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Economic Welfare, International Business and Global Institutional Change

Edited by Ram Mudambi, Pietro Maria Navarra and Giuseppe Sobbrio

The distinguished authors in this volume address the fundamental causes for such heterogeneous international experiences, placing particular emphasis on the role of institutions. They demonstrate how the study of economic development is increasingly linked to the development of institutions, which allow for more complex exchanges to occur in markets and societies. Institutions can be understood as rules or constraints that channel individuals' actions in specific directions, and can be formal or informal depending on their genesis. The book highlights the connection between institutions and economic welfare by examining countries at different stages of development. Although the authors' study material effects, they also look at individual well-being which is more strongly influenced by the non-material products of institutions such as opportunity, freedom and relationships. They move on to highlight the role of institutions in global business, in terms of innovation, entrepreneurship and foreign direct investment. In the concluding chapters they focus on the actual process of transition from one institutional framework to another. Amongst other examples, they examine reforms to international financial institutions and constitutional adjustments in transition countries.
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Chapter 3: The Impact of the Electoral System and of Other Political Institutions on Public Debt and Government Finances in Italy

Silvia Fedeli and Francesco Forte


* Silvia Fedeli and Francesco Forte 1. THE BACKGROUND In the economic and political literature there is an overemphasis on the impact of the electoral institutions on public debt and government’s finances. This literaturel is pervaded by the thesis that proportional electoral systems are the main cause of excessive public deficits and debts whereas uninominal systems bring smaller indebtedness. One of the factors leading to this conclusion is ‘fragmentation’: the numerousness of parties in the government coalition (a supposedly typical feature of the proportional electoral system) determines an increase of the size of the public debt, via the fragmentation of governance. Indeed according to Alesina and Perotti (1994) ‘proportional, representational electoral systems typically create multiparty systems and coalition governments; on the contrary, majoritarian systems lead to single party governments’. Another factor explaining causal relations between proportional representation systems and high budgetary deficits and debts has been identified in the short life of governments. According to Alesina and Perotti (1994) ‘Governments’ durability is lower in representational systems characterised by coalition governments. Therefore one can suggest a relationship between the type of electoral system and the level of debt. This observation certainly fits the cases of Belgium, Ireland and Italy, the three countries with the largest debt/GNP ratios in the OECD’.2 To sum up, a proportional electoral system by favouring the absence of a leading party implies higher fragmentation of governments and short-lived governments, thus making it more difficult to reach an agreement on fiscal governance and determining a longer delay to the...

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