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SummaryThis paper investigates the impact of regional political instability on the political instability of a country. Our identification strategy relies on the spatial nature of international relations. We use the characteristics of the neighbors' neighbors as the instruments for the neighbors' political instability and regional dummies to control for common regional shocks. We show that political instability in neighboring countries has a strong positive impact on a given country's political instability. The average of neighbors' population size appears to be a significant mediating factor behind this relationship.

In this article, we aim to identify the main determinants of political polarization using Bayesian Model Averaging to overcome the problem of model uncertainty. We find that the level of trust within a country and the degree of income inequality are the most robust determinants of political polarization.

We study the role of political frictions in public policy outcomes. We propose a simple model of fiscal policy that combines a lack of commitment by the government, political turnover, and another political friction that can be interpreted either as political polarization or as public rent-seeking. We show that political turnover increases public debt levels, while political polarization or public rent-seeking leads to higher public spending. We evaluate the importance of different political frictions for fiscal policy outcomes using a sample of twenty developed countries. We find that the data on political instability combined with the data on public rent-seeking explain 25% of the variation in public debt levels.