Regulating finance1997

In this study, Arvid Lukauskas explores why governments tightly regulate their country's financial system and why they choose to liberalize it. Lukauskas contends that public officials provide the dynamic behind the evolution of financial regulation as they seek to retain power and generate public revenue in an environment in which the incentives to control or liberalize the financial system are structured by a country's political institutions. Using a study of the evolution of financial policy in Spain - a country that transformed its financial system into a mostly market-based system after years of heavy state intervention while undergoing a transformation from a dictatorship to a democracy - Lukauskas explores the effect of a changing political system on the fate of financial reform. He finds that leaders in Spain undertook financial liberalization, despite opposition from powerful groups, because democratization gave Spanish leaders a strong incentive to improve economic performance through financial reform in order to compete for votes. Regulating Finance will be of interest to political scientists and economists interested in studying financial markets and the effects of regime change, including democratization, on economic reform.