Political institutions and sovereign borrowing: evidence from nineteenth-century Argentina

I study the relationship between political institutions and sovereign borrowing when constitutional constraints are systematically chosen to obtain better credit conditions. I argue that the impact of institutional constraints on country risk premia depends on the government’s concern with the country’s creditworthiness and its “willingness to repay”; two variables that are hardly observable. To properly evaluate the relationship between political institutions and sovereign borrowing, I focus on the link between institutional constraints and the risk premia of Argentine bonds between 1822 and 1913. Specifically, I analyze whether a “structural break” in the government’s cost of borrowing time-series exists. I use the Perron-Volesang test for structural change with unknown break dates. The statistical analysis indicates that the adoption of institutional constraints led to significant improvements in borrowing terms: the series has a single structural change; and the distinctive break point is associated with the country’s adoption of constitutional checks and balances. Time-series regressions and instrumental variables (IV) estimation reinforce these findings.     

Political institutions and academic freedom: evidence from across the world

Public Choice - There is scant systematic empirical evidence on what explains variation in academic freedom. Making use of a new indicator and panel data covering 64 countries 1960–2017, we...     

The rise of the modern welfare state, ideology, institutions and income security: analysis and evidence

In the 25-year period between 1960 and 1985, there was a great expansion of welfare state programs throughout the West. The fraction of GDP accounted for by social expenditures doubled in much of Europe and grew by 40–50% in many other OECD nations. After 1985, growth in social insurance programs slowed relative to other parts of the economy. This paper explores the extent to which institutions and ideological shifts may have accounted for the period of rapid growth, for differences in the extent of that growth, and for the subsequent reduction in the growth rates of social insurance programs.     

Political institutions and debt crises

This paper shows that political institutions matter in explaining defaults on external and domestic debt obligations. We explore a large number of political and macroeconomic variables using a non-parametric technique to predict safety from default. The advantage of this technique is that it is able to identify patterns in the data that are not captured in standard probit analysis. We find that political factors matter, and do so in different ways for democratic and non-democratic regimes, and for domestic and external debt. In democracies, a parliamentary system or sufficient checks and balances almost guarantee the absence of default on external debt when economic fundamentals or liquidity are sufficiently strong. In dictatorships, high stability and tenure play a similar role for default on domestic debt.     

Political competition and politician quality: evidence from Italian municipalities

We use data from Italian local level governments for the years 1985?C2008 to investigate whether political competition affects the quality of politicians, as measured by some ex-ante characteristics such as educational level and type of job held. We handle endogeneity problems through an instrumental variable approach using as an instrument for political competition a variable taking into account whether the previous Municipal Council survived until the end of its legislative term. Two Stage Least Square estimates support the view that political competition positively affects politician quality. Results are robust to different measures of political competition and to different estimation strategies.     

The institutions of economic freedom and entrepreneurship: evidence from panel data

This paper provides new evidence on the determinants of entrepreneurship across countries. The paper investigates the relationship between the institutional setting, in terms of economic freedom, and entrepreneurship, measured by self-employment, in a panel data setting covering 23 OECD countries for the period 1972–2002. The measure of economic freedom includes five aspects: size of government, legal structure and security of property rights, access to sound money, freedom to trade internationally, and the regulation of credit, labour and business. The empirical findings show that a smaller government sector, better legal structure and security of property rights, as well as less regulation of credit, labour and business tend to increase entrepreneurship.     

Covering the private parts: the (re-)nationalisation of housing finance

Abstract

Is state power or control over financial markets really withering? Most narratives/analyses of financialisation see a growing penetration of private capital into everyday life that runs parallel to the increasing power of private financial capital over state policy. Yet housing finance – mortgages – sits at the centre of banking, and banking sits at the centre of the financial system. Large-scale mortgage markets only function where the state wraps around the banking system to remove maturity risks and to limit excessive credit creation. Partial deregulation in the 1990s and 2000s created a crisis that states resolved by re-nationalising much of mortgage finance. This renewed and overwhelming state presence suggests that financialisation is a state-driven story, and that private financial power, stability and instruments require state support above and beyond contract enforcement and prudential regulation.     

Political institutions and economic growth reconsidered

The debate on the relationship between institutions and economic development is discussed, focusing on two illustrations, i.e., the impact of democracy and political instability on economic growth. Various pitfalls of existing research are identified, like sensitivity of the outcomes to model specification, sample heterogeneity, measurement of political variables, and the treatment of the time dimension.     

Political competition and economic performance: evidence from the Italian regions

We verify the predictions of the theoretical literature on the relationship between political competition and economic performance, holding that, when the predominance of an ideological dimension creates a political rent, the party exploiting it selects lower quality politicians whose policy choices worsen economic performance. We examine the sample of 15 Italian Regions from 1980 to 2002 that exploits the institutional reforms of 1995 as an exogenous shock to pre-existing rents. We find evidence that higher political competition improves economic performance, through the choice of more efficiency-oriented policies.     

Political institutions and Central Bank independence: A cross-country analysis

Using three quantitative measures of Central Bank independence, we apply OLS and TSLS regression methods to investigate the possible correlation between political liberty, political instability and central bank independence. For a sample of Western democracies and highly democratic developing countries we show that Cukierman's legal independence index is positively correlated with political freedom and regime political stability. It is negatively correlated with party political stability. For a sample of developing countries that excludes dictatorships we show that a special index of legal central bank autonomy is positively associated with political freedom and political stability. Finally, we observe that, for the same sample of nations, the turnover index of central bank independence is not sensitive to our political variables.     

