**_H04:  Democracy versus Autocracy._** Several authors have written on the impact of democracy and autocracy on economic outcomes such as real growth or the composition of spending.<sup>26</sup> Tornell and Lane (1999) argue that the pro-cyclical voracity effect should be reduced in democracies, to the extent that entrenched interests become less powerful and power becomes more diffuse.  Lake and Baum (2001) argue that the political competition<sup>27</sup> inherent in democracies tends to reduce opportunities for collecting rents at the expense of providing public goods.  They interpreted a positive correlation between democracy and the quality of health and education outcomes as evidence in support of their hypothesis.  Tonizzo (2008) found that increasing the degree of political competition tends to reduce government size, measured as a share of GDP, while fiscal policies tend to become more redistributive.

While these authors do not address budgetary deviations directly, it is possible to build on their ideas. In particular, autocracies might be more likely to over-estimate revenues or over-spend, since they can tolerate the inflationary consequences of domestic borrowing more easily than a democracy could.<sup>28</sup> The higher degree of accountability in democracies should motivate better budget execution for both revenues and expenditures. Moreover, following Tornell and Lane ( _ibid_ ), democracies should exhibit less pro-cyclical behavior.

There is, however, a tension between the impact of political competition and the impact of enlarging the share of voters (starting from zero in a dictatorship). Meltzer and Richard (1981) argue that increasing the number of voters will typically mean that more poor people become empowered, simply because the poor almost always outnumber the rich. They will then demand more services, thus driving up the level of government spending. Mueller and Stratmann (2003) and Fabrizio and Mody (2006) find empirical evidence that public spending increases with voter participation. If a substantial portion of the increased demand is for targeted services, then the common-pool problem should be exacerbated by an enlarged franchise.<sup>29</sup> This set of hypotheses can be tested using the variable _Polity_ from Marshall, Jaggers, and Gurr (2010). The variable _Polity_ ranges from -10 for autocracy to +10 for full democracy. If the competitive effect dominates the franchise effect, then high _Polity_ scores should reduce CP&A tendencies in revenues and expenditures and promote stability in expenditures despite unanticipated revenue shocks. Alternatively, if the franchise effect dominates, then high polity scores should have the opposite effect, effectively worsening common pool problems.

**_H05:  Mature Programmatic Political Parties._** Cruz and Keefer (2010) and Keefer (2011) offer an important counter-point:  democracy _per se_ may not be as important to good economic development outcomes as the nature of the political parties operating in a country.  Those that are programmatic (e.g. those with an identifiable economic agenda) are more likely to get good results, possibly in non-democratic countries as well.  In essence, programmatic parties have solved the

> 26 See for example and McGuire and Olson (1996) or Deacon (2003).

> 27 Political competition in this context refers to competition between parties and candidates rather than between voters and is also distinct from the concept of voter turn-out.

> 28 On the other hand, one could argue that the choices of autocrats will depend on their particular policy preferences – and their preferences might be independent of their status as autocrats.  For example, the late Chilean dictator, Augusto Pinochet has been portrayed as an autocrat dedicated to fiscal sustainability.

> 29 A more direct test would be to use a variable that measures voter participation directly. An interesting and somewhat related test would be to introduce an interaction term to modify the impact of democracy by the impact of differing degrees of spatial segregation.  Alesina and Zhuravskaya (2008) find that more segregated societies have a lower quality of government.

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