Absolute but temporary power: on the economic effects of the Mexican political system

Abstract

Although term limits are often viewed as a viable means to the end of shrinking goverment, strong restrictions on re-election for powerful political offices may be counter productive. For example, Mexican governance is a combination of massive state power with an absolute prohibition of re-election. This system produces incredibly powerful, but explicitly temporary, autocrats who to a large degree run the Mexican economy. Using the colorful teminology of the late Mancur Olson, Mexico has an institutionalized system of "roving bandits" that gorge themselves for 6 years then either fade into oblivion or flee in disgrace. In this paper, we argue that this political system of ubiquitous state control of the economy, concentrated political power, and short political time horizons works systematically to the detriment of the Mexican economy. We present supporting evidence showing that, while there is a significant 6 year election cycle in Mexican economic data, it does not remotely resemble an opportunistic political business cycle (PBC) designed to capture votes in the presidential election. Instead, we find a significant post-election economic collapse. We also examine electoral influence on inflation uncertainty and find that while the sexenio does influence uncertainty, elections create, rather than resolve, economic uncertainty, which is the opposite of the prediction of rational partisan models.