Abstract: Using time-series cross-section analysis, we provide additional empirical validation for the principal-agent model developed by Adserà, et al. (2003). In our innovation, efficient economic policy is proxied by economic freedom from the Fraser Institute database and political institutions are proxied by variables from the Database of Political Institutions. Our results suggest that the more credible the threat of removal from office, the more government officials will pursue efficient economic policies.
Working Paper #51
Institutional Foundations of Economic Freedom
A time-series cross-section analysis