Executive Vetoes and Economic Reform Theory and Evidence from the History of American Labor Regulation

Abstract

I analyze the role of legislative institutions in policy change, particularly the role of the veto power of political executives. I study situations characterized by two key features: First, there is a status quo in place that is considered undesirable by all major legislative players. Secondly, there is variation in the political institutions, in particular the strength of the veto power of the executive, and this matters for the ability of groups with different ideal outcomes to reach a compromise. I fi rst show theoretically that endowing a political executive (here a governor) with veto power may facilitate policy change. I then use state-level variation in the enactment of workers’ compensation laws in the US to empirically examine the model’s predictions. The empirical results support the prediction that a strong executive veto, in this setting, facilitates policy change.