Working Paper: CEPR ID: DP13081
Authors: Vincenzo Galasso; Salvatore Nunnari
Abstract: This paper provides a novel test of the link from electoral rules to economic policies. We focus on unemployment benefits because their classification as a broad or targeted transfer may vary — over time and across countries — according to the geographical dispersion of unemployed citizens, the main beneficiaries of the program. A simple theoretical model delivers unambiguous predictions on the interaction between electoral institutions and the unemployment rate in contestable and safe districts: electoral incentives induce more generous unemployment benefits in majoritarian than in proportional systems if and only if the unemployment rate is higher in contestable than in safe districts. We test this prediction using a novel dataset with information on electoral competitiveness and unemployment rates at district level, and different measures of unemployment benefit generosity for 16 OECD countries between 1980 and 2011. The empirical analysis strongly supports the theoretical predictions.
Keywords: electoral rules; unemployment benefits; swing districts
JEL Codes: D72; D78; H53; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Majoritarian electoral systems (D72) | More generous unemployment benefits (J65) |
| Higher unemployment rates in swing districts (J65) | More generous unemployment benefits in majoritarian systems (J65) |
| Difference in unemployment benefit generosity (J65) | Increases with unemployment rate differential between swing and safe districts (J69) |
| Electoral institutions (D72) | Shape economic policy responses (E65) |
| Higher unemployment in contestable districts (J68) | Increased unemployment benefits (J65) |