Publications

Empirical evidence shows that the process of democratization and the implementation of market oriented reforms are not compatible. Autocratic regimes have a better record than new democracies. This paper argues that democracies have greater incentives to spend more to get re-elected and due to the existence of political market imperfections. To explain the successful implementation of market oriented reforms under democratic regimes, this paper argues that political support plays a crucial role at this level. The paper hypothesizes that governments with large public support have a greater ability to implement unpopular reforms. To our knowledge, this paper is the first study of the effects of democracy and budget deficits taking into account the implications of public support. We use the polyarchy dataset constructed by Tatu Vanhanen at the International Peace and Research Institute (PRIO) to measure the variables of democracy and public support. Using fixed effects and Panel Corrected Standard Errors estimation(PCSEs) in an unbalanced panel of 1271 observations consisting of 78 countries over the period of 1972-1997, the results reveal that democratic regimes increase budget deficits in both developed and less developed economies. Likewise, the results suggest that budget deficits are smaller in democratic governments that have more public support. Policy implications are discussed.