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? 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 ( )

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 Selection How 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=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

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 GDP  cgexp Central Government Revenues  cgrev Government deficit  dft Social security and welfare spending  ssw Systematic bias recognized by the author  Variable for federal state  federal

Data: Other Covariates Level of development per year per capita  lyp Opennes  trade %pop between 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 independence o Imposing linearity o 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

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)