02 12:12 AM Page 116
116
REFORM EXPERIENCES
7th and appointed a ten-member committee of government officials and interest-group representatives to propose alternative ways of raising approximately U.S.$580 million. When members of the opposition-dominated senate publicly agreed to approve an expansion of the VAT base, the president responded by scrapping the oil increase entirely.88 Opposition senators made good on this promise by legislating the EVAT essentially as it was proposed by Ramos, a feat that seems politically counterintuitive unless their election in a nationwide district is considered. Unlike his counterpart in the house, the chair of the senate ways and means committee, Ernesto Herrera, was able to successfully defend a broad-based VAT by explicitly appealing to senators’ identities as defenders of the national interest. Herrera argued that a broad-based VAT represented a neutral way of raising revenue with respect to decision making in the private sector, unlike the distortions associated with traditional turnover taxes, oil surcharges, and the inflation tax.89 According to the finance undersecretary, Milwida Guevara, though Herrera did not belong to the president’s party, he depended heavily on Guevara’s office for backstopping during the senate debate of the EVAT, using administration arguments that the VAT exemptions granted by the house would undermine macroeconomic stability and the nation’s economic performance.90 Thus, the senate dramatically expanded the base of the EVAT bill to include the sale and lease of real property, cargo transport, non-life insurance companies, professionals, and all agroprocessing. Of course, Herrera’s job was easier than that faced by the chair of the house ways and means committee, because he received far fewer proposals to modify the VAT from his fellow senators, who had less to gain from such exemptions.91 Because the senate’s U.S.$370 million expansion of the VAT base greatly exceeded the U.S.$52 million approved by the house, a bicameral conference committee was created to iron out these differences. Close analysis of its work suggests that this bicameral committee operated as an important policymaking body. As seen in Table 4.2, the final bill reported by the com-
88. Napoleon Navarro, “When Politics Intervenes,” Politik 2, 2 (November 1995): 23. 89. See his sponsorship speech in the Senate Record, February 8, 1994, 651. 90. Interview, Manila, March 20, 1997. 91. Interview with Senator Ernesto Herrera, Manila, March 3, 1997. Herrera did refuse to accept whatever exemptions were in fact proposed, such as the exemption of athletes pushed by Senator Webb, a former basketball star, and the exemption of movies pushed by Senators Revilla and Sotto, former movie actors. See Republic of the Philippines: Record of the Senate (Manila), March 22, 1994, 564, and March 24, 1994, 633, 639.
Eaton Chapter 4 5/13/02 12:12 AM Page 117
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
Table 4.2
117
EVAT exemptions and their cost in foregone revenue, 1993 and 1994
Sector & Revenue
House Bill,
Senate Bill,
Conference Bill,
Image not available
added by each bill
U.S.$52 million U.S.$370 million
U.S.$408 million
NOTE: Table based on a matrix comparing House Bill 11197 and Senate Bill 1630, provided by the House Ways and Means Committee. Estimates of forgone revenue by sector based on internal Finance Department memoranda, are available only for certain sectors. Estimates of forgone revenue are based on a 1996 exchange rate of 23 pesos to U.S. dollar.
mittee not only favored the senate’s version, but extended the VAT to goods and services that were not even covered in the senate bill, including books and newspapers, pesticides, and molasses, and, after a two-year deferment, banking services. Most controversially, it closed an important loophole by eliminating the VAT exemption for “cooperatives,” defined as registered associations composed of and owned by small producers who voluntarily join together in the pursuit of a common social or economic end.92 To raise more revenue, the conference committee also doubled the registration fee paid by enterprises subject to VAT. Because the bill reported by the conference committee created a VAT base even broader than that approved by the senate, we might expect the compromise bill to meet serious resistance when it was discussed in the house. Instead, the house unanimously approved the conference committee 92. According to Herrera, abuses of the VAT exemption for cooperatives cost the treasury approximately U.S.$1 billion. Republic of the Philippines: Record of the Senate (Manila), May 2, 1994, 157. See also unpublished position paper by Vicente Quintos, Executive Director of the National Tax Research Center, November 22, 1994.
Eaton Chapter 4 5/13/02 12:12 AM Page 118
118
REFORM EXPERIENCES
bill with no real discussion.93 What accounted for this sudden change in the nature of representatives’ tax-policy preferences? Research by the Philippine Center for Investigative Journalism revealed that, less than two weeks before the final house vote on the compromise EVAT bill, the president agreed to accelerate the release of approximately U.S.$395 million worth of development funds to secure legislators’ support. Before this agreement, the release of these “soft” expenditure items was highly unlikely because of the government’s tight fiscal position. To get the EVAT legislated, the president authorized the budget department to begin immediately disbursing funds that amounted to at least U.S.$1.4 million per house member.94 These funds were particularly welcome and timely as house legislators were then gearing up their campaigns for the 1995 midterm elections. This strategy, however, cost the president dearly, because the pork-barrel funds he agreed to release represented nearly one year’s worth of the revenues that would be produced by the EVAT. The president could have applied these revenues in ways that better suited his own spending priorities, rather than those of house legislators. The strategy of accelerating pork releases, however, did secure for the president the paramount goal of a much more broadly based VAT—at least for a time.95 Round Two: The “Improved” Value Added Tax (IVAT), 1995–1996 Were this reform episode to end here, we might conclude that legislators’ policy preferences in the Philippines do reflect underlying electoral incentives, but that legislators cannot translate these preferences into actual policy outcomes. Round one ended with the president’s effectively buying off house legislators so that he did not have to engage in substantive policy compromises with them. The story, however, did not end here. First, the day before the EVAT bill was finally to take effect on July 1, 1994, the supreme court suspended the law in response to charges filed by opposition legislators that it violated the constitution. According to these charges, the EVAT 93. Unpublished transcript of house proceedings (Quezon City: Library of Congress, April 27, 1994), 43. 94. See Malou Mangahas, “Quid pro Quo,” Business World, May 4, 1994, 1; idem, “Congressional Initiative Distorts Budget Planning,” Business World, May 5, 1994, 1; idem, “Lobbies in, Outside Congress Hound Tax Legislation,” Business World, May 6, 1994, 1. 95. The use of pork releases to build support for the president’s tax reforms is also clear in the case of the 1996 excise tax reform. For example, the house speaker de Venecia threatened Lakas members that without excise tax reform there would be no money for the pork barrel. See his remarks quoted in the Philippine Daily Inquirer, September 5, 1996.
Eaton Chapter 4 5/13/02 12:12 AM Page 119
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
119
itself contradicted the constitution’s demand for a progressive system of taxation, and the EVAT conference committee had usurped the lower chamber’s right to initiate all tax legislation when it did more than merely reconcile the house and senate versions of the bill.96 As a stark example of weak party discipline, many governing-party legislators supported this suspension, despite their recent agreement with the president to expand the EVAT. Even the house speaker, Ramos’s key ally in the lower chamber, endorsed the suspension of the EVAT for one year, until after the 1995 elections.97 This chain of events put Ramos in the unenviable position of having used scarce patronage resources to get passed new taxes that his administration was subsequently prevented from collecting. Second, and more important, when the supreme court finally ruled that the EVAT was constitutional, this decision immediately triggered moves in the house to amend, suspend, and repeal the EVAT through legislative means.98 At first, the executive branch attempted to forestall these moves by arguing that the repeal of the EVAT would create a serious fiscal crisis and would mean fewer infrastructure funds for legislators. Faced, however, with the political reality of well-organized opposition to the EVAT, and in the attempt to prevent its outright repeal, the president announced that he would approve the reinsertion of five specific exemptions: cooperatives, low-cost housing, medical services, newspapers, and books. The house speaker, de Venecia, in turn pledged that the legislation of this so-called improved value-added tax (IVAT) would be completed within a month and would be confined to the five exemptions okayed by Ramos.99 Instead, as the following paragraphs reveal, agreeing to reconsider the EVAT opened up a Pandora’s box: The entire process took more than a year, involved many more than five amendments, and essentially replayed the interbranch and interchamber dynamics of the first round.100 As in the first round of VAT reform, the absence of any real tools to enforce party discipline prevented governing-party leaders in this second 96. Interview with Ronaldo Zamora, Minority Leader of the House, Quezon City, March 5, 1997. 97. Business World, May 31, 1994, and August 26, 1994. 98. Unlike in 1994, house members could not be dissuaded from these efforts by threats that the president would oppose them in the next election, because the next election was more than two years away. 99. Business World, November 8, 1995, and January 26, 1996; and Manila Standard, January 8, 1996, 2. 100. Discussions of the house bill alone consumed five weeks, a record according to Congressman Arroyo. Journal of the House of Representatives, no. 59, February 19, 1996, 39.
Eaton Chapter 4 5/13/02 12:12 AM Page 120
120
REFORM EXPERIENCES
round of reform from defending a broad VAT base against the onslaught of proposed exemptions. First, the IVAT bill reported by the ways and means committee in the lower chamber greatly expanded the number and scope of exemptions beyond the five agreed to by the president. Members of the house were especially prolific in submitting to the committee proposals that would widen the exemptions granted to cooperatives, which often served as important political bases whose grassroots orientation can be exploited for electoral purposes.101 Though legislators said they were amending the EVAT to make it “pro-poor,” most changes benefited well-connected constituents and the legislators’ own material interests. For example, the house introduced presumptive income tax credits for construction firms, effectively excusing these firms from the need to show receipts for purchases when applying for credits against tax owed. Rather than reflecting a concern for poor people, this tax break would enable legislators to make government contracts even more lucrative as rewards that they could confer on contractors in their electoral districts in exchange for kickbacks. The interest in defending tax breaks for the construction industry also reflected the reality that twenty house members, or the family clans to which they belonged, actually owned construction firms.102 When the house ways and means committee accepted many but not all proposed exemptions in the bill it reported, governing-party legislators responded by threatening once again to repeal the EVAT in its entirety. On the floor of the house, the speaker responded to this collapse of the coalition that had supported the EVAT by appointing fifty-four Lakas members as “party whips” to discipline party members into approving the bill reported by the ways and means committee.103 Without material rewards at their disposal, however, these party whips were powerless to discipline Lakas legislators. As a result, to get the bill approved on the floor, the house speaker, de Venecia, was forced to give away even more exemptions, ultimately removing from the VAT system some goods and services that had been covered by the VAT since its inception in 1986.104 In “improving” the VAT, the final house bill actually shrank the VAT base by more than the EVAT had expanded it. According to a March 14, 1996, letter from the finance undersecretary Bernardo to speaker de Venecia, IVAT amendments would decrease 101. “The Business of Cooperatives,” Politik 2, 4 (November 1996): 16. 102. Philippine Daily Inquirer, July 31, 1996. 103. Jodeal B. Cadacio, “Whip ’Em into Line,” Philippines Free Press, March 9, 1996, 15. 104. Unpublished transcript of house proceedings (Quezon City: Library of Congress), March 6, 1996, 111–12; and March 12, 1996, session no. 69, 94–103.
Eaton Chapter 4 5/13/02 12:12 AM Page 121
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
121
total VAT revenues by approximately U.S.$740 million, whereas the EVAT conference committee bill increased VAT revenues only by an estimated U.S.$408 million. Exemptions granted by the house IVAT would wipe out 41 percent of the tax base imposed by the original VAT and EVAT. Without the senate and its right to review all house revenue bills, tax giveaways in the house would have left the Ramos administration with a smaller VAT base than the one he had inherited from the Aquino government. “Improved” with these many exemptions, the house passed the IVAT by an easy margin of 155 to 24.105 In a development that repeated the conflict between the house and senate over the EVAT, the senate favored a broader tax base than that approved in the house IVAT bill. This included tighter exemptions for cooperatives, lower thresholds on enterprises and transactions exempt from VAT, and less costly presumptive input tax credits. As in the EVAT, this broader base reflected the relative indifference of senators to particular vested interests and their greater concern for the national, macroeconomic consequences of tax policy. For example, senators argued that the lengthy list of exemptions in the house IVAT bill would force the government either to borrow heavily in the domestic market (and raise interest rates) or print money (and raise inflation). In the ways and means committee hearings that he chaired, Senator Joseph Enrile was particularly blunt about the political motivations of house amendments to the EVAT. According to Enrile, despite the claims of house members that they wanted to exempt goods and services merely to lessen the EVAT’s burden on poor people, they ended up granting exemptions that favored wealthy constituents. Though Enrile himself owned agroprocessing enterprises, he opposed presumptive input tax credits for agroprocessing because processors were unlikely to pass this tax break back to farmers in the form of higher farm-gate prices. Enrile’s status as the foremost defender of the EVAT in the senate supports the argument that electoral laws deeply condition a legislator’s policy preferences. During the 1994 passage of the EVAT, Enrile was a congressman and had voted against the broader base. During the 1996 attempt to “improve” the VAT by narrowing its base, however, Enrile was a senator representing the governing party and actually led the campaign in the senate to defend the broadest-possible VAT base. In early 1996, Enrile argued that the EVAT should be implemented exactly as it was legislated in 1994, and 105. Republic of the Philippines: Journal of the House of Representatives 75, March 26–28, 1996, 83, 84.
Eaton Chapter 4 5/13/02 12:12 AM Page 122
122
REFORM EXPERIENCES
that any move to amend it should wait.106 Although Enrile changed his position to support VAT reform, the record shows that John Osmeña changed his vote in the opposite direction: Although Osmeña had supported the EVAT when he was a senator in 1994, he supported its repeal when he was a congressman in 1996.107 Though these are just two cases, the voting records and career paths of Enrile and Osmeña illustrate the argument that house and senate electoral institutions create very different incentives for legislators. As in the first round of reform, a bicameral conference committee was appointed to reconcile the vastly different IVAT bills passed by the house and senate. Unlike the first round of reform, however, this second conference committee preserved many of the exemptions inserted by house legislators in the IVAT. Table 4.3 reveals that, in contrast to the first conference committee, this second bicameral committee engaged in substantive policy compromises. In this non-election year environment, presidential control over pork releases was a less powerful tool for convincing house members to give up tax breaks for their constituents. The conference committee bill that became law included some of the most important exemptions demanded by the house, including the exemption of cooperatives, sales of residential property below a very high threshold, and presumptive input tax credits for agroprocessors and government contractors. According to senate estimates, these exemptions would cost an estimated U.S.$20 million.108 Second, and perhaps more important, interbranch compromises on the VAT liability of certain sectors led to the adoption of complex provisions that would encourage tax avoidance and evasion. For example, the conference committee applied the VAT to cargo transport by air and water, but exempted cargo transport by land. As another example, it exempted small radio- and television-broadcasting companies from the VAT but imposed it on large companies in the same sector, effectively delegating the authority to place particular firms in these categories to the internal revenue bureau. It was precisely such distinctions, with their negative impact on revenue and arbitrary consequences for investment decisions in the private sector, that Ramos hoped to eliminate by shifting to a broad-based VAT. Despite Ramos’s efforts to expand the VAT base, VAT revenues actually fell from 2.1 percent of GDP in 1994 to
106. Business World, January 5, 1996. 107. Republic of the Philippines: Journal of the House of Representatives 58, February 14–15, 1996, 33. 108. Republic of the Philippines: Record of the Senate 85, May 30, 1996, 40.
Eaton Chapter 4 5/13/02 12:12 AM Page 123
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
123
1.7 percent in 1998. According to Rodlauer, although part of this outcome can be attributed to the slowdown in economic activity, the failure to rein in tax incentives played a significant role as well.109 This policy narrative ends in December 1996 with Ramos signing into law a bill that fell far short of the broad-based VAT that he had proposed as the cornerstone of his economic reform agenda. In addition to the president’s failure to get his preferred policy enacted, the opportunity costs of pushing VAT reform were significant. Four and a half years spent defending the EVAT prevented Ramos from focusing on his proposals to broaden the income tax base, a reform that he had intended as a complement to the broadened VAT.110 When the president could finally focus on income tax reforms in his penultimate year as president, the house responded in predictable fashion by sitting on these proposals for a year, splitting up the proposed legislation into four highly specific bills, and then passing them with exemptions and loopholes intact.111
Conclusion This close analysis of the give and take between the chambers and the president in a critical policy reform serves two purposes: It clearly reveals which politicians adopted which policy preferences, and it substantiates how much these different politicians actually shaped policy outcomes. The central finding is that the Philippine legislature significantly altered the legislation of the most important tax reform in the 1990s, and that it did so in ways that reflected the operation of electoral incentives. How is this institutional explanation of reform superior to alternative arguments based on legislators’ partisan identities, interest-group behavior, and division of formal legislative authority between the branches? First, the dynamics of the long VAT reform episode cannot simply be explained as a result of legislators’ partisan or ideological orientations. In
109. M. Rodlauer, “Philippines: Toward Sustainable and Rapid Growth,” in IMF Occasional Paper 187 (Washington, D.C.: 2000). 110. FDC Tax Campaign Manual (Quezon City: Freedom from Debt Coalition, 1998). 111. These include the tax-exemption level for individual taxpayers, the restructuring of income tax brackets, corporate income taxation, and income tax administration. See Ronald Jabal, “DoF Gives Up on Tax Bill Okayed on Time,” Business World, March 17, 1997, 1, 7; Cathy Cañares, “Bobby de O, Joe de V Clash over Tax Package,” Philippine Daily Inquirer, March 11, 1997.
sales of U.S.$208,300
Senate Bill,
sales of U.S.$229,160
Conference Bill,
* Exemptions preapproved by the president.
NOTE: Table based on a matrix provided by the Senate Tax Research Office, comparing texts of House bill 5479 and Senate bill 1550.
sales of U.S.$416,600
Image not available
House Bill,
Exemptions approved at different stages in the IVAT legislation, 1996
sales of U.S.$208,300
Exemptions
Table 4.3
Eaton Chapter 4 5/13/02 12:12 AM Page 124
Eaton Chapter 4 5/13/02 12:12 AM Page 125
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
125
the several stages of each round of VAT reform, the opposition-dominated senate strongly and consistently supported a broader tax base, while the president’s own party in the house opposed it just as consistently and aggressively. In the Philippines’ virtually partyless party system, legislators acted as free agents whose individual attempts to respond to constituents’ interests were unconstrained by party discipline. Senators sought to develop a national constituent base, while house members cultivated more geographically specific constituents; in neither case did legislators have to worry much about respecting the programmatic stances of the parties to which they nominally belonged. Throughout the VAT reform, leaders of the president’s party found it difficult and ultimately impossible to guide a broad-based tax bill through the house without tools to influence the career prospects of party members. Though house members cloaked their defense of the porous tax code as ideologically motivated interventions on behalf of poor people, these interventions most often benefited the local patrons who could further their political careers. Second, how does this argument differ from the more common approach in the literature on Philippine political economy, which emphasizes the organization of economic interests rather than the role of political institutions?112 For example, some of the most compelling work in this literature takes the family clan as the unit of analysis, in arguing that elite families have penetrated the Philippines’ policymaking apparatus and have plundered the state in the process.113 McCoy defended this familial approach as more appropriate for the study of Philippine politics than the analysis of “formal institutional structures.”114 Elite family clans are indeed an important part of the analysis presented in this chapter, influencing everything from who gets selected to run for the house to which economic activities in a given district receive special tax treatment. Yet the ability of powerful elite groups and family clans to dominate policymaking depends partly on much earlier institutional choices, 112. One important exception to this dominant focus on groups is the work of Doronila, who argued that state autonomy in the 1950s and 1960s enabled state actors to pursue industrialization policies to the detriment of key agricultural elites. See Doronila, The State. 113. Eric Gutierrez, Ildefonso Torrente, and Noli Narca, All in the Family: A Study of Elites and Power Relations in the Philippines (Quezon City: Institute for Popular Democracy); Paul Hutchcroft, Booty Capitalism: The Politics of Banking in the Philippines (Ithaca: Cornell University Press, 1998); and Alfred McCoy, ed., An Anarchy of Families: State and Family in the Philippines (Quezon City: Ateneo de Manila University Press, 1994). 114. Alfred McCoy, “An Anarchy of Families: The Historiography of State and Family in the Philippines,” in McCoy, An Anarchy of Families, 1.
Eaton Chapter 4 5/13/02 12:12 AM Page 126
126
REFORM EXPERIENCES
including the decision of U.S. colonialists to impose single-member districts. In fact, recent scholarship has suggested that U.S. colonial policy explicitly sought to create a dominant political base in the legislature for Filipino elite families.115 If Philippine representatives were elected in multimember districts or by closed party lists that gave party leaders more leverage over the rank-and-file, family clans and elite interests would have a much harder time dominating the policymaking process. Furthermore, in denying the independent role played by institutions, the important differences in the behavior of senators and house members, which are so central to the outcome of tax reform, would remain unintelligible. In the policy-reform process analyzed here, family and other economic groups certainly had strong preferences that they did not hesitate to express, but they focused their activities predominantly on the house because of the institutional incentives facing its members. Third, the formal distribution of policymaking authority between the executive and legislative branches could not account for important fiscalpolicy outcomes in the Philippines. The Philippine president has extraordinary legislative powers in the area of fiscal policy, including the line-item veto, the right to transfer funds between separate budgetary items, and the ability to withhold the disbursement of legislated monies subject to the availability of funds.116 Though President Ramos’s formal powers exceeded those available to most of his counterparts in presidential systems, the lack of partisan power proved to be the more important consideration.117 The president’s formal powers were not unimportant: Ramos strategically used his power to decree unpopular tax surcharges to prod the congress into action on tax reform, and he used his power over the distribution of porkbarrel monies to build house support for reform. Evidence that these formal powers were less than effective, however, is presented in abundance in this chapter. The president’s costly “pork for votes” strategy encouraged house members to support a broadened VAT base in 1994 when they faced midterm elections, but did not prevent them in 1996 from narrowing this broadened base anew in the guise of “improving” it. The short time horizons and particularistic incentives that make house members vulnerable to pork releases in the first place also reduce the 115. Peter Stanley, ed., Reappraising an Empire (Cambridge, Mass: Harvard University Press, 1984); and Ruby Paredes, ed., Philippine Colonial Democracy (Quezon City: Ateneo de Manila University Press, 1989). 116. Bolongaita, “Presidential Democracy.” 117. Mainwaring and Shugart, Presidentialism and Democracy.
Eaton Chapter 4 5/13/02 12:12 AM Page 127
CANDIDATE-CENTERED ELECTORAL SYSTEM: PHILIPPINES
127
likelihood that pork can purchase support for policy reform in the long run, particularly for policy changes that reduce the scope for particularism. Though constitutionally Ramos could have used his line-item veto to eliminate “improvements” to the EVAT in 1996, he refrained from doing so for fear that legislators would respond by repealing the EVAT itself. In practice, the president’s ability to use his constitutional powers was limited by the direct and profound conflict between the logic of the economic reforms he sought and the political interests of legislators in the lower chamber.
Eaton Chapter 4 5/13/02 12:12 AM Page 128
Eaton Chapter 5
5/24/02
10:07 AM
Page 129
5 POLICY REFORM IN A PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
As described in the previous chapter, representatives’ hostility to fiscal-policy reform in the Philippines conforms to the widely held view of legislators in new democracies as steadfastly opposed to economic adjustment. But not all legislators respond to contemporary economic reforms in the same way. In this chapter, I show what can happen when chief executives pitch the same fiscal reforms to legislators who participate in party-centered, as opposed to candidate-centered, electoral systems. The findings challenge the view of legislators as reform opponents and support the view that legislators’ behavior can be interpreted in light of their institutional incentives. The party and electoral incentives facing Argentine legislators are clearly reflected in their responses to economic reform proposals in the 1990s. In striking contrast to the Philippine case of particularistic electoral incentives, governing-party legislators in Argentina offered broad support for the president’s base-broadening fiscal proposals. The source of this support lies in two factors: (1) legislators’ ability to claim credit as a party for the collective benefits made possible by these reforms, and (2) their
129
Eaton Chapter 5
130
5/24/02
10:07 AM
Page 130
REFORM EXPERIENCES
desire to incur favor with the national party leadership that advocated the reforms and that exerted considerable influence over their future political careers. By returning to Argentina a modicum of macroeconomic stability that had been absent for decades, broad-based tax reform promised to benefit the electoral prospects of the governing Peronist party and thus the career opportunities of individual Peronist legislators. Because individual legislators need not cultivate personal reputations apart from their party identities, they did not need to worry about the career repercussions of ignoring specific reform losers. Party-centered electoral incentives insulated rank-andfile legislators from the protests of enterprises that were previously exempted from various taxes. As a result, these incentives facilitated a remarkable degree of policy change in Argentina, tantamount to a revolution in the way the country conducted its fiscal affairs. Between 1989 and 1994, tax revenues in Argentina increased from 14.7 percent of gross domestic product to 19.4 percent. Although some of this increase is due to the onset of macroeconomic stability after 1990, much of it is due to a shift in legislation toward broader bases and fewer rates.1 As expressed by the head of the Peronist bloc in the lower chamber, “without a closed party-list system, the economic reforms we were able to pass would have been impossible.”2 Despite broad support for reform on the part of governing-party legislators, the Argentine legislature did not operate as a rubber stamp institution.3 Instead, careful analysis of the congressional record reveals that congress did modify legislation in sometimes important ways, both at the committee stage and on the floor of each chamber.4 The record also clearly suggests that most modifications were the result of attempts by legislators to defend 1. In their econometric model, Durán and Gómez Sabaini estimated that 50 percent of the increase in VAT revenues, now the most important tax in terms of revenue generated, is due to base broadening, 25 percent to higher rates, and 25 percent to macroeconomic stability. See Viviana Durán and Juan C. Gómez Sabaini, Lecciones Sobre Reformas Fiscales en Argentina: 1990:1993 (Lessons of fiscal reform in Argentina, 1990, 1993) (CEPAL Economic Commission on Latin America Serie Política Fiscal 68). The figures for tax revenue come from Carlos Taachi, “Revolución Tributaria en la Argentina” (Tax revolution in Argentina), Boletin de la DGI 500 (August 1995): 878–90. 2. Interview with Jorge Matzkin, Buenos Aires, August 13, 1999. 3. Mark Jones, “Evaluating Argentina’s Presidential Democracy: 1983–1995,” in Mainwaring and Shugart, Presidentialism and Democracy, 259–99. 4. Kent Eaton, “Fiscal Policy Making in the Argentine Congress,” in Scott Morgenstern and Benito Nacif, eds., Legislative Politics in Latin America (New York: Cambridge University Press, 2001), 287–314. In addition to modifying bills, legislators also often refuse to act on presidential initiatives. According to Tommasi and Spiller, in the period since 1983 congress has passed on average only about 60 percent of these initiatives. See Tommasi and Spiller, Las fuentes institucionales, 79.
Eaton Chapter 5
5/24/02
10:07 AM
Page 131
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
131
or promote the interests of their provinces of origin. The finding that legislators attempt to pursue provincial loyalties in congress with some success is entirely compatible with the nature of the electoral incentives they face. Though national party leaders exert influence over legislators’ careers through a variety of mechanisms, they share this influence with the leaders of the provincial party organizations to which individual legislators belong. Frequently over the course of the 1990s, national and provincial leaders from the governing party clashed over fiscal-policy reforms, which encouraged legislators at times to adopt policy stances that undercut national party discipline. In contrast to a candidate-centered electoral system, however, these occasional breaches in party discipline reflected the desire to secure benefits for provinces rather than for particular constituents in a personalized fashion. In terms of rethinking legislators’ roles in the adjustment process, the Argentine experience analyzed here is important because it challenges both of the dominant images of legislators in the adjustment literature. On the one hand, that governing-party legislators so strongly supported reform challenges the homogenizing assumption about legislators’ policy preferences. On the other hand, that legislators successfully demanded changes to benefit their provinces challenges the argument that legislatures do not affect policy outcomes.5 The findings also differ from the conclusions of scholars who use Argentina as an unambiguous case of “reform via decree,” according to which the dramatic and comprehensive nature of the country’s economic reforms is explained by the president’s paraconstitutional uses of executive degrees.6 In the first section of this chapter, I describe the institutional setting in which legislators operate, focusing in particular on the rules governing the election of legislators to the lower and upper chambers. In the second section, I analyze the nature of the tax-policy changes proposed by the Argentine president, Carlos Menem, which are similar to the fiscal reforms articulated by chief executives in many other developing countries, including the Philippines. In the next three sections, I analyze a variety of reform episodes to 5. For an account of the important policymaking role of the Argentine legislature under the Alfonsín administration, see Ana M. Mustapic and Matteo Goretti, “Gobierno y Oposición en el Congreso: La Práctica de la Cohabitación Durante la Presidencia de Alfonsín (1983–1989)” (Government and opposition in Congress: The practice of cohabitation during the Alfonsín presidency [1983–1989]), Desarrollo Económico 32, 126 (July–September 1992): 251–69. 6. For example, see Ferreira and Goretti, “When the President Governs Alone.”
Eaton Chapter 5
132
5/24/02
10:07 AM
Page 132
REFORM EXPERIENCES
evaluate the impact of legislators’ institutional incentives on their responses to the president’s proposals. By analyzing the most important tax-policy episode of the 1990s, the dramatic broadening in the base of the valueadded tax (VAT), I present in the third section the chief point of contrast with the Philippine experience discussed in Chapter 4. The fourth section offers further support for the argument by evaluating a series of policy tradeoffs through which governing-party legislators agreed to support changes in many different tax bases in exchange for higher revenue transfers for their provinces. In the fifth section, I compare the responses of governing-party legislators to presidential requests for delegated powers in Menem’s first and second terms. Though Peronist legislators supported delegation in 1989, they declined to delegate further fiscal powers in Menem’s second term. By triggering a series of internal party struggles over who would succeed him as Peronist presidential candidate, Menem’s reelection in 1995 ironically diminished his authority as party leader and reduced compliance with his reform proposals by Peronist legislators.
Legislators’ Institutional Incentives: Strong Parties and Provincial Districts Political parties play a much more dominant role in shaping legislative behavior in Argentina than they do in candidate-centered electoral systems. Though both the party system and the electoral rules have experienced some important changes in the contemporary democratic period, the two most important aspects of legislators’ institutional incentives have held steady. First, most legislators make their careers in hierarchical, nationally organized political parties, which they do not lightly abandon to switch to other parties. Second, in these national parties, conflicts routinely develop between the leaders of the national party organization and the leaders of the provincial party organizations, which together constitute the national party. Ambitious legislators must cultivate relationships with both national and provincial party leaders, and this sometimes creates dilemmas for them in their attempts to intervene in the policy process to their best advantage. The Party System Along the institutionalization continuum identified by Mainwaring and Scully, Argentina’s party system occupies an intermediate position. On the one hand, the longevity of the country’s two most important parties, the
Eaton Chapter 5
5/24/02
10:07 AM
Page 133
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
133
Unión Cívica Radical (henceforth Radicals) and the Partido Justicialista (henceforth Peronists), and their deep roots in Argentine society lend a degree of institutionalization to the party system. The Radical party was founded late in the nineteenth century and led the movement that resulted in one of Latin America’s first experiences with democratization. Under the charismatic leadership of Hipólito Yrigoyen, the Radical party dominated Argentina’s first democratic period between 1912 and 1930 and secured an important following among the country’s emerging middle-class sectors.7 Equally hierarchical in organization, the Peronist party was founded by Juan Perón after his election as president in 1946 and, as Gibson noted, combined a metropolitan coalition based in the urban working class with a peripheral coalition of provincial groups from the country’s more conservative interior.8 Though the Argentine military prevented the Peronists from participating in most electoral contests subsequent to Perón’s overthrow in 1955, workingclass loyalty to Peronism enabled the party to survive its years out of power and to reemerge as a powerful force in the post-1983 democratic period.9 Of the four presidential elections since 1983, the Peronists and the Radicals have each won two elections.10 With respect to legislative elections, in the first decade of democracy the combined seat share of the Peronists and the Radicals never dipped below 82 percent in either chamber.11 Despite the rootedness and longevity of the Peronists and the Radicals, several obstacles have hindered the full institutionalization of the Argentine party system. As McGuire argued, for much of their history, both the Peronist and the Radical parties have behaved not as “parts” of a party system, but rather as potentially hegemonic “movements.”12 At various times, each party has undermined the democratic rules of the game by challenging the very legitimacy of the opposition and by seeking to concentrate all authority in its own hands. According to the movementist tendencies identified by McGuire, Argentina’s traditional parties have failed to acquire much organizational autonomy from their leaders, individuals who have long been considered 7. David Rock, Argentina: 1516–1987 (Berkeley and Los Angeles: University of California Press, 1987), chap. 5. 8. Edward Gibson, “The Populist Road to Market Reform: Policy and Electoral Coalitions in Mexico and Argentina,” World Politics 49, 3 (April 1997): 339–70. 9. James McGuire, Peronism Without Perón: Unions, Parties, and Democracy in Argentina (Stanford: Stanford University Press, 1997). 10. Note, however, that the 1999 victory of the Radical party presidential candidate Fernando de la Rua occurred in an alliance with the center-left FREPASO party. 11. Jones, “Evaluating Argentina’s Presidential Democracy,” 264. 12. James McGuire, “Political Parties and Democracy in Argentina,” in Mainwaring and Scully, Building Democratic Institutions, 200.
Eaton Chapter 5
134
5/24/02
10:07 AM
Page 134
REFORM EXPERIENCES
more important than party goals or programs. Only in the post-1983 period, already Argentina’s longest democratic regime ever, have these movementist tendencies begun to subside with the gradual institutionalization of the two main parties.13 At the same time that the Radicals and the Peronists have begun to behave more like regular parties, third parties have also become increasingly significant. A center-right party—the Unión del Centro Democrático (UceDé, Union of the Democratic Center)—emerged to play a critical role in the passage of liberal economic reforms in the early 1990s.14 Substantive support by the UCeDé for liberalization became particularly important because of the narrowness of the Peronists’ majority in the lower chamber in this period. On the center-left, the Frente por un País Solidario (FREPASO, Front for a Country in Solidarity) rose to prominence in the mid-1990s, buoyed by internal Peronist opposition to economic liberalization and internal Radical opposition to the 1993 pact that Radical party leaders negotiated with Peronists to reform the constitution.15 In 1995, the second-place finish of the FREPASO candidate in presidential elections relegated the Radical candidate to third place, and in 1999, an alliance between the two parties put an end to the Peronists’ decade-long hold on the presidency. The implications of this transformation of the party system are potentially significant. As Jones noted, fragmentation may undercut the ability of the party system to produce strong legislative support for the president, a critical determinant of governability in presidential systems.16 In addition to new third parties at the national level, older parties specific to the country’s individual provinces have continued to play an important role in Argentina’s party system. Many of these parties have their roots in the Partido Autonomista Nacional (PAN, National Autonomy Party), a governing coalition of conservative provincial groupings whose disappearance after 1916 left in place some of its provincial party components.17 13. A major advance in this regard was the ability of a majority faction in the Peronist party to thwart Carlos Menem’s attempt to run for a third presidential term in 1999. 14. On the rise of the Unión del Centro Democrático in the early 1990s, see Edward Gibson, Class and Conservative Parties: Argentina in Comparative Perspective (Baltimore: Johns Hopkins University, 1996). 15. On the rise of the FREPASO in the mid-1990s, see de Riz, “Argentina: Democracy in Turmoil.” 16. Mark Jones, Electoral Laws and the Survival of Presidential Democracy (Notre Dame: University of Notre Dame, 1995). 17. Ricardo Balestra and Jorge Ossona, Que son los partidos provinciales? (What are the provincial parties?) (Buenos Aires: Editorial Sudamericana 1983).
Eaton Chapter 5
5/24/02
10:07 AM
Page 135
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
135
Most of these provincial parties remain conservative in orientation and, particularly in the country’s poorer interior provinces, exhibit strong dynastic qualities. In the post-1983 democratic period, center-right provincial parties have held between 3.2 percent and 9.3 percent of the seats in the lower chamber and between 13.9 percent and 16.7 percent of senate seats.18 During the 1990s, President Carlos Menem could often build legislative support for his economic policies in the national legislature by negotiating special deals with the leaders of various provincial parties.19 Party Incentives Internally, political parties in Argentina remain hierarchical and disciplined. Despite signs that party organizations have achieved greater autonomy relative to party leaders than they enjoyed in the past, the party leadership still wields powerful tools vis-à-vis the rank-and-file.20 Most important, national and provincial party leaders control the selection of candidates for legislative office and for promotion to a whole series of other appointive offices. In the lower chamber, control over which individuals make it onto the party list and the order in which they appear is exercised by three sets of actors: national and provincial party organizations and, less often, rankand-file party members. There is great variation across provincial districts in the relative importance of these three actors in writing party lists.21 According to rules established in the national charters of each of the two main parties, party members vote for rival lists headed by different provincial party leaders, and the results of these primaries (internas) determine the final list order of each party’s candidates in the general election.22 In practice, however, provincial party leaders often negotiate a single list among themselves
18. Jones, “Evaluating Argentina’s Presidential Democracy,” 265–66. 19. For more on the significance of provincial parties, see Gisela Sin and M. Valeria Palanza, “Partidos Provinciales y Gobierno Nacional en el Congreso (1983–1995)” (Provincial parties and national government in congress [1983–1995]) Boletín SAAP 3, 5 (spring 1997). 20. For the argument that these partisan resources help explain how Argentina has avoided the harmful episodes of stalemate common to many presidential systems, see Ana María Mustapic, “Oscillating Relations: President and Congress in Argentina,” in Morgenstern and Nacif, Legislative Politics. 21. See Jones, “Evaluating Argentina’s Presidential Democracy,” and idem, “Explaining the High Level of Party Discipline.” 22. Partido Justicialista, Carta Orgánica Nacional (Buenos Aires: Ediciones del PJ, 1991), art. 43, and Unión Cívica Radical, Carta Orgánica Nacional (Buenos Aires: Comité Nacional, 1996), art. 31.b.
Eaton Chapter 5
136
5/24/02
10:07 AM
Page 136
REFORM EXPERIENCES
and avoid primary elections entirely. When provincial party leaders are less unified, as Jones argued, the influence of national party leaders over lists tends to increase, particularly when the president of the party is also the president of the nation.23 National and provincial party leaders also jointly influence the nomination of the party’s candidates for senate races in each provincial legislature, again with a great deal of cross-provincial variation in the relative influence of each set of leaders.24 Variation across space and time in the relative power of provincial and national party leaders over candidate selection is of theoretical interest because we might expect greater adherence to the national party line in districts where the national party organization has a greater say in candidate selection.25 However, systematic and comprehensive information is not available on the relative influence of different actors over party lists at different times. In general, electoral rules and candidate-selection procedures for legislators in both chambers create potentially contrary incentives to vote in line with national party dictates and policy preferences of provincial leaders. This is particularly true in an era of fiscal austerity characterized by central government attempts to shift adjustment burdens onto the provinces.26 Provincial party leaders, however, do not always support policies that differ from the national party line—the career interests of provincial party leaders may lie in facilitating efforts by the national organization of the governing 23. Jones, “Evaluating Argentina’s Presidential Democracy,” 9–13. See also Liliana de Riz and Catalina Smulovitz, “Instituciones y Dinámica Política: El Presidencialismo Argentino” (Institutions and dynamic politics: Argentine presidentialism), in Dieter Nohlen and Liliana de Riz eds., Reforma Institucional y Cambio Político (Institutional reform and political change) (Buenos Aires: CEDES, Editorial Legasa, 1991), 121–76. 24. For a cross-party study of these procedures, see Miguel de Luca, Mark Jones, and María Inés Tula, “Argentine Political Parties and Their Candidate Nomination Procedures: 1983–1999)” (paper presented at the Latin American Studies Association conference, Miami, Florida, 2000). 25. Students of Argentine politics are generally split into two camps over the relative importance of legislators’ national and provincial incentives. For the argument that provincial interests dominate, see Larry Sawers, The Other Argentina: The Interior and National Development (Boulder: Westview Press, 1996); and Tommasi and Spiller, Las fuentes institucionales. For the argument that party routinely trumps province, see Germán Bidart Campos, “El federalismo argentino desde 1930 hasta la actualidad,” in Marcello Carmagnani, ed., Federalismos latinoamericanos: México, Brazil, Argentina (Latin American federalism: Mexico, Brazil, Argentina) (México, D.F.: El Colegio de México, 1993); and Pedro Pírez, Coparticipación federal y descentralización del estado (Federal coparticipation and state decentralization) (Buenos Aires: Centro Editor de America Latina, 1986). 26. Edward Gibson, “Federalism and Electoral Coalitions: Making Market Reform Politically Viable in Argentina” (paper presented at the Conference on Federalism at All Souls College, Oxford University, June 6–7, 1997).
Eaton Chapter 5
5/24/02
10:07 AM
Page 137
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
137
party to build legislative support for the president’s proposals in congress. This scenario is an attractive one for rank-and-file legislators because it means they need not pick one set of party leaders over another. On the other hand, provincial party leaders may view future electoral prospects in the province as furthered by policies at odds with those favored by the national party. When the policy preferences of leaders in the national and provincial party organizations do differ, how a given legislator behaves is usually a function of his or her own career goals. Those legislators seeking reelection must accurately judge the relative influence of national and provincial party leaders over candidate selection and use their time in the legislature in the service of the dominant leaders. Though many legislators seek reelection, actual reelection rates in Argentina are low. Between 1983 and 1997, on average 79.9 percent of the legislators in the lower chamber were serving their first term, and 20.1 percent had been reelected from the previous term.27 Data collected by Jones and presented in Table 5.1 show the variety of paths that deputies’ careers take, with two broad career paths emerging as most important.28 First, many legislators continue their careers through a variety of appointive positions in the federal bureaucracy, in which case it makes sense to cultivate relations with national party leaders. Second, many other legislators seek their next job at the subnational level, through either elected or appointed positions in their provinces, in which case the dictates of provincial party leaders figure prominently in their calculations as legislators. Electoral Incentives Until the reform of the constitution in 1994, each province sent two senators to the federal senate. Both senators were indirectly elected by provincial legislatures according to the plurality rule. In practice, when it was time to elect a senator, the position went to the party that held a majority in that province’s legislature. After the 1994 reform, which was implemented in
27. Guillermo Molinelli, M. Valeria Palanza, and Gisela Sin, Congreso, presidencia, y justicia en la argentina: Materias para su estudio (Congress, presidency, and judiciary in Argentina: Study materials) (Buenos Aires: Centro de Estudios para el Desarollo Internacional, 1999), table 2.17, p. 124. Jones found that the percentage of deputies elected between 1983 and 1991 who held office in a later term was 22.9. See Jones, “Evaluating Argentina’s Presidential Democracy,” 276. 28. Jones, “Explaining the High Level of Party Discipline in the Argentine Congress,” in Morgenstern and Nacif, Legislative Politics in Latin America.
Eaton Chapter 5
138
5/24/02
10:07 AM
Page 138
REFORM EXPERIENCES
Table 5.1 Post held by deputies from the class of 1991–1995 as of mid-1998 (percentage distribution)
Image not available
TOTAL
100
68
44
SOURCE: Jones, “Explaining the High Level of Party Discipline in the Argentine Congress,” in Morgenstern and Nacif, Legislative Politics, 169. Reprinted with permission of Cambridge University Press.
stages, three senators are directly elected in each province, with the third seat reserved for the minority party in each province. From its inception in the early nineteenth century, the Argentine senate has overrepresented the more sparsely populated interior provinces relative to the more densely populated and economically advanced provinces of the pampas region. Over time, as Table 5.2 shows, the growing concentration of the country’s population in a few advanced provinces has caused the degree of malapportionment to reach extreme levels. Whereas in 1990 a senator in the Patagonian province of Santa Cruz represented just 77,396 voters, a senator in Buenos Aires province represented over 6,000,000 voters. In the policy arena, the overrepresentation of certain provinces in the senate is consistently reflected in policies that provide special consideration for the interior.29 29. Larry Sawers, The Other Argentina: The Interior and National Development (Boulder: Westview Press, 1996).
Eaton Chapter 5
5/24/02
10:07 AM
Page 139
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
Table 5.2
139
Malapportionment in the Argentine legislature
Province/District
Population
Number of Inhabitants
Image not available
Tierra del Fuego
66,314
33,157
SOURCE: Author’s calculation based on 1990 census figures.
Representatives in the lower chamber of deputies are directly elected by proportional representation via closed party lists. Each of the twenty-three provinces and the federal capital serve as electoral districts. In elections for the lower chamber, voters may not indicate a preference for any one candidate on these closed lists. As a result, using the policy process to develop personal reputations does not stand out as a particularly useful strategy for individual deputies. Instead, legislators can best further their careers by behaving in ways that increase the electoral performance of the party as a whole. Higher vote shares for the party increase the likelihood of a candidate’s actually getting a seat in the lower chamber. As Table 5.3 shows, however, there is a great deal of variation in the number of deputies elected in each district. District magnitude ranges from
Eaton Chapter 5
140
5/24/02
10:07 AM
Page 140
REFORM EXPERIENCES
Table 5.3 District magnitude and percentage of individuals with unsatisfied basic needs by province District
# of Deputies
Percentage of Individuals with
Image not available
Tierra del Fuego
5
25.6
SOURCES: República Argentina, Cámara de diputados de la nación, 13–23; Sawers, The Other Argentina, 279.
seventy legislators in Buenos Aires province to just five in the smallest districts. Because a district’s entire legislative contingent is never up for reelection in the same year, party lists in the smallest districts may include as few as two candidates in a given election. In these districts, which tend to be the economically least advanced, partisan and personal identities often blur. Behaviors that help legislators stand out as individuals who can provide benefits for the province may also redound to the party’s electoral benefit.30 Despite the significant range from five to seventy deputies per province, it is important to note that the range would be even greater if the number of 30. Interview with Raúl Baglini, Chair of the Budget Committee in the lower chamber from 1985 to 1989, Buenos Aires, August 11, 1999.
Eaton Chapter 5
5/24/02
10:07 AM
Page 141
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
141
seats per province was truly proportional. Constitutional framers in Argentina selected proportional representation in the chamber of deputies to balance the less democratic composition of the senate, but over time the proportionality rule in the lower chamber has been undermined by the adoption of rules that fix a minimum level of deputies per province. Thus, the 1949 constitution stipulated that each province would send no fewer than two deputies to the lower chamber; 1972 legislation increased this number to three; and the outgoing military government in 1983 increased it to five.31 Table 5.4 documents the impact of these changes in electoral law on the underrepresentation of legislators from the advanced pampa region and the overrepresentation of legislators from the north, west, and south of Argentina. Although less pronounced than malapportionment in the senate, the overrepresentation of certain provinces in the lower chamber also has regular impacts on policymaking.
Executive-Branch Proposals for Tax Reform On his election to the presidency in May 1989, Carlos Menem confronted a desperate state of affairs characterized by runaway inflation, capital flight, and a currency in free fall. The president’s immediate retreat from his populist campaign promises and his equally sudden espousal of market-oriented reforms are well documented.32 Though the historic decisions to privatize state-owned enterprises and liberalize trade have received more attention, an equally important event in the first critical months of his administration was the identification of Argentina’s tax system as a chief culprit of the country’s economic crisis. Deriding widespread cultural attitudes that viewed tax evasion as a national sport, Menem repeatedly explained to the public the causal connection between a weak tax system, chronic budget deficits, money printing, and inflation. Soon after taking office, the president named five of the most prominent former heads of the tax-collecting agency to a special commission charged with redesigning the tax system.33 Though legislators’ 31. Alberto Porto, Federalismo Fiscal: El caso argentino (Fiscal federalism: The Argentine case) (Buenos Aires: Editorial Tesis, 1990), 181–83. 32. de Riz, “Argentina: Democracy in Turmoil”; Edward Epstein, The New Argentine Democracy (Westport, Conn.: Praeger, 1992); and Luigi Manzetti, Institutions, Parties, and Coalitions in Argentine Politics (Pittsburgh: University of Pittsburgh Press, 1993). 33. This panel was headed by Raúl Cuello, who became the first Secretary of Public Revenues, and included former Directors-General Krieger Vasena, Petrei, Massat, and Malacorto.
Eaton Chapter 5
142
5/24/02
10:07 AM
Page 142
REFORM EXPERIENCES
Table 5.4 Deputies representing each province and provincial population, 1914–1991 Deputies Representing Each
Provincial Population
Image not available
Tierra del Fuego
1.9
0.2
SOURCE: Sawers, The Other Argentina, 195. Reprinted by permission of Westview Press, a member of Perseus Books, L.L.C.
support for the proposals that emerged from this commission would prove critical, the design of the reforms themselves was a mostly executive-branch affair. When chief executives are elected in such dire fiscal circumstances, whether they are motivated by reelection or by more programmatic policy agendas, increasing tax revenues is a necessity. In this highly uncertain envi-
Eaton Chapter 5
5/24/02
10:07 AM
Page 143
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
143
ronment, Menem’s own career prospects clearly depended on his ability to achieve fiscal balance and macroeconomic stability. The lesson of his predecessor, Raúl Alfonsín, was particularly instructive on this issue. Alfonsín was forced to leave office six months early largely because of the profoundly unstable economic situation for which his administration was ultimately held responsible. Finishing out his own term, let alone changing the constitution to enable him to run for another, required Menem to avoid the instability that had plagued the country for decades. Delivering macroeconomic stability depended on comprehensive tax reform: broadening tax bases, flattening tax rates, and improving tax collection in a marked shift away from the particularism that had characterized the country’s importsubstituting industrialization (ISI)-era tax structure. It was in this context that Menem proposed the broad expansion of the base of the VAT as a way to end the country’s dangerous reliance on the inflation tax. If Menem’s election in a national electoral district at a time of fiscal crisis explains his role as a protagonist of sweeping tax reform, international and interest-group pressures help explain his decision to focus on the VAT as tax reform’s most important component. International pressures to emphasize consumption taxes came in indirect and direct forms. Indirectly, because taxing capital becomes more difficult as its mobility increases, the globalization of capital markets since the 1970s has encouraged governments to compete for investment by lowering income tax rates while relying more heavily on consumption taxes. More directly, Vito Tanzi, the director of the fiscal department of the International Monetary Fund (IMF), played a critical role in pushing the VAT as opposed to a sales tax, participating in early executivebranch meetings to this effect.34 In these meetings, Menem’s panel of domestic bureaucrats concurred that a broader VAT base would improve the quality of the audit trail that tax collectors use to monitor tax compliance. With respect to interest-group pressures, Menem’s need to shore up support among agricultural interests, traditionally antagonistic toward Peronism, ruled out a significant role for export taxes. The agricultural sector proposed a general VAT rate of 15 percent, with a special rate of 5 percent for newly included goods and exemptions for agricultural products at the first stage of production. The principal industrial lobby, Unión Industrial Argentina, opposed these special exemptions, whereas Bunge y Born, the 34. For a description of these indirect pressures, see Tanzi, Taxation in an Integrating World. For a description of Tanzi’s direct role, see Clarín (Buenos Aires), October 14, 1989, 1, and Página 12 (Buenos Aires), September 20, 1989, 5.
Eaton Chapter 5
144
5/24/02
10:07 AM
Page 144
REFORM EXPERIENCES
powerful multinational to which Menem’s then economic minister belonged, advocated a turnover tax instead of the VAT. Menem skillfully mediated these pressures by compromising on a lower but single VAT rate of 13 percent in exchange for a broader base that included agricultural goods. This compromise was critical, because incorporating previously exempt activities tends to be politically more difficult than raising a single VAT rate, which affects all sectors similarly. In selecting the VAT as the new cornerstone of Argentina’s fiscal architecture, Menem’s tax policies radically differed from Perón’s. In his first two presidencies between 1946 and 1955, Perón made concerted efforts—some of Argentina’s only such efforts—to collect direct taxes from the country’s wealthy sectors. Tax policy under Perón’s third administration in the early 1970s was characterized by well-publicized efforts to expose corporate income tax evasion by multinationals, and also by conflict with Peronism’s traditional enemies in the agricultural sector over a proposed tax on the potential earnings of land.35 As Menem’s tax proposals were such a departure for Peronism, how did the legislators in his party respond?
The Response of Governing-Party Legislators to VAT Reform Governing-party legislators offered strong support for President Menem’s attempts to broaden the VAT base because this reform enabled them to satisfy both the national and provincial party leaders who mattered to them. This section focuses on the three most theoretically interesting aspects of the VAT reform. First, that legislators expanded the VAT against the wishes of the country’s most powerful producer groups suggests that the policy preferences of party leaders rather than private economic interests were most important to them. Second, thanks to Argentina’s revenue-sharing procedures, shifting the tax system away from trade taxes toward domestic consumption taxes like the VAT had the effect of dramatically increasing the size of revenue transfers to the provinces. The redistributive criteria used to distribute these revenues translated into particularly significant gains for provinces that were important to the governing party. For the most part, then, governing-party legislators could pursue their policy preferences without significantly altering the president’s proposals. Third, the one significant area in which governing-party legislators did modify the substance of the president’s bill reflects the provincial incentives they faced.
Eaton Chapter 5
5/24/02
10:07 AM
Page 145
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
145
Support for the Elimination of VAT Exemptions In the May 1989 elections that awarded Menem the presidency, the Peronist party increased its share of seats in the chamber of deputies from 42.9 percent to 50 percent and in the senate from 45.6 percent to 54.4 percent.36 Though Menem became president in July 1989, nearly six months ahead of schedule, only on December 10, 1989, did newly elected legislators take their seats. Though the opposition party pledged not to obstruct policy reforms in this special six-month interim period, Menem waited until after that date to introduce his VAT reform proposals. Soon after taking control of the legislature, the Peronist majority on the floor of each chamber voted to base its discussions of VAT reform directly on the proposal submitted by the president rather than following the normal but more time-consuming procedure of letting all relevant committees consider the legislation first.37 Members of the main opposition party, the Radicals, opposed the substantive content of VAT reform. Although the Radicals supported some of Menem’s early emergency taxes, they rightly saw VAT reform as a major overhaul of the tax system, one that required a programmatic response from the party. Characterizing the inclusion of foodstuffs at a single VAT rate as the “Tax Counter-Reformation,” the Radicals proposed maintaining several VAT rates to pursue equity objectives rather than strictly the maximizing of revenue.38 The criticism that the VAT is regressive was particularly upsetting for Peronist legislators, because Peronism as a political movement was historically identified with economic redistribution and defense of Argentine workers. In responding to these charges, Peronist party leaders struck back by arguing that the hyperinflation produced by Alfonsín’s government was the most regressive of all taxes, and that preserving special rates and exemptions, however well meaning, simply encouraged tax evasion and other abuses by well-connected enterprises. 35. Daniel Santoro, Los Intocables (Buenos Aires: Planeta, Espejo de la Argentina, 1996), 29–30. 36. Jones, “Evaluating Argentina’s Presidential Democracy,” 265, 266. 37. When legislators decide to expedite matters in this way, they are said to vote sobre tablas. See Diario de Sesiones de la Cámara de Senadores de la Nación (Record of sessions of the national senate chamber), December 21, 1989 (Buenos Aires: República Argentina), 3513–18, and Diario de Sesiones de la Cámara de Diputados de la Nación, December 19–20, 1989, 6374–82. 38. Diario de Sesiones de la Cámara de Diputados de la Nación, February 14–15, 1991, 4564.
Eaton Chapter 5
146
5/24/02
10:07 AM
Page 146
REFORM EXPERIENCES
What is most striking in the legislative debate over expanding the VAT is the absence of proposals by the Peronist rank-and-file to preserve tax exemptions for particular constituents. In applying the VAT to formerly exempt goods, Peronist legislators reduced the list of VAT exemptions from the 264 categories that were exempted by the previous law to just a handful of goods. Only the following goods retained their VAT exemptions in the 1990 law: books and newspapers; stamps; tickets for public transport, lotteries and entertainment; coins made of gold and other precious metals; and water, bread, and milk.39 The major agricultural production associations were particularly active in lobbying against the VAT, but to no avail.40 Despite the insistence by Radical deputies that basic foodstuffs be exempted outright in the VAT bill itself, Peronist deputies delegated to the president the right to limit the potential exemption of water, bread, and milk. In debating the very reduced list of goods exempt from the VAT, the deputies granted only one additional exemption, for published materials.41 This sole modification is an outcome that would be difficult to imagine in an electoral system that gave legislators greater incentives to cultivate personal votes. Likewise, in legislating a single rate of 13 percent, Peronist legislators were deaf to the protests of producers of goods that were formerly subject to lower tax rates. This explicit support for base broadening challenges those who attribute VAT reform to presidential decrees rather than to statute change by the legislature.42 Eight months after extending the VAT to these goods, Peronist legislators voted in September 1990 to further expand the VAT to include services. In this debate, Peronist legislators lined up in support of the broad inclusion of services, and Radical legislators categorically attacked the VAT as a regressive tax.43 Peronist legislators refused to consider opposition proposals to 39. See Boletín de la DGI 70, 433 (January 1990): 49. 40. Later, Peronist legislators initiated an investigation into charges that the big agricultural multinationals, the so-called cinco hermanas (five sisters), had illegally passed the VAT onto agricultural producers by lowering the prices they paid for agricultural inputs. Santoro, Los Intocables, 78, 81. 41. Diario de Sesiones de la Cámara de Diputados de la Nación, December 19–20, 1989, 6440–41. 42. Vicente Palermo and Marcos Novaro, Política y poder en el gobierno de Menem (Politics and power in Menem’s government) (Buenos Aires: Grupo Editorial Norma, 1996), 258. 43. Twelve of the thirteen deputies who signed the bill reported by the finance committee were Peronists, and all seven deputies who signed a dissenting report were Radicals, with one Peronist signing a partially dissenting report. Diario de Sesiones de la Cámara de Diputados de la Nación, August 23, 1990, 2061. For a defense of these signatures as a way to measure party discipline, see Mustapic and Goretti, “Gobierno y Oposición.” In the senate, the Radical party
Eaton Chapter 5
5/24/02
10:07 AM
Page 147
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
147
exclude small vendors and professionals from the VAT system, again citing the pressing need to transform the VAT into a powerful revenue generator.44 Peronist legislators were particularly loath to grant exemptions for professionals because support for the Radical party was particularly strong among the liberal professions. As I argue below, party discipline did break down in the discussion of cargo transport services, precisely because enough Peronist legislators were persuaded that the inclusion of such services would have a strongly negative impact on a majority of provinces in the interior. But their support for base broadening is manifest in the absence of other attempts to exempt particular services. Together with other economic bills, the two VAT bills approved in January and September 1990 laid the groundwork for Argentina’s fiscal recovery. In response to a small outbreak of hyperinflation in late 1990, Peronist legislators then voted to increase the single VAT rate to 16 percent in February 1991 and to 18 percent in July 1991. As Table 5.5 shows, because of these legislative changes, VAT revenues as a share of tax revenues increased from 17.7 percent in 1989 to 55.2 percent in 1992. These revenue increases were critical in shoring up the new exchange rate approved by the legislature in February 1991, which, by tying the currency to the U.S. dollar at parity, forced the federal government to finance its expenditure through revenue or borrowing rather than money printing. Indeed, the credibility of this convertibility law depended in large part on the tax reforms that congress had already put in place. When an economic recession triggered by the Mexican tequila crisis put the country’s new-found fiscal stability in jeopardy in 1995, the congress responded by raising the VAT rate still higher to 21 percent. Generally speaking, governing-party legislators had positive and negative reasons to support these tax reforms. In a positive sense, tax reform made possible the stabilization of the country’s finances, and this stability translated into direct electoral rewards for the governing party. Having legislated the framework for macroeconomic stability between 1989 and 1991, Peronist legislators were subsequently in a position to claim responsibility for the economic growth that stability made possible.45 That the Peronists waited to leader asked that his party’s opposition be recorded when the bill was approved. Diario de Sesiones de la Cámara de Senadores de la Nación, September 27–28, 1990, 4222, 4223, 4237. 44. Diario de Sesiones de la Cámara de Diputados de la Nación, September 5–6, 1990, 2251. 45. For the argument that Menem’s orthodox economic policies proved to be more popular than is often acknowledged, see Carlos Gervasoni, “Del distribucionismo al Neoliberalismo: Los Cambios en la Coalición Electoral Peronista durante el Gobierno de Menem” (From
Eaton Chapter 5
148
5/24/02
Page 148
REFORM EXPERIENCES
Table 5.5 Year
10:07 AM
The performance of the value-added tax in Argentina, 1989–1995
VAT Revenues (in Thousands of
VAT Revenues as % of Total
VAT Revenues as % of GDP
# of Businesses Registered in
Image not available
1997
22,337,118
40.2
6.93
—
Sources: Direccíon General Impositiva, DGI, 1984–1995, 87, 89, 90; Administración Federal de Ingresos Públicos, Estadisticas Tributarias Año 1997, 15 and 38.
legislate this framework until after they took control of the lower house, where tax bills must originate, bolstered their ability to take credit for fiscal reforms and stability. Radical-party opposition to tax reform also helped them claim responsibility for stability. Table 5.6 suggests that voters agreed; the Peronists continued to win a majority of seats in the lower chamber in the midterm elections of October 1991 and 1993 and in the joint 1995 presidential and congressional elections. In the senate, Peronists also increased their share of seats. Because Menem’s fiscal and other policies helped facilitate Peronist victories in gubernatorial elections as well, voting for these policies in congress also made sense for those legislators anticipating careers back in their home districts. At the same time, because national-party leaders wield tools with which they can discipline errant legislators, and because these changes in tax policy were so critical to the president’s overall reform agenda, governing-party legislators had further cause to support the VAT. Though there was a great deal of internal party debate on the tax and other reforms proposed by Menem, publicly criticizing these reforms, let alone actually voting against them, was a risky activity for rank-and-file legislators. In a variety of ways, distributionism to neoliberalism: Changes in the Peronist electoral coalition during Menem’s government) (paper presented at the 1998 meeting of the Latin American Studies Association, Chicago).
Eaton Chapter 5
5/24/02
10:07 AM
Page 149
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
Table 5.6
149
Percentage of seats held by the Peronists, 1989–1995
Image not available 50.0
50.2
50.2
52.1
46.3
SOURCES: Jones, “Evaluating Argentina’s Presidential Democracy,” 265, 266; Molinelli, Palanza, and Sin, Congreso, 277.
