Transcript broz_blomberg_F1030_1_pres

The Political Economy
of IMF Voting Power
J. Lawrence Broz, UCSD
and
Brock Blomberg, Claremont
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Research Question


Why does the IMF’s political
system tie voting power to the
size of financial contributions
(quotas)?
The system looks like this…
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Our Approach
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
As with any political system, IMF
members have opposing
interests over policies - a clash
that translates into opposing
interests over the system
The basic conflict is between rich
country “creditors” and poor
country “borrowers”
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Use of IMF Resources*
*Includes outstanding use of credits within the GRA, SAF,
PRGF and Trust Fund
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Distributional Conflict

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We develop a model that hinges
on the division of members into
“rich” and “poor” countries
We model the IMF as political
system that engages in
redistribution between rich and
poor
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Model
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Two types of economies: Rich r
and Poor p.
Economic pie is divided across
world with fraction of income 
held by the rich and (1- ) held
by the poor.
Since
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 Transfers T from rich to poor
are accomplished through
taxes 
 Taxes  are imposed on
domestic economies with
some convex cost C(.)
• Cost function is conditioned on the
ideology of the domestic
government:
with
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
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Indirect utility for country i is
Political power X is a weighted index
of “autonomous power”  and “voting
power” , which depends
proportionally on
So, for the rich

(as in the IMF)
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Main Results
1. When taxation influences voting power
(IMF) and the poor have substantial
autonomous power, 1/2, then  is
positive (rich transfer income to poor).
Hence, it’s necessary for political power to
depend on quotas for the rich to have the
impetus to support transfers
2. As power moves from the rich to the
poor, then increasing inequality implies
more transfers from rich to poor.
3. The magnitude of the effect of inequality
depends critically on the type of domestic
government (conservatives reduce )
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Empirical Hypotheses
1. Countries with greater shares of
GDP are more likely to request
more voting power (higher quotas),
provided the poor have sufficient
political power
2. We also predict that these effects
are smaller for right-wing
governments
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Data and Design
DV = actual quota, country/year obs
sampled during “General Reviews”
 = deviation in income share relative
to the mean
R = dummy for right-wing govts
R *  = interaction for conditional
effect
Qc = economic controls from IMF
quota formulas (contains Y, R, P, C
and VC)
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Table 1: Political Quota Equation
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Conclusions

We derive a rationale for the
IMF’s political system in which:
• The IMF redistributes income from
rich to poor
• The poor have “autonomous”
political power at the IMF
• The rich require voting power if
they want to remain influential
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