American Political Science Review


Mobile Capital, Domestic Institutions, and Electorally Induced Monetary and Fiscal Policy

William Roberts Clarka1 and Mark Hallerberga2

a1 New York University

a2 University of Pittsburgh


The literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics: Capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible. Similarly, examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether. We develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence. We test the model using data from OECD countries. We find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low; preelectoral fiscal expansions occur when the exchange rate is fixed. We then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in Europe.

William Roberts Clark is Assistant Professor of Politics, New York University, 715 Broadway, New York, NY 10003-6806 (

Mark Hallerberg, is Assistant Professor of Political Science, University of Pittsburgh, 4t23 Forbes Quadrangle, Pittsburgh, PA 15260 (