Menem signaled that career opportunities for legislators who failed to toe the party line on economic reform would be significantly narrowed. To drive home the point that space in the party was limited for traditional Peronists who failed to update their policy preferences, Menem appointed many individuals without a background in the party to key posts in the federal bureaucracy. To similar effect, he invited the departure from the ranks of Peronism of the so-called Group of Eight legislators (grupo de los ocho) who agreed with the opposition Radical party that the VAT was regressive. These legislators left the Peronist party over this and other policy differences and helped formed the new center-left FREPASO party. Most Peronist legislators, however, followed the party line and reaped the career benefits of doing so. The Impact of VAT Reform on Revenue Sharing In addition to VAT’s transcendental importance to the president, and the president’s various means of influencing their careers, governing-party legislators had further cause to support VAT reform because of the institution of revenue sharing. As discussed in greater detail in Chapter 7, the country adopted a fiscal system in the 1930s according to which many of the most important taxes are collected by the federal government and automatically shared with the provinces. According to this system, trade taxes were never shared with the provinces but instead accrued solely to the federal government. By shifting the tax system toward taxes whose proceeds are automatically shared with the provinces and away from those that are not, the expansion of the VAT base together with the reduction of external tariffs greatly improved the fiscal
Eaton Chapter 5
150
5/24/02
10:07 AM
Page 150
REFORM EXPERIENCES
standing of the provinces as a group. Advocates of VAT reform argued not only that VAT revenues would be subject to revenue sharing, but also that broadening the tax base would significantly reduce tax evasion, fiscal deficits, and, consequently, the inflation tax. The inflation tax was particularly disadvantageous for the provinces because, like trade taxes, it benefited the federal government alone, and because inflation reduced the real value of federal revenue transfers, which often occurred at a significant lag. Voting to generalize the VAT base was particularly beneficial for the provinces in the aftermath of the 1988 revenue-sharing law, which increased provincial shares in centrally collected tax revenues to 57 percent versus 42 percent for the federal government. In each of the VAT bills discussed in the previous section, Peronist legislators explicitly cited automatic revenue sharing in explaining the benefits that tax reform would deliver. For example, in explaining his vote in favor of an expanded VAT, the Peronist deputy Roberto Domínguez from Jujuy province argued that the proceeds from this expansion would automatically accrue to his revenue-poor province, unlike some other taxes such as fuel taxes, which historically were not automatically shared with the provinces.46 Later, in encouraging legislators to increase the VAT rate to 16 percent, the Peronist party leader Jorge Matzkin argued that, while the fiscal demands of the federal government motivated the proposed rate increase, the provinces would automatically gain from the additional revenues generated by the increase. In attempting to persuade legislators, Matzkin argued that the increase in revenue sharing with the provinces would amount to approximately U.S.$900 million per year.47 As these statements reveal, VAT reform promised to increase automatic revenue transfers to all provinces absolutely with respect to prereform levels. At the same time, however, some provinces stood to gain relatively more from VAT reform than other provinces, thanks to the fact that redistributive criteria are used to distribute tax revenues. As Tables 5.7 and 5.8 show, a majority of Peronist legislators represented the provinces that would benefit disproportionately from higher revenue transfers. By dividing the Argentine 46. See the speech by Domínguez in Diario de Sesiones de la Cámara de Diputados de la Nación, December 19–20, 1989 (Buenos Aires: República Argentina), 6398. 47. At least one member of congress, the dissident Peronist Moisés Fontela (Buenos Aires), objected to what he saw as the coercive nature of this argument: “This government has declared in the presence of the governors that if we (legislators) do not approve this package there will be no money for the provinces. This is called extortion.” Diario de Sesiones de la Cámara de Diputados de la Nación, February 14–15, 1991, 4553–60.
Eaton Chapter 5
5/24/02
10:07 AM
Page 151
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
151
provinces into four categories, Table 5.7 demonstrates the effect of redistributive criteria on revenue transfers. Less developed provinces receive higher revenue transfers from the federal government than they would have if transfers were based strictly on population size or gross provincial product. Although the four advanced provinces play a preponderant role in producing VAT revenues because they are the areas where Argentina’s industry, commerce, and population are concentrated, these four provinces are underrepresented in the share they receive back in the form of revenue transfers. As Table 5.8 shows, the great majority of Peronist senators (92.6 percent) and a slight majority of Peronist deputies (50.5 percent) in the legislative session that voted to expand the VAT were from one of the nonadvanced provinces. Thus, for a majority of Peronist legislators, voting to generalize the VAT presented no major conflict of interest between their partisan and provincial loyalties. For those Peronist legislators representing advanced provinces that were harmed by the redistributive criteria used to distribute revenue, however, institutional incentives were more complex. On the one hand, voting to expand the VAT base without simultaneously redesigning the rules governing revenue sharing meant that their provinces would effectively subsidize nonadvanced provinces. On the other hand, the broader shift from tariffs to domestic consumption taxes benefited the provinces as a group relative to the federal government and expanded their own future career opportunities by bolstering the electoral fortunes of the Peronist party. A Breach in Party Discipline to Defend Provincial Interests In voting to extend the VAT to a broad array of services in 1990, a number of Peronist legislators from some of Argentina’s geographically isolated and less economically developed provinces refused to apply the VAT to cargo transport. They reasoned that taxing cargo would prove particularly onerous for producers in their provinces, who would have to pay tax on transporting goods to the Buenos Aires metropolitan center where consumption is concentrated.48 This episode can be mined for insights as to how legislators navigated conflict between the national party line and provincial interests. In the debate over this exemption, representatives from both major parties and from various interior provinces voiced concern that extending the VAT to cargo transport services, in addition to existing highway tolls, would destroy 48. Diario de Sesiones de la Cámara de Diputados de la Nación, September 5–6 1990, 2262, 2285.
Eaton Chapter 5
152
5/24/02
10:07 AM
Page 152
REFORM EXPERIENCES
Table 5.7
Revenue transfers by province in Argentina % of Total Revenue Shared Under 1988 Law
% of Total Population 1985
Revenue Shared Relative to Population
Total NationalOrigin Fiscal Resources per Capita (in U.S.$)
Image not available
Santiago del Estero
4.14
2.4
1.76
744
SOURCES: World Bank, Argentina, 24; República Argentina, Cambios Estructurales en la Relación Nación-Provincias, 27.
“regional economies,” a term used to refer to the more remote and less developed provinces.49 Radical party leaders tried to exploit the interprovincial divisions in the bloc of Peronist legislators by arguing that the expansion of the VAT to include all services—and not just cargo transport—would harm provinces outside the pampa region significantly more than the pampa provinces themselves. As Raúl Baglini argued, Argentina’s regional economies 49. Diario de Sesiones de la Cámara de Diputados de la Nación, September 5–6, 1990, 2285.
Eaton Chapter 5
5/24/02
10:07 AM
Page 153
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
Table 5.8
153
Number and percentage of Peronist legislators by province
Type of Province
# and % of Total Peronist Deputies from
# and % of Total Peronist Senators from
Image not available
Underdeveloped
27 (23.5)
11 (40.8)
SOURCE: República Argentina, Cámara de Diputados de la Nación: Su composicíon y Comisiones, 13–81. NOTE: These calculations do not include representatives from the federal capital because revenues for the capital come from the federal government’s share in tax revenues.
required more services than the pampa region located in the advanced provinces, where “ranchers and farmers simply watch their cattle and wheat grow and only demand services at the very end stage of production.”50 Jorge Matzkin, leader of the Peronist bloc, and Oscar Lamberto, Peronist chair of the budget committee, responded by explaining that, because transportation is an intermediate service, applying the VAT to cargo transport would not increase the final cost to consumers of products from distant provinces. Given the credit-debit features of the VAT, producers in interior provinces would be able to claim the VAT they paid to transport their goods as a fiscal credit. As for truck drivers, the Peronist leadership argued that, once included in the VAT system, they could deduct the VAT they were already paying on their trucks, tires, and parts from the VAT they would now have to charge and deposit in the tax-collecting agency for transporting goods. Defenders of interior provinces did not accept this reasoning, arguing that the majority of trucks used to transport goods from interior provinces were small-scale operations and did not operate in the VAT system (so-called nonregistered contributors). Because nonregistered trucks could not deduct VAT payments as fiscal credits, legislators from the interior feared that truckers would pass on this cost increase to producers in the form of higher transport fees.51 50. Diario de Sesiones de la Cámara de Diputados de la Nación, August 29, 1990, 2118. 51. Diario de Sesiones de la Cámara de Diputados de la Nación, September 5–6 1990, 2285.
Eaton Chapter 5
154
5/24/02
10:07 AM
Page 154
REFORM EXPERIENCES
Having failed to explain away provincial concerns, Peronist party leaders feared that opposition to the inclusion of this particular service would threaten the entire bill. As a result, they decided to disaggregate the bill so that separate votes would be taken on each service included in the VAT, leading to twenty-one different votes rather than a single vote on all services. Most Peronist legislators opposed to applying VAT to cargo transport voiced their opposition by simply leaving the floor rather than actually voting against the national party’s recommendation. For the first twenty votes, the number of legislators voting oscillated between 190 and 201. This number dropped to 156 when it came time to vote to include cargo transport in the VAT. Because the vote to exempt cargo transport was recorded nominally, it is clear that ten Peronist deputies stayed on the floor and voted against the more narrow exemption of passenger transport that had been proposed by the chief executive and the Peronist-dominated budget and finance committee. Four of the Peronist legislators who voted against the party represented the interior provinces, and another three were affiliated with the “Group of Eight” dissident Peronists who ultimately left the party over the direction of Menem’s economic reforms.52 Their defection was sufficient to result in the defeat of the national party’s position.53 Despite the fact that the exemption of transport services was a minor point of an extensive tax bill, the outcome of this debate over the exemption of transport services was of great importance for the president’s tax agenda. Exempting all cargo and passenger transport meant not only considerable foregone revenue, but also a VAT system that would be more difficult to administer and easier to evade because of greater exemptions.54 Buoyed by the defection of Peronist deputies in the debate over transportation exemptions, the Radicals subsequently proposed a broader set of VAT exemptions for all small- and medium-size enterprises. Unlike the highly disaggregated nature of the vote to exempt cargo transport, however, supporting this proposal would have been a much bigger setback for the national party and thus riskier for individual Peronist legislators.55 Given this greater risk and
52. These three rebels included Franco Caviglia, Juan Pablo Cafiero, and Hector Gatti. The latter two were reelected as FREPASO party legislators in 1995. 53. Diario de Sesiones de la Cámara de Diputados de la Nación, September 5–6 1990, 2286. 54. The deputies successfully insisted on this broader exemption in modifying the executive’s version of the bill that became Law 24.073. Diario de Sesiones de la Cámara de Diputados, March 11, 1992, 6051. 55. For more on how Peronist party leaders structured these votes, see Eaton, “Fiscal Policy Making in the Argentine Congress.”
Eaton Chapter 5
5/24/02
10:07 AM
Page 155
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
155
the reality that the interest of Peronist legislators in exemptions depended mainly on their impact on provincial questions, the Peronist party leadership was able to reassert discipline, and the broader set of proposed exemptions was defeated in a party-line vote.56
The Legislation of Tax-Policy Trade-Offs Despite the breach in party discipline over the inclusion of cargo transport in the VAT, support by Peronist legislators for tax reform allowed the president to implement a modern tax structure centered on a broad-based, singlerate VAT. Although Menem had proposed a broad-based VAT as a means of ending Argentina’s traditional reliance on a myriad of narrow tax bases, he nevertheless had to resort to emergency tax handles until the VAT reform could take effect and begin to produce a steadier revenue stream. Though Peronist legislators in general agreed to legislate these quick tax fixes, they conditioned their support on changes in the distribution of revenues that would benefit their provinces. In other words, although distribution rules were an exogenous factor in the legislation of Menem’s centerpiece VAT reform, Peronist legislators were able to “endogenize” distribution rules in their approval of tax handles. According to public finance texts, “tax handles” are taxes that are easy to collect in administrative terms but that can greatly distort economic decision making.57 In contrast, “modern taxes” such as the VAT are more complicated but neutral with respect to investment and consumption decisions. Tax reform in Argentina, as in many other developing countries in the postISI period, has reduced chronic dependence on tax handles by shifting toward a system in which a few broad-based consumption and income taxes produce the majority of fiscal revenues. In the context of fiscal crisis, however, this shift is rarely straightforward. When, as in Argentina, chronic fiscal deficits increase the need for comprehensive tax reform, they may at the same time complicate reform efforts by forcing politicians to continue to rely on tax handles until the modern taxes begin to produce revenue. That Peronist party leaders tolerated efforts by legislators to increase provincial shares in the revenues produced by tax handles is perhaps surprising. After all, it was the federal government’s pressing need for revenue 56. See Diario de Sesiones de la Cámara de Diputados, September 5–6, 1990, 2293, 2294. 57. Goode, Government Finance; Bird, Tax Policy.
Eaton Chapter 5
156
5/24/02
10:07 AM
Page 156
REFORM EXPERIENCES
that drove the president to propose tax handles in the first place. Peronist party leaders, however, were desperate to deliver these short-term tax increases to the president, and this situation actually increased the leverage of legislators who sought to improve their provincial shares at the expense of the federal government.58 The nature of the trade-off is clear: In exchange for voting a new tax base or raising a tax rate, legislators secured a more advantageous distribution of tax revenues for their provinces. These repeated actions by legislators in pursuit of provincial concerns are another significant manifestation of the institutional complexities and imperatives they face. Table 5.9 documents the substance of six such policy trade-offs between Peronist legislators and the president. Analysis of these trade-offs yields a number of insights. First, in this party-centered electoral system, the exchanges of policy support for higher provincial transfers were brokered in the party and did not unravel once brokered. The contrast with pork-barrel politics in the Philippines’ candidate-centered electoral system is instructive. Second, legislators’ modifications were not designed to favor particular constituents but rather to improve the reputation of the governing party in legislators’ home provinces. As such, though introduced by individual legislators in committee and on the floor of each chamber, these modifications can be distinguished from the heavily personalistic interventions that regularly occur in candidate-centered systems. Third, the lower chamber in Argentina was as important a site as the senate for legislators to leverage beneficial treatment for their provinces of origin. Because legislators in both chambers often found themselves caught between national- and provincial-party interests, this finding supports the importance of electoral incentives as a determinant of legislative behavior. It is at odds, however, with most studies of Argentine federalism, which view the senate as the only arena where provincial interests are pursued, and even then, only half-heartedly.59 Fourth, malapportionment in the senate was reflected in the nature of the conflict between the chambers over the criteria to be used in distributing revenue to the provinces. Because a majority of deputies represented one of the four industrially advanced provinces where 58. The strategy did not always work. For example, in August 1990, congress ratified a decree that required state-owned enterprises to contribute 5 percent of their income every month to the national treasury; the decree also removed this “contribution” from the system of revenue sharing with the provinces. Diario de Sesiones de la Cámara de Diputados de la Nación, August 29, 1990, 2100. 59. See, for example, Bidart Campos, “El Federalismo Argentino,” 373–76; and Pedro Pírez, Coparticipación Federal, 97–101.
Eaton Chapter 5
5/24/02
10:07 AM
Page 157
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
157
poverty was highly concentrated, deputies routinely favored the use of an index that ranked the provinces according to basic unsatisfied needs. Senators from the scarcely populated but electorally overrepresented Patagonian provinces were particularly hostile to the basic needs index and preferred instead the criteria adopted by the 1988 revenue-sharing law.60
Delegating Policy Authority to the President Against the argument that the Argentine legislature abdicated its policy role under Menem, the previous sections demonstrate that some of the political responsibility for reform lies with governing-party legislators, who engaged in detailed lawmaking in committees and on the floor. In addition to these direct uses of their constitutionally given policy authority, governing-party legislators also pursued their policy preferences by delegating this authority to the chief executive. In view of the great extent to which Argentine presidents have traditionally dominated the judicial system, delegation was a risky business for legislators in the event the president failed to respect the limits and conditions they placed on delegation.61 At times, however, delegating authority was the most expedient way of producing the reforms that bolstered the party’s performance in elections, thereby broadening legislators’ career opportunities. Given the scope of the policy transformation he attempted, Menem was not shy about asking the legislature for delegated powers. Peronist legislators, however, did not always oblige him. Even when they did, they often designed the delegation of policymaking authority in ways that challenge the abdication thesis. This section compares how legislators responded to Menem’s two most important requests for delegated fiscal powers—the socalled first and second reforms of the state. In the first case, in the beginning months of Menem’s first term, legislators agreed to delegate broad powers to enable the president to find quick and effective solutions to the country’s profound fiscal crisis. In the second case, in the beginning months of his second term, legislators balked at Menem’s request for additional fiscal powers to consolidate first-stage reforms and to confront the impact of the 60. As Senator Solari Yrigoyen from the province of Chubut remarked, the basic needs index harms Patagonian provinces by not considering distances, harsh climate, and lack of communication. Diario de Sesiones de la Cámara de Senadores de la Nación, September 27, 1989, 2578. 61. Horacio Verbitsky, Hacer la Corte (Making the court) (Buenos Aires: Espejo de la Argentina, 1993); and Tommasi and Spiller, Las Fuentes Institucionales, 44–53.
Eaton Chapter 5
5/24/02
Table 5.9 president Law
10:07 AM
Page 158
Six examples of policy exchanges between Peronist legislators and the Date
Substance of Presidential Proposals
Changes Inserted by Peronist Legislators
Emergency solidarity tax of between 0.5% and 2% on income earned in 1988, with 93% of revenues directed toward the federal ministry of health and 7% for provincesa New excise tax on tires, with 85% of revenues directed to federal government’s national highway fund and 15% to the provinces Increase in excise tax on fuel; additional channeled Imagerevenues not available to national treasury Increase in tax on minimum assets from 1% to 2% in response to outburst of hyperinflation Extension of special fund to finance provincial fiscal disequilibria in eight provinces
Peronist senators approve tax but change distribution rules so that 57% (instead of 7%) of revenues are directed to provincesb
Increase in specific fuel tax, with 47% of revenues sent to federal Government, 40% to a federally controlled housing fund (FONAVI), and 13% to provinces
Peronist deputies support tax increase but require that revenues be directed toward automatic revenue-sharing systemc Peronist deputies approve increase but channel proceeds to provincesd Peronist deputies agree to tax increase but direct 75% (instead of 50%) of revenues to provincese Peronist deputies approve proposal to distribute 64% of fund among eight provinces, but automatic sharing with other provinces of remaining 36%f Peronist senators change distribution rules by stipulating that provinces automatically receive a minimum amount of revenues per month (U.S.$70 million) through FONAVIg
Decree 400/89, Boletn Oficial, August 4, 1989, p. 4. Diario de Sesiones de la Cámara de Senadores de la Nación, (Buenos Aires: República Argentina) September 27, 1989, pp. 2578, 2584, 2585. c Diario de Sesiones de la Cámara de Diputados de la Nación, (Buenos Aires: República Argentina) November 23, 1989, pp. 4735, 4736, and November 30, 1989, p. 5682. d This change was vetoed by President Menem. “Mensaje del Poder Ejecutivo,” Boletín Oficial (Buenos Aires: República Argentina) no. 1465 (December 14, 1989) p. 1. e Diario de Sesiones de la Cámara de Diputados de la Nación (Buenos Aires: República Argentina), February 14–15, 1991, pp. 4617–18. f Diario de Sesiones de la Cámara de Diputados de la Nación (Buenos Aires: República Argentina), February 14–15, 1991, p. 4626. g Diario de Sesiones de la Cámara de Diputados de la Nación (Buenos Aires: República Argentina), July 24–25, 1991, pp. 1347, 1348, 1358, and 1371–73. a
b
Eaton Chapter 5
5/24/02
10:07 AM
Page 159
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
159
Mexican tequila crisis on Argentina’s economy. In the second reform of the state, legislators significantly narrowed the extent of the powers requested by the president to the point that little discretion was ultimately delegated, popular accounts notwithstanding. What explains this difference in the willingness of governing-party legislators to delegate authority? First, the nature of the economic crisis in each period is one possible factor, with legislators more willing to delegate authority the deeper the economic crisis. However, although the 1989 economic crisis was particularly severe, the economic recession in 1995 clearly threatened to sweep away the new economic infrastructure of fiscal stability and growth on which the Peronists had come to depend for their continual electoral success. Economic crisis thus seems insufficient as an explanation for legislators’ decision not to delegate in 1995. Second, the 1994 constitutional reform that occurred between the first and second reforms of the state restricted the ability of legislators to delegate powers except in cases of economic emergency, which Menem was unwilling to declare for fear of alienating foreign investors. Governing-party legislators routinely cited this new constitutional language in their own explanations for the decision not to delegate broad powers.62 Because Peronist politicians were often willing to behave in ways that were not sanctioned by the constitution, however, other forces may have been more important in convincing legislators not to delegate in the second period.63 There is a deeper explanation of the reason that legislators delegated at the beginning of Menem’s first term but not in his second term. In 1989, President Menem enjoyed enormous power over legislators in his party, and his successful drive to reform the constitution to allow his reelection served to maintain this power throughout his first term. As soon as he was successfully reelected to a second term in May 1995, however, Menem’s position was weakened by the onset of a struggle in the party over who would succeed him. Menem tried to delay this inevitable struggle and the onset of his lame-duck status by keeping alive the possibility that he could run for a third term in 1999.64 After 1995, Menem as president of the nation retained significant power over all legislators, but as leader of the Peronist party his powers were reduced. 62. Article 76 of the 1994 Constitution. 63. For examples of unconstitutional behavior, see McGuire, Peronism Without Peron, 251–61; and Armando Vidal, El Congeso en la trampa (Congress in the trap) (Buenos Aires: Espejo de la Argentina, 1995). 64. Interview with José Bordón, former Peronist Governor of Mendoza and FREPASO presidential candidate in 1995, Buenos Aires, July 25, 1996.
Eaton Chapter 5
160
5/24/02
10:07 AM
Page 160
REFORM EXPERIENCES
As we might expect in a party-centered electoral system, the president’s decreasing power as party leader in his second administration helps explain the increasing care that legislators took in delegating policy authority to him. When the party leader in a party-centered system loses his or her influence over how individual legislators make their careers in the party, we should see a growing dissonance in the party over policy. With the weakened position of the national party leadership after 1995, power over legislators’ behavior in the party increasingly swung toward the provincial-party leaders who were worried that Menem would use delegated powers to push fiscal adjustment onto the provinces.65 Complicating matters for Menem was the fact that his likely successor as presidential candidate, the Buenos Aires governor Eduardo Duhalde, attempted to distinguish himself from the president early on by focusing on the social cost of Menem’s pro-market model, including the burdensome inclusion of primary goods in the VAT system. Not only did this altered political reality lead to a more circumscribed delegation, it also led to much less discipline by Peronist deputies in the area of fiscal policy generally. As Menem’s power gradually diminished over the course of his second term, legislators became much more responsive to interest-group lobbying for special tax treatment and began to pursue policies that more often conflicted with Menem’s proposals. The president’s loss of influence after 1995 was by no means complete; indeed by directly manipulating the succession struggle in the party and by repeatedly proposing to run for president again in 2003, Menem retained significant authority over Peronist legislators. But compared to his first term, when the party’s economic and electoral successes led to a dramatic constitutional reform that enabled his own historic reelection, Menem’s power resources after 1995 were in relative decline. The First Reform of the State, 1989 Shortly after Menem became president in July 1989, the legislature passed two bills that delegated broad economic powers to the executive branch.66 65. Interviews with Antonio Cafiero, Senator from Buenos Aires province, Buenos Aires, August 9, 1996; and Antonio Hernández, Secretary for Federal Affairs in the opposition cabinet of the Radical party, Buenos Aires, July 25, 1996. See also Steven Levitsky, “An ‘Organized Disorganization’: Informal Organization and the Persistence of Local Party Structures in Argentine Peronism,” Journal of Latin American Studies 33, 1 (2001): 29–65. 66. The text of these two laws, 23.696 and 23.697, appears in Anales de Legislación Argentina (Annals of Argentine legislation) 49C (Buenos Aires: República Argentina), 2444–79.
Eaton Chapter 5
5/24/02
10:07 AM
Page 161
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
161
The first bill, passed in August 1989, stipulated a series of reforms designed to restructure the state, including the privatization of a long list of stateowned enterprises published as an appendix to the bill. The second piece of legislation, passed the following month, affected an even broader set of policies. This Economic Emergency Law gave the president the necessary authority to curtail tax incentives and fiscal subsidies, issue a new foreign investment code, and grant the central bank greater independence from political influence. The sweeping nature of this delegation had no precedent in Argentina’s democratic history. While legislators had never delegated such extensive powers to the executive branch, neither had such a sudden and dramatic policy transformation been attempted in Argentina. The previous transition from liberal to statist development models sixty years earlier occurred much more gradually, beginning with the adoption of temporary protectionist policies in the 1930s and deepening with the advent of Perón’s government in the 1940s. In 1989, an effective response to the country’s deep crisis required simultaneous policy change on a number of fronts. This crisis simply exceeded the legislature’s capacity to act and helps explain why delegation was the most attractive solution for the governing party despite levels of party discipline that seemed to obviate the need to delegate. Delegation of emergency powers in 1989 enabled President Menem to demonstrate his reformist credentials across a range of policy areas at a time when both domestic and foreign investors needed assurance. By expediting the policy reversal that brought stability and, for several years, high growth rates to Argentina, delegation furthered the party’s most pressing collective goals. The specifics of the unusual transfer of power after the May 1989 elections are a further reason for the decision to delegate rather than legislate. As mentioned earlier, though Menem became president six months ahead of schedule, the legislature did not turn over until December 1989. For this reason, in Menem’s first six months, the distribution of power in the legislature as reflected in committee memberships and committee chairs continued to reflect pre-May 1989 electoral realities. Though Menem could wait to introduce his comprehensive tax reforms, the pressing nature of the economic crisis demanded immediate measures. It is a mistake, however, to see this delegation as a legislative blank check. Consider, for example, the economic emergency bill. An important component of this omnibus bill was the suspension of tax incentives for investment in four special provinces, incentives that had been granted under Argentina’s industrial promotion laws. These incentives had come to represent
Eaton Chapter 5
162
5/24/02
10:07 AM
Page 162
REFORM EXPERIENCES
huge fiscal losses for the national treasury, as scores of companies either relocated part of their business to these provinces or, more commonly, did so on paper.67 The president originally proposed terminating 100 percent of the tax benefits granted to enterprises located in the provinces of Catamarca, La Rioja, San Juan, and San Luis. Peronist senators on the budget committee were able to successfully modify this proposal. Rather than terminate benefits, these senators reported a bill in which these benefits would be suspended for a six-month period, reserving for the president the right to extend this for another six months. In addition, the committee reduced the scope of the suspension to only 50 percent of the benefits rather than 100 percent as Menem had requested. Significantly, a disproportionately high percentage of senators on this committee (three out of eleven) represented one of the four affected provinces.68 In exchange for these modifications, the committee approved the other important parts of the bill, including a radical liberalization of the country’s foreign investment code. The Second Reform of the State, 1995–1996 In November 1995, four months after his second inauguration, amid economic difficulties triggered by the 1994 Mexican devaluation, President Menem announced new proposals for a second reform of the state.69 Like the first reform, this second reform involved administrative restructuring and macroeconomic adjustment. With respect to the latter, Menem asked the congress for “superpowers” to further widen tax bases and defend the country’s fiscal stability in the event that the economic crisis worsened. This request came in the midst of violent protests in many provinces over the inability of provincial governments to pay the salaries of government employees. The recession precipitated by the Mexican devaluation had also reduced the size of provincial revenue transfers and made it difficult for many provinces to pay these salaries. 67. See Eaton, “Logic of Congressional Delegation.” 68. These were Horacio Bravo Herrera from San Juan and Oraldo Britos and Alberto Rodríquez Saá from San Luis. Although 27 percent of the members of the budget and finance committee were from one of these provinces, senators from these four provinces represented only 17 percent of the total number of senators. Furthermore, two of the three budget committee members were senators from the province (San Luis) that had been most aggressive in granting tax incentives. Diario de Sesiones de la Cámara de Senadores de la Nación, August 8–9, 1989, 1468, 1520. 69. “Menem le lide al Congreso más poder para hacer el ajuste”(Menem asks congress for more power to implement adjustment), Clarín, November 15, 1995, 2–4.
Eaton Chapter 5
5/24/02
10:07 AM
Page 163
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
163
As a first step in responding to the president’s request for delegated powers, the Peronist party leadership in congress asked the president to specify more carefully what he planned to do with these extra powers.70 At first, the finance secretary Ricardo Gutierrez refused to comply, arguing that the executive branch needed these powers in case of an emergency situation and therefore did not even have specific plans about how it might use them.71 Though Peronist legislators would certainly have much to lose from the return to macroeconomic chaos, this response failed to assuage their concerns that the president would not use delegated powers in ways that harmed their interests, particularly in view of the uncertain fiscal situation in the provinces. Only when Menem’s cabinet chief and close adviser, Eduardo Bauza, assured legislators that these powers would be used to change taxes and eliminate agencies at the federal level only, not in the provinces, did legislators begin to consider the president’s request.72 But they demanded to specify the terms of delegation in a separate piece of legislation rather than simply passing it as an article in the 1996 budget bill, as Menem had requested. Over the course of the following four months, Peronist legislators engaged in a highly detailed policy debate with the president over the terms of delegation. In these negotiations, legislators threatened to withhold entirely their support for tax-policy changes and the quorum necessary to treat other economic matters, and the president in turn threatened to punish recalcitrant legislators.73 Ultimately, Peronist legislators in the budget and finance committee of the lower chamber reported a bill in which the president could apply the VAT to passenger transport and rental housing, but not to health insurance, private schools, movie tickets, or newspapers.74 The deputies also agreed to let the president expand the income tax base to include public bonds and the salaries of judges, legislators, and various other government officials, but refused to include interest from fixed-term deposits and savings accounts as the president had proposed.75 When this legislation passed 70. “No darán ‘un cheque en blanco” (Legislators will not grant a blank check), Clarín, November 16, 1995, 4; and “No quieren darle más poder a Menem para manejar impuestos” (Legislators do not want to give Menem more power over taxes), Clarín, November 17, 1995, 2. 71. “Superpoderes: Economía todavía resiste los planteos del Congreso” (Superpowers: Economics ministry still resists proposals of Congress), Clarín, November 24, 1995, 6. 72. “Un permiso del Congreso” (Permission from congress), Clarín, November 18, 1995, 6. 73. “El Presidente quiere sanciones” (The president wants sanctions), Clarín, December 30, 1995, 15. 74. “Rechazan la aplicación del IVA a cines, libros, y boletos” (Legislators reject applying VAT to movies, books, and tickets), Clarín, December 7, 1995, 25; December 21, 1995, 52, 53; and March 14, 1996, 11.
Eaton Chapter 5
164
5/24/02
10:07 AM
Page 164
REFORM EXPERIENCES
to the senate for consideration, Peronist senators approved these specifications and insisted on the establishment of a committee to review the president’s use of all delegated powers. This analysis of the specifics of these interbranch negotiations and their actual outcome shows that the process begins to resemble detailed lawmaking rather than sweeping delegation, despite the Buenos Aires dailies’ headlines to the effect that the congress had once again delegated “superpowers” to Menem.76 When presidential preferences for a broader tax base are as clear as they were in Argentina in late 1995, there is little difference between voting to allow the president to expand a given tax base and directly voting to extend this base. In contrast to negotiations over the VAT and income taxes, legislators refused outright the president’s request for authority to alter excise taxes.77 As explained by the head of the budget and finance committee, Peronist party leaders could barely count on the 130 deputies they needed to widen the VAT and income tax bases.78 For this reason, they decided not to discuss excise taxes because these historically provoked much conflict between provincial legislators of the same party.79 In 1990, for example, Menem failed in his attempt to make the taxation of beverages more neutral by increasing the tax on colas sweetened with fruit juice, which fruit-producing provinces effectively killed in congress.80 Fearing that similar provincial conflict would threaten to unravel any agreements on the second reform of the state, Peronist party leaders decided not to ask legislators to delegate excise tax authority to the president. The decision not to delegate sweeping powers to reform the state in late 1995 signaled the beginning of a new period in executive-legislative relations, characterized by decreasing Peronist support for Menem’s fiscal-policy preferences. In the discussion of the 1996 budget, for example, congress inserted tax deferments for investment in three interior provinces amounting to approximately U.S.$300 million, which Menem then vetoed.81 When con75. “Economía rechaza las reformas a Ganancias que aprobó Disputados” (Economics ministry rejects reforms to income tax approved by deputies), Clarín, December 9, 1995, 5. 76. “Concedieron los superpoderes” (Legislators granted superpowers), Clarín, March 14, 1996, 11. 77. Clarín, February 8, 1996, 2–3. 78. See the comments of Lamberto in Clarín, February 9, 1996. 79. Oscar Bertea, “Las Iniciativas sobre Unifacación y Distribución de Impuestos Internos” (Initiatives on the unification and distribution of internal taxes) (unpublished paper, Secretaríat de Asistencia para la Reform Económica Provincial, August 1996). 80. Diario de Sesiones de la Cámara de Diputados de la Nación, August 23, 1990, 2065; August 29, 1990, 2130; September 5–6, 1990, 2298–302. 81. Página 12, December 12 and 16, 1995.
Eaton Chapter 5
5/24/02
10:07 AM
Page 165
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
165
gress successfully overrode the president’s veto of these provincial tax breaks, Menem declined to use his veto a second time, which provoked the resignation of his secretary of public revenues, Carlos Taachi.82 Also in 1996, when congress was asked to pass an extension of existing income tax legislation, Peronist deputies altered the distribution rules to increase provincial transfers by U.S.$72 million in 1996 and U.S.$210 million in 1997.83 As the ways and means chair Oscar Lamberto explained, “The change in the distribution of revenues was the price the government had to pay for the passage of the bill.”84 In 1998, Menem’s economic minister Roque Fernandez renewed the request for sweeping powers to further widen the base of the VAT, this time to help the government respond to the local fallout from the Asian financial crisis. This request failed in 1998 just as the earlier request did in the 1995–1996 period.85 The congress finally agreed to include health insurance in the VAT, but legislated a special rate of 10.5 percent, which the president vetoed. In reviewing the 1999 budget, Peronist legislators also inserted higher subsidies for political parties and universities and additional tax deferral schemes for thirteen provinces, amounting to approximately U.S.$1 billion in foregone revenue.86 Menem again vetoed these changes, but as a sign of his eroded power base, congress successfully overrode the vetoes in May 1999.87 Just as Menem’s own position in the governing party came to be increasingly challenged over the course of his second administration, so too were his economic reform proposals.
Conclusion The policy reforms analyzed in this chapter support three overriding conclusions. First, the policy positions adopted by legislators in the governing Peronist party accurately reflected the nature of their sometimes conflicting 82. Santoro, Los Intocables, 259. 83. Clarín, December 9, 1995. 84. Clarín, December 12, 1995, 3. 85. El Economista, February 6, 1998, 2. 86. Economic Intelligence Unit, Country Report second quarter 1999, 15. 87. Increasingly in Menem’s second term, congress was able to shape the debate even when it could not overcome presidential vetoes. For instance, in early 1999 congress passed a law that placed a ceiling on the interests and commissions that banks could apply to credit cards. Though the president vetoed the law, he did so only after its passage encouraged him to negotiate a voluntary agreement with the banks to reduce their rates. Ambito Financiero, July 28, 1999, 5.
Eaton Chapter 5
166
5/24/02
10:07 AM
Page 166
REFORM EXPERIENCES
institutional incentives to satisfy both national and provincial party leaders. Second, the question of what shaped these legislators’ policy preferences is not a trivial one; although it was the Peronist president and not Peronist legislators who articulated the case for fiscal reform, the imprint of legislators’ preferences on actual policy outcomes is clear. Third, as the extent of President Menem’s influence over legislators’ future career options came into question after his 1995 reelection, policymaking between the branches became increasingly fraught. Though they challenge the view of Argentina as a hyperpresidential system in which congress is irrelevant, these findings are compatible with recent scholarship demonstrating that institutional rules do shape policy outcomes in Argentina.88 How is this institutional explanation of legislative behavior and reform outcomes superior to alternative arguments based on legislators’ partisan identities, interest-group behavior, and division of formal legislative authority between the branches? As in the Philippine case discussed in the previous chapter, the Argentine experience with economic reform suggests that what parties stand for matters less than how they are structured. Though Peronism is notoriously difficult to locate with great precision on the ideological spectrum, the economic policies proposed by Carlos Menem were clearly anathema to the party’s traditional policy orientation. Privileging such policy concerns as fiscal stability and low inflation over full employment was not easy for Peronist legislators, but the party’s traditional policy reputation ultimately proved expendable. What determined legislators’ policy preferences was the premium that the party placed on discipline and structure, not any discernible ideological force. The contrast with the Philippine case is illustrative. The amorphous structure of parties in candidate-centered systems like the Philippines itself constitutes an obstacle to reform by making every individual legislator a free agent whose support must be negotiated. Legislators in Argentina were anything but free. If ideology cannot tell much about legislative behavior, neither can the relative power of different interest groups. Many scholars have argued that Menem’s economic reforms essentially transferred resources from the public sphere to the country’s most concentrated and powerful economic groups. 88. For example, see Mark Jones, “Political Institutions and Public Policy in Argentina: An Overview of the Formation and Execution of the National Budget,” in Haggard and McCubbins, Presidents, Parliaments, and Policy, 149–82; Ana María Mustapic and Natalia Ferreti, “El Veto Presidencial Bajo los Gobiernos de Alfonsín y Menem” (Presidential veto under the Alfonsín and Menem governments) (unpublished manuscript, Buenos Aires: Universidad Torcuato di Tella, 1995); and Tommasi and Spiller, Fuentes institucionales.
Eaton Chapter 5
5/24/02
10:07 AM
Page 167
PARTY-CENTERED ELECTORAL SYSTEM: ARGENTINA
167
Many of the same conglomerates that benefited from the state’s largesse during the statist period in Argentina were the ones to benefit from the privatizations conducted under the Menem administration.89 In the area of fiscal reform, however, the big economic conglomerates were unable to preserve special tax treatment. Most famously, the Argentine multinational Bunge y Born was powerless to prevent the expansion of the VAT base, despite the fact that some of Menem’s top economic advisers came from the ranks of the multinational’s own board of directors. Though many groups and sectors sought to preserve their exemptions, few succeeded, and these were hardly the most powerful groups in Argentine society. The incentives facing legislators to defend their provinces, particularly sharp for legislators from the poorer provinces that sent few legislators to congress, were a better predictor of which groups received special treatment than were the power capabilities of these groups. The success of the truckers’ lobby, where so many other interest groups failed, had much to do with the reality that legislators were institutionally predisposed to respond to provincial interests. This incentive-based approach to legislative behavior also helps explain why Peronist legislators became more responsive to group lobbying with the decline of Menem’s power as party leader in his second term as president. Finally, this chapter’s focus on legislators challenges the conclusion that economic reform in Argentina was the result of unilateral action by the chief executive. As shown in the previous section, the formal distribution of powers between the executive and legislative branches was an important factor; even as Peronist legislators began passing bills that were not to the president’s liking, he had little difficulty vetoing these moves throughout most of his second administration. Likewise it is clear that Menem used decree powers in ways that were not sanctioned by the constitution.90 Decrees and vetoes, however, do not tell the whole story. Though they played mostly a reactive role, governing-party legislators were able to insist on changes that benefited their provinces of origin despite the president’s opposition.91 The willingness of the president to accept the many modifications discussed in 89. Schamis, “Distributional Coalitions.” 90. Ferreira and Goretti, “When the President Governs Alone”; and Guillermo Molinelli, Presidentes y Congresos en Argentina: Mitos y Realidades (Presidents and congresses in Argentina: Myths and realities) (Buenos Aires: Grupo Editor Latinoamericano, 1991). 91. One important exception to this reactive role in taxation is the so-called Ley Matzkin, named after the head of the Peronist bloc in the lower chamber, which became law over the objections of the economic ministry. Interviews with Oscar Lamberto, Chair of the Budget and Finance Committee in the Chamber of Deputies, Buenos Aires, July 4, 1996, and July 27, 1999.
Eaton Chapter 5
168
5/24/02
10:07 AM
Page 168
REFORM EXPERIENCES
this chapter as the price of legislators’ support indicates that congressional approval was itself desirable. Statute change via congressional approval lent policy change a degree of legitimacy. It also decreased the likelihood of policy reversals in a way that pleased the domestic and foreign investors on whom Menem’s new economic model depended. This was clearly the case in Menem’s strategic decision to submit his plans for a currency board to congress.92 But it was also the case in the comprehensive tax reforms that enabled the Peronists to preserve fiscal stability and low inflation throughout the 1990s.93
92. Javier Corrales, “Why Argentines Followed Cavallo,” in Jorge Dominguez, ed., Technopols: Freeing Markets and Politics in Latin America (University Park: The Penn State University Press, 1997), 49–93. 93. While an analysis of the economic crisis that rocked Argentina under the De la Rua administration is beyond the scope of this study, it is important to note that one should not conclude from the most recent crisis that fiscal policy changes in the early 1990s were insignificant.
Eaton Chapter 6 5/13/02 12:14 AM Page 169
6 LEGISLATORS AND BUREAUCRATIC REFORM
In the two previous chapters, I contrasted how legislators respond to similar policy reforms when they face different electoral and party incentives. In the contrasting Philippine and Argentine cases, different electoral rules and party structures encourage ambitious legislators to view the policy process differently. In candidatecentered electoral systems, legislators have much to lose from policy changes that would make it harder for them to develop personal reputations among their constituents. In party-centered electoral systems, legislators simply do not use the policy process in this way. Where legislators are more concerned about their party’s collective performance than about their individual reputations among constituents, this incentive structure facilitates the shift away from particularistic policies. In this chapter, I continue the analysis by shifting the focus from legislators’ policy preferences to their bureaucratic preferences. According to this analysis, the institutional incentives that cue legislators’ behavior in the policy arena also have regular and observable implications for the bureaucracies they try to build. As I argued in Chapter 2, there are good reasons to suspect that
169
Eaton Chapter 6 5/13/02 12:14 AM Page 170
170
REFORM EXPERIENCES
legislators in candidate-centered and party-centered electoral systems prefer different bureaucratic structures. For the same reason that they rely on particularistic policies, legislators in candidate-centered systems need bureaucrats who can help them bolster their personal standing among constituents. One way legislators can do this is by running interference between tax collectors and the taxpayers who are their constituents and who seek to reduce or eliminate altogether their tax burdens. Politicians who can encourage tax collectors to overlook particular instances of evasion are likely to profit from the political and financial support of the individuals and businesses whose evasion is thus allowed to occur unchecked. To do this, however, legislators need bureaucrats who respond positively to their attempts to serve these constituents, even if such action compromises the bureaucracy’s central mission of producing tax revenue. Legislators have a number of tools for insuring that bureaucrats remain responsive to this constituency service, particularly their role in the budgeting process that finances governmental bureaucracies. In party-centered systems, in contrast, legislators have little interest in this personalized constituency service and instead need bureaucracies that can actually perform their specialized functions. Legislators who want to claim credit for their party for policy change need bureaucrats who can effectively implement these policies. Without effective policy implementation, parties can claim in electoral campaigns that they have adopted new policies, but not that they have delivered actual change. In the area of taxation, legislators need tax collectors who collect taxes rather than spend their time colluding with tax evaders. Given the challenges discussed below, which make tax administration in developing countries so difficult, these legislators must actively devise ways of strengthening the tax bureaucracy so that it can perform its central task. Whether different legislators need different bureaucracies and whether they get them are two different questions. A number of factors may be expected to limit the ability of legislators in developing democracies to get the bureaucracies they desire. For example, repeated cycles of democratic and nondemocratic government tend to destabilize relationships between legislators and bureaucrats. De facto governments typically close the legislature but not the bureaucracy, and this fact weakens the ties that bind bureaucrats to legislators when democracy returns. In addition to political instability, economic instability in developing countries also undermines legislators’ leverage with respect to bureaucrats. Inflation in particular plays havoc with the budget, which is a critical tool that legislators in developed democracies use to make bureaucrats obey. Despite these and other obstacles, there is sup-
Eaton Chapter 6 5/13/02 12:14 AM Page 171
LEGISLATORS AND BUREAUCRATIC REFORM
171
porting evidence for the argument that legislators do indeed act on their bureaucratic preferences in ways that change bureaucratic arrangements. Though these arrangements never exactly conform to the liking of legislators, the imprint of their bureaucratic preferences is clear. Like the policy process, then, the bureaucracy should be conceived of as an important arena in which legislators in new democracies can pursue their various career goals. In the first half of the chapter, I focus on the Philippine case to investigate the bureaucratic preferences of legislators in candidate-centered systems. In a number of different episodes, Philippine representatives opposed presidential efforts to increase the autonomy of the tax bureaucracy vis-à-vis the politicians. These legislators successfully sought to protect their ability to intervene in the tax bureaucracy, just as they sought to protect a porous tax code. The second half of the chapter presents the contrasting experience of legislators in a party-centered electoral system. In Argentina, governing-party legislators complemented their strong support for tax-policy change with a series of reforms designed to improve the performance of the tax-collecting agency, including changes in the laws governing administrative procedures and penalties for tax evasion.
Legislative Opposition to Tax Administration Reform: The Philippine Experience In Chapter 4, I argued that legislators in the Philippine house aggressively resisted eliminating tax incentives for constituents, even when asked to do so by their party leaders. Toward the same goal of convincing their constituents that they are personally indispensable, representatives very much want to claim credit for helping constituents in their various encounters with the tax bureaucracy. To perform these valued intervention services, however, legislators require a weak bureaucracy that responds to the meddling of politicians. To substantiate the deep-seated nature of legislators’ bureaucratic preferences, this section focuses first on the historical relationship between legislators and bureaucrats in the Philippines. Then I discuss how legislators in the lower chamber resisted various attempts in the 1990s by President Fidel Ramos to improve tax collection. Legislators and Bureaucrats in the Philippines The behavior of Philippine representatives in the last one hundred years has consistently revealed their strong preference for a weak bureaucracy. Scholars
Eaton Chapter 6 5/13/02 12:14 AM Page 172
172
REFORM EXPERIENCES
have traced this pronounced interest to the colonial era, when the U.S. colonial government instituted the first-ever elections of Filipinos to a legislative assembly in the early twentieth century. Though Filipinos were allowed to vote in these elections, the representatives they elected effectively held no policymaking authority. Denied any real policy role, the representatives were forced to rely on brokering favors from American bureaucrats as their most important means of winning supporters in their electoral districts.1 Early on, Filipino legislators developed a preference for a bureaucracy responsive to these concerns. According to Abueva, when Filipinos finally took control of the bureaucracy after independence in 1946, the reality that Filipinos had long dominated congress enabled legislators to easily dominate the new bureaucrats.2 This historical sequence in the Philippines reverses the more common pattern followed by other former Asian colonies in which strong bureaucracies predated the establishment of legislatures. Effective and early legislative dominance over bureaucrats in the Philippines more closely mirrors the U.S. pattern. In the decades after independence, legislators strenuously resisted presidential attempts to strengthen the bureaucracy. For example, the most critical economic policy debate in the 1950s pitted legislators against President Magsaysay over attempts by the latter to expand and strengthen the central state bureaucracy. Specifically, the president wanted to promote state-led industrialization by instituting controls that would require agroexporters to sell their dollars to the central bank. Opposed to a bureaucracy that would modify the country’s agroexport-oriented path, the agricultural interests so well represented in congress successfully reversed these controls.3 Congress likewise blocked Magsaysay’s attempts to reorganize the executive-branch bureaucracy to promote economic development.4 As Doronila argued, “Congress resisted reorganization initiatives because the bureaucracy was composed of clients of congressmen.”5 Even presidents whose parties held majorities in both chambers were forced to use the bureaucracy for spoils rather than for implementing development projects. For example, in 1959 1. Stauffer, The Philippine Congress, 11. 2. José Abueva, “Social Backgrounds and Recruitment of Legislators and Administrators in a Developing Country: The Philippines,” Philippine Journal of Public Administration 9 (January 1965): 10–29. 3. Doronila, The State, 99–102. 4. Caridad Alfonso, “Executive-Legislative Relations,” in Jose Abueva and Raul de Guzman, eds., Foundations and Dynamics of Filipino Government and Politics (Manila: Bookmark, 1969), 343. 5. Doronila, The State, 124.
Eaton Chapter 6 5/13/02 12:14 AM Page 173
LEGISLATORS AND BUREAUCRATIC REFORM
173
Nacionalista legislators forced the Nacionalista president Garcia to split equally with them the right to fill the 1,800 new bureaucratic positions created in that year’s budget.6 Over the course of the 1960s, legislators resisted attempts by Presidents Macapagal and Marcos to expand the bureaucracy because they feared that the expanded presence of the state in rural areas would upset legislators’ own clientelist networks in those same areas.7 Marcos’s closing of congress in 1972 removed an important constraint on the growth of centralized planning activities in the state bureaucracy.8 The same opposition to changes that would increase state capacity and rationalize the bureaucracy characterized the post-martial law period. As a politician who made his career in military institutions, President Ramos well understood the obstacles he faced in attempting to strengthen the state bureaucracy. Throughout his administration, proposals for bureaucratic reform that would have given the president the right to reorganize the executive branch languished in congress.9 The national security adviser José Almonte explained this resistance by concluding that “in the Philippines, the bureaucracy has always been the employment agency of Congress.”10 Compared with previous periods, legislators in the 1990s had even further cause to resist reforms that would diminish their influence over bureaucrats.11 As discussed in Chapter 7, the 1991 adoption of automatic revenue sharing with local governments dramatically reduced the size of fiscal expenditures under the control of central government bureaucracies, rendering the ability of legislators to influence these remaining expenditures all the more critical. The contrast between presidential support and congressional opposition to bureaucratic reform captures the central dynamic of political struggles over bureaucrats in the Philippines. At times, however, Philippine presidents have also been forced to behave in ways that contradict their otherwisesignificant efforts to strengthen the bureaucracy. Faced with low levels of party discipline, presidents must often appoint individuals to top bureaucratic positions to build legislative support in congress. Selection criteria have often centered on who could bring political support to the government 6. Gregorio Francisco and Raul de Guzman, “Congress and Patronage,” in Abueva and de Guzman, Foundations and Dynamics of Filipino Government and Politics, 302–3. 7. Stauffer, Philippine Congress, 33. 8. Hawes, The Philippine State. 9. House of Representatives, Committee News 7, 28, February 15, 1999. 10. Interview with José Almonte, National Security Adviser, April 3, 1997. 11. In 1999, for example, legislators moved to grant security of tenure to bureaucratic appointees who were not members of the civil service. See House of Representatives. Committee News 7, 19, December 22, 1998.
Eaton Chapter 6 5/13/02 12:14 AM Page 174
174
REFORM EXPERIENCES
rather than on technical expertise.12 For example, in 1996 President Ramos named two members of the house to the important cabinet positions of secretary of local government and secretary of agriculture and the interior in exchange for the passage of critical economic reform measures then stuck in congress.13 In effect, the same party and electoral incentives that encouraged legislators to resist Ramos’s economic policy proposals also led them to oppose his bureaucratic reforms, and Ramos, like many of his predecessors, frequently put policy change before bureaucratic reform. Executive-Legislative Conflict over the Bureau of Internal Review The bureau of internal review (BIR) is no exception to the rule of ineffective bureaucratic agencies in the Philippines. In fact, in the view of several top executive-branch officials outside the BIR, the tax-collecting agency has long been one of the weakest elements in the entire national bureaucracy.14 Congress has consistently opposed the modernization of the BIR. Significantly, the only successful attempt to reorganize the agency since its inception occurred when the legislature was closed in the 1970s under martial law. According to one official in the finance ministry, not only has the BIR failed to adopt a systemwide computer-based approach to tax collection, but, more egregiously, it still lacks a basic management system. By the late 1990s, the BIR had failed to establish a special unit charged with monitoring large taxpayers, a device successfully used by tax-collecting agencies in many developing countries.15 According to another official, the problem is not a lack of talent; people with good degrees take jobs at the BIR despite salaries that are lower than comparable jobs elsewhere in the bureaucracy. Because “the BIR is where the money is,” there are great possibilities for salary padding through corruption of a sort that directly challenges the agency’s ability to produce revenue.16 The tax bureaucracy has also been weakened over time by government officials who allegedly siphon off election campaign funds from the BIR, along with other revenue-generating agencies like the bureau of commerce and the Manila International Airport.17 12. Geddes, Politician’s Dilemma. 13. Rocamora, “Unnatural Disasters.” 14. Interviews with Emilie Boncoudin, Undersecretary of Budget in the Department of Budget and Management, Manila, March 25, 1997; Milwida Guevara, Undersecretary of Finance, Manila, March 20 and April 15, 1997; and Angel Yoingco, Member of the Presidential Task Force on Tax Reform, Manila, April 1, 1997. 15. “Manila’s Congressmen Discuss Ways to Tackle Deficit,” Business World, July 1, 1998. 16. Interview with Angel Yoingco, Manila, April 1, 1997. 17. de Castro, “Money and Moguls,” 60, 61.
Eaton Chapter 6 5/13/02 12:14 AM Page 175
LEGISLATORS AND BUREAUCRATIC REFORM
175
When President Ramos was elected in 1992, the BIR collected just two out of every three pesos legally owed to the government in the form of taxes.18 Solving the fiscal crisis that plagued the country in the early 1990s clearly required the president to improve tax collection. Unfortunately for Ramos, his efforts to strengthen the BIR proved even less successful than his prolonged and ultimately disappointing attempts to alter tax policy. A series of actions by legislators in the 1990s revealed their preference for an unreformed tax bureaucracy. Apart from the broad civil-service reforms that Ramos unsuccessfully submitted to congress, his most important attempt to improve tax collection came in the form of a proposal to grant the BIR greater financial autonomy vis-à-vis the legislature. By weakening the house’s power of the purse, Ramos hoped to make the bureaucracy more responsive to his own political interest in more aggressive tax collection. According to this proposal, 5 percent of the annual increase in value-added tax (VAT) revenues would be automatically appropriated and channeled to a special tax administration fund at the disposal of the BIR. This fund would be used only to purchase computers to improve the agency’s ability to track tax evasion. Although the house agreed to the automatic appropriation of this fund for one year, it reserved for itself the right to appropriate monies for this fund at its discretion in every subsequent year. In the second year, congress appropriated an amount for this fund that was considerably less than the 5 percent figure initially proposed by Ramos.19 In effect, the house refused to surrender its budgetary prerogatives, without which bureaucrats might become much less responsive to legislators’ queries on behalf of constituents. Legislators were also successful in resisting the president’s attempt in the 1990s to increase the BIR’s independent authority over the granting of tax incentives for particular enterprises. Shortly after taking office in 1992, Ramos proposed repealing the enterprise-specific sales tax exemptions granted up to that date by congress and by presidential decrees, except those provided by the constitution and international agreements. Table 6.1 presents a list of these exemptions, most of which lend themselves to specific geographic targeting. To prevent the house from simply relegislating these exemptions, Ramos also proposed endowing the bureaucracy with the exclusive right to grant all enterprise-specific exemptions in the future.20 In
18. Manasan, Breaking Away, 24. 19. Interview with Estella Aguirre, Deputy Commissioner of the Bureau of Internal Revenue, Quezon City, March 18, 1997. 20. Section 17 of Republic Act 7716.
Eaton Chapter 6 5/13/02 12:14 AM Page 176
176
REFORM EXPERIENCES
exchange for pork-barrel funds, representatives agreed to this reform in 1994 at the same time they passed Ramos’s VAT proposals. However, when legislators backtracked on VAT reform in 1996 as described in Chapter 4, they reclaimed from the bureaucracy the exclusive right to grant future exemptions for enterprises.21 The ability of the BIR to grant tax exemptions without consulting the legislature ultimately proved too threatening to house members. Congress also consistently refused to approve reforms, such as the privatization of some collection activities and the publication of lists of taxpayers and evaders, which proreform legislators in other countries like Argentina have successfully used to improve tax collection. During the 1992 discussion of the bill that shifted VAT collection from a quarterly to a monthly basis, the chair of the ways and means committee, Exequiel Javier, rejected on behalf of the governing party the president’s proposal to contract out some collection services to private collectors.22 When congress and the BIR raised concerns about the effect that such lists would have on the right to privacy and on the country’s kidnapping problem, Ramos issued an executive order establishing the list in 1993, though the practice was not institutionalized. Furthermore, throughout the Ramos administration, both the house and the BIR opposed presidential proposals to establish special incentives for competent tax collectors.23 Other evidence of legislators’ bureaucratic preferences is the lengthy debate over Ramos’s centerpiece VAT reform. Throughout the many phases of the great VAT debate analyzed in Chapter 4, representatives favored a complex tax code that would endow bureaucrats with a great deal of discretion over taxpayers. Legislators consistently preferred a system in which actual tax rates depended on whether bureaucrats classified goods as ordinary or nonessential and on other bureaucratic decisions as to the location, gross receipts, and nature of the establishment in question. As a typical example, in the 1996 bicameral conference committee that met to discuss the “improved” value-added tax (IVAT), house members insisted that bureaucrats be authorized to levy a different rate for “small” as opposed to “big” radio and television broadcasters, without specifying any cutoff between the two categories. In resisting President Ramos’s attempts to expand the VAT and other tax bases, legislators repeatedly proposed tax amnesties in lieu of 21. Section 11 of the IVAT bill. 22. Minutes from the Ways and Means Committee meeting, September 2, 1992. 23. House of Representatives, Committee News 7, 26, February 9, 1999.
Eaton Chapter 6 5/13/02 12:14 AM Page 177
LEGISLATORS AND BUREAUCRATIC REFORM
177
Table 6.1 Thirty enterprise-specific VAT exemptions repealed by the EVAT in the Philippines
Image not available
7686
Accredited Dual Training System
SOURCE: Compiled from various Department of Finance memoranda.
tax reform. Tax amnesties weaken the tax bureaucracy and create numerous opportunities to intercede on behalf of constituents over the exact terms of the amnesty.24 Legislators’ recalcitrance on the issue of tax reform led to a major tax amnesty in the final months of the Ramos administration.25 24. For the amnesty proposal, see Journal of the House of Representatives 59, February 19, 1996, 36. 25. House of Representatives, Committee News 7, 3, October 23, 1998, and 7, 3, August 31, 1998.
Eaton Chapter 6 5/13/02 12:14 AM Page 178
178
REFORM EXPERIENCES
How legislators used bureaucrats in the Philippines can also be seen in their frequent attempts in the 1990s to earmark tax revenues for certain bureaucracies. Routinely, after reinserting many loopholes that the president proposed to eliminate, legislators supported amendments that reserved any additional revenues produced by the reform to the bureaucrats with whom they had influence. For example, in 1996 legislators sought to earmark additional VAT revenues to an “antipoverty” fund, much like the special infrastructure fund approved in the house’s expanded value-added tax (EVAT) bill in 1994. This antipoverty fund would finance expenditures for health, education, and vocational training assistance through the line agencies of the departments of health and education.26 Though the chair of the ways and means committee initially accepted this proposed fund, he subsequently reversed himself amid rumors that Ramos would attempt to remove him as committee chair over this attempt by legislators to earmark funds for bureaucrats.27 So thoroughly have legislators and the particular constituents they represent permeated the BIR that the agency actually sided with congress rather than the president in several key battles over tax policy in the 1990s. For example, when Ramos unsuccessfully attempted in 1993 to increase the revenues generated by excise taxes, the BIR defended the position of the house against the president and the finance department. In the lengthy and difficult struggle with the house over this reform, the BIR openly contradicted finance department analysis and recommendations.28 In 1999, the BIR supported the passage in congress of tax exemptions for cooperatives over department of finance objections.29 Several officials in the finance department expressed skepticism about which side the BIR is on when interbranch conflicts arise.30 Executive-Legislative Conflict over the Board of Investments In addition to resisting Ramos’s efforts to improve the BIR, legislators also successfully opposed the president’s attempts to strengthen another bureaucratic agency charged with offering tax incentives. Under a promotional sys26. Journal of the House of Representatives 75, March 26–28, 1996, 80. 27. Journal of the House of Representatives 74, March 25, 1996, 44–45. 28. Interview with Milwida Guevara, Manila, March 20, 1997. 29. House of Representatives, Committee News 7, 30, February 23, 1999. 30. Milwida Guevara, “The Economics and Politics of the Cigarette Tax Reform” (Ph.D. diss., Graduate School Lyceum of the Philippines, Manila, 1995).
Eaton Chapter 6 5/13/02 12:14 AM Page 179
LEGISLATORS AND BUREAUCRATIC REFORM
179
tem established in 1987, congress authorized the board of investments (BOI) in the department of trade and industry to grant special tax incentives for various investments in industrial estates and less-developed regions outside metropolitan Manila. Tax favors included VAT-free imports of capital equipment, income tax holidays of three to six years, tax credits on raw materials and supplies, export tax exemptions, and certain deductions on taxable income.31 With authority delegated from congress, the BOI writes an annual investment priorities plan (IPP) identifying the industries and regions eligible for these tax perks. The vagueness of the five investment categories eligible for incentives in 1996 suggests a great deal of policymaking discretion for bureaucrats and members of congress alike: “export-oriented activities,” “catalytic activities,” “industries coping with adjustments,” “government priority programs,” and “economic activities that are eligible for incentives.”32 Congress, through the power of the purse, maintains ultimate authority over both the BOI and the department of trade and industry to which it belongs and thus influences who gets tax incentives in these broad categories. Presidential attempts to control this system of tax incentives in the interest of fiscal stability provoked a hostile response from both the BOI and the congress in the 1990s. For example, in a 1994 proposal supported by the International Monetary Fund, the president suggested the universal imposition of a minimum 3 percent tariff on imports of capital goods. Congress and the BOI responded by defending their right to grant tariff waivers for particular importers, arguing that the uniform imposition of a minimum tariff undermined the Philippines’ chances of attracting foreign investment. At first, the president responded by agreeing not to apply the minimum tariff rate on capital-good imports in exchange for legislative support for his EVAT proposals then in congress. Faced with the powerful alliance between the BOI and congress, however, and in the run-up to midterm elections, the president was forced to accept the extension until the year 2000 of duty-free capital imports for projects. More important, congress was able to preserve 31. Prof. Felipe Medalla, member of the Presidential Task Force on Tax Reform, maintained that these corporate income tax holidays seriously erode the base of the individual income tax. According to Medalla, because corporate recipients of tax holidays pay no income tax, they are not interested in deducting their employees’ salaries as production costs. They are thus willing to reduce their employees’ individual income tax liabilities by paying them in the form of noncash income (i.e., through stocks and other benefits). Interview, Quezon City, February 4, 1997. 32. See Gil Cabacungan, “Board of Investments Okays List of Investment Areas Eligible for Incentives,” Philippine Daily Inquirer, January 18, 1997, p. B1.
Eaton Chapter 6 5/13/02 12:14 AM Page 180
180
REFORM EXPERIENCES
all of the existing exemptions that the BOI had granted in previous years at the request of legislators.33 In the wake of this defeat, after the 1995 congressional elections, the president embarked on a much more aggressive attack on the fiscal incentives granted by the BOI with congressional input. At the recommendation of his presidential task force on tax reform, Ramos proposed eliminating the BOI’s discretionary incentives and replacing them with accelerated depreciation allowances and loss-carryover provisions to be granted in an automatic and universal fashion.34 According to the finance secretary Roberto de Ocampo, the discretionary fiscal incentives granted by the BOI caused the government to lose approximately 75 percent of the total corporate income taxes collected annually.35 Unsurprisingly, these proposed reforms of the bureaucratic granting of tax favors met with strong opposition by the BOI and congress. Against evidence that investment incentives led to rent-seeking behaviors that seriously eroded tax revenues, the undersecretary in charge of the BOI continued to maintain that tax breaks did not threaten revenues because “there will be no revenue collected anyway if the project does not exist.”36 In defending this view, the BOI had a powerful ally in congress.37 Universally granting both accelerated depreciation rates and the ability to carry forward losses strikes at the heart of legislators’ ability to claim personal credit for fiscal incentives. Congress shared the preference of the BOI for an incentive system that allowed them to “appreciate differences in project size and location” in the granting of special tax treatment.38 Securing a plum spot on the investment priorities plan drawn up by the board each year was an attractive strategy for legislators seeking to build personal reputations as intermediaries in the rent-seeking process. Not only did legislators refuse to consider the shift from discre33. See the Economist Intelligence Unit, Country Report, January 23, 1995. 34. The task force also proposed a cap on the amount of incentives to be granted each year by the BOI. Interview with Felipe Medalla, Dean, School of Economics at the University of the Philippines, February 4, 1997. 35. Speech delivered by the finance secretary Roberto de Ocampo to the Makati Business Club. Philippine Business, August–September 1995, 20. 36. “BOI Wants Incentives Available Until 2004,” Philippine Daily Inquirer, March 6, 1997. 37. “DTI Defends Grant of Tax Incentives,” Philippine Daily Inquirer, March 10, 1997, p. B9. 38. Margarita Debuque, “Finance, DTI Seek End to Incentives Row,” Philippine Daily Inquirer, March 17, 1997, p. B1.
