Abstract
This paper analyzes the extent to which economic policy uncertainty affects presidential approval in four Latin American countries (Brazil, Chile, Colombia, and Mexico). Using panel (time-series cross-sectional) estimation methods, we show that economic policy uncertainty has a negative impact on presidential approval in our sample. A one-standard-deviation increase in the level of economic uncertainty reduces presidential approval by approximately 12 percent. Our results are consistent with the political economy model of Alesina et al. (1993), which shows that voters are less likely to re-elect the incumbent when faced with uncertainty about economic policy. Incumbent competence signalling can exarcerbate this effect.
Highlights
Theoretical political economy models like those of [1] and [2] have established that there is a strong relationship between government policies and the state of the economy
We focus our analysis on four Latin American economies (Brazil, Chile, Colombia, and Mexico) for which presidential approval data is available from the Executive Approval Database (EAD) 1.0
We examine the extent to which economic policy uncertainty affects presidential approval ratings
Summary
Theoretical political economy models like those of [1] and [2] have established that there is a strong relationship between government policies and the state of the economy. We extend [29]’s work examining the effect of policy regimes on economic accountability in Latin America by adding our proxy for economic uncertainty (the EPU index) to the regression modelling presidential approval. The estimated IRF quantify the impact of an economic policy uncertainty shock on presidential approval ratings within a framework in which all the variables in the model are endogenous. I.e., the extended version of the model by [29], the estimated coefficient for the EPU index is negative and statistically significant in five out of the six specifications considered This result is robust to the inclusion of variables controlling for the economic outlook (inflation and growth), honeymoon and scandal effects, the nature of presidential regimes (neoliberalism or statism), and country fixed effects.
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