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CONSTITUTIONAL RULES AND FISCAL POLICY OUTCOMES
By Torsten Persson and
Guido Tabellini
A short discussionby Chiara Buzzacchi
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How do electoral rules and forms of government influence 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?
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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)
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Main perplexities
• Data (focusing on collection of variables)• Empirical Strategy mainly shared
• Size of Government with the authors
• Composition of Government• Conclusion
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1) Data: Sample SelectionHow to define democracy?
• Gastil index 1-7 (low value, better democracy)
• 1 to 5 included [generous definition]
• BUT: good and bad democracies (1-3.5 / 3.5-5)
• Age of democracy is also controlled
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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=1the 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
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History
Origin of current constitution (dummy)• Con20• Con2150• Con 5180
Stratification, more comprensible
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Variation in constitutional rules….
• 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
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Data: Fiscal Policy Outcome
• The size of government is measured by the ration of central government spending expressed as % of GDPcgexp
• Central Government Revenues cgrev• Government deficit dft• Social security and welfare spending sswSystematic bias recognized by the author
• Variable for federal statefederal
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Data: Other Covariates
• Level of development per year per capita lyp
• Opennes trade• %pop between 15-64 years prop1564• % pop above 65 prop65
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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
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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
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Data: Preliminary Look
• Overall government size and welfare-state spending: much smaller in presidential countries and smaller in proportional countries
• Maj and Pres tend to be less economically advanced, worse democratic institution, younger pop
• Presidential regimes are present in more closed economies and younger democracies
• Presidential are more present in the Americas
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2) Empirical Strategy
• OLS• We can divide our empirical model into two
parts:
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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
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3) Size of Government
• The thory reviewed in the introduction predicts that presidential regimes cause smaller governments. IS THIS CONSISTENT?
• (method as before)
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Testing importance of democracy age: dummy before/after 1959
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• Summing up:o Imposing independenceo Imposing linearityo The negative constitutional effects of presidential
regimes and majoritarian elections are large and robust
o Pres and Maj cause smaller government
• Relaxing conditional independance still robust
• Relaxing linearity results still hold
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4) Composition of Government
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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
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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)