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Volatility and Political Institutions: Theory and Application to Economic Growth

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  • Besley, Timothy J.
  • Mueller, Hannes Felix

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, Timothy J. & Mueller, Hannes Felix, 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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    1. Edward Glaeser & Giacomo Ponzetto & Andrei Shleifer, 2007. "Why does democracy need education?," Journal of Economic Growth, Springer, vol. 12(2), pages 77-99, June.
    2. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    3. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 243-287.
    4. Charles F. Manski, 2011. "Choosing Treatment Policies Under Ambiguity," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 25-49, September.
    5. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
    6. Heitor Almeida & Daniel Ferreira, 2002. "Democracy and the Variability of Economic Performance," Economics and Politics, Wiley Blackwell, vol. 14(3), pages 225-257, November.
    7. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
    8. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 35-54, November.
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    Citations

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    Cited by:

    1. Braunfels, Elias, 2016. "Further Unbundling Institutions," Discussion Paper Series in Economics 13/2016, Norwegian School of Economics, Department of Economics.
    2. Besley, Timothy J. & Mueller, Hannes Felix, 2015. "Institutions, Volatility and Investment," CEPR Discussion Papers 10373, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    executive constraints; growth; robust control;

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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