Political Structure and Economic Policy: The Institutional Determinants of Policy Outcomes

Abstract

The institutions that define the sequence of delegations that democracy entails have systematic effects on public policy. Democratic states that systematically provide public goods are typically seen as having three characteristics: they are decisive; they have the administrative capacity to implement whatever decisions they make; and they are only responsive to broad public interests. We investigate the two primary ways in which democratic states are said to fail in this regard: through an inability to decide or to pursue a consistent policy; and through the excessive influence of interest groups, which reduces public policy to an allocation of pork and a chase after rents. The first is a problem of state indecisiveness, the latter a defect in the nature of accountability, with too much responsiveness to special interests and too little responsiveness to general interests.

More specifically, we argue that political actors' incentives are significantly influenced by the rules regulating electoral competition, while their capabilities are determined jointly by their electoral success and the constitutionally stipulated powers of the various governmental posts that are at stake (either directly or indirectly) in elections. Different combinations of capabilities and incentives--Are governmental powers separated, with different actors controlling different institutional veto points? Are governmental powers unified in a single post or body, with a single actor controlling that post or body?--systematically affect the degree to which the state can act decisively and the degree to which it is responsive to broad public as opposed to narrow special interests.

Keywords: Economic Policy, institutions, policy outcomes, incentives, capabilities, veto players, public goods