Volatility and Political Institutions: Theory and Application to Economic Growth

54 Pages Posted: 2 Feb 2015

See all articles by Timothy J. Besley

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Hannes Felix Mueller

Instituto de Análisis Económic (IAE) Barcelona

Date Written: January 1, 2015

Abstract

This paper develops a model where an institutional constraint limits incumbent discretion to prevent adverse policy outcomes. We show that, in this framework, executive constraints have an impact on the mean and variance of policy. This allows us to interpret the empirical observation that growth volatility is lower in countries with strong executive constraints. We fit the model to growth data and use our estimates to describe the heterogeneity in performance of weak and strong executive constraints across countries. This is used to illustrate the heterogeneous output response to the adoption of strong executive constraints. We then use the fitted values to consider the benefits of strong executive constraints in income terms.

Keywords: executive constraints, growth, robust control

JEL Classification: O43, P16

Suggested Citation

Besley, Timothy J. and Mueller, Hannes Felix, Volatility and Political Institutions: Theory and Application to Economic Growth (January 1, 2015). CEPR Discussion Paper No. DP10374, Available at SSRN: https://ssrn.com/abstract=2559315

Timothy J. Besley (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6702 (Phone)
+44 20 7955 6951 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hannes Felix Mueller

Instituto de Análisis Económic (IAE) Barcelona ( email )

Barcelona, Bellaterra 08193
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
460
PlumX Metrics