Monday, April 1, 2013

The economic effects of Constitutions

Person and Tabellini came up with the following table to summarize many of the findings of their book "The economic effects of Constitutions" (2005).

A plus sign in a Theory column indicates that a constitutional reform, replacing the feature on the right  at the top of the column with the feature on the left will induce a greater degree or a higher level of the policy outcome for that row. And the opposite for a minus sign.

One of the central findings is the effect of electoral rules on fiscal policy. Interestingly enough, changing your country's political system from the proportional to a majoritarian one, improves fiscal policy. Specifically, and according to the data, it reduces Government spending by 5%, welfare spending by 2-3% of GDP and Budget deficit by 2% of GDP.

Another important conclusion that might be related to South European countries: "coalition governments are prone to a status quo bias,[...]. Hence, their reaction to adverse economic shocks is more likely to be inefficient than the response of single-party governments."

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