Eaton Chapter 6 5/13/02 12:14 AM Page 181
LEGISLATORS AND BUREAUCRATIC REFORM
181
tionary to universalistic tax incentives, but in 1997 they proposed a bill that actually broadened discretion in the granting of tax incentives.39
How Politicians Try to Improve Tax Collection: The Argentine Experience The Philippine experience suggests that legislators can be effective at resisting improvements in the tax bureaucracy, and that lax tax collection cannot be taken as an unambiguous sign that legislators have failed to exert political control over bureaucrats. But what are the prospects for legislators who do want to improve the performance of tax bureaucrats? The Argentine case shows that there is much that legislators in new democracies can do to strengthen the bureaucratic collection of taxes when it serves their political interests. In the first half of the 1990s, the governing Peronist party successfully claimed credit for the return of macroeconomic stability to Argentina after a long and difficult period of economic chaos. Taking responsibility for low inflation and stability in the country’s fiscal accounts enabled the Peronists to experience historic electoral victories in the 1991, 1993, and 1995 elections. As argued in Chapter 5, these victories increased the career opportunities of Peronist legislators in a variety of ways, both inside and outside the national assembly. Achieving and defending low inflation, however, required the Peronist party not just to pass new tax policies, but to improve tax collection as well. Few Peronist legislators took lightly their public support for changes in tax policies that the opposition argued were regressive. Supporting these changes in tax policies made political sense only if the changes actually reduced inflationary pressures by securing higher and more stable tax revenues, which required the cooperation of tax bureaucrats. In this section, I evaluate how Peronists sought to improve tax collection; first I present some background information on Argentina’s tax-collecting agency, and then I analyze the bureaucratic changes engineered by the Peronist president and Peronist legislators. The Nature of the Problem: Inferior Tax Collection in Argentina Historically, a number of obstacles created by policymakers hindered the work of Argentina’s main tax-collecting agency, the general tax directorate 39. Corrie Narisma, “Proposed Bill Seeks to Strengthen BOI,” Philippine Daily Inquirer, March 3, 1997, p. B12.
Eaton Chapter 6 5/13/02 12:14 AM Page 182
182
REFORM EXPERIENCES
(Dirección General Impositiva or DGI). First, the practice of using the tax system for a myriad of purposes, including regional development and industrial policy, made for a complicated tax code that was difficult to administer. Second, not only were tax policies highly complex, but they were also subject to a great deal of volatility. As governments with different ideological orientations and political support bases alternated in power through short and repeated cycles of coups and elections, tax bureaucrats were required constantly to learn and implement new rules.40 Third, even when bureaucrats were able to wade through complex tax laws and determine fraud on the part of those who claimed some form of special tax treatment, legislation constrained the DGI’s ability to act on this information.41 Fourth, the Argentine practice of granting tax amnesties as quick fixes for revenue shortages seriously complicated the efforts of tax bureaucrats by generalizing the incentives to evade taxes.42 Policymakers legislated various types of tax forgiveness an average of once every two years between 1960 and 1990.43 In addition to confused and volatile policymaking, a host of other problems undermined bureaucratic performance. The first had to do with high turnover in the top position at the DGI, with few directors-general serving for more than two years.44 Political instability tended to shorten tenure for directors-general and increased the need to appoint individuals who could bring political support to the administration, whether or not they could bring the appropriate technical background to the position. Because the DGI director was empowered to interpret the legal system through general resolutions, short tenure in the top position exacerbated the problem of policy swings.45 In contrast to too little stability at the top, the DGI experienced 40. For a detailed study of the sharp policy swings that have been produced by chronic political instability in Argentina, see Monica Peralta-Ramos, The Political Economy of Argentina (Boulder: Westview Press, 1990). 41. In the important category of firms receiving tax incentives to invest in interior provinces, the Dirección General Impositiva (DGI, General Tax Directorate) could not initiate investigations without the approval of the provincial authorities who had granted the exemptions, which they were unlikely to give. See Oscar Aguilar Caravia, “La DGI ante la Promoción Industrial,” Impuestos 45A (1987): 171–75. 42. Interview with Darío González, head of the Department of Legal Tax Advising of the DGI, Buenos Aires, July 30, 1996. 43. World Bank, Argentina: From Insolvency to Growth (Washington, D.C.: World Bank, 1993), 57. 44. World Bank, Argentina: Tax Policy for Stabilization and Economic Recovery (Washington, D.C.: World Bank, 1990), 53. 45. Interview with Raúl Cuello, former Secretary of Public Revenues and Director-General of the DGI, Buenos Aires, August 15, 1996.
Eaton Chapter 6 5/13/02 12:14 AM Page 183
LEGISLATORS AND BUREAUCRATIC REFORM
183
too much stability at the bottom. Like other parts of the bureaucracy, the DGI suffered from low pay and regulations that made it difficult to fire incompetent or corrupt workers. A flat compensation curve also made it impossible for managers to reward high performers with salary increases.46 A powerful union, the Association of Employees of the DGI (AEDGI), steadfastly resisted any attempts to create greater flexibility. Conflict with the AEDGI over the negotiation of a new collective work agreement that improved productivity involved the DGI management in lengthy court cases and appeals.47 Opposition to bureaucratic streamlining by DGI employees was one of the most intractable problems for proreform politicians and encouraged them to explore ways of delegating tax-collection responsibilities to actors outside the DGI. According to one important study conducted in the late 1980s, the Argentine tax-collecting agency compared unfavorably on nearly every measure with similar agencies in other countries. For example, as a percentage of the total tax revenues it produced, the DGI’s budget in 1988 was nearly twice the comparable figure in Chile and four times that of the United States. One in seventy Argentines filed income tax forms, compared with one in fourteen Chileans and one in five Spaniards. Argentina also ranked poorly in terms of the percentage of DGI employees who were inspectors and in the number of inhabitants per inspector.48 Though Bird identified the DGI as once one of Argentina’s most respected state institutions, by the late 1980s the tax-collecting agency was at the end of a protracted period of decline.49 Administrative Reform Efforts of the President Although the tax bureaucracy described in the previous section did not significantly threaten the political interests of politicians who could and often did prefer to resort to the inflation tax, it became a problem in the aftermath of Argentina’s experience with hyperinflation in the late 1980s. Like the legislators who belonged to his party, President Carlos Menem immediately began efforts to improve the tax administration. How could Peronists ensure that bureaucrats implemented the tax policies they were legislating? In this section, I discuss the bureaucratic reforms that the president was able 46. 47. 48. 306–8. 49.
World Bank, Argentina: Tax Policy, 60. World Bank, Argentina: From Insolvency to Growth, 64. FIEL, El Sistema Impositivo Argentino (Buenos Aires: Ediciones Manantial, 1991), Bird, Tax Reform in Latin America.
Eaton Chapter 6 5/13/02 12:14 AM Page 184
184
REFORM EXPERIENCES
Before reform Ministry of Economics
Image not available
Fig. 6.1
Organizational chart of the public finance bureaucracy.
to implement unilaterally as head of the executive branch. The next section turns to those reforms that involved the legislature. First, the president rearranged hierarchical relationships among the bureaucratic entities with responsibility for tax collection. As seen in Figure 6.1, Menem elevated the subsecretariat of public revenues to secretariat status and made the secretary of public revenues report directly to the economic minister rather than to the finance secretary. In the past, according to the head of the tax reform commission Menem appointed in 1989, the finance secretary tended to focus on the expenditure side to the neglect of tax collection.50 The intensely political process of imposing an annual budget on the various ministries tended to overshadow the less dramatic revenue side. Also, because officials on the expenditure side often exerted 50. Interview with Raúl Cuello, Secretary of Public Revenues, 1989–1990, August 15, 1996.
Eaton Chapter 6 5/13/02 12:14 AM Page 185
LEGISLATORS AND BUREAUCRATIC REFORM
185
pressures to grant tax amnesties of the sort that greatly undermined tax compliance in Argentina, the commission recommended separating responsibility for revenue and expenditure into two different secretariats. According to Cuello, elevating the DGI in the overall bureaucracy also served symbolic ends, indicating the end of the era of political acceptance of inferior tax administration. In addition to changing the organizational structure of the economic bureaucracy, President Menem used his sweeping appointment powers to select high-level officials with public commitments to ending tax evasion, no matter the cost. In Argentina, because the president can appoint and remove cabinet ministers and secretaries without congressional approval, these individuals reflect presidential preferences alone.51 In late 1990, Menem named Carlos Taachi as the new secretary of public revenues. Nicknamed the “tax Nazi” because of his near-fanatical obsession with rooting out tax evaders, Taachi moved quickly to instill in Argentines a sense of fear that the government no longer tolerated their evasion of taxes. Just as Cavallo in the economics ministry was pronouncing the end of inflation in Argentina, Taachi was pronouncing the end of tax evasion. In the opinion of a broad cross section of politicians, academics, and public finance experts, Taachi was not only the most visible tax collector ever, but he was also one of the highestprofile government officials in Menem’s first term.52 Shortly after the bureaucratic reorganization described above, Menem appointed Ricardo Cossio as head of the DGI in 1989. According to one of the DGI’s administrative judges, Cossio shared Taachi’s approach to evasion in encouraging his underlings in the tax bureaucracy to “take prisoners” in their dealings with tax evaders. As the sole individual empowered to interpret tax laws through bureaucratic resolutions, Cossio favored a much more limited view than his predecessors of the constitutional guarantees that protected individuals from arbitrary treatment by tax collectors. Under Colossio, many businesses were subject to search (allanamiento) for suspicion of evasion before thorough investigations had been conducted, which in some cases enabled evaders to overturn their convictions later.53 Many tax bureaucrats expressed frustration with such guarantees, but Menem picked as his 51. Senate approval is required only for ambassadorial appointments. Article 86, inc. 10, of the 1853 Constitution. 52. Much of Taachi’s impact can be traced to his effective use of the news media, including the memorable appearance on a television talk show in which he used graphic language to describe how he would deal with evaders. 53. Interview with Darío González, July 30, 1996.
Eaton Chapter 6 5/13/02 12:14 AM Page 186
186
REFORM EXPERIENCES
top tax collectors officials who were willing to compromise a degree of legality for the sake of efficacy.54 Many attributed what they considered the “totalitarian” tendencies of Cossio and his bosses, Taachi and Cavallo, to their service as bureaucrats in the former military government.55 In addition to organizational and personnel changes at the highest levels, the president also looked inside the DGI for potential reforms that might improve tax collection. Below the director-general, the DGI leadership is divided among six division heads who were career bureaucrats, not all of whom were responsive to the president, let alone members of the president’s party.56 With very few exceptions, only the head of the DGI is a political appointee.57 Faced with entrenched and relatively high-level bureaucrats who for various reasons resisted the shift away from lax tax collection, Menem’s response was to create an “island of competence” in the DGI by bolstering one division, the subdirectory of fiscal audits, and pitting it against the others.58 In this audit division in the early 1990s, a special force of tax inspectors came to be known in the press as the “untouchables” (los intocables) for their ability to resist attempts by evaders to buy their complicity.59 The untouchables not only represented an attempt to pick up the slack by other divisions of the DGI, but they were also used to discipline the rest of the DGI. In this way, the untouchables can be understood as an intelligent response to some of the special information costs undermining political control over tax bureaucrats. Because politicians cannot easily rely on “fire alarms” through interest-group voice to check the performance of tax collectors, they may turn to “police patrol” to keep these bureaucrats in line with their policy preferences.60 Because of their close relationship with the head of the DGI and thus with the secretariat of public revenues and the economics minister, the untouchables served as a check on bureaucrats in other areas of the agency. That the untouchables disciplined their colleagues
54. For criticisms of the so-called fear model of tax collection, see the editorial by the former head of the DGI, Elías Lisicki, “El Miedo y los Impuestos,” La Nación, May 7, 1996, section 2, p. 3; and comments by Eduardo Ballesteros and José Daniel Litvak in Clarín, July 8, 1996, 18. 55. Interview with Amado Alegría, DGI Administrative Judge, Buenos Aires, August 2, 1996. 56. Interview with Santiago Montoya, Economic Ministry, Buenos Aires, March 26, 1996. See also Clarín, February 20, 1996, 2 and 3. 57. Raúl Cuello, Cinco Años de Convertibilidad (unpublished manuscript, 1996), 66. 58. For the “islands of competence” argument, see Geddes, Politician’s Dilemma. 59. Santoro, Los Intocables. 60. McCubbins and Schwartz, “Congressional Oversight.”
Eaton Chapter 6 5/13/02 12:14 AM Page 187
LEGISLATORS AND BUREAUCRATIC REFORM
187
in the DGI and not just evaders is supported by their 1996 role in uncovering the important scandal between the DGI and the multinational corporation IBM.61 Although the president could act alone in rearranging power in the DGI and could change the DGI’s position in the executive branch, modifying the legislative framework in which these new special agents operated required the participation of the legislature. Even special agents had to abide by laws stipulating procedures for the closing of businesses. Fortunately for President Menem, legislators from the governing party themselves had a clear and pronounced interest in accompanying these reforms because they too faced electoral incentives to improve tax collection. The Role of Argentina’s Legislature in Improving Tax Collection If most observers have overlooked congress’s role in the reform of tax policy, this neglect is doubly true in the case of changes in tax administration, commonly seen as the result of efforts by the executive branch alone. Evidence presented in the following paragraphs shows that governing-party legislators offered critical support for improvements in tax collection. As the Peronist party leader Jorge Matzkin argued in guiding a tax bill through the legislature in 1991, “We can live only on whatever taxes are collected . . . we can no longer print money.”62 In addition to furthering the Peronist legislators’ collective interests as a party, improvements in tax collection also directly benefited legislators’ provinces because of the automatic revenuesharing rules discussed in the previous chapter. Thus, with respect to the performance of tax bureaucrats, the partisan and provincial interests of Peronist legislators mostly coincided.63 In this section, I explore four ways Peronist legislators sought to improve tax collection. Toward this goal, they incorporated administrative concerns into their choice of tax policies, increased the penalties associated with tax evasion, modified the administrative procedures used to collect taxes, and increased the budgeted funds available to the tax-collecting agency. 61. According to Cuello, the untouchables randomly turned up evidence of this scandal when investigating, at the behest of Cavallo, the tax returns of his political nemesis, the postal executive Yabrán. Interview with Raúl Cuello, August 15, 1996. 62. Diario de Sesiones de la Cámara de Diputados de la Nación, July 31–August 1, 1991, 2029. 63. There is at least one exception to this general coincidence of partisan and provincial interests. In 1996, the Peronist president of the lower chamber, Alberto Pierri, proposed a bill
Eaton Chapter 6 5/13/02 12:14 AM Page 188
188
REFORM EXPERIENCES
Incorporating Administrative Concerns at the Policymaking Stage Proreform politicians in Argentina expected agency slack on the part of tax bureaucrats to such an extent that in some cases these fears influenced the very policies that legislators adopted. The congressional debates over tax reform suggest that legislators’ support for some taxes was significantly influenced by the specifics of how the taxes were administered. This concern for administrative questions infused the debate over new tax policies. By incorporating these administrative concerns into the selection of tax policies, governing-party legislators were able to improve the collection of tax revenue even before they began debating reforms to the tax administration itself. By legislating broader tax bases and fewer exemptions, legislators directly reduced the scope for bureaucratic corruption. That legislative changes may directly translate into better tax collection suggests that bureaucrats are limited in their ability to entirely subvert legislators’ policy preferences. For example, even as they flattened rates on the income tax to improve compliance and encourage productive investment, legislators were concerned that the difficulties of administering this tax simply exceeded administrative capabilities.64 As a result, Peronist legislators supported a minimum assets tax that applied a single tax rate on all enterprises regardless of their size and performance. This meant that, even if businesses could hide from tax collectors their true tax burden by underreporting profits, they would still pay some minimum level of tax. In fact, as approved by Law 23,760, businesses were required to pay whichever was greater—the amount on the income tax form they filed or 1 percent of their assets (raised to 2 percent in 1991). Support for this minimum assets tax made Peronists vulnerable to the opposition charge that its one rate unfairly penalized smaller companies, but this tax protected legislators from bureaucratic incompetence.65 Congressional debates over the generalization of the VAT in 1990, the tax that has since become the linchpin of Argentine public finances, reveal that administrative questions were paramount in adopting the VAT. In submitting to congress the bill to expand the VAT base, Menem pushed the tax as one
granting a tax amnesty for the refrigerated meat industry (frigoríficos), which was important in his province, despite the party’s stated policy against tax amnesties, owing to their negative impact on tax compliance. Santoro, Los Intocables, 121. 64. Many public-finance experts question the wisdom of the income tax in developing countries for this reason. See Goode, Government Finance, 102–4. 65. See the speech by the Peronist deputy Jorge Domínguez, Diario de Sesiones de la Cámara de Diputados de la Nación, November 30, 1989, 5672.
Eaton Chapter 6 5/13/02 12:14 AM Page 189
LEGISLATORS AND BUREAUCRATIC REFORM
189
with few possibilities of being evaded.66 Peronist party leaders emphasized that the VAT’s credit and debit features automatically created incentives for taxpayers to comply with the tax even in the absence of heavy administrative monitoring. According to the VAT system, when a business makes a sale, it is required to collect and deposit in the national treasury the taxes on that sale. However, it can deduct from this amount the taxes that it initially paid on the inputs it purchased, if it can show proof of such purchases. In taxing only the value added at a given stage of the production chain, the VAT provides businesses with incentives to demand receipts showing the taxes they paid on the inputs they purchased. In guiding the bill through the chamber of deputies, the Peronist chair of the ways and means committee, Oscar Lamberto, underscored the tax’s self-policing mechanism as an antidote to past failures on the part of the DGI.67 Others noted that reducing the number of goods and services exempt from the VAT would generalize self-monitored tax compliance throughout the economy. Governing-party legislators also built administrative concerns into the design of the new VAT system. According to the new VAT legislation, only companies of a certain size were required to register with the DGI, while smaller companies were excused from registering.68 Instead, the larger companies who sold to these smaller, unregistered companies were required to collect from them not just taxes on that immediate sale, but taxes from sales down the line to other, similarly unregistered companies.69 In the important case of the meat industry, registered businesses that purchased cattle from smaller, unregistered producers would charge the VAT rate on an additional 40 percent of the sale.70 Essentially, the new registration policy enabled legislators to delegate some of the responsibility for collecting the VAT to big businesses themselves, partially circumventing the DGI bureaucracy. By creating a numerically important category of companies responsible for 66. See the “Mensaje del Poder Ejecutivo” (Message of the chief executive), Diario de Sesiones de la Cámara de Diputados de la Cámara de la Nación, December 19–20, 1989, 6442–43. 67. Diario de Sesiones de la Cámara de Diputados de la Cámara de la Nación, December 19–20, 1989, 6371–74. 68. Only companies with sales in excess of 30 million australes would have to register with the DGI. See article 22 of Law 23,765, Diario de Sesiones de la Cámara de Diputados de la Nación, December 19–20, 1989, 6439. 69. Thanks to this mechanism, the VAT was extended even to nonregistered, small-scale farmers. This replaced the existing 5 percent sales tax, enabling a broader VAT base and saving administrative costs. Diario de Sesiones de la Cámara de Senadores de la Nación, December 21, 1989, 3520. 70. See explanation by Senator Romero, Diario de Sesiones de la Cámara de Senadores de la Nación, December 21, 1989, 3515.
Eaton Chapter 6 5/13/02 12:14 AM Page 190
190
REFORM EXPERIENCES
paying VAT but not registered with the DGI (responsables no inscriptos), legislators were able to reduce the administrative burden placed on the DGI even as they broadened the base of the VAT. The overriding interest of Peronist legislators in facilitating tax collection is also seen in their adoption in 1998 of a new taxpaying system for smallscale contributors. According to the so-called monotributo that they legislated, companies with annual sales of less than U.S.$75,000 could combine their VAT, income tax, and social security obligations into a single payment. The idea behind this project, which first surfaced in the budget and finance committee of the lower chamber, was to make it harder for small companies to evade any of these three taxes.71 In this sense, the monotributo for smaller companies was designed as a complement to the creation in the DGI of a new, large taxpayer unit in charge of monitoring the country’s biggest companies. The monotributo promised to reduce the DGI’s overwhelming costs of monitoring these small taxpayers.72 Although the fear of poor tax-administration practices shaped the support of governing-party legislators for particular tax policies, opposition legislators criticized these policies as futile in the absence of bureaucratic reform. Members of the Radical party voted against both the minimum assets tax and the generalization of the VAT, arguing that the administration had first to improve the DGI’s performance before they would support any reform of tax policy. As one legislator argued, “We can meet every single day to create new taxes, but until there is a clear and concrete desire to collect these taxes, there will be no solutions in Argentina, no matter how many taxes we create.”73 Though administrative reforms were indeed critical, even in the absence of these reforms Peronist legislators were able to alter the environment in which bureaucrats operated by altering tax policies. Voting New Penalties for Tax Evasion In addition to incorporating administrative concerns into their choice of tax policy, legislators in Argentina attempted to ensure higher tax compliance— even in the absence of administrative reforms—by legislating increased 71. Written communication with Dr. Carlos Saez, chief tax adviser to the Budget and Finance Committee in the Chamber of Deputies, August 9, 1999. 72. Nadín Argañaraz and Guillermo Israilevich, “El Monotributo,” Novedades Económicas 19, 197 (May–June 1997): 13. 73. Diario de Sesiones de la Cámara de Diputados de la Nación, February 14–15, 1991, 4585.
Eaton Chapter 6 5/13/02 12:14 AM Page 191
LEGISLATORS AND BUREAUCRATIC REFORM
191
penalties for tax evasion. The decision to evade taxes is a function of both the likelihood of being caught and the penalties imposed if caught.74 Politicians thus can reduce tax evasion by increasing the risk of getting caught, by increasing the costs associated with getting caught, or both. Measurably increasing the risk of getting caught, however, demands the participation of bureaucrats who may refuse to cooperate. For example, bureaucrats may oppose internal changes that would reduce the scope for corruption in an agency, such as rewards for high-performing collectors. In contrast, legislators can themselves increase the costs associated with unsuccessful evasion by legislating tougher penalties. For this reason, before governing-party legislators embraced the more difficult task of improving bureaucratic performance, they quickly passed new penalties for evasion in the wake of Peronism’s 1989 electoral victory. In February 1990, congress voted to make tax evasion an offense punishable by prison and thus covered by the penal code.75 That politicians in Argentina had never before made evasion a crime for which individuals could be sent to prison speaks to the extent to which low compliance was previously an acceptable outcome for politicians in the prereform era. Before the outbreak of hyperinflation in the late 1980s, President Alfonsín proposed increases in penalties for evasion, but legislators were unwilling to approve these changes.76 Subsequently, hyperinflation altered the way Argentines and their politicians viewed tax evasion and resulted in its criminalization. As reflected in the congressional record, hyperinflation increased the awareness of evasion as individually rational behavior that undermined collective goods like fiscal stability. Before, legislators excused evaders for simply doing what it took to survive in an environment of unreasonably high statutory tax rates. In the wake of hyperinflation, tax evaders became social delinquents and criminals whose evasion brought ruin to their neighbors and to Argentina as a whole.77 74. Parthasarathi Shome and Vito Tanzi, “A Primer on Tax Evasion,” IMF Staff Papers 40, 4 (December 1993): 807–28. 75. The law criminalizing tax evasion was initially introduced as a section of the omnibus economic emergency law (23,697) in August 1989 and ultimately approved by congress as a separate bill (23,771) on February 22, 1990. 76. Ricardo Carciofi, “La Desarticulación del Pacto Fiscal: Una Interpretación del Sector Público Argentino en las Ultimas Decadas” (Disarticulation of the fiscal pact: An interpretation of the Argentine public sector in recent decades) (Documento de Trabajo [working paper] 36, Naciones Unidas, Comision Económica para America Latina y el Caribe, 1990). 77. For an example of the shift in language, see the speech by the Radical deputy Cortese, Diario de Sesiones de la Cámara de Diputados de la Nación, January 24–25, 1990, 6801–5.
Eaton Chapter 6 5/13/02 12:14 AM Page 192
192
REFORM EXPERIENCES
In addition to making prison a possible punishment for evasion, legislators approved prison terms of varying lengths for different types of evasion, stretching from two months to eight years. For example, individuals who presented false information on an income tax form (declaración jurada) would serve between six months and six years. Employers who failed to collect social security taxes from their employees would receive sentences of between two and six years. Businesses that falsely claimed tax exemptions would receive up to eight years.78 In support of the argument that politicians were anxious about the probable failure of bureaucrats to crack down on evasion, the law automatically doubled the jail time for public officials involved in any of these offenses through the authorization or certification of documents that enabled evasion.79 Legislators thus used their authority to set policy not just to punish evaders in the private sector but to discipline corrupt tax collectors as well. In addition to raising the costs associated with evasion, the new tax penalty law also included an explicit attempt by legislators to get around the DGI’s lackluster investigations of evasion. Article 16 of the law eliminated the procedure (prejudicialidad) that required the DGI to complete its administrative investigation of evaders before the judicial system intervened with its own investigation. Governing-party legislators criticized DGI investigations for their slow pace, which was partly due to the right of the alleged evader to appeal at various stages up to the supreme court.80 Often, legislators complained, years passed before the judicial system could participate in determining guilt, by which time inflation had eliminated the real value of any fines imposed on the evader. To reduce foot-dragging by the DGI, legislators allowed the judicial system to act concurrently alongside the DGI. After this change, the judicial branch could immediately become involved by acting on any charges of evasion, meaning that alleged evaders had to deal with both sets of investigators at the same time.81 In their zeal to
78. See articles 2, 3, and 4 of Law 23.771, in Anales de Legislación Argentina 50A (1990). 79. See article 13 of Law 23.771, in Anales de Legislación Argentina 50A (1990). 80. For a criticism of this system (prejudicialidad), see Diario de Sesiones de la Cámara de Diputados de la Nación, January 24–25, 1990, 6800. 81. According to some of my interviewees, however, after the reform the DGI could complete its investigation and collect back taxes only after the judicial proceedings had been completed. In other words, the two investigations could start separately but had to end together. Many of the tax bureaucrats I interviewed complained that after this well-intentioned reform, the DGI cannot force an evader to pay until the judicial system has ruled.
Eaton Chapter 6 5/13/02 12:14 AM Page 193
LEGISLATORS AND BUREAUCRATIC REFORM
193
reverse the status quo and convict evaders, governing-party legislators waved away concerns that individuals would falsely denounce cases of evasion before judges.82 Six years after the adoption of these new tax penalties, many criticized the law for a special clause that allowed convicted, first-time evaders to pay their taxes and avoid prison terms.83 Critics argued that this “escape clause” explains why as of 1996 only one person had ever gone to jail in Argentina for not paying taxes.84 However, as explained by the tax bureaucrat in charge of coordinating investigations with the judicial system, this clause did further the dominant interest of proreform politicians in increasing tax revenues and tax compliance.85 According to this official, scores of Argentines paid the taxes they evaded with interest and late fees to avoid prison. Making evaders ineligible for the escape clause after they used it once to escape prison served to increase their subsequent compliance.86 At the same time, because of the widespread nature of evasion in 1989, the absence of an escape clause would have meant prison sentences for thousands of Argentines. According to the subsecretary of public revenues at the time, politicians were worried that the backlash produced by throwing “all of Buenos Aires in prison” would have undermined the entire effort to crack down on evasion.87 Though the main opposition party supported the general attempt to legislate more severe penalties for evasion, the Peronists preferred a much tougher stance than the Radicals. This fact attests to the greater interest of legislators from the governing party in improving tax compliance that was necessary for the fiscal stability that would disproportionately benefit them in the polls. Although the Radicals supported the bill criminalizing tax evasion in the initial vote, they opposed several specific points in the bill. In particular, the Radicals supported prison terms for a more limited range of offenses, excluding, for example, businesses that failed to act as withholding 82. See the exchange between the senators Romero and Aguirre Lanari, Diario de Sesiones de la Cámara de Senadores de la Nación, February 7, 1990, 3782–84, 3794, 3795. 83. See speeches by the senators Juárez and Brasesco, Diario de Sesiones de la Cámara de Senadores de la Nación, February 7, 1990, 3763–64. 84. Clarín, August 2, 1996, 2, 3. 85. Interview with Darío González, July 30, 1996. 86. Diario de Sesiones de la Cámara de Senadores de la Nación, February 7, 1990, 3757–64. 87. Interview with Jorge Macon, Undersecretary of Public Revenues, Buenos Aires, between late 1989 and late 1990, August 7, 1996.
Eaton Chapter 6 5/13/02 12:14 AM Page 194
194
REFORM EXPERIENCES
agents when the law required them to do so.88 Opposition legislators also wanted less jail time for fraudulently claiming tax exemptions and complained that many prison terms for evasion favored by the Peronists were too high relative to other crimes.89 Equating evasion with certain types of murder in terms of the prison sentences they merited further reflects the seriousness of the governing party’s interest in eliminating evasion.90 Modifying Administrative Procedures for Tax Collectors In the previous two sections, I showed how governing-party legislators protected their strong interests in improving tax compliance by hedging against the possibility of continued weak bureaucratic performance. By incorporating administrative concerns into the policy-design stage and by increasing penalties for tax evasion, legislators anticipated and attempted to work around unresponsive tax bureaucrats. But Peronist legislators also directly confronted the “bureaucracy problem” by modifying the law that governed the administrative procedures used to collect taxes.91 Having increased the penalties associated with tax evasion soon after Menem’s election in 1989, legislators pursued bureaucratic reform in the following years to change the other variable that influences the decision to evade: the risk of getting caught. Here I focus first on a series of changes designed to improve tax collection and then, in greater depth, on the more controversial reform of the procedures through which tax bureaucrats could temporarily close down the businesses that evaded their taxes (clausuras). Over the first few years of Menem’s government, in a series of different legislative actions, legislators delegated to bureaucrats the authority to use a broad set of carrots and sticks with respect to taxpayers. As examples of the former, when legislators expanded the VAT to include services in 1991, they also enabled the DGI to establish special incentives for taxpayers to demand
88. Diario de Sesiones de la Cámara de Diputados de la Nación, January 24–25, 1990, 6790–95; and Diario de Sesiones de la Cámara de Senadores de la Nación, February 7, 1990, 3771. 89. After the passage of Law 23.771, the maximum prison term for evasion equaled that for rape, sedition, and certain homicides. See the criticism of this point by the senator Romero Feris, Diario de Sesiones de la Cámara de Senadores de la Nación, February 7, 1990, 3776, 3779. 90. In August 1996, Menem’s justice minister announced plans to further strengthen the law that specifies penalties for tax evasion. See Clarín, August 2, 1996, 2, 3. 91. This is Law 11.683.
Eaton Chapter 6 5/13/02 12:14 AM Page 195
LEGISLATORS AND BUREAUCRATIC REFORM
195
receipts when they purchased goods.92 This legislative change enabled the creation of a popular lottery called Loter IVA, in which Argentines could participate by submitting their VAT receipts.93 A year later, legislators delegated to the DGI the right to grant bonuses for the early payment of taxes.94 As examples of “sticks” that the DGI could use against taxpayers, legislators approved special procedures to facilitate the collection of taxes from businesses operating partially in the black market. In particular, Peronist legislators authorized the DGI to use presumptive indicators such as a business’s energy consumption, salary payments, and acquisition of raw materials to determine the accuracy of its reported tax obligations.95 At the same time, in recognition of the DGI’s limited computer technology, legislators gave the agency the right to demand from taxpayers information about the software they used to pay their taxes.96 Finally, as part of the broader process of social security reform, in April 1993 legislators delegated to the DGI the authority to collect social security taxes in addition to all other taxes, enabling the agency to take advantage of important cross-checking capabilities in monitoring compliance.97 Peronist legislators also gave the executive branch the right to require of individuals proof of tax payment (acreditación de cumplimiento fiscal) to conduct certain activities. In addition to increasing and improving the tools at the disposal of the DGI, Peronist legislators directly confronted the informational disadvantages that undermined their efforts to monitor tax bureaucrats. Specifically, they relaxed the principle of “fiscal secrecy,” long enshrined in the law governing administrative procedures, and allowed the executive branch to publish lists specifying the names of individuals and firms and the amounts they paid in income, asset, and wealth taxes.98 Publication of these lists gave unwanted publicity to some of the country’s wealthiest businesses that were not paying their fair share of taxes and served to encourage businesses to complain about competitors who did not appear on these lists.99 Table 6.2 92. These incentives were provided for in article 11.7 of Law 23.871. See Procedimientos Fiscales (Fiscal proceedings) (Buenos Aires: Aplicación Tributaria, S.A., 1996), 24. 93. According to the World Bank, Loter IVA has been well received and has increased the registration of transactions. See World Bank, Argentina: From Insolvency to Growth, 62. 94. See article 19 of Law 23.905, modifying article 111 of Law 11.683. 95. Opposition legislators resisted these changes as violations of the constitution. See Diario de Sesiones de la Cámara de Diputados de la Nación, March 18, 1992, 6051–55. 96. See article 41 of Law 24.073. 97. Taachi, “Revolución Tributaria,” 887, 888. 98. See Procedimientos Fiscales, 22. 99. Santoro, Los Intocables, 142.
Eaton Chapter 6 5/13/02 12:14 AM Page 196
196
REFORM EXPERIENCES
Table 6.2
Number of denunciations received by the DGI, 1989–1995
Image not available 1995
549 786 2,004 2,301 3,248 3,596 3,510
SOURCE: Dirección General Impositiva (DGI), 1984–1995, 61.
suggests that this list had a positive effect on the number of denunciations received by the DGI. According to the economics minister who went to congress to advocate this change, the purpose of this “honor roll of taxpayers” was to get competitors in the market to denounce cases of evasion and thus level the playing field.100 In addition to being a cheap way of producing information, a published list of who actually paid taxes in Argentina was a very public record of the tax bureaucrats’ performance, which politicians could use to gauge bureaucratic performance. Having identified private citizens as possible informers who could provide valuable information about evaders and about the performance of the DGI itself, legislators also reworked the relationship between the DGI and other governmental actors. In February 1991, legislators authorized the DGI to sign agreements with provincial and municipal governments and with various official banks at the national, provincial, and municipal levels. In particular, legislators approved compensation mechanisms that essentially gave these actors a cut in any taxes they could produce for the national treasury.101 These mechanisms allowed legislators to bypass the internal DGI conflict that prevented management from using such compensation packages as an incentive to improve collection. Thanks to this legislative change, the political appointee at the head of the DGI could shift collection tasks onto other actors with preferences more similar to his own and thus could undermine the bargaining position of his opponents in the agency.
100. Diario de Sesiones de la Cámara de Senadores de la Nación, February 16, 1991, 5370. 101. See article 19 of Law 23,905, Diario de Sesiones de la Cámara de Senadores de la Nación, February 16, 1991, 5356.
Eaton Chapter 6 5/13/02 12:14 AM Page 197
LEGISLATORS AND BUREAUCRATIC REFORM
197
More controversially, Peronist legislators voted in the early 1990s to redesign administration procedures to facilitate the work of special tax inspectors, the so-called intocables, who came into being with President Menem’s organizational reforms. Most important, legislators redesigned these procedures to make it easier for inspectors to close businesses suspected of evading taxes.102 First, they extended the period for which businesses could be closed and determined that the closing of businesses was an appropriate punishment for much less serious infractions.103 In particular, businesses could be closed for failing to print receipts and for not registering with the DGI under the new VAT system, when they were required by law to do so. By adopting very blunt criteria to close businesses, legislators reduced the discretion facing inspectors and increased the public’s perception that closures would become more routine.104 When opposition legislators criticized closing businesses for what they considered minor infractions such as the failure to print receipts, Peronist legislators responded by asserting the vital importance of correctly printing receipts for the success of the entire VAT system.105 Second, Peronist legislators enabled inspectors to close down businesses in a timely manner. If such decisions were appealed by the businesses in question, judges would have only twenty-four hours to decide whether to suspend the closure, a difficult deadline for a seriously backlogged judicial system. In response to concerns that too many judges were suspending business closures, Peronist legislators subsequently voted in April 1992 to reduce the role of the judicial system in the closing of businesses. As the Peronist deputy López Arías argued, eliminating the role of the judicial system was necessary because judges had refused to respect lawful closures for formal infractions like failing to print receipts.106 According to this reform of administrative procedures, if the DGI had evidence that a business had failed to print receipts on two separate occasions, it could close down that business, and regular judges from the judicial branch could not suspend the closure.107 102. This is Law 23.905. 103. See Diario de Sesiones de la Cámara de Diputados de la Nación, February 14–15, 1991, 4620. 104. Diario de Sesiones de la Cámara de Diputados de la Nación, February 14–15, 1991, 4555. This was the intent of the changes as stated by the Peronist deputy responsible for guiding the bill through the chamber. 105. Diario de Sesiones de la Cámara de Diputados de la Nación, February 14–15, 1991, 4620. 106. Diario de Sesiones de la Cámara de Diputados de la Nación, March 18–19, 1992, 6055. 107. Procedimientos Fiscales, 13 and 14 (article 44 of Law 11.683).
Eaton Chapter 6 5/13/02 12:14 AM Page 198
198
REFORM EXPERIENCES
Table 6.3 Closures of businesses suspected of tax evasion by DGI inspectors, 1989–1995 Year
Number of Businesses Closed by
1995
0 751 8,157 17,739 15,253 10,965 8,988
Image not available
SOURCE: Dirección General Impositiva (DGI), 1984–1995, 60.
Instead, to close such a business, tax inspectors simply needed to acquire the approval of an “administrative judge.” According to the agency’s internal laws, the director-general could delegate this title to any DGI employee. Thus, a director-general with a strong interest in closing businesses should choose as his or her “administrative judges” officials who were willing to apply a lower standard in the closing of businesses. Opposition legislators in turn argued that administrative judges were a fiction because they were employees of the executive branch and not real judges. For this reason, they steadfastly opposed this bill and claimed that it undermined an individual’s constitutional right to protection by the judicial system against arbitrary actions by the executive branch.108 In 1996 Peronist legislators further broadened the DGI’s ability to close down businesses immediately on learning of alleged cases of evasion.109 As a result of these changes in administrative procedures, more and more businesses were closed for failing to comply with the tax system in Argentina. As Table 6.3 shows, the number of closures per year exploded in the early 1990s as a result of new administrative procedures. Thanks to the new tools that politicians gave them, tax inspectors presented to the judicial system eight hundred large cases of evasion between 1991 and 1996.110 The scope of this crackdown on tax evasion would have been impossible without the support of Peronist legislators. 108. See the criticisms by the Radical senator Trilla, Diario de Sesiones de la Cámara de Senadores de la Nación, April 1–2, 1992, 5967. 109. Clarín, November 21, 1996. 110. Santoro, Los Intocables, 18.
Eaton Chapter 6 5/13/02 12:14 AM Page 199
LEGISLATORS AND BUREAUCRATIC REFORM
199
Increasing Funds for the Tax-Collecting Agency Finally, Peronist legislators’ support for improved tax collection was also reflected in their behavior in connection with the budget. During the long years of chronic inflation and economic chaos, Argentine governments rarely submitted budgets to the legislature in a timely manner. Budgets were often finalized in the final months of a fiscal year and infrequently had much direct impact on actual expenditures. By making it possible for presidents to submit regular budgets in a timely manner to congress, the achievement of fiscal stability in the early 1990s opened up possibilities for the political control of bureaucrats. In a time of fiscal austerity and budget cuts for government ministries, it is significant that the legislature agreed to sizable increases in the size of the DGI’s budget. Table 6.4 documents the increase in budgeted amounts in inflation-adjusted figures. In just the two years between 1990 and 1992, the budget for the tax-collecting agency more than doubled. These increases made possible the purchase of sophisticated information systems to improve the monitoring of taxpayers.111 Furthermore, at a time when the Peronist government was cutting the number of employees throughout the federal bureaucracy, the number of employees in the tax-collecting agency significantly increased. Whereas the DGI had 9,814 employees in 1990, this number jumped to 17,305 by 1995.112
Conclusion The bureaucratic reform episodes discussed in this chapter are consistent with this study’s two central claims: different party and electoral incentives encourage legislators to adopt consistently different attitudes toward bureaucrats, and legislators act on these preferences in ways that shape real outcomes. Though bureaucrats in new democracies can subvert legislators’ preferences through their command of the details of policy implementation, legislators are not powerless vis-à-vis bureaucrats. Instead, they have a variety of mechanisms at their disposal to make bureaucrats respond to their political interests and to circumvent bureaucrats when they do not. This more robust view of the influence of legislators over bureaucrats does not depend on the content of legislators’ preferences: Legislators who 111. Interview with Marcelo Bergman, tax consultant to the DGI, Buenos Aires, August 12, 1999. 112. DGI 1984–1995, 47.
Eaton Chapter 6 5/13/02 12:14 AM Page 200
200
REFORM EXPERIENCES
Table 6.4 The size of the DGI budget approved by the legislature, 1990–1995 (in December 1995 pesos)
Image not available 1995
358,757,000 539,824,000 737,077,000 751,909,000 870,640,000 954,102,000
SOURCE: Dirección General Impositiva (DGI), 1984–1995, 50.
supported bureaucratic reform in Argentina were significantly able to advance their concerns, and legislators who opposed reforms in the Philippines were likewise able to act on their preferences. Legislators whose preferences involve increasing state capacity, however, clearly face greater challenges in their attempts to act on this preference than do legislators who prefer to keep bureaucracies as they are. Philippine legislators needed simply to sabotage President Ramos’s various attempts to strengthen the bureaucracy, whereas politicians in Argentina were forced to be more proactive in their many efforts to alter established bureaucratic practices. Changing bureaucratic performance is undoubtedly a much more difficult task for legislators in new democracies than is adopting new policies. For example, though Argentine legislators aggressively tried to improve tax collection over the 1990s, they faced an uphill struggle. Streamlining the tax code and facilitating closures did improve tax collection, but the scope for corruption in the DGI remained significant. In 1998, the economy minister Roque Fernandez publicly acknowledged the agency’s corruption problems, citing the case of one hundred DGI officials who were indicted for corruption but who, because of Argentina’s rigid labor laws, continued to work in the agency. In many respects, the pressing need to immediately generate revenues to sustain fiscal balance led Peronists to prioritize dramatic short-term changes like the special unit of “untouchable” tax inspectors. The success of this “island of competence” in the tax bureaucracy created the illusion that progress on some of the other, more intractable problems was no longer of pressing importance.113 For the most part, top-level organizational and per113. Geddes, Politician’s Dilemma, and interview with Amado Alegría, administrative judge of the DGI, first region, Buenos Aires, August 2, 1996.
Eaton Chapter 6 5/13/02 12:14 AM Page 201
LEGISLATORS AND BUREAUCRATIC REFORM
201
sonnel changes were not accompanied by deep and necessary changes in the DGI bureaucracy, which the DGI employees’ union successfully resisted. In the mid- and late 1990s, several tax bureaucrats complained that the DGI had squandered an important window of opportunity in the early 1990s by not following up changes in organizational charts and publicity campaigns with the streamlining of the bureaucracy. For example, according to one such individual, 75 percent of DGI employees still moonlighted as tax consultants on the side, essentially advising taxpayers how to avoid or evade taxes and not get caught.114
114. Interview with a senior official in the Economics Ministry, Buenos Aires, March 26, 1996.
Eaton Chapter 6 5/13/02 12:14 AM Page 202
Eaton Chapter 7
5/24/02
10:11 AM
Page 203
7 LEGISLATORS AND DECENTRALIZATION
According to the discussions in the three preceding chapters, legislators in new democracies care deeply about who pays taxes and who does not. This concern compels them to adopt clear preferences vis-à-vis the content of tax policy and the nature of tax administration. In this chapter, I take the argument one step further by arguing that legislators also care about where tax revenues go once they are collected and about the terms under which they are distributed. No less than writing tax laws or asserting political control over tax bureaucrats, shaping the distribution of tax revenues is an important activity for ambitious legislators. All of these arenas are appealing for essentially the same reason: They all enable legislators to curry favor with the various constituencies on whose support their careers depend. In this chapter, I focus on tax revenue sharing as one aspect of the remarkably widespread process of decentralization that has taken place in developing countries in recent years. As argued in Chapter 3, many of these countries have decentralized significant expenditure responsibilities without decentralizing equally significant revenue-raising capabilities. The resulting mismatch between
203
Eaton Chapter 7
204
5/24/02
10:11 AM
Page 204
REFORM EXPERIENCES
revenues and expenditures, which public finance experts call “vertical fiscal imbalance,” has sharply increased the salience of revenue transfers to subnational governments. Revenue transfers now represent a much greater share of overall tax revenues in most developing countries, and this development has triggered considerable political conflict over the terms of these transfers. Though revenue-sharing rules are often highly complex, the most important distinction that can be made between different rules is a simple one: Revenues are either distributed automatically through the application of explicit criteria legislated in advance, or they are not. In the latter case, tax revenues are distributed at the discretion of the center in an ad hoc fashion characterized by political negotiations between presidents, legislators, and officials from subnational governments.1 As this simple distinction makes clear, the adoption of automatic revenue sharing is a quintessential example of decentralization because it increases the policymaking autonomy of subnational governments while decreasing the policymaking discretion of central government officials. As for legislators, the shift to automatic revenue sharing poses risks analogous to the risks inherent in the elimination of tax breaks and the strengthening of tax bureaucracies. When revenue sharing is automatic, legislators can no longer take personal responsibility for brokering transfers. In keeping with the general argument of the study, I argue in this chapter that national legislatures are an important site for the expression and resolution of conflicts over revenue sharing. Because legislators often represent electoral districts that are coterminous with subnational jurisdictions, legislatures tend to serve as a critical nexus between central and subnational governments. On the one hand, this fact gives them cause to defend the interests of these jurisdictions by lobbying for higher revenue transfers. On the other hand, legislators are national politicians whose power and influence derive in large part from their participation in decision making at the center. When policymaking autonomy is shifted to the local level, this decentralization of authority may profoundly erode the power they wield. Legislators’ preferences with respect to revenue sharing reflect this ambivalence, as seen in the Philippine and Argentine experiences with revenue decentralization analyzed in this chapter. In the first half of the chapter, I discuss legislators and revenue sharing in the Philippines, where candidate-centered electoral incentives have traditionally encouraged representatives to claim personal credit for negotiating all significant fiscal transfers from the central government to their home dis1. Willis, Garman, and Haggard, “Decentralization in Latin America.”
Eaton Chapter 7
5/24/02
10:11 AM
Page 205
LEGISLATORS AND DECENTRALIZATION
205
tricts. Despite their traditional hostility to decentralization, legislators decided to support the automatic distribution of tax revenues in 1991 after a constitutional reform imposed term limits on them, giving these individuals cause to anticipate future careers as mayors and governors. Thus the imposition of term limits provides an interesting chance to observe the impact of changes in institutional rules on legislative behavior. Because of these new rules, legislators agreed to decentralize by approving the local government code proposed by the president, but only after modifying the code in ways designed to protect their short-term, particularistic interests as national legislators. Furthermore, even after modifying and passing the code, legislators continued to meddle in activities that had been formally decentralized, as we might expect in a candidate-centered electoral system. The second half of the chapter turns to the Argentine experience with revenue decentralization. Like their counterparts in other party-centered systems, Argentine legislators faced few incentives to broker fiscal transfers as a way of establishing personal reputations independent of their parties. How legislators behaved in the area of revenue sharing instead reflected the hierarchical nature of their relationships with national and provincial party leaders. In 1987, Peronist majorities in both chambers endorsed automatic revenue transfers as a way of limiting the discretionary power of the Radical president, Raúl Alfonsín. After 1989, however, when the Peronist party won the presidency, strengthened its base in congress, and retained control of a majority of provinces, Peronist legislators reversed course. A series of fiscal pacts in the early 1990s decreased the revenues sent to the provinces and infused greater discretion into the distribution of these revenues. Both changes were compatible with the career interests of Peronist legislators. Reducing the provincial share of tax revenues was essential for the defense of the fiscal stability on which Peronism based its electoral appeals in the 1990s. Though this tactic undermined the interests of the provinces as a whole, the increasing use of discretion during a period of unified government could be expected to benefit governors and legislators from the governing Peronist party.
Legislators and the Strategic Decision to Decentralize Revenues in the Philippines Conflict over tax revenue sharing with local governments has been central to fiscal-policy debates in the Philippines ever since the transition back to
Eaton Chapter 7
206
5/24/02
10:11 AM
Page 206
REFORM EXPERIENCES
democracy in 1986. Legislators, presidents, and subnational officials in the Philippines have struggled over the size of transfers and over the terms that should govern these transfers, in particular whether they should be automatic or discretionary. This section focuses on the most important development in this regard: the decision to decentralize fiscal revenues in 1991. After putting this decision into historical perspective and analyzing the logic of national politicians’ support for fiscal decentralization, I then evaluate how legislators responded to decentralization during and after its implementation. In the four decades following independence in 1946, national politicians in the Philippines considered but declined to adopt various proposals that would have decentralized authority over revenues and expenditures to local governments. In their place, legislators passed bills that merely transferred responsibilities to the subnational branches of central government agencies (e.g., deconcentration), including the misnamed Local Autonomy Act of 1950 and the Decentralization Act of 1967.2 Throughout this period, decentralization consistently proved less attractive to national politicians than devolution. This preference is explained by the reality that decentralization actually empowers local governments, while deconcentration simply redistributes power in the central government bureaucracies over which national politicians can continue to exert influence. According to one politician, the Philippines remained a country where local governments had to appeal to national politicians to get windows fixed in city hall.3 Decentralization conflicted with the career interests of presidents and legislators alike. For the former, strengthening the independent authority of local governments diminished the power of the pork barrel because it enabled local officials to finance their own development projects. Because presidents depended on the pork barrel to achieve a variety of goals, including the passage of their legislative agendas and their own reelections, decentralization directly threatened their career interests. For legislators, increasing the authority of local governments reduced the value of the different services that individual representatives routinely performed at the national level on behalf 2. Proserpina Tapales, Devolution and Empowerment: The Local Government Code of 1991 and Local Autonomy in the Philippines (Quezon City: University of the Philippines Press, 1993); and Rosario Manasan, “Intergovernmental Fiscal Relations, Fiscal Federalism, and Economic Development in the Philippines” (Philippine Institute for Development Studies), Working Paper Series no. 92–04 (1992). 3. Interview with Margarito Teves, member of the House of Representatives, Quezon City: March 5, 1997.
Eaton Chapter 7
5/24/02
10:11 AM
Page 207
LEGISLATORS AND DECENTRALIZATION
207
of their home districts. Thus, when the occasional legislator floated a proposal for the genuine decentralization of revenues and expenditures, these proposals never generated much support in the lower chamber. Given the long-time opposition of national politicians to decentralizing policies and the reality that these same politicians had to endorse decentralization for it to become law, the adoption in the early 1990s of decentralizing legislation is politically intriguing. Thanks to this legislation, which was adopted in the form of a new local government code in 1991, mayors and governors in the Philippines experienced a pronounced spike in their independent policymaking authority. First, the code replaced the previous system of negotiated transfers to subnational governments with automatic revenue-sharing procedures. Because revenue transfers after the passage of the code no longer depend on how hard subnational officials lobby national politicians, this change has enhanced local autonomy. Second, the code stipulated that 40 percent of the tax revenues collected by the central government would automatically be shared with local governments. In the previous system of discretionary transfers, the share of local governments in tax revenues averaged only 12 percent between 1986 and 1991.4 Table 7.1 documents the growth in revenue transfers to local governments from 1990 to 1994. Third, the code also established criteria for the distribution of revenues among four different types of local governments: 20 percent would be sent directly to the village-level units (barangays), 34 percent to municipalities, 23 percent to provinces, and 23 percent to highly urbanized cities.5 In addition to giving subnational governments a greater and steadier share in national tax revenues, the code also decentralized responsibility for a variety of expenditure responsibilities. Specifically, it transferred expenditures formerly provided by the national departments of agriculture, education, culture and sports, environment and natural resources, health, public works and highways, transportation and communication, and social welfare.6 These services would now be provided directly by democratically elected local leaders. The code allowed local governments considerable leeway in how they used their additional revenues, not explicitly tying them to 4. Manasan, “Intergovernmental Fiscal Relations,” 24. 5. In each category, transfers to individual local governments are calculated by applying a formula based on population (50 percent), equal sharing (25 percent), and level of development (25 percent). See Sections 284–86 of the local government code, Republic Act 7160. 6. Aquilino Pimentel, The Local Government Code of 1991: The Key to National Development (Metro Manila: Cacho Publishing House, 1993).
9,487,288,670
20,200,554,745
36,720,000,000
46,753,000,000
SOURCE: Author’s calculations based on Department of Interior and Local Government Digest (Quezon City: Department of Interior and Local Government, September 19, 1994), 4, 5.
7,227,246,755
Image not available
10:11 AM
Total
Type of Local
5/24/02
Table 7.1 The impact of automatic revenue sharing on transfers to local governments in the Philippines, 1990–1994 (in constant 1994 pesos)
Eaton Chapter 7 Page 208
Eaton Chapter 7
5/24/02
10:11 AM
Page 209
LEGISLATORS AND DECENTRALIZATION
209
devolved expenditures. Finally, this experiment in decentralization for the first time allowed local governments to issue bonds and seek loans from foreign sources with central government permission and from domestic sources without central government permission. In view of the historic scope of these changes, the code seriously augmented the stature of local executives relative to national politicians and was easily the most important policy departure of Aquino’s administration. Fiscal Decentralization as a Dilemma for National Politicians Why did national politicians reverse their earlier consistent opposition to decentralization and support the local government code in 1991? It seems politically counterintuitive that legislators would relinquish their roles as intermediaries in the distribution of tax revenues and sign onto automatic transfers to the local executives who were their potential rivals. One of the central reasons for this reversal can be found in the changes that occurred in politicians’ institutional incentives at the time of the transition back to democracy in the mid-1980s. Specifically, one of the most important changes in the 1987 constitution that emerged from the struggle against the authoritarian rule of Ferdinand Marcos was the adoption of term limits. In response to Marcos’s twenty-year stranglehold on the executive branch, the 1987 constitution limited all subsequent presidents to a single six-year term. In response to the incumbent advantages that previously enabled traditional elite families to dominate the legislature, the constitutional reform also limited house members to three terms of three years each and senators to two terms of six years each. Understanding fiscal decentralization in the Philippines is impossible without taking account of these term limits and the dynamic of the people-power revolution that led to their adoption. Unlike all her predecessors as president, Corazón Aquino was not a traditional politician. She was a political widow who rose to the presidency when the murder of her husband, the opposition politician Benigno Aquino, ignited a popular movement that ultimately overthrew President Marcos. Not only was she uninterested in reelection, but she used her sweeping personal authority over the rewriting of the constitution in 1987 to impose a noreelection clause on herself and her successors. Thus, Aquino was unlike most presidents in that she was not personally threatened by the loss of power that decentralization would inevitably cause at the national level. Furthermore, the commission she appointed to write the new constitution inserted language calling on the legislature to pass a genuine decentralization
Eaton Chapter 7
210
5/24/02
10:11 AM
Page 210
REFORM EXPERIENCES
of governmental authority.7 Aquino considered decentralization to be the linchpin of her administration and a reform that would facilitate the transition to democracy, the main legacy of her government.8 Aquino’s efforts on behalf of decentralization sharply contrasted with the centralizing behavior of the traditional politicians who preceded her in office and explain why many, including her budget undersecretary, consider the passage of the local government code something of a historical accident.9 Though Aquino’s strong support for decentralizing policies was a critical factor, she needed to convince a majority of legislators in both chambers to support her proposals for decentralization. These proposals confronted legislators with a difficult dilemma. On the one hand, increasing the size of revenue transfers and making them automatic significantly constrained the previously central roles played by national legislators in fiscal policymaking and implementation. In effect, national politicians would struggle to gain influence over how 60 percent, rather than 100 percent, of the country’s tax revenues were used. Furthermore, national politicians had cause to worry that the automatic transfer of 40 percent of national tax revenues to local politicians enabled these individuals to build up their own personal support networks, which could challenge the networks established by national legislators. On the other hand, term limits meant that legislators could no longer anticipate indefinitely continuing their careers through reelection to the national legislature, but instead had to consider alternative career paths, including stints as mayors and governors. As Carey showed, when term limits close off the possibility of reelection, politicians usually respond not by surrendering their political ambition but by seeking other avenues for pursuing their political careers.10 By voting to increase the power and stature of local offices through decentralization, legislators could strategically make these offices more attractive to the politicians who held them in the future. In support of this argument, several legislators actually abandoned congress after the passage of the code in 1991 to run for local office before term limits took effect. For example, one of the code’s main sponsors, Hilario de Pedro, resigned from his seat to run successfully for governor of South
7. 8. 9. 10.
Article 10, Section 3, of the 1987 Constitution. Pimentel, Local Government Code, 2 Interview with Ben Diokno, Manila, January 31, 1997. Carey, Term Limits.
Eaton Chapter 7
5/24/02
10:11 AM
Page 211
LEGISLATORS AND DECENTRALIZATION
211
Cotobato province.11 Three members of the house also resigned at the end of the 1987–1992 legislative session to run for mayoral posts.12 How did legislators resolve the dilemma posed by decentralization? The conflict was much less sharp in the upper chamber than it was in the lower chamber. Because senators were elected in a single nationwide district rather than in subnational electoral districts, they did not need to claim credit for brokering fiscal transfers from the center to particular jurisdictions and consequently were not threatened by automatic transfers. Furthermore, as a response to the highly centralized patterns that had skewed the country’s economic development, decentralization appealed to senators’ attempts to distinguish themselves as nationally oriented politicians who transcended parochialism. Throughout the late 1980s and 1990s, the senate consistently offered stronger support for decentralization than did the house. For legislators in the lower chamber in contrast, the president’s decentralization proposals posed a stark dilemma. As evidence of this dilemma, legislators spent four years alternately debating these proposals and setting them aside. Complicating matters was the lag between the time that Aquino pushed the legislature to approve decentralization and the time that term limits actually took effect ten years later. Representatives elected to the first legislative session of 1987–1992, which overlapped with Aquino’s term as president, could still run for reelection in 1992 and 1995. Only in the May 1998 congressional races did term limits kick in, with over a third of all representatives barred from running for reelection. Thus, although they wanted strong subnational governments in the future, in the interim legislators wanted to protect their roles as intermediaries delivering valued fiscal benefits from the center. The event that appears to have broken the impasse was the decision by the house speaker Ramon Mitra to run for president and to seek the allimportant endorsement of Aquino as her successor. Though Aquino ultimately broke party ranks to support Fidel Ramos over Mitra, in the pursuit of her endorsement Mitra began pushing the local government code through the house in 1991. Legislators finally approved the code in 1991 in hopes of 11. The other congressmen who sought gubernatorial office in 1992 were Enrique Garcia of Bataan and Vicente dela Serna of Cebu. Interview with Rosario Manasan, Philippine Institute for Development Studies, January 29, 1997. 12. These included Ismael Mathay of Quezon City, Pablo Ocampo of Manila, and Consuelo Puyat-Reyes of Makati. See “Local Government Posts Attract More Bets Than House Slots,” Philippine Times Journal, March 30, 1992, 1.
Eaton Chapter 7
212
5/24/02
10:11 AM
Page 212
REFORM EXPERIENCES
securing valuable electoral support in the 1992 congressional races from both the house speaker and the president.13 As seen in the following section, however, this was not the end of the story: Legislators’ behavior during the passage of the code and in subsequent activities reflected their continued ambivalence about fiscal decentralization. Legislators Modify Proposals for Fiscal Decentralization Though they agreed to decentralize revenues and expenditures, house members were careful to introduce into the local government code design features that protected some of their short- and medium-term interests as legislators. This case supports the general argument that, even when legislators play reactive roles in the initiation of policy change, they can powerfully shape policy outcomes. In considering President Aquino’s decentralization proposals, Philippine legislators took full advantage of their constitutional prerogative to modify the legislation she proposed. Most of these modifications reflected legislators’ attempts to protect against what they most feared about decentralization, namely, that local executives would use their enhanced powers to build independent support networks that challenged legislators’ interests. This modification process was tricky because of the inherent conflict in legislators’ short- and long-term interests: Every change they made to the code to increase their leverage over local officials could come back to haunt them if and when they became local officials in the future. First, legislators in the house inserted into the code language requiring the audit commission to review and audit the fiscal accounts of each subnational government.14 Based on these annual reviews, legislators could then withdraw powers and revenues from a local executive in the event of abuses. This provision allowed legislators to monitor politically troublesome local officials in their districts. In 1995, over one hundred city and municipal mayors were audited for allegedly pocketing a share of their automatic revenue transfers.15 Second, the house strengthened mechanisms to recall local officials, enabling them to fund recall drives targeted against 13. Interview with Romulo Neri, executive director, Congressional Budget and Planning Office, Quezon City, January 30, 1997. 14. Journal of the House of Representatives, November 26, 1990, 33. 15. Armand Nocum, “Mayors Face Audit of Tax Share,” Philippine Daily Inquirer, March 12, 1995, 2; and “Local Executives Misusing Development Funds Warned,” Department of Interior and Local Government (DILG) News Digest 2, 51, September 25, 1995.
Eaton Chapter 7
5/24/02
10:11 AM
Page 213
LEGISLATORS AND DECENTRALIZATION
213
the local executives whom they found threatening.16 Given the enormous uncertainty about how this radical change in economic policymaking would actually play out, the audit and recall mechanisms legislators inserted into the code were potentially important protections. Third, through the Salary Standardization Law, the house insisted that subnational governments absorb and pay the salaries of all government employees transferred from central government bureaucracies beginning in 1993.17 Because control over public-sector jobs translated into significant political capital in the Philippines, giving local government officials a clean slate in filling these jobs would have been a tremendous boon to them and a serious threat to legislators. Forcing local governments to absorb workers appointed by national politicians preserved these workers’ allegiances to national as opposed to local governments. At the same time, requiring local governments to respect national salary scales would consume a significant share of the revenues automatically transferred to these governments. Local officials would consequently have less to spend on making their own patronage appointments and less to spend on improving the quality of devolved services for which they might reap political rewards down the line. Because of the house’s insistence on salary equalization, some of the bureaucrats devolved to subnational governments would actually be paid more than local executives themselves.18 More than any other issue, this requirement hampered the implementation of the code because many local executives resented taking on these new and expensive employees and often delayed accepting them for significant periods.19 Finally, in the event that salary equalization compromised the ability of local officials to deliver devolved services, national legislators could then step forth and take credit for the appropriation of additional funds. Fourth, legislators’ decisions about how to divide up revenue transfers and expenditure responsibilities among different subnational governments also reflected their particular electoral concerns. While provinces and municipalities combined received 57 percent of the revenue transfers and shouldered
16. Journal of the House of Representatives, December 13, 1990, 426. 17. “Financial Crunch May Cripple LGUs,” Manila Bulletin, April 12, 1992, p. B4. 18. Amante Bigomia, “Local Government Code Faces Amendments,” Manila Standard, August 21, 1992. 19. See “LGUs Blame Congress for Local Code Mess,” Philippine Daily Inquirer, August 9, 1992, 26. See also the complaint of Governor Roberto Pagdanganan, head of the league of governors: “Small Towns Going Broke over Devolution Policy,” Philippine Graphic 6, 47, April 29, 1996.
