Political Institutions and Policy Volatility

Checks and balances that limit the discretion of policy-makers reduce the volatility of government expenditure and revenue. While this assumption is at the heart of a large body of empirical work, the association between political institutions and policy volatility has itself been the focus of only limited empirical testing. The results presented here support the existence of this link, allow for a comparison between two prominent measures of checks and balances and provide insight into the relative impact of checks and balances on the volatility of nine different types of fiscal policy both during times of macroeconomic stability and upheaval