Lorenz Blume

The Economic Effects of Human Rights

Economists are often skeptical concerning the economic effects of various forms of human rights: it has been argued that basic human rights can make the legal system less efficient but also that extensive social rights are incompatible with market economies. It is argued here that basic human rights are a precondition for other kinds of rights such as property and civil rights and that they are thus efficiency-enhancing. Four different groups of rights are identified. It is asked what effects they have on welfare and growth. The transmission channels through which the different rights affect welfare and growth are identified by estimating their effects on investment in both physical and human capital and overall productivity. Basic human rights have indeed a positive effect on investment, but do not seem to contribute to productivity. Social or emancipatory rights, in turn, are not conducive to investment in physical capital but do contribute to productivity improvements. None of the four groups of rights ever has a significant negative effect on any of the economic variables here included.

Federalism and decentralization—a critical survey of frequently used indicators

The economic effects of federalism are unclear: some papers find that federalism has strong positive effects on a number of economically relevant variables, others find negative effects. The results often crucially hinge on the proxies for federalism used. In this paper, we critically survey the existing indicators for both federalism and fiscal decentralization. We argue that federalism is a constitutional institution, whereas decentralization is the outcome of a policy choice, and that the two ought to be systematically distinguished because decentralization can also occur in nonfederally structured states. We further argue that institutional details are very important with regard to federalism and that dummy variables usually capture only very specific aspects of these institutional details. We use factor analysis to test whether the latent variables behind the observed indicators support these assumptions. More than two important factors are derived, implying that a more fine-grained differentiation beyond simply “‘federalism” and “decentralization” might be in order. The correlations of the most important proxies for various aspects of federalism and decentralization with a number of quasi-exogenous variables, as well as with institutional variables, are usually rather modest.

The economic effects of constitutional budget institutions

There is a well-established literature analyzing the effects of fiscal institutions on fiscal policy variables such as budget deficits or accumulated government debt. We combine this literature with the emerging field of positive constitutional economics, which deals with the economic effects of constitutional rules. The paper addresses three questions: (1) Do budget provisions that are explicitly spelled out in a countrys constitution have any significant effect on fiscal policy? (2) Does the transparency, or lack thereof, of the budget process have any significant effect on fiscal policy? and (3) Do these two variables have an impact on other variables such as government effectiveness and productivity? We find that constitutionally entrenched spending limits are correlated with lower total government expenditure and that the transparency of a nations budget is correlated with higher government effectiveness as well as lower corruption. If anything, the deficit limits entrenched in the Maastricht Treaty are correlated with higher, rather than lower, overall government expenditure.

Patterns of Social Capital in West German Regions

Social capital is often defined as consisting of trust and postmaterialist values on the one hand, and social networks on the other hand. This article examines how different governance modes such as networks, markets, and hierarchies are related to trust and postmaterialist values in 74 West German regions.A principle component analysis of 40 social capital indicators shows that trust and postmaterialist values do not solely combine with networks but also with preferences for markets and hierarchies. A cluster analysis identifies two dominant types of regional social capital in West German regions. These types are different from the well-known Italian patterns described by Robert Putnam in his seminal work. In the period 1995—2002, the annual economic growth in regions which have combined trust with preferences for strong markets and weak political networks was on average 1 percent higher than in regions with inverted preferences.

Federalism and Decentralization - A Critical Survey of Frequently Used Indicators

The economic effects of federalism are unclear: some papers find that federalism has strong positive effects on a number of economically relevant variables, others find negative effects. The results often crucially hinge on the proxies for federalism used. In this paper, we critically survey the existing indicators for both federalism and fiscal decentralization. We argue that federalism is a constitutional institution, whereas decentralization is the outcome of a policy choice, and that the two ought to be systematically distinguished because decentralization can also occur in nonfederally structured states. We further argue that institutional details are very important with regard to federalism and that dummy variables usually capture only very specific aspects of these institutional details. We use factor analysis to test whether the latent variables behind the observed indicators support these assumptions. More than two important factors are derived, implying that a more fine-grained differentiation beyond simply “‘federalism” and “decentralization” might be in order. The correlations of the most important proxies for various aspects of federalism and decentralization with a number of quasi-exogenous variables, as well as with institutional variables, are usually rather modest.

Institutional Details Matter - More Economic Effects of Direct Democracy

This study contains further evidence on the economic effects of direct democratic institutions. A first study found that countries with national initiatives have higher government expenditure and are characterized by more rent-seeking activity, that the effects of direct democratic institutions become stronger if the frequency of their actual use is taken into account, and that effects are stronger in countries with weak democracies. This study sheds more light on these findings by drawing on a new dataset covering more countries and incorporating more institutional detail. The results of the earlier study are largely confirmed: mandatory referendums lower government expenditure and improve government efficiency, initiatives have the opposite effects. The incorporation of more institutional detail into the analysis shows that the increase in government expenditures connected with initiatives is primarily driven by citizen, as opposed to agenda, initiatives. Further, referendums held at both the constitutional and post-constitutional levels are correlated with larger debt. Finally, neither the possibility of a recall nor the degree to which referendum results are binding significantly affect our dependent variables.

Fiscal Effects of Reforming Local Constitutions

Most German states amended their local constitutions during the 1990s and now allow for the direct election of mayors, initiatives and referendums, and vote aggregation, as well as vote splitting. In this paper, it is asked whether these reforms had any effects on local fiscal policies. It is shown that the direct election of mayors led to lower government spending, whereas the introduction of direct democratic elements led to higher expenditures. The empirical results concerning direct democracy are substantially different from findings in relation to both Switzerland and the US. It is argued that this difference may be due to a lack of fiscal referendums in Germany.