Do government formation deadlocks damage economic growth? Evidence from history's longest period of political deadlock [WP]

Abstract

Several countries have experienced lengthy periods of political deadlock in recent years, as they have sought to form a new government. This study examines whether government formation deadlocks damagea country’s economy. To do so, we analyze the case of Belgium, which took a record 541 days to create a post-election government, following the June 2010 federal elections. Employing the synthetic control method, our results show that the Belgian economy did not suffer an economic toll; on the contrary, GDP per capita growth was higher than would have otherwise been expected. As such, our evidence contradicts frequent claims that long periods of government formation deadlock negatively affect an economy.