Tolerance has the potential to affect both economic growth and wellbeing. It is therefore important to discern its determinants. We contribute to the literature by investigating whether the degree to which economic institutions and policies are market-oriented is related to different measures of tolerance. Cross-sectional and first-difference regression analysis of up to 69 countries reveals that economic freedom is positively related to tolerance towards homosexuals, especially in the longer run, while tolerance towards people of a different race and a willingness to teach kids tolerance are not strongly affected by how free markets are. Stable monetary policy and outcomes is the area of economic freedom most consistently associated with greater tolerance, but the quality of the legal system seems to matter as well. Through instrumental variables and first-difference results we find indications of a causal relationship.

How does foreign aid affect recipient countries' political institutions? Two competing hypotheses offer contradictory predictions. The first sees aid, when delivered correctly, as an important means of making dictatorial recipient countries more democratic. The second sees aid as a corrosive force on recipient countries' political institutions that makes them more dictatorial. This paper offers a third hypothesis about how aid affects recipients' political institutions that we call the “amplification effect.” We argue that foreign aid has neither the power to make dictatorships more democratic nor to make democracies more dictatorial. It only amplifies recipients' existing political institutions. We investigate this hypothesis using panel data for 124 countries between 1960 and 2009. Our findings support the amplification effect. Aid strengthens democracy in already democratic countries and dictatorship in already dictatorial regimes.

This paper shows evidence of strong heterogeneity in the relationship between government size and growth, depending on the quality of public sector institutions. Focusing on a wide sample of developed and developing countries over the period 1981–2005, we find that government size reduces growth when bureaucracy quality is low, whereas no significant effect is observed for sufficiently high levels of bureaucracy quality. The results hold both in cross-section and panel data analyses and are robust to a large number of robustness checks. These findings have important implications for assessing the role of government size in economic growth.

Why are religious parties so popular in the new and emerging democracies of the Middle East and North Africa? This paper offers an alternative to the traditional accounts that stress religiosity, the repressive nature of the previous regimes, poverty and underdevelopment, or Arab grievances against Israel. Instead, it outlines a rational choice-based explanation, in which religious political parties are able to address the problem of credible commitment, ubiquitous in new democracies. Instead of having to rely on patronage as the only mechanism of making pre-electoral commitments, Islamic parties are able to directly make credible promises about the supply of public goods. This is because they already have a history and a reputation, which both serve as channels of communication with the voters. Their reputation relies most importantly on a track record of providing social services in environments where governments have failed to do so. Furthermore, we argue that their religious nature makes them well equipped to overcome collective action problems.

Corporate auditors review and evaluate financial statements. Audit quality depends on auditor expertise and independence. To enhance auditor independence the selection process and auditor rotation requirements have been debated intensively. The available empirical evidence is not conclusive and suffers from serious endogeneity problems. I propose learning from the public sector where auditors play a similar role and present empirical evidence on the impact of auditor expertise, term length and rotation requirements on government performance at the US state level. I find evidence indicating that greater auditor expertise and rotation requirements have a positive effect on state credit ratings.

We use the natural experiment of EU entry to test the hypothesis that the lack of consumer tastes for diversity in beer may be responsible for slow development of small breweries in a highly concentrated beer market. Our contribution is to propose that lagged imports diversity, which increased after joining the common market, may be used as a proxy for consumer tastes development. Our reasoning is that after the EU entry, when imports soared, consumers became increasingly exposed to a much wider variety of beer styles. This might have led at least some of them to develop a taste for diversity in beer. In turn, this increased appreciation of diversity may have led them also to appreciate more the products of domestic microbreweries. Using monthly sales data, we are able to find some empirical confirmation that variety of imports indeed helps domestic small producers to cope with increasing competition. This suggest that the »taste for beer diversity« may develop as consumers are faced by a larger variety of beers. However, higher significance of domestic supply diversity compared to imported diversity may indicate that apart from actual beer tasting, there are additional channels of “taste development”, such as the general international fad for microbreweries which is developing in recent years.