Democracy and policy stability

Pushan Dutt and Ahmed Mobarak

International Review of Economics & Finance, 2016, vol. 42, issue C, 499-517

Abstract: We explain stable growth performance in democracies by characterizing political systems in terms of the distribution of political power across groups, and show when the qualities of policy alternatives are uncertain, greater democracy (decentralization of authority) leads to more stable policy choices. We empirically test this mechanism by creating measures of the inter-temporal variability in fiscal and trade policies. In an array of specifications (cross-sectional, panel with fixed-effects, matching models, instrumental variables, difference-in-difference), we show that policy choices are significantly more stable over time in democracies. This mechanism explains a large part of the negative link between democracy and output volatility.

Keywords: Democracy; Policy volatility; Output volatility (search for similar items in EconPapers)
JEL-codes: D72 O23 O24 P16 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056015001744
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:42:y:2016:i:c:p:499-517

DOI: 10.1016/j.iref.2015.10.024

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().