Political Institutions and Economic Policy

New York University, New York NY

Investigators

Abstract

This is an interdisciplinary project at the intersection of economics, history, and political science. It integrates research from these disciplines to understand some fundamental issues concerning democratic government and the functioning of political institutions. More precisely, the issues that are addressed concern the role of the right to vote (the franchise) and the transparency of political institutions. The extent of the franchise is one of the key features of a political system. It largely determines the degree to which political system can be considered democratic and it affects the scale and scope of government activity. The franchise changed dramatically in the West in the century preceding World War I. Can such changes account for some of the transformations in the role of government during this century? The project considers this question and asks how it came to happen that countries with very narrow electorates (most countries at the beginning of the 19th century) offered the right to vote to a much larger group of citizens. Recent models have interpreted this democratization as the outcome of conflict between elites and the disenfranchised. This project explores the power of an alternative explanation. Under some circumstances, the shift in the mode of political competition caused by the extension of the franchise more than compensates the elite for the dilution of their influence. The theory is used to interpret some aspects of the British ``Age of Reform'' that include a major increase in spending on local public goods The research will have broader on our understanding of how the franchise is extended from elites to full democratic participation. This is a fundamental issue for constitutional design and political science development. Additionally, the insights gained from this research could be applicable to the issue of the European Union expansion. The transparency of the political system is another important element of democratic government since information about policy is essential for voters to have an influence. If voters are imperfectly informed on government policy, what are the consequences for government debt, the size of government, the form of government transfers to voters, and the (in)efficiency of government policy? The novel feature of the analysis is the form of information imperfection. The lack of transparency leads to government debt and to inefficient taxation. It also leads to the choice of inefficient instruments of redistribution if such instruments are less transparent. The model also suggests a resolution of the `fiscal churning' puzzle, namely, the fact that a large number of individuals are both taxpayers and recipients of government transfers. Fiscal churning is inefficient because it would often be more effective to `net out' the fiscal positions of such individuals. The model offers an explanation for this phenomenon and points to a way to reform fiscal institutions to improve the functioning of the political system. A study of the relationship between transparency and debt could have policy impacts, particularly if greater transparency can imply a reduction in the public debt.