Essays on political economy

Abstract

This thesis consists of three self-contained essays which address three different issues with respect to the roles of democratic and non-democratic institutions in the economy. The first essay titled, 'Democratisation, systems of government and public spending' investigates whether changes from non-democratic government systems to democracy bring about a significant effect on the size of public spending relative to a country's economy. Based on unbalanced panel data for 177 countries over the period 1960-2008, the results provide evidence that the effect of democratisation on public spending size is not robustly significant and depends on the specifics of government systems that prevail before and after a political change. Further, the results provide evidence that only democratisation that originates from a military dictatorship and ends up with a parliamentary democracy has a robust and significant effect on public spending size. The second essay titled 'Electoral budget cycles under non-democratic regimes' investigates the relationship between elections and central government budget balance in countries that are considered to be non-democratic. Using a sample consisting of unbalanced panel data from 29 countries between 1960 and 2006, the essay provides evidence that electoral budget cycles do exist under non-democratic regimes. The relationship between elections and central government budget balance is significant and robust to a number of variations in control variables, estimation models, sample selection criteria and designations of election year dummy. The essay also provides evidence that the persistence of the relationship is driven by countries that are less distant from democracy (that is, shallow autocracies). The third essay titled 'Food prices and political survival' investigates the relationship between food prices and the occurrence of national leader exits, particularly in food importing countries. Using international food price and domestic consumption data to construct a country-specific food price index for 77 economies between 1961 and 2009, the essay provides evidence that food prices have a robust significant effect on political survival. The effect does not change with changes in the log of real GDP per capita, real GDP per capita growth rate and the state of democracy. However, once the joint-effect between food prices and the state of democracy is controlled, the effect of food prices on political survival is significant only under democracy and not under non-democracy.