Do Political Institutions Shape Economic Policy?

Torsten Persson

NBER Working Paper No. 8214
Issued in April 2001
NBER Program(s):   PE

Do political institutions shape economic policy? I argue that this question should naturally appeal to economists. Moreover, the answer is in the affirmative, both in theory and in practice. In particular, recent theoretical work predicts systematic eects of electoral rules and political regimes on the size and composition of government spending. And results from ongoing empirical work indicate that such eect are indeed present in international panel data. Some empirical results are consistent with theoretical predictions: presidential regimes have smaller governments and countries with majoritarian elections have smaller welfare-state programs and less corruption. Other results present puzzles for future research: the adjustment to economic events is clearly institution-dependent, as is the timing and nature of the electoral cycle.

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Published: Persson, Torsten. "Do Political Institutions Shape Economic Policy," Econometrica, 2002, v70(3,May), 883-905.

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