Political frictions and public policy outcomes

Article English OPEN
Grechyna, Daryna (2016)
  • Publisher: Elsevier
  • Journal: Journal of Comparative Economics, volume 44, issue 3, pages 484-495 (issn: 0147-5967)
  • Related identifiers: doi: 10.1016/j.jce.2016.06.001
  • Subject: Economics and Econometrics

We study the role of political frictions in public policy outcomes. We propose a simple model of fiscal policy that combines a lack of commitment by the government, political turnover, and another political friction that can be interpreted either as political polarization or as public rent-seeking. We show that political turnover increases public debt levels, while political polarization or public rent-seeking leads to higher public spending. We evaluate the importance of different political frictions for fiscal policy outcomes using a sample of twenty developed countries. We find that the data on political instability combined with the data on public rent-seeking explain 25% of the variation in public debt levels.
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