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Volatility and Political Institutions: Theory and Application to Economic Growth

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  • Besley, Tim
  • Mueller, Hannes

Abstract

This paper develops a model where an institutional constraint limits incumbent discretion to prevent adverse policy outcomes. We show that, in this framework, executive constraints have an impact on the mean and variance of policy. This allows us to interpret the empirical observation that growth volatility is lower in countries with strong executive constraints. We ?t the model to growth data and use our estimates to describe the heterogeneity in performance of weak and strong executive constraints across countries. This is used to illustrate the heterogeneous output response to the adoption of strong executive constraints. We then use the fitted values to consider the benefits of strong executive constraints in income terms.

Suggested Citation

  • Besley, Tim & Mueller, Hannes, 2015. "Volatility and Political Institutions: Theory and Application to Economic Growth," CEPR Discussion Papers 10374, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10374
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    References listed on IDEAS

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    Cited by:

    1. Timothy Besley & Hannes Mueller, 2018. "Institutions, Volatility, and Investment," Journal of the European Economic Association, European Economic Association, vol. 16(3), pages 604-649.
    2. Braunfels, Elias, 2016. "Further Unbundling Institutions," Discussion Paper Series in Economics 13/2016, Norwegian School of Economics, Department of Economics.

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    More about this item

    Keywords

    Executive constraints; Growth; Robust control;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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