Detecting Favoritistic Legislation: A New Set of Indicators with Cross-Country Validations

Particularistic policy-making that favors some voters, groups, or businesses over others has been advanced as a key (re-)election strategy of incumbents. It is also seen as a source of inefficiency and potential political corruption. However, while a number of conceptual and operational definitions exist, they tend to be limited in their focus on specific institutional settings or in the scope of what type of favoritistic legislation is considered. At the same time, recent advances in the collection of bills and laws across countries provide the opportunity to develop a text-based measure of favoritistic policy-making that can be applied more broadly. To advance the literature, we first construct a multi-dimensional text-based indicator of the extent to which legislation targets specific firms or group of firms within an economic sector. Since targeted legislation need not always be favoritistic, we validate the extent to which it is a good measure within and across different country's political systems. We do so by comparing our indicators to inputs or determinants of legislative favoritism such as bill-specific indicators of irregular legislative procedural discretion, the lobbying and campaign finance activities of special interests. We also compare our legislative favoritism measure with it expected results in terms of company financial performance. Finally, we validate our indicator against expert assessments of political corruption and favoritism such as V-Dem or IMD business surveys as well as against notable examples of particularistic legislation favoring specific business interests. Empirically, we cover 24 countries from around the word, including major economies such as the US, UK, Germany, France and Brazil; covering the last 25 years (albeit some earlier years are missing for some countries). In addition to our academic contributions, we also advance policy debates by offering specific and detailed measurements of favoritistic legislation.