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Law and the State

Law and the State

A Political Economy Approach

New Horizons in Law and Economics series

Edited by Alain Marciano and Jean-Michel Josselin

Law and the State provides a political economy analysis of the legal functioning of a democratic state, illustrating how it builds on informational and legal constraints. It explains, in an organised and thematic fashion, how competitive information enhances democracy while strategic information endangers it, and discusses how legal constraints stress the dilemma of independence versus discretion for judges as well as the elusive role of administrators and experts.

Chapter 8: Judicial independence as a necessary component of the rule of law: preliminary insights and economic consequences

Stefan Voigt


Stefan Voigt* 1 INTRODUCTION In recent years, it has become almost commonplace to turn to institutional variables for explaining differential growth rates. The ensuing debate on ‘good governance’ focuses primarily on institutional factors among which the ‘rule of law’ occupies a prominent place. In this debate, judicial independence (JI) has always fared prominently. If the judiciary is independent from pressures by the other government branches, this will make the promises of the other branches – for example, with regard to the protection of property rights – more credible. In the long run, even the other branches which are constrained by an independent judiciary will be better off: if promises are attributed higher credibility, this will lead to additional investment which will, in turn, lead not only to higher income and growth but also to higher tax receipts of the state. Yet, an independent judiciary that constrains government action can be costly in the short run and there is always the danger that factual independence is lower than the degree of independence found in legal documents. In this chapter, one indicator for measuring formal as well as factual JI is introduced. There have been some attempts to estimate the degree to which the rule of law is realized in different countries. The data published by the International Country Risk Guide (ICRG; see, for example, Knack and Keefer 1995) is one such example. These are data used by foreign investors in order to assess country-specific risks. Use of these data has...

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