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Does direct democracy matter for fiscal policy volatility?

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  • Vicente Rios

    (No Affiliation)

Abstract

This study examines the relationship between direct democracy and fiscal policy volatility in a global sample of 131 countries during 1975-2018. The results show that direct democracy is an important factor when shaping fiscal policy volatility outcomes. The estimates reveal that a higher direct democracy potential decreases fiscal policy volatility. The observed negative link between direct democracy and policy volatility is robust to the inclusion in the analysis of different explanatory variables that may affect both direct democracy and fiscal volatility. Likewise, the findings do not depend the econometric specification, the identification of the discretionary component of fiscal policy or the impact of outliers. A closer look at different institutions reveals that the observed negative effect is due to the scope of bottom-up participatory procedures such as citizen initiatives rather than to top-down mechanisms like plebiscites or obligatory referendums.

Suggested Citation

  • Vicente Rios, 2020. "Does direct democracy matter for fiscal policy volatility?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2134-2142.
    • Handle: RePEc:ebl:ecbull:eb-19-01053
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    File URL: http://www.accessecon.com/Pubs/EB/2020/Volume40/EB-20-V40-I3-P186.pdf
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    References listed on IDEAS

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    1. Tsebelis, George, 1999. "Veto Players and Law Production in Parliamentary Democracies: An Empirical Analysis," American Political Science Review, Cambridge University Press, vol. 93(3), pages 591-608, September.
    2. Antonio Fatás & Ilian Mihov, 2013. "Policy Volatility, Institutions, and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 362-376, May.
    3. David Altman, 2017. "Erratum to: The Potential of Direct Democracy: A Global Measure (1900–2014)," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(3), pages 1229-1229, September.
    4. Luca Agnello & Ricardo M. Sousa, 2014. "The Determinants of the Volatility of Fiscal Policy Discretion," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 91-115, March.
    5. Dutt, Pushan & Mobarak, Ahmed Mushfiq, 2016. "Democracy and policy stability," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 499-517.
    6. David Altman, 2017. "The Potential of Direct Democracy: A Global Measure (1900–2014)," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(3), pages 1207-1227, September.
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    More about this item

    Keywords

    Direct Democracy; Fiscal Policy Volatility; Discretionary Component; Instruments;
    All these keywords.

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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