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Beijing Forum 2017：New Dynamics of Economic Development in a Changing World (I)

2017-11-03

On the afternoon of November 3rd, Economics Forum, which is also one of the sub-forum of Beijing Forum (2017), opened at the Four Seasons Hall, Villa 10, Diaoyutai State Guest House. The theme of this forum is “New Dynamics of Economic Development in a Changing World”. During the next two days, scholars and university presidents from all over the world will conduct heated discussions on this topic. The four sub-sessions will focus on the following themes: “New Political Economic”; “International Development Aide”; “Belt and Road Initiative and Global Economic Governance”; and “Healthy China 2030: Healthcare Policy and Reform from an International Perspective”.

In the topic on “New Political Economics”. Prof Xuezheng Qin, School of Economics of Peking University, served as the chair of the first half of session.

Qixiang Sun, director of School of Economics and professor of Peking University, first gave the welcoming speech. She hope these four sessions will foster discussion and debate among our panelists and participants on the important economic issues and challenges that we face together. The current economic problems have led many people to question the validity and sustainability of China’s development model. “what is the relationship between new concept of development and moderately prosperous society”, “how to use the new principles to guide the economic reforms” is worthy of a thorough discussion by both academics and policy makers. this forum will serve as a great platform to foster discussions, spark research ideas and provide fruitful directions for future policy making among the scholars and the government officials here.

Prof Alessandro Lizzeri give a presentation on “The Political Economy of Debt and Entitlements”. He presents a political-economic model of total government obligations-debt and entitlements. In our model, both are tools by which temporarily powerful groups extract resources from groups that will be powerful: debt transfers resources across periods; entitlements directly target the future allocation of resources. He proves four results. First, debt and entitlements are strategic substitutes: constraining one increases the other. Second, it is sometimes beneficial to relax a constraint on debt, and always to limit but not eliminate entitlements. Third, debt and entitlements respond in opposite ways to political instability. Finally, polarization can cause joint growth of debt and entitlements.

Prof Branislav L. Slantchev presented a topic on “No Taxation without Administration: Wealth Assessment in the Formation of the Fiscal State”. He discussed that taxation has increased dramatically while violent resistance has virtually disappeared. He presents a model that shows how these patterns can be understood as arising from the Crown`s desire to maximize its income from taxation in a context where it is institutionally unconstrained but does not have very good information about the wealth of the subjects it is trying to tax. In this setting, high tax demands can push poor subjects into violent resistance, which might provide the Crown with evidence that it needs to lower the tax to acceptable levels (provide tax relief). This possibility, however, provides an incentive to the rich subject to join the revolt to take advantage of tax relief and avoid an increase of taxation that willingness to accept might entail in the future (ratchet effect). As the Crown`s ability to better assess the wealth of its subjects grows, taxation will increase while violent resistance will decrease even in the absence of an increase in the Crown`s coercive capabilities or its public goods provision. The growth of the state can be understood as a direct consequence of administrative improvements rather than centralization of power, monopolization of violence, or provision of public goods.

Prof Daniel S. Treisman discussed how trade`s effects on political approval. By using a panel of more than 100 countries in 2005-2016, he found that growth in exports of products that are intensive in high-skilled labor increases approval of both the incumbent government and its leader among highly skilled individuals, while growth in imports of such products has the opposite effect. This is true controlling for various other characteristics of respondents and of countries. The results contribute to debates over the political consequences of trade. In some countries, increasing trade is thought to lie behind recent populist outbursts against incumbent elites, while in others approval of incumbents has remained steady. We examine whether the composition of trade may explain such differences.

Prof Xingming Liu, School of Education of Peking University, served as the chair of the second half of session.

Professor Pengfei Zhang from Peking University presented a speech on “Threats and Political Instability in Authoritarian Regimes: A Dynamic Theoretical Analysis” for Professor Victor Shih from School of Global Policy and Strategy, UCSD. In his speech, a tractable stochastic game model is proposed to investigate authoritarian instability by portraying a world where leaders are forced to tolerate threatening lieutenants because they are skillful at overcoming existential threats (shocks) to the regime. This unavoidable choice allows lieutenants to build up their own power bases, planting the seeds of various forms of authoritarian instability. The model first predicted that changes in the frequency and severity of exogenous threats can have a profound impact on political stability. Contrary to research on the tradeoff between competence and loyalty, the model shows that when threats to the regime are existential and purges are options, the leader will always prefer to employ a competent lieutenant. Moreover, even without any institutional guarantees, it is found that authoritarian regimes can be quite stable if both the leader and the lieutenant need each other for their unique skills in the face of major challenges. However, in accordance to existing literature, credible institutions to ensure the welfare of ousted officials indeed lower the chance of internal conflict.

Since the world financial crisis in mid-2008, public debt has increased rapidly in many countries. In order to interpret the changes, professor Marco Battaglini suggested that a political economy theory of public debt is needed, and explained the key ideas, its implications for growth and policy lessons. In specific, he pointed out that in Barro(1979)’s theory of public debt, the government has a tax smoothing goal by using budget surpluses and deficits as a buffer. However, in the absence ofad hoclimits on government bond holdings, the government wants to self insure by gradually acquires sufficient bond holdings to finance spending out of interest earnings. To establish a political system to manage public finance in a dynamic environment, professor Marco Battaglini proposed a dynamic general equilibrium model of the economy with legislative bargaining and imperfect smoothing. Two important implications are discussed. First, combining tax smoothing with political distortions, the model provides a framework to predict debt dynamics. Second, the model provides insights on quality of public expenditure, which is called the shrinking government effect. At the end, professor Marco Battaglini discussed the fiscal rules as an important remedy to control public debt.

After the presentations, speakers and participants actively exchanged their views on related theoretical topics. Professor Minquan Liu pointed out that domestic revolution led to the collapse of political system in European and China’s histories. Professor Slantchev replied that internal shocks to political system cannot be explained and forecasted with current models. Professor Bateman from Juraj Dobrila University of Pula and professor Battaglini discussed on the irrational issue of politicians on cutting public debt.