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CONSTITUTIONAL RULES AND FISCAL POLICY OUTCOMES

CONSTITUTIONAL RULES AND FISCAL POLICY OUTCOMES. By Torsten Persson and Guido Tabellini A short discussion by Chiara Buzzacchi. How do electoral rules and forms of government influence fiscal policy?.

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CONSTITUTIONAL RULES AND FISCAL POLICY OUTCOMES

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  1. CONSTITUTIONAL RULES AND FISCAL POLICY OUTCOMES ByTorstenPersson and Guido Tabellini A short discussion by Chiara Buzzacchi

  2. How do electoralrules and formsofgovernmentinfluence fiscal policy? • Estimate the effect of electoral rules and forms of government on fiscal policiy outcome • The question till now was: how electoral rules influence the composition of government?

  3. Focus Analyze the effect of electoral rules and forms of government on the size and composition of government spending. • 80 democracies (1990s) • 60 democracies (1960-1998)

  4. Main perplexities • Data (focusing on collection of variables) • Empirical Strategy mainly shared • Size of Government with the authors • Composition of Government • Conclusion

  5. 1) Data: Sample SelectionHow to define democracy? • Gastilindex 1-7 (low value, betterdemocracy) • 1 to 5 included[generousdefinition] • BUT: good and bad democracies (1-3.5 / 3.5-5) • Ageofdemocracyisalsocontrolled

  6. Data: Constitutional Rules • Electoral rules (dummy and binary) • Maj=1  countries exclusively relying on plurality rule. • Maj=0  mixed/PR electoral systems proportional • Regimes type (dummy ) • Pres=1the chief is not accountable to the legislature trough a vote of confidence • Pres=0  parlamentary • Dummy as a dichotomy VS Continuum variables • Some formal presidential are considered parliamentary

  7. History Originofcurrentconstitution (dummy) • Con20 • Con2150 • Con 5180 Stratification, more comprensible

  8. Variation in constitutionalrules…. • Cultural and geographic variables • Lat01 (distance from equator) ? • Engfranc (% pop english speaking) ? • Eurfranc (%pop european language) ? • Avelf (ethno-linguistic fractionalization) • Lpop (population size) Correlation varies with estimation method

  9. Data: Fiscal Policy Outcome • The sizeofgovernmentismeasuredby the rationofcentralgovernmentspendingexpressedas % of GDPcgexp • CentralGovernmentRevenues cgrev • Government deficit  dft • Social security and welfare spending  ssw Systematicbiasrecognized by the author • Variableforfederal statefederal

  10. Data: Other Covariates • Level of development per year per capita  lyp • Opennes trade • %pop between 15-64 years prop1564 • % pop above 65 prop65

  11. To control for non observable influence • OECD, dummy • If OECD=0  africa, asiae, laam • englis, spanish-portoguese, other colonial origin 3 binary 0,1  col_uka, col_espa, col_otha

  12. Data: Preliminary Look  More tricky than it seems: causal inference about the effect of constitutions on policy outcomes requires precise identifying assumptions and statistical methods

  13. Data: Preliminary Look • Overallgovernmentsize and welfare-state spending: muchsmaller in presidentialcountries and smaller in proportionalcountries • Maj and Pres tendtobelesseconomicallyadvanced, worsedemocraticinstitution, younger pop • Presidentialregimes are present in more closedeconomies and youngerdemocracies • Presidential are more present in the Americas

  14. 2) Empirical Strategy • OLS • We can divide our empirical model into two parts:

  15. 2) Empirical Strategy • OLS: imposes Recursivity and linearity • Relax condition independence with Heckman correction and instrumental variable (to avoid BIAS on OLS) • Relax linearity and rely on the conditional-independence assumption Relax linearity and estimate the effect with propensity score which is a NON PARAMETRIC MATCHING but still relying on conditional independence

  16. 3) Size of Government • The thory reviewed in the introduction predicts that presidential regimes cause smaller governments. IS THIS CONSISTENT? • (method as before)

  17. Testing importance of democracy age: dummy before/after 1959

  18. Summing up: • Imposingindependence • Imposinglinearity • The negative constitutionaleffectsofpresidentialregimes and majoritarianelections are large and robust • Pres and Maj cause smallergovernment • Relaxingconditionalindependance stillrobust • Relaxinglinearity resultsstillhold

  19. 4) Composition of Government

  20. 4) Composition of Government • Do constitutional effect extend to other aspect of fiscal policy? • Do Majoritarian electoral rules and presidential forms of government cut welfare-state spending? • Majoritarian DO! (2%-3%) • The effect is stronger in the older and better democracy

  21. Findings • Electoral rule exerts a strong influence on fiscal policy • Majoritarian lead to smaller government and smaller welfare programs than proportional elections • Presidential democracies are associated with smaller government than parliamentary democracies • In case of welfare spending selection bias seems to be a quite severe problem (relaxing conditional independence)

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