The Economic Effects of Constitutions

Abstract

The authors of The Economic Effects of Constitutions use econometric tools to study what they call the "missing link" between constitutional systems and economic policy; the book is an uncompromisingly empirical sequel to their previous theoretical analysis of economic policy. Taking recent theoretical work as a point of departure, they ask which theoretical findings are supported and which are contradicted by the facts. The results are based on comparisons of political institutions across countries or time, in a large sample of contemporary democracies. They find that presidential/parliamentary and majoritarian/proportional dichotomies influence several economic variables: presidential regimes induce smaller public sectors, and proportional elections lead to greater and less targeted government spending and larger budget deficits. Moreover, the details of the electoral system (such as district magnitude and ballot structure) influence corruption and structural policies toward economic growth.Persson and Tabellini's goal is to draw conclusions about the causal effects of constitutions on policy outcomes. But since constitutions are not randomly assigned to countries, how the constitutional system was selected in the first place must be taken into account. This raises challenging methodological problems, which are addressed in the book. The study is therefore important not only in its findings but also in establishing a methodology for empirical analysis in the field of comparative politics.

Constitutions and economic reforms in transition: an empirical study

“…The latter influence the economic sphere-the behavior of markets and economic outcomes. Although the relationship between constitutional rules and economic outcomes runs in both directions (market outcomes feed back into policy preferences), the concern in Persson and Tabellini's (2003) work, as well as in this article, is primarily the link from constitutional solutions to economic performance. Some empirical conclusions regarding the economic effects of constitutions are also available-e.g.…”

“…He claims that constitutions matter for economic performance to the extent that they promote accountability, stability, predictability, and commitment (protection against time-inconsistency and shortterm passions, as well as ''economic suicide'' prevention). Persson and Tabellini (2003), representing the political economics approach to constitutions, 13 take off from a stylized view of the democratic policy-making process to show how constitutional rules, influencing political outcomes, participate in the process of transforming citizens' preferences regarding policy into specific policy decisions. The latter influence the economic sphere-the behavior of markets and economic outcomes.…”

Stability and Growth Pact: issues and lessons from political economy

“…Political institutions such as voting rules, political systems, the tax system or budget rules can reduce or increase the deficit and debt bias and solve or worsen the time inconsistency problem (Mueller, 2003;Persson and Tabellini, 2002). From a normative perspective, most economists strive to find those fiscal rules that solve biases and time inconsistency problems in the most sensible manner by constraining government behaviour (Buchanan, 1985).…”

Between European integration and regional autonomy: the case of Italy from an economic perspective

“…We also tried to include other political variables in the equations, namely the existence of a centre-left or centre-right majority in parliament and the use of proportional or majoritarian electoral rules, as suggested by the literature on constitutional political economy (Persson & Tabellini, 2003). However, they not only proved insignificant, but also suffered from serious problems of multicollinearity with the other explanatory variables.…”