The effect of trade openness on economic growth: Some empirical evidence from emerging market economies

This study investigates the impact of trade openness on economic growth in a panel of five emerging market economies, covering the data period from 1993 to 2016. Based on the panel estimation methods, the empirical results confirm the long‐run relationship among trade openness, economic growth, financial development, inflation, labour force, and technology, whereas the findings of long‐run elasticities show that trade openness has a positive considerable impact on economic growth. Furthermore, the heterogeneous panel non‐causality tests indicate the presence of a bidirectional causality between economic growth and inflation and a unidirectional causality that runs from economic growth to trade openness and economic growth to financial development in the short run. Finally, the findings suggested that trade openness plays a substantial role in promoting economic growth while also promoting economic development in these five emerging market economies.     

Democracy and the quality of economic institutions: theory and evidence

Public Choice - We present a simple model, illustrating how democracy may improve the quality of the economic institutions. The model further suggests that institutional quality varies more across...     

On the political and fiscal determinants of income redistribution under federalism and democracy: evidence from Germany

Several recent studies suggest that transfers from central to regional governments are motivated by political considerations. In this paper we examine if this is also the case for transfers from regional to central governments in the context of the German fiscal equalization system. We examine the factors that contribute to differences in tax revenues across German states. The evidence indicates that both fiscal incentives and political factors can explain these differences, although in Germany the former are more important. Moreover, accounting for fiscal institutions has important consequences for the empirical assessment of political influences on taxation. Overall we find that the political affiliation of the state governor is an important factor in explaining differences in state tax revenues. Thus, the right-wing party (CDU/CSU) is effective in relaxing the tax burden at the state level. In contrast, partisan alignment between the state government and the federal government loses its importance once fiscal conditions enter the empirical model.     

Projecting retirement income of future retirees with panel data: results from the modeling income in the near-term (MINT) project

Cross-sectional data capture only a point in time and miss individual changes in earnings, labor force participation, marriage, fertility, and health. Because panel data follow individuals over time, they do not have this problem. The problems or concerns with cross-sectional data may be compounded when these data are used to make projections. Iams and Sandell (1997) found that using panel data on earnings explained much more variation in future earnings than using cross-sectional survey data. Panel data are also needed to estimate Social Security benefits, especially for women. Because of auxiliary benefits paid to spouses, ex-spouses, and widow(er)s of entitled workers, an individual's Social Security retirement benefit depends not only on his or her earnings history, but also on his or her marital history and the earnings histories of current and previous spouses. When we compare projected unreduced Social Security benefits with what they would be if we didn't have marital history or earnings history data for men, we find that: Benefits computed using only earnings histories are not very different from benefits computed using both earnings and marital histories. Benefits computed using only current earnings and marital histories underestimate benefits for those in earlier birth cohorts and overestimate benefits for those in the most recent birth cohort. Benefits computed without either marital or earnings histories underestimate benefits for all birth cohorts, but by much more for earlier cohorts than for more recent cohorts. For women we find that benefits computed without marital or earnings histories underestimate benefits in all birth cohorts. The largest differences are for women in earlier birth cohorts. Using both marital and earnings histories to estimate unreduced Social Security benefits, we find that men are projected to continue receiving higher benefits than women, although the gap is expected to narrow as the baby boomers near retirement age. We also look at the composition of projected total income available at retirement for those with incomes in the 45th-55th percentiles of the income distribution and find that: Total income at retirement is projected to be larger for men than for women in every birth cohort. Women are projected to receive the largest share of their total income from Social Security benefits. Men are projected to receive the largest share of their total income from other income sources, although this share declines as the baby boomers near retirement age.     

Opening late-industrializing economies: lessons from Argentina and Australia

Economic liberalization has met substantial resistance in polities as different as Argentina and Australia. For these late industrializing nations the verb protect came to mean much more than just granting favors to industrialists. It also involved reducing the risks previously taken by societies engaged in economic modernization. After histories of vulnerability to external forces, they deliberately fostered collusion between the public and private sectors in an attempt to achieve benefits at the lowest cost for participants from all social classes. Consequently, economic liberalization now demands more than revisions in economic logic and the attitudes of industrialists, as recent attempts to reform economic strategy in both nations indicate. For three generations who were nurtured on these rent seeking notions of political economy, it requires a fundamental transformation of popular attitudes about the creation and distribution of private and public goods.This article is a substantially revised version of a paper I presented at the 46th International Congress of Americanists, Amsterdam, The Netherlands, July 4–8, 1988. I am especially grateful to Carlos Waisman who invited me to write the paper, to an anonymous reader for this journal who suggested many useful revisions, and to the journal's editor, William Ascher, for his leadership.     

(De)Centralization and voter turnout: theory and evidence from German municipalities

A vast academic literature illustrates that voter turnout is affected by the institutional design of elections (e.g., compulsory voting, electoral system, postal or Sunday voting). In this article, we exploit a simple Downsian theoretical framework to argue that the institutional framework of public good provision—and, in particular, the distribution of political and administrative competences across government levels—likewise affects voters’ turnout decisions by influencing the expected net benefit of voting. Empirically, we exploit the institutional variation across German municipalities to test this proposition, and find supportive evidence.     

Effective child support policy for low‐income families: evidence from street level research

Since 1984, policymakers have increasingly turned their attention to reforming the child support system. Despite this attention, the child support system has often failed to increase the economic security of single‐parent families. This article analyzes findings from recent qualitative studies to explain why the child support system breaks down for so many low‐income families. This research suggests that parents often prefer informal arrangements of support and do not comply with child support regulations they perceive to be unfair, counterproductive, or punitive. It also suggests that there is a mismatch between the premises and goals of child support policy and what low‐income parents desire from the system. This mismatch impedes low‐income parents' willingness and ability to comply with existing policy, even when they wish to do so, and will make reform difficult. © 2001 by the Association for Public Policy Analysis and Management.