Eaton Chapter 7
214
5/24/02
10:11 AM
Page 214
REFORM EXPERIENCES
92.5 percent of the cost of devolved functions, highly urbanized cities and villages bore only 7.5 percent of the costs but received 47 percent of the transfers.20 The skewed distribution of revenues in favor of big cities reflects the reality that governors are a more common threat to legislators than are big city mayors. In the Philippines, members of the house either represented districts that are coterminous with the boundaries of a single province or that are one of many districts in a single province. In either case, legislators have cause to worry about fiscally independent governors. Although big city mayors pose similar threats to some representatives, there are fewer big city mayors than there are governors, and the majority of legislators represent districts without highly urbanized cities in them. By making provinces responsible for more services than they could possibly finance out of automatic revenue transfers, house legislators ensured that governors remained dependent on them as individuals with influence over the distribution of additional revenues from the center. The local governments most benefited by the skewed distribution of revenues were villages, whose leaders posed relatively few threats to legislators. The bill passed by the house reveals the chamber’s deep concerns about the political consequences of revenue decentralization, but the senate endorsed the president’s much bolder decentralization initiative. As in the case of tax-policy reform discussed in Chapter 4, this difference led to the need for a bicameral conference committee to resolve the differences between the two bills. With twenty-one members from the house and fourteen members from the senate, this was the biggest conference committee in Philippine legislative history.21 The record suggests it was also one of the most acrimonious. A number of conflicts emerged in this committee, each of which underscored the different preferences senators and representatives adopted on decentralization. First, senators attempted to insert language denying national legislators the right to appropriate extra revenues from the central government for local projects. The house refused to endorse this language because taking credit for the appropriation and transfer of extra revenues was one way they could retain their influence as personal brokers of fiscal transfers. Second, for the first year of implementation, the house insisted on reducing the share of local governments in tax revenue from 40 percent to 30 percent and letting this share gradually rise to 40 percent over the course of several years. Third, though the senate wanted the code to 20. Anthony Emboltura, “Searching for Equity: The IRA Debate,” Legislative Features 2, 1 (January–March 1994): 5–8. 21. Journal of House of Representatives, September 11, 1991, 7.
Eaton Chapter 7
5/24/02
10:11 AM
Page 215
LEGISLATORS AND DECENTRALIZATION
215
take effect immediately in September 1991, the house insisted that the implementation date be moved back to January 1992. This delay would reduce the ability of local officials to use automatic revenue transfers in campaigns against national legislators in the May 1992 elections.22 Because of further delays by the house members of the oversight committee that wrote the code’s implementing rules and regulations (IRR), the actual implementation occurred after these elections. The composition of this critical committee, on which legislators outweighed local officials, was determined by the legislature at the time of the code’s passage.23 As one representative said, “Unlike other bills for which we left the drafting to Malacañang, we helped draft the IRR ourselves.”24 In defending the work of the house members who participated in the bicameral conference committee, Representative de Pedro explicitly assured his colleagues on the floor that the local government code in its final form did not threaten the political interests of house members.25 Legislators Attempt to Recentralize Devolved Services In addition to modifying legislators’ the design of the local government code, their subsequent behavior can also be evaluated for indications about their preferences over fiscal decentralization. After carefully designing the terms of the code at the time of its passage, legislators subsequently sought to reverse several of what were, for them, its most troubling aspects. Unsurprisingly in view of the scope and depth of the changes introduced by decentralization, several glitches and setbacks marked the first few years of the code’s implementation. The actual transfer of responsibilities to various local governments took place through case-by-case negotiations between local officials and bureaucrats in national government agencies. Bureaucrats were important allies for legislators in these negotiations because they repeatedly tried to slow down and subvert the transfer of services.26 Although legislators’ preferences with respect to decentralization were ambivalent because many anticipated running for local office down the line, national bureaucrats 22. See the speech by the house speaker Mitra defending the bill reported by the bicameral conference committee, Journal of the House of Representatives, September 11, 1991, 8. 23. “The Local Government Code and NGOs,” Philippine Daily Inquirer, January 9, 1992, 5. 24. Alice Cabotaje, “Local Government Code IRR Approved,” Business World, January 29, 1992, 1. 25. Journal of the House of Representatives, September 11, 1991. 26. Chell Silva, “Decentralization Process Far From Over,” Business World, January 29, 1993, 12.
Eaton Chapter 7
216
5/24/02
10:11 AM
Page 216
REFORM EXPERIENCES
had unambiguous incentives to oppose decentralization, from which they had much to lose and little to gain in the short and long term. Faced with some of the confusion and delays associated with the initial implementation of the code, the house committee on local government immediately began hearings on the decentralization process.27 In these hearings, many legislators argued that administrative functions should be retained by national bureaucratic agencies, with only operative responsibilities devolved to local governments. Within a year of the introduction of the code, over thirty bills were introduced to amend it.28 In 1992, at the behest of legislators, the budget department deducted approximately U.S.$1.5 million from the local governments’ legal share of tax revenues to finance a special fund to ease the transition to decentralization. National government bureaucrats, with the help of legislators, were to decide which localities would benefit from this fund and on what terms.29 That decentralization threatened house members more than senators is reflected in their different responses to some of the code’s early implementation problems. In December 1992, the house unanimously approved a measure permanently excluding the department of health from the national agencies whose functions were to be devolved to local governments.30 The senate refused to pass a similar bill. After a national survey revealed the negative impact that decentralization was having on the quality of health services, in August 1994 the senate passed a measure that temporarily suspended the transfer of health services to local governments for three years.31 In addition to permanently rather than temporarily excluding such an important sector from decentralization, the house bill revoked health services from all local governments, while the senate bill let the more economically advanced local governments continue to provide health services. The two chambers eventually agreed to a compromise by appropriating additional revenues for the department of health to ease the transition period. Through their close relationships with bureaucrats in the health department, house members thus retained influence over the exact distribution of these funds. The bicameral conference committee also agreed to house proposals to create a 27. “Government Decentralization Can’t Be Implemented,” Manila Chronicle, November 21, 1992, 15. 28. Chay Hofileña, “Confusing Code,” Sunday Chronicle, July 25, 1993, 5. 29. Maria Luisa Macabuhay, “P36M Set Aside for Devolution Process,” Daily Globe, August 29, 1992, 6. 30. See Anthony Emboltura, “Recentralization or Suspension: A Step in the Right Direction?” Legislative Alert (July–September 1994): 23–27. 31. Senate bill no. 1173.
Eaton Chapter 7
5/24/02
10:11 AM
Page 217
LEGISLATORS AND DECENTRALIZATION
217
health devolution review panel, to be staffed by individuals who were hostile to decentralization, including the president of the alliance of health workers. The panel had the authority to recentralize hospitals on a case-bycase basis, opening up various opportunities for legislators to intervene in these negotiations.32 In 1995 and 1998, the house continued to discuss a variety of bills that reversed decentralization by renationalizing many of the health and agricultural services that the code had devolved.33 Again, the senate and the president opposed outright renationalization.34 The health sector was not the only area in which legislators revealed their need to remain personally involved in decentralized services. For example, representatives encouraged the department of agriculture to keep open its central research office in violation of the code, rather than turn over research functions to local governments.35 The most dramatic attempts to reverse decentralization failed over the course of the 1990s, but legislators and their bureaucratic agents have clearly instigated a process of “creeping renationalization.”36 As part of this process, the national government has retained in many localities many services that should have been devolved according to the code. As one governor said, “There is a perception among local leaders that representatives, while giving lip service to local autonomy, are reluctant to surrender some of their powers to local governments.”37 According to another governor, the house of representatives in particular intended the code not to succeed “in order to maintain the highly centralized government.”38 Legislators also tried to modify the revenue-sharing aspects of the code. In 1994, the house considered legislation that deducted 50 percent of the actual cost of devolved functions from the automatic revenue-sharing procedure.39 Legislators would have then been in a position to influence how these funds were transferred to local governments. Similar proposals were 32. House bill no. 3331, July 25, 1994. 33. “Committee on Health Discusses Devolution, Renationalization,” Committee News, December 12, 1998. 34. Alberto Agra and Steven Rood, “Reviewing the Local Government Code: Five Years After,” Journal of Legislative Development 2 and 3 (1996–1997): 21–44. 35. Hernani De Leon, “DA’s Regional Offices Formed in Violation of Local Government Code,” Business World, August 13, 1992. 36. Interview with Felipe Medalla, dean of the School of Economics, University of the Philippines, February 4, 1997. 37. Benjamin Cruz, “Lower House Body Mulls Local Government Code Changes,” Business World, January 25, 1993, p. 2C1. 38. “LGUs Blame Congress for Local Code Mess,” Philippine Daily Inquirer, August 9, 1992, 26. 39. Emboltura, “Searching for Equity.”
Eaton Chapter 7
218
5/24/02
10:11 AM
Page 218
REFORM EXPERIENCES
floated during the mandated five-year review of the code in 1996.40 President Ramos successfully opposed all such measures. One of the aspects of decentralization that was particularly troubling for representatives was the reality that local officials would receive tax revenues without paying the political costs of voting for these revenues. In particular, legislators wanted to force local officials to assume some of the burden associated with collecting the value-added tax (VAT) that Ramos asked representatives to expand in the 1990s. In 1993, several legislators proposed shifting responsibility for the collection of VAT revenues to the local level: Local officials would get to keep some VAT revenues for themselves, but they would also have to take responsibility for collecting them.41 In its final form, the bill stipulated that of the revenues collected in each subnational district that exceeded levels from the previous year, only 10 percent would be sent back to that district, with the rest sent to the national government. Legislators Circumvent the Code Through Augmentation Funds Though house members never stopped discussing recentralization, in response to the president’s strong defense of decentralization and its widespread popularity among Filipinos, they gradually began pursuing other ways of defending their fiscal roles as intermediaries between the national and local governments. Increasingly, legislators turned their attention to passing augmentation funds to “complement”—some would say “duplicate”— the provision of devolved services by local executives.42 In wanting to continue to claim credit for expenditures transferred to local governments, national legislators authorized additional revenues from the national budget to fund these same services. In fact, their ability to do so was used by the sponsors of the local government code to bolster support for the code’s passage in congress in 1991. As Representative de Pedro argued in sponsoring the bill, “Congress may in effect authorize the national government to continue providing these same facilities and services.”43
40. De Ocampo Favors IRA Sharing Review,” Business World, October 7, 1996, p. A62. 41. See republic act no. 7643, Official Gazette, January 25, 1993, 439–41. 42. For the argument that the department of agriculture merely duplicated at the national level the research activities it was forced by the code to devolve, see Business World, August 13, 1992. 43. Journal of the House of Representatives, September 11, 1991, 15.
Eaton Chapter 7
5/24/02
10:11 AM
Page 219
LEGISLATORS AND DECENTRALIZATION
219
According to Representative Ciriaco Alfelor, the local government committee that he chaired in the house successfully placed additional funds in the budget every year to augment revenue transfers to subnational governments.44 In 1995, for example, the committee placed an additional U.S.$6.6 million in the budget for health services. These augmentation funds were distributed to specific local governments according to a classificatory scheme decided by committee members themselves, which effectively allowed them to take personal credit for padding transfers.45 In addition to augmentation funds, the senator Ernesto Herrera, chair of the finance committee, affirmed that legislators now used their pork-barrel funds in ways that competed with, rather than complemented, how local officials spent their shares of national tax revenues.46 Though not illegal, this politically rational practice clearly undermines rational public budgeting. As a result of these additional appropriations for already devolved services, the budgets of national government agencies continued to increase over the 1990s, despite the formal decentralization of so many expenditure responsibilities.47 Although legislators tried to compete with local executives through augmentation funds, evidence suggests that local executives were not strictly using revenue transfers to finance devolved services. The tax revenues sent to subnational governments were considered bloc transfers, with the minimal requirement that local executives spend at least 20 percent of the revenues on infrastructure projects. In 1995 and 1996, reports by the commission on audit suggested that many local executives were not meeting even this minimal requirement.48 Other analysts also questioned whether local executives used revenue transfers for the health and other services that have been devolved.49 This was worrisome news for national legislators because
44. Interview with Congressman Ciriaco Alfelor, chair of the local government committee, Quezon City, March 4, 1997. 45. According to Alfelor, in 1997 the oversight committee studied a bill that would prededuct special monies from the revenues automatically shared with all local governments to send additional revenues to fourth-, fifth-, and sixth-class (i.e., lesser developed) municipalities. 46. Interview with Senator Ernesto Herrera, Manila, March 3, 1997. 47. Alex Brillantes, “Recentralization Will Negate Hard Earned Gains,” Business Daily, June 12, 1998. 48. See “Local Chief Executives Warned on Misuse of IRA,” DILG News Digest 3, 25, April 1–7, 1996, 1. 49. Rosario Manasan, “Patterns of Budget Allocations Using Social and Human Priority Expenditure Ratio” (unpublished paper, Philippine Institute for Development Studies, August 1996).
Eaton Chapter 7
220
5/24/02
10:11 AM
Page 220
REFORM EXPERIENCES
it suggested that local executives used revenue transfers to finance other expenditures, such as an increase in the size of the public-sector workforce at the subnational level.50 Using transfers to finance public-sector jobs is an excellent way to build independent patronage networks that local officials can use against national legislators and other competitors. In response to these concerns, the house in 1996 passed legislation deducting the estimated cost of providing health services from automatic revenue sharing and sent these monies to subnational governments as earmarked transfers.51 In addition to taking credit for augmentation funds, representatives have tried to counter the diminished importance of the house in fiscal policy by asserting their presence in a variety of other ways. Legislators have repeatedly tried to constrain local officials by inserting themselves into policy functions now the prerogative of local governments. In 1997, legislators inserted into the budget a clause requiring the budget department to notify them ten days before any release of funds to the local government units in their districts.52 In 1999, legislators amended the local government code by passing a bill instructing local officials how to use revenues from energy taxes.53 As a further violation of the local government code, members of the local government committee voted to provide exemptions from local property taxes for the replanting of trees and other improvements to the land in rural areas.54 Thus national legislators have continued to encroach on what are now local decisions over local tax bases.55 Legislators have also responded to decentralization by adopting other stances that protected their personal roles, but at a great cost to the efficiency and transparency of fiscal policy. First, evidence suggests that legislators have increased their reliance on the pork barrel since the passage of the code. Against the backdrop of a 250 percent increase in the national tax revenues sent to local governments between 1992 and 1997, legislators have
50. “Local Execs Misusing Dev’t Funds Warned,” DILG News Digest, September 25, 1995, 1–2. 51. See house bill no. 5884, Local Government Committee Report no. 287 (March 1996). 52. Parreño, “Pork,” 49. 53. “Committee Approves Bill Amending the Local Government Code,” House of Representatives, Committee News 7, 28, February 15, 1999. 54. “Subcom Okays Tax Credit for Trees,” House of Representatives, Committee News, February 11, 1999. 55. For further examples of the tenacity of traditional politicians vis-à-vis the local government code, see Terrence George, “Local Governance: People Power in the Provinces?” in G. Sidney Silliman and Lela Garner Noble, eds., Organizing for Democracy (Honolulu: University of Hawaii Press, 1998), 223–53.
Eaton Chapter 7
5/24/02
10:11 AM
Page 221
LEGISLATORS AND DECENTRALIZATION
221
inserted more and more pork funds (congressional insertion allocations) into the budget.56 Second, that legislators are no longer the brokers of discretionary fiscal transfers heightened their interest in using the tax system for the purposes of particularism by claiming credit over other divisible benefits such as tax exemptions. Compared with the pre-1992 regime of discretionary fiscal transfers, legislators now faced greater incentives to resist efforts to broaden national tax bases, because legislating tax exemptions serves the dual purpose of rewarding supporters and reducing the total tax revenues subject to automatic transfer to subnational officials. Third, legislators have repeatedly attempted to divert tax revenues from the automatic sharing system to special infrastructure funds over which they would retain greater control. As I showed in Chapter 4, when the lower chamber agreed to pass President Ramos’s proposed expansion of the VAT in 1994, legislators inserted language stipulating that any additional revenues to be generated would be channeled to an infrastructure fund and distributed according to congressional mandate.57
From Discretionary to Automatic Transfers (and Back Again) in Argentina In the current period of democratic government that began in late 1983, tax revenue sharing between the federal and provincial governments has been the subject of nearly constant political conflict in Argentina. Though much of the action has taken place in the form of negotiations between presidents and governors, legislators have been significant actors in these conflicts, precisely because their electoral incentives encourage them to cultivate relationships with both national and provincial party leaders. The preferences of these two sets of leaders with respect to revenue sharing often differ, and these differences can create important dilemmas for legislators. Electoral rules have thus placed legislators in the crucible in the important debate over revenue-sharing rules. In this section, I evaluate the revenue-sharing preferences of legislators in three different periods: the adoption of automatic revenue-sharing procedures in 1987, the shift back to discretion in 56. For figures on the increase in transfers, see Republic of the Philippines, Department of Budget and Management, Budget of Expenditures and Sources of Financing: Fiscal Year 1997 (Quezon City: Republic of the Philippines), 179. For details of growing pork-barrel scandals, see J. P. Saspa, “The Stinking Pork War,” in Philippines Free Press, January 18, 1997. 57. Record of the House of Representatives 3, second regular session, November 11, 1993, 143.
Eaton Chapter 7
222
5/24/02
10:11 AM
Page 222
REFORM EXPERIENCES
Carlos Menem’s first term as president between 1989 and 1995, and the growing conflict between Peronist legislators and Menem in his second term between 1995 and 1999. The Shift to Automatic Revenue Sharing Under Divided Government in 1987 Even before the current democratic period in Argentina, the distribution of tax revenue proved to be a difficult political question characterized by much volatility. Understanding some of this history is necessary to make sense of the shift to automatic revenue sharing in 1987. In contrast to many developing countries, including the Philippines, which have adopted automatic transfers in recent years, Argentina experienced an earlier tradition of automatic revenue sharing, though one that was repeatedly marred by periods of de facto government. Beginning in 1935, the Argentine provinces delegated to the federal government exclusive authority to determine and collect taxes that the constitution had either reserved for provinces (such as direct taxes) or jointly assigned to both federal and provincial governments (such as nontrade, indirect taxes).58 In exchange, the federal government agreed to share the proceeds of these taxes directly and automatically with the provinces. According to this system (called coparticipación in Spanish), national legislators elected in provincial districts would legislate the terms of revenue sharing via special laws that were then ratified by each provincial legislature. Historically, then, provinces have entrusted legislators with the job of checking attempts by the federal government to encroach on provincial prerogatives. The record suggests that legislators have done more than defend provincial interests; they repeatedly modified revenue-sharing laws to expand the provinces’ shares in tax revenues and to reduce the federal government’s share. In the course of the country’s repeated transitions back and forth between democratic and authoritarian governments, legislators consistently ratcheted up provincial revenue shares shortly after most democratic transitions.59 As Figure 7.1 shows, provincial shares increased in 1947, 1959, 1964, and 1988. In contrast, provincial shares were frozen or reduced by military governments in 1967 and 1976, precisely when congressional checks were inoperative. 58. This arrangement was designed to take advantage of economies of scale in tax collection and to avoid the distortions created by overlapping federal and provincial tax bases. 59. Eaton, “Decentralisation, Democratisation, and Liberalisation: The History of Revenue Sharing in Argentina, 1934–1999”; Alberto Porto, Federalismo Fiscal: el Caso Argentino (Buenos Aires: Editorial Tesis, 1990).
Eaton Chapter 7
5/24/02
10:11 AM
Page 223
LEGISLATORS AND DECENTRALIZATION
223
Image not available
Fig. 7.1 Provincial shares in automatic revenue sharing in Argentina, 1934–1987 From Kent Eaton, “Decentralisation, Democratisation, and Liberalisation,” 9.
In addition to increasing provincial shares of tax revenue, legislators also adopted increasingly redistributive criteria to divide revenues among the provinces. In the beginning of co-participation, the size of revenue transfers to provinces varied directly with the size of their economies. Over time, however, legislators changed the criteria to account for the challenges facing sparsely populated and underdeveloped provinces.60 Like the overall increase in provincial shares relative to the federal government, the shift toward redistribution can also be explained as the result of electoral laws. As Porto noted, the shift to more redistributive criteria to favor less advanced provinces reflected the political reality that successive electoral laws have increasingly overrepresented these provinces.61 60. Horacio Nuñez Miñana and Alberto Porto, “Coparticipación federal de impuestos: Distribución primaria” (Federal tax co-participation: First distribution), Jornadas de Finanzas Públicas 15 (1983): 4.1–4.73; and Oscár Cetrángolo and Juan Jiménez, “Apuntes para el diseño de un nuevo regimen de coparticipación federal de impuestos” (Notes for the design of a new federal tax co-participation regime), Fundación CECE Serie de Estudios no. 13 (August 1996): 20. 61. Alberto Porto, Federlaismo Fiscal.
Eaton Chapter 7
224
5/24/02
10:11 AM
Page 224
REFORM EXPERIENCES
Struggles over tax revenue reemerged soon after the most recent transition to democracy. Before Argentina’s last military government left office in December 1983, it decreed a one-year extension of the 1973 revenue-sharing law that was set to expire in 1983. This extension gave legislators one year in which to negotiate a new law. In the first year of the democratic transition, however, the two parties that dominated the legislature, the Radicals and the Peronists, could not agree on the terms of a new revenue-sharing law. Neither party had sufficient political power to impose its own preferences, but each party retained veto power over the other, as seen in Table 7.2. Whereas the Radical party held the presidency and a majority in the lower chamber, the Peronists dominated in the senate and held a majority of provincial governorships. When the 1973 revenue-sharing law lapsed at the end of 1984, the absence of a covering law enabled President Alfonsín to use his own discretion in the distribution of tax revenues to the provinces.62 The ability to alter legally the distribution of tax revenues among the provinces as he saw fit was an important governing tool for Alfonsín in 1984, 1985, and 1986— the three years after the previous revenue-sharing law lapsed and before a new one was negotiated. In these difficult years for the president, Peronist opposition to his policies made governing Argentina increasingly difficult. Given the influence that Argentine governors exerted over legislators from their party who represented their provinces in the federal legislature, Alfonsín was able to use his discretion over revenue transfers to build Peronist support for his policies in congress. In 1985, for example, Alfonsín conditioned revenue transfers on the support of Peronist governors for the following year’s federal budget and for a variety of emergency measures.63 Against this backdrop, when the Peronists won midterm elections for the lower chamber in 1987, they used their increased leverage to legislate a quick return to automatic revenue sharing. By increasing the fiscal independence of Peronist governors vis-à-vis the Radical president, automatic transfers made it harder for Alfonsín to influence the behavior of Peronist legislators in congress. In addition to substantially limiting the president’s discretion, legislators also increased the provinces’ share in co-participated taxes to a historic high of 56.6 percent. Perhaps no other action by legislators in this period delivered such important and tangible benefits to the gov62. Carciofi, La Desarticulación del Pacto Fiscal; FIEL, Hacia Una Nueva Organización del Federalismo Fiscal en la Argentina (Toward a new framework for fiscal federalism in Argentina) (Buenos Aires: Ediciones Latinomericanas, 1993). 63. Pírez, Coparticipación Federal, 68.
Eaton Chapter 7
5/24/02
10:11 AM
Page 225
LEGISLATORS AND DECENTRALIZATION
225
Table 7.2 Peronist legislative seats and gubernatorial offices in Argentina, 1983–1991
Image not available
SOURCE: Jones, “Evaluating Argentina’s Presidential Democracy,” 265, 266, and 281.
ernors who, as leaders of provincial party organizations, were in a position to dictate legislators’ preferences about revenue sharing. Though Alfonsín could have vetoed the law, the political difficulties he faced after the collapse of his various stabilization programs made him powerless to resist the shift back to automatic revenue sharing.64 Specifically, Alfonsín signed off on the revenue-sharing bill in exchange for Peronist support for tax increases that he desperately needed to shore up the country’s fiscal accounts. The shift to automatic revenue sharing in Argentina in 1987 is thus a straightforward example of divided government facilitating decentralization as a means by which legislators could check the president and benefit their subnational political patrons.65 The Erosion of Automatic Revenue Sharing During Menem’s First Term (1989–1995) Whereas divided government helps explain legislators’ support for decentralization in 1987, unified Peronist control of the executive and legislative branches after 1989 led to the partial recentralization of revenues. Automatic revenue sharing furthered the collective interests of the Peronist party when it was in the opposition in 1987, but the revenue-sharing preferences 64. According to Sanguinetti, the shift back to automatic sharing also benefited Alfonsín because, in the absence of a covering law, Peronist governors had extorted the federal government by running up large budget deficits. See Pablo Sanguinetti, “Intergovernmental Transfers and Public Sector Expenditures: A Game Theoretic Approach,” Estudios de Economía 21, 2 (1994). 65. Willis, Garman, and Haggard, “Decentralization in Latin America.”
Eaton Chapter 7
226
5/24/02
10:11 AM
Page 226
REFORM EXPERIENCES
of Peronist legislators dramatically changed when their party captured the presidency. The main mechanism for the reversal of revenue decentralization in the early 1990s was a series of fiscal pacts between the federal government and the provinces, which altered the 1987 law by reducing the provinces’ legal shares of centrally collected tax revenues. Although these pacts were negotiated mostly with governors rather than legislators, a significant component of the governors’ bargaining power with the president was their influence on the voting behavior of legislators from their provinces. For example, it would have been impossible for Menem to push changes in revenue-sharing procedures through a congress that did not enjoy the support of Peronist governors. Though legislators from the opposition Radical party tried to amend the pacts, Peronist legislators respected the deals worked out between Menem and provincial governors. Thus the structure of electoral incentives, namely, the ties that bound legislators to governors, was an important factor that helps explain the implementation of these fiscal pacts. In this section, I first describe the substance of the two fiscal pacts and then analyze how these pacts were compatible with the interests of Peronist legislators. According to the first fiscal pact of 1992, 15 percent of the revenues legally subject to automatic sharing with the provinces would be deducted and channeled to the national social security system. In return for “pre-coparticipating” these funds, the federal government guaranteed to transfer to the provinces a minimum of approximately U.S.$725 million per month. Counter to the spirit of decentralization, the pact also allowed for greater federal control over provincial budgets by requiring the provinces to limit any increases in current expenditures to 10 percent and to devote any budget surpluses to retiring debt or to capital expenditures. For this reason, opposition legislators accused Menem and the Peronists of usurping the independent role of provincial legislators by significantly constraining the provincial budget process.66 With legions of angry pensioners protesting outside congress over the size of their social security payments, Peronist legislators approved this pact, despite warnings by opposition legislators that the executive branch would not devote all of the deducted revenues to social security.67 66. Diario de Sesiones de la Cámara de Diputados de la Nación, August 19–20, 1992, 2113. 67. These warnings proved to be well founded. According to interviews with various officials in the economy ministry, the federal executive in practice uses some of the deducted revenues to cover the administrative costs of the tax-collecting agency, formerly entirely covered by federal government revenues.
Eaton Chapter 7
5/24/02
10:11 AM
Page 227
LEGISLATORS AND DECENTRALIZATION
227
In August 1993, exactly one year after the first fiscal pact, President Menem signed a second fiscal pact with sixteen of the twenty-three provincial governors, most of whom were Peronists. In December 1993, Peronist legislators delegated authority to the president to decree this pact into law. At the heart of the second fiscal pact was an attempt by the president to bring about the reform of provincial tax systems. Because the Convertibility Law of 1991 had removed devaluation as a policy option, Menem proposed the second fiscal pact as an alternative way to lower the cost of doing business in Argentina (the so-called costo argentino). Specifically, with this second pact, governors agreed to repeat at the provincial level the same tax reforms the Peronists had carried out at the national level, essentially streamlining the system and eliminating inefficient taxes like turnover and stamp taxes.68 In the long run, as federal economic ministry officials argued in congress, stability and market-driven growth required deep provincial adjustments. Because of these two fiscal pacts, revenue transfers to the provinces remained essentially constant between 1991 and 1995, even though tax revenues increased 152 percent in these four years.69 According to some estimates, the provinces received an estimated U.S.$13 billion less between 1992 and 1996 than they would have in the absence of the two fiscal pacts.70 Whereas the 1987 revenue-sharing law had pegged the federal government’s share of revenues at 42.34 percent, thanks to the fiscal pacts of 1992 and 1993 its share of revenues effectively increased to 54.07 percent.71 Given these considerable losses to provincial revenues, why did Peronist legislators endorse the two fiscal pacts? Two factors stand out as important, both of them related to legislators’ electoral incentives. First, the fiscal pacts were necessary for the defense of macroeconomic stability at the federal level. With the passage of the Convertibility Law in early 1991, the federal government could not meet its daunting social security obligations simply 68. Provinces replaced these taxes with the more efficient tax on retail sales. República Argentina: El Federalismo Fiscal a Partir de la Reforma Constitucional (Fiscal federalism after constitutional reform) (Buenos Aires: Asociación Mutual Federal de Empleados de la Dirección General Impositiva, 1995), 621–26. 69. Oscar Cetrángulo and Juan P. Jiménez, “El Conflicto en Torno a las Relaciones Financieras entre la Nación y las Provincias: Segunda Parte, desde la Ley 23.548 hasta la Actualidad” (Conflict in financial relations between the nation and the provinces from Law 23.548 to the present), in Serie de Estudios no. 10 (Buenos Aires: Centro de Estudios para el Cambio Estructural, February 1996), 15. 70. Fundación CECE, Federalismo Fiscal en Argentina (Fiscal federalism in Argentina) (Buenos Aires, 1997).
Eaton Chapter 7
228
5/24/02
10:11 AM
Page 228
REFORM EXPERIENCES
by printing money. Though the elimination of inflation and the passage of tax reforms had swelled tax revenues, 56.6 percent of these revenues were automatically transferred to the provinces. These transfers seriously constrained the ability of the federal government to close its own fiscal deficit and keep inflationary pressures in check. In this sense, the support of Peronist legislators for the fiscal pacts is analogous to their support for the taxpolicy changes discussed in Chapter 5. Because of their party and electoral incentives, both changes promoted the interests of individual legislators by promoting the collective interests of the Peronist party. Second, in addition to safeguarding national macroeconomic stability, Peronist legislators had further cause to support the pacts because, in a variety of ways, they introduced discretion into the fiscal relationship with the provinces. For example, though the first fiscal pact guaranteed provincial transfers of a minimum of approximately U.S.$725 million per month, the federal government was not obligated to send any additional revenues over this amount, though it could so at the federal executive’s discretion. In the first pact, the federal government also retained the authority to grant the provinces advances (adelantos) on their future guaranteed revenue transfers, an important source of discretion, particularly when tax revenues precipitously declined in the wake of the Mexican tequila crisis in 1995.72 Finally, as part of the first pact, Menem created a special fund to finance fiscal disequilibria (fondo del disequilibrio) in the provinces, made up of U.S.$48.5 million that would be deducted from the revenue-sharing pool along with the deductions for social security. The amount that each province would receive from this fund was determined in closed-door negotiations between individual governors and the president.73 Thus Menem effectively replaced the explicit distribution criteria legislated in the 1987 revenue-sharing law with criteria that enabled him to favor provinces governed by Peronists. The second pact also significantly increased the discretion the federal government enjoyed vis-à-vis revenue transfers and policy decisions at the subnational level. For provinces that signed the pact and implemented these 71. Alberto Porto and Pablo Sanguinetti, “Decentralización Fiscal en America Latina: El Caso Argentino” (Fiscal decentralization in Latin America: The Argentine case), in Serie Política Fiscal no. 45 (Santiago de Chile: Comisión Económica para America Latina y el Caribe, 1993). 72. Jorge Presman and Luis Lucioni, “La Evolución de las finanzas públicas provinciales entre 1991 y 1996” (Evolution in provincial public finances between 1991 and 1996), in Serie de Estudios no. 23 (Buenos Aires: Centro de Estudios para el Cambio Estructural, 1997). 73. Diario de Sesiones de la Cámara de Diputados de la Nación, August 19–20, 1992, 2105, 2106.
Eaton Chapter 7
5/24/02
10:11 AM
Page 229
LEGISLATORS AND DECENTRALIZATION
229
reforms, the federal government agreed to increase the minimum revenue guarantee established in the first fiscal pact from U.S.$725 million to U.S.$745 million monthly.74 Thus, whereas the first fiscal pact had governors surrender their legal shares in tax revenue in exchange for a guaranteed minimum level of revenues, the second pact made this guarantee conditional on progress toward a series of federally defined provincial economic reforms. The decision as to whether provinces had sufficiently implemented these reforms remained in the economic ministry of the federal government. In practice, this arrangement led to the erosion of automatic revenue sharing. Since 1995, governors from opposition parties repeatedly charged that the federal government failed to meet its minimum obligation with respect to guaranteed revenue transfers.75 The combined effect of these pacts was to introduce a significant degree of complexity into the fiscal relationship between federal and provincial governments.76 This complexity increased the discretion enjoyed by policymakers at the center.77 Table 7.3 depicts the consequent decline after 1992 in the share of revenues that are transferred to the provinces automatically rather than through the discretion of the executive branch. Support by Peronist legislators for this same policy mix of smaller and more discretionary revenue transfers is also evident in an important policy episode in 1995. When Mexico’s devaluation in late 1994 triggered a recession in Argentina, the decrease in tax revenues threatened to destroy the country’s fiscal balance. In response, President Menem proposed increasing the VAT rate from 18 percent to 21 percent and reserving all additional revenues produced by this rate hike for the federal government rather than sharing it with the provinces. After the fiscal pacts of the early 1990s, the proposal reflected a further encroachment on the provincial shares in tax revenue as established in the 1987 revenue-sharing law. Though Peronist legislators were reluctant to exclude provinces from the proceeds of this increase, congressional debate reflected a strong understanding of the need 74. In addition, provinces that signed were required to devote any revenue transfers in excess of U.S.$800 million to debt reduction and capital investments. Anales de Legislación Argentina 53D (1993): 4240. 75. Clarín, April 3 and April 13, 1996. 76. Sebastián Saiegh and Mariano Tommasi, “Why Is Argentina’s Fiscal Federalism So Inefficient? Entering the Labyrinth,” Journal of Applied Economics 2, 1 (May 1999): 169–209; and idem, “Argentina’s Federal Fiscal Institutions” (unpublished manuscript, Centro de Estudios para el Desarrollo Institucional, August 1998). 77. World Bank, Argentina: Provincial Finances Study: Selected Issues in Fiscal Federalism (Washington, D.C.: World Bank, 1996).
Eaton Chapter 7
230
5/24/02
10:11 AM
Page 230
REFORM EXPERIENCES
Table 7.3 Automatic vs. nonautomatic revenue transfers in Argentina, 1992–1996 (in millions of U.S.$)
Image not available
SOURCE: Presman and Lucioni, “La evolución de las finanzas públicas provinciales,” 30.
to increase revenues to defend fiscal stability at the national level.78 Just two months before the congressional and presidential elections of May 1995, Menem’s proposals for renewed fiscal austerity as the best response to the country’s economic crisis pushed him significantly ahead in the polls. Accurately reading the political climate, Peronist legislators approved Menem’s VAT proposal. Before they did so, however, they modified the bill and obligated the federal government to distribute grants to the provinces amounting to U.S.$1.2 billion to help finance provincial state reform.79 In demanding these grants for the provinces, Peronist party leaders adopted no objective criteria to govern how these funds would be distributed among needy provinces, suggesting again their confidence that Menem would use his discretion to benefit Peronist governors. In the words of one opposition legislator, “This bill reduces revenue transfers for the provinces, and then restores them, but only for provinces that obey.”80 Growing Conflict over Revenue Sharing During Menem’s Second Term (1995–1999) As argued in Chapter 5, when Menem’s power as party leader dissipated during his second and final term as president, the relative influence of provincial 78. Diario de Sesiones de la Cámara de Diputados de la Nación, March 15, 1995, 590–98. 79. In response to the crisis, the deputies also extended the deadline, initially established in the second fiscal pact, by which time provincial governments were expected to eliminate important provincial taxes. Diario de Sesiones de la Cámara de Senadores de la Nación, March 16, 1995, 886, and Boletín Oficial, March 23, 1995, 1, 2. 80. See the speech of Senator Jose Genoud (Radical, Mendoza), Diario de Sesiones de la Cámara de Senadores de la Nación, March 16, 1995, 886.
Eaton Chapter 7
5/24/02
10:11 AM
Page 231
LEGISLATORS AND DECENTRALIZATION
231
party leaders over Peronist legislators increased. As interparty struggles accelerated over which provincial party leader would be the Peronists’ next presidential candidate, Menem’s status as lame duck translated into less influence over legislators’ future career paths. Just as this resulted in greater conflict between the president and Peronist legislators over tax policies, so it also led to conflict in the Peronist party over revenue sharing. In addition to the change in political incentives, economic factors were also at play. Whereas the increase in tax revenues in the early 1990s facilitated legislators’ acceptance of the fiscal pacts, the economic recession in the mid-1990s decreased the willingness of legislators to accept policies that put their provinces at a disadvantage.81 This growing conflict between Menem and legislators from his own party led to prolonged and ultimately unsuccessful negotiations over a new revenue-sharing law in his second term. According to the reform of the constitution in 1994, the legislature was required to pass a new revenue-sharing law before the end of 1996. Though the Peronists controlled both houses and the presidency, they could not come to an agreement. The executive branch repeatedly floated proposals for new revenue-sharing laws that introduced rewards for provincial efforts in tax collection.82 Peronist legislators, particularly those from the less advanced provinces that heavily depended on federal revenue transfers, steadfastly resisted these changes. Instead, Peronist legislators repeatedly voted to extend the highly complex system of revenue sharing that resulted from the first and second fiscal pacts. In 1996, for example, Peronist legislators voted to continue requiring the federal government to guarantee a minimum level of revenue transfers and earmarked an additional U.S.$580 million from income tax revenues for the provinces.83 Two years later, faced with continued legislative opposition to executive-branch reform proposals, Menem proposed changing the criteria used to distribute increases in tax revenues rather than advocating fundamental reform of the entire revenue pool.84 Peronist legislators also
81. Interviews with Carlos Fernández, director of financial relations with the provinces in the finance secretariat of the Economy Ministry, May 7, 1996; and Guillermo Mondino, executive director, Fundación Mediterranea, Buenos Aires, June 19, 1996. 82. “Propuesta de Reforma del Regimen de Coparticipación de Impuestos” (Proposal for the reform of the tax co-participation regime), Poder Ejecutivo Nacional, June 3, 1999. 83. Alfredo Fólica, “Anarquía en la distribución de los tributos nacionales: los últimos acontecimientos” (Anarchy in the distribution of national taxes: Recent developments), in Federalismo Fiscal en Argentina (Buenos Aires: Fundación CECE, 1997), 70. 84. El Economista, February 6, 1998, 5.
Eaton Chapter 7
232
5/24/02
10:11 AM
Page 232
REFORM EXPERIENCES
opposed this moderate reform. As a clear sign of the conflict between Peronist legislators and the president, Menem also proposed a new system of coparticipation with municipalities, which paralleled the existing system of co-participation with provinces, compelling governors to share revenues automatically with municipal authorities. Because in the existing system provinces were expected to share some of the proceeds of revenue transfers with municipalities at their own discretion, Menem’s proposal was highly unpopular with governors. Directly opposed by Peronist governors whose control over legislators became more robust late in Menem’s second term, the proposal had no chance of gaining the approval of these legislators in congress.
Conclusion In both Argentina and the Philippines, revenue decentralization has proved a particularly dynamic area of fiscal reform, subject to a great deal of volatility. In Argentina, policymakers endorsed a shift to automatic revenue sharing and increased the size of provincial transfers in 1987, only to reverse course five years later by reducing the size of transfers and making them less automatic. In the Philippines, policymakers adopted the historic decentralization of fiscal revenues in 1991 and then immediately began attempts to restrict the scope of this decentralization. In neither country did legislators respect their initial decisions to decentralize fiscal policy, but instead backtracked by supporting policies that had the effect of partially recentralizing policy authority. This common volatility contrasts with the experience of the other fiscal reform areas discussed in previous chapters, in which Argentine and Philippine legislators displayed policy and bureaucratic preferences that were consistently different. Though legislators in both countries wavered in their support for automatic revenue sharing, the reasons behind these policy reversals were different. Understanding why Argentine and Philippine legislators reversed themselves on decentralization requires taking seriously their different party and electoral incentives. In Argentina, governing-party legislators supported recentralization as a policy that furthered the party’s collective interests and pleased the national and provincial party leaders to whom they were beholden. In Menem’s first term, Peronist legislators supported centralizing fiscal pacts because they were deemed necessary for the party’s ability to defend fiscal stability and win elections. Though these pacts reduced rev-
Eaton Chapter 7
5/24/02
10:11 AM
Page 233
LEGISLATORS AND DECENTRALIZATION
233
enue transfers for all provinces relative to the federal government, they also reintroduced a degree of discretion into revenue transfers, which a Peronist president could use to favor Peronist governors. Unlike Argentina, where revenue-sharing conflicts were confined to and resolved in political parties, conflict in the Philippines breached party lines and took the predictable form of individual legislators fighting to take personal credit for revenue transfers. In response to the candidate-centered electoral incentives they faced, Philippine legislators pursued recentralizing measures largely because they had to find new ways of claiming personal credit in their home districts for fiscal-policy favors. By cutting them out of important decision-making loops, decentralization made it harder for legislators to develop personal reputations and sent them scrambling for alternative ways of remaining relevant to their constituents. Padding transfers, auditing local officials, and appropriating extra revenues for health clinics back home can all be considered attempts by individual legislators to remain relevant. Given his weak partisan powers, Ramos was powerless to stop legislators from engaging in these practices even though they undermined fiscal balance at the center. In contrast, during his first term, Menem was able to use his considerable partisan powers to defend fiscal balance at the center by cutting provincial transfers. As these two cases suggest, decentralization is not an irreversible or inexorable process, despite the fact that so many countries have recently adopted decentralizing policies. What national politicians can do they can also frequently undo. That legislators have been such critical actors in the alternating cycles of decentralization and recentralization supports this study’s claim about the extent to which legislators shape contemporary economic reforms in developing countries. Though presidents and subnational officials are critical actors in struggles over revenues, legislators play pivotal roles as the actors who link the two levels of government. This is perhaps clearer in the Philippine case because legislators there operated as individuals independent of their party affiliations. Conflicts over revenue sharing consequently took very public forms. In Argentina, because national and provincial party leaders jointly controlled the voting behavior of legislators, legislators themselves did not engage as substantively in debates over decentralization. The structure of electoral incentives meant that most of the negotiation over recentralization in Argentina could occur behind closed doors between chief executives at the federal and provincial levels.
Eaton Chapter 7
5/24/02
10:11 AM
Page 234
Eaton Part 3 5/13/02 12:16 AM Page 235
PART THREE CONCLUSION
Eaton Part 3 5/13/02 12:16 AM Page 236
Eaton Chapter 8 5/13/02 12:17 AM Page 237
8 BEYOND TAXATION: OTHER REFORM ARENAS IN THE PHILIPPINES AND ARGENTINA
In Part II of this study, I reported consistent differences between legislators’ responses to fiscal reform in the Philippines’ candidatecentered electoral system and Argentina’s party-centered system. In the three areas of tax-policy change, tax administration, and tax revenue sharing, institutional incentives provided a powerful source of explanation for legislative behavior. Not only did Argentine and Philippine legislators adopt predictably different policy and bureaucratic preferences, but their actions in pursuit of these preferences shaped actual reform outcomes in each case. These findings suggest that an accurate picture of economic reform in this critical area requires taking seriously the political institutions in which legislators make their careers. The chapters in Part II of this book were designed to expand the number of observable implications of the theory without sacrificing the many advantages of in-depth case studies based on primary field research.1 In addition to evaluating behavior in three distinct areas of fiscal reform, this increase in the number 1. King, Keohane, and Verba, Designing Social Inquiry.
237
Eaton Chapter 8 5/13/02 12:17 AM Page 238
238
CONCLUSION
of observations contrasted the behavior of legislators in lower and upper chambers and explored the impact of changes in institutional incentives on legislative behavior in different periods. For example, in the Philippine case, the policy preferences of representatives and senators consistently differed in ways that can be explained only by their differing electoral incentives. As shown in Chapter 7, changes in electoral incentives that resulted from the introduction of term limits in the Philippines motivated legislators to adopt new preferences vis-à-vis revenue sharing with subnational jurisdictions. In the Argentine case, Chapters 5 and 7 contrasted the responsiveness of governing-party legislators to executive branch proposals in two different periods, when the president had enormous power over their careers in his first term, and when this power diminished over the course of his second term. In Part III, I build on this approach by evaluating some of the theory’s additional implications. First, moving beyond fiscal reform, I explore in this chapter whether party and electoral incentives can help explain how legislators responded to other economic reforms in these same countries. Is the theory advanced here uniquely applicable to the case of fiscal reform, or does it apply to other policy reforms that similarly reduce the scope for particularism? Second, I investigate how legislators in other party-centered and candidate-centered electoral systems responded to the same fiscal reforms that provoked such different responses in Argentina and the Philippines. What does the experience of other countries suggest about the limits of explanations based on legislators’ institutional incentives? Though the chapters in Part III are based on available secondary sources rather than in-depth archival research and interviews, the findings are useful in assessing the reach of the theory advanced here.
Philippine Reform Experiences in Other Policy Areas Though fiscal reform received far more of his attention and exhausted more of his political capital than any other single reform area, President Ramos articulated the case for reform in a number of other policy areas. In Ramos’s diagnosis of the constraints retarding economic development in the Philippines, the state’s preferential treatment of oligarchic families figured prominently. Historically, through their control of the national executive and legislative branches, these families were able to secure policies that protected
Eaton Chapter 8 5/13/02 12:17 AM Page 239
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
239
and promoted their private economic interests.2 Tariff protection and import quotas, restrictions on new entrants to heavily regulated markets, preferential credits and “behest” loans from the central bank were all the logical result of a political system that denied representation to nonelite interests. Given this diagnosis, Ramos proposed tax reform as part and parcel of a larger reform agenda in which the playing field would be leveled through the removal of policy favors for entrenched elites and through the smashing of monopolies and cartels.3 Ramos consistently advocated economic liberalization as the only antidote to “protectionist policies that benefited a business oligarchy at the expense of the mass of the Filipino consumers.”4 Ramos’s affinity for the market and his criticism of elite family clans explain why his reforms met with the hostility of both the political left and the oligarchy.5 Most of these policy reforms are relevant to this study because they involved removing favors for particular economic interests to benefit diffuse and unorganized consumers, precisely the reforms that should put representatives on the defensive. Though in a September 1993 economic summit with the president the congress agreed to support his reform agenda through the passage of some eighty-one different legislative measures, a look at the record suggests that legislative cooperation was in fact hard won and ultimately limited.6 Trade Liberalization Like the tax code Ramos inherited, trade policy in the Philippines included numerous forms of preferential treatment for the oligarchs criticized by the president. Traditionally, the use of quantitative restrictions and highly variable tariff rates created enormous scope for political discretion in the granting of special trade protection. Under martial law, such policies reached 2. Paul Hutchcroft, Booty Capitalism: The Politics of Banking in the Philippines (Ithaca: Cornell University Press, 1998). 3. Jose Almonte, “The Politics of Development in the Philippines,” Kasarinlan 9, 2 (fourth quarter 1993): 113. 4. Policy Statements of President Fidel V. Ramos (issued by Office of the Press Secretary, Manila) vols. 5 and 6 (May and June 1996). 5. G. Luis Igaya, “The Political Economy of the Philippine Democratic Transition,” in Kristina Gaerlan, ed., Transitions to Democracy in East and Southeast Asia (Quezon City: Institute for Popular Democracy, 1999), 42; and Eric Gutierrez, “Halfway Where? A Midterm Review of the Ramos Government,” Political Brief 5, 1 (July–August 1995): 1–2. 6. Congress Watch Report no. 6, July 1994, 1.
Eaton Chapter 8 5/13/02 12:17 AM Page 240
240
CONCLUSION
their zenith as Marcos created a new group of crony industrialists who produced goods for the protected domestic market and who were entirely dependent on his favor.7 Despite some moves by President Aquino toward liberalization, legislators effectively blocked this reform avenue in her administration. Because of their budgetary control over bureaucrats in the department of trade and industry, legislators were able to exert influence over the granting of special trade protection to favored constituents. Given the nature of electoral incentives, representatives were particularly reluctant to surrender this form of particularism. Preferential trade policies offer a classic example of the oligarchic abuses that Ramos sought to eliminate, and trade liberalization acquired an additional urgency because of the conclusion of the Uruguay round of the General Agreement on Trade and Tariffs (GATT). Trade negotiations between chief executives in the region though the Asia Pacific Economic Cooperation fora (APEC) and the Association of Southeast Asian Nations (ASEAN) provided further impetus for liberalization. In January 1992, ASEAN-member countries agreed to reduce tariffs to create a free trade area with a target date of fifteen years, and a September 1994 meeting of economic ministers then accelerated this date to ten years.8 Some progress toward liberalization could be effected through unilateral action by the president. For example, shortly after taking office, Ramos liberalized foreign exchange restrictions.9 Other proposals required the approval of congress, including the ratification of the Uruguay round of the GATT in 1994. Given legislators’ interest in divisible goods like special tariff rates, it is unsurprising that they initially balked at approving trade liberalization and equally unsurprising that their ultimate support for liberalization came at a price. As with the passage of the expanded value-added tax (EVAT) that same year, President Ramos strategically used his authority to disperse porkbarrel outlays to secure sufficient legislative support for trade liberalization. The house agreed to ratify the GATT on the assurance that approximately U.S.$1.3 billion would be spent on GATT-related safety nets to be channeled through legislators’ countrywide development funds (CDF).10 Rocamora concurred that the release of pork funds clinched congressional approval of 7. Hawes, The Philippine State; and Paul Hutchcroft, “Oligarchs and Cronies in the Philippine State: The Politics of Patrimonial Plunder,” World Politics 43, 3 (1991): 414–50. 8. Economist Intelligence Unit (EIU), Country Report: Philippines, first quarter 1993, 23. 9. Economist Intelligence Unit (EIU), Country Report: Philippines, third quarter 1994, 10. 10. See Leonor Briones, “Fiscal and Monetary Policies as Constraints to Development,” Kasarinlan 10, 2 (1994): 14.
Eaton Chapter 8 5/13/02 12:17 AM Page 241
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
241
laws that both implemented Philippine commitments to the GATT and liberalized the Foreign Investment Act.11 According to Rocamora, the president agreed to release half of legislators’ CDF funds for the fiscal year and additional monies from the public works budget. In addition to CDF funds, legislators in 1995 were also able to insert additional monies into the budgets of the departments of agriculture, environment and natural resources, science and technology, and labor, which bureaucrats could use, with the aid of legislators, to help sectors negatively affected by the GATT.12 Though the use of pork-barrel funds to buy legislative support mirrors the case of tax reform discussed in Part II, unlike tax reform, the coalition Ramos pieced together to pass trade liberalization did not immediately unravel. The nature of the GATT as a binding external commitment appears to have hindered defections that undermined tax reform after its passage. Attempts to further liberalize in the aftermath of the GATT’s passage, however, ran into trouble. Even after approving the Uruguay round, house members remained highly responsive to the interests of the sectors that opposed liberalization. The retail industry was an important case in point. In late 1995, Ramos submitted to congress a bill that reversed the ban, dating to the 1950s, on foreign participation in the retail sector. In response to these proposals, the Philippine Retail Association heavily lobbied the legislature, demanding restrictions on the size of retail establishments that foreigners could own. The house responded by immediately introducing legislation to this effect.13 In the subsequent conflict that raged between the president and the house over the terms of retail liberalization, the biggest issue was the capital requirement below which foreign firms could not invest. Congress consistently preferred minimum capital requirements that would be the highest in the region.14 Ultimately, Ramos had to abandon retail liberalization because of the continued conflict between the branches over tax reform, which forced retail liberalization onto the back burner.15 In contrast to Argentine reform discussed later in the chapter, in the Philippines President Ramos 11. Joel Rocamora, “Unnatural Disasters,” Politik 2, 4 (May 1996): 47. 12. Romulo Valientes, “Strong on Social Services,” Philippine Business (Makati Business Club), August–September 1995, 17. 13. The Philippine Retail Association proposed a threshold of U.S.$5 million below which the retail industry would be reserved for 100 percent Filipino-owned establishments. See Eric Ahorro, “Retail Liberalization: A Balancing Act,” Politik 2, 4 (May 1996): 33. 14. EIU, Country Report: Philippines, second quarter 1996, 14; and first quarter 1997, 15. 15. EIU, Country Report: Philippines, fourth quarter 1998, 16. Congress finally approved some retail liberalization in late 1999 in a bill that reflected both executive-branch and legislative-branch preferences. EIU, Country Report: Philippines, first quarter 2000, 17.
Eaton Chapter 8 5/13/02 12:17 AM Page 242
242
CONCLUSION
was largely unable to pursue reform simultaneously on more than one front, but instead had to marshal carefully and focus his energies on one reform issue at a time. Tariffs on capital goods offer an additional area in which to assess legislative responses to policy reform. As noted in Chapter 7’s discussion of bureaucratic reform, representatives responded to the president’s attempts to eliminate preferential treatment of capital-good imports by successfully defending those firms that had previously received exemptions from the board of investments. In contrast to the passage of the GATT, in which legislators abandoned their policy preferences in exchange for the one-shot disbursement of pork funds, in the case of tariffs on capital goods, the legislature demanded compromises that affected the content of trade policy.16 Financial Liberalization From the early twentieth century, financial policy has served as an arena in which the state has consistently offered special treatment for the country’s most powerful elite families. As Hutchcroft has shown, particularistic financial policies have taken many forms, including a variety of preferential credit programs and restrictions that protected the dominant family banks from new entrants. In a detailed study of preferential credit allocation, Hutchcroft argued that “lists of economic activities to be targeted by selective credit programs . . . commonly become so all-encompassing as to lose their ability to achieve specific developmental goals.”17 Instead they reveal the use of particularistic criteria to channel cheap credit to particular banks and individuals. Though Hutchcroft attributed the particularistic use of credit allocation to a weakly institutionalized state and a predatory oligarchy, his results are also consistent with an explanation based on individual legislators and the constituents they try to favor by influencing the bureaucratic allocation of cheap credit. Historically, the central bank has been a major vehicle for particularism in the Philippines.18 Under Marcos, the central bank was required to sell foreign exchange to importers of basic commodities at a fixed rate and to
16. EIU, Country Report: Philippines, first quarter 1995, 12. 17. Paul Hutchcroft, “Selective Squander: The Politics of Preferential Credit Allocation in the Philippines,” in Sylvia Maxfield and Stephan Haggard, eds., The Politics of Finance in Developing Countries (Ithaca: Cornell University Press, 1993), 165–98. 18. Hutchcroft, Booty Capitalism.
Eaton Chapter 8 5/13/02 12:17 AM Page 243
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
243
guarantee the exchange rate for the debt-service liabilities of some of the country’s largest companies, including Philippine Long Distance Telephone, the Manila Electric Company, and San Miguel.19 Such uses of the central bank led to chronic losses that were routinely absorbed by the national government, at a great cost to average citizens.20 Like the tax and trade areas, then, traditional financial policies in the Philippines offer an excellent example of policies that benefited a select few at the expense of diffuse groups of taxpayers who paid for the favors others received through higher taxes, inflation, and interest rates. When Ramos inherited a bankrupt central bank on his inauguration in 1992, he proposed to congress a bill that created a new monetary authority (Bangko Sentral ng Pilipinas) that was more independent of politicians. In particular, Ramos proposed restraints on emergency loans to banks along with reforms ensuring that loans would be secured, collateralized, and released in tranches rather than in one lump sum. Because the accumulated deficits of the old central bank were a major obstacle to the creation of a new one, Ramos also proposed that the government absorb these debts. Representatives were ambivalent about these reforms for two reasons. First, tougher restrictions on lending complicated their ability to use the bank to seek preferential loans for clients. Second, for the state to assume the old bank’s debts, which averaged over 2.5 percent of gross domestic product in the early 1990s, would significantly increase the already-intense pressures facing legislators to pass tax reforms.21 In many respects, the dynamics of the struggle over a new central bank mirrored the conflicts over taxation. First, when the president submitted the bill in 1992, congress responded by delaying its consideration for nearly a year. Second, to secure its passage in June 1993, Ramos was forced to rely on the release of discretionary pork-barrel funds.22 Third, though the house agreed to the creation of a new central bank, the legislation it passed left unsettled the key question of the old bank’s debts. In late 1993, six months after passing the bill that created the new central bank, the house appended a clause to the 1994 budget banning the use of state funds to pay central bank debts. In response, President Ramos vetoed this clause and unilaterally authorized the issue of government securities to settle the bank’s past losses.23 19. 20. 21. 22. 23.
EIU, Country Report: Philippines, first quarter 1993, 9. Hutchcroft, Booty Capitalism. Hutchcroft, Booty Capitalism, 207. Hutchcroft, Booty Capitalism, 208–9. EIU, Country Report: Philippines, second quarter 1994, 11.
Eaton Chapter 8 5/13/02 12:17 AM Page 244
244
CONCLUSION
In addition to central bank independence, Ramos proposed liberalizing banking laws to foster competition in the banking industry and to allow the entry of foreign banks. As in the case of retail liberalization discussed above, the critical issue in the struggle between the branches concerned which if any restrictions were to be kept in place against foreign entrants. After much back and forth between the branches, the house and senate approved banking liberalization in May 1994. The final bill represented a compromise between the administration’s wish to open the banking sector to real competition and the legislature’s wish to protect domestic banks from competition. On the one hand, it lifted a forty-five-year ban on the entry of foreign banks, but on the other hand it kept important restrictions on this entry.24 According to Hutchcroft, the greater impact of this reform “will be on the upper segments of the market, which were already quite competitive.”25 In contrast, the less competitive, lower segments of the market remained protected, in line with the preferences of particular banks and the legislators they lobbied in the house. Banking liberalization, then, offers a case of legislators seeking and securing policy compromises rather than accepting side payments and forgoing substantive input. Deregulation and Privatization As the previous examples illustrate, when President Ramos’s economic reforms required statute changes, progress on the reform front was consistently circumscribed by legislators’ resistance. When reforms did not require congressional participation but could instead be implemented via executive orders, however, reforms were both deeper and more rapid. Unilateral actions by the president in the areas of deregulation and privatization were sufficient to effect a significant policy transformation in the Philippines. Here is where President Ramos made his most significant strides toward a new development paradigm based on market signals and a limited but efficient state, earning him in the process his reputation at home and abroad as a reformer. As Part II demonstrates, there were important limits on the president’s ability to use these unilateral powers to effect policy change. For example, strong support in congress for overturning the EVAT in 1996 made it impossible for Ramos to use his partial veto powers to eliminate the exemptions that legislators had reinserted. In other policy areas that limited 24. EIU, Country Report: Philippines, third quarter 1994, 10. 25. Hutchcroft, “ Philippines at the Crossroads,” 7.
Eaton Chapter 8 5/13/02 12:17 AM Page 245
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
245
congressional input, however, the Philippine president’s executive orders were able to alter existing policies in significant ways. An important case in point is the telecommunications industry, long dominated by the Philippine Long Distance Telephone Company (PLDT), a monopoly owned by one of the country’s foremost elite families. Notoriously inefficient, PLDT had a long history of using the Cojuangco family’s political connections to bar other firms from entering the market despite its own lackluster performance. As the visiting Singaporean leader Lee Kwan Yew commented in a November 1992 visit to Manila, “Ninety-nine percent of Filipinos are waiting for a telephone and the other one percent for a dial tone.”26 Through two executive orders issued soon after his inauguration, Ramos extended licenses to other telecommunication companies and ordered PLDT to interconnect with other systems.27 When the supreme court ruled against the second of these executive orders, Ramos personally and successfully lobbied PLDT owner Antonio “Tony Boy” Cojuangco to facilitate these interconnections.28 Deregulation of the telecom sector alone has had powerful consequences for the Philippine economy, bringing new players into the market and driving down prices for urban consumers. Arguably, it has had important consequences for the Philippine polity as well, in view of the role of widely used pager systems in mobilizing and coordinating the demonstrations that toppled the government of Joseph Estrada in January 2001. Though, as Coronel showed, PLDT kept a number of its privileges intact, the loss of its monopoly status was a significant reform that resulted from unilateral action by the executive branch.29 Furthermore, because President Aquino was herself a Cojuangco who proved unwilling to challenge the company’s monopoly, telecom deregulation offers important support for the argument that Ramos’s nonoligarchic background facilitated economic reform in the Philippines.30 President Ramos also advanced the cause of deregulation by creating special economic zones in which investors faced streamlined bureaucratic procedures. By the end of his term, the president had created over thirty special economic zones throughout the Philippines, most importantly the Subic Bay 26. Quoted in Sheila Coronel, “Monopoly,” in Sheila Coronel, ed., Pork and Other Perks (Pasig: Philippine Center for Investigative Journalism, 1998), 137. 27. Cynthia Marasigan, “Setting the Tone,” Far Eastern Economic Review 159, 24, June 13, 1996; and EIU, Country Report: Philippines, first quarter 1994, 17. 28. EIU, Country Report: Philippines, second quarter 1993, 13. 29. Coronel, “Monopoly,” 119. 30. Interview with Gary Hawes, Ford Foundation, Makati, November 2000.
Eaton Chapter 8 5/13/02 12:17 AM Page 246
246
CONCLUSION
Metropolitan Authority, site of the former U.S. naval base and host to the APEC forum in 1996.31 Industries that located to these zones were afforded duty-free treatment of capital goods and raw material imports. This policy departure has had a tremendous impact on the Philippines, setting into motion often-violent conflicts between small-scale farmers and subnational politicians who seek to clear the farmers from the land to make way for the special economic zones.32 Executive orders likewise gave President Ramos sufficient authority to pursue reform through privatization. Just six months after gaining the presidency, Ramos issued an executive order requiring all government agencies to submit their privatization plans by mid-1993.33 In the years that followed, Ramos secured the privatization of the country’s most important state-owned enterprises, including the Philippine National Oil Company, the National Steel Corporation, Philippine Airlines, Philippine Shipyard and Engineering, the PASAR copper refinery, and Manila Waterworks and Sewerage Systems. No reform arena did as much to alter the terms of the state’s relationship to the economy as these privatizations. In at least one notable case, attempts by legislators to preserve preferential treatment for particular economic interests did obstruct the president’s privatization drive. Early in his administration, Ramos sought the privatization of the Philippine National Bank (PNB). According to Hutchcroft, “the PNB had long been known as an institution where it is ‘difficult to borrow . . . unless you have phone calls’ from influential persons.”34 The privatization of the PNB hit a snag in 1994, however, when congress passed a Sugar Restitution Law compensating sugar farmers for losses suffered under the Marcos regime, when they were required to sell all their output to the government-run National Sugar Trading Corporation.35 Compensation took the form of requiring the PNB to restructure its loans to the sugar farmers at concessionary rates, a requirement that made the bank less attractive to prospective buyers. This episode, then, can be considered a case of legislators defending elite interests in the sugar sector, historically one of the most powerful in the Philippines, against one of the president’s reform initiatives. Despite this case of discord between legislators and the president, in general 31. EIU, Country Report: Philippines, fourth quarter 1993, 16; EIU, Country Report: Philippines, first quarter 1997, 23. 32. Sheila Coronel, “Cavite: The Killing Fields of Commerce,” in Lacaba, Boss, 1–29. 33. EIU, Country Report: Philippines, second quarter 1993, 11. 34. Hutchcroft, Booty Capitalism, 187. 35. EIU, Country Report: Philippines, third quarter 1994, 11.
