Under what conditions do incumbents succeed in curtailing programs benefitting large constituencies of low-income voters? We undertake a within-country comparison of four highly popular cash transfer policies in Brazil in the 2010s. Our contribution is threefold. First, we refine the concept of policy drift by distinguishing executive-driven drift (resulting from incumbents’ decisions) from opposition-driven drift (resulting from the veto power of welfare opponents). The latter results from the dispersion of authority; the former is favored by its concentration. Second, we show that executive-driven drift is a successful strategy when programs give incumbents discretion over entitlement and benefits, meaning authority to make unilateral decisions. Third, we argue that executive-driven drift explains retrenchment outcomes better than partisan orientation, size of program’s clientele, and fiscal impacts. Incumbents were more successful in their retrenchment initiatives when concentration of authority in the executive branch allowed them to bypass legislative and judicial veto points.

Prior to the financial crisis, mainstream monetary policy practice had become disconnected from money. We outline the basic rationale for this development using a simple model of money and credit in which we explore the conditions under which money matters directly for the conduct of policy. Then, using a DSGE model, we examine the circumstances under which money becomes more closely linked to inflation. We find that money matters when the variance of the supply of lending dominates productivity and the velocity of money demand. This is because amplifying the role of loans supply leads to an expansion in aggregate demand, via a compression of the external finance premium, which is inflationary. We consider a number of alternative monetary policy rules, and find that a rule which exploits the joint information from money and the external finance premium performs best.

The lack of fiscal discipline is a natural and pervasive implication of the perceived separation between the benefits from public spending and the taxes that individuals and interest groups receive and pay, respectively. The implication is that budget preparation, decision and execution must be constrained. The challenge is that the policymakers who need to be constrained are those who must decide the constraints. Two broad classes of solutions are possible: institutions that shape the budgetary process and quantitative rules that set limits. The mounting experience with both institutions and rules is disappointing, for reasons that are often complementary. Examining the reasons for this state of affairs, this article argues that institutions and rules ought to be combined and associated with advisory fiscal councils.

Fiscal discipline is as much needed as monetary discipline. Many countries have attempted to counter the deficit bias by adopting fiscal rules that typically set a limit to their annual budget deficits. The record is not satisfactory; rules are either too lax or too tight and then ignored. This article suggests that the solution is to adopt the approach followed by inflation targeting central banks, with great success. Independent and accountable Fiscal Policy Committees, given the task of achieving debt targets and the authority to decide - or recommend - annual deficits, will be free from the deficit bias. This will allow them to exercise discretion in the short run while delivering debt sustainability in the long run.