Democracy and policy stability
نویسندگان
چکیده
Available online 23 October 2015 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 intertemporal 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. © 2015 Elsevier Inc. All rights reserved. JEL classification: D72 P16 O23 O24
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