CONSTITUTIONAL RULES AND FISCAL POLICY OUTCOMES

By Torsten Persson and

Guido Tabellini

A short discussionby Chiara Buzzacchi

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?

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)

Main perplexities

• Data (focusing on collection of variables)• Empirical Strategy mainly shared

• Size of Government with the authors

• Composition of Government• Conclusion

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

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

History

Origin of current constitution (dummy)• Con20• Con2150• Con 5180

Stratification, more comprensible

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

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

Data: Other Covariates

• Level of development per year per capita lyp

• Opennes trade• %pop between 15-64 years prop1564• % pop above 65 prop65

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

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

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

2) Empirical Strategy

• OLS• We can divide our empirical model into two

parts:

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

3) Size of Government

• The thory reviewed in the introduction predicts that presidential regimes cause smaller governments. IS THIS CONSISTENT?

• (method as before)

Testing importance of democracy age: dummy before/after 1959

• 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

4) Composition of Government

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

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)