1. The Database of Political Institutionsand Empirical Political Economy A Description and an Application to Banking Crises Philip Keefer Development Research Group The World Bank

2. DPI2000 Approximately 100 variables, 150 countries, 1975-2000 including: Presidential or parliamentary? Defense minister a soldier? Are elections competitive? How many checks and balances? How many years a democracy/dictatorship? How many years have the veto players with longest/shortest tenures been in office? Are the executive/coalition parties/opposition parties R-L-C? In what years were there pres/leg elections? Plurality/proportionality/district magnitude?

3. Other important political databases Henisz: POLCON – number of veto players Wallack, Gaviria, Panizza, Stein (IADB) Particularism database: electoral variables Persson and Tabellini: electoral/regime type variables Polity IV: subjective ratings of political systems

4. A comparative caveat Some of these databases have differences across identical variables (district magnitude, regime type, voting rule), despite overlapping sources. The differences matter: plurality election rules REDUCE corruption using Persson and Tabellini or IADB measures of voting rules. They INCREASE corruption using DPI. Possible explanation: Rules for backwards extrapolation for DPI may be stricter.

5. Why do we need cross- country political databases? Political institutions Deficits Fiscal allocations Corruption Trade reform Regulation Conflict

6. Studies that could use/have used cross-country political data Settler mortality Insecure property rights Political institutions Central bank independence X Political institutions Inflation Political institutions Clientelism Low public goods High corruption

7. -0.4 -0.2 0 0.2 0.4 0.6 Rule of lawBureaucratic quality Corruption Years of continuous elections Income/capita Years of continuous elections matter more than income/capita for “governance”

8. One standard deviation increase in education as a fraction of budget One standard deviation increase in competitive-ness of elections 0 2 4 6 Change in gross primary school enrollment (percentage point change) The competitiveness of elections matters more for school enrollment than education spending

9. Political institutions and banking crises Bank crises expose a perennial political puzzle: Do checks and balances protect property rights at the expense of good policy and the timely response to crisis?

10. Checks and balances and banking crisis “Banking crises and the effect of political checks and Balances” reviews evidence that: Bank crises are often the result of special interest influence. Government intervention in bank crises is often delayed by special interest influence. And derives conditions under which Checks and balances make rent-seeking less desirable for politicians.

11. Checks and balances and banking crisis The hypotheses: Rent-seeking falls in the number of veto players. The effect of the number of veto players on rent-seeking is lower the larger are the rents.

12. Checks and balances and banking crisis How to measure rent-seeking in banking context? fiscal costs of bailouts and lengthy forbearance after crisis is recognized. How to measure rents? size of financial sector – e.g., M2/GDP. How to measure checks and balances? checks from DPI How to measure electoral pressures? years till next election from DPI

13. Results 40 N 0.30 R2R2 0.17 (0.005) 1.37 (1.38) Election year – t -1.08 (0.04) -29.42 (10.38) M 2 /GDP (year t – 1) 0.45 (0.05) 12.78 (4.35) Checks * M 2 /GDP -0.31 (0.02) -9.08 (2.8) Checks Forbearance? (marginal effects, robust p-values) Fiscal costs of crisis (robust standard errors)