IDEAS home Printed from https://ideas.repec.org/a/bla/ecopol/v35y2023i3p949-1019.html
   My bibliography  Save this article

Institutional quality and public spending in Europe: A quantile regression approach

Author

Listed:
  • Cristian Barra
  • Nazzareno Ruggiero

Abstract

We appraise the effects of institutional quality on public spending for a set of 27 European countries and 18 Euro‐area economies over the 1996–2017 period. While institutions play a weak role in affecting spending once the fixed‐effects model is employed, the application of the quantile regression indicates that improved institutional quality mitigates public spending, although the effects crucially depend on the distribution of public expenditure and the sample examined. For both the Euro‐area sample and the full sample, we show that better quality of institutions reduces public spending, although the effects become less significant the higher the levels of public spending. Further, for the Euro‐area sample, institutions appear to have a stronger role in mitigating public spending. Several robustness tests confirm our findings.

Suggested Citation

  • Cristian Barra & Nazzareno Ruggiero, 2023. "Institutional quality and public spending in Europe: A quantile regression approach," Economics and Politics, Wiley Blackwell, vol. 35(3), pages 949-1019, November.
  • Handle: RePEc:bla:ecopol:v:35:y:2023:i:3:p:949-1019
    DOI: 10.1111/ecpo.12248
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecpo.12248
    Download Restriction: no

