Political instability and labour market institutions |
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| Affiliation: | 1. Università Cattolica, Largo Gemelli 1, 20123 Milano, Italy;2. IZA, Schaumburg-Lippe-Str. 5-9/9, D-53113 Bonn, Germany;3. CREA, Université du Luxembourg, 162a avenue de la Faiencerie, L-1511, Luxembourg;1. Department of Economics and Law, Sapienza University of Rome, Via del Castro Laurenziano 9, 00161, Rome, Italy;2. Italian Institute of Statistics (ISTAT), Via A. Depretis 72, 00184, Rome, Italy;1. Henan University, School of Economics, Kaifeng, China;2. Halle Institute for Economic Research, Department Macroeconomics, Germany;3. European Central Bank, Directorate Monetary Policy, Sonnemannstr. 20, D-60314 Frankfurt, Germany;1. Centre for Economics and Financial Econometrics Research, Deakin University, 221 Burwood Highway, Burwood, VIC 3125, Australia;2. Deakin University, Geelong, Australia, Deakin Business School, Department of Economics, 221 Burwood Highway, Burwood, VIC 3125, Australia |
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| Abstract: | This paper investigates the relationship between political instability and labour market institutions. We develop a theoretical model in which political instability creates incentives for a government to introduce labour market regulation in the economy. The distortionary effect of regulation on unemployment effectively puts a constraint on the design of fiscal and public policies. We empirically investigate these predictions using panel data for 21 OECD countries for the period 1985–2006. Our results are consistent with the view that political instability is associated with more regulated labour markets, lower labour taxation, and lower unemployment benefit replacement rates. |
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