Quantifying the Impact of Political Frictions on Public Policy

Grechyna, Daryna (2015): Quantifying the Impact of Political Frictions on Public Policy.

Abstract

We study the role of political frictions in fiscal 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 which 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 lead 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 presence of political turnover is crucial for accounting for the variation in public debt levels and that public corruption measures outperform the political polarization measures in explaining the variation in fiscal variables.

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal policy; political turnover; political polarization; public rent-seeking.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P26 - Political Economy ; Property Rights

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