    File URL: https://libkey.io/10.1111/ecpo.12248?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kotschy, Rainer & Sunde, Uwe, 2017. "Democracy, inequality, and institutional quality," Munich Reprints in Economics 55057, University of Munich, Department of Economics.
    2. António Afonso & Ludger Schuknecht & Vito Tanzi, 2010. "Income distribution determinants and public spending efficiency," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(3), pages 367-389, September.
    3. repec:oup:ecpoli:v:27:y:2012:i:71:p:365-406 is not listed on IDEAS
    4. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    5. Aghion, Philippe & Akcigit, Ufuk & Cagé, Julia & Kerr, William R., 2016. "Taxation, corruption, and growth," European Economic Review, Elsevier, vol. 86(C), pages 24-51.
    6. François Facchini & Elena Seghezza, 2021. "Legislative production and public spending in France," Public Choice, Springer, vol. 189(1), pages 71-91, October.
    7. Torsten Persson & Gerard Roland & Guido Tabellini, 2000. "Comparative Politics and Public Finance," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1121-1161, December.
    8. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
    9. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    10. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    11. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    12. Niklas Potrafke, 2018. "Government ideology and economic policy-making in the United States—a survey," Public Choice, Springer, vol. 174(1), pages 145-207, January.
    13. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2002. "Fiscal Policy, Profits, and Investment," American Economic Review, American Economic Association, vol. 92(3), pages 571-589, June.
    14. Fengping Tian & Jiti Gao & Ke Yang, 2018. "A quantile regression approach to panel data analysis of health‐care expenditure in Organisation for Economic Co‐operation and Development countries," Health Economics, John Wiley & Sons, Ltd., vol. 27(12), pages 1921-1944, December.
    15. Daron Acemoglu & James Robinson, 2010. "The Role of Institutions in Growth and Development," Review of Economics and Institutions, Università di Perugia, vol. 1(2).
    16. Altunbaş, Yener & Thornton, John, 2019. "The impact of financial development on income inequality: A quantile regression approach," Economics Letters, Elsevier, vol. 175(C), pages 51-56.
    17. Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 35-68, National Bureau of Economic Research, Inc.
    18. de Haan, Jakob & Sturm, Jan-Egbert, 1994. "Political and Institutional Determinants of Fiscal Policy in the European Community," Public Choice, Springer, vol. 80(1-2), pages 157-172, July.
    19. Hessami, Zohal, 2014. "Political corruption, public procurement, and budget composition: Theory and evidence from OECD countries," European Journal of Political Economy, Elsevier, vol. 34(C), pages 372-389.
    20. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth : revisiting the evidence," Policy Research Working Paper Series 3004, The World Bank.
    21. Volkerink, Bjorn & De Haan, Jakob, 2001. "Fragmented Government Effects on Fiscal Policy: New Evidence," Public Choice, Springer, vol. 109(3-4), pages 221-242, December.
    22. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
    23. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    24. Trung V. Vu, 2022. "Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities," Empirical Economics, Springer, vol. 63(3), pages 1571-1604, September.
    25. Young, Andrew T. & Sheehan, Kathleen M., 2014. "Foreign aid, institutional quality, and growth," European Journal of Political Economy, Elsevier, vol. 36(C), pages 195-208.
    26. Plumper, Thomas & Martin, Christian W, 2003. "Democracy, Government Spending, and Economic Growth: A Political-Economic Explanation of the Barro-Effect," Public Choice, Springer, vol. 117(1-2), pages 27-50, October.
    27. René Böheim & Karin Mayr, 2005. "Immigration and public spending," Economics working papers 2005-12, Department of Economics, Johannes Kepler University Linz, Austria.
    28. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2008. "The Effects of Public Spending Shocks on Trade Balances and Budget Deficits in the European Union," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 414-423, 04-05.
    29. BELAÏD, Fateh & Elsayed, Ahmed H. & Omri, Anis, 2021. "Key drivers of renewable energy deployment in the MENA Region: Empirical evidence using panel quantile regression," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 225-238.
    30. Gwartney, James & Lawson, Robert, 2003. "The concept and measurement of economic freedom," European Journal of Political Economy, Elsevier, vol. 19(3), pages 405-430, September.
    31. Ayse Demir & Vanesa Pesqué-Cela & Yener Altunbas & Victor Murinde, 2022. "Fintech, financial inclusion and income inequality: a quantile regression approach," The European Journal of Finance, Taylor & Francis Journals, vol. 28(1), pages 86-107, January.
    32. Georgios Efthyvoulou, 2012. "Political budget cycles in the European Union and the impact of political pressures," Public Choice, Springer, vol. 153(3), pages 295-327, December.
    33. Leandro Prados De La Escosura, 2016. "Economic freedom in the long run: evidence from OECD countries (1850–2007)," Economic History Review, Economic History Society, vol. 69(2), pages 435-468, May.
    34. Laurent Kemoe & Emmanuel K.K. Lartey, 2022. "Public debt, institutional quality and growth in sub-Saharan Africa: a threshold analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 36(2), pages 222-244, March.
    35. Aysit Tansel & Halil Ibrahim Keskin & Zeynel Abidin Ozdemir, 2020. "Is there an informal employment wage penalty in Egypt? Evidence from quantile regression on panel data," Empirical Economics, Springer, vol. 58(6), pages 2949-2979, June.
    36. Christian Bjørnskov & Axel Dreher & Justina Fischer, 2007. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," Public Choice, Springer, vol. 130(3), pages 267-292, March.
    37. Ariu, Andrea & Docquier, Frédéric & Squicciarini, Mara P., 2016. "Governance quality and net migration flows," Regional Science and Urban Economics, Elsevier, vol. 60(C), pages 238-248.
    38. Graafland, Johan, 2020. "Contingencies in the relationship between economic freedom and human development: the role of generalized trust," Journal of Institutional Economics, Cambridge University Press, vol. 16(3), pages 271-286, June.
    39. Sandra Kendo & Josephine Tchakounte, 2022. "Impact of asset size on performance and outreach using panel quantile regression with non-additive fixed effects," Empirical Economics, Springer, vol. 62(1), pages 65-92, January.
    40. Fatás Antonio & Mihov Ilian, 2012. "Fiscal Policy as a Stabilization Tool," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(3), pages 1-68, October.
    41. repec:hal:spmain:info:hdl:2441/1i2ig6hi2i8so8g8jbnuokstbu is not listed on IDEAS
    42. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
    43. Asongu, Simplice A. & Nwachukwu, Jacinta C., 2017. "The Impact of Terrorism on Governance in African Countries," World Development, Elsevier, vol. 99(C), pages 253-270.
    44. Navarat Temsumrit, 2022. "Democracy, institutional quality and fiscal policy cycle: evidence from developing countries," Applied Economics, Taylor & Francis Journals, vol. 54(1), pages 75-98, January.
