Is money where the fun ends? Material interests and individuals’ preference for direct democracy

Are people’s attitudes towards referendums as a decision-making procedure predominantly driven by their material self-interest, or do individuals also value direct democracy as such, regardless of the material payoffs associated with anticipated policy outcomes? To answer this question, we use a survey data set that offers information on respondents’ support for referendums as a procedure to decide on tax policy, their income levels, socio-economic characteristics, and, most importantly, their expectation about the majority’s support for higher taxes. We find that the support of low-income individuals for referendums increases substantially if they expect a clear population majority in favor of more redistribution. Conversely, individuals with a high income who expect a majority in favor of higher taxes do not reject referendums more strongly than individuals with an average income who share these expectations.     

The effects of mega-events on perceived corruption

In recent decades, the media have covered many cases of corruption related to the celebration of mega-events around the globe. In most of these cases, politicians and other high officials are involved. This paper analyses the effect of hosting mega-events on the level of perceived corruption in 34 OECD countries, during 1996–2017. Summer and Winter Olympic Games, FIFA World Cups, and Universal Expositions are considered. Results show that, when we take the year of the celebration of the event as the turning point, there is no robust evidence in favour of a positive impact on perceived corruption. However, when we take the election date of the host country as the threshold, the magnitude of the effect is lasting, reaching its maximum value 1–2 years before the celebration itself, and increasing the perceived level of corruption by about 4%.     

General or central government? Empirical evidence on political cycles in budget composition using new data for OECD countries

Previous studies used general government data to examine whether national governments’ electoral motives and ideology influenced budget composition in OECD countries. General government data includes, however, the state and local level. Using new data for general and central government over the period 1995–2016, I reexamine political cycles in budget composition. The results suggest that, both at the general and central government level, leftwing governments spent more on education and less on public services than rightwing governments. Defense expenditure was somewhat lower under leftwing than rightwing governments and in election years; especially in federal states. Effects of government ideology on the individual expenditure categories are larger at the central than general government level. Scholars need to re-examine results on ideology-induced effects that have been derived from general government data where central government data should have been used.     

Biases in fiscal multiplier estimates

The size of fiscal multipliers is intensively debated as large (small) multipliers provide arguments to expand (cut) public spending. We use data on multiplier estimates from over a hundred scholarly studies, and ask whether the national imprint and various incentives that the authors face can help explain the large observed variance in these estimates. We complement this meta-analytical data with information on economists’ personal characteristics collected from their biographies and through a self-conducted survey. Our evidence is consistent with the hypothesis that national background and policy orientation of researchers matter for the size of multiplier estimates. We only find weak support for the hypothesis that the interests of donors financing the research are relevant. Significant biases largely disappear for teams of international co-authors.     

Do national political parties matter? Evidence from Italian municipalities

Recently several countries have experienced a drop in popularity of national political parties, accompanied by the success of independent movements (e.g. “Civic Lists” in Italy). I exploit the success of “Civic Lists” in Italian municipalities and use them as a comparison group for party-affiliated politicians, to test whether national parties affect fiscal discipline. Using a Regression Discontinuity Design (RDD), I show that party-affiliated mayors are more fiscally responsible: they run lower deficits, accumulate less debt and reduce expenditures. The effect is significant only for municipalities not constrained by fiscal rules. This suggests that national parties act as a substitute for fiscal rules in constraining politicians. Besides, I provide evidence that the discipline of party-affiliated politicians is linked to better career prospects: party-affiliated mayors have a higher probability of being re-elected and better chances of being promoted to higher levels of government. Alternative stories find less support in the data.     

Do fiscal rules cause better fiscal balances? A new instrumental variable strategy

This paper estimates the causal effect of fiscal rules on fiscal balances in a panel of 142 countries over the period 1985–2015. Our instrumental variable strategy exploits the geographical diffusion of fiscal rules across countries. The intuition is that reforms in neighboring countries may affect the adoption of domestic reforms through peer pressure and imitational effects. We find that the mere existence of fiscal rules correlates with lower deficits, but the positive link disappears when endogeneity is correctly addressed. However, when considering the strength of rules through a continuous index of fiscal rules’ design, we show that well-designed rules have a statistically significant impact on fiscal balances. We conduct several robustness tests and show that our results are generally robust and not affected by weak instrument problems.     

Reelection,growth and public debt

In this work we examine how economic growth affects public debt when interacted with reelection prospects. Reelection considerations shorten political time horizons and give rise to political myopia that exacerbates debt accumulation. That laxer institutional reelection restrictions (e.g., no term limits) mitigate this effect due to electoral accountability is well known. Incorporating growth, we find that this mitigation can be reversed because less myopic, and more accountable, incumbents put more emphasis on smoothing the effects of growth across generations. We test these predictions using an annual-based panel of U.S. states over the period 1963–2010. Our identification strategy rests on constitutionally-entrenched differences in gubernatorial term limits that provide plausibly exogenous variation in reelection prospects, and aggregate national TFP shocks that are exogenous to individual states. Our estimates indicate that when reelection is possible a one standard deviation positive income shock induces, within the same year, a relative increase of approximately $40 in real per capita public debt.     

I (Could Have) Told You! Early warning indicators and crisis performance of the 12 “old” Euro-countries under the economic crisis 2008–09

The impact of the economic crisis 2008-09 was remarkably different in the 12 “old” member states in the Euro-zone. Five of them were hit especially badly; four of them even had to be bailed out by the rest in one way or another. This paper asks if one could have foretold, based solely on information available prior to 1999, which of the countries then about to enter the Euro-zone would run into economic trouble once a serious economic crisis occurred. The focus is on the (post)predictive power of three kinds of leading indicators: economic indicators, political indicators (indicating quality of governance), and indicators derived from the theory of optimal currency areas (OCA). Since there are more indicators than cases, PLS-regression is used to gauge the (post)predictive strength of the indicators examined. The results show that political indicators have quite some (post)predictive power in this case, whereas indicators derived from OCA-theory do not do too well. Economic indicators perform better than indicators derived from OCA-theory, but generally less well than the political indicators. Thus, the experience from the latest economic crisis in the Euro-zone suggests that more emphasis should be placed on the quality of governance record of a country when deciding if it should be deemed fit to become a member.     

Fiscal rules and budget forecast errors of Italian municipalities

We study the impact of the domestic stability pact on the accuracy of budget forecasts of Italian municipalities. Identification of the causal effect exploits a quasi-natural experiment generated by the removal in 2001 of the fiscal restraints on budget decisions for municipalities with fewer than 5000 inhabitants and by stricter budgetary restrictions and severe penalties for noncompliers in 2002. We find that relaxing fiscal rules had a sizeable impact on budget forecast errors, especially in 2002. In fact, revenue (expenditure) forecast errors for municipalities with fewer than 5000 inhabitants became 26% (22%) larger than in the past.     

Voting with your feet: Political competition and internal migration in the United States

Do people “vote with their feet” in response to a lack of political competition? Since political competition is associated with higher growth and welfare, with the free movement of labour, we argue that it should also encourage inward migration. We test this hypothesis by using data from the US and find a strong positive relation between political competition and net migration. This result is robust to alternative specifications, alternative samples and addressing endogeneity using the Voting Rights Act to instrument for political competition. The effect is economically large, specifically, we find that an increase in political competition in the order of magnitude observed in US Southern states during the post-war period leads to an increase in net migration by between 27 and 44 individuals per 1000 population.