Eaton Chapter 8 5/13/02 12:17 AM Page 247
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
247
it was the supreme court that emerged as a more important obstacle to privatization in the Philippines, ruling against several high-profile measures, including the telecom deregulation discussed earlier, the privatization of the Manila Hotel, and the 1997 oil deregulation law. Pork-Barrel Reforms Attempts to eliminate or reduce the pork-barrel funds distributed each year to legislators offer another area in which to explore the impact of legislators’ institutional incentives. Early in his administration, President Ramos actually increased the size and number of pork-barrel funds as a way of creating a majority for his Lakas party, designed in turn to facilitate the passage of economic reforms.36 Midway through his term, however, a series of scandals over the illegal use of CDF by some legislators focused growing attention on the very existence of these funds.37 In keeping with the greater dependence of legislators in the lower chamber on these funds and senators’ greater interest in public-regarding policies, the senate proposed the abolition of CDF in its 1996 deliberations on the 1997 budget. The house of representatives responded by holding the budget hostage, effectively refusing to appropriate any monies for the coming fiscal year until its pork-barrel funds were restored. Because in the absence of a new budget in the Philippines the previous year’s budget is used, the CDF program would have reverted to 1996 funding levels. In response, the president threatened not to release any pork-barrel funds in the first quarter of the year if congress continued to delay the budget’s approval.38 After several exchanges of this sort, the house agreed to a 10 percent reduction in these funds against a 40 percent cut for the senate.39 This moderate restraint did not last long; Gutierrez reported a 189 percent increase in pork-barrel funds in the 1998 budget relative to the preceding year.40 A more sweeping attempt to eliminate the pork barrel dominated Joseph Estrada’s first year as president. Elected in May 1998 in a landslide, Estrada campaigned on a pro-poor platform and was generally perceived as hostile to the liberalizing reforms initiated by his predecessor, though during the campaign he also tried to reassure foreign investors that he would not 36. 37. 38. 39. 40.
See discussion in Chapter 4 above. Parreño, “Pork.” J. P. Saspa, “The Stinking Pork War,” Philippines Free Press, January 18, 1997, 14. Miranda, “The Politics of Pork.” Eric Gutierrez, “The Public Purse,” in Coronel, Pork and Other Perks, 61.
Eaton Chapter 8 5/13/02 12:17 AM Page 248
248
CONCLUSION
reverse Ramos’s reforms. In practice, Estrada’s two and a half years in power witnessed neither the repeal of Ramos-era policies, to the great chagrin of the progressives who joined his cabinet and supported his election, nor the continued pursuit of liberalizing reforms. In the end, the cronyism and corruption of the administration not only overshadowed policy reforms, but led to the removal of Estrada from the presidency in January 2001 through a broad mobilization of civil society. Thus the dynamic between 1992 and 1998 of a reformist president pitted against an obstructionist congress was replaced after 1998 by an ideologically incoherent and profoundly venal president who demanded from congress very little in the way of policy reform.41 Because of Estrada’s disinterest in reforms that reduced the scope for particularism, which rendered congress’s traditional opposition to such reforms mostly irrelevant, his administration is not a critical one for this study. Despite the generally lackluster reform agenda of the aborted Estrada administration, however, one attempt at policy reform is relevant for this analysis. Both during his campaign and in his inaugural speech, Estrada promised to end “pork-barrel politics” in the Philippines. In 1998, revenue shortfalls resulting from the limited success of tax reforms in the Ramos administration and the Asian financial crisis put additional pressure on the budget. In what amounted to Estrada’s boldest reform proposal, he completely omitted the CDF program from the 1999 budget submitted to congress in late 1998. As explained in Chapter 5, CDF monies were evenly distributed among all legislators for spending projects in their home districts. In place of CDF monies, Estrada proposed a variety of funds for rural and urban development that would be exclusively administered by the executive branch.42 Given the necessity of using pork-barrel funds to build legislative support for any policy reform, so amply demonstrated in the Ramos period, Estrada’s frontal assault on the existing system is yet another reflection of his disinterest in pushing policy reforms forward. Unsurprisingly, Estrada’s proposals provoked the wrath of representatives, who in response threatened not to approve the president’s cabinet and declined to pass the budget until well into 1999. Ultimately, to get the budget passed, the budget secretary Benjamin Diokno negotiated a compromise deal according to which each legislator received pork-barrel funds, though 41. Interview with Dean Rafael Fabella, University of the Philippines, School of Economics, Quezon City, November 21, 2000. 42. EIU, Country Report: Philippines, fourth quarter 1998, 15.
Eaton Chapter 8 5/13/02 12:17 AM Page 249
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
249
they could be used only on projects in three priority areas defined by the president. These were the rural urban infrastructure fund, the food security fund, and an antipoverty fund. In practice, because of the broad nature of these categories, this requirement did not constrain how legislators used pork funds. As Manasan argued, reliance on the pork barrel actually increased as a result of this change: These three new funds represented three times the annual average expenditure on CDF funds between 1992 and 1998.43 Though no longer called by the same name, pork-barrel politics are very much alive in the Philippines because of concerted congressional action in their defense.44 Characterizing the Philippine Experience This survey of reform experiences in the Philippines reveals a great deal of consistency in legislators’ preferences across a range of policy areas. The same particularistic incentives that encouraged Philippine representatives to oppose broader tax bases and more vigorous tax collection also motivated their behavior in other policy areas where divisible policy goods were at stake. As in the case of fiscal reform, the fact that Ramos’s party held a majority of seats in the house was by no means a guarantee that his proposals would be welcomed there. Representatives’ attempts to defend policy favors for particular economic interests routinely generated the most challenging obstacles to executive-branch reform proposals. Although representatives’ interest in particularistic policies did not seem to vary in important ways, how legislators acted on these preferences did change, with important implications for reform outcomes. Sometimes legislators were willing to endorse presidential proposals they did not much like in exchange for pork-barrel releases. Examples include the passage of the Uruguay round of the GATT, in addition to the EVAT bill discussed in Part II. At other times, this exchange was insufficient to secure legislative approval of policy reforms, and additional substantive compromises took place, similar to the passage of the “improved” value-added tax bill. Examples include the Central Bank Act and banking liberalization. The result is significant variation in the extent of reform across the policy landscape: no progress in eliminating pork funds from the budget, limited success in tax reform, moderate 43. Interview with Rosario Manasan, Makati, November 22, 2000. 44. EIU, Country Report: Philippines, first quarter 1999, 14; and EIU, Country Report: Philippines, April 2000, 18.
Eaton Chapter 8 5/13/02 12:17 AM Page 250
250
CONCLUSION
success in financial and trade liberalization, and significant success in privatization and deregulation where congressional participation was limited. Even in areas where the strategic release of pork-barrel funds was sufficient to get reforms passed, the scarcity of budgetary funds and the inevitable delays produced by the negotiation of these deals seriously constrained the amount of policy reform that Ramos was able to achieve. By attributing reform failures to the underlying political incentives facing legislators, the results of this survey support Rocamora’s argument that deeper economic reforms in the Philippines require the prior introduction of equally profound political reforms.45 President Ramos did propose some political reforms in his administration, including bills countering political dynasties and implementing the party-list seats called for in the 1987 constitution. Ramos failed to push these political reforms aggressively, however, instead subjugating changes in the electoral system to his deeper interest in economic reform. Rather than attempt to reform the existing political system by eliminating the sources of legislative particularism, he decided to use legislators’ need for highly distributive policies as a way of building support for his economic reforms. By playing to the traditional orientation of legislators, Ramos strengthened the predominance of particularism in the political system. Without deep political reforms, it is hard to imagine a president in the future completing the first-stage reforms begun by Ramos, let alone beginning the whole range of second-stage reforms in the bureaucracy and judiciary that are necessary for broad based, sustainable economic growth. Ramos, in addition to soft-pedaling political reforms, eventually sacrificed economic reform to his own political ambition after aggressively fighting for economic reforms in the first four years of his administration. The last two years of Ramos’s term were consumed with his ultimately unsuccessful attempt to change the 1987 constitution to remove the single-term limit on the presidency. Once Ramos floated the idea in late 1996, this issue quickly came to dominate the congress amid rumors that the executive and legislative branches were negotiating a quid pro quo according to which term limits would be lifted for both legislators and the president. There are suggestive parallels with Argentina, because both Presidents Menem and Ramos based their attempts to change the constitution to facilitate reelection on their credentials as economic reformers. The attempt failed in the Philippines, however, where Marcos’s ability to perpetuate himself in power 45. Joel Rocamora, “Dodging the Authoritarian Temptation,” Politik 2, 2 (November 1995): 43.
Eaton Chapter 8 5/13/02 12:17 AM Page 251
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
251
for two decades through constitutional tinkering undercut popular support for the lifting of term limits. Ultimately, Ramos’s attempt to stay in power only distracted legislators from the many policy reform proposals still sitting in the legislature.
Argentine Reform Experiences in Other Policy Areas In Argentina, party-centered electoral incentives shaped legislators’ responses in many other reform areas. A disciplined response by governing-party legislators to President Menem’s various proposals was not limited to the case of tax reform; there were attempts by Peronists legislators, in the confines of party discipline, to use the policy process in ways that defended and promoted the interests of their provinces. Thus the following survey offers additional support for this study’s claim that political institutions shape both the preferences and the behavior of legislators in congress. In different policy areas, Peronist legislators offered solid support for the broad shift toward more universal and less particularistic policies, especially in President Menem’s first term. A case in point is the omnibus economic legislation passed by the legislature a few months after Menem took office in 1989, which both directly terminated many particularistic uses of the state apparatus and delegated authority to the president to eliminate still others. With this delegated authority, the president revoked all subsidies to the private sector, suspended earmarked funds for highways and other infrastructure, and froze public-sector employment levels.46 Supporting these and other policy measures would have proved acutely difficult for legislators who needed to take personal credit in the policy process. Currency Reform At the heart of Argentina’s economic transformation in the early 1990s was the 1991 adoption of the Convertibility Law, through which the government created a new currency, the peso, and pegged it to the dollar at one-toone parity. During the Alfonsín administration, currency volatility had contributed enormously to the capital flight and hyperinflation that plagued the country. According to the convertibility plan, the central bank would maintain dollar reserves to back up fully all pesos in circulation, preventing 46. Anales de Legislación Argentina 49C (1989): 2444–78.
Eaton Chapter 8 5/13/02 12:17 AM Page 252
252
CONCLUSION
the speculative behavior that had systematically undermined currency stability in the past. Also unlike previous systems, the central bank was legally barred from printing money to cover budget deficits, unless it could fully offset expansions in the money supply with foreign reserves. By preventing the government from printing money as a response to conflicts over scarce resources, convertibility ushered in a remarkable period of price stability. In Argentina as in most countries, control over exchange rates and over the exchange rate regime itself is centralized in the executive branch. Throughout the country’s history, the often-dizzying changes imposed on the currency were the result of unilateral actions by the president’s top ministers. In the stop-and-go cycles that plagued Argentina’s history, trade deficits regularly provoked widespread fears that the government would resort to devaluation to close the balance of payments. That presidents could unilaterally devalue worsened investors’ fears about the stability of the currency. For this reason, as Corrales argued, the Peronists decided to try to break this cycle in the early 1990s by introducing the new currency system through statute change, involving the legislature in the adoption of the convertibility plan as a means of underlining the government’s commitment to currency stability.47 Subsequent to the Convertibility Law, Peronist legislators in 1992 also approved a new law granting greater independence to the central bank and imposing new restrictions on its lending to the government.48 Given Peronist party discipline, the involvement of legislators could not guarantee the maintenance of convertibility in the event that President Menem himself decided to abandon it at a later date. If Menem decided to devalue in the following years in response to the problems convertibility created, including a gradual overvaluation of the currency that penalized exporters, he probably could have convinced the Peronist rank-and-file to support him. Identifying the legislature as a veto player in future exchange-rate changes, however, served to increase the cost of abandoning the system down the line. As the economic minister Cavallo argued, “To pass bills is rather more difficult than to issue decrees. But ruling through laws produces greater legal stability because it creates a sense of more sound and permanent solutions.”49 The significant role that the legislature played in this reform episode is thus a powerful challenge to the view of Argentine legislators as insignificant policy actors. That legislators shaped policy outcomes 47. Javier Corrales, “Why Argentines Followed Cavallo.” 48. EIU, Country Report: Argentina no. 4, 1992, 12. 49. Quoted in Ferreira Rubio and Goretti, “When the President Governs Alone,” 36.
Eaton Chapter 8 5/13/02 12:17 AM Page 253
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
253
in this area was the result not of any modifications they made in debating a presidential proposal, but rather the result of approving a proposal that legally required no congressional participation. Deregulation and Privatization At first glance, deregulation and privatization appear to be two critical policy areas in which congressional participation was limited in Argentina. The first half of Menem’s first term as president witnessed a tremendous amount of deregulation, tantamount to a dramatic retreat of the state from the market. Most deregulation took place through presidential decrees, which raises the question of why more such changes were not passed by the legislature and whether these decrees suggest opposition to deregulation by Peronist legislators. In general, these decrees took two forms. The first type of decree represented constitutional uses of authority expressly delegated by congress in 1989. For example, with this authority Menem revoked a law that obliged the government to contract with local suppliers.50 This measure alone was a significant blow to the patria contratista, a term used in Argentina to refer to the sweetheart deals signed between well-connected companies and stateowned enterprises, according to which the former systematically overbilled the latter for services performed and goods delivered. Although such decrees enjoyed prior congressional authorization, other decrees called necessary and urgent decrees (NUDs) were potentially more troubling for legislators. Argentine presidents had long issued such decrees despite the fact that they were not sanctioned by the constitution before its reform in 1994. The use of NUDs exploded in Menem’s first term, and many of these decrees were regulatory in nature. A single NUD in 1991 deregulated professional practices, the sale of medicines, and the transport of goods, in addition to closing ten existing regulatory and audit agencies.51 Congress could have acted on these NUDs either by ratifying them or rejecting them with statutes that replaced the decrees. In the end, as Ferreira and Goretti noted, congress declined to act on over 90 percent of the NUDs.52 This dependence on decrees of questionable legality seriously contradicted the administration’s statements about the superiority of statute changes relative to decrees. Nevertheless, that the Peronist majority in the legislature chose not to repeal these NUDs can 50. Anales de Legislación Argentina 49C (1989): 2444–78. 51. Ferreira and Goretti, “When the President Governs Alone,” 48. 52. Ferreira and Goretti, “When the President Governs Alone,” 54.
Eaton Chapter 8 5/13/02 12:17 AM Page 254
254
CONCLUSION
be interpreted as evidence of the compatibility between their own political interests and the content of the president’s reform proposals. With respect to privatization, the legislature’s role was initially limited, though it expanded to acquire greater salience. In the early phase of Menem’s first administration, the extent of congress’s participation in privatization was to pass the state reform law, according to which it delegated authority to the president to privatize the various state-owned enterprises listed in the appendix to the law. Through this delegation, the executive branch also acquired the right to declare a six-month state emergency in any public enterprise, which could subsequently be declared “subject to privatization.” The terms according to which each enterprise was privatized remained highly centralized in the executive branch, with limited congressional oversight. Beyond granting blanket authority, then, congress was largely bypassed in the privatization of such important sectors as telecommunications, airlines, and railways. After the passage of the state reform law in 1989, however, congress became increasingly engaged in the president’s privatization proposals. In her study of the privatization process in Argentina, Llanos distinguished between the delegation phase, of which the state reform law was characteristic, and a second phase characterized by more negotiation between the branches over the design of privatization. In contrast to the state reform law, Llanos noted that congress spent considerable time debating subsequent privatizations, as much as seventeen months in the case of the privatization of ministry of defense assets and twenty months for the privatization of the ports. Though the Peronist legislators ultimately approved all ten privatization bills that Menem sent to congress in his first term, it introduced modifications to each one. In five cases, subsequent partial vetoes by the president reversed at least some of these modifications, but in another five cases, congressional modifications were preserved.53 In addition to modifying individual privatization bills, in 1991 congress passed a law directing 30 percent of income from privatizations to a social security pension fund.54 Though Peronist legislators sought to shape the privatization process in Menem’s first term by introducing modifications, they offered strong support for the president’s overall privatization drive. This generally supportive stance disappeared in the president’s second term, however, as sharp con53. Mariana Llanos, “Privatization and Democracy: A Study of the Legislative Process for State Reform in Argentina (1983–1997)” (D. Phil. thesis, Oxford University, April 1998). 54. EIU, Country Report: Argentina no. 3, 1991, 14.
Eaton Chapter 8 5/13/02 12:17 AM Page 255
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
255
flicts developed between the executive branch and Peronist legislators over further privatizations. Opposition by Peronist legislators in the lower chamber to the privatization of the postal system in 1995 led the administration to withdraw its proposals from the legislature. Continued opposition to the privatization of the postal system eventually led Menem to issue an executive decree allowing the concession of postal services to the private sector for a period of thirty years. Likewise, when Peronist legislators opposed the transfer of airports to the private sector later in his term, Menem privatized them through a decree.55 Though the legislature agreed to privatize nuclear power stations in 1997, resistance to the privatization of the Yacyretá hydroelectric dam emerged as a major source of tension in the governing party for the remainder of Menem’s second term, particularly once the Peronists lost their congressional majority in the October 1997 midterm elections.56 Budgetary Policy Budgetary policy acquired an enormous degree of importance in the 1990s, in large part because the maintenance of price stability through currency convertibility made it impossible for the government to print money as a way of closing fiscal deficits. The overriding goal of price stability thus placed a premium on the ability of governing-party legislators to show restraint toward the budget. According to Jones’s study of the Argentine budget process, when the executive branch submitted to congress the budget it had drafted in consultation with the various ministries, individual Peronist legislators respected the terms of this budget and declined to introduce significant modifications.57 Given the extent to which the governing party used price stability as a winning electoral issue, respect for the budget parameters adopted by the party leadership was a highly rational strategy for individual legislators. Party discipline, however, does not mean that legislators failed to influence the budget process. At first glance, the absence of significant lobbying during budget deliberations seems to support the view of congress as irrelevant. As Jones noted, however, legislators did have input, but at the earlier stage of the budget’s drafting, during which legislators lobbied bureaucratic agencies to direct budgetary funds toward projects in their provinces. 55. EIU, Country Report: Argentina, second quarter 1997, 26. 56. EIU, Country Report: Argentina, second quarter 1997, 26. 57. Jones, “Political Institutions.”
Eaton Chapter 8 5/13/02 12:17 AM Page 256
256
CONCLUSION
Once ministers responded to legislators’ lobbying for their provinces in the drafting of the budget, relatively little was changed either in committee or on the floor of congress.58 As evidence for the success of these lobbying efforts, budgetary data show that in the 1990s there was a direct relationship between a province’s contribution to the Peronist party bloc in the legislature and the funds it received from the federal government.59 According to Jones, by incorporating legislators’ demands in proportion to their importance to the party, Menem was able to secure the timely passage of the budget, itself a major departure from the 1980s when budgets were often approved as late as October. As in other policy areas, however, discord over the budget between the president and the legislature tended to increase through time. A case in point is the ability of legislators to override Menem’s veto of changes they made to the budget for 1999, Menem’s last year as president. The impact of political institutions on the budget can also be seen in the special treatment afforded to some provinces at the expense of others. Sawers presented numerous examples of budgetary policies that benefited the interior provinces out of proportion to their population, which he attributed to malapportionment in both federal legislative chambers.60 According to Tommasi and Spiller, the impact of institutions that magnify the political power of interior provinces can be seen in the difficulties Menem faced after 1993 when he attempted to force these provinces to implement a series of economic reforms.61 Defending Provincial Interests Attempts by governing-party legislators to promote provincial interests were not limited to budgetary matters. For example, throughout the 1990s legislators from tobacco-producing provinces steadfastly resisted attempts by the executive branch to eliminate a special fund that channeled revenues from cigarette taxes directly to provincial tobacco growers. When Menem diverted revenues from this fund to the national treasury in 1991 and 1992, congress responded in 1993 by passing a law that increased the cigarette tax to restore these lost revenues. Though cigarette manufacturers lobbied the
58. 59. 60. 61.
Jones, “Political Institutions,” 163. Jones, “Political Institutions,” 175–81. Sawers, The Other Argentina, 239–41. Tommasi and Spiller, Las fuentes institucionales, 136–40.
Eaton Chapter 8 5/13/02 12:17 AM Page 257
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
257
president heavily against this tax, the political reality of strong support for this measure by Peronist legislators prevented him from vetoing the bill.62 Social security reforms in 1993 also provide evidence for the importance of legislators’ provincial profiles. In response to Menem’s attempt to lower employers’ social security contributions to improve the business climate in Argentina, Peronist legislators from the interior successfully tied the size of the reduction to businesses’ locations. Effectively, businesses received greater deductions the farther away they relocated from the capital.63 In addition, Peronist legislators altered the terms of social security privatization by enabling provincial governments to offer retirement accounts in the new mixed system.64 The privatization of state-owned enterprises also reflects the operation of legislators’ provincial interests. For example, when reviewing presidential proposals for the privatization of Gas del Estado, Peronist legislators introduced changes that increased provincial shares in the proceeds from privatization, compensated provincial governments for future tariff increases, and granted provincial governments representation in the new regulatory body set up to monitor the gas industry.65 The legislature also promoted provincial interests in its modification of the oil privatization law in 1992, according to which the former state-owned oil company, Yacimientos Petrolíferos Fiscales, was forced to share with the provinces proceeds from any exploitation licenses it granted.66 More generally, legislators faced electoral incentives to protect their provinces from some of the harsh effects of the president’s broad neoliberal reform agenda. For example, Gibson argued that the president was able to maintain Peronist legislators’ support for a variety of economic reforms by strategically privileging the party’s “peripheral coalition” in the less developed provinces over its “metropolitan coalition” in the most advanced provinces.67 According to Gibson, in the early stage of his government Menem pursued reforms that harmed the metropolitan coalition and upset Peronist legislators from the advanced provinces, but postponed structural adjustments in the 62. Vanesa Isabel Kolodziej, “Fondo especial tabaco: El premio mayor” (Special tobacco fund: The big prize) (unpublished manuscript, Universidad de San Andres, March 1998), 40. 63. Cambios estructurales en la relación nación-provincias (Structural changes in nationalprovincial relations) (Ministerio de Economía y Obras y Servicios Públicos; Buenos Aires: Lugar Editorial, 1994), 113–18. 64. Llanos, Privatization and Democracy, 203. 65. Llanos, Privatization and Democracy, 187–89. 66. Llanos, Privatization and Democracy, 193. 67. Gibson, “The Populist Road.”
Eaton Chapter 8 5/13/02 12:17 AM Page 258
258
CONCLUSION
poorer provinces to maintain the critical support of Peronist legislators from these provinces. Only later, once the reforms had delivered growth and thus political support in the advanced provinces, did Menem force structural adjustment onto the “peripheral coalition.”68 Labor Reform The pursuit of provincial interests, however, does not explain all tensions in the governing party over the course of the 1990s. Sometimes conflict between Peronist legislators and the president cannot be traced to party and electoral incentives. The most important example, and the greatest source of tension between President Menem and his co-partisans in congress, concerned the area of labor reform. Reforms to the labor code emerged as a critical issue in Menem’s presidency for two important reasons. First, the historically high levels of unemployment in Argentina that resulted from privatization and tariff liberalization focused attention on the various rigidities in the labor market that kept employment rates low. Second, because the country’s fixed convertibility regime eliminated the exchange rate as a tool to promote exports, Menem proposed labor reforms as a way of reducing the costs facing exporters (el costo argentino) without actually devaluing. Labor market reform to lower these costs was particularly attractive to the government because fiscal constraints made it difficult to support exporters through such traditional means as capital investments in infrastructure. Given these overarching constraints and goals, Menem proposed a series of labor reforms in his first and second administrations. The most important reform proposals involved shifting collective bargaining from the industry level to the firm level, making it easier for firms to hire temporary workers and reducing the compensation employers owed to the workers they fired. A second set of reform proposals centered around the unions’ obras sociales, health and recreational activities run by each major trade union and financed by the compulsory contributions of each union’s members. Menem proposed giving workers the right to choose which obra social received their individual contributions, a measure that introduced competition and undercut the position of labor leaders.69 Peronist legislators responded to these proposals with a hostility generally absent from other policy areas. Changes in labor legislation that would 68. Gibson, “Federalism and Electoral Coalitions.” 69. Tommasi and Spiller found that Menem made in the area of labor market flexibility some limited progress, but much less progress in his attempts to redesign the very organization of unions. See Tommassi and Spiller, Las fuentes institucionales, 132–36.
Eaton Chapter 8 5/13/02 12:17 AM Page 259
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
259
have reduced the scope for particularistic distinctions among different labor unions met with much resistance by Peronist legislators throughout Menem’s two administrations.70 According to Tommasi and Spiller, of the twenty labor bills Menem sent to congress in his first term, only eight were approved in some form.71 Faced with this opposition, Menem issued several important decrees in the labor area. For example, in 1991 his decrees temporarily shifted collective bargaining to the firm level, transferred some responsibilities for managing the obras sociales to the minister of labor, and linked certain wage settlements to productivity gains.72 By canceling the debts of unions affiliated with the proadministration wing of the Confederación General del Trabajo (General Labor Confederation), Menem was able to secure passage in 1991 of a new law that made additional types of contracts possible.73 In March 1995, at a moment when Menem’s power as party leader was at a high point because of the approaching May elections, Peronist legislators agreed to some flexibilization of employment terms for small- and mediumsize businesses.74 Deeper and more permanent reforms that decentralized negotiations over labor contracts, however, were effectively tabled by congressional opposition. The salience of interbranch and intraparty conflict over labor policy increased in Menem’s second term as unemployment worsened and as the gradual appreciation of the currency increased the difficulties facing exporters. In the end, Menem had to withdraw proposals to deregulate the unions’ health funds and had to agree to measures diametrically opposed to his initial reform proposals. An important example in this respect is the so-called ultra-activity clause, according to which existing labor contracts remained in force if there was no new agreement following their expiration.75 Although in some respects conflict over labor reform became more salient in his second administration, what is most striking is the degree to which it consistently provoked friction between the president and the Peronist bloc in the legislature. Unlike the experience with tax reform in which disputes developed in Menem’s second term, resistance to his labor reform proposals cannot be attributed to his declining power as party leader from one term to the next. From the very beginning, Peronist legislators were 70. Palermo and Novaro, Pólitica y poder, 260. 71. Tommasi and Spiller, Las fuentes institucionales, 133. 72. EIU, Country Report: Argentina no. 3, 1991, 16; EIU, Country Report: Argentina no. 4, 1991, 11. 73. Victoria Murillo, Labor Unions, Partisan Coalitions, and Market Reform in Latin America (New York: Cambridge University Press, 2000). 74. EIU, Country Report: Argentina, first quarter 1995, 9, 12. 75. EIU, Country Report: Argentina, third quarter 1998, 17.
Eaton Chapter 8 5/13/02 12:17 AM Page 260
260
CONCLUSION
reluctant to pass most of his labor reform proposals, even subject to amendments. A number of factors may explain the unique response elicited by labor market reforms among Peronist legislators. First, though virtually all of Menem’s economic reforms contradicted traditional Peronist policy stances, proposals that significantly reduced protections for the formal urban labor sector affected the very core of Peronism. Second, though the Peronist party did not draw its legislators from the unions as regularly as it had in the past, approximately twenty Peronist legislators were still labor leaders in Menem’s first term.76 Given comparatively low reelection rates in Argentina, returning to a leadership position in the Peronist union structure was a likely future career path for these legislators.77 Jones showed that five Peronist legislators from the class of 1991–1995 were union leaders as of mid-1998.78 Thus, appreciating the trajectory of legislators’ political careers is still central to understanding legislative behavior in the labor reform area. In addition to labor reform, another issue that created much interbranch conflict was the long debate over a new patents law to protect intellectual property rights, which the U.S. government demanded and President Menem endorsed. After a long series of vetoes and overrides, the resistance of legislators to the president’s more liberal patents law resulted in legislation that provided several protections for the domestic pharmaceutical companies that lobbied congress.79 Though this important case suggests that party and electoral incentives were not the only sources of legislators’ policy preferences, it supports the argument that the policy roles of Argentine legislators are more significant than one gathers from theories that attribute political responsibility for economic policymaking to the president alone. Characterizing Reform in Argentina Broad support by governing-party legislators for the president’s policy initiatives helps explain the two most outstanding aspects of the economic reform 76. Palermo and Novaro, Política y poder, 260. See also McGuire, Peronism Without Perón. For an account of how Peronist labor unions responded to these reforms, see Murrillo, “From Populism to Neoliberalism.” 77. Interviews with Juan Carlos Taparelli, former Peronist congressman from the province of Santa Fé and chief adviser to the committee on industry in the chamber of deputies, July 5, 1996; and Ana María Mosso, Peronist deputy (1997–2000) and economic minister of the province of Mendoza (1996–97), Buenos Aires, August 12, 1999. 78. Jones, “Explaining the High Level of Party Discipline.” 79. Tomás Eric Murphy, “Un análisis económico del proceso de formación de las leyes: El caso de la ley de patentes en la Argentina” (Economic analysis of the lawmaking process: The
Eaton Chapter 8 5/13/02 12:17 AM Page 261
OTHER REFORM ARENAS IN PHILIPPINES AND ARGENTINA
261
process in Argentina: its swiftness and its comprehensiveness. The hierarchical nature of party and electoral incentives in Argentina prevented the president from having to negotiate at length with individual legislators to build support for his proposed statute changes in congress. Not only did these incentives enable the timely passage of Menem’s reforms, but they also bolstered the president’s ability to sequence reform, relatively secure in the confidence that governing-party legislators would approve his proposals in the order he chose to submit them to congress. The same disinterest in securing personal votes that facilitated tax reform made it possible for Menem to pursue an ideologically coherent and comprehensive package of reforms across many distinct policy areas. Though other countries in Latin America experienced equally comprehensive reforms in the 1980s and 1990s, including Chile, Mexico, and Peru, Argentina’s transformation occurred under the auspices of democratic government. Without reference to Argentina’s party and electoral incentives, it is difficult to understand how such comprehensive economic reforms could take place in the context of democracy. That President Menem could confidently expect policy support from his co-partisans in the legislature also enabled him to take advantage of the synergistic effects of and complementarities between different policy reforms. For example, Menem had to worry less about the negative impact of trade liberalization on revenues, which regularly surfaced as a hindrance to trade liberalization in other countries, because he could trust governing-party legislators to expedite reforms that augmented tax revenues. Likewise, that Menem could mostly count on the Peronist majority to respect the parameters of the budget bill worked out before its submission to congress, and not to engage in budget-busting defections on the floor, allowed the president to defend the country’s currency system. These examples offer a stark contrast to the Philippines, where candidate-centered incentives forced the president to painstakingly piece together coalitions on an issue-by-issue basis and to delay the introduction of new reform measures when old reform coalitions unraveled and had to be restructured. This policy survey also offers further evidence for the existence of crosstemporal variation in governing-party legislators’ support for the president’s policy proposals. It was not just in the area of taxation that President Menem’s lame duck status lessened his ability to command the Peronist bloc in the legislature after 1995. A similar dynamic can be seen in the area of case of the patents law in Argentina) (unpublished manuscript, Universidad de San Andres, March 1997).
Eaton Chapter 8 5/13/02 12:17 AM Page 262
262
CONCLUSION
privatization and in the legislators’ increasingly bold attempts to use the federal budget to pursue provincial interests against the wishes of the executive branch. A similar dynamic also appears in the area of civil service reform. According to Rinne, Menem’s ability to secure legislative support for these proposals in his first term contrasts starkly with the intraparty difficulties he faced after reelection in 1995.80
Conclusion Although, for the reasons presented in Chapter 3, fiscal policy lends itself especially well to the hypotheses under review here, the general theoretical framework helps illuminate legislators’ general policy proclivities. The same party and electoral incentives that shaped legislators’ fiscal-policy preferences also help us understand their responses to a whole range of contemporary policy reforms. The ability of a limited set of institutional incentives to illuminate reform experiences in such different policy areas speaks to the parsimony of this approach. Though it can illuminate the general contours of legislators’ responses to policy reform, however, institutional incentives cannot account for the full complexity of their preferences and behavior in all policy areas. This survey of policy reforms suggests that analysts must take contextual matters and the nuances of different policy areas into account. For example, despite adopting consistently particularistic policy preferences, representatives in the Philippines did not act on these preferences with absolute consistency. Though their particularistic preferences were always a major obstacle with which the president had to contend, he could purchase their acquiescence by releasing pork-barrel funds in some policy areas, but not in others. In Argentina, party and electoral incentives that gave President Menem tremendous authority over the rank-and-file help explain the disciplined response of Peronist legislators to currency reform, deregulation, and budgetary policies, but offer less insight in the area of labor reform and patents. Perhaps no single analytical approach can explain legislative behavior in all its complexity while remaining sufficiently tractable and coherent. By demonstrating the power of an institutional approach as well as some of its limits, this survey affirms the need to study legislative behavior in new democracies by applying a variety of interpretative approaches in a variety of policy areas. 80. Jeffrey Rinne, “Redesigning the State in Latin America: Pundits, Policymakers, and Organized Labor in Argentina and Brazil” (Ph.D. diss., Princeton University, June 2001).
Eaton Chapter 9
5/24/02
10:13 AM
Page 263
9 TAX REFORMS IN OTHER DEVELOPING COUNTRIES
In the previous chapter, I offered additional empirical support for an institutional approach to economic policymaking by showing how legislators responded to candidate-centered incentives in the Philippines and to party-centered incentives in Argentina, in a range of policy areas. The hostility of Philippine representatives to tax reform mirrored their opposition to reform proposals that also diminished their ability to use the state in the construction of their own support networks. The same discipline that facilitated support for tax reform by governing-party legislators in Argentina paved the way for rapid and comprehensive reforms in most other key policy areas. Another way to expand the number of empirical observations that can be used to evaluate the merits of this institutional approach is to study similar reform experiences in other countries. In other words, whereas the previous chapter looked at other reforms in Argentina and the Philippines, this chapter focuses on tax reforms in other countries. Do candidate-centered incentives consistently encourage legislators to prefer particularistic tax policies, or is this experience unique to the Philippines? If it is not unique, how do legislators
263
Eaton Chapter 9
264
5/24/02
10:13 AM
Page 264
CONCLUSION
act on these preferences in other countries? The Philippine experience suggests that legislators oriented toward particularism engage in a variety of strategies; sometimes they aggressively defend their particularistic preferences and veto the adoption of public-regarding policies, and in other cases side payments can convince them to approve such policies. In this chapter, I also explore experiences with tax reform in countries that employ partycentered electoral institutions. Have these institutions encouraged legislators to support the adoption of broader tax bases in other countries than Argentina? Under what conditions do party-centered electoral institutions enable legislators to internalize the costs of acting collectively on behalf of reforms that generate opposition from powerful economic groups? Three simple rules guided the selection of the four country cases included in this chapter. First, in keeping with the focus on policymaking in separation of powers systems, the countries are all presidential democracies in which presidents and legislators enjoy their policymaking authority as a result of being separately elected by different constituencies. Because legislators in presidential systems are excused from the demands of sustaining the executive branch, which conditions the policymaking behavior of their counterparts in parliamentary systems, presidentialism allows a more straightforward assessment of the impact of party and electoral incentives. Given this analytical focus on democracies that separate power between executive and legislative branches, the countries of Latin America are the most relevant to this exercise. In contrast to the new democracies of Asia, where parliamentary government is the norm, and Africa, where the experience with democratic policymaking is generally limited, presidential democracies dominate in Latin America. As a second rule guiding case selection, comparable cases are ones in which reformist presidents proposed base-broadening tax reforms as a solution to the fiscal crises that exploded in the developing world in the 1980s and 1990s. The presence of base-broadening reform proposals as a selection criterion does not rule out many cases, which is testament to the powerful systemic pressures that forced chief executives to relinquish the earlier dependence on tax exemptions in the import-substitution industrialization (ISI) period. Many chief executives who proposed base broadening, however, did so in the context of political systems that fell short of democratic standards. For example, President Pinochet in Chile, President Fujimori in Peru, and Presidents de la Madrid and Salinas in Mexico were all able to propose and impose base-broadening reforms during periods in which the legislature was either closed (Chile and Peru) or did not operate indepen-
Eaton Chapter 9
5/24/02
10:13 AM
Page 265
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
265
dently of the executive branch (Mexico). Because major tax reforms in Chile, Peru, and Mexico occurred in nondemocratic contexts, these cases cannot be used to evaluate a theory of legislative behavior based on electoral incentives, though subsequent democratization in each country means that the theory can be applied to more recent policy reforms. In picking extra cases in which to evaluate this theory, the existence of a democratically elected legislature proves to be a more limiting selection rule than the proposal of base-broadening reforms. In attempting to determine whether institutional incentives can help us understand the tax reform experiences of other countries, a third selection rule used to pick the cases in this chapter is the availability and quality of the secondary source literature for each country. These sources must provide sufficient information about the operative variables in this study, including the nature of party and electoral incentives, the substance of executive-branch tax proposals, and the responses of legislators to these proposals. Combining these three selection rules yields four Latin American countries whose experiences with tax reform are most relevant for this study: Bolivia, Brazil, Colombia, and Venezuela. As described in greater detail in the sections that follow, the party and electoral incentives in Brazil and Colombia offer the closest approximation to the candidate-centered institutions surrounding legislators in the Philippines.1 Though they both use proportional representation, the electoral systems of Brazil and Colombia encourage intraparty competition among candidates and thus create incentives for legislators to use the policy process for particularistic ends. For the theory to be supported by these additional cases, legislators in each country must adopt particularistic stances in response to the president’s basebroadening proposals, and the imprint of these preferences must be clearly reflected in the content of reform outcomes. With respect to party-centered systems, many Latin American countries use the closed and blocked lists that are the hallmark of disciplined parties, including Bolivia, Venezuela, Costa Rica, and Ecuador.2 In this chapter, I focus 1. Though the use of multiple lists in the same party creates some incentives for the personal vote in Uruguay, in practice party leaders enjoy greater authority over the rank-and-file than their counterparts in Brazil and Colombia. See Charles Gillespie, Negotiating Democracy: Politicians and Generals in Uruguay (Cambridge: Cambridge University Press, 1991), 20, 21; and Luis González, Political Structures and Democracy in Uruguay (Notre Dame: University of Notre Dame Press, 1991). 2. The unavailability of sufficient secondary sources precluded the consideration of several Central American democracies that also employ party-centered electoral systems, including El Salvador and Honduras.
Eaton Chapter 9
266
5/24/02
10:13 AM
Page 266
CONCLUSION
on Bolivia and Venezuela because of the salience of base-broadening proposals in these countries in the 1980s and 1990s and because of these proposals’ relative insignificance in the latter two countries. In Bolivia and Venezuela as in Argentina, party leaders wielded tremendous authority over legislators in their parties who, as a result, faced fewer incentives to personally distinguish themselves in the policy process. For the theory to hold, legislators in Bolivia and Venezuela must provide disciplined support for the base-broadening reforms endorsed by party leaders. As seen in the following country analyses, tax reform outcomes in these four countries have a variety of implications for the institutionalist approach advanced in this study. Some cases provide stronger support for the theory than others, but each yields valuable additional information about the conditions under which party and electoral incentives have the expected impact in each electoral system. In general, the Brazilian experience strongly confirms the expectations of an electoral incentives-based approach to legislative behavior. In Colombia, though candidate-centered incentives have encouraged legislators to adopt particularistic policies, legislators have over the years gradually delegated authority for tax policy to the executive branch in exchange for other fiscal perks that were sufficient to satisfy their interest in particularism. In the party-centered cases, the control of party leaders over the rank-and-file in Bolivia was an essential ingredient in forging the historic interparty Pacto por la Democracia (Pact for Democracy), which facilitated base-broadening tax reforms in the 1980s. In Venezuela, though party-centered incentives encouraged party discipline, factional disputes among the governing-party leadership in the late 1980s and early 1990s led to divisions among the rank-and-file and the defeat of President Carlos Andrés Pérez’s proposals for tax reform. Once these party divisions receded in the wake of the president’s impeachment, however, legislators from his governing Acción Democrática party quickly approved base-broadening reforms.
Tax Reform in Candidate-Centered Electoral Systems Brazil If candidate-centered electoral systems encourage legislators to defend particularistic uses of the state, we can expect evidence of this in the Brazilian case. As Ames demonstrated, party and electoral incentives in Brazil reduce the influence that party leaders wield over legislators and encourage them instead to develop personal reputations as a means of furthering their
Eaton Chapter 9
5/24/02
10:13 AM
Page 267
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
267
careers.3 Though Brazil, like Argentina and most Latin American democracies, uses proportional representation to elect legislators, voters are not presented with closed lists constructed by party leaders. According to Ames, voters have the choice of either voting for a party label or indicating a preference for a particular candidate running under a given party label, with about 90 percent of voters exercising the personal vote.4 In this open-list system, career advancement for legislators depends less on demonstrating loyalty to party leaders than on developing reputations that enable individual candidates to attract personal votes. Furthermore, incumbent legislators cannot be barred from using the party label when they run for reelection, even if they voted against the wishes of party leaders. By undermining party discipline and fragmenting the party system, Brazilian electoral rules are strongly implicated in the many governability problems that have received the attention of such Brazilian experts as Ames, Mainwaring, Power, Samuels, and Weyland.5 Although party and electoral incentives in Brazil limit the power of national party leaders over legislators, legislators in Brazil are not entirely free agents. Unlike in the Philippines, subnational actors in Brazil, in particular the governors who run state governments, exert considerable influence over the legislators who represent their states in the federal assembly. As Samuels’s research into the strength of gubernatorial coattails shows, Brazilian governors’ authority over budgets and public-sector employment enables them to influence the behavior of federal legislators.6 Because governors exert influence over the careers of legislators from their particular states, the electoral system gives Brazilian legislators incentives to further the public finances of the states they represent.7 In this regard, the influence of subna-
3. Ames, The Deadlock of Democracy, 41–43; “The Congressional Connection,” Comparative Politics (January 1987); “Electoral Rules, Constituency Pressures, and Pork Barrel: Bases of Voting in the Brazilian Congress,” Journal of Politics 57, 2 (1995): 324–43; “Electoral Strategy Under Open-List Proportional Representation,” American Journal of Political Science 39, 2 (1995): 406–33. 4. Ames, “Electoral Strategy,” 42. 5. Ames, Deadlock of Democracy; Mainwaring, “Multipartism”; Power, “The Pen Is Mightier Than the Congress”; David Samuels, “Concurrent Elections, Discordant Results: Presidentialism, Federalism, and Governance in Brazil,” Comparative Politics 33, 1 (October 2000); and Weyland, Democracy Without Equity. 6. David Samuels, ‘The Gubernatorial Coattails Effect: Federalism and Congressional Elections in Brazil, Journal of Politics 62, 1 (February 2000): 240–54. For the importance of governors more generally, see Mainwaring, “Multipartism.” 7. Samuels showed that progressive ambition leads legislators back to their states in Brazil, with clear implications for the division of fiscal resources. See David Samuels, “Progressive Ambition, Federalism, and Pork-Barreling in Brazil,” in Morgenstern and Nacif, Legislative Politics, 315–40 .
Eaton Chapter 9
268
5/24/02
10:13 AM
Page 268
CONCLUSION
tional officials over legislators shares some similarities with the Argentine case, though in general Argentine governors can exert greater authority over legislators in their parties than can their Brazilian counterparts.8 In the following paragraphs, I discuss the implications of these incentives for fiscal reform in Brazil. Legislators have consistently defended Brazil’s particularistic tax system in response to the reform proposals of Presidents Fernando Collor (1990–1992), Itamar Franco (1992–1995), and Fernando Henrique Cardoso (1995–1999, 1999–2004). The complex and confusing nature of the Brazilian tax code—an “impenetrable labyrinth” of over fifty different and often narrow tax bases—directly reflects the incentive structure facing Brazilian legislators.9 Unlike in the Philippines, however, Brazilian presidents were sometimes able to negotiate deals with governors according to which governors pressured legislators from their states to support the president’s substantive policy agenda in exchange for various perks for state governments. Though these deals were insufficient for the adoption of comprehensive economic reforms, the ability to construct congressional support via negotiations with subnational chief executives was a power resource that was simply unavailable to Philippine presidents. Despite his abbreviated term of office, President Collor (1990–1992) articulated a clear case for tax-policy reform, which he saw as crucial in solving Brazil’s prolonged economic crisis. Collor proposed streamlining the tax system by eliminating loopholes, cracking down on evasion, and reducing the number of federal taxes from fifteen to eight.10 In the attempt to implement these changes, Collor faced many obstacles, only one of which was the particularistic tax preferences of Brazilian legislators. In addition to the fact that his party held only 40 out of 513 seats in congress, the highly detailed nature of Brazil’s 1988 constitution meant that most of Collor’s proposed tax reforms required constitutional amendments approved by three-fifths of the chamber’s representatives. Though he never received the 60 percent needed to pass his streamlining reforms, in late 1991 Collor did secure congressional approval for an additional U.S.$12 billion in federal tax revenues in exchange for agreeing to roll over a portion of state and municipal debts.11 8. For example, incumbent legislators in Argentina do not enjoy guaranteed spots on their parties’ lists in subsequent elections, unlike legislators in Brazil. 9. Gazeta Mercantil, October 10, 1994. 10. See “Devolution Key Feature of Fiscal Reform,” Latin American Regional Reports— Brazil, RB-92-05, June 4, 1992, 4. 11. “Collor and Congress Swap ‘Presents,’” Latin American Regional Reports—Brazil, RB-92-01, January 8, 1992, 2.
Eaton Chapter 9
5/24/02
10:13 AM
Page 269
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
269
Thus, in contrast to the Philippines, legislators’ support for tax reform in Brazil may be “purchased” not just through pork outlays but through other presidential measures that favor the states. The line of authority over legislators runs through subnational officials in Brazil, but not in the Philippines. Such deals, however, were the exception, and Collor increasingly used provisional measures to decree his tax proposals, including the sharp tax increases associated with his fiscal shock approach. This strategy alienated congress and helped set the political stage for his eventual impeachment. The subsequent caretaker government of President Franco (1992–1994) also provides some support for the argument about legislators’ tax-policy preferences. Faced with a political crisis in addition to an economic one, Franco decided to postpone comprehensive tax reform and relied instead on emergency tax handles, such as a tax on financial transactions. In 1993, legislators agreed to this tax handle in exchange for earmarking revenues, 18 percent for education and 20 percent for the construction of new homes.12 Though these served legislators’ particular expenditure preferences, they did little to help the federal government close the fiscal deficit. At the same time, legislators refused to pass reforms that improved tax collection, such as lifting bank secrecy or setting up special tax tribunals. In early 1994, with inflation running at about 40 percent a month, Franco’s finance minister, Fernando Cardoso, proposed increases in individual and corporate taxes deemed necessary to defend the new currency at a one-to-one parity with the dollar. Cardoso also proposed withholding 15 percent of automatic transfers (U.S.$2.1 billion) to the states and municipalities. In exchange for dropping the latter proposal, legislators agreed to increase personal income taxes and other taxes on high wage earners and rural landowners, but not corporate income or asset taxes.13 This episode is interesting both because members of Franco’s own ruling coalition failed to support the increases in corporate profits and asset taxes and because the president was able to secure at least some increases in exchange for guaranteeing tax transfers to the states. Cardoso’s experience as president (1995 to the present) is more useful in demonstrating legislators’ preferences for a particularistic tax system because he enjoyed much greater support in congress. Five different parties backed Cardoso’s election in 1995, amounting to over 400 of the country’s 570 deputies. Like Ramos in the Philippines and Menem in Argentina, Cardoso 12. “Deputies Approve Quick-Fix Tax,” Latin American Regional Reports—Brazil, RB93-02, February 11, 1993. 13. “Stabilisation Plan Losing Credibility,” Latin American Regional Reports—Brazil, RB94-02, February 17, 1994.
Eaton Chapter 9
270
5/24/02
10:13 AM
Page 270
CONCLUSION
faced a legislature in which legislators affiliated with his party or coalition held the majority. Yet Cardoso faced deep-seated hostility to tax reform.14 Brazil offers powerful support for the point that, in assessing executivelegislative relations, we must focus not simply on the size of the president’s party or coalition but on the microincentives facing individual legislators. In his inaugural speech, Cardoso proposed three priority reforms for his government: social security, decentralization, and a broader-based, streamlined tax system. In the area of fiscal policy, Cardoso articulated the need to reform the chaotic value-added tax (VAT) system, streamline the income tax, improve tax collection, and redesign automatic transfers to subnational governments. Cardoso’s VAT reforms directly reflected the logic of tax simplification. According to Brazil’s complex VAT system, the federal government levies the VAT on a small range of industrialized products, while the council of states, made up of each state’s finance minister, determines the rate and base of the VAT collected by each state. The council often approves requests by the different states for VAT exemptions, which significantly undermines homogeneity in the calculating base and leads to fiscal wars between the states.15 As a solution, President Cardoso proposed merging the states’ VAT (ICMS tax) and the federal VAT (IPI tax) into a single VAT tax, the rate of which would be set by the national senate as opposed to the council of states, and which the federal government would administer.16 This would simplify the system, improve the supervision of VAT compliance, and reduce the scope for politically mediated VAT exemptions. Not surprisingly, congress refused to approve these changes in the interest of reserving for state governors the ability to take political credit for special VAT treatment. Legislators did, however, agree to exempt exports and capital goods from the states’ VAT, which would result in revenue losses for the states. Legislators agreed to these exemptions, however, only once Cardoso agreed to fully compensate the states for these losses.17 Furthermore, when congress passed these exemptions, it also inserted additional tax incentives for the states. To date, Cardoso’s proposals for comprehensive VAT reform have achieved limited success. 14. Though Cardoso’s Social Democratic party (PSDB) won less than 50 percent, it put together a working majority with the Liberal Front party (PFL) and the Brazilian Workers’ party. 15. Anwar Shah, “New Fiscal Federalism in Brazil,” World Bank Discussion Papers no. 124 (1991): 14. 16. “Brasilia Sets Sights on Bigger Tax Share,” Latin American Regional Reports—Brazil, RB-95-08, September 21, 1995, 2. 17. Gazeta Mercantil, April 1, 1997. This is the so-called Kandir law. Interestingly, the legislator most identified with this demand for compensation (Deputy Mussa Demes) is a member of a party (PFL) allied with Cardoso’s PSDB.
Eaton Chapter 9
5/24/02
10:13 AM
Page 271
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
271
Cardoso’s comprehensive income tax proposals have not fared any better. Early in his administration, the president proposed a number of reforms to simplify and broaden the tax base: lowering the top corporate income tax rate from 48 percent to 30 percent, eliminating loopholes and exemptions on profits earned overseas by Brazilian companies, establishing a uniform 15 percent tax on all portfolio investment, and demanding that government suppliers pay all taxes at the time of billing rather than at year’s end. Cardoso was repeatedly prevented from introducing these reforms to congress for fear that they would provoke harsh reactions.18 Instead, Cardoso has very much been on the defensive vis-à-vis tax policy, focusing his efforts on averting congressional attempts to further narrow tax bases. In March 1996, for example, fifty members of congress representing the southern states of Rio Grande do Sul, Santa Catarina, and Parana appealed to the president for corporate income tax incentives to help the region compete with in Mercosur.19 Some months later, congress approved a measure increasing corporate income tax incentives for automobile factories that set up operations in the north.20 Presidential attempts to improve the bureaucratic collection of taxes have also met with the resistance of congress. Cardoso has argued that banksecrecy laws in Brazil seriously constrain administrative efforts to monitor tax compliance. Currently, only judicial authorities and parliamentary inquiries can lift bank secrecy. Consequently, Cardoso has proposed that tax inspectors also have access to confidential information in their pursuit of tax evaders. Unsurprisingly, members of congress have resisted this reform as a change that undercuts their ability to protect instances of evasion by favored constituents. Faced with congressional hostility to the logic of comprehensive tax reform, Cardoso has subsequently focused his efforts on widening the base of Brazil’s many small taxes. For example, his tax reform energies in 1995, 1996, and 1997 were largely devoted to unifying the taxes on small- and mediumsize companies, eliminating loopholes in the taxation of unproductive land, and defending the controversial tax on financial transactions. Analysis of many of these “smaller” reforms reveal the same dynamic at play as in the more important VAT and income tax reforms. In the tax on small- and medium-size enterprises, for instance, Cardoso was unable to defend his 18. According to Latin American Regional Reports, Cardoso decided to postpone introducing his fiscal reforms when his proposed pension reform became bogged down in congress in early 1995. See “Brasilia Sets Sights on Bigger Tax Share,” September 21, 1995, 2. 19. Gazeta Mercantil, March 21, 1996. 20. Gazeta Mercantil, August 2, 1996.
Eaton Chapter 9
272
5/24/02
10:13 AM
Page 272
CONCLUSION
preference for a smaller range of tax rates against legislators’ preferences for a broader range and for higher exemption thresholds.21 Although seemingly insignificant, the nature of these small differences among narrow tax bases accurately reflects a larger reality: Legislators in Brazil are successful in defending their preferences for a more particularistic tax structure. Interbranch conflict in Brazil over narrow tax bases, combined with the lack of movement toward comprehensive fiscal reform, undermined the long-term outlook for Cardoso’s economic stability plan, which was forced to rely heavily on tight monetary policy and exchange rate controls in the absence of serious tax reform. By the end of 1998, as Ames wrote, “tax reform, long regarded as a centerpiece of economic modernization, had disappeared from the executive agenda.22 These results in the tax reform arena are broadly consistent with evidence amassed by Ames showing that, “even with lavish pork-barrel spending,” legislators consistently delayed and obstructed similar reforms.23 With respect to tax revenue sharing, legislators in Brazil have defended automatic revenue transfers from presidential attempts to reduce these transfers. In 1992, Collor supported reducing the size of fiscal transfers to states and municipalities. Throughout his first term as president, Cardoso proposed similar reforms to shore up the fiscal position of the federal government. The steadfast opposition of legislators reflects the nature of their electoral incentives, namely, the influence that state governors wield over legislators from their states. Although Brazilian legislators, like their Philippine counterparts, prefer a particularistic tax structure, they differ from Philippine legislators in their strong support for automatic transfers. In the Philippines, neither provincial governors nor any other subnational party officials enjoy such control over legislators, with the result that automatic transfers threaten legislators because they are likely to be enjoyed not by their political patrons but by political rivals. Colombia The Colombian experience with fiscal reform offers support for the hypothesis that electoral incentives shape the content of legislators’ policy preferences 21. Gazeta Mercantil, November 1, 1996. 22. Ames, Deadlock of Democracy, 2. See also David Samuels, Ambassadors of the States: Federalism, Ambition, and Congressional Politics in Brazil (New York: Cambridge University Press). 23. Ames, Deadlock of Democracy, 192–203; and idem, “Party Discipline in Brazil’s Chamber of Deputies,” in Morgenstern and Nacif, Legislative Politics.
Eaton Chapter 9
5/24/02
10:13 AM
Page 273
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
273
and offers additional information about how they act on these preferences in the policymaking process. Though the behavior of Colombian legislators through the decades reveals their strong preference for particularistic tax policies, actual tax legislation does not substantively reflect these preferences as it does in the Philippines and Brazil. This is not, however, a simple case of an executive branch imposing its tax-policy preferences on an inept or recalcitrant legislature. Instead, Colombian legislators purposefully delegated fiscal-policymaking authority to the president in exchange for access to other perks that met their particularistic needs. The result is the greater insulation of tax policymaking in the executive branch. The important analytical question posed by the Colombian case is why legislators who need to develop personal reputations might eschew opportunities to use the policy process to build these reputations. As is the case in Brazil and the Philippines, party and electoral incentives in Colombia encourage legislators to distinguish themselves by developing personal reputations. The country’s two traditional parties, the Liberals and the Conservatives, are highly factionalized, with separate factions from the same party running different lists in the same district. In Colombia, proportional representation is applied in each district to factional lists rather than party lists, encouraging the proliferation of lists in parties because even lists that win a relatively small percentage of the vote can often get a seat in the legislature.24 Furthermore, party leaders do not control who can use the party label, which is crucial for the imposition of party discipline. As a result, party leaders have very little control over how individual legislators vote, and presidents who are leaders of their parties cannot rely on the support of legislators who are co-partisans. Thus, although both Argentina and Colombia use closed-list proportional representation to elect legislators to the lower chamber, differences in how this system is applied in each country lead to vast differences in electoral incentives and legislators’ policy interests. Beginning with the restoration of democracy in the late 1950s, legislators’ attempts to secure policy favors for their home districts have repeatedly clashed with the reformist proposals of presidents who focused on improving national economic performance.25 In contrast to countries where legislators face particularistic incentives, however, the Colombian result has 24. Ron Archer and Matthew Shugart, “The Unrealized Potential of Presidential Dominance in Colombia,” in Mainwaring and Shugart, Presidentialism and Democracy in Latin America, 110–59. 25. Archer and Shugart, Unrealized Potential; Shugart and Nielson, “Constitutional Change in Colombia.”
Eaton Chapter 9
274
5/24/02
10:13 AM
Page 274
CONCLUSION
not been policy stalemate. In fact, the economic policymaking process in Colombia has long stood out among developing countries for its pragmatism, gradualism, and innovation. As many scholars have noted, in a number of areas Colombian policymakers began discussing new approaches to economic policy decades before their counterparts in neighboring countries.26 Most famously, in the late 1960s, Colombia adopted a crawling-peg exchange rate system to make the country’s exports more competitive in international markets, which distinguished the country as the first in Latin America to shift away from the autarkic development models then dominant in the region.27 Though less commented on, a similar change occurred in the area of fiscal policy. Starting in the early 1970s, Colombian policymakers began adopting the broader tax bases and flatter tax rates that most developing countries began only debating two decades later. Throughout the 1970s, 1980s, and 1990s, policymakers in the executive branch pushed reforms that were piecemeal but guided by the same steady logic of base broadening.28 As a result of the gradual expansion of the VAT and income tax bases, Colombia’s tax system has made it the darling of the public finance experts who have long advocated tax simplification and base broadening.29 As Shome demonstrated, though Colombia and Argentina achieved comparable increases in tax revenues by the early 1990s, the Argentine reform occurred virtually overnight, whereas the Colombian reform occurred over the course of nearly three decades.30 Colombian innovations in fiscal, trade, and other policies can be traced to the adoption of constitutional reforms in 1968, which shifted responsibility for policy design to the executive branch. If legislators used their roles in the policy process to develop personal reputations, why did they agree to these reforms? Mares argued that part of the answer has to do with idiosyncratic factors and Colombia’s unique political institutions. According to 26. Mahon, Mobile Capital; Bresser Pereira, Economic Reforms in New Democracies; and Miguel Urrutia, “On the Absence of Economic Populism in Colombia,” in Rudiger Dornbusch and Sebastian Edwards, Macroeconomic Populism in Latin America (Chicago: University of Chicago Press, 1991), 369–87. 27. David Mares, “Domestic Institutions and Shifts in Trade and Development Policy: Colombia 1951–1968,” in John O’Dell and Thomas Willett, eds., International Trade Policies (Ann Arbor: University of Michigan Press, 1990), 193–223. 28. Parthasarathi Shome, ed., “Comprehensive Tax Reform: The Colombian Experience,” in Occasional Paper 123 (Washington, D.C.: International Monetary Fund, March 1995). 29. Colombia’s tax structure is probably the most studied in the developing world, thanks in part to the pioneering tax missions of Taylor, Musgrave, and Bird. 30. Shome, “Comprehensive Tax Reform.”
Eaton Chapter 9
5/24/02
10:13 AM
Page 275
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
275
Mares, President Carlos Lleras Restrepo threatened to resign if congress did not approve these constitutional reform proposals. Given the National Front institutions that governed Colombia at the time, according to which the Liberals and Conservatives alternated in the presidency and shared legislative power, legislators feared that such a resignation threatened the National Front agreement and their own political livelihoods. Though constitutional reforms sharply expanded the power of the executive branch, Archer and Shugart suggested that legislators designed the delegation of authority to protect their own particularistic interests. Legislators agreed to let presidents set policies by decree, but retained for themselves the right to amend and repeal any uses of decree authority that ran counter to their interests.31 Legislators gave up substantive input in the policy design process, but preserved the right to demand the patronage they continued to need to satisfy their clientelist networks. Viewed in this way, the 1968 delegation can be understood as an institutional solution to the collective-action problem facing legislators who need to develop personal reputations.32 When all legislators seek to secure tax breaks for their constituents, this individually strategic behavior undermines collective outcomes by reducing the amount of fiscal revenues that are then available for pork-barrel projects. By letting the president protect the integrity of the tax system, legislators have more tax revenue for their patronage networks. Through delegation, legislators in effect seek to protect tax policy from their own individual efforts. The record suggests that legislators have largely respected the basic terms of the delegation agreement, though they still occasionally resist the president’s base-broadening efforts. Delegation has not been a perfect solution, but it appears to have served its initial purpose of protecting the integrity of the tax code. In 1974, President López Michelsen decreed major expansions of the income tax base and gradual inclusion of services in the VAT base. Legislators declined to repeal the decrees, though they did alter some of the specifics of tax collection.33 Though legislators resisted the tax reform decrees of President Betancur in 1982, they subsequently approved tax reforms in 1983, 1984, and 1986, which progressively broadened the tax base and unified different rates to achieve a simpler system.34 More recently, efforts to 31. Archer and Shugart, “Unrealized Potential.” 32. Cox and McCubbins, Legislative Leviathan. 33. Guillermo Perry and Alba Lucia Orozco de Triana, “The VAT in Colombia,” in Malcolm Gillis et al., Value Added Taxation in Developing Countries (Washington, D.C.; World Bank, 1990), 180–94. 34. Perry and Orozco de Triana, “The VAT in Colombia,” 192.
