Political systems and distortions: An empirical study

This paper studies empirically why price distortions are more prevalent in some countries than in others. We find no significant difference between democracies and dictatorships, but frequent regime changes reduce distortions. Political systems (factional-subordinate) that encourage redistributive activities (RDA) tend to have more distortions. Allowing for different effects of RDA in democracies and dictatorships, there is a positive and significant effect of RDA on distortions in dictatorships. In democracies, “distortions-destroying” lobbying seems more important since no significant relation between RDA and distortions can be found.