1. Constitutional Political Economy – Conceptual Foundations, Recent Trends, Possible Developments by Stefan Voigt University of Kassel and ICER, Torino prepared for a Lecture at the European School on New Institutional Economics Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

2. 1.Introduction Traditional economic analysis: choice within rules Constitutional Economics: choice of rules Constitution := any basic rule set; here: constitution of the state Normative vs. positive constitutional economics Positive constitutional economics interested in (1)(economic) effects of alternative constitutional rules; (2)emergence and modification of constitutional rules. Over the last ten years, substantial improvement in “P1”, some improvement in “P2”. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

3. Procedure: 1. Introduction 2. Conceptual Foundations 3.Recent Trends in Positive Constitutional Economics 4.Possible Future Developments Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

4. 2. Conceptual Foundations 2.1 The Research Program of Constitutional Economics The Normative Branch Buchanan (1987): contractarian approach justificatory; legitimating link between individual and the state. Pareto-criterion applied to collectivities Criterion not applied to outcomes but to constitutional rules Criterion not applied by omniscient scientist but by the concerned individuals Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

5. The Positive Branch  Economic effects of constitutional rules: (1) Fiscal policies Government size Composition of government spending Budget deficit (2) Rent extraction Degree of Corruption (In)effectiveness of Government Services (3) Income and Growth Labor productivity Total factor productivity. (based on Persson and Tabellini 2003, 35)  Constitutional Rules as Explananda Factors that bring constitutional rules about and cause constitutional change Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

6. 2.2Concepts of the Constitution Constitution as -a Social Contract -an Incomplete Contract -a Principal-Agent Relationship -a Precommitment-Device -a result of social evolution -a Bundle of Conventions Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

7. 2.3Tools of Constitutional Economics Comparative Institutional Analysis Laboratory Experiments Econometric Analysis Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

8. 2.4Constitutional Political Economy and the New Institutional Economics NIE with very similar questions: (1) (economic) effects of alternative institutions and (2) determinants of institutional change. NIE with very similar tools NIE the more inclusive program CPE could learn from NIE by taking into account that informal institutions can be important restrictions in implementing constitutional rules. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

9. 3. Positive Constitutional Economics 3.1An overview over the various aspects analyzed: (1) Democracy vs. Autocracy (2) Individual Rights (3) Electoral Rules (4) Presidential vs. Parliamentary Regimes (5) Bicameralism (6) The Judiciary (7) Federalism (8) Direct Democracy (9) Procedural Rules /Amendment Rules  Impossible to review entire literature here; instead: focus on (4) and (6) Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

10. 3.2Electoral Rules Duverger (1954): first-past-the-post or majority rule (MR) leads to two-party systems Austen-Smith (2000): number of parties in parliament/government higher under proportional representation (PR) than under MR  higher budgets, higher taxes Lizzeri/Persico (2001): incentives to provide (i) genuine public goods and (ii) pork-barrel projects different under MR than under PR?  targeting, i.e. provision of pork barrel goods makes more sense under MR  expect to see more under MR than under PR Persson/Tabellini (2000, ch.9): parties under MR with incentive to focus on swing states and promise specifically targeted goods Additional aspects of electoral systems: (i) district size and (ii) ballot structure; Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

11. Persson/Tabellini (2003) find a number of (statistically and economically) significant effects: - Government expenditures some 3% of GDP lower in MR than in PR - Welfare state expenditures some 2 to 3% lower in MR than in PR - Budget deficit some 1 to 2% of GDP lower in MR than in PR - Higher proportion of individually elected candidates leads to lower levels of perceived corruption - Countries with smaller electoral districts with more corruption - Higher proportion of individually elected candidates leads to higher output per worker - Countries with smaller electoral districts tend to have lower output per worker. Yet, Persson (2005) finds that countries that switch from MR to PR tend to have a higher likelihood of implementing structural policies that are conducive to economic growth. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

12. Until now, electoral systems given; Now: endogenize: Boix (1999): under what circumstances did incumbent parties change the electoral system? Start from MR; incumbents interested in their own parliamentary representation. - If new parties perceived as weak: no change - If new parties perceived as strong: change to PR.  For 22 systems analyzed from 1875 until 1990 broadly confirmed Ticchi and Vindigni (2003): choice between majoritarian and consensual systems determined by ex ante degree of income inequality: if it is relatively high, majoritarian constitutions more likely, if it is relatively low, consensual constitutions more likely. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

13. Under what circumstances does elite extend the franchise? Acemoglu and Robinson (2000): if disenfranchised credibly threaten revolution Lizzeri and Persico (2004): narrow franchise can lead to provision of pork barrel goods from which only a minority of the elite profits; extension of the franchise can lead to the provision of more general public goods from which the majority of the elite profits  evidence is 19 th century Britain as case study. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

14. 3.3 The Judiciary The Judiciary as a means for government to credibly commit to its own promises, e.g. regarding private property rights? But if government strong enough to create judiciary, also strong enough to abolish, to ignore its decisions etc.  important to distinguish between de jure and de facto independence of the judiciary. Feld and Voigt (2003, 2006): o de jure JI with no impact on economic growth o de facto JI positively influences real GDP per capita growth in sample of 73 countries. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

15. What do we know about determinants of de facto JI? (i)Hayo/Voigt (2003): de jure JI single most important explanatory variable (ii)And: presidential systems less likely to realize high degrees BUT: high degrees of de facto JI potentially dangerous: judges with incentives to remain uninformed, became lazy, decide on ideological basis etc. Questions: (i) judicial accountability competing with JI? (ii) effects of judicial accountability on economic outcomes? Voigt (2005): (i)no, can be complementary; (ii) proxies used for JA highly significant for explaining variation in income levels. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

16. 3.4 Summing up Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818 ExogenousEndogenousTh. Emp. Democracy vs. Autocracy Individual Rights Electoral Rules Presidential vs. Parliamentary Regimes Bicameralism The Judiciary Federalism Direct Democracy Procedural Rules/ Amendment Rules

17. 4.Possible Future Developments The Behavioral Model The insights of behavioral law and economics potentially relevant How to Measure Institutions? Glaeser et al. (2004) with fundamental attack on NIE: empirical work has not been measuring institutions, but policies; Measures often used (like the International Country Risk Guide, World Bank Governance Indicators, Polity IV) would neither measure policy constraints nor would they be stable; subjectivity additional problem Problem well taken, yet: if (formal) institutions can only be expected to have beneficial effects if they are factually implemented, some kind of de facto measures needed; it is hard to they could entirely abstain from taking outcomes into account. Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818

18. This is it Thank you for your attention Prof. Dr. Stefan Voigt Allgemeine Wirtschaftspolitik 34109 Kassel Nora-Platiel-Str. 4 Tel. +49-561-3089 Fax. +49-561-2818