Eaton Chapter 9
276
5/24/02
10:13 AM
Page 276
CONCLUSION
further expand the VAT base under Presidents César Gaviria and Ernesto Samper in the 1990s were characterized by strong resistance among legislators from the governing Liberal party. In 1992, Liberal party legislators in the chamber of deputies successfully modified President Gaviria’s proposal to extend the VAT to services such as long-distance telephone calls, restaurants, and hotels.35 In 1995, similar legislative compromises decreased the revenues expected to be generated by tax reforms that President Samper proposed as a means of financing his four-year national development plan (Salto Social). Despite these occasional conflicts and compromises, legislators have refrained from using the tax system for particularistic ends. As additional evidence that presidential responsibility for the design of tax policy has served their interests, constitutional reforms in 1991 further expanded the president’s decree authority in the area of taxation.36 What enabled Colombian legislators to adopt this efficient solution to the dilemmas of tax particularism? What prevented Philippine and Brazilian legislators from adopting similar solutions in the interests of preserving the revenue-generating capacity of their own national tax systems? One possible answer lies in the unique degree of stability in Colombia’s political regime between the late 1950s and the mid-1990s. Unlike most Latin American countries, Colombia avoided the repeated transitions between democratic and nondemocratic regimes by designing highly exclusionary and rigid political institutions. Protected from competition between 1958 and 1974, Colombian legislators and presidents from the country’s two traditional parties were able to provide the mutual assurances necessary to cooperate over fiscal policy. In this stable environment, gradual policy reform could occur over the decades without provoking the steadfast resistance of legislators. In contrast, the dramatic policy swings and regime instability characteristic of most developing countries in the postwar period played havoc with the ability of actors to provide such assurances. Thus the Colombian case suggests that the achievement of macroeconomic stability and the consolidation of democratic government in the 1990s in many developing countries may enable similar solutions to the interbranch conflicts that arise when legislators face particularistic incentives. 35. “Gaviria Changes Half His Cabinet,” Latin American Regional Reports—Andean Group, RA-92-06, July 30, 1992, 6. 36. The 1991 Constitution explicitly permits the president to decree new taxes during a state of economic emergency (in response to the controversies surrounding attempts to decree tax reform in 1974 and 1982), but such taxes automatically lapse when the state of emergency ends, unless approved by congress. See Archer and Shugart, “Unrealized Potential.”
Eaton Chapter 9
5/24/02
10:13 AM
Page 277
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
277
Tax Reform in Party-Centered Electoral Systems Bolivia Bolivia’s party-centered electoral system was a key factor facilitating the adoption in the 1980s of base-broadening tax reforms similar in design to but even more radical than the reforms in Argentina. After experiencing the worst hyperinflationary episode in Latin American history in the first half of the 1980s, Bolivia’s tax reform in turn played a critical part in the achievement and maintenance of the macroeconomic stability that has distinguished the country within the region for the last decade and a half. Along with Argentina’s reforms, the tax and other economic reforms implemented in Bolivia are among the most comprehensive policy changes to be adopted under democratic government in the contemporary period. Bolivian parties are hierarchically organized around and commanded by leaders who, in most cases, also served as the founders of their parties. The most important examples from the three parties that have dominated the contemporary democratic period include Victor Paz Estenssoro, who helped found the Movimiento Nacional Revolucionario (MNR) in the early 1940s; Hugo Banzer, who founded the right-wing Acción Democrática y Nacionalista (ADN) in 1978; and Jaime Paz Zamora, who was a founder of the Movimiento de Izquierda Revolucionaria (MIR) while still a university student in the 1970s. The parties that have emerged since the transition to democracy in 1982 have followed this same pattern, with the founding of Conciencia de Patria by Carlos Palenque in 1988 and Unidad Cívica Solidaridad by Max Fernández in 1989.37 The adoption in 1956 of closed-list proportional representation was both cause and consequence of the hierarchical nature of parties. Just four years after the national revolution that brought the MNR to power, closed-list proportional representation was adopted as a rule that would let the governing party handpick its supporters.38 Though MNR presidents during the course of the 1950s and 1960s moderated the party’s initially radical program of government, controls over the party rank-and-file facilitated a significant degree of policy change in this period. The adoption of closed-list proportional representation early in the country’s democratic history increased the 37. René Antonio Mayorga, Antipolitica y Neopopulismo (La Paz: Centro Boliviano de Estudios Multidisciplinarios, 1995), 65–67. 38. Eduardo Gamarra, “Hybrid Presidentialism and Democratization: The Case of Bolivia,” in Mainwaring and Shugart, Presidentialism and Democracy, 368, 369.
Eaton Chapter 9
278
5/24/02
10:13 AM
Page 278
CONCLUSION
likelihood that any new parties to emerge after the MNR would also be hierarchical in organization. As Gamarra and Malloy concluded, “by any measure, political parties in contemporary Bolivia are closed, hierarchical organizations. Power is concentrated in a few individuals; party members have no say in policy making. . . . This holds true especially in the selection of candidates for office and in the elaboration of a party platform.”39 Though Gamarra argued that “discipline in the legislative assembly was possible as long as . . . patronage was available,”40 Mayorga found an “extraordinary level of discipline in congress,” which he attributed to the strongly hierarchical nature of parties in Bolivia.41 The authority of the leadership over the rank-and-file means that individual legislators have strong incentives to look to party leaders in their attempts to further their own careers. Growing resistance to the tremendous authority of party leaders over legislators triggered ultimately successful efforts in the 1990s to reform the electoral system by incorporating sixty-five single-member districts. These districts are intended to make legislators more responsive to the concerns of constituents and less responsive to party leaders.42 In addition to closed-list proportional representation and hierarchically organized parties, Bolivia shares with Argentina a number of other factors that make its inclusion in this study particularly appropriate. Like the 1983 Argentine transition, Bolivia’s 1982 transition to democracy brought to the executive branch a center-left president who struggled unsuccessfully to stabilize the country’s macroeconomy in the wake of the debt crisis. Like Alfonsín in Argentina, President Hernán Siles Zuazo (1982–1985) failed to appreciate that the depth of the state’s financial crisis called for deep-seated fiscal reforms and sought instead to preserve the dominant statist development model.43 Also like Alfonsín, Siles Zuazo faced aggressive opposition from the country’s powerful labor confederation, the Central Obrera Boliviana (COB), and was forced from office ahead of schedule in response to the outbreak of hyperinflation. Continuing the parallel with Argentina, the subsequent MNR administration of President Victor Paz Estenssoro reversed the party’s traditionally 39. Eduardo Gamarra and James Malloy, “The Patrimonial Dynamics of Party Politics in Bolivia,” in Mainwaring and Scully, Building Democratic Institutions, 419. 40. Gamarra, “Hybrid Presidentialism,” 369. 41. René Antonio Mayorga, “Bolivia’s Silent Revolution,” Journal of Democracy 8, 1 (1997): 154. 42. Brian Crisp and Juan Carlos Rey, “The Sources of Electoral Reform in Venezuela,” in Matthew Shugart and Martin Wattenberg, eds., Mixed-Member Electoral Systems: The Best of Both Worlds? (Oxford: Oxford University Press, 2001), 173–93. 43. Haggard and Kaufman, Political Economy of Democratic Transitions.
Eaton Chapter 9
5/24/02
10:13 AM
Page 279
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
279
populist and statist approach to economic policy and embraced neoliberalism. Though the MNR’s movement toward the political center and away from the unions dates from the 1950s, in contrast to the more recent transformation of Peronism in Argentina, policy reversals in each case were stunning for voters and observers alike.44 Like Menem in Argentina, Paz Estenssoro quickly imposed an orthodox stabilization package on taking office, followed by fiscal reform proposals to broaden tax bases and improve tax collection. As in Argentina, the success of this nueva política económica (NPE) in delivering macroeconomic stability is reflected in the acceptance of the basic features of this new economic policy by the main opposition parties in subsequent elections. For all these striking similarities, at least two important differences distinguish the Bolivian and Argentine reform experiences. First, in contrast to Menem’s party, Paz Estenssoro’s MNR did not win the most votes in the 1985 elections, finishing second with 30.4 percent of the vote to the ADN’s 32.8 percent. According to the parliamentary features of Bolivia’s presidential system, in the event no presidential candidate wins a majority of the popular vote, congress selects the president from among the top three vote winners. Paz Estenssoro claimed the presidency through an electoral coalition with the third-place finisher, Paz Zamora’s MIR. Second, whereas Menem enjoyed a working majority in both chambers, Paz Estenssoro’s MNR held a majority only in the senate, with 16 of its 27 seats. In the lower chamber, the MNR held a plurality with 43 out of 130 seats, but not a majority.45 As Gamarra noted, electoral coalitions are not governing coalitions in Bolivia; simply because the MIR voted for Paz Estenssoro in the congressional selection of the president did not mean that it would offer legislative support for his reform agenda once he became president.46 The lack of a congressional majority did not prevent Paz Estenssoro from immediately acting to stabilize the economy. With the significant unilateral powers of the Bolivian presidency at his disposal, Paz Estenssoro issued the historic Decree No. 21060 in August 1985. This single decree cut fiscal deficits, devalued the currency, froze wages and salaries, and cut publicsector employment.47 Marginalized by this unilateral action, congress immediately began to interpellate cabinet ministers in protest over the decree. In response, Paz Estenssoro calculated that defending stabilization and pursuing
44. 45. 46. 47.
Conaghan and Malloy, Unsettling Statecraft, 41. Gamarra, “Hybrid Presidentialism,” 372. Gamarra, “Hybrid Presidentialism,” 391. Gamarra, “Hybrid Presidentialism,” 373.
Eaton Chapter 9
280
5/24/02
10:13 AM
Page 280
CONCLUSION
structural reform required the participation of congress.48 When the MIR refused to support stabilization and liberalization, Paz Estenssoro turned to the ADN and, in October 1985, negotiated the so-called Pacto por la Democracia. According to the terms of this pact, Hugo Banzer’s ADN would support the president’s reform proposals in congress in exchange for a share of state patronage and a number of appointments in key state enterprises. As Conaghan and Malloy argued, “The personal control that both [Paz Estenssoro and Banzer] exercised over their respective parties was crucial to the maintenance of the Pacto por la Democracia. . . . Broad policy matters were negotiated directly by Paz and Banzer; the day-to-day operation of the pact was managed by a bipartisan committee of party leaders.”49 Five months after the negotiation of the Pacto por la Democracia, Paz Estenssoro presented his tax reform proposals to a special session of congress. As Bird showed, the logic of base broadening and simplification deeply informed the Bolivian tax reform proposals.50 First, at the heart of these proposals was the extension of the VAT, introduced in 1973, to an extremely broad base, excluding only housing and financial services. Over four hundred sales taxes were abolished and replaced by the VAT, to be levied at a single rate of 10 percent.51 Second, the country’s traditional personal income tax was replaced with a “complimentary tax” of 10 percent on all income paid to individuals (e.g., wages, salaries, and interest). According to the president’s proposals, VAT payments could be entirely offset against this complimentary tax, which created incentives for Bolivians to demand receipts to claim the tax credit for VAT payments. Third, given the weakness of tax collection, corporate income taxes were replaced with a 2 percent assets tax that would be harder for businesses to evade. Fourth, the president proposed a series of administrative reforms very similar to those implemented in Argentina, including increases in penalties for evasion, creation of an office charged with monitoring large taxpayers, closing of businesses that failed to emit VAT receipts, and use of banks to collect taxes.52 As in Argentina, these proposals to broaden and streamline tax collection elicited sharply negative responses from both labor unions and business 48. José Gamarra Zorrilla, Liberalismo y Neoliberalismo (Liberalism and neoliberalism) (La Paz: Editorial Los Amigos del Libro, 1993), 220–21. 49. Conaghan and Malloy, Unsettling Statecraft, 191. 50. Bird, “Tax Reform in Latin America.” 51. Alan Reynolds, “National Prosperity is No Mystery,” Orbis 40, 2 (spring 1996). 52. Bird, “Tax Reform in Latin America,” 11–16.
Eaton Chapter 9
5/24/02
10:13 AM
Page 281
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
281
associations. Bolivian unions objected to the replacement of the previously progressive income tax rate schedule with a single rate, as well as the inclusion in the tax of lower- and middle-income groups who had formerly been exempted.53 The private sector also exerted energetic resistance to reforms that, according to Bird, constituted “a clean sweep of tax incentives.” As Jeffry Sachs wrote at the time, “The government’s tax reform proposal is meeting enormous resistance from large parts of the upper class, though it is supported by ADN, the leading opposition party.”54 Sachs concluded that “the government’s hopes for passage of its program rests on the general public’s palpable desire for stability after several years of extreme economic conditions.” Thanks to party and electoral incentives that privileged the concerns of party leaders and lessened the importance of the organized groups who protested reform, legislators approved Paz Estenssoro’s reforms in May 1986, without making significant modifications. As in the Peronist party, there was some dissent in the MNR over the new direction adopted in tax and other economic policy areas, but in the end legislators in the governing coalition supported the reforms agreed to by Paz Estenssoro and Banzer. As a result of these reforms, tax revenues in Bolivia increased from 3 percent in 1984 to 17 percent in 1987. As in Argentina, some of this increase was due to the onset of macroeconomic stability, but much of it was due to statute changes that a majority of legislators supported in 1986.55 If the Bolivian experience with tax reform is compared to Argentina’s, it is possible to conclude that certain aspects of the Bolivian electoral system created obstacles for reform while others facilitated reform. On the one hand, the use of relatively large electoral districts facilitated the emergence of small parties and a fragmented multiparty system. According to Gamarra, average district magnitude in Bolivia is approximately 14, whereas the comparative number for Argentina is just 5.0. By making legislative majorities for the president’s party less likely, high district magnitude in Bolivia worsened the prospects for reform. On the other hand, as this section has demonstrated, the closed-list nature of electoral rules significantly facilitated reform. Though patronage was the glue that held the pact between Paz Estenssoro and Banzer together, an equally critical ingredient in the success of the pact
53. “COB to Organize Resistance to Tax Reform,” and “Peasants Protest Tax Reform,” FBIS Daily Report Latin America Region, March 31, 1986, p. C2; and July 3, 1986, p. C1. 54. Jeffry Sachs, “Laboratory for Latin America? Bolivia’s Struggle for a Stable Economy,” The New York Times, April 20, 1986. 55. Bird, “Tax Reform in Latin America,” 10–11.
Eaton Chapter 9
282
5/24/02
10:13 AM
Page 282
CONCLUSION
was the ability of these party leaders to control the legislative behavior of the rank-and-file. Venezuela Until 1993, all legislators in Venezuela were elected according to closed-list proportional representation, as in Argentina and Bolivia.56 Unlike in Argentina, leaders of party organizations at the subnational level did not traditionally play a significant role in writing these lists, which remained highly centralized under the control of the national party leadership.57 According to Crisp, the national executive committee of each party can essentially ignore the requests of district-level party organizations to include particular candidates on these lists. Because of the relative absence of incentives to promote state interests at the expense of the national government, we might expect legislators to reveal even greater loyalty to the national party line in Venezuela than in Argentina. Indeed, many students of Venezuelan politics have emphasized the party discipline that characterizes congressional policymaking.58 Consequently, when the president’s party has a majority in congress, we might expect strong legislative support for executive-branch policy proposals. Without a majority and in the face of a disciplined opposition party, presidential proposals like comprehensive tax reform should experience difficulties, particularly because the formal legislative powers of the Venezuelan president are quite weak.59 Given this distinction, the failure of President Carlos Andrés Pérez (1974– 1979 and 1989–1993) to secure congressional approval for the adoption of the VAT—the centerpiece of his fiscal reform efforts in the early 1990s— appears relatively straightforward. After all, during his second presidency, 56. This discussion focuses on the party and electoral incentives that were operative in Venezuela between the transition to democracy in 1958 and the cataclysmic changes that began in the mid-1990s. The 1993 reforms incorporated the use of plurality rule in single-member districts to fill half the seats in the legislature. Because national party leaders continue to control who gets nominated in these races, however, it is unclear that these legislators will develop policy preferences significantly different from those of their peers elected by closed lists. See Michael Kulisheck, “Electoral Law and Politicians: The Behavioral Effects of Electoral Reform in Venezuela” (paper presented at the annual meeting of the American Political Science Association, Washington, D.C., August 28–31, 1997). 57. See Brian Crisp, “Presidential Behavior in a System with Strong Parties: Venezuela, 1958–1995,” in Mainwaring and Shugart, Presidentialism and Democracy, 160–98. 58. Crisp, “Presidential Behavior”; Michael Coppedge, Strong Parties and Lame Ducks: Presidential Partyarchy and Factionalism in Venezuela (Stanford: Stanford University Press, 1994). 59. Shugart and Carey, Presidents and Assemblies, 194–97.
Eaton Chapter 9
5/24/02
10:13 AM
Page 283
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
283
Andrés Pérez was a minority president whose Democratic Action party held only 48 percent of the seats in the chamber of deputies. A closer look, however, reveals that the president’s VAT proposal sat in congress for the duration of his abbreviated term largely because of factional disputes in the ruling party. According to Naim, the alliance of “a small group of congressmen from COPEI (the opposition Christian Democratic party) and Democratic Action managed to sabotage all attempts at passing the value added tax for almost four years. Not even . . . pleas from their superiors in the party hierarchy could sway them from their opposition to the value added tax.”60 After congress impeached Andrés Pérez in 1993, however, it immediately delegated to his successor, Ramón Velásquez, the authority to decree a broad-based VAT on wholesale and retail sales.61 This sequence of events suggests that opposition to the VAT during Andrés Pérez’s government reflects intraparty discord rather than a substantive interest in preserving tax particularism on the part of legislators. After all, the congress that delegated authority to President Velásquez to impose a VAT was made up of the same men and women who had declined to support the same reform under Andrés Pérez. In accounting for why governing-party legislators in Venezuela resisted their own president’s attempt to broaden the tax base, two points merit further discussion: the role of party factions in undermining discipline and oil exceptionalism. Coppedge attributed the factionalism of Venezuelan parties to the fact that presidents cannot be immediately reelected, with the result that they often become lame ducks early as their parties split in support of different candidates for the next presidential election.62 Considering the remarkable nonlegislative powers of the Venezuelan president over the nation’s political economy, the stakes facing these interfactional disputes are high.63 During Andrés Pérez’s second presidency, the ruling party was divided into a “renewalist” faction that supported the president and an “orthodox” faction that controlled the party leadership and supported the former president, Lusinchi.64 Whereas the renewalist faction supported the president’s attempt
60. Moises Naim, Paper Tigers and Minotaurs: The Politics of Venezuela’s Economic Reforms (Washington, D.C: Carnegie Endowment for International Peace, 1993), 77. 61. “Velásquez Gets Special Powers,” Latin American Regional Reports—Andean Group, RA-93-07, September 2, 1993, 2. 62. Coppedge, Strong Parties and Lame Ducks. 63. Brian Crisp, “Lessons from Economic Reform in the Venezuelan Democracy,” Latin American Research Review 33, 1 (1998): 7–41. 64. “Grassroots Apathy Leaves CAP Saddled with a Ruling Party Led by Rivals,” Latin American Regional Reports—Andean Group, RA-91-09, November 14, 1991, 1.
Eaton Chapter 9
284
5/24/02
10:13 AM
Page 284
CONCLUSION
to reduce state intervention in the economy and the level of Venezuela’s dependence on oil, the orthodox faction successfully defended the policy status quo, in this case resisting the adoption of a modern VAT. Factionalism in the governing party helps explain why similar economic reform efforts proceeded so differently in Venezuela and Argentina. In both countries, reforming presidents were elected in 1989 amid serious fiscal crises. Both Menem and Andrés Pérez represented disciplined parties that had long promoted populist redistribution, and both individuals tried to reverse these policy traditions by emphasizing fiscal responsibility. In the fiscal arena, Menem proposed dramatically broadening the existing VAT base, and Andrés Pérez proposed adopting a broad VAT base in the attempt to reduce the country’s reliance on oil revenues. Here the similarities end: The partisan powers of Andrés Pérez were undermined by factionalism, but Menem was able to avoid debilitating factional disputes by not becoming a lame duck. Menem eluded lame duck status by successfully prioritizing constitutional reform to allow his reelection. Once reelection became a possibility, Menem was able to stave off factional disputes over the selection of his successor for the 1995 elections. Such disputes would have sapped Menem’s ability to deliver economic reforms, as they did in Andrés Pérez’s case. Only after reelection to his second and last term in 1995 did Menem begin to experience the gradual erosion of authority over his co-partisans in congress. Thus the institutional rules surrounding the election of the president help explain the different responses of governing-party legislators in Argentina and Venezuela. In addition to party factionalism, Venezuela’s status as an important oil exporter also helps explain why legislators resisted presidential proposals for a broadly based domestic tax system. It is a commonplace in the literature on Latin American political economy to note Venezuela’s outlier status in this regard. Scholars have long noted the extent to which the country’s natural resource endowment has put Venezuela in a special case, making it possible, for example, for the country to escape the recurrent breakdowns in democracy common in much of the region.65 For much of the twentieth century, the country’s oil wealth also prevented it from getting serious about 65. Terry Karl, “Petroleum and Political Pacts: The Transition to Democracy in Venezuela,” in Guillermo O’Donnell, Philippe Schmitter, and Laurence Whitehead, eds., Transitions from Authoritarian Rule (Baltimore: Johns Hopkins University Press, 1986), 196–219; and Daniel Levine, “Venezuela Since 1958: The Consolidation of Democratic Politics,” in Juan Linz and Alfred Stepan, The Breakdown of Democratic Regimes (Baltimore: Johns Hopkins University Press, 1978), 82–109.
Eaton Chapter 9
5/24/02
10:13 AM
Page 285
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
285
collecting domestic taxes. Before Andrés Pérez proposed VAT reform in 1989 as part of his broader reform agenda, no serious tax reform had been attempted for decades.66 In 1992, nonoil public revenues were a meager 5.6 percent of gross domestic product, compared with approximately 20 percent in Argentina, Chile, and Mexico. Venezuela’s fiscal accounts tend to swing from huge surpluses to equally huge deficits in line with changes in the international price of oil. This situation effectively dissuades legislators from taking seriously the need to extract tax revenues domestically.67 With respect to the tax-policy episode described above, Naim argued that expectations of higher revenues owing to the Gulf War in 1990 and 1991 dashed the prospects for congressional approval of the tax reforms proposed by Andrés Pérez’s government in 1989.68 In Argentina, broad segments of the population considered Menem’s tax reforms to be the painful but necessary antidote to fiscal deficits and hyperinflation. This broad consensus enabled Peronists to win elections by claiming credit for fiscal stability. In Venezuela, similar reforms were seen as entirely too extreme, even by members of the president’s own party. Indeed, three weeks after Andrés Pérez announced his reforms on taking office in February 1989, rioting over increases in bus fares killed three hundred people and put the president on the political defense from the very beginning of his administration. According to many scholars, to the extent Venezuelans believed there was a crisis, they believed that it was due to the corruption of politicians and that the country remained a rich one thanks to its natural resources.69 Such attitudes reduced the electoral rewards that legislators could expect to enjoy by voting for reforms that too few voters thought necessary.
Conclusion To sum up reform experiences in these four additional countries, the Brazilian and Bolivian cases strongly conform to expectations of this theory, and Colombia and Venezuela offer partial support. Opposition to basebroadening reforms in Brazil and support for similar reforms in Bolivia can each be understood as the logical outcome of the different party and electoral 66. Naim, Paper Tigers, 38. 67. Terry Karl, The Paradox of Plenty (Berkeley and Los Angeles: University of California Press, 1997). 68. Naim, Paper Tigers, 75. 69. Naim, Paper Tigers, 127; Karl, Paradox of Plenty.
Eaton Chapter 9
286
5/24/02
10:13 AM
Page 286
CONCLUSION
systems that legislators face in each country. Though Brazil and Bolivia offer solid support for the theory advanced here, the Colombian and Venezuelan experiences are perhaps more important as cases that help to further refine the theory. Tax reform outcomes in Colombia and Venezuela deepen our understanding of the factors that can mitigate the hypothesized impact of institutional incentives on legislative behavior. Despite different reform outcomes, the Colombian case confirms an important finding in the Philippine case study: Even when legislators prefer particularistic policies, they do not always demand that these preferences be incorporated into policy outputs. In the Philippines, legislators were sometimes willing to exchange support for the president’s public-regarding policy proposals for one-time disbursements of pork-barrel funds. In Colombia beginning as early as the 1960s, legislators were willing to delegate taxpolicy authority to the executive branch in exchange for regular and particularized access to the budget. The nature of this exchange in Colombia suggests that political stability and institutions that provide mutual assurances between the branches can be thought of as conditions that lessen the predicted impact of particularistic incentives on legislators’ preferences. Critical in the Colombian case is the reality that legislators were never asked to surrender their access to particularistic policy favors in all policy areas. For countries that employ party-centered systems, the Venezuelan case is significant because it yields additional information about the importance of party leadership in these systems. Though closed-list proportional representation regularly produced party discipline in Venezuela, when the governing Democratic Action Party split into opposing factions that fought for control of the party, this division among the party leadership undercut support by Democratic Action legislators for the president’s reform agenda. The contrast with Argentina and Bolivia, where Presidents Menem and Paz Estenssoro were the undisputed heads of their parties, is instructive. In other words, although party-centered electoral institutions potentially enable legislators to support contemporary economic reforms, much depends on whether the party leadership is unified or divided. In applying this theory to additional countries that use party-centered incentives, then, the level of cohesion among party leaders is a significant variable to consider. Whether party leaders are united or divided in candidate-centered electoral systems is largely moot because legislators in these systems look to other actors for cues about how to vote on policy. The Brazilian and Bolivian cases also offer insights of more general interest for the study of executive-legislative relations. The Brazilian case, like
Eaton Chapter 9
5/24/02
10:13 AM
Page 287
TAX REFORMS IN OTHER DEVELOPING COUNTRIES
287
the Philippines, shows that a legislative majority for the president is an insufficient condition for the passage of economic reforms that create powerful losers. Though charismatic and dynamic presidents in both cases proposed base-broadening reforms to legislatures dominated by members of their own coalitions, neither was able to achieve significant results. The Brazilian and Philippine experiences detract from the importance of legislative majorities in candidate-centered systems, but the Bolivian case supports the importance of this factor in party-centered systems. In systems characterized by party discipline, the lack of a majority can be a serious impediment. The construction of just such a majority through the Pacto por la Democracia shows that party-centered electoral institutions are a critical factor in keeping these interparty coalitions together.
Eaton Chapter 9
5/24/02
10:13 AM
Page 288
Eaton Chapter 10 5/13/02 12:18 AM Page 289
10 THEORETICAL PERSPECTIVES AND IMPLICATIONS
Political institutions have a regular and significant impact on policymaking and implementation in the many democracies that have emerged in the developing world. Evidence of this impact abounds in the various economic reform episodes that are analyzed in this book. For example, the adoption of term limits in the Philippines in the 1980s encouraged legislators to rethink their traditional opposition to decentralizing reforms that empowered subnational officeholders. In Argentina, electoral laws that overrepresented certain provinces in the federal legislature consistently produced policy outputs that favored these provinces at the expense of other jurisdictions. In Bolivia, high district magnitude helped to generate a fragmented party system, one of the chief obstacles facing reformist presidents in the 1980s and 1990s. Rules that institutionalized and regulated competition between Colombia’s two traditional parties in the 1960s and 1970s facilitated the insulation of policymaking in the executive branch, producing a degree of policy stability that far exceeded the regional standard. In Brazil, electoral rules that simultaneously magnified the number of parties and encouraged individual legislators to
289
Eaton Chapter 10 5/13/02 12:18 AM Page 290
290
CONCLUSION
flout the concerns of party leaders dramatically increased the number of veto players with whom presidents must negotiate to achieve policy change. As these examples suggest, the political institutions that shape policy outputs come in a variety of forms, each of which deserves attention by scholars seeking to explain variation in the contemporary economic reform process. This study seeks to further our understanding of the institutional determinants of public policy by focusing on just one critical institutional arena: the party and electoral rules used to elect legislators. Though these rules are often characterized by much complexity, the results of this study show that one simple distinction provides a great deal of explanatory power with respect to legislative behavior. Whereas candidate-centered electoral systems require legislators to intervene in the policy process as individuals who must claim personal credit for policy favors, their counterparts in party-centered systems approach policymaking as an arena in which they must demonstrate loyalty to party leaders. In this book, I investigate the impact of this singular institutional difference through an in-depth analysis of similar reform efforts in countries that employ candidate-centered and party-centered systems. The need to cultivate personal reputations in the Philippines generated sharp resistance by legislators to economic reforms that reduced discretion for policymakers. In contrast, the desire to please party leaders in Argentina, and the ability to claim responsibility for policy outcomes as a party, generated a great deal of support among legislators for the same types of reforms. In this chapter, after summarizing the book’s main findings, I contrast the institutional account offered here with other alternative explanations and evaluate the study’s theoretical and policy implications. Party and electoral incentives in the Philippines help explain the substance of conflict over economic reform between the executive and legislative branches and between the lower and upper chambers of the legislature. Elected in single-member districts, representatives to the lower chamber opposed President Fidel Ramos’s attempts to broaden the tax base and aggressively defended special tax treatment for particular firms and individuals in their home districts. Elected in a single, nationwide district, senators were much less parochial vis-à-vis tax reform and much more interested in demonstrating their credentials as national policymakers. Though the president’s party enjoyed a majority in the house but not in the senate, it was the latter body that supported his proposals. After years of conflict between the executive and legislative branches and between the chambers, support for tax
Eaton Chapter 10 5/13/02 12:18 AM Page 291
THEORETICAL PERSPECTIVES AND IMPLICATIONS
291
reform in the senate made some base broadening possible, but representatives were ultimately able to subvert deeper changes in tax policy. In addition to imposing their particularistic preferences on tax policy, representatives were also successful in resisting presidential proposals that strengthened the bureaucracy by making tax collectors more autonomous vis-à-vis politicians. Party and electoral rules in the Philippines also shed light on the timing and content of reforms that decentralized tax revenues in the 1990s. Though representatives passed decentralizing legislation in 1991 as one possible solution to the term limits they faced later in the decade, they altered these reforms to preserve their traditional roles as brokers of fiscal goods from the center. In Argentina’s party-centered electoral system, rules that divide authority over candidate selection and career advancement between national and provincial party leaders are clearly reflected in the economic reform process undertaken in the 1990s. What is most striking in contrast to the Philippine case is the broad support of governing-party legislators for base-broadening reforms, despite the opposition to these reforms among some of the country’s most powerful economic groups and interests. Thanks to the absence of incentives to develop personal reputations, these legislators were able to deliver tax reform and price stability, changes that helped the party win historic victories in elections in 1991, 1993, and 1995. Also in contrast to the Philippines, governing-party legislators in Argentina supported reforms designed to strengthen tax administration, because these reforms were deemed necessary to defend price stability, the achievement of which was critical to the party’s electoral successes in the 1990s. Although President Carlos Menem could count on discipline among legislators in his own party, unlike his Philippine counterpart, my research also shows that governingparty legislators in Argentina were often able to extract from national party leaders changes that benefited their provinces. Such behavior makes sense because party and electoral rules give provincial party leaders substantial influence over the rank-and-file and because several fiscal reforms pitted the interests of the provinces against the interests of the president as head of the federal government. The structure of Argentine party and electoral rules is also reflected in the area of tax revenue sharing. As members of the opposition in the 1980s, Peronist legislators adopted automatic revenue sharing with the provinces at the behest of provincial party leaders, but they reversed it in the 1990s when, as governing-party legislators, they saw that revenue sharing threatened the party’s ability to control national budget deficits and defend macroeconomic stability.
Eaton Chapter 10 5/13/02 12:18 AM Page 292
292
CONCLUSION
The same party and electoral rules that illuminate legislative behavior in the areas of tax policy, tax administration, and tax revenue sharing also help explain outcomes in these countries in a number of additional reform arenas, including trade and financial liberalization, deregulation and privatization, and currency and budgetary reform. In the Philippines, hostility to reform by representatives who belonged to the governing-party coalition consistently undermined the prospects for policy change. As in the case of tax reform, President Ramos tried to overcome this opposition to reform by engaging in pork-barrel distributions, but in the end he had to settle for far less policy change than he envisioned for the country. In Argentina, governingparty legislators supported comprehensive and speedy reforms across a range of policy issues, though they often extracted benefits for their provinces in exchange. As in the case of tax reform, their support for the president’s reforms generally declined in Menem’s second term, when his lame duck status decreased his ability to influence the futures of the legislators who belonged to the party. As a further measure of the analytical power of this institutional approach, the distinction between candidate-centered and party-centered incentives also captures differences in the tax reforms experienced in other countries. Party and electoral rules that encourage Brazilian legislators to develop personal votes, ignore the concerns of national party leaders, and attend to the policy directives of state governors were all reflected in the failure of base-broadening reforms over the course of the 1990s. In contrast, party and electoral rules that assigned national party leaders authority over legislators in Bolivia facilitated the passage of a base-broadening reform that was one of the most comprehensive on record. Extending the approach to additional countries also sheds light on the conditions under which party and electoral rules produce the expected behavior in legislators. The Colombian experience shows that institutional solutions can be adopted to overcome the hostility to economic reform that legislators in candidate-centered systems typically exhibit. Though candidate-centered incentives in Colombia encouraged legislators to prefer particularistic policies, the highly stable and exclusionary political institutions adopted during the country’s democratic transition enabled legislators to delegate authority over tax and other policies in exchange for guaranteed access to patronage. The Venezuelan experience reminds us that, in party-centered systems, whether national party leaders are united or divided is a critical distinction in accounting for the policy preferences and behavior of rankand-file legislators.
Eaton Chapter 10 5/13/02 12:18 AM Page 293
THEORETICAL PERSPECTIVES AND IMPLICATIONS
293
Alternative Explanations The institutional argument advanced here can be contrasted with a number of other possible explanations for the variation in outcomes that this study seeks to explain. In general, the institutional incentives facing legislators do a better job explaining variation in fiscal reform than rival explanations centered on interest groups, presence of economic crisis, external actors and forces, and distribution of formal legislative powers between the executive and legislative branches. Interest Groups Because of its roots in the behavioral revolution that swept political science in the postwar period, the political economy literature in most developing countries, including Argentina and the Philippines, focuses heavily on interest groups to explain the substance of economic outcomes. According to this approach, the relative power of interest groups best explains the distribution of policy favors by government actors. For example, many scholars noted how, in an era marked by heavy state intervention in the economy, economic policies tended to benefit groups that enjoyed political connections to state actors. Such an approach, however, cannot tell us as much about variation in the outcome of subsequent efforts by state actors to retreat from the economy through policy reform. In Argentina and the Philippines, the economic groups that stood to lose their tax breaks were some of the most powerful in each country. Though they protested loudly against tax reform, differences in the incentive structures facing legislators in these two countries encouraged only Philippine legislators to respond to these protests by opposing reforms in the legislature. Furthermore, in the Philippines, interest groups focused their activities not on the senate, but on the lower chamber, where self-interest drives representatives to respond to their lobbying efforts. Although electoral institutions provide greater leverage than interest groups or economic sectors in understanding the fiscal reforms evaluated in Part II, the two approaches are not mutually exclusive. Instead, they can be blended to offer fuller explanations of economic reform outcomes. Interestgroup accounts become more powerful when they appreciate the institutional constraints and opportunities in which groups operate. For example, recent work by Rogowski offers a nuanced understanding of the relationship between electoral rules, the geographic concentration of industries, and
Eaton Chapter 10 5/13/02 12:18 AM Page 294
294
CONCLUSION
their consequent lobbying power. According to Rogowski, whereas the geographic concentration of industries in multimember districts is irrelevant, in single-member districts the degree of concentration determines the lobbying power of an industry. In single-member districts, Rogowski found that “an organized interest’s influence will be greatest when its supporters are moderately dispersed across constituencies, and that influence declines when an industry is either highly concentrated or highly dispersed.”1 As another example, in a study of Latin American economic policies before and after the 1980s debt crisis, Frieden argued that the substance of economic policies reflects the preferences of highly concentrated industries and owners of specific assets. According to this sector-based argument, regardless of the institutional incentives that policymakers face, they routinely adopt policies preferred by industries that are highly concentrated and by owners of assets that are engaged in highly specific uses.2 Although the research presented in Part II disputes the premise that institutional settings are irrelevant, Frieden’s approach can help explain why certain groups and interests triumph in certain institutional configurations. For example, in single-member districts like those in the Philippines, holders of more specific assets in more concentrated industries are more likely to enjoy success in lobbying legislators for tax breaks relative to owners of less specific assets and less concentrated industries. Less concentrated sectors face higher costs of collective action, and holders of less specific assets can more easily switch out of activities that are no longer promoted through the tax system. We might expect that holders of specific assets in Argentina would likewise push harder for tax incentives, but the strength of Argentine parties enabled legislators to resist these pressures, as seen in their support for tax simplification. Economic Crisis The depth of a country’s economic crisis is another possible source of explanation for economic reform outcomes.3 According to crisis-based explanations,
1. Ronald Rogowski, “Pork, Patronage, and Protection: How Geographic Concentration Affects Representation of Interests in Small-District Systems” (paper presented at the annual meeting of the American Political Science Association, Washington, D.C., August 28–31, 1997), 2. 2. Frieden, Debt, Development, and Democracy. 3. See Albert Hirschman, Journeys Toward Progress (New York: Doubleday, 1965), 338–43; and Javier Corrales, “Do Economic Crises Contribute to Economic Reform? Argentina and Venezuela in the 1990s,” Political Science Quarterly 112, 4 (1997–1998): 617–44.
Eaton Chapter 10 5/13/02 12:18 AM Page 295
THEORETICAL PERSPECTIVES AND IMPLICATIONS
295
the onset of economic crisis alters politicians’ policy preferences by encouraging them to support policy reforms that they would be hesitant to legislate under normal conditions. For example, when legislators make the connection between overly generous tax breaks and fiscal instability, they may consider that the costs of special tax treatment outweigh the benefits. In class terms, by threatening the investment climate, economic crises may encourage owners of capital to overcome their sectoral differences and support reforms deemed necessary to improve the general business climate.4 Applying the crisis hypothesis to my cases, we might argue that Argentine legislators offered greater support for tax reform than their Philippine counterparts because the economic crisis in Argentina was worse and the continuation of the policy status quo less plausible. Despite the fact that the Philippines did not undergo the hyperinflation that plagued Argentina, it is a mistake to underestimate the economic chaos in the Philippines in the late 1980s and early 1990s, a crisis that triggered increasingly aggressive coup attempts by actors in the military. Had the presence of crisis been the critical variable in explaining reform outcomes, Philippine legislators would have responded differently to tax reform proposals than they actually did. They would probably have approved the president’s proposals when he submitted them in 1992 rather than waiting two years, demanding accelerated pork releases as a condition for their approval, and then immediately reinserting tax breaks. The presence of economic crisis simply could not overcome the deep interest of Philippine representatives in particularism. Perhaps if the crisis had been even more severe, Philippine legislators would have behaved differently, but this argument points to a central weakness of crisis-based explanations: their failure to specify ex ante the threshold at which crises generate the expected response. As a further challenge to the crisis explanation, variation across time in governing-party legislators’ response to tax reform proposals in Argentina is better explained by changes in the president’s authority over them as party leader than by the presence of economic crisis. As seen in Chapters 5 and 7, Peronist legislators were much more responsive to Menem’s tax reform proposals at the beginning of his first term than they were at the beginning of his second term, although both reforms were designed in response to significant economic crises. Despite the presence of economic crisis in the 1989–1991 and 1995–1996 periods, legislators reacted much more cautiously to the president’s reform proposals when he was a lame duck after 1995 than they 4. Frieden, Debt, Development, and Democracy.
Eaton Chapter 10 5/13/02 12:18 AM Page 296
296
CONCLUSION
had in Menem’s first term. As the president’s authority over Peronist legislators declined in the course of his second term, their support for his proposals continued to decrease, even when the Brazilian devaluation in early 1999 created a new economic crisis in the country and encouraged Menem to renew his request for delegated powers. Furthermore, economic crisis is too blunt a variable to offer much analytical leverage for the nature of the legislative compromises uncovered in Part II. For example, the presence of economic crisis does not explain why or how governing-party legislators in Argentina successfully conditioned their support for emergency tax handles on changes that benefited their provinces. These compromises are intelligible only in light of legislators’ institutional incentives. The presence or absence of crisis is also unable to shed much light on reform outcomes in the additional countries analyzed in Chapter 9. Despite a deep fiscal crisis in the 1989–1990 period, governing-party legislators declined to support the president’s tax reforms in Venezuela because of divisions among the party leadership. In Brazil, recurring fiscal crises and hyperinflation were insufficient to convince legislators of the need for basebroadening reforms. In Colombia, presidents gradually expanded tax bases with authority delegated from congress in the absence of profound fiscal crises. Economic crises are clearly an important part of the story of economic reform in new democracies; without deep fiscal crises, most presidents would not have proposed the comprehensive reforms that they did in the 1990s. Crisis alone, however, does not offer complete explanations for how legislators respond to these proposals. External Actors and Forces Another explanation of economic reform that is especially popular in developing countries, though less so among academics who have abandoned the dependency framework, focuses on the role of international actors and external pressures. According to one version of this argument, the adoption of specific tax policies is traced to pressure exerted by international financial institutions. This explanation is particularly weak when it comes to explaining variation in how developing countries expand the base of the value added tax (VAT), the central reform analyzed in this study. Expanding the VAT base is the classic fiscal policy favored by the International Monetary Fund (IMF) and is typically included in most of its country recommendations. In both Argentina and the Philippines, the IMF heavily promoted VAT reform, and its expansion was in both cases made a condition of standby
Eaton Chapter 10 5/13/02 12:18 AM Page 297
THEORETICAL PERSPECTIVES AND IMPLICATIONS
297
agreements. Because external pressure in both cases was significant, this variable cannot explain the fact that Argentine legislators embraced an expanded VAT whereas their Philippine counterparts were able to preserve a much narrower VAT base. Though in this study I emphasize institutions at the domestic level, I do not deny a role for systemic, international pressures in the recent economic reforms that have occurred in developing countries. Developments in the last couple of decades at the international level have certainly narrowed the range of options available in developing countries and have set the stage for a very dynamic period of tax reform. For example, the ongoing globalization of capital markets has put a premium on the maintenance of macroeconomic stability in developing countries. Global capital markets have also made it harder for these countries to collect taxes on income, especially where tax administration capabilities were already limited. Developing countries have consequently faced strong systemic pressure to alter their tax structures so that they can produce more revenue through broad-based consumption taxes. Likewise, the multilateral reduction of tariffs has encouraged developing countries to depend more heavily for revenue on taxes like the VAT rather than on traditional trade taxes. Yet despite a remarkable degree of convergence in the content of reform proposals under discussion in many developing countries, there has been much less convergence in the content of the reform policies that different countries have actually legislated. Appreciating this difference between policy proposals and policy outputs requires taking seriously the details of the legislative process. Some countries have aggressively and simultaneously pursued comprehensive reforms across a series of policy areas, whereas other countries have largely resisted the shift to market-based development strategies. Between these extremes, scores of countries have endorsed a more gradual and sequential approach to economic reform, subject to reversals of varying frequency. In some cases, attempts to reform the bureaucracy in line with the new development model have accompanied efforts to change economic policies, as in Argentina; in other cases, they have not, as in the Philippines. Occasionally, policymakers in the executive and legislative branches come to broad agreements about the reforms needed, but in many countries they remain deeply divided in a way that either obstructs reform or leads to important policy compromises. Despite the ongoing process of economic globalization, explaining cross-national variation in these patterns still fundamentally depends on the analysis of actors, institutions, and preferences at the domestic level.
Eaton Chapter 10 5/13/02 12:18 AM Page 298
298
CONCLUSION
The Distribution of Formal Legislative Powers The party and electoral incentives facing politicians also provide a more compelling account of reform than other institutional explanations based on the formal powers assigned to these politicians by constitutions. Despite the importance of how formal legislative powers are distributed between presidents and legislators, the balance of formal powers does not provide sufficient leverage in understanding policy outcomes. In this study, the partisan powers of the president and the party and the partisan incentives facing legislators are better indicators of interbranch legislative outcomes. The Argentine and Philippine presidents both enjoy exceptional formal powers over legislation. Yet, the Argentine president Carlos Menem signed into law tax reforms that in most respects incorporated the substance of his initial proposals, whereas the Philippine president Fidel Ramos was forced to accept significant policy compromises demanded by legislators in his own party. The 1987 constitution endowed Ramos with a line-item veto that he could have used to eliminate the VAT exemptions reinserted by legislators into the tax code in 1996. In practice, Ramos was prevented from using this veto for fear that it would lead legislators to repeal his VAT proposals outright. Likewise, though formal presidential control over the distribution of pork-barrel funds enabled Ramos to piece together short-term reform coalitions, many of these coalitions proved unsustainable in the absence of substantive policy compromises. In the Argentine case, President Menem often declined to use his veto power on legislation that legislators had altered on behalf of their provincial interests. In both cases, political realities created by legislators’ party and electoral incentives prevented the full use of formal powers. In this study, not only are the president’s partisan powers more important than formal powers, but they also mattered more than the presence of a legislative majority for the president’s party. Though Ramos’s coalition held a majority in the lower house, he was unable to get his reforms legislated because he enjoyed no real partisan power over legislators in his own party.
Policy and Theoretical Implications This study’s findings have a number of implications for economic and political reforms in new democracies and for theories that scholars have developed to make sense of these reforms. The central implication for the contemporary
Eaton Chapter 10 5/13/02 12:18 AM Page 299
THEORETICAL PERSPECTIVES AND IMPLICATIONS
299
economic reform agenda is that presidents in party-centered electoral systems face different challenges and opportunities in pushing reform than their counterparts in candidate-centered systems. Reforms that shrink the state are not impossible in systems that force legislators to attend to their personal reputations; neither are they guaranteed in systems that encourage legislators to privilege the concerns of party leaders. As some of the cases discussed in this book suggest, divisions among party leaders can prevent reform in partycentered systems, and side payments to individual legislators can ease reform constraints in candidate-centered systems. But the focus on party and electoral incentives tells us where to look in the political system for the critical interactions that either facilitate or prevent policy change. Though they matter enormously for reform in party-centered systems, internal party fissures are largely irrelevant in understanding legislative behavior in candidatecentered systems. Though critical in candidate-centered systems, negotiations between presidents and individual legislators are largely irrelevant in understanding legislative behavior in party-centered systems. Presidents in party-centered systems must devote considerable energy to preventing challenges to their party leadership of the sort that undermine their ability to exert discipline over their co-partisans in congress. In contrast, presidents in candidate-centered systems must focus this energy on the time-consuming process of constructing winning coalitions among individual legislators, issue by issue. Another implication for economic reform is that there is nothing inevitable about reforms in the contemporary period that are designed to eliminate particularistic uses and abuses of the state. As long as Philippine representatives continue to face the same particularistic incentives they inherited from the American colonial period, their opposition to contemporary economic reforms is likely to continue. Given the inchoate nature of the party system, interparty negotiations of the sort that enabled legislators to overcome their hostility to reform in Colombia are unlikely in the Philippines and Brazil. This research also suggests that there is nothing irreversible about these reforms. On the one hand, subsequent to the implementation of tax and other reforms in Argentina in the first half of the 1990s, all major political actors accepted the new parameters of this market-based economic model. On the other hand, the reversal of some of these reforms is not difficult to imagine, particularly with the ascent to the presidency in early 2002 of Eduardo Duhalde, who campaigned in the 1999 presidential elections on an anti-reform platform. In effect, the party and electoral rules operative in the
Eaton Chapter 10 5/13/02 12:18 AM Page 300
300
CONCLUSION
country encourage legislators to realign their policy behavior to suit the party’s standard-bearer of the moment. Though in this study I focus on economic reform, my analysis of policymaking by legislators also has implications for democratic consolidation in each country. What is the significance of legislators’ participation in policymaking for the consolidation of democracy? In Argentina, the view that President Menem usurped policymaking authority from the legislature has led to pessimistic conclusions about the extent and depth of democratic consolidation.5 Although few argue that hyperpresidentialism threatens to cause the breakdown of democracy, many fear that the sidelining of the legislature limits the depth of democracy. The evidence presented in this study about the extent of legislators’ participation in the policy process challenges these conclusions and offers a more optimistic view of democratic consolidation. First, the most significant fiscal reforms were passed by congress rather than by decrees, and legislators actively used their roles in the policy process to pursue their own career goals. Second, the legislature was not a mere rubber stamp but instead emerged as an important arena in which policy compromises were successfully negotiated. In the Philippines, legislators’ participation in economic reform also has important implications for democratization. On the one hand, the obstructionist role played by the lower chamber has led some to emphasize basic incompatibilities between congress and policies that might enhance the country’s economic development prospects. In the words of the political commentator Amando Doronila, “The essentially obstructionist mentality of the legislature runs counter to the fast-track nature of economic development projects needed to catch-up with the Asian high economic performers.”6 Congress with its incessant pork-barrel scandals looks expendable to many individuals in a way that echoes attitudes toward the legislature before Marcos closed it in 1972. On the other hand, the responsiveness of legislators to their home districts may be a positive factor for democratic consolidation. As Valenzuela found in studying the causes of the breakdown of democracy in Chile, patronage can be effective as a force that holds democracy together.7 In the 1990s, Philippine representatives acting out of a desire 5. For example, see Linz and Stepan, Problems of Democratic Consolidation, 190–204; and de Riz, “Argentina: Democracy in Turmoil.” 6. Amando Doronila, “Political System Too Slow for Reform,” Philippine Daily Inquirer, January 3, 1994, 5. 7. Arturo Valenzuela, The Breakdown of Democratic Regimes: Chile (Baltimore: Johns Hopkins University Press, 1978).
Eaton Chapter 10 5/13/02 12:18 AM Page 301
THEORETICAL PERSPECTIVES AND IMPLICATIONS
301
to protect particular constituents demanded substantive compromises over policy, resulting in a great deal of back-and-forth between the chambers and between each chamber and the president. What executive-branch officials consider to be obstruction of the reform process, legislators see as compromises that are intrinsic to the operation of an open, democratic policymaking process.8 In addition to democratic consolidation, this study’s findings are relevant to other political reforms in new democracies. The years following the transition from nondemocratic rule proved to be a vibrant time for political reform in many of these democracies, touching on such issues as political decentralization, term limits for presidents and legislators, and electoral reform. One increasingly popular reform involves the incorporation of singlemember districts into electoral systems that formerly used party lists to select all legislators.9 For example, as a result of reforms in the 1990s, Bolivians and Venezuelans now elect half of their legislators through singlemember districts and half through party lists. Though the shift to these mixed-member electoral systems is advocated as a reform that deepens accountability between legislators and voters, the Philippine experience sounds a cautionary note. In that country’s experience with economic reform, singlemember districts consistently led legislators to privilege the concerns of the economic elites dominant in their home districts rather than the median voter. If the incorporation of single-member districts undermines the ability of presidents to count on the cooperation of legislators who belong to their own parties, mixed-member electoral systems may worsen the already considerable governability problems facing many new democracies.10 The Philippine experience also serves to dampen the enthusiasm of those who advocate term limits as an institutional reform that transforms legislative behavior. Though term limits encouraged Philippine representatives to support decentralization, they have not eschewed the particularistic practices they still must use to build their careers. The results of this empirical study also have implications for scholarly debates over economic reform and political institutions in new democracies. 8. Interviews with the representatives Margarito Teves, March 5, 1997, and Ciriaco Alfelor, Quezon City, March 4, 1997. 9. Matthew Shugart and Martin Wattenberg, Mixed-Member Electoral Systems: The Best of Both Worlds? (New York: Oxford University Press, 2001). 10. A critical distinction in evaluating the probable effect of these electoral reforms on policymaking is whether party leaders retain control over candidate selection in the new, singlemember districts.
Eaton Chapter 10 5/13/02 12:18 AM Page 302
302
CONCLUSION
Most important, the findings are robust enough to suggest that legislators are an understudied source of explanations for cross-national variation in economic reform outcomes. Though presidents in both Argentina and the Philippines clearly took the initiative vis-à-vis economic reform, the timing, extent, and content of reform can not be fully understood without reference to legislators. Furthermore, the salience of legislators will probably increase rather than decrease as more countries turn from stabilization reforms to more protracted, second-stage reforms in such areas as education, health care, social security, and the judiciary. These findings are also relevant for recent research into the institutional choices embedded in presidentialism and parliamentarism as forms of government.11 Evidence of significant institutional variation among the subset of presidential democracies bolsters the claims of those who dispute the centrality of the distinction between presidential and parliamentary systems. As Shugart and Carey argued, the debate between advocates of these two governmental forms often fails to take sufficient note of institutional variation in each type, including differences in party systems, size of electoral districts, and timing of electoral cycles.12 When it comes to explaining how political systems work, these differences are as important as the question of whether powers are fused or divided between different branches.13 In the contrasting cases on which this study is centered, certain electoral rules and party structures counteracted the policy stalemates that critics of presidentialism ascribe to all separation-of-power systems. My findings also suggest that the literature on comparative presidentialism correctly focuses on presidents’ partisan powers and not on just their constitutional powers.14 Though Presidents Ramos and Menem shared exceptional formal powers, the minuscule partisan powers of the former made all the difference for reform outcomes. The Philippine and Argentine cases also produce additional evidence that can be used to assess Mainwaring and Shugart’s argument that there is a symbiotic relationship between presidents’ partisan and constitutional powers. According to these authors, strong constitutional powers tend to occur where presidents do not have partisan 11. Juan Linz, “Presidential or Parliamentary Democracy: Does It Make a Difference?” in Juan Linz and Arturo Valenzuela, eds., The Failure of Presidential Democracy (Baltimore: Johns Hopkins University Press, 1994), 3–87. 12. Shugart and Carey, Presidents and Assemblies. 13. For an argument that the separate-fused powers distinction cannot illuminate many key differences in the policy process, see Kent Eaton, “Presidentialism Versus Parliamentarism in the Policy Arena,” Comparative Politics 32, 3 (April 2000): 355–76. 14. Mainwaring and Shugart, Presidentialism and Democracy.
Eaton Chapter 10 5/13/02 12:18 AM Page 303
THEORETICAL PERSPECTIVES AND IMPLICATIONS
303
power, and presidents who do have significant partisan powers tend to be denied significant constitutional powers. As Mainwaring and Shugart noted, aspects of the Argentine case and the 1994 constitutional reform do not support this argument: “It is puzzling that President Menem should have felt a need for such dominant [constitutional] powers given that he enjoyed relatively high partisan powers.”15 Fears of legislators’ provincial loyalties, which routinely led to policy compromises in the reforms studied here, may begin to provide an answer to this puzzle. In contrast to Argentina, the Philippine case supports the notion that an elective affinity might exist between low partisan powers and high constitutional powers. Though the 1987 constitution incorporated restraints on presidential behavior that are commonly interpreted as an attempt to prevent a future Marcos, in most important respects the charter preserved the president’s formal powers. Because the new constitution failed to alter significantly the way that legislators are elected, it also virtually guaranteed that future presidents would have weak partisan powers. We might argue that constitutional framers sought to preserve the president’s constitutional powers to balance the lack of partisan powers.16 The findings in this study challenge the argument that presidential systems produce inferior bureaucracies relative to parliamentary systems. As Moe and Caldwell argued, the separate election of presidents and legislators encourages the two branches to fight for control over bureaucrats in ways that undermine the strength of bureaucratic agencies. According to this argument, congress inevitably burdens the bureaucracy with overly complex instructions as a result of this interbranch struggle for control.17 In contrast, the micromanagement of bureaucrats in parliamentary systems is seen as being unnecessary because legislators retain ultimate authority over the cabinet and over bureaucrats. Various studies of lawmaking in the United States support the argument that legislators in presidential systems prefer regulatory complexity.18 The research presented in this book, however, disputes 15. Mainwaring and Shugart, Presidentialism and Democracy, 433. 16. As I show in Chapter 8 above, the most significant reforms to be implemented in the 1990s resulted from unilateral actions by the president. 17. Terry Moe and Michael Caldwell, “The Institutional Foundations of Democratic Government: A Comparison of Presidential and Parliamentary Systems,” Journal of Institutional and Theoretical Economics 150, 1 (1994): 171–95. 18. Noll and Rosenbluth, “Telecommunications Policy”; Linda Cohen, Matthew McCubbins, and Frances Rosenbluth, “The Politics of Nuclear Power in Japan and the United States,” in Cowhey and McCubbins, Structure and Policy, 177–202; and David Vogel, National Styles of Regulation (Ithaca: Cornell University Press, 1986).
Eaton Chapter 10 5/13/02 12:18 AM Page 304
304
CONCLUSION
this argument by showing that, in the universe of presidential systems, differences in party and electoral incentives encourage legislators to behave very differently toward bureaucracies. Though the preference of Philippine legislators for complex tax codes and cumbersome administrative procedures supports pessimistic conclusions about the bureaucracies that emerge in presidential systems, Argentine legislators actively supported bureaucratic reforms that streamlined tax administration and freed tax collectors from procedural constraints. By demonstrating the explanatory power of electoral rules, this study also highlights the potential importance of bicameralism as a popular institution in presidential democracies. When there are different rules for electing legislators to the two chambers, these differences can make conflict between the two chambers as important as conflict between the executive and legislative branches for policy analysts studying a system.19 In Argentina, party and electoral incentives encouraged both deputies and senators to demonstrate loyalty to provincial party leaders, and the record shows that legislators in both chambers insisted on changes to benefit their provinces. Though electoral laws overrepresented the poorer and sparsely populated provinces in both chambers, the malapportionment was particularly severe in the senate, where legislators from these provinces routinely tried to change revenue-sharing criteria to favor their home districts. In the Philippines, the election of senators in a single, nationwide district subjected them to different pressures than house members faced. By challenging the tax exemptions with which house members had loaded up the VAT bill, the Philippine senate became an important reform partner for the president. The completely overlapping nature of senate and presidential constituencies led to congruent policy preferences, despite partisan differences between the president and a majority of senators.20
Bringing Congress In Throughout the developing world but unevenly within it, legislators and the bodies they constitute have emerged to claim more influence in the process of making and implementing policy. To keep pace with this transformation, 19. Tsebelis and Money emphasized the efficient and political (redistributive) roles that bicameral institutions often play, in Bicameralism. 20. On congruence, see Shugart and Haggard, “Institutions and Public Policy,” 90–91.
Eaton Chapter 10 5/13/02 12:18 AM Page 305
THEORETICAL PERSPECTIVES AND IMPLICATIONS
305
the challenge facing the literature on new democracies and economic reform is not “to bring congress back in,” because scholars have never taken the policy role of legislatures in developing countries very seriously. Instead, a central task is to conduct basic research into how legislatures operate in developing countries that are consolidating democracy while pursuing economic reform. As the research presented in this study suggests, scholars must collect and analyze more information on such phenomena as the structure of committees and subcommittees, the procedures through which upper and lower chambers reconcile their bills, and the impact that internal voting rules have on policy outcomes. Basic descriptive information on these actors and relationships is currently unavailable for many new democracies. In the project of addressing this deficit and using these new cases to refine theories of legislative behavior that were developed for the more established democracies, the in-depth knowledge of country experts will prove to be an essential resource. In addition to conducting research on the internal functioning of legislatures, an important area for future research concerns the relationships that link legislators and three other sets of state actors: bureaucrats, judges, and subnational officials. In new democracies, little is known about legislators’ various strategies for making bureaucrats serve the constituents who matter to them. In the past, fiscal instability played havoc with budgetary policy and prevented legislators from using the budget to control bureaucrats. Given this history, the achievement of fiscal stability in many of these countries creates new opportunities for legislators to influence the behavior of bureaucrats. With respect to judges, attempts to understand the evolving struggle between the executive and legislative branches over policy authority require a more integrated study of the judiciary as the third branch of government. A number of recent changes have expanded the role of the legislature relative to the executive branch in the appointment of judges.21 This development is significant because legislators need supreme courts and constitutional tribunals that are willing and able to rule on the constitutionality of executive attempts to use the powers that legislatures delegate.22 Finally, the relationship between legislators and subnational officials also becomes more salient as the ongoing decentralization of revenues and 21. Pilar Domingo, “Judicial Independence and Judicial Reform in Latin America,” in Andreas Schedler, Larry Diamond, and Marc Plattner, eds., The Self-Restraining State (Boulder: Lynne Rienner, 1999), 151–75. 22. Carey and Shugart, Executive Decree Authority.
Eaton Chapter 10 5/13/02 12:18 AM Page 306
306
CONCLUSION
expenditures proceeds. Though decentralization has eroded the policymaking authority of national politicians, including legislators, it has also created a new arena in which legislators can exert their influence. Struggles over the terms of decentralization between chief executives at the national and subnational levels, and between different types of subnational governments, commonly spill over into national legislatures. Because they usually represent subnational jurisdictions but serve at the national level, legislators are natural intermediaries in these increasingly important disputes.
Eaton Appendix 5/13/02 12:19 AM Page 307
APPENDIX: INTERVIEWS
ARGENTINA Acuña, Carlos; professor of political science, CEDES; June 14, 1996, Buenos Aires. Alegria, Amado; administrative judge of the Dirección General Impositiva, first region; August 2, 1996, Buenos Aires. Baglini, Raúl; president of the Budget and Finance Committee, Chamber of Deputies, from 1985 to 1989; August 11, 1989, Buenos Aires. Bergman, Marcelo; tax-policy consultant, Dirección General Impositiva; August 15, 1999, Buenos Aires. Bertea, Oscar; analyst in the Subsecretary of Assistance for Provincial Economic Reform; July 24, 1996, Buenos Aires. Bordón, José Octavio; former governor of Mendoza and presidential candidate of FREPASO; August 7, 1996, Buenos Aires. Bulit Goni, Enrique; representative of the federal government to the Federal Tax Commission; July 3 1996, Buenos Aires. Cafiero, Antonio; senator of the republic of Argentina; August 9, 1996, Buenos Aires. Camerón, Daniel; economic policy adviser to Senator Cristina Fernández de Kirchner; July 25, 1996, Buenos Aires. Cetrángulo, Oscar; economist in the Center for Studies on Structural Change; March 15, 1996, Buenos Aires. Cohen, Norma; professor of public finance, University of Buenos Aires, and tax consultant to various municipalities; July 12, 1996, Buenos Aires. Cuello, Raúl; former secretary of public revenues, and director of the Dirección General Impositiva; August 15, 1996, Buenos Aires. Fadda, Juan; independent consultant to the Dirección General Impositiva; July 31, 1996, Buenos Aires. Fernández, Carlos; director of financial relations with the provinces in the Finance Secretariat of the Economy Ministry; May 7 1996, Buenos Aires.
