New tools and new tests in comparative political economy - the database of political institutions

This paper introduces a large new cross-country database on political institutions: the Database on Political Institutions (DPI). The authors summarize key variables (many of them new), compare this data set with others, and explore the range of issues for which the data should prove invaluable. Among the novel variables they introduce: 1) Several measures of tenure, stability, and checks and balances. 2) Identification of parties with the government coalition or the opposition. 3) Fragmentation of opposition and government parties in legislatures. The authors illustrate the application of DPI variables to several problems in political economy. Stepan and Skach, for example, find that democracy is more likely to survive under parliamentary governments than presidential systems. But this result is not robust to the use of different variables from the DPI, which raises puzzles for future research. Similarly, Roubini and Sachs, find that divided governments in the OECD run higher budget deficits after fiscal shocks. Replication of their work using DPI indicators of divided government indicates otherwise, again suggesting issues for future research. Among questions in political science and economics, that this database may illuminate: the determinants of democratic consolidation, the political conditions for economic reform, the political and institutional roots of corruption, and the elements of appropriate and institutionally sensitive design of economic policy.Decentralization,Parliamentary Government,National Governance,Information Technology,ICT Policy and Strategies,National Governance,Parliamentary Government,ICT Policy and Strategies,Information Technology,Governance Indicators

Bank Market Structure and Firm Capital Structure

We explore the impact of concentration in the banking markets on the capital structure of publicly quoted non-financial firms in the EU15 over the period 1997- 2005, an era marked by intensive merger activity in the banking sector. Our main finding is a negative and significant relationship between the degree of concentration of European bank markets and the market leverage of firms, indicating the persistence of credit constraints. This finding is robust when we use behavioral measures of bank conduct. This support for the market power hypothesis indicates that further measures are needed to make bank lending more competitive.Bank concentration, Capital structure