Essays on political economy

This dissertation focuses on democracies governed by a Parliament. In such democracies, the executive branch consists of a subset of parties in the Parliament, called the Government. A key feature is that the Government is only indirectly determined by the voters' electoral decisions. This dissertation address how parliamentary characteristics and institutions influence the composition of the Government and government outcomes. The composition of the Government reflects the size and ideological make-up of the Government. Government outcomes reflect the length the Government survives and the policy consequences of the Government. The literature focuses on the former criterion. The view is that, in parliamentary democracies, longer Government duration should be associated with stability and better policies. The latter is important from the perspective of directly evaluating whether Governments make good or bad decisions from the perspective of voters. The first chapter of this dissertation develop a model of the government formation process, where parties care about and bargain over both policy and office benefits. The model generate predictions that matches important features of the data. The second chapter uses data from western European parliamentary democracies to estimate the parameters of the model in chapter one. The estimation results suggest that coalitions care about both ideology and office benefits, but more about office benefits. The third chapter studies which (existing) institutional environments lead to `good' government outcomes. The results have a number of important implications for constitutional design.