Country performance during the Covid-19 pandemic: externalities, coordination, and the role of institutions

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August 2020
Paper author(s): 
Santiago Lago-Peñas
Jorge Martinez-Vazquez
Agnese Sacchi
Macroeconomics - Economic growth - Monetary Policy

The Covid-19 pandemic is one of the most powerful examples of negative externalities in local communities, entire countries and across the globe, calling for the coordination of policies at all levels. We focus on the role played by institutions at the country level in fighting the spread of Covid-19 by making policy coordination more difficult or, on the contrary, more effective. Specifically, we consider the type of political regimes, political fragmentation, and decentralization settings, after controlling for several non-institutional factors. We assemble several data sources with the most recent available information on Covid-19 performance for up to 113 countries around the world. Our main results, which are robust to alternative specifications, show that having either democracies or autocracies does not represent a crucial issue for successfully addressing the pandemic. Most significantly, we find that countries with centralized political parties, which fundamentally allow for better coordination at the national level, perform significantly better than those with decentralized political parties. Although federal countries do appear to have had consistently greater difficulties than unitary countries, a finding that fits well with the role of coordination, overall, the role played by fiscal and administrative decentralization is not robust, but this latter is a result conditioned by the lack of data availability.


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