    45. Herwartz, Helmut & Theilen, Bernd, 2014. "Partisan influence on social spending under market integration, fiscal pressure and institutional change," European Journal of Political Economy, Elsevier, vol. 34(C), pages 409-424.
    46. Jeroen Klomp & Jakob Haan, 2013. "Political budget cycles and election outcomes," Public Choice, Springer, vol. 157(1), pages 245-267, October.
    47. David M. Primo, 2006. "Stop Us Before We Spend Again: Institutional Constraints On Government Spending," Economics and Politics, Wiley Blackwell, vol. 18(3), pages 269-312, November.
    48. Schaltegger, Christoph A. & Torgler, Benno, 2007. "Government accountability and fiscal discipline: A panel analysis using Swiss data," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 117-140, February.
    49. Philippe Aghion & Peter Howitt, 2007. "Capital, innovation, and growth accounting," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 23(1), pages 79-93, Spring.
    50. Holcombe, Randall G. & Rodet, Cortney S., 2012. "Rule of law and the size of government," Journal of Institutional Economics, Cambridge University Press, vol. 8(1), pages 49-69, March.
    51. Spruk, Rok & Kešeljević, Aleksandar, 2018. "Economic freedom and growth across German districts," Journal of Institutional Economics, Cambridge University Press, vol. 14(4), pages 739-765, August.
    52. Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
    53. Potrafke, Niklas, 2017. "Partisan politics: The empirical evidence from OECD panel studies," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 712-750.
    54. Asiedu, Elizabeth, 2003. "Debt relief and institutional reform: a focus on Heavily Indebted Poor Countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(4), pages 614-626.
    55. Arvin, Mak B. & Pradhan, Rudra P. & Nair, Mahendhiran S., 2021. "Are there links between institutional quality, government expenditure, tax revenue and economic growth? Evidence from low-income and lower middle-income countries," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 468-489.
    56. Bergman, U. Michael & Hutchison, Michael M. & Jensen, Svend E. Hougaard, 2016. "Promoting sustainable public finances in the European Union: The role of fiscal rules and government efficiency," European Journal of Political Economy, Elsevier, vol. 44(C), pages 1-19.
    57. Emanuele Baldacci & Sanjeev Gupta & Carlos Mulas-Granados, 2012. "Reassessing the fiscal mix for successful debt reduction [A historical public debt database]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(71), pages 365-406.
    58. repec:hrv:faseco:3353756 is not listed on IDEAS
    59. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Barra, Cristian & Falcone, Pasquale Marcello, 2024. "Institutional quality and bioeconomy performance in European countries: Unveiling the evidence," Ecological Economics, Elsevier, vol. 220(C).
    2. João Jungo, 2024. "Institutions and economic growth: the role of financial inclusion, public spending on education and the military," Review of Economics and Political Science, Emerald Group Publishing Limited, vol. 9(3), pages 298-315, April.
    3. Cristian Barra & Pasquale Marcello Falcone, 2024. "Does institutional quality matter for bioeconomy performance? Insights from Italian regions," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-31, December.
    4. Barra, Cristian & Falcone, Pasquale Marcello, 2024. "Environmental performance of countries. Examining the effect of diverse institutional factors in a metafrontier approach," Socio-Economic Planning Sciences, Elsevier, vol. 95(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cristian Barra & Nazzareno Ruggiero, 2023. "Quality of Government and Types of Innovation—Empirical Evidence for Italian Manufacturing Firms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 1749-1789, June.
    2. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    3. Moga Tano JILENGA & Xu HELIAN, 2017. "Institutional quality and economic growth in East African economies," Turkish Economic Review, KSP Journals, vol. 4(3), pages 282-289, September.
    4. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    5. Chen, Binkai & Lin, Justin Yifu, 2021. "Development strategy, resource misallocation and economic performance," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 612-634.
    6. Dalgaard, Carl-Johan & Strulik, Holger, 2013. "The history augmented Solow model," European Economic Review, Elsevier, vol. 63(C), pages 134-149.
    7. Xavier Sala-i-Martin, 2002. "15 Years of New Growth Economics : What Have we Learnt?," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(2), pages 5-15, August.
    8. Ma Salinas-Jiménez & Javier Salinas-Jiménez, 2011. "Corruption and total factor productivity: level or growth effects?," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(2), pages 109-128, August.
    9. Ruba Aljarallah, 2021. "An Analysis of the Impact of Rents from Non-renewable Natural Resources and Changes in Human Capital on Institutional Quality: A Case Study of Kuwait," International Journal of Energy Economics and Policy, Econjournals, vol. 11(5), pages 224-234.
    10. Aribah Aslam, 2020. "The hotly debate of human capital and economic growth: why institutions may matter?," Quality & Quantity: International Journal of Methodology, Springer, vol. 54(4), pages 1351-1362, August.
    11. Sivropoulos-Valero, Anna Alexandra, 2021. "Education and economic growth," LSE Research Online Documents on Economics 114434, London School of Economics and Political Science, LSE Library.
    12. Alali, Walid Y., 2010. "Impact of Institutions and Policy on Economic Growth: Empirical Evidence," EconStor Preprints 269878, ZBW - Leibniz Information Centre for Economics.
    13. Anna Valero, 2021. "Education and economic growth," POID Working Papers 006, Centre for Economic Performance, LSE.
    14. Young Eun Kim & Norman V. Loayza, 2019. "Productivity Growth: Patterns and Determinants across the World," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 42(84), pages 36-93.
    15. Alali, Walid Y., 2010. "Impact of Institutions and Policy on Economic Growth: Empirical Evidence," MPRA Paper 115610, University Library of Munich, Germany.
    16. Burret, Heiko T. & Feld, Lars P., 2018. "(Un-)intended effects of fiscal rules," European Journal of Political Economy, Elsevier, vol. 52(C), pages 166-191.
    17. Linda Glawe & Carlos Mendez, 2023. "Schooling Ain’t Learning in Europe: A Club Convergence Perspective," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(2), pages 324-361, June.
    18. Lawrence Adu Asamoah, 2021. "Institutional Quality and Income Inequality in Developing Countries: A Dynamic Panel Threshold Analysis," Progress in Development Studies, , vol. 21(2), pages 123-143, April.
    19. Niklas Potrafke, 2019. "Fiscal Performance of Minority Governments: New Empirical Evidence for OECD Countries," CESifo Working Paper Series 7733, CESifo.
    20. Ekaterina Ponomareva & Alexandra Bozhechkova & Alexandr Knobel, 2012. "Factors of Economic Growth," Published Papers 172, Gaidar Institute for Economic Policy, revised 2013.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecopol:v:35:y:2023:i:3:p:949-1019. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.