307
Eaton Appendix 5/13/02 12:19 AM Page 308
308
APPENDIX: INTERVIEWS
Ferreira, Delia; legal scholar and adviser to Congressman Cafferata Nores; July 11, 1996, Buenos Aires. Frías, Pedro; Emeritus Professor of Constitutional Law at the National University of Córdoba; July 20, 1996, Córdoba. Garnero, Hugo; economic minister of the province of Santa Fé, and former subsecretary of fiscal and economic relations with the provinces in the National Economic Ministry; July 22, 1996, Santa Fé. Gómez-Sabaini, Juan Carlos; consultant to the Inter-American Center for Tax and Financial Administration of the Organization of American States, and former subsecretary of tax policy and administration; March 7 and June 14, 1996, Buenos Aires. González, Darío; head of the Department of Legal Tax Advising of the Dirección General Impositiva; July 30, 1996, Buenos Aires. Hall, Andrés; commissioner, Securities and Exchange Commission; August 12, 1999, Buenos Aires. Hernández, Antonio; secretary for federal affairs in the opposition cabinet of the Radical party; July 25, 1996, Buenos Aires. Jaliff, Juan Carlos; chief policy adviser to the Radical party bloc; August 15, 1996, Buenos Aires. Lamberto, Oscar; congressman from the province of Santa Fé, and chair of the Budget and Finance Committee; July 4, 1996, and July 27, 1999, Buenos Aires. Macón, Jorge; former subsecretary of public revenues; August 7, 1996, Buenos Aires. Macrae, Martha; analyst in the Operations subdivision of the Dirección General Impositiva; August 1, 1996, Buenos Aires. Matzkin, Jorge: head of the Peronist party bloc in the Chamber of Deputies, 1990–1997; August 13, 1999, Buenos Aires. Molinelli, Guillermo; professor of political science, University of Buenos Aires; July 2, 1996, Buenos Aires. Mondino, Guillermo; executive director of the Fundación Mediterranea; June 19, 1996, Buenos Aires. Montoya, Santiago; Economy Ministry; March 26, 1996, Buenos Aires. Mosso, Ana María; Peronist deputy (1997–2000), and economic minister of the province of Mendoza (1996–1997); August 12, 1999, Buenos Aires. Mustapic, Ana María; professor of political science, Instituto di Tella; June 13, 1996, Buenos Aires. Ponce, Carlos; economic policy adviser to José Bordón, and consultant to the Fundación Andina; August 7, 1996, Buenos Aires. Porto, Alberto; professor of public finance, Instituto di Tella; May 6, 1996, Buenos Aires. Szterenlicht, Edmundo; consultant to the Federal Investment Council; July 24, 1996, Buenos Aires. Taparelli, Juan Carlos; former congressman from the province of Santa Fé, and chief adviser to the Committee on Industry in the Chamber of Deputies; July 5, 1996, Buenos Aires.
Eaton Appendix 5/13/02 12:19 AM Page 309
APPENDIX: INTERVIEWS
309
PHILIPPINES Aguirre, Estella; deputy commissioner of the Bureau of Internal Revenue; March 18, 1997, Quezon City. Alfelor, Ciriaco; member of the House of Representatives, and chair of the Local Government Committee; March 4, 1997, Quezon City. Almonte, José; national security adviser to President Ramos, and director of the National Security Council; April 3, 1997, Quezon City. Boncoudin, Emilia; undersecretary of budget in the Department of Budget and Management; March 25, 1997, Manila. Brillantes, Alex; associate professor, National College of Public Administration and Governance; November 26, 2000, Quezon City. Bulan, Susan; legislative staff chief, Congressional Planning and Budget Office in the House of Representatives; January 30, 1997, Quezon City. Coronel, Sheila; executive director; Philippine Center for Investigative Journalism; November 21, 2000, Quezon City. De Ocampo, Roberto; president, Asian Institute of Management, and President Ramos’s finance minister; November 23, 2000, Makati. Diaz, Renato; member of the House of Representatives, and vice chair of the Ways and Means Committee; March 4, 1997, Quezon City. Diaz; Ronald; policy adviser to Senator Ernesto Herrera; March 10, 1997, Manila. Diokno, Benjamin; professor in the School of Economics at the University of the Philippines, and former undersecretary of the budget; January 31, 1997, Quezon City. Diokno-Pascual, Maitet; Freedom from Debt Commission; November 22, 2000, Quezon City. Doronila, Amando; editor-in-chief of The Manila Chronicle; April 8, 1997, Pasig. Fabella, Rafael; dean, University of the Philippines School of Economics; November 21, 2000, Quezon City. Figueroa, Lina; assistant director, Senate Tax Research Office; February 28, 1997, Manila. Guevara, Milwida; undersecretary of finance; March 20 and April 15, 1997, Manila. Gutierrez, Eric; journalist, Institute for Popular Democracy and the Philippine Center for Investigative Journalism; February 19, 1997, Quezon City. Hawes, Gary; program officer, Ford Foundation; November 24, 2000, Makati. Herrera, Ernesto; senator of the Philippines; March 4, 1997, Manila. Inocentes, Eugenio; executive director, LEDAC; November 23, 2000, Pasig. Intal, Ponciano; president, Philippine Institute for Development Studies; January 29, 1997, Makati. Magno, Alex; professor, University of the Philippines; March 21, 1997, Quezon City. Manasan, Rosario; research fellow, Philippine Institute for Development Studies; January 29, 1997, and November 22, 2000, Makati. Medalla, Felipe; dean, School of Economics at the University of the Philippines; February 4, 1997, Quezon City.
Eaton Appendix 5/13/02 12:19 AM Page 310
310
APPENDIX: INTERVIEWS
Morala, Rachel; tax analyst at the Freedom from Debt Coalition; January 31, 1997, Quezon City. Nacpil, Lidy; Freedom from Debt Commission; November 22, 2000, Quezon City. Nellor, David C.; resident representative to the Philippines for the International Monetary Fund; April 10, 1997, Manila. Neri, Romulo; director of the Congressional Budget and Planning Office in the House of Representatives; January 30, 1997, and November 21, 2000, Quezon City. Ortuoste, Edwin; lawyer for the Bureau of Internal Revenue, and member of the VAT Review Committee; March 11, 1997, Quezon City. Patriarca, Junel; manager of “Congresswatch,” Makati Business Club; April 15, 1997, Makati. Rocamora, Joel; researcher, Institute for Popular Democracy; March 19, 1997, Quezon City. Rosales, Etta; director, Institute for Political and Electoral Reform; April 15, 1997, Quezon City. Rualo, Beethoven; deputy commissioner of the Bureau of Internal Revenue; March 18, 1997, Quezon City. Tapales, Proserpina; dean, College of Public Administration, University of the Philippines; February 18, 1997, Quezon City. Teves, Margarito; member of the House of Representatives; March 5, 1997, Quezon City. Wuertz, Robert; governance officer, U.S. Agency for International Development; November 20, 2000, Pasay. Yoingco, Angel; member of the Presidential Task Force on Tax Reform, and dean of the Graduate School at the Lyceum of the Philippines; April 1, 1997, Manila. Zamora, Ronaldo; member of the House of Representatives, and Minority Leader; March 5, 1997, Quezon City.
Eaton References 5/13/02 12:20 AM Page 311
REFERENCES
Aberbach, Joel, Robert Putnam, and Bert Rockman. Bureaucrats and Politicians in Western Democracies. Cambridge, Mass.: Harvard University Press, 1981. Abueva, José. “Social Backgrounds and Recruitment of Legislators and Administrators in a Developing Country: the Philippines.” Philippine Journal of Public Administration 9 (1965): 10–29. Acuña, Carlos. “Politics and Economics in the Argentina of the Nineties.” In Democracy, Markets, and Structural Reform in Latin America, ed. William Smith, Carlos Acuña, and Eduardo Gamarra. New Brunswick: North-South Center Press, 1994. ––––––. La Nueva Matriz Política Argentina (Argentina’s new political matrix). Buenos Aires: Ediciones Nueva Visión, 1995. ––––––, and William Smith. “The Political Economy of Structural Adjustment: The Logic of Support and Opposition to Neoliberal Reform.” In Latin American Political Economy in the Age of Neoliberal Reform, ed. William Smith, Carlos Acuña, and Eduardo Gamarra. Miami: University of Miami North-South Center Press, 1994, 17–66. Administración Federal de Ingresos Públicos. Estadisticas Tributarias Año 1997 (Tax statistics year 1997). Buenos Aires: Ministerio de Economía y Obras y Servicios Públicos, 1998. Agra, Alberto, and Steven Rood. “Reviewing the Local Government Code: Five Years After.” Journal of Legislative Development 2 (1996): 21–44. Aguilar Caravia, Oscar. “La DGI ante la Promoción Industrial” (The DGI and industrial promotion). Impuestos 45A (1987): 171–75. Ahmad, Ehtisham, and Nicholas Stern. Theory and Practice of Tax Reform in Developing Countries. Cambridge: Cambridge University Press, 1991. Ahorro, Eric. “Retail Liberalization: A Balancing Act.” Politik 2, 4 (1996): 32–34. Alam, Asad, and Sarath Rajapatirana. “Trade Policy Reform in Latin America and the Caribbean in the 1980s.” World Bank, Working Paper Series no. 1104 (1993).
311
Eaton References 5/13/02 12:20 AM Page 312
312
REFERENCES
Alfonso, Caridad. “Executive-Legislative Relations.” In Foundations and Dynamics of Filipino Government and Politics, ed. Jose Abueva and Raul de Guzman. Manila: Bookmark, 1969, 343–46. Almonte, Jose. “The Politics of Development in the Philippines.” Kasarinlan 9, 2 (fourth quarter 1993): 107–18. Ames, Barry. “The Congressional Connection.” Comparative Politics (January 1987): 147–71. ––––––. Political Survival. Berkeley and Los Angeles: University of California Press, 1987. ––––––. “Electoral Rules: Constituency Pressures and Pork Barrel: Bases of Voting in the Brazilian Congress.” Journal of Politics 57, 2 (1995): 324–43. ––––––. “Electoral Strategy under Open-List Proportional Representation.” American Journal of Political Science 39, 2 (1995): 406–33. ––––––. Deadlock of Democracy in Brazil. Ann Arbor: University of Michigan Press, 2001. Amorim Neto, Octavio. “Presidential Cabinets and Legislative Cohesion in Brazil.” In Legislative Politics in Latin America, ed. Scott Morgenstern and Benito Nacif. New York: Cambridge University Press, 2001. Anderson, Benedict. “Cacique Democracy in the Philippines: Origins and Dreams.” New Left Review no. 169 (1988): 3–31. Archer, Ron, and Matthew Shugart. “The Unrealized Potential of Presidential Dominance in Colombia.” In Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Shugart. New York: Cambridge University Press, 1997, 110–59. Argañaraz, Nadín, and Guillermo Israilevich. “El Monotributo.” Novedades Económicas 19, 197 (1997): 11–14. Arnold, Douglas. Congress and the Bureaucracy. New Haven: Yale University Press, 1979. ––––––. The Logic of Congressional Action. New Haven: Yale University Press, 1990. Ascher, William. “Risk, Politics, and Tax Reform: Lessons from Some Latin American Experiences.” In Tax Reform in Developing Countries, ed. Malcolm Gillis. Durham: Duke University Press, 1989, 414–72. Baer, Werner, and William Maloney. “Neoliberalism and Income Distribution in Latin America.” World Development 25, 3 (1997): 311–27. Baldez, Lisa, and John Carey. “Budget Procedure and Fiscal Restraint in Posttransition Chile.” In Presidents, Parliaments, and Policy, ed. Stephan Haggard and Matthew McCubbins. New York: Cambridge University Press, 2001, 105–48. Balestra, Ricardo, and Jorge Ossona. Que son los partidos provinciales? (What are the provincial parties?). Buenos Aires: Editorial Sudamericana, 1983. Banks, Jeffrey S., and Barry R. Weingast. “Political Control of Bureaucracies Under Asymmetric Information.” American Journal of Political Science 36, 2 (1992): 509–24. Baron, David, and John Ferejohn. “Bargaining in Legislatures.” American Political Science Review 83, 4 (1989): 1181–206. Bates, Robert. “A Political Scientist Looks at Tax Reform.” In Tax Reform in Developing Countries, ed. Malcolm Gillis. Durham: Duke University Press, 1989, 473–91.
Eaton References 5/13/02 12:20 AM Page 313
REFERENCES
313
––––––, and Paul Collier. “The Politics and Economics of Policy Reform in Zambia.” In Political and Economic Interactions in Economic Policy Reform, ed. Robert Bates and Anne Krueger. Oxford: Blackwell, 1993, 387–443. Bates, Robert, and Da-Hsiang Donald Lien. “A Note on Taxation, Development, and Representative Government.” Politics and Society 14, 1 (1985): 53–69. Best, M. H. “Political Power and Tax Revenues in Central America.” Journal of Development Economics 3 (1976): 49–82. Bidart Campos, Germán. “El Federalismo Argentino desde 1930 hasta la Actualidad” (Argentine federalism from 1930 to the present). In Federalismos Latinoamericanos: México, Brazil, Argentina (Latin American federalisms: Mexico, Brazil, Argentina), ed. Marcello Carmagnani. México, D.F.: El Colegio de México, 1993, 363–96. Bird, Richard. “The Administrative Dimension of Tax Reform in Developing Countries.” In Tax Reform in Developing Countries, ed. Malcolm Gillis. Durham: Duke University Press, 1989, 315–46. ––––––.“Tax Reform in Latin America.” Latin American Research Review 27, 1 (1992): 7–36. ––––––. Tax Policy and Economic Development. Baltimore: Johns Hopkins University Press, 1993. ––––––, and Oliver Oldman. 1990. Taxation in Developing Countries. 4th ed. Baltimore: Johns Hopkins University Press, 1990. ———, and François Vaillancourt, eds. Fiscal Decentralization in Developing Countries. New York: Cambridge University Press, 1998. Birnbaum, Jeffrey, and Alan Murray. Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform. New York: Vintage Books, 1988. Bolongaita, Emil Jr. “Presidential Democracy and the Separation of Powers: The Constitutional and Party Politics of the Philippine Democracy.” Ph.D. diss., University of Notre Dame, 1994. Boskin, Michael. “New Directions in Tax Policy.” In World Tax Reform, ed. Michael Boskin and Charles McLure. San Francisco: ISC Press, 1990, 3–7. Bresser Pereira, Luiz Carlos, Jose Maria Maravall, and Adam Przeworski. Economic Reforms in New Democracies. Cambridge: Cambridge University Press, 1993. Briones, Leonor. “Fiscal and Monetary Policies as Constraints to Development.” Kasarinlan 10, 2 (1994): 7–46. Buchanan, James, R. Tollison, and G. Tullock, eds. Toward a Theory of the Rent Seeking Society. College Station: Texas A & M Press, 1980. Burki, Shahid Javed, Guillermo Perry, and William Dillinger. Beyond the Center: Decentralizing the State. Washington, D.C.: World Bank, 1999. Cain, Bruce, John Ferejohn, and Morris Fiorina. The Personal Vote: Constituency Service and Electoral Independence. Cambridge, Mass.: Harvard University Press, 1987. Carciofi, Ricardo. “La Desarticulación del Pacto Fiscal: Una Interpretación del Sector Público Argentino en las Ultimas Decadas” (Disarticulation of the fiscal pact: An interpretation of the Argentine public sector in recent decades). In Documento de Trabajo (Working paper) no. 36. Buenos Aires: CEPAL, 1990. Carey, John M. Term Limits and Legislative Representation. New York: Cambridge University Press, 1998.
Eaton References 5/13/02 12:20 AM Page 314
314
REFERENCES
––––––, and Matthew S. Shugart. “Incentives to Cultivate a Personal Vote: A Rank Ordering of Electoral Formulas.” Electoral Studies 14, 4 (1995): 417–39. ––––––. Executive Decree Authority. New York: Cambridge University Press, 1998. Casper, Gretchen. Fragile Democracies: The Legacies of Authoritarian Rule. Pittsburgh: University of Pittsburgh Press, 1995. Cavarozzi, Marcelo. “Politics: A Key for the Long Term in South America.” In Latin American Political Economy in the Age of Neoliberal Reform, ed. William Smith, Carlos Acuña, and Eduardo Gamarra. Miami: University of Miami North-South Center Press, 1994, 127–55. Centeno, Miguel. Democracy Within Reason: Technocratic Revolution in Mexico. University Park: The Pennsylvania State University Press, 1994. Cetrángulo, Oscar, and Juan P. Jiménez. “El Conflicto en Torno a las Relaciones Financieras entre la Nación y las Provincias, Segunda Parte: Desde la Ley 23.548 hasta la Actualidad” (Conflict in financial relations between the nation and the provinces, part 2: From Law 23,548 to the present). Serie de Estudios (Centro de Estudios para el Cambio Estructural) no. 10 (February 1996). ––––––. “Apuntes para el diseño de un nuevo regimen de coparticipación federal de impuestos.” Serie de Estudios Estudios (Centro de Estudios para el Cambio Estructural) no. 13 (1996). Chalmers, Douglas, Carlos Vilas, Katherine Hite, Scott Martin, Kerianne Piester, and Monique Segarra, eds. The New Politics of Inequality in Latin America. New York: Oxford University Press, 1997. Cleaves, Peter. Bureaucratic Politics and Administration in Chile. Berkeley and Los Angeles: University of California Press, 1974. Close, David, ed. Legislatures and the New Democracies in Latin America. Boulder: Lynne Rienner, 1995. Cohen, Linda, Matthew McCubbins, and Frances Rosenbluth. “The Politics of Nuclear Power in Japan and the United States.” In Structure and Policy in Japan and the United States, ed. Peter Cowhey and Matthew McCubbins. New York: Cambridge University Press, 1997, 177–202. Collier, Ruth Berins, and David Collier. “Inducements Versus Constraints: Disaggregating Corporatism.” American Political Science Review 73, 4 (1979): 967–86. Conaghan, Catherine, and James Malloy. Unsettling Statecraft: Democracy and Neoliberalism in the Central Andes. Pittsburgh: University of Pittsburgh Press, 1994. Confederación General Económica. El Libro Azul de las Provincias: Las Economías Regionales en la Transformación Económicas en la Transformación Económica de la República Argentina. Buenos Aires: Instituto de Investigaciones Económicas y Financieras de la C.G.E., 1993. Coppedge, Michael. Strong Parties and Lame Ducks: Presidential Partyarchy and Factionalism in Venezuela. Stanford: Stanford University Press, 1994. ––––––. “District Magnitude, Economic Performance, and Party-System Fragmentation in Five Latin American Countries.” Comparative Political Studies 30, 2 (1997): 156–85. Coronel, Sheila. “Cavite: The Killing Fields of Commerce.” In Boss: Five Case Studies of Local Politics in the Philippines, ed. Joseph Lacaba. Pasig: Philippine Center for Investigative Journalism, 1995, 1–29.
Eaton References 5/13/02 12:20 AM Page 315
REFERENCES
315
––––––. “Monopoly.” In Pork and Other Perks: Corruption and Governance in the Philippines, ed. Sheila Coronel. Pasig: Philippine Center for Investigative Journalism, 1998, 112–49. Corrales, Javier. “Why Argentines Followed Cavallo.” In Technopols: Freeing Markets and Politics in Latin America, ed. Jorge Dominguez. University Park: The Pennsylvania State University Press, 1997, 49–93. ––––––. “Do Economic Crises Contribute to Economic Reform? Argentina and Venezuela in the 1990s.” Political Science Quarterly 112, 4 (1997–1998): 617–44. Cox, Gary. The Efficient Secret. New York: Cambridge University Press, 1987. ––––––, and Matthew McCubbins. “Divided Control of Fiscal Policy.” In The Politics of Divided Government, ed. Gary Cox and Samuel Kernell. Boulder: Westview Press, 1991, 155–75. ––––––. Legislative Leviathan: Party Government in the House. Berkeley and Los Angeles: University of California Press, 1993. ––––––. “The Institutional Determinants of Economic Policy Outcomes.” In Presidents, Parliaments, and Policy, ed. Stephan Haggard and Matthew McCubbins. New York: Cambridge University Press, 2001, 21–63. ———, and Scott Morgenstern. “Epilogue: Latin America’s Reactive Assemblies and Proactive Presidents.” In Legislative Politics in Latin America, ed. Scott Morgenstern and Benito Nacif. New York: Cambridge University Press, 2001, 446–68. Crisp, Brian. “Electoral Incentives and Fiscal Outcomes.” Paper presented at the annual meeting of the American Political Science Association; Washington, D.C., 1997. ––––––. “Presidential Behavior in a System with Strong Parties: Venezuela, 1958– 1995.” In Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Shugart. New York: Cambridge University Press, 1997, 160–98. ––––––. “Lessons from Economic Reform in the Venezuelan Democracy.” Latin American Research Review 33, 1 (1998): 7–41. ––––––. Democratic and Institutional Design. Stanford: Stanford University Press, 2000. ––––––, and Juan Carlos Rey. “The Sources of Electoral Reform in Venezuela.” In Mixed-Member Electoral Systems: The Best of Both Worlds? ed. Matthew Shugart and Martin Wattenberg. Oxford: Oxford University Press, 2001, 173–93. Cuello, Raúl. Cinco Años de Convertibilidad. Unpublished manuscript, 1996. de Castro, Isagani. “Money and Moguls: Oiling the Campaign Machinery.” In 1992 & Beyond: Forces and Issues in Philippine Elections, ed. Sheila Coronel and Lorna Kalaw-Tirol. Quezon City: Philippine Center for Investigative Journalism and Ateneo de Manila University, 1992, 36–77. de Dios, Emmanuel S. Poverty, Growth, and the Fiscal Crisis. Makati: Philippine Institute for Development Studies, 1993. de Luca, Miguel, Mark Jones, and María Inés Tula. “Argentine Political Parties and Their Candidate Nomination Procedures, 1983–1999.” Paper presented at the Annual Meeting of the Latin American Studies Association Conference, Miami, Florida, 2000.
Eaton References 5/13/02 12:20 AM Page 316
316
REFERENCES
de Quiros, Conrado. “Guns, Goons, and Government.” In 1992 & Beyond: Forces and Issues in Philippine Elections, ed. Sheila Coronel and Lorna Kalaw-Tirol. Quezon City: Philippine Center for Investigative Journalism and Ateneo de Manila University, 1992, 8–33. de Riz, Liliana. “Argentina: Democracy in Turmoil.” In Constructing Democratic Governance: South America in the 1990s, ed. Jorge Domínguez. Baltimore: Johns Hopkins University Press, 1996, 147–65. ––––––, and Catalina Smulovitz. “Instituciones y Dinámica Política: El Presidencialismo Argentino” (Institutions and political dynamics: Argentine presidentialism). In Reforma Institucional y Cambio Político (Institutional reform and political change), ed. Dieter Nohlen and Liliana de Riz. Buenos Aires: CEDES, Editorial Legasa, 1991, 121–76. Dirección General Impositiva. DGI, 1984–1995. Buenos Aires: República Argentina, July 1996. Domingo, Pilar. “Judicial Independence and Judicial Reform in Latin America.” In The Self-Restraining State, ed. Andreas Schedler, Larry Diamond, and Marc Plattner. Boulder: Lynne Rienner, 1999, 151–75. Domínguez, Jorge, ed. Technopols: Freeing Politics and Markets in Latin America in the 1990s. University Park: The Pennsylvania State University Press, 1997. Dornbusch, Rudiger, and Sebastian Edwards. “The Macroeconomics of Populism in Latin America.” Journal of Development Economics 32 (1990): 247–77. Doronila, Amando. “Transformation of Patron-Client Relations and Its Political Consequences in Postwar Philippines.” Journal of Southeast Asian Studies 16, 1 (1985): 99–116. ––––––. The State, Economic Transformation, and Political Change in the Philippines, 1946–1972. Singapore: Oxford University Press, 1992. Downs, Anthony. An Economic Theory of Democracy. New York: Harper and Row, 1957. Drake, Paul. “Comment.” In The Macroeconomics of Populism in Latin America, ed. Rudiger Dornbusch and Sebastian Edwards. Chicago: University of Chicago Press, 1991, 35–40. Durán, Viviana, and Juan C. Gómez Sabaini. “Lecciones Sobre reformas Fiscales en Argentina, 1990–1993” (Lessons of fiscal reform in Argentina, 1990–1993). Serie Política Fiscal (Economic Commission in Latin America, Fiscal Policy Series) no. 68 (1993). Durand, Francisco, and Eduardo Silva, eds. Organized Business, Economic Change, and Democracy in Latin America. Miami: North-South Center Press, 1998. Duverger, Maurice. Political Parties. New York: John Wiley and Sons, 1954. Eaton, Kent. “Presidentialism Versus Parliamentarism in the Policy Arena.” Comparative Politics 32, 3 (2000): 355–76. ––––––. “Decentralisation, Democratisation, and Liberalisation: The History of Revenue Sharing in Argentina, 1934–1999.” Journal of Latin American Studies 33, 1 (February 2001): 1–28. ––––––. “Fiscal Policy Making in the Argentine Congress.” In Legislative Politics in Latin America, ed. Scott Morgenstern and Benito Nacif. New York: Cambridge University Press, 2001, 287–314.
Eaton References 5/13/02 12:20 AM Page 317
REFERENCES
317
––––––. “The Logic of Congressional Delegation: Explaining Argentine Economic Reform.” Latin American Research Review 36, 2 (spring 2001): 97–117. ––––––. “Political Obstacles to Decentralization: Evidence from Argentina and the Philippines.” Development and Change 31, 1 (2001): 101–27. Edwards, Sebastian. Real Exchange Rates, Devaluation, and Adjustment: Exchange Rate Policy in Developing Countries. Cambridge, Mass.: MIT Press, 1989. ––––––. “The Political Economy of Inflation and Stabilization in Developing Countries.” Economic Development and Cultural Change 42 (1994): 235–66. ––––––. Crisis and Reform in Latin America. Washington, D.C.: World Bank, 1995. Emboltura, Anthony. “Recentralization or Suspension: A Step in the Right Direction?” Legislative Alert (July–September 1994): 23–27. ––––––. “Searching for Equity: The IRA Debate.” Legislative Features 2, 1 (1994): 5–8. Epstein, Edward. The New Argentine Democracy. Westport, Conn.: Praeger, 1992. Evans, Peter. Embedded Autonomy: States and Industrial Transformation. Princeton: Princeton University Press, 1995. Fenno, Richard. Home Style: House Members and Their Districts. Boston: Little, Brown, 1978. Ferejohn, John. Pork Barrel Politics: Rivers and Harbors Legislation, 1947–1968. Stanford: Stanford University Press, 1974. ––––––, and Charles Shipan. “Congressional Influence on Administrative Agencies.” In Congress Reconsidered, ed. Lawrence Dodd and Bruce Oppenheimer. Washington, D.C.: Congressional Quarterly Press, 1989, 393–410. Ferreira, Delia, and Matteo Goretti. “When the President Governs Alone.” In Executive Decree Authority, ed. John Carey and Matthew Shugart. New York: Cambridge University Press, 1998, 33–61. Ferrucci, Ricardo. La Promoción Industrial en Argentina (Industrial promotion in Argentina). Buenos Aires: Editorial Universitaria de Buenos Aires, 1986. Fiorina, Morris. Congress: Keystone of the Washington Establishment. New Haven: Yale University Press, 1989. ––––––, and Roger Noll. “Majority Rule Models and Legislative Elections.” Journal of Politics 41, 4 (1979): 1081–104. Fólica, Alfredo. “Anarquía en la distribución de los tributos nacionales: Los últimos acontecimientos” (Anarchy in the distribution of national taxes: Recent developments). In Federalismo Fiscal en Argentina (Fiscal federalism in Argentina). Buenos Aires: Fundación CECE, 1997. Francisco, Gregorio, and Raul de Guzman. “Congress and Patronage.” In Foundations and Dynamics of Filipino Government and Politics, ed. Jose Abueva and Raul de Guzman. Manila: Bookmark, 1969, 299–310. Freedom from Debt Coalition. FDC Oil Campaign Resource Manual. Quezon City: FDC, 1998. ––––––. FDC Tax Campaign Resource Manual. Quezon City: FDC, 1998. Frieden, Jeffrey. Debt and Development in Latin America. Princeton: Princeton University Press, 1991. Fundación CECE. Federalismo Fiscal en Argentina (Fiscal federalism in Argentina). Buenos Aires: Fundación CECE, 1997.
Eaton References 5/13/02 12:20 AM Page 318
318
REFERENCES
Fundación de Investigaciones Económicas Latinoamericanas (FIEL). El Sistema Impositivo Argentino (The Argentine tax system). Buenos Aires: Ediciones Manantial, 1991. ––––––. Hacia Una Nueva Organización del Federalismo Fiscal en la Argentina (Toward a new framework of fiscal federalism in Argentina). Buenos Aires: Ediciones Latinomericanas, 1993. Gamarra, Eduardo. “Market-Oriented Reforms and Democratization in Latin America.” In Latin American Political Economy in the Age of Neoliberal Reform, ed. William Smith, Carlos Acuña, and Eduardo Gamarra. Miami: University of Miami North-South Center Press, 1994, 1–15. ––––––. “Hybrid Presidentialism and Democratization: The Case of Bolivia.” In Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Shugart. New York: Cambridge University Press, 1997, 363–93. ––––––, and James Malloy. “The Patrimonial Dynamics of Party Politics in Bolivia.” In Building Democratic Institutions, ed. Scott Mainwaring and Timothy Scully. Stanford: Stanford University Press, 1995, 399–433. Gamarra Zorrilla, José. Liberalismo y Neoliberalismo (Liberalism and neoliberalism). La Paz: Editorial Los Amigos del Libro, 1993. Geddes, Barbara. “A Game Theoretic Model of Reform in Latin American Democracies.” American Political Science Review 85, 2 (1992): 371–92. ––––––. Politician’s Dilemma: Building State Capacity in Latin America. Berkeley and Los Angeles: University of California Press, 1994. George, Terrence. “Local Governance: People Power in the Provinces?” In Organizing for Democracy, ed. G. Sidney Silliman and Lela Garner Noble. Honolulu: University of Hawaii Press, 1998, 223–53. Gervasoni, Carlos. “Del distribucionismo al Neoliberalismo: Los Cambios en la Coalición Electoral Peronista durante el Gobierno de Menem” (From distributionalism to neoliberalism: Changes in the Peronist electoral coalition during Menem’s government). Paper presented at the Annual Meeting of the Latin American Studies Association, Chicago, 1998. Gibson, Edward. Class and Conservative Parties: Argentina in Comparative Perspective. Baltimore: Johns Hopkins University Press, 1996. ––––––. “Federalism and Electoral Coalitions: Making Market Reform Politically Viable in Argentina.” Paper presented at the Conference on Federalism at All Souls College, Oxford University, June 6–7, 1997. ––––––. “The Populist Road to Market Reform: Policy and Electoral Coalitions in Mexico and Argentina.” World Politics 49, 3 (1997): 339–70. Gillespie, Charles. Negotiating Democracy: Politicians and Generals in Uruguay. Cambridge: Cambridge University Press, 1991. Gillis, Malcolm. “Toward a Taxonomy of Tax Reform.” In Tax Reform in Developing Countries, ed. Malcolm Gillis. Durham: Duke University Press, 1989. ––––––, Carl Shoup, and Gerardo Sicat. Value Added Taxation in Developing Countries. Washington, D.C.: World Bank, 1990. Golay, Frank H. The Philippines: Public Policy and National Economic Development. Ithaca: Cornell University Press, 1961, 7–26.
Eaton References 5/13/02 12:20 AM Page 319
REFERENCES
319
––––––. “The Search for Revenues.” In Reappraising an Empire: New Perspectives on Philippine-American History, ed. Peter Stanley. Cambridge, Mass.: Harvard University Press, 1984, 231–60. González, Luis. Political Structures and Democracy in Uruguay. Notre Dame: University of Notre Dame Press, 1991. Goode, Richard. Government Finance in Developing Countries. Washington, D.C.: Brookings Institution, 1984. Grindle, Merilee, and John Thomas. Public Choices and Policy Change. Baltimore: Johns Hopkins University Press, 1991. Guevara, Milwida. “The Economics and Politics of the Cigarette Tax Reform.” Ph.D. diss., Graduate School Lyceum of the Philippines, Manila, 1995. ––––––, and Angel Yoingco. “The VAT Experience in the Philippines.” Paper presented at the International Conference on Tax Reform, Hotel Istana, Kuala Lumpur, November 5, 1992. Gutierrez, Eric. The Ties That Bind: A Guide to Family, Business, and Other Interests in the Ninth House of Representatives. Pasig: Philippine Center for Investigative Journalism, 1994. ––––––. “The Public Purse.” In Pork and Other Perks, ed. Sheila Coronel. Pasig: Philippine Center for Investigative Journalism, 1998, 56–81. ––––––, Ildefonso Torrente, and Noli Narca. All in the Family: A Study of Elites and Power Relations in the Philippines. Quezon City: Institute for Popular Democracy, 1992. Haggard, Stephan. “The Politics of Adjustment: Lessons from the IMF’s Extended Fund Facility.” International Organization 39, 3 (1985): 505–34. ––––––. Pathways from the Periphery. Ithaca: Cornell University Press, 1990. ––––––. Developing Nations and the Politics of Global Integration. Washington, D.C.: Brookings Institution, 1995. ––––––, and Robert Kaufman, eds. The Politics of Economic Adjustment. Princeton: Princeton University Press, 1992. ––––––. The Political Economy of Democratic Transitions. Princeton: Princeton University Press, 1995. ———, and Matthew McCubbins. Presidents, Parliaments, and Policy. New York: Cambridge University Press, 2001. Hall, Peter A., and Rosemary Taylor. “Political Science and the Three New Institutionalisms.” Political Studies 44, 5 (1996): 936–57. Hallerberg, Mark. “Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union.” Paper presented at the meetings of the American Political Science Association, San Francisco, 1996. Hawes, Gary. The Philippine State and the Marcos Regime: The Politics of Export. Ithaca: Cornell University Press, 1987. Hirschman, Albert. Journeys Toward Progress. New York: Doubleday, 1965. ––––––. A Bias for Hope: Essays on Development and Latin America. New Haven: Yale University Press, 1971. Huntington, Samuel. Political Order in Changing Societies. New Haven: Yale University Press, 1968.
Eaton References 5/13/02 12:20 AM Page 320
320
REFERENCES
––––––. The Third Wave of Democratization. Norman: University of Oklahoma Press, 1991. Hutchcroft, Paul. “Oligarchs and Cronies in the Philippine State: The Politics of Patrimonial Plunder.” World Politics 43, 3 (1991): 414–50. ––––––. “Selective Squander: The Politics of Preferential Credit Allocation in the Philippines.” In The Politics of Finance in Developing Countries, ed. Stephan Haggard, Chung Lee, and Sylvia Maxfield. Ithaca: Cornell University Press, 1993, 165–98. ––––––. “The Philippines at the Crossroads: Sustaining Economic and Political Reform.” Asian Update (Asia Society, New York), November 1996, 5–19. ––––––. Booty Capitalism: The Politics of Banking in the Philippines. Ithaca: Cornell University Press, 1998. Igaya, G. Luis. “The Political Economy of the Philippine Democratic Transition.” In Transitions to Democracy in East and Southeast Asia, ed. Kristina Gaerlan. Quezon City: Institute for Popular Democracy, 1999, 3–57. Institute for Political and Electoral Reform. “Working Paper on the Party-List System of Voting.” Roundtable discussion on the Party-List Conference Bill, Ateneo de Manila University, 1995. ––––––. Inside the Chambers: The Performance of the Ninth Congress on Human Rights. Quezon City: Institute for Political and Economic Reform, 1996. Inter-American Development Bank. Economic and Social Progress in Latin America: 1996 Report. Washington, D.C.: Johns Hopkins University Press, 1996. ––––––. Latin America After a Decade of Reforms. Washington, D.C.: IDB, Economic and Social Progress in Latin America, 1997. Jenkins, Glenn. “Modernization of Tax Administrations.” Bulletin for International Fiscal Documentation 48, 2 (1994): 75–80. Jones, Mark. Electoral Rules and the Survival of Presidential Democracy. Notre Dame: University of Notre Dame Press, 1995. ––––––. “Evaluating Argentina’s Presidential Democracy, 1983–1995.” In Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Shugart. New York: Cambridge University Press, 1997, 259–99. ––––––. “Explaining the High Level of Party Discipline in the Argentine Congress.” In Legislative Politics in Latin America, ed. Scott Morgenstern, and Benito Nacif. New York: Cambridge University Press, 2001, 147–84. ––––––. “Political Institutions and Public Policy.” In Presidents, Parliaments, and Policy, ed. Stephan Haggard and Matthew McCubbins. New York: Cambridge University Press, 2001, 149–82. Kahler, Miles. “Orthodoxy and Its Alternatives: Explaining Approaches to Stabilization and Adjustment.” In Economic Crisis and Policy Choice, ed. Joan Nelson. Princeton: Princeton University Press, 1990, 33–61. Karl, Terry. “Petroleum and Political Pacts: The Transition to Democracy in Venezuela.” In Transitions from Authoritarian Rule, ed. Guillermo O’Donnell, Philippe Schmitter, and Laurence Whitehead. Baltimore: Johns Hopkins University Press, 1986, 196–219. ––––––. “Dilemmas of Democratization in Latin America.” Comparative Politics (October 1990): 1–21.
Eaton References 5/13/02 12:20 AM Page 321
REFERENCES
321
––––––. The Paradox of Plenty. Berkeley and Los Angeles: University of California Press, 1997. Katz, Richard S. A Theory of Parties and Electoral Systems. Baltimore: Johns Hopkins University Press, 1980. Katzenstein, Peter. Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States. Madison: University of Wisconsin Press, 1978. Kiewiet, D. Roderick, and Matthew McCubbins. The Logic of Delegation. Chicago: University of Chicago Press, 1991. King, Gary, Robert Keohane, and Sidney Verba. Designing Social Inquiry. Princeton: Princeton University Press, 1994. Kolodziej, Vanesa Isabel. “Fondo especial del tabaco: El premio mayor” (Special tobacco fund: The big prize). Unpublished manuscript, Universidad de San Andres, March 1998. Kornberg, Allen, and Lloyd Musolf. Legislatures in Developmental Perspective. Durham: Duke University Press, 1970. Krehbiel, Keith. Information and Legislative Organization. Ann Arbor: University of Michigan Press, 1991. Krueger, Anne O. “The Political Economy of the Rent-Seeking Society.” American Economic Review 64 (June 1974): 291–303. Kulisheck, Michael. “Electoral Law and Politicians: The Behavioral Effects of Electoral Reform in Venezuela.” Paper presented at the annual meeting of the American Political Science Association, Washington, D.C., August 28–31, 1997. Lacaba, Joseph, ed. Boss: Five Case Studies of Local Politics in the Philippines. Pasig: Philippine Center for Investigative Journalism, 1995. Landé, Carl H. Leaders, Factions, and Parties: The Structure of Philippine Politics. New Haven: Yale University Southeast Asia Studies Monograph Series 6, 1965. Levine, Daniel. “Venezuela Since 1958: The Consolidation of Democratic Politics.” In The Breakdown of Democratic Regimes, ed. Juan Linz and Alfred Stepan. Baltimore: Johns Hopkins University Press, 1978, 82–109. Levitsky, Steven. “An ‘Organized Disorganization’: Informal Organization and the Persistence of Local Party Structures in Argentine Peronism.” Journal of Latin American Studies 33, 1 (2001): 29–65. Lijphart, Arend. Electoral Systems and Party Systems. Oxford: Oxford University Press, 1994. ––––––. Patterns of Democracy. New Haven: Yale University Press, 1999. Linz, Juan. The Breakdown of Democracy. Baltimore: Johns Hopkins University Press, 1978. ––––––. “Presidential or Parliamentary Democracy: Does It Make a Difference?” In The Failure of Presidential Democracy, ed. Juan Linz and Arturo Valenzuela. Baltimore: Johns Hopkins University Press, 1994, 3–87. ––––––, and Alfred Stepan. Problems of Democratic Transition and Consolidation. Baltimore: Johns Hopkins University Press, 1996. Llanos, Mariana. “Privatization and Democracy: A Study of the Legislative Process for State Reform in Argentina (1983–1997).” D. Phil. thesis, Oxford University, April 1998.
Eaton References 5/13/02 12:20 AM Page 322
322
REFERENCES
Londregan, John. Legislative Institutions and Ideology in Chile. New York: Cambridge University Press, 2000. López Murphy, Ricardo, Gustavo Kippes, and Nestor Lew. “Regimenes de Promoción en la Argentina.” Jornadas de Finanzas Públicas 14 (1981): 9.1–9.46. Luz, Guillermo. “Anatomy of a Rollback.” Philippine Business (Makati Business Club; February 1994): 9–10. Machado, Kit. “From Traditional Faction to Machine.” Journal of Asian Studies 33, 4 (1974): 523–47. Macón, Jorge. Las Finanzas Públicas Argentinas (Argentine public finances). Buenos Aires: Ediciones Macchi, 1985. Magno, Alex. “Legislative-Executive Relations in the Philippines and the Parliamentary Alternative.” In Views on the Parliamentary versus Presidential Government, ed. Olivia Caoli. Quezon City: University of the Philippines, 1994. Magno, Francisco. “State, Patronage, and Local Elites.” Kasarinlan (first quarter 1989): 3–15. Mahon, James. Mobile Capital and Latin American Development. University Park: The Pennsylvania State University Press, 1996. Maier, Charles. “Fictitious Bonds of Wealth and Law: On the Theory and Practice of Interest Representation.” In Organizing Interests in Western Europe, ed. Suzanne Berger. Ithaca: Cornell University Press, 1981, 27–61. Mainwaring, Scott. “Dilemmas of Multi-Party Presidential Democracy: The Case of Brazil.” In Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Shugart. New York: Cambridge University Press, 1997, 55–109. ––––––, and Timothy Scully. Building Democratic Institutions. Stanford: Stanford University Press, 1995. ———, and Matthew Shugart, eds. Presidentialism and Democracy in Latin America. New York: Cambridge University Press, 1997. Malloy, James, ed. Authoritarianism and Corporatism in Latin America. Pittsburgh: University of Pittsburgh Press, 1977. ———, and Mitchell Seligson, eds. Authoritarians and Democrats: Regime Transition in Latin America. Pittsburgh: University of Pittsburgh Press, 1987. Manasan, Rosario. “Intergovernmental Fiscal Relations, Fiscal Federalism, and Economic Development in the Philippines.” Philippine Institute for Development Studies, Working Paper Series no. 92-04 (1992). ––––––. Breaking Away from the Fiscal Bind: Reforming the Fiscal System. Makati: Philippine Institute for Development Studies, 1994. ––––––. “Patterns of Budget Allocations Using Social and Human Priority Expenditure Ratio.” Unpublished paper, Philippine Institute for Development Studies, August 1996. Manzetti, Luigi. Institutions, Parties, and Coalitions in Argentine Politics. Pittsburgh: University of Pittsburgh Press, 1993. Mares, David. “Domestic Institutions and Shifts in Trade and Development Policy: Colombia, 1951–1968.” In International Trade Policies, ed. John O’Dell and Thomas Willett. Ann Arbor: University of Michigan Press, 1990, 193–223.
Eaton References 5/13/02 12:20 AM Page 323
REFERENCES
323
Maxfield, Sylvia. Gatekeepers of Growth. Princeton: Princeton University Press, 1997. ––––––, and Ben Ross Schneider, eds. Business and the State in Developing Countries. Ithaca: Cornell University Press, 1997. Mayhew, David. Congress: The Electoral Connection. New Haven: Yale University Press, 1974. ––––––. “Congressional Elections: The Case of the Vanishing Marginals.” Polity 6 (spring 1974): 295–317. Mayorga, René Antonio. Antipolitica y Neopopulismo (Antipolitics and neopopulism). La Paz: Centro Boliviano de Estudios Multidisciplinarios, 1995. ––––––. “Bolivia’s Silent Revolution.” Journal of Democracy 8, 1 (1997): 142–57. McCoy, Alfred, ed. An Anarchy of Families: State and Family in the Philippines. Quezon City: Ateneo de Manila University Press, 1994. McCubbins, Matthew. “Legislative Design of Regulatory Structure.” American Journal of Political Science 29 (1985): 721–48. ––––––, and Gregory Noble. “The Appearance of Power: Legislators, Bureaucrats, and the Budget Process in the U.S. and Japan.” In Structure and Policy in Japan and the United States, ed. Peter Cowhey and Matthew McCubbins. New York: Cambridge University Press, 1997, 56–80. ———, Roger Noll, and Barry Weingast. “Structure and Process, Politics and Policy.” Virginia Law Review 75 (1989): 431–82. ———, and Thomas Schwartz. “Congressional Oversight Overlooked: Police Patrols Versus Fire Alarms.” American Journal of Political Science 28 (1984): 167–79. McGillivray, Fiona. “Party Discipline as a Determinant of the Endogenous Formation of Tariffs.” American Journal of Political Science 41, 2 (1997): 584–607. McGuire, James. Peronism Without Perón: Unions, Parties, and Democracy in Argentina. Stanford: Stanford University Press, 1997. McLure, Charles. “Administrative Considerations in the Design of Regional Tax Incentives.” National Tax Journal 33 (1980): 177–202. Michels, Robert. Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy. New York: Free Press, 1962. Miranda, Salvador. “The Politics of Pork.” Politik 3, 2 (1996): 34–37. Moe, Terry. “The New Economics of Organization.” American Journal of Political Science 28, 4 (1984): 739–77. ––––––, and Michael Caldwell. “The Institutional Foundations of Democratic Government: A Comparison of Presidential and Parliamentary Systems.” Journal of Institutional and Theoretical Economics 150, 1 (1994): 171–95. Molinelli, Guillermo. Presidentes y Congresos en Argentina: Mitos y Realidades (Presidents and congresses in Argentina: Myths and realities). Buenos Aires: Grupo Editor Latinoamericano, 1991. ———, Valeria Palanza, and Gisela Sin. Congreso, presidencia, y justicia en la argentina: Materias para su estudio (The congress, presidency, and judiciary in Argentina: Study materials). Buenos Aires: Centro de Estudios para el Desarollo Internacional, 1999. Montes, Manuel. Financing Development: The Political Economy of Fiscal Policy in the Philippines. Makati: Philippine Institute for Development Studies, 1991.
Eaton References 5/13/02 12:20 AM Page 324
324
REFERENCES
Montinola, Gabriella. “Parties and Accountability in the Philippines.” Journal of Democracy 10, 1 (1999): 126–40. Mora y Araujo, Manuel. Ensayo y Error (Trial and error). Buenos Aires: Planeta, 1991. Morgenstern, Scott. 2001. “Explaining Legislative Politics in Latin America.” In Legislative Politics in Latin America, ed. Scott Morgenstern and Benito Nacif. New York: Cambridge University Press, 2001, 413–45. ––––––. “Towards a Model of Latin American Legislatures.” In Legislative Politics in Latin America, ed. Scott Morgenstern and Benito Nacif. New York: Cambridge University Press, 2001, 1–21. ––––––, Daniel Nielson, and Stephen Swindle. “The Electoral Disconnection? A Comparative Look at Reelection Rates.” Paper presented at the annual meeting of the American Political Science Association, Boston, Massachusetts, 1998. ———, and Benito Nacif, eds. Legislative Politics in Latin America. New York: Cambridge University Press, 2001. Mueller, Dennis. Public Choice II. New York: Cambridge University Press, 1989. Murphy, Tomás. “Un análisis económico del proceso de formación de las leyes: El caso de la key de patentes en la Argentina” (Economic analysis of the lawmaking process: The case of patents law in Argentina). Unpublished manuscript, Universidad de San Andres, March 1997. Murrillo, M. Victoria. “From Populism to Neoliberalism: Labor Unions and Market Reform in Latin America.” World Politics 52, 2 (2000): 135–74. ––––––. Labor Unions, Partisan Coalitions, and Market Reforms in Latin America. New York: Cambridge University Press, 2001. Musgrave, Richard, and Peggy Musgrave. Public Finance in Theory and Practice. 4th ed. New York: McGraw-Hill, 1984. Musolf, Lloyd, and Joel Smith, eds. Legislatures in Development: Dynamics of Change in New and Old States. Durham: Duke University Press, 1979. Mustapic, Ana M. “Oscillating Relations: President and Congress in Argentina.” In Legislative Politics in Latin America, ed. Scott Morgenstern and Benito Nacif. New York: Cambridge University Press, 2001, 23–47. ––––––, and Natalia Ferreti. “El Veto Presidencial Bajo los Gobiernos de Alfonsin y Menem.” Unpublished manuscript, Universidad Torcuato di Tella, Buenos Aires, 1995. ———, and Matteo Goretti. “Gobierno y Oposición en el Congreso: La Práctica de la Cohabitación Durante la Presidencia de Alfonsín (1983–1989)” (Government and opposition in congress: Practice of cohabitation during Alfonsín’s presidency [1983–1989]). Desarrollo Económico 32, 126 (1992): 251–69. Naim, Moises. Paper Tigers and Minotaurs: The Politics of Venezuela’s Economic Reforms. Washington, D.C.: Carnegie Endowment for International Peace, 1993. ––––––. “Latin America: The Second Stage Reform.” In Economic Reform and Democracy, ed. Larry Diamond and Marc Plattner. Baltimore: Johns Hopkins University Press, 1995, 28–44. Navarro, Napoleon. “When Politics Intervenes.” Politik 2, 2 (1995): 20–25. Nelson, Joan, ed. Economic Crisis and Policy Choice. Princeton: Princeton University Press, 1990. Neustadt, Richard. Presidential Power. New York: John Wiley and Sons, 1960.
Eaton References 5/13/02 12:20 AM Page 325
REFERENCES
325
Nino, Carlos, ed. El presidencialismo puesto a prueba (Presidentialism put to the test). Madrid: Centro de Estudios Constitucionales, 1992. Nohlen, Dieter. “Electoral Systems and Electoral Reform in Latin America.” In Institutional Design in New Democracies, ed. Arend Lijphart and Carlos Waisman. Boulder: Westview Press, 1996, 43–52. Noll, Roger, and Frances Rosenbluth. “Telecommunications Policy: Structure, Process, Outcomes.” In Structure and Policy in Japan and the United States, ed. Peter Cowhey and Matthew McCubbins. New York: Cambridge University Press, 1997, 119–76. North, Douglass. Institutions, Institutional Change, and Economic Performance. Cambridge: Cambridge University Press, 1990. Nuñez Minana, Horacio Ponto, and Alberto Porto. “Coparticipación Federal de Impuestos: Distribución Primaria” (Federal tax co-participation: First distribution). Jornadas de Finanzas Públicas 15 (1982): 4.1–4.73. O’Donnell, Guillermo. “Delegative Democracy.” Journal of Democracy 5, 1 (1992): 55–69. ––––––. “Horizontal Accountability in New Democracies.” In The Self Restraining State, ed. Andreas Schedler, Larry Diamond, and Marc Plattner. Boulder: Lynne Rienner Press, 1999, 29–51. ––––––, Philippe Schmitter, and Laurence Whitehead, eds. Transitions from Authoritarian Rule. Baltimore: Johns Hopkins University Press, 1986. Olson, David, and Michael Mezey. Legislatures in the Policy Process: The Dilemmas of Economic Policy. Cambridge: Cambridge University Press, 1991. Olson, Mancur. The Logic of Collective Action. Cambridge, Mass.: Harvard University Press, 1965. Palermo, Vicente, and Marcos Novaro. Política y poder en el gobierno de Menem (Politics and power in Menem’s government). Buenos Aires: Grupo Editorial Norma, 1996. Panebianco, Angelo. Political Parties: Organization and Power. New York: Cambridge University Press, 1988. Paredes, Ruby, ed. Philippine Colonial Democracy. Quezon City: Ateneo de Manila University Press, 1989. Parreño, Earl. “Pork.” In Pork and Other Perks, ed. Sheila Coronel. Pasig: Philippine Center for Investigative Journalism, 1998, 32–55. Partido Justicialista. Carta Orgánica Nacional (National organic charter). Buenos Aires: Ediciones del PJ, 1991. Peralta-Ramos, Monica. The Political Economy of Argentina. Boulder: Westview Press, 1990. Perry, Guillermo, and Ana Maria Herrera. Public Finances, Stabilization, and Structural Reform in Latin America. Washington, D.C.: Inter-American Development Bank, 1994. ––––––, and Alba Lucia Orozco de Triana. “The VAT in Colombia.” In Value Added Taxation in Developing Countries, ed. Malcolm Gillis, Carl Shoup, and Gerardo Sicat. Washington, D.C.: World Bank, 1990, 180–94. Pimentel, Aquilino. The Local Government Code of 1991: The Key to National Development. Metro Manila: Cacho Publishing House, 1993.
Eaton References 5/13/02 12:20 AM Page 326
326
REFERENCES
Pírez, Pedro. 1986. Coparticipación federal y descentralización del estado (Federal coparticipation and state decentralization). Buenos Aires: Centro Editor de America Latina, 1986. Porto, Alberto. Federalismo Fiscal: El Caso Argentino (Fiscal federalism: The Argentine case). Buenos Aires: Editorial Tesis, 1990. ––––––, and Pablo Sanguinetti. “Decentralización Fiscal en America Latina: El Caso Argentino” (Fiscal decentralization in Latin America: The Argentine case). In Serie Política Fiscal 45. Santiago de Chile: Comisión Económica para America Latina y el Caribe, 1993. Power, Timothy. “The Pen Is Mightier Than the Congress.” In Executive Decree Authority, ed. John Carey and Matthew Shugart. New York: Cambridge University Press, 1998, 197–230. Presman, Jorge, and Luis Lucioni. “La evolución de las finanzas públicas provinciales entre 1991 y 1996” (Evolution in provincial public finances between 1991 and 1996). In Serie de Estudios 23. Buenos Aires: Centro de Estudios para el Cambio Estructural, 1997. Przeworski, Adam, Susan Stokes, and Bernard Manin, eds. Democracy, Accountability, and Representation. New York: Cambridge University Press, 1999. Querijero, Charlie. “The Philippine Political Party System: A Sad, Bad Tale.” Politik 3, 3 (1997): 42–47. Rae, Douglas. The Political Consequences of Electoral Laws. New Haven: Yale University Press, 1967. Ramseyer, Mark, and Francis Rosenbluth. Japan’s Political Marketplace. Cambridge, Mass.: Harvard University Press, 1993. Remmer, Karen. “The Politics of Economic Stabilization: IMF Stand-by Programs in Latin America, 1954–1984.” Comparative Politics 19 (1986): 1–24. ––––––. “The Political Economy of Elections in Latin America.” American Political Science Review 87, 2 (1993): 393–407. Republic of the Philippines. Roster of Philippine Legislators, 1907 to 1987. Quezon City: Congressional Library of the House of Representatives, 1989. ––––––. The Omnibus Election Code, Comelec Rules of Procedure, and Other Election Laws. Manila: Rex Book Store, 1995. ––––––. Senators of the Tenth Congress, Second Regular Session. Quezon City: Senate of the Philippines, 1995. ––––––. The 1987 Constitution of the Philippines. Metro Manila: National Book Store, 1997. República Argentina. Cámara de Diputados de la Nación: Su Composición y Comisiones (Chamber of deputies of the nation: Its composition and committees). Buenos Aires: Imprenta del Congreso Nacional, 1989. ––––––. Cambios Estructurales en la Relación Nación-Provincias (Structural changes in national-provincial relations). Buenos Aires: Ministerio de Economía y Obras y Servicios Públicos, 1994. ––––––. El Federalismo Fiscal a partir de la Reforma Constitucional (Fiscal federalism after constitutional reform). Buenos Aires: Asociación Mutual Federal de Empleados de la Dirección General Impositiva, 1995. Reynolds, Alan. “National Prosperity Is No Mystery.” Orbis 40, 2 (spring 1996).
Eaton References 5/13/02 12:20 AM Page 327
REFERENCES
327
Rinne, Jeffrey. “Redesigning the State in Latin America: Pundits, Policymakers, and Organized Labor in Argentina and Brazil.” Ph.D. diss., Princeton University, 2001. Roberts, Kenneth. “Neoliberalism and the Transformation of Populism in Latin America: The Peruvian Case.” World Politics 48, 1 (1995): 82–116. Rocamora, Joel. 1995 “Classes, Bosses, Goons, and Guns.” In Boss: Five Case Studies of Local Politics in the Philippines, ed. Joseph Lacaba. Pasig: Philippine Center for Investigative Journalism, 1995, vii–xxx. ––––––. “Dodging the Authoritarian Temptation.” Politik 2, 2 (1995): 40–43. ––––––. “Unnatural Disasters.” Politik 2, 4 (1996): 46–48. Rock, David. Argentina, 1516–1987. Berkeley and Los Angeles: University of California Press. 1987. Rodlauer, M. “Philippines: Toward Sustainable and Rapid Growth.” In IMF Occasional Paper 187. Washington, D.C.: International Monetary Fund, 2000. Rodriguez, Agustin, and Djorina Velasco. Democracy Rising? The Trials and Triumphs of the 1998 Party-List Elections. Quezon City: Institute of Politics and Governance, 1998. Rogowski, Ronald. “Pork, Patronage, and Protection: How Geographic Concentration Affects Representation of Interests in Small-District Systems.” Paper presented at the annual meeting of the American Political Science Association, Washington, D.C., August 28–31, 1997. Saiegh, Sebastián, and Mariano Tommasi. “Argentina’s Federal Fiscal Institutions.” Unpublished manuscript, Centro de Estudios para el Desarrollo Institucional, August 1998. ––––––. “Why Is Argentina’s Fiscal Federalism So Inefficient? Entering the Labyrinth.” Journal of Applied Economics 2, 1 (1999): 169–209. Samuels, David. “Concurrent Elections, Discordant Results: Presidentialism, Federalism, and Governance in Brazil.” Comparative Politics 33, 1 (2000): 1–20. ––––––. “The Gubernatorial Coattails Effect: Federalism and Congressional Elections in Brazil.” Journal of Politics 62, 1 (2000): 240–54. ––––––. “Progressive Ambition, Federalism, and Pork-Barreling in Brazil.” In Legislative Politics, ed. Scott Morgenstern and Benito Nacif. New York: Cambridge University Press, 2001, 315–40. ———. Ambassadors of the States: Federalism, Ambition and Congressional Politics in Brazil. New York: Cambridge University Press, 2002. Sanguinetti, Pablo. “Intergovernmental Transfers and Public Sector Expenditures: A Game Theoretic Approach.” Estudios de Economía 21, 2 (1994): 87–109. Santoro, Daniel. Los Intocables. Buenos Aires: Planeta, Espejo de la Argentina, 1996. Saspa, J. P. “The Stinking Pork War.” Philippines Free Press, January 18, 1997, 14. Sawers, Larry. The Other Argentina: The Interior and National Development. Boulder: Westview Press, 1996. Schamis, Hector. “Distributional Coalitions and the Politics of Economic Reform in Latin America.” World Politics 51, 2 (1999): 236–68. Schmidt, Gregory. “Presidential Usurpation or Congressional Preference? The Evolution of Executive Decree Authority in Peru.” In Executive Decree Authority,
Eaton References 5/13/02 12:20 AM Page 328
328
REFERENCES
ed. John Carey and Matthew Shugart. New York: Cambridge University Press, 1998, 104–41. Semana, Caridad. “Philippine Politics and Economic Development.” Philippine Journal of Public Administration 11, 1 (1967). Shafer, D. Michael. Winners and Losers: How Sectors Shape the Developmental Prospects of States. Ithaca: Cornell University Press, 1994. Shah, Anwar. “New Fiscal Federalism in Brazil.” World Bank Discussion Papers no. 124 (1991). Shah, S., and J. Toye. “Fiscal Incentives for Firms in Some Developing Countries.” In Taxation in Developing Countries, ed. Richard Bird and Oliver Oldman. Baltimore: Johns Hopkins University Press, 1991, 151–64. Shepsle, Kenneth, and Barry Weingast. “Legislative Politics and Budget Outcomes.” In Politics and Economics in the Eighties, ed. Alberto Alesina and Geoffrey Carliner. Chicago: University of Chicago Press, 1991, 343–67. ––––––. “Positive Theories of Congressional Institutions.” Legislative Studies Quarterly 19, 2 (1994): 149–79. Shome, Parthasarathi. “Trends and Future Directions in Tax Policy Reform.” Bulletin for International Fiscal Documentation 46, 11 (1992): 452–65. ––––––, and Vito Tanzi. “A Primer on Tax Evasion.” IMF Staff Papers 40, 4 (December 1993): 807–28. ———, ed. “Comprehensive Tax Reform: The Colombian Experience.” In IMF Occasional Paper 123. Washington, D.C.: International Monetary Fund, 1995. Shoup, Carl. “Choosing Among Types of VATs.” In Value Added Taxation in Developing Countries, ed. Malcolm Gillis, Carl Shoup, and Gerardo Sicat. Washington, D.C.: World Bank, 1990, 3–16. Shugart, Matthew, and John Carey. Presidents and Assemblies. Cambridge: Cambridge University Press, 1992. Shugart, Matthew, and Stephan Haggard. “Institutions and Public Policy in Presidential Systems.” In Presidents, Parliaments, and Policy, ed. Stephan Haggard and Matthew McCubbins. New York: Cambridge University Press, 2001, 64–102. Shugart, Matthew, and Daniel Nielson. “Constitutional Change in Colombia: Policy Adjustment Through Institutional Reform.” Comparative Political Studies 32, 3 (1999): 313–40. Shugart, Matthew, and Martin P. Wattenberg, eds. Mixed-Member Electoral Systems: The Best of Both Worlds? Oxford: Oxford University Press, 2001. Siavelis, Peter. “Executive-Legislative Relations in Post-Pinochet Chile: A Preliminary Assessment.” In Presidentialism and Democracy in Latin America, ed. Scott Mainwaring and Matthew Shugart. New York: Cambridge University Press, 1997, 321–62. ––––––. The President and Congress in Postauthoritarian Chile. University Park: The Pennsylvania State University Press, 2000. Sicat, Gerardo P. Taxation and Progress. Manila: National Economic Council, Republic of the Philippines, 1972. Sidel, John. “Beyond Patron-Client Relations: Warlordism and Local Politics in the Philippines.” Kasarinlan 4, 3 (1989): 19–30.
Eaton References 5/13/02 12:20 AM Page 329
REFERENCES
329
––––––. “Coercion, Capital, and the Post-Colonial State: Bossism in the Postwar Philippines.” Ph.D. diss., Cornell University, 1995. Sin, Gisela, and M. Valeria Palanza. “Partidos Provinciales y Gobierno Nacional en el Congreso (1983–1995)” (Provincial parties and national government in the congress [1983–1995]). Boletín SAAP 3, 5 (1997): 46–94. Smith, William C. Authoritarianism and the Crisis of the Argentine Political Economy. Stanford: Stanford University Press, 1989. ––––––, Carlos Acuña, and Eduardo Gamarra, eds. Latin American Political Economy in the Age of Neoliberal Reform. Miami: University of Miami NorthSouth Center Press, 1994. Stallings, Barbara. “International Influence on Economic Policy: Debt, Stabilization, and Structural Reform.” In Politics of Economic Adjustment, ed. Stephan Haggard and Robert Kaufman. Princeton: Princeton University Press, 1992, 41–88. Stanley, Peter, ed. Reappraising an Empire. Cambridge, Mass.: Harvard University Press, 1984. Stauffer, Robert B. The Philippine Congress: Causes of Structural Change. Sage Research Papers in the Social Sciences, Comparative Legislative Studies Series. Beverly Hills: Sage, 1970. Steinmo, Sven. Taxation and Democracy. New Haven: Yale University Press, 1993. ––––––, Kathleen Thelen, and Frank Longstreth, eds. Structuring Politics: Historical Institutionalism in Comparative Perspective. New York: Cambridge University Press, 1992. Stewart, Charles. 1991. “The Politics of Tax Reform in the 1980s.” In Politics and Economics in the Eighties, ed. Alberto Alesina and Geoffrey Carliner. Chicago: University of Chicago Press, 1991, 143–73. Stokes, Susan. “What Do Policy Switches Tell Us About Democracy.” In Democracy, Accountability, and Representation, ed. Adam Przeworski, Susan Stokes, and Bernard Manin. New York: Cambridge University Press, 1999, 98–130. Summers, Lawrence. “Preface.” In Voting for Reform, ed. Stephan Haggard and Steven Webb. New York: Oxford University Press, 1994, ix–xii. Sundquist, James L. The Decline and Resurgence of Congress. Washington, D.C.: Brookings Institution, 1981. Taachi, Carlos. “Revolución Tributaria en la Argentina.” Boletín de la DGI no. 500 (August 1995): 878–90. Taagepera, Rein, and Matthew Shugart. Seats and Votes: The Effects and Determinants of Electoral Systems. New Haven: Yale University Press, 1989. Tait, Alan. “Value-Added Tax: Administrative and Policy Issues.” In IMF Occasional Paper 88. Washington, D.C.: International Monetary Fund, 1991. Tanzi, Vito. Taxation in an Integrating World. Washington, D.C.: Brookings Institution, 1995. ––––––, ed. Fiscal Policy in Open Developing Economies. Washington, D.C.: International Monetary Fund, 1990. Tapales, Proserpina. Devolution and Empowerment: The Local Government Code of 1991 and Local Autonomy in the Philippines. Quezon City: University of the Philippines Press, 1993.
