Monetary technocracy and democratic accountability: how central bank independence conditions economic voting

Abstract

Central bank independence (CBI) implies that elected governments delegate monetary policy to technocrats in central banks. I argue that given the substantial influence of monetary policy on consumption, investments, exchange rates, capital flows and government spending, all of which critically determine the performance of the economy, CBI can blur the lines of responsibility for economic performance between elected governments and central banks. It can thereby weaken voters’ ability and willingness to electorally punish (or reward) governments on the basis of economic outcomes. Utilizing data from the Comparative Study of Electoral Systems, I test how CBI conditions the effects of macroeconomic performance on electoral support for incumbents in 38 countries from 1996 to 2016. The results show that CBI significantly attenuates the reward and punishment mechanism of elections based on economic records. The finding of this article sheds new lights on how the problem of democratic accountability caused by the rise of CBI actually materializes in elections, the most important sanctioning mechanism of democracy. Further, it identifies CBI as another crucial condition that can explain variations in the magnitude of economic voting across countries, as yet unexplored in the election literature.