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Despite mixed empirical evidence, in the past two decades central bank independence (CBI) has been on the rise under the assumption that it ensures price stability. Using an encompassing theoretical approach and new yearly data for de jure CBI (seventy-eight countries, 1973–2008), we reexamine this relationship, distinguishing the role of printing less money (discipline) from the public's beliefs about the central bank's likely actions (credibility). Democracies differ from dictatorships in the likelihood of political interference and changes to the law because of the presence of political opposition and the freedom to expose government actions. CBI in democracies should be directly reflected in lower money supply growth. Besides being more disciplinarian, it also ensures a more robust money demand by reducing inflation expectations and, therefore, inflation. Empirical results are robust and support a discipline effect conditioned by political institutions, as well as a credibility effect.

Independent central banks prefer balanced budgets due to the long-run connection between deficits and inflation, and can enforce their preference through interest rate increases and denial of credit to the government. This article argues that legal central bank independence (CBI) deters fiscal deficits predominantly in countries with rule of law and impartial contract enforcement, a free press and constraints on executive power. It further suggests that CBI may not affect fiscal deficits in a counter-cyclical fashion, but instead depending on the electoral calendar and government partisanship. The article also tests the novel hypotheses using new yearly data on legal CBI for seventy-eight countries from 1970 to 2007. The results show that CBI restrains deficits only in democracies, during non-election years and under left government tenures.

Research on central bank independence (CBI) focuses overwhelmingly on domestic causes and consequences. We consider CBI in relation to global finance. A first step links decisions to reform central bank legislation to a perceived need to attract capital in the form of foreign direct investment or sovereign borrowing. A second step models investors’ actual decisions as a function of CBI. We test our argument on a sample of 78 countries (1974–2007). Logit models investigate the determinants of central bank reform. Results show the effect of international capital through a direct-competition channel and through learning in the context of competition. Socialization of countries in networks of intergovernmental organizations is also a determinant of CBI reform. In addition, we show that CBI affects the flow and cost of capital in non-OECD countries, before CBI became globally widespread, and where political institutions allow the central bank to de facto be credible.

Theory and empirical evidence show that low inflation is a precondition for economic growth. Independent central banks and fixed exchange rates are institutional mechanisms that help keep inflation low by lending monetary policy credibility to governments. However, the two institutions are commonly analyzed as substitutes that tie the hands of inflation prone governments. Thus, the literature has difficulties describing why governments would adopt both institutions and the interaction between them. This paper presents a model that allows policymakers the simultaneous choice of monetary institutions and shows that imperfectly credible institutions will overlap: when exchange rates are fixed but adjustable and central bank independence is not fully ascertainable, governments choose both institutions. More generally, the paper generates hypotheses about the conditions that make fixed exchange rates and independent central banks complements or substitutes, thus contributing to an explanation of the diversity of global monetary institutions in the post–Bretton Woods period.

In dominant-party regimes, party cadres’ participation in decision making constrains dictators from arbitrarily changing policy. Dominant-party regimes are also better at mobilizing supporters in exchange for extensive patronage. The conventional wisdom is that these two mechanisms work together to prolong dominant-party regimes. However, under certain conditions, the elite-level constraints restrict autocratic leaders’ ability to engage in patronage distribution. We focus on monetary institutions, arguing that when central bank independence overlaps with the collective decision making in dominantparty regimes, dictators have diminished control over the central bank. Thus, the central bank is effective enough to restrict expansionary fiscal policy, reducing the mobilization of supporters through patronage and increasing authoritarian breakdown risk. Analyses on data from 1970 to 2012 in 94 autocracies find that high central bank independence in dominantparty regimes increases the likelihood of breakdown. Moreover, independent central banks in party-based autocracies contribute to lower fiscal expenditures.

Does ethnic inequality breed coups? The recent literature on civil war shows both that inequality between ethnic groups induces war and, importandy, that civil wars and coups, although fundamentally different, are related. The literature on coups d'état, however, has yet to theorize and test the effect of ethnic inequality on coups. The link is plausible because many coups are 'ethnic coups', which depend on the capacity of plotters to mobilize their co-ethnics. We argue that large income and wealth disparities between ethnic groups accompanied by withingroup homogeneity increase the salience of ethnicity and solidify within-group preferences vis-à-vis the preferences of other ethnic groups, increasing the appeal and feasibility of a coup. We use group-level data for 32 sub-Saharan African countries and 141 ethnic groups between 1960 and 2005 and provide the first large-N test to date of the effect of ethnic inequality on coups. Between-and within-group inequality measures are constructed based on survey data from the Afrobarometer and the Demographic and Health Surveys. We find strong support for our hypothesis: between-ethnic-group inequality (BGI) increases the likelihood that an ethnic group stages a coup only when withinethnic-group inequality (WGI) is low. Coups remain frequent in sub-Saharan Africa and coups are the main threat to democracy in the region, by harming democratic consolidation and economic development, and by provoking further political instability. Our work provides a novel rationale to be concerned about ethnic inequality, showing that when ethnic and income cleavages overlap, destabilizing coups d'état are more likely.

Voluntary compliance is an important aspect of strong tax regimes, but there is limited understanding of how social norms favoring compliance emerge. Using novel data from urban Nigeria, where tax enforcement is weak, this article shows that individuals with a positive experience of state services delivery are more likely to express belief in an unconditioned citizen obligation to pay tax. In addition to support for this fiscal exchange mechanism, social context is consequential. Where individuals have access to community-provided goods, which may substitute for effective state services provision, they are less likely to adopt pro-compliance norms. Finally, the article shows that norm adoption increases tax payment. These findings have broad implications for literatures on state formation, taxation and public goods provision.

This article analyzes the effect of central bank independence on fiscal deficits. Previous literature finds a negative relationship between bank independence and deficits in OECD countries. No such relationship is found for developing countries. We argue that independent and conservative central bankers prefer budget discipline due to the long run connection between deficits and inflation and can enforce their preference through interest rate hikes and refusal to lend to the government. The claim, however, is that the legislated independent status of the central bank is cheap talk in the absence of democratic institutions. We test empirically the conditional effect of central bank independence on a sample of 23 democratic and undemocratic post-communist countries from 1990 to 2002. Results show that independent central banks restrain budget deficits only in democracies. Also, democracies that have not granted independence to their central banks have the worst fiscal discipline.

This article argues that the broad and legally enforceable protection that bilateral investment treaties (BITs) offer to foreign investors worsens the human rights practices of developing countries. BITs lock in initial conditions attractive to investors that are linked to vertical investment flows and investment and trade competition. They also constrain the provision of welfare benefits or basic infrastructure. The lock-in and constraining effects are sources of popular grievance and dissent in states that host foreign investment. BIT-protected investor rights, however, limit the ability of governments to back-down vis-à-vis investors, lowering the relative cost of human rights violations. Finally, this study suggests that democratic regimes mitigate the negative effect of BITs. Evidence from 113 developing countries from 1981 to 2009 supports the hypotheses.