Eaton References 5/13/02 12:20 AM Page 330
330
REFERENCES
Ter-Minassian, Teresa. “Control of Subnational Government Borrowing.” In Fiscal Federalism in Theory and Practice, ed. Teresa Ter-Minassian and Tom Craig. Washington, D.C.: International Monetary Fund, 1997, 156–72. Thompson, Mark. The Anti-Marcos Struggle: Personalistic Rule and Democratic Transition in the Philippines. New Haven: Yale University Press, 1995. Tommassi, Mariano, and Pablo Spiller. Las fuentes institucionales del desarrollo argentino (Institutional sources of Argentine development). Buenos Aires: Editorial Universidad de Buenos Aires, 2000. Tsebelis, George, and Jeanette Money. Bicameralism. New York: Cambridge University Press, 1997. Unión Cívica Radical. Carta Orgánica Nacional (National organic charter). Buenos Aires: Comité Nacional, 1996. Urrutia, Miguel. “On the Absence of Economic Populism in Colombia.” In Macroeconomic Populism in Latin America, ed. Rudiger Dornbusch and Sebastian Edwards. Chicago: University of Chicago Press, 1991, 369–87. Valenzuela, Arturo. The Breakdown of Democratic Regimes: Chile. Baltimore: Johns Hopkins University Press, 1978. Verbitsky, Horacio. Hacer la Corte: La construcción de un poder absoluto sin justicia ni control (Braking the courts: Construction of absolute power without justice or control). Buenos Aires: Espejo de la Argentina, 1993. Villanueva, A. B. “Parties and Elections in Philippine Politics.” Contemporary Southeast Asia 18, 2 (1996): 175–92. Vogel, David. National Styles of Regulation. Ithaca: Cornell University Press, 1986. Waterbury, John. “The Heart of the Matter? Public Enterprise and the Adjustment Process.” In The Politics of Economic Adjustment, ed. Stephan Haggard and Robert Kaufman. Princeton: Princeton University Press, 1992, 182–217. ––––––. Exposed to Innumerable Delusions: Public Enterprise and State Power in Egypt, India, Mexico, and Turkey. New York: Cambridge University Press, 1993. Weingast, Barry, and William Marshall. “The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets.” Journal of Political Economy 96, 11 (1988): 132–63. Weingast, Barry, and Mark Movan. “Bureaucratic Discretion or Congressional Control?” Journal of Political Economy 91, 5 (1981): 765–800. Weyland, Kurt. Democracy Without Equity: Failures of Reform in Brazil. Pittsburgh: University of Pittsburgh Press, 1996. ––––––. “Neopopulism and Neoliberalism in Latin America.” Studies in Comparative International Development 31, 1 (fall 1996): 3–31. Williams, Arthur. “Politics and the Purse: Fiscal Politics in the Philippines from 1907 to 1916.” Bulletin of the American Historical Collection 7 (1979): 46–52. Williamson, John. “What Washington Means by Policy Reform.” In Latin American Adjustment: How Much Has Happened? ed. John Williamson. Washington, D.C.: Institute for International Economics, 1990, 7–20. ––––––, ed. The Political Economy of Policy Reform. Washington, D.C.: Institute for International Economics, 1994. Willis, Eliza, Christopher Garman, and Stephan Haggard. “Decentralization in Latin America.” Latin American Research Review 34, 1 (1999): 7–56.
Eaton References 5/13/02 12:20 AM Page 331
REFERENCES
331
Wolters, Willem. Politics, Patronage, and Class Conflict in Central Luzon. Quezon City: New Day, 1984. Wood, B. Dan, and Richard Waterman. “The Dynamics of Political Control of the Bureaucracy.” American Political Science Review 85, 3 (1991): 801–28. World Bank. Argentina: Provincial Government Finances. Washington, D.C.: World Bank, 1990. ––––––. Argentina: Tax Policy for Stabilization and Economic Recovery. Washington, D.C.: World Bank, 1990. ––––––. Lessons of Tax Reform. Washington, D.C.: World Bank, 1991. ––––––. Argentina: From Insolvency to Growth. Washington, D.C.: World Bank, 1993. ––––––. The East Asian Miracle: Economic Growth and Public Policy. Washington, D.C.: Published for the World Bank by Oxford University Press, 1993. ––––––. Argentina: Provincial Finances Study: Selected Issues in Fiscal Federalism. Washington, D.C.: World Bank, 1996. Wurfel, David. Filipino Politics: Development and Decay. Ithaca: Cornell University Press. 1988. Yoingco, Angel. “Gearing Tax Policy and Tax Administration for the Year 2000.” Philippine Journal of Public Administration 38, 2 (1994): 98–107. ––––––, and Regina de Guzman. Public Finance and the Philippine Constitutions. Manila: Lyceum of the Philippines. 1994.
Eaton References 5/13/02 12:20 AM Page 332
Eaton Index 5/13/02 12:21 AM Page 333
INDEX
Abaya, Antonio, 97 abdication, versus delegation, 54, 55 Abueva, José, 172 Acción Democrática y Nacionalista (ADN) (Bolivia), 277, 280 accountability, in new democracies, 6 Acuña, Carlos, 10 adelantos (advances), 228 ad hoc political negotiations, revenue transfers and, 77–78 adjustment, economic fiscal reform and legislators, 64–69, 78–87 impact on lower income groups, 63 scholarly study of politics of, 8–9, 11, 13–14 administrative judges, 198. See also judicial systems ADN (Acción Democrática y Nacionalista) (Bolivia), 277, 280 advances (adelantos), 228 AEDGI. See Association of Employees of the DGI Alfelor, Ciriaco, 219, 219 n. 45 Alfonsín, Raúl currency volatility during administration of, 251 democratic transition and, 23 discretion in provincial revenue sharing, 224 lessons for Menem, 143 limits on discretionary powers of, 205
revenue-sharing law and, 225 reversal of automatic revenue sharing and, 225 n. 64 on tax evasion penalties, 191 Almario, Teresa, 114 n. 82 Almonte, José, 112, 173 Ames, Barry, 266–67, 272 Andrés Pérez, Carlos, 282–83, 284 Angara, Edgardo, 106 n. 51, 113 antidynasty bill, 103 antipoverty fund, 249 APEC. See Asia Pacific Economic Cooperation Aquino, Benigno, 209 Aquino, Corazon decentralization and career of, 209–10 domestic borrowing by, 111 economic reform proposals of, 21 legislature during presidency of, 20 narrow VAT of, 111, 112 political parties’ support for, 95 support for Ramos, 211 tax surcharges and, 108 telecommunications industry and, 245 trade liberalization and, 240 Archer, Ron, 275 Argentina, 302 versus Bolivia, 279 budgets in, 184, 199–200, 226, 255–56 bureaucrats and tax collection in (see tax collection, in Argentina)
333
Eaton Index 5/13/02 12:21 AM Page 334
334
INDEX
as case study, 18 characteristics of, 22–24 characteristics of reform in, 260–62 currency reform in, 251–53 defense of provincial interests in, 256–58 delegation of policy authority in, 157–60, 163–64 deregulation and privatization in, 253–55 economic crisis, impact on reform policy in, 295 electoral incentives in, 130–31, 137–41, 142, 262, 289 history of tax incentives in, 74 interest groups in, 293 labor reform in, 258–60 laws and decrees in (see laws and decrees, in Argentina) party caucuses in, 53 party ideology in, 47–48 party incentives in, 135–37 party system in, 132–35 versus Philippines, 23–24, 91–92, 129–30, 166, 200, 250, 261, 291, 295 presidential proposals for tax reform, 141–44 reform of state in 1989, 160–62 reform of state in 1995–96, 162–65 reform reversals in, 299 regional tax incentives in, 72 revenue sharing during Menem’s first term, 225–30, 291 revenue sharing during Menem’s second term, 230–32 revenue-sharing law of 1987, 157, 222–25 tax-policy trade-offs legislation, 155–57 unilateral presidential powers in, 25 VAT. See value-added tax (VAT), in Argentina versus Venezuela, 285 ASEAN. See Association of Southeast Asian Nations Asia Pacific Economic Cooperation (APEC), 240, 246 Association of Employees of the DGI (AEDGI), 183 Association of Southeast Asian Nations (ASEAN), 240 audit commission, 212 augmentation funds, 218–21
automatic revenue sharing/transfers benefits of, 87 in Brazil, 269, 272 bureaucracies and, 173 discretion in, 77–78 erosion of, during Menem’s first term, 225–30 as example of decentralization, 204 Peronist party and, 291 shift to, in 1987, 222–25 Baglini, Raúl, 152–53 balance-of-payment crises, 52 n. 71 ballots, in Philippines, 102, 104 Bangko Sentral ng Pilipinas, 243 banking liberalization, 165 n. 87, 244, 249 banking-secrecy laws, 76, 84, 271 Banzer, Hugo, 277, 280, 281 barricade image, of legislators, 12 n. 30 basic needs index, 157 n. 60 Bates, Robert, 46, 48 Bauza, Eduardo, 163 Betancur, Belisario, 275 bicameral conference committee, 115 n. 83, 116–17, 122, 214–15, 216–17 bicameralism, 18–19, 92, 304. See also Chamber of Deputies, in Argentina; House of Representatives, in Philippines; Senate, in Argentina; Senate, in Philippines BIR (Bureau of Internal Review), 174–78 Bird, Richard, 183, 280, 281 bloc transfers, 219 Board of Investments (BOI), 178–81 Bolivia, 265, 266, 286 Decree No. 21060, 279–80 district magnitude in, 289 legislative majorities in, 287 single-member districts in, 21 tax reform in, 28, 277–82, 292 Bravo Herrera, Horacio, 162 n. 68 Brazil, 265 constitution and congressional powers in, 50 electoral incentives in, 289–90 Kandir law, 270 n. 17 legislative majorities in, 286–87 party leaders in, 265 n. 1 tax reform in, 28, 266–72, 292, 299 Brazilian Workers’ party, 270 n. 14
Eaton Index 5/13/02 12:21 AM Page 335
INDEX
Bresser Pereira, Luiz Carlos, 10–11, 70 Britos, Oraldo, 162 n. 68 budgets in Argentina, 184, 199–200, 226, 255–56 CDF monies and 1999 Philippine budget, 248 delegation by majority party in U.S., 54 federal control over provincial, 226 legislators and local government, 220 of national government agencies, 219 pork barrel politics and, 247 Bunge y Born, 143–44, 167 bureaucrats/bureaucracy as allies in decentralization reversal attempts, 215–16 in Argentina (see General Tax Directorate [Dirección General Impositiva], DGI); Tax collection, in Argentina) in candidate-centered electoral systems, 57–58, 170, 297 delegation of policymaking authority to, 56, 194–95 informational advantages over legislators, 56–57 legislators’ preferences and, 67, 305 organizational chart of public finance, 184 in party-centered electoral systems, 58, 170, 297 in Philippines, 57, 171–74, 178 (see also Bureau of Internal Review [BIR]) relationships with legislators, 32, 170–71, 303–4 role in tax evasion, 170 selection of, 173–74 tax administration and, 67 tenure of, 173 n. 11 in United States, 57 Bureau of Internal Review (BIR), 174–78 cadre parties, 39 Cafiero, Juan Pablo, 154 n. 52 Caldwell, Michael, 303 campaign finance, 98 candidate-centered electoral systems. See also Philippines in Brazil, 266–72 bureaucrats and, 57–58, 170, 297 case studies for, 18–19, 264–65 characteristics of, 40–42, 261, 263–65, 286, 290–91, 292, 299
335
in Colombia, 272–76 decentralization in, 204–5 development of personal reputations and, 15 information needs of legislators in, 52–53 versus party-centered electoral systems, 43 party leaders in, 41, 97–98, 274 personal reputations in, 41–42, 45, 101–2, 266–67, 273, 274, 290, 299 reasons for support of fiscal reform, 61 reelection in, 45 candidate selection in Colombia, 273 for lower house, in Argentina, 135–36 for lower house, in Philippines, 97 for senate, in Philippines, 97–98, 211 in Venezuela, 23 Cardoso, Fernando Henrique, 268, 269–72 career advancement of Argentine legislators, 137, 138, 148–49, 260 of Brazilian legislators, 267 decentralization impact on, 206–7 of Filipino legislators, 100–101, 210–11 of legislators, 37–38 of presidents, 209–10 term limits effects on, 205, 210 Carey, John M., 7, 20, 44, 55, 210, 302 cargo transport services, VAT and, 147, 151–55, 153 case studies. See also specific countries for candidate-centered electoral systems, 18–19, 264–65 electoral incentives and, 265 institutional incentives and, 265, 282, 284 of party-centered electoral systems, 18, 265–66, 265 nn. 1, 2 Cavallo, Domingo, 12, 186, 187 n. 61, 252 Cavarozzi, Marcelo, 12 n. 30 Caviglia, Franco, 154 n. 52 CDF (countrywide development funds), 99 n. 26, 240–41, 248 central banks Convertibility Law and, 251–52 independence of, 62 laws governing, 252 particularism and, 242–43, 249 Central Obrera Boliviana (COB), 278 centrist parties, 37, 134
Eaton Index 5/13/02 12:21 AM Page 336
336
INDEX
Chamber of Deputies, in Argentina delegation of powers to executive branch, 157–60, 163 elections of, 139–41 electoral incentives and, 156 Peronist party control of, 148, 149 Peronist policy trade-offs, 158, 159 Peronist seats held by, 24, 135–36, 145, 149 privatization and, 255 revenue-sharing laws and, 224, 230 n. 79 chief executives. See executive branch Chile, 50, 261, 264, 265, 300 Chiongbian, James, 114, 114 n. 82 Christian Democrats (COPEI) (Venezuela), 283 CIA (congressional insertion allocations), 99 n. 26, 221 clausuras, 194, 197–98 clientalism, 101 Close, David, 13 n. 31 closed-list proportional representation, 130 in Bolivia, 277–78, 281 in Brazil, 267 collective-action costs and, 43 in Colombia, 273 elites and policymaking, 126 party leaders’ influence in, 42, 277 personal reputations and, 139 in Venezuela, 282, 286 COB (Central Obrera Boliviana), 278 Cojuangco, Antonio “Tony Boy,” 245 collective-action dilemmas costs of, 43 interest groups and, 46 obstacles to economic reform, 33 patronage networks and, 275 Collier, Paul, 48 Collor, Fernando, 268–69, 272 Colombia, 265, 286 executive branch in, 289 party leaders in, 265 n. 1 tax reform in, 28, 272–76, 292, 296, 299 comparative presidentialism, 18, 302–3 Conaghan, Catherine, 280 Conciencia de Patria (Bolivia), 277 Confederación General del Trabajo (General Labor Confederation), 259 “congress bashing,” 12 congressional insertion allocations (CIA), 99 n. 26, 221
Conservative party (Colombia), 274, 275 constituents, 31, 58, 67, 125. See also interest groups; particularistic incentives constitutional rules changes in, 50–51, 274–75 examples of, 49–50 tax policy and, 69 constitutions 1994 Argentine, 159 n. 62, 231, 303 1949 Argentine, 141, 223 1988 Brazilian, 269 1968 Colombian, 274–75 1991 Colombian, 276 n. 36 1987 Philippine, 103, 104, 209, 298, 303 Convertibility Law (1991) (Argentina), 227, 251–52, 258 coparticipación, 222 COPEI (Christian Democrats) (Venezuela), 283 Coppedge, Michael, 283 Coronel, Sheila, 245 corporatism in Bolivia, 280 in Brazil, 269, 271 income tax exemptions and, 71 lobbyists associated with, 45–46 minimum asset tax and, 82 Corrales, Javier, 252 corruption, 174, 200, 248 Cossio, Ricardo, 185, 186 Costa Rica, 265 costo argentino, 227, 258 countrywide development funds (CDF), 99 n. 26, 240–41, 248 coup, 1976 Argentine, 22 Cox, Gary, 39 crawling-peg exchange rate system, 274 Crisp, Brian, 282 cross-national variation, 46, 50–51, 92, 297, 302. See also specific countries Cuello, Raúl, 141 n. 33, 187 n. 61 currency reform, 251–53 De Castro, Isagani, 97 n. 18, 98 decentralization, general of expenditure responsibilities, 85–86 impact on subnational governments, 207–9, 207 n. 5 of revenue sharing, 27, 85–87, 203–5
Eaton Index 5/13/02 12:21 AM Page 337
INDEX
decentralization, in Argentina automatic revenue sharing shift and, 222–25, 230 conflicts over revenue sharing during Menem’s second term, 230–32 erosion of automatic revenue sharing during Menem’s first term, 225–30 history of, 222–23 Peronist party and, 27 provincial shares of revenue sharing and, 222–23 reasons for reversals of, 232–33 decentralization, in Philippines audits and recall mechanisms in, 212–13 augmentation funds and, 218–21 as dilemma for national politicians, 209–12, 216–17 history of revenue sharing and, 205–9 house versus senate support for, 211, 212–15 impact on local government and revenue sharing, 207–9, 207 n. 5 impact on pork barrel politics, 206–7, 219, 220–21 modifications of proposals for fiscal, 212–15 reasons for reversals of, 233 reversal attempts for, 215–18 term limits and, 211, 291 Decentralization Act (1967) (Philippines), 206 Decree No. 21060 (Bolivia), 279–80 decrees, presidential in Argentina, 22, 25, 167, 253–54, 255, 300 versus bills, in Argentina, 252 in Bolivia, 279–80 circumvention of legislators by, 51 constitutional limitations on, 69 in Philippines, 108–9, 114, 115–16, 126 de Dios, Emmanuel S., 111–12 de la Madrid, Miguel, 264 de la Rua, Fernando, 133 n. 10 delegation models, 55, 254, 275–76 delegation of policymaking authority, by legislators analysis of types of, 53–59 in Argentina, 157–60, 163–64 to bureaucrats, 56, 194–95 in Colombia, 273, 275, 286 to executive branch, 49, 55, 157–65
337
hyperpresidentialism theories and, 14, 14 n. 35 institutional incentives and, 31–32 rationale behind, 16 Demes, Mussa, 270 n. 17 democracies, presidential, 17–18, 134, 157–60, 299. See also specific countries Democratic Action party (Venezuela), 283, 286 democratic breakdown, 9–10 n. 18, 22, 276, 284, 300 democratic consolidation, 5–6, 300–301 de Pedro, 218 dependency framework, 296 De Quiros, Conrado, 94 deregulation and privatization in Argentina, 253–55 legislature on, in Argentina, 253–55 in Philippines, 244–47 devaluation, 162, 227, 229, 252 de Venecia, José, 96, 113, 118 n. 95, 119, 120 devolution, versus decentralization, 206 Diaz, Renato, 115 n. 83 Diokno, Benjamin, 248 Dirección General Impositivia. See General Tax Directorate (Dirección General Impositiva, DGI) direct taxes, 81–82, 222 discretion versus automatic revenue transfers, 68 changes in, 62–63, 88, 197 limits on, 205 revenue transfers and, 77–78, 207, 224, 228–29 tax incentives and, 180–81 distributive conflict dilemmas, as obstacles to economic reform, 33–34 district magnitude, 139–41, 281, 289 divisible policy favors, 41 domestic taxes, 284–85. See also entries under value-added tax (VAT) Domínguez, Roberto, 150 Doronila, Amando, 105, 125 n. 112, 172, 300 Duhalde, Eduardo, 160, 299 Durán, Viviana, 130 n. 1 Duverger, Maurice, 38–39 economic crisis, 5 alternative explanations for effects of, 294–96
Eaton Index 5/13/02 12:21 AM Page 338
338
INDEX
economic crisis (continued) delegation of policymaking authority and, 159 narrow tax bases and, 71–72 reasons for, 69–70, 147 tax receipts and, 70 Economic Emergency Law (23.697) (Argentina), 161–62, 191 n. 75 economic (fiscal) reform, general. See also specific countries and types of reform alternative explanations for, 293–98 in candidate-centered electoral systems, 298, 299 (see also candidate-centered electoral systems) collective action obstacles to, 33, 43, 46 distributive conflict obstacles to, 33–34 executive branch insulation image of, 10 executive branch role in, 34–36 legislators and, 64–69 legislators’ policy preferences and, 4, 5 liberalization approach to, 78–87 obstructionist image of, 9–12, 9 n. 18, 12 n. 30 in party-centered electoral systems, 299 (see also party-centered electoral systems) policy preferences and, 16–17 political institutions shaping of, 36–37, 43 power concentration image of, 10–11 reversals of, 299 state-centered approach to, 8, 69–78 Ecuador, 265 electoral incentives in Argentina, 130–31, 137–41, 142, 262, 289 in Brazil, 289–90 case studies and, 265 in Chamber of Deputies, 156 changes in, 102 content of policy preferences shaped by, 272–73, 293 impact on economic reform outcomes, 36–37, 290–91 in Philippines, 27, 92, 101–4, 123–27, 211 political institutions and, 37, 39–40 politicians’ behavior and, 39–40, 46, 123–27, 130, 204–5, 262, 281 provinces and, 223, 257–58, 289 revenue sharing and, 221 VAT and, 123–27
elites legislatures and, 9 n. 18, 246 policymaking and, 125–26, 125 n. 112, 293, 294 political parties and local, 96 preferential treatment of Filipino, 238–39, 301 resistance to tax reforms, 281 tax exemptions and, 9 n. 18 El Salvador, 265 n. 2 emergency tax handles, 73, 155–56, 296 Enrile, Joseph, 121–22 Estrada, Joseph, 96, 245, 247–48 EVAT. See expanded value-added tax (EVAT) exchange rates, 52 n. 71 crawling-peg system of, 274 executive branch and, 252, 258 liberalization of restrictions on, 240 unification of, 62 excise taxes, 73, 118 n. 95, 164 executive branch. See also individual presidents agenda powers of, 49–50 cabinet appointment strategy of, 59 in candidate-centered electoral systems, 299 in Colombia, 289 “congress bashing” by, 12 congressional support building techniques of, 113 decree powers of, 253 delegation of policymaking authority by legislators, 49, 55, 157–65 economic reform and, 34–36 exchange rates and, 252, 258 inclusion of legislators in policymaking, 51 legislative candidate selection and, 98 legislative powers of, 111 particularistic incentives of legislators and, 102–3 in party-centered electoral systems, 299 party loyalty and, 95–96, 231 policy reform and, 16–17, 246–47 president’s party and support for, 282, 286–87 proposals for tax reform, 141–44 proposal stage and, 19, 51–52 reasons for success in economic reform and, 35–36
Eaton Index 5/13/02 12:21 AM Page 339
INDEX
revenue-sharing proposals of, 231 state of emergency decrees and, 254 tax collection costs and, 226 n. 67 tax collection lists and, 195 tax policy and, 69, 273 theory of sidelining of representative institutions and, 10 Executive Decree Authority (Cary and Shugart), 55 exemptions. See tax exemptions expanded value-added tax (EVAT) constitutionality of, 118–19 exemptions, 117, 117 n. 92 legislators’ modifications of, 114–15, 177, 178 overturning of, 244 pork barrel politics and, 115, 115 n. 83, 118 tax base broadening and, 109 vote on, 100 n. 29, 118, 249 export taxes, 108 n. 58 external actors and forces, economic reform and impact of, 296–97 factionalism, in Venezuelan politics, 283–84, 286, 296 factional lists versus party lists, 273 Federal party (Philippines), 94 Fernández, Max, 277 Fernandez, Roque, 165, 200 Ferreira, Delia, 253 financial liberalization, 242–44 Fiorina, Morris, 40, 43 first-past-the-post electoral system, 39, 101 fiscal illusion, 66 n. 13 fiscal pacts, 226–29, 230 n. 79 fiscal secrecy, 195 fondo del disequilibrio (fiscal disequilibria), 228 Fontela, Moisés, 150 n. 47 food security fund, 249 foodstuffs, VAT exemptions and, 145, 146 Foreign Investment Act (Philippines), 241 fragmented party systems, 37, 134 Franco, Itamar, 268, 269 free-for-all elections, 105 Frente por un país solidario (FREPASO) party (Argentina), 133 n. 10, 134, 149 Frieden, Jeffrey, 46, 294 Frondizi, Arturo, 74
339
Fujimori, Alberto, 12, 264 functional-structural approaches, to policymaking, 13 n. 31 Gamarra, Eduardo, 278, 279, 281 Garcia, Enrique, 173, 211 n. 11 GATT (General Agreement on Trade and Tariffs), 240, 249 Gatti, Hector, 154 n. 52 Gaviria, César, 276 Geddes, Barbara, 33, 58 General Agreement on Trade and Tariffs (GATT), 240, 249 General Labor Confederation (Confederación General del Trabajo), 259 General Tax Directorate (Dirección General Impositiva, DGI). See also tax collection, in Argentina budget of, 199–200 cargo transport VAT exemptions and, 153 closures of businesses for non-payment of taxes, 194, 197–98 corruption in, 200, 201 denunciations on non-payment of taxes received by, 196 inferior performance of bureaucracy, 181–83 procedures for accurate tax determination, 195–96 provincial authorities and exemption investigations of, 182 n. 41 tax administration changes and, 189–90 tax evasion investigations, 192 VAT self-policing features and, 189 geographic targeting, tax breaks and, 66 German mixed system, 21 Gibson, Edward, 133, 257–58 Gillis, Malcolm, 72 globalization, 4–5, 297 Golay, Frank, 107 Gómez Sabaini, Juan C., 130 n. 1 Gonzalez, Neptali, 113 Goretti, Matteo, 253 governors in Brazil, 267 fiscal pacts and, 229 fiscal pacts with Menem, 226 influence over legislators, 224 Peronist, 225
Eaton Index 5/13/02 12:21 AM Page 340
340
INDEX
governors (continued) revenue sharing and, 87 as threat to legislators, 214 Grindle, Merilee, 13 Group of Eight (grupo de los ocho), 149, 154 Guatemala, 21 Guevara, Milwida, 112 n. 74, 116 Gutierrez, Eric, 109, 247 Gutierrez, Ricardo, 163 Haggard, Stephan on centrist parties, 37 on collective-action problems, 33 on congruence, 105 on electoral rules, 36 on initiation of policy reforms, 10 on presidential vetoes, 25 on tariff liberalization, 34 health insurance, in VAT, 163, 165 health sector, 216–17 Herrera, Anna Maria, 79–80 Herrera, Ernesto, 116, 116 n. 91, 117 n. 92, 219 Honduras, 265 n. 2 horizontal accountability, 6 House of Representatives, in Philippines business interests of legislators in, 99 candidate selection for, 97 constraints on local fiscal policy, 220 decentralization as threat to, 211, 216–17, 218–21 electoral incentives in, 92, 101–4, 211 financial liberalization and, 243–44 on fiscal decentralization, 212–13 interest groups and, 101–2, 179, 180, 300–301 IVAT and, 119–21 lobbyists and, 46 local government officials and, 212–14 1987 Constitution on election of, 104 oversight committee, 219 n. 45 particularistic incentives in, 126–27 pork barrel reforms and, 247 seats held by president’s party in, 24 tariff liberalization and, 240–41 tax collection legislation and, 175–76 VAT and, 124, 125 Huntington, Samuel, 5, 9 n. 18 Hutchcroft, Paul, 242, 244 hybrid incentive structures, 23, 26
hyperinflation, 145, 147, 183, 190, 295 hyperpresidentialism, 14, 14 n. 35, 22, 166, 300 ICMS tax, 270 ideology of legislators and political institutions, 47–48 political parties and polarization of, 37 political parties and shifts in, 47 political parties and structure versus, 38–39, 166 IMF (International Monetary Fund), 108, 143, 179, 296–97 impeachment of Andrés Pérez, 283 of Estrada, 248 implementing rules and regulations (IRR), 215 import levies, 108–9, 114, 115–16 import licensing, 62 import-substituting industrialization (ISI), 52 n. 71, 64, 65 complex tax codes and, 72–73, 74 ineffective tax collection and, 73–76 narrow tax bases and, 71–72 tax amnesties and, 75–76 tax policy changes and, 74–75 tax revenue sharing and, 76–78 tax systems and goals of, 71 improved value-added tax (IVAT), 118–23, 124, 176 income tax credits, 120 income taxes administration of flattened, 188 in Brazil, 269 in developing countries, 297 exemptions and corporatism, 71 expansion of, 163 feasibility in developing countries, 188 n. 64 minimum asset tax and, 82 range of rates of, 83 tax holidays and payment of, 179 n. 31 income tax reform, 123, 123 n. 111, 269, 271, 280 incumbency in Argentina, 268 n. 8 in Philippines, 102 in United States, 31
Eaton Index 5/13/02 12:21 AM Page 341
INDEX
indirect taxes, 81, 222. See also entries under value-added tax (VAT) inflation taxes, 150 Institute for Political and Economic Reform (IPER), 100–101, 109 institutional incentives alternative explanations for, 293–98 career advancement of legislators and, 37–38 case studies and, 265, 282, 284 changes in, 19–20, 42 delegation of policymaking authority and, 31–32 impact on economic reforms, 43, 262 legislative behavior and, 14–17 variations in, 29–30 intellectual property rights, 260 Interamerican Development Bank, 87 interest groups. See also constituents; particularistic incentives alternative explanation for institutional leverage of, 293–94 in Argentina, 256–58, 293 House of Representatives in Philippines and, 101–2, 179, 180, 300–301 legislative behavior and, 166–67, 301 legislators’ personal reputations and, 15 in Philippines, 46, 293, 294, 300–301 political institutions and, 45–46, 256 provincial incentives and, 167 role in new democracies, 52–53 single-member districts and, 294 tax administration and, 66–67, 82, 291 tax exemptions and (see tax exemptions) VAT and, 143–44, 146 internal consumption taxes, 73. See also entries under value-added tax (VAT) internas (primaries), 135 International Monetary Fund (IMF), 108, 143, 179, 296–97 international trade, tax revenue from, 79 intocables, los (untouchables) , 186–87, 187 n. 61, 197, 200 investment priorities plan, 179 IPER (Institute for Political and Economic Reform), 100–101, 109 IPP. See investment priorities plan “iron triangles” concept, 58–59 irrelevant image, of legislators, 12 n. 30, 13 n. 31
341
IRR (implementing rules and regulations), 215 ISI. See import-substituting industrialization (ISI) IVAT (improved value-added tax), 118–23, 124, 176 Japan, 55 Javier, Exequiel, 176 Jenkins, Glenn, 75 Jones, Mark on Argentine budgetary process, 255–56 on Argentine labor reform, 260 on fragmentation of political parties, 134 influence of national party leaders, 136 on legislators’ careers, 137 on reelection rates, 44 judicial systems appointment procedures for, 305 clausuras and, 197, 198 supreme court, Philippines, 118, 245, 247 tax evasion and, 192, 192 n. 81 Kandir law (Brazil), 270 n. 17 Kaufman, Robert, 10, 33, 34, 36, 37 KBL (Kilusang Bagong Lipunan, New Society Movement) party (Philippines), 95 Kiewiet, D. Roderick, 54 Kilusang Bagong Lipunan (KBL, New Society Movement) party (Philippines), 95 Kilusang rollback, 115 Krieger Vasena, Adalbert, 141 n. 33 Laban ng Demokratikong Pilipino (LDP, Fight for Philippine Democracy) party (Philippines), 95–96 Laban ng Masang Pilipino (PMP, Fight for the Philippine Masses) party (Philippines), 96 labor contracts, 259 labor markets, 258, 258 n. 69 labor reform, 258–60 Lakas party (Philippines), 96, 99, 100 n. 29, 113, 118 n. 95 Lamberto, Oscar, 153, 165, 189 lame duck president Menem as, 159–60, 231, 261–62, 284, 292, 295–96, 299–300 in Venezuela, 283 Landé, Carl H., 96
Eaton Index 5/13/02 12:21 AM Page 342
342
INDEX
Latin America, 87, 87 n. 59 law of anticipated reactions, 19 laws and decrees, in Argentina. See also decrees, presidential: in Argentina; decrees, presidential: in Philippines Article 16, of tax penalty law, 192 Convertibility Law (1991), 227, 251–52, 258 Economic Emergency Law (23.697), 161–62, 191 n. 75 Law 11.683, 194 n. 91 Law 19.862 (1972), 223 n. 61 Law 22.847 (1983), 223 n. 61 Law 23.760, 188 Law 23.905, 197, 197 n. 102 Ley Matzkin, 167 n. 91 state reform law (1989), 254 tax penalty law 23.771, 191–93, 191 n. 75, 194 n. 89 laws and decrees, in Bolivia Decree No. 21060, 279–80 laws and decrees, in Brazil Kandir law, 270 n. 17 laws and decrees, in Philippines Decentralization Act (1967), 206 Foreign Investment Act, 241 Local Autonomy Act (1950), 206 Local Government Code (see Local Government Code (Philippines)) People’s Television Network in Republic Act 7306, 109 Salary Standardization Law, 213 Subic Special Economic Zone in Republic Act 7227, 109 Sugar Restitution Law, 246 LDP (Laban ng Demokratikong Pilipino, Fight for Philippine Democracy) party, 95–96 Lee Kwan Yew, 245 Legislative Politcs in Latin America (Morgenstern and Nacif), 7–8 legislative powers, 25, 35, 49–53, 111 legislators, general information action on policy preferences of, 14–17 bureaucratic preferences of, 67, 305 content of policy preferences of, 9–12 current literature about, 7–9 fiscal reform and, 64–69, 78–87 general questions about, 3–4 information needs of, 53, 56–57
lawmaking by, 49–53 participation in political reform, 12–14 policy preferences actions of, 36–48 policy preferences and policy outcomes of, 4, 5, 48–59, 121–22, 144, 302 reasons to study activities of, 4–7 resignations of, 210–11 staff and resource needs of, 52–53 subnational officials and, 305–6 theoretical images of, 9–12, 9 n. 18, 12 n. 30 Ley Matzkin, 167 n. 91 Liberal Front party (PFL) (Brazil), 270 nn. 14, 17 liberalization, economic. See also tariff liberalization banking liberalization, 249 central tenets of, 78–79 financial liberalization, 242–44 revenue sharing and, 85–87 tax collection and, 82–85 tax simplification and, 80–82, 83 trade liberalization, 239–42, 280 Liberal party (Colombia), 274, 275, 276 Liberal party (Philippines), 94 line-item veto, 127 Linz, Juan, 9–10 n. 18 “little presidents,” 106 Llanos, Mariana, 254 Lleras Restrepo, Carlos, 274–75 lobbyists, 45–46. See also interest groups Lobregat, Maria Clara, 114 n. 82 Local Autonomy Act (1950) (Philippines), 206 Local Government Code (Philippines) Aquino economic reform policies and, 21 attempts to reverse, 215–18 augmentation funds and circumvention of, 218–21 content of, 207, 209, 212–15 local/subnational governments, 305–6 benefits of discretion for, 78 in Brazil, 267–68 budgets of, 220 decentralization impact on, 207–9, 207 n. 5 election versus appointment of officials in, 87 fiscal pacts and, 226–30, 230 n. 79 health services and, 216
Eaton Index 5/13/02 12:21 AM Page 343
INDEX
local government code and, 212–15 public-sector workforce and, 219–20 revenue sharing and, 226–30 tax collection and, 218 taxes controlled by, 86 López Arías, Marcelo, 197 López Michelsen, Alfonso, 275 Loter IVA, 195, 195 n. 93 lower chamber. See Chamber of Deputies, in Argentina; House of Representatives, in Philippines Lusinchi, Jaime, 283 Macapagal, Diosdado, 108, 173 Macapagal-Arroyo, Gloria, 105, 106 n. 51, 119 n. 100 Magno, Francisco, 98, 103 Magsaysay, Ramon, Jr., 105, 172 Mainwaring, Scott on Brazilian electoral rules, 267 ideology and numbers of political parties, 37 institutionalized versus uninstitutionalized political parties, 93–94, 132 Presidentialism and Democracy in Latin America, 7 on presidential powers, 302, 303 Malacorto, 141 n. 33 malapportionment, 139, 156–57, 304 Malloy, James, 278, 280 Manasan, Rosario, 249 Mangahas, Malou, 114 n. 82 Manila Electric Company, 243 Manila Hotel, 247 Manila Waterworks and Sewerage System, 246 Maravall, Jose María, 10–11 Marcos, Ferdinand bureaucracy and, 173 central bank under, 242–43 foreign loans for infrastructure finance, 108, 111 legislature during regime of, 20, 102 tariffs during regime of, 239–40 Mares, David, 274 Massat, Jorge, 141 n. 33 mass-based parties, 39 Mathay, Ismael, 211 n. 12 Matzkin, Jorge, 150, 153, 187 Mayhew, David, 44
343
Mayorga, René Antonio, 278 mayors, 87, 87 n. 59, 214 McCoy, Alfred, 125 McCubbins, Matthew, 39, 54, 57 McGuire, James, 133 Medalla, Felipe, 179 n. 31 media, lawmaking and, 52 Menem, Carlos, 131, 132, 302 appointment powers of, 185–86 budgetary policy and, 256 characteristics of reform under, 260–62 cigarette tax and, 256–57 compared to Paz Estenssoro, 279 delegated authority and, 157–60, 161, 164 emergency tax handles and, 155 first term versus second (lame duck) term, 23 fiscal pacts and, 226–29 labor reform and, 258–60 as lame duck president, 159–60, 231, 261–62, 284, 292, 295–96, 299–300 Peronist legislators and provinces and, 257–58, 291, 292 privatization and, 254–55 provincial transfers and, 233 reelection and, 284 social security reforms and, 257 tax administration reform and, 183–87 tax break policies of, 74 tax collection reform and, 298 on tax system and fiscal crisis, 141 term limits and, 250 third term and, 134 n. 13 VAT and, 141–44, 188–89, 229, 230, 284 vetoes by, 164–65, 165 n. 87, 254 Mercosur, 271 Mexican tequila crisis, 147, 159, 162 Mexico, 147, 159, 162, 229, 261, 265 Michels, Robert, 38 middle classes, 63 minimum assets taxes, 82, 188, 190 Miranda, Salvador, 97 MIR (Movimiento de Izquierda Revolucionaria) (Bolivia), 277, 279, 280 Mitra, Ramon, 211–12 MNR (Movimiento Nacional Revolucionario) (Bolivia), 277, 278, 281 Moe, Terry, 303 Money, Jeanette, 304 n. 19 monotributo, 190
Eaton Index 5/13/02 12:21 AM Page 344
344
INDEX
Montes, Manuel, 107, 108 Morgenstern, Scott, 7–8 movements versus political parties, 133–34 Movimiento de Izquierda Revolucionaria (MIR) (Bolivia), 277, 279, 280 Movimiento Nacional Revolucionario (MNR) (Bolivia), 277, 278, 281 multimember districts, 102, 126, 295 multinational companies, 143–44, 146 n. 40, 167 multiparty systems, 95–96 Nacif, Benit, 7–8 Nacionalista party (Philippines), 94, 173 Naim, Moises, 283, 285 National Front party (Colombia), 275 necessary and urgent decrees (NUDs), 253 Nelson, Joan, 9, 10 Neustadt, Richard, 35 Noll, Roger, 40, 43 NPE (nueva política económica), 278 NUDs (necessary and urgent decrees), 253 nueva política económica (NPE), 278 obras sociales, 258, 259 obstructionist image, of legislators, 9–12, 9 n. 18, 12 n. 30 Ocampo, Pablo, 211 n. 12 Ocampo, Roberto de, 180 O’Donnell, Guillermo, 14 oil revenue, in Venezuela, 284–85 oil taxes increase, violent reaction to, 115–16 oligarchy. See elites organizational chart, of public finance bureaucracy, 184 Osmeña, John, 122 overrepresentation, proportional representation, 139–41 Pacto por la Democracia (Bolivia), 280, 287 Palenque, Carlos, 277 Panebianco, Angelo, 39 PAN (Partido Autonomista Nacional, National Autonomy Party) (Argentina), 134 parliamentary systems, 18, 302, 303 parochialism, 9 n. 18 particularistic incentives. See also constituents; interest groups in Brazil, 272
in candidate-centered electoral systems (see candidate-centered electoral systems) executive branch and legislators’, 102–3 inevitability of economic reforms and, 299–300 in party-centered electoral systems (see party-centered electoral systems) in Philippines, 20–21, 27, 101–2, 105–6, 126–27, 221, 240, 242–43, 249, 262, 301 in tax policy, 64–69, 109 Partido Autonomista Nacional (PAN, National Autonomy Party) (Argentina), 134 Partido Justicalista. See Peronist party partisan powers, 35 party-centered electoral systems. See also Argentina in Bolivia, 277–82 bureaucrats and, 58, 170, 297 versus candidate-centered electoral systems, 43 case studies for, 18, 265–66, 265 nn. 1, 2 characteristics of, 42–45, 156, 261, 286, 290, 291, 292, 299 decentralization in, 205 factionalism in, 283–84, 286 information needs of legislators in, 53 party leaders and legislators in (see party leaders) personal reputations in, 41 reasons for support of fiscal reform, 61, 156 reelection in, 45, 283 VAT reforms and party leaders, 148 party incentives in Argentina, 135–37 in Philippines, 96–101 party leaders in Argentina, 26 in candidate-centered electoral systems, 41, 97–98, 274 candidate selection by, 23 closed-list proportional representation and, 42, 277 factionalism among, 299 factionalism and, 286 influence in proportional representation, 42 information needs of legislators and, 53 versus particular constituents, 15
Eaton Index 5/13/02 12:21 AM Page 345
INDEX
policymaking process and, 38 roles of, 30 single-member district representatives and, 278 in Uruguay, 265 n. 1 VAT reforms and, 148 party lists, 21, 21 n. 50, 104, 126, 135, 301 party switching, 98–100 patents law, 260 patria contratista, 253 patronage networks building via revenue sharing, 220 bureaucracies and, 58 delegation and, 275 democracy and, 300 presidential, 113 tax bills and, 119 Paz Estrenssoro, Victor, 277, 278–79 Paz Zamora, Jaime, 277, 279–80 Pedro, Hilario de, 210–11 peripheral coalition, 257–58 Perón, Juan, 74, 133, 144 Peronist party automatic revenue sharing and, 291 budgets and, 199–200, 255–56 decentralization and, 27 delegation of policymaking authority by, 157–60, 163–64 exchange rates and, 252 fiscal pacts with provinces, 226–29, 230 n. 79 founding and history of, 133 ideology of, 166 labor reform and, 258–60 legislators by province, 153 movementist tendencies in, 134 n. 13 on necessary and urgent decrees, 253–54 opposition to reforms, 295–96 opposition within, 150 n. 47, 151–55 policy trade-offs with president, 156, 159 privatization and, 254, 255, 256 provincial incentives and, 256–58, 291, 292 revenue sharing and, 205, 224–25, 225–26 revenue-sharing conflicts with Menem, 231–32 seats held by, 24, 135–36, 145, 149, 225 tax collection and, 181, 187, 196–97 tax penalty law and, 193–94, 195 VAT and, 145, 146–48, 146 n. 33, 150, 151, 154, 230
345
Perry, Guillermo, 79–80 personalism, 24. See also particularistic incentives personal reputations in candidate-centered electoral systems, 41–42, 45, 101–2, 266–67, 273, 274, 290, 299 career advancement and, 38 closed-list proportional representation and, 139 interest groups and legislators, 15 in party-centered electoral systems, 41 tax revenue sharing and, 67–68 types of development of, 40–42 Peru, 261, 264, 265 Petrei, Humberto, 141 n. 33 PFL (Liberal Front party) (Brazil), 270 nn. 14, 17 Philippine Airlines, 246 Philippine Center for Investigative Journalism, 118 Philippine Commission, 107 Philippine Long Distance Telephone Company (PLDT), 243, 245 Philippine National Bank (PNB), 246–47 Philippine National Oil Company, 246 Philippine Retail Association, 241–42, 241 n. 13 Philippines, 302 versus Argentina, 24, 91–92, 129–30, 166, 200, 250, 261, 291, 295 bicameralism in, 18–19, 92 Board of Investments in, 178–81 bureaucrats in, 57, 171–74, 178 Bureau of Internal Review in, 174–78 campaign finance in, 98 as case study, 18–19 characteristics of, 20–21 versus Colombia, 286 democratization and legislators in, 300–301 deregulation and privatization in, 244–47 economic crisis impact on reform policy in, 295 election of senators, 104–6 electoral incentives in, 27, 92, 101–4, 123–27, 211 financial liberalization in, 242–44 fiscal exemptions in, 53 history of tax reform opposition, 107–9
Eaton Index 5/13/02 12:21 AM Page 346
346
INDEX
Philippines (continued) interest groups in, 46, 293, 294, 300–301 laws and decrees in (see laws and decrees, in Philippines) legislative majority and executive branch in, 287 legislator voting patterns in, 100–101 particularistic incentives in (see particularistic incentives: in Philippines) party incentives in, 96–101 party switching in, 98–100 party system in, 93–96 reform reversals in, 299 trade liberalization in, 239–42 unilateral presidential powers in, 25 VAT in (see value-added tax [VAT], in Philippines) Philippine Shipyard and Engineering, 246 Pierri, Alberto, 187–88 n. 63 Pinochet, Augusto, 264 PLDT (Philippine Long Distance Telephone Company), 243, 245 plurality, 24, 37 PMP (Laban ng Masang Pilipino, Fight for the Philippine Masses) party (Philippines), 96 policymaking in comparative country case studies, 264–65, 282 delegation of, by legislators (see delegation of policymaking authority, by legislators) detailed lawmaking and, 49–53, 252–53, 300 elites and, 125–26, 125 n. 112, 293, 294 executive branch inclusion of legislators in, 51 functional-structural approaches to, 13 n. 31 tax administration concerns and, 188–90 policy preferences actions and, 14–17, 36–48 content of legislators,’ 9–12 economic reform and, 4, 5, 16–17 policy outcomes of, 48–59, 121–22, 144, 302 shaped by electoral incentives, 272–73, 293 policy reform. See also specific types of reform executive branch and, 16–17, 246–47
general discussion on legislators’ participation in, 12–14 political institutions candidate-centered electoral systems and (see candidate-centered electoral systems) career advancement and, 37–38 electoral incentives and, 37, 39–40 ideology of legislators and, 47–48 interest-group behavior and, 45–46, 256 party-centered electoral systems and (see party-centered electoral systems) research traditions on, 38–39 shaping of economic reform outcomes by, 36–37 political parties. See also specific political parties in Argentina, 132–35 conventions of, 96 n. 13 deinstitutionalization of, 94–95 ideology shifts and, 47 institutionalization of, 100, 133–34 in Philippines, 93–96 standing committees of, 100 structure versus ideology, 38–39, 166 populist parties, 47 pork barrel politics benefits in poorer districts, 41 chief instruments of, in Philippines, 99 n. 26 in Colombia, 275, 286 decentralization impact on, in Philippines, 206–7, 219, 220–21 EVAT and, 115, 115 n. 83, 118 party switching and, 100 Ramos and, 100, 118, 118 n. 95, 119, 126, 247, 292 reforms in Philippines, 247–49 trade liberalization and, 240–41 United States’ influence on Filipino, 101 Porto, Alberto, 223 postal system, privatization of, 255 poverty impact on lower income groups, 63 impact on personalism, 24 Power, Timothy, 267 presidential democracies, 17–18, 134, 157–60, 299. See also specific countries presidentialism, 35, 302–3 Presidentialism and Democracy in Latin America (Mainwaring and Shugart), 7
Eaton Index 5/13/02 12:21 AM Page 347
INDEX
Presidential Task Force on Tax Reform, 179 n. 31, 180 n. 34 price stability, 255–56 primaries (internas), 135 principal-agent models, 54, 56 prison terms, for tax evasion, 191–92 privatization in Argentina, 253–55 in Philippines, 244–47 provincial incentives and, 257 state restructuring bill and, 161 of tax collection, 176 proportional representation in Bolivia, 277–78 in Brazil, 267 collective-action costs and, 43 in Colombia, 273 effect on numbers of political parties, 37 elites and policymaking, 126 overrepresentation and, 139–41 party leaders’ influence in, 42, 277 provincial, 142 provinces. See local governments provincial incentives basic needs index and, 157 n. 60 discretion and fiscal relationships, 228–29 fiscal pacts and, 226, 229 n. 74, 230 n. 79 inflation taxes and, 150 interest groups and, 167 during Menem’s second term, 256–58 party discipline and, 151–55 party leaders and, 291 Peronist party and, 256–58, 292 policy compromises and, 303 privatization and, 257 of Radicals, 152 tax amnesties and, 187–88 n.63 tax reform and, 156 VAT reform and, 144 provincial parties, 134–35 provincial proportional representation, 142 Przeworski, Adam, 10–11 PSDB (Social Democratic party) (Brazil), 270 nn. 14, 17 Public Works Act (1996), 113 Puyat-Reyes, Consuelo, 211 n. 12 Radicals (Unión Cívica Radical party) (Argentina), 145 on administrative judges, 198
347
economic stability claims of, 148 fiscal pacts and, 226 founding and history of, 133 opposition to tax penalty law, 193–94 opposition to VAT reform, 146, 146 n. 43, 149, 190 proposed broadening of VAT exemptions, 154 provincial incentives of, 152 revenue-sharing law and veto power of, 224 Ramos, Fidel, 302 Board of Investments and, 179–80 bureaucracy and, 173, 174 Bureau of Internal Review and, 175 deregulation and privatization under, 244–47 economic reform proposals of, 21, 24 on elites, 238–39 EVAT and, 115, 118 financial liberalization and, 243–44 GATT and, 241 Lakas party and, 96, 99, 113 on local government code, 218 particularism and, 250 party institute project of, 100 pork barrel politics and, 100, 118, 118 n. 95, 119, 126, 247, 292 reasons for election of, 95 retail liberalization and, 241–42 revenue sharing and, 233 tax reform and, 298 tax surcharges and, 108, 126 term limits and, 250 VAT and, 93, 110–14, 123, 290–91 real property tax system, 107 recall mechanisms, 212–13 reelection Menem and, 284 political ambition and, 31–32 rates of, 44, 52, 103, 137 reasons for seeking, 44–45 regional tax incentives development and, 71–72 VAT and, 151–55 Remmer, Karen, 11 n. 26 renationalization, of agencies and services, 217 repression, of legislators, 52 Republican party, 54
Eaton Index 5/13/02 12:21 AM Page 348
348
INDEX
retail industry, 241–42, 241 n. 15 revenue sharing/transfers automatic (see automatic revenue sharing/transfers) centralization of, 76–77 decentralization of, 27, 85–87, 203–5 (see also entries under decentralization) electoral incentives and, 221 impact on VAT, 149–51, 152, 156 n. 58, 229 implementation of decentralized, 215 import-substituting industrialization and, 76–78 liberalization and, 85–87 limited and discretionary, 76–78 during Menem’s second term, 230–32 particularism and, 67–68 by province, 152 provinces and, 149–51, 226–30, 227 n. 68 recentralization attempts of, 215–18 size of, 86–87 terms of, 87 Revilla, Ramon, 105, 116 n. 91 Rinne, Jeffrey, 262 Roberts, Kenneth, 14 n. 35 Rocamora, Joel, 240–41, 250 Rodlauer, M., 123 Rodríguez Saá, Alberto, 162 n. 68 Rogowski, Ronald, 293–94 Roxas, Manuel, 94 rural-urban infrastructure fund, 249 Sachs, Jeffrey, 281 Salary Standardization Law (Philippines), 213 sales tax, 175–76, 189 n. 69, 227 n. 68 Salinas de Gortari, Carlos, 264 Samper, Ernesto, 276 Samuels, David, 44, 267 Sanguinetti, Pablo, 225 n. 64 San Miguel (company), 243 Sawers, Larry, 256 Schwartz, Thomas, 57 Scully, Timothy, 37, 93–94, 132 sector-based analysis, 294 Senate, in Argentina candidate selection for, 136 malapportionment in, 139, 156–57, 304 Peronist party seats in, 148, 149
representation in, 137–38, 224 revenue-sharing laws and, 224 on tax benefits, 162 Senate, in Philippines candidate selection for, 97–98, 211 elections for, 104–6, 304 EVAT and, 116 on fiscal decentralization, 214–15, 216 IVAT and, 121–22 particularism and policy in, 105–6 support for reform, 92 term limits for, 105 VAT and, 125 Serna, Vicente dela, 211 n. 11 Shah, S., 72 n. 22 Shome, Parthasarathi, 274 Shugart, Matthew on delegation of authority, 275 on delegation of policymaking authority, 55 on particularism, 20 on presidential/congressional congruence, 105 on presidentialism, 7, 303 Presidentialism and Democracy in Latin America, 7 on presidentialism versus parliamentarism, 302 on presidential vetoes, 25 “Sick Man of Asia,” 111, 112. See also Philippines Siles Zuazo, Hernán, 278 single-member districts in Bolivia, 278, 301 centrist parties and, 37 interest groups and, 294 in Philippines, 21, 21 n. 50, 101, 104, 126, 290, 294 in Venezuela, 282 n. 56, 301 Smith, William, 10 Social Democratic party (PSDB) (Brazil), 270 nn. 14, 17 social security reforms, 257 social security taxes, 192 Sotto, Vicente, 105, 116 n. 91 special economic zones, 245–46 special interest groups. See interest groups Spiller, Pablo, 130 n. 4, 256, 258 n. 69, 259 standing committees, 100 state reform law (1989) (Argentina), 254
Eaton Index 5/13/02 12:21 AM Page 349
INDEX
statist models centralization in, 85 delegation of legislative authority in, 161 effects of tax deferments in, 65 elites and, 125 n. 112 ineffective tax collection in, 73–76 policymaker motivations in, 62–63 shift away from, 33, 36 Stauffer, Robert, 101, 107–8, 109 Subic Bay Metropolitan Authority, 245–46 Subic Special Economic Zone in Republic Act 7227 (Philippines), 109 subnational governments. See local/subnational governments Sugar Restitution Law (Philippines), 246 Summers, Lawrence, 65 Sundquist, James, 54 supreme court (Philippines), 118, 245, 247 Taachi, Carlos, 165, 185, 185 n. 52, 186 Tanzi, Vito, 143 tariff liberalization, 33–34, 79, 239–42, 297 tax administration bureaucrats and, 304 (see also bureaucrats/bureaucracy) concerns at policymaking stage, 188–90 interest groups and, 66–67, 82, 291 presidential reform efforts of, 183–87 procedure modifications for, 194–98 tax amnesties tax compliance and, 185, 187–88 n. 63 tax evasion and, 75–76, 182 weaknesses of, 176–77 tax bases broadening of, 27 (see also entries under value-added tax [VAT]) broadening of Brazilian, 271–72 broadening of Colombian, 276 closed-party list system and broadening of, 130 definition of broadening of, 81–82 fiscal crisis and narrow, 71–72, 82 history of Filipino opposition to broadening of, 107–9 particularistic incentives and broadening of, 109 presidential proposals for broad, 141–44 VAT and broadening of, 130 n. 1 tax breaks advantages to legislators, 64–66
349
executive attempts to reform, 179–80 suspension of, 162 tax codes complexity of, 72–73, 182, 304 simplification under liberalization, 80–82, 83 tax collection, general, improvement of, 82–85 tax collection, in Argentina. See also General Tax Directorate (Dirección General Impositiva, DGI) administrative concerns at policymaking stage, 188–90, 304 administrative procedure modifications for, 194–98 economies of scale in, 222 n. 58 executive branch and costs of, 226 n. 67 financing of tax-collecting agency and, 199 history of, 222 inferior, 181–83 legislative role in improvement of, 187, 199 penalties for tax evasion, 190–94 presidential reform efforts, 183–87 tax collection, in Bolivia, 280 tax collection, in Philippines Board of Investments and, 178–81 Bureau of Internal Review and, 174–78 local governments and, 218 opposition to changes in, 291, 304 privatization of, 176 tax collection, statist, ineffective, 73–76 tax credits, 64 tax deductions, 64 tax deferments, 64, 65, 65 n. 11 tax evasion BIR and tracking of, 175 bureaucrats’ role in, 170 complexity of tax laws and, 74–75 IVAT and, 122 Menem personnel appointments to end, 185 penalties for, 190–94 under Perón, 144 simplified tax codes and, 83 tax amnesties and, 75–76, 182 tax incentives and, 66 n. 14 VAT and, 84 tax exemptions, 64 bicameral conference committee and, 115 n. 83
Eaton Index 5/13/02 12:21 AM Page 350
350
INDEX
tax exemptions (continued) BIR and, 175–76 for cargo transport, 151–55 for corporations, 71 elimination of VAT, 145–49 elites and, 9 n. 18 enterprise-specific VAT/EVAT, 177 EVAT and, 117, 117 n. 92 IVAT and, 119, 120–21, 122, 124 minimum asset tax and, 82 versus passage of broad-based taxes, 109 VAR reform and, 146–47 VAT and, 83–84, 163, 165, 304 tax-free investments, 65 n. 11 tax handles, 73, 155–56, 296 tax holidays, 64, 65–66, 179 n. 31 tax incentives, discretion and, 180–81 tax particularism, 83–84 tax penalty law 23.771 (Argentina), 191–93, 191 n. 75, 194 n. 89 tax policy changes in, 74–75 complexity of, 72–73, 74 particularism and, 64–65 reversals of, 65 tax rates comparisons of, 83 tax evasion and marginal, 75 tax reform in Bolivia, 280–82, 292 in Brazil, 266–72, 292, 299 in Colombia, 272–76, 292, 296, 299 history of Philippine opposition to, 107–9 obstacles to, 281 presidential proposals for broad-based, 110–14, 141–44 in Venezuela, 282–85, 292, 296 tax revenue, from international trade, 79 tax revenue sharing. See revenue sharing/transfers tax simplification, 80–82, 83 tax surcharges, 108, 126 term limits, in Philippines decentralization and, 211, 291 effect on political careers, 205, 210 length of, 105 paricularism and, 301 particularistic incentives and, 103 presidency and, 250, 289 as reaction to Marcos regime, 209
Thomas, John, 13 Tommasi, Mariano, 130 n. 4, 256, 258 n. 69, 259 Toye, J., 72 n. 22 trade liberalization, 62, 239–42, 280 trade taxes, 73, 149, 150 trapos (dishrags), 97 Tsebelis, George, 304 n. 19 UceDe (Unión del Centro Democrático, Union of the Democratic Center) party (Argentina), 134 ultra-activity clause, in labor reform legislation, 259 unemployment, 258, 259 Unidad Cívica Solidaridad (Bolivia), 277 Unión Cívica Radical party. See Radicals (Unión Cívica Radical party) (Argentina) Unión del Centro Democrático (UceDe, Union of the Democratic Center) party (Argentina), 134 Unión Industrial Argentina, 143 unions, labor, 258, 258 n. 69, 259, 280–81 United States colonial rule and Filipino legislators, 172 control of bureaucracy in, 57 delegation by majority party in budget policymaking, 54 Filipino elites and Filipino legislature, 126 incumbency in, 31 influence on Filipino pork barrel politics, 101 legislative politics style in, 39 1986 tax reform in, 80 protections for delegation of policymaking authority in, 55 reelection in, 44 untouchables (los intocables), 186–87, 187 n. 61, 197, 200 upper chamber. See Senate, in Argentina; Senate, in Philippines Uruguay, 13 n. 31, 265 n. 1 U.S. Budget Bureau, 54 U.S. Congress, 31, 54 Valenzuela, Arturo, 300 value-added tax (VAT) economic liberalization and, 81 electoral incentives and, 123–27 exemptions from, 83–84, 145–47
Eaton Index 5/13/02 12:21 AM Page 351
INDEX
problems with, 84 n. 50 tax evasion and, 84 tax exemptions and, 83–84 value-added tax (VAT), in Argentina administrative questions and debate over, 188–89 cargo transport exemption issue and, 147, 151–55, 153 DGI and, 153, 189 disaggregation of bill on, 154 exemptions from, 145–47, 163, 165 IMF and, 296–97 interest groups and, 143–44, 146 Menem and, 188–89, 229, 230, 284 opposition to, 146, 146 n. 43, 149, 190 performance of, 147–48 Peronist party response to, 145, 146–48, 146 n. 33, 150, 151, 154, 230 presidential proposals for broadened, 141–44, 284 reasons for support for, 147–48 revenue sharing impact on, 149–51, 152, 156 n. 58, 229 value-added tax (VAT), in Bolivia, 280 value-added tax (VAT), in Brazil, 270 value-added tax (VAT), in Colombia, 275–76 value-added tax (VAT), in Philippines compliance with, 112–13 electoral incentives in, 123–27 exemptions from, 304 expanded, 100 n. 29, 109, 114–18, 177, 178, 244, 249 IMF and, 296–97 import-substituting industrialization and, 73 improved, 118–23, 124, 176 narrow, 111, 112 Ramos and, 93, 110–14, 123, 290–91 value-added tax (VAT), in Venezuela, 283, 284
351
VAT. See entries under “value-added tax (VAT)” Velásquez, Ramón, 283 Venezuela, 265, 266, 286 candidate selection in, 23 single-member districts in, 21 tax reform in, 28, 282–85, 292, 296 vertical accountability, 6 vertical fiscal imbalance, 204 vetoes in Argentine legislature, 224, 252 of Argentine presidents, 25 in Brazil, 290 constitutional rules for override of, 49–50 as legislative powers, 35 legislators and, 51 line-item, 127 during Menem’s lame duck term, 165 n. 87, 167 overrides, in Argentina, 256 in Philippines, 127, 243, 244, 298 of privatization bills, in Argentina, 254 of tax deferments in Argentina, 164–65 warlords, 101 Washington Consensus, 69–70 Waterbury, John, 10 ways and means committee, 120 Webb, Freddie, 105, 116 n. 91 Weyland, Kurt, 267 World Bank, 10, 72, 75, 80, 195 n. 93 write-in votes, 102, 104 Yabrán, Alfredo, 187 n. 61 Yacimientos Petrolíferos Fiscales, 257 Yacyretá hydro-electric dam, 255 Yoingco, Angel, 108, 112 n. 74 Yrigoyen, Hipólito, 133 Yrigoyen, Solari, 157 n. 60 Zambia, 48