‘Political Institutions and Policy Outcomes: What Are the Stylized Facts?’

Source: RePEc


We investigate the effect of electoral rules and political regimes on fiscal policy outcomes in a panel of 61 democracies from 1960 and onwards. In presidential regimes, the size of government is smaller and less responsive to income shocks, compared to parliamentary regimes. Under majoritarian elections, social transfers are smaller and aggregate spending less responsive to to income shocks than under proportional elections. Institutions also shape electoral cycles; only in presidential regimes is fiscal adjustment delayed until after the elections, and only in proportional and parliamentary systems do social transfers expand around elections. Several of these empirical regularities are in line with recent theoretical work; others are still awaiting a theoretical explanation.

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Available from: Torsten Persson, Oct 17, 2014
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    • "In addition, we investigated the impact of party fragmentation models on fiscal behavior (Alesina and Perotti, 1994; Persson and Tabellini, 2001). We found that for a sample of Brazilian states the magnitude of financial liabilities registered as unpaid commitments was positively correlated with the number of relevant political parties in the legislature. "
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    ABSTRACT: This paper investigates the determinants of compliance with fiscal rules. Using information from 27 Brazilian state governments, the paper shows that the level of political competition and the degree of political autonomy of the fiscal watchdogs explain the extent of creative accounting in the Brazilian federation. Despite hard budget constraints imposed by the much-acclaimed Fiscal Responsibility Law, state governors retain the strategic ability to undertake fiscal window dressing in response to fiscal stress. As fiscal watchdogs are not immune to the influence of the legislature and state governor, however, this paper demonstrates that their level of independence and autonomy is associated with the degree of creative accounting. In addition, we show that political competition encourages non-compliance through various causal mechanisms. Building effective and autonomous institutions is a precondition for deterring fiscal misconduct but this solution is ultimately a by-product of a political equilibrium resulting from self-enforced behavior of politicians.
    Full-text · Article · Oct 2014 · International Political Science Review
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    • "Cox (1997)). On their side, economists have developed several models explaining policy and economic outcomes as the result of the contrasting incentives generated by the different electoral systems (for a survey, see Persson and Tabellini (2001)). This focus seems also to be justified on empirical grounds. "
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    ABSTRACT: We employ bootstrap methods (Efron (1979)) to test the effect of an important electoral reform implemented in Italy from 1993 to 2001, that moved the system for electing the Par-liament from purely proportional to plurality rule (for 75% of the seats). We do not find any effect on either the number of parties or the stability of governments (the two main objectives of the reform) that remained unchanged at their pre-reform level.
    Preview · Article · Feb 2011 · Economics Letters
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    • "In this article, we tested some political determinants of the budget deficit that can account for empirical regularities in the use of unpaid commitments. We replicated existing fragmentation models (Alesina and Perotti, 1994; Persson and Tabellini, 2001) on a sample of Brazilian states and confirmed the positive results: the magnitude of financial liabilities registered as unpaid commitments was positively correlated with the number of relevant political parties in the legislature. The results are in line with the mentioned literature, in the sense that the logic of the common-pool resource problem clearly applies here, that is, opportunistic politicians in a party will seek to maximize the electoral benefits from overspending and externalize the overall cost to all other parties. "
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    ABSTRACT: Creative accounting has been documented in OECD countries (Milesi-Ferreti 2003, Bernoth and Wolff 2008, Von Hagen and Wolff 2006). In this paper we investigate the extension of the use of creative accounting at the subnational level in Brazil. Despite the hard budget constraints imposed by the Fiscal Responsibility Law in 2000, the Brazilian state governors retain some strategically ability to undertake fiscal window-dressing as a response to fiscal stress. The Fiscal Responsibility Law mandated that state audit institutions (Tribunais de Contas) must audit the enforcement of the law by imposing procedural rules (reporting transparency, etc) that the Tribunal checks. On the basis of empirical exercises we reach two major conclusions. First, there is ample evidence of creative accounting in the states, which in itself represents indication that the influence of the audit institutions (Tribunais de Contas) is binding and that there are costs for breaching the law. Second, because the Tribunais de Contas are not immune to the influence legislature and state governor, there is evidence that the institutional quality of those institutions is associated with more creative accounting. More independent and active institutions constrain the use of creative accounting at the state level. In addition, political competition also matters for creative accounting. Specifically, we find evidence of the correlation between alternation of the elite in power (government turnover) and restos a pagar (unpaid commitments which are delayed to the subsequent fiscal year, whereby postponing their impact on the primary balance) as well as unpaid commitments and the quality of the Tribunais de Contas. The Achilles' heel of the Fiscal Responsibility Law in Brazil is therefore the quality of subnational audit institutions.
    Full-text · Article · Jan 2009
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