nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒01‒16
five papers chosen by
Eugene Beaulieu
University of Calgary

  1. Demographics and the Political Sustainability of Pay-as-you-go Social Security By Theodore C. Bergstrom; John L. Hartman
  2. Lobbies and Technology Diffusion By Diego Comin; Bart Hobijn
  3. Public Finance and Individual Preferences over Globalization Strategies By Gordon H. Hanson; Kenneth F. Scheve; Matthew Slaughter
  4. Politics and Efficiency of Separating Capital and Ordinary Government Budgets By Marco Bassetto; Thomas Sargent
  5. Reputation, Cheap Talk and Delegation By Amal Sanyal; Kunal Sengupta

  1. By: Theodore C. Bergstrom; John L. Hartman
    Abstract: The net present value of costs and benefits from a pay-as-you-go social security system are negative for young people and positive for the elderly. If people all vote their financial self-interest, there will be a pivotal age such that those who are younger favor smaller social security benefits and those who are older will favor larger benefits. For persons of each age and sex, we estimate the expected present value gained or lost from a small permanent increase in the amount of benefits, where the cost of these benefits is divided equally among the population of working age. Assuming that everyone votes his or her long run financial self-interest, and calculating the number of voters in the population of each age and sex, we can determine whether there is majority support for an increase or a decrease in social security benefits. We use statistics on the age distribution and mortality rates for the United States to explore the sensitivity of political support for social security to alternative assumptions about the discount rate, excess burden in taxation, voter participation rates, and birth, death, and migration rates. We find that a once-and-for-all decrease in benefits would be defeated by a majority of selfish voters under a wide range of parameters. We also study the predicted majority outcomes of votes on changing the retirement age.
    JEL: H53
    Date: 2005
  2. By: Diego Comin; Bart Hobijn
    Abstract: Do lobbies affect technology diffusion and growth? A number of authors have identified the importance of vested interests as a deterrent to technology diffusion and the relevance that this may have for growth. however, the evidence that exists about this mechanism is just anecdotal. In this paper we build a model of lobbying and technology diffusion where the speed of diffusion of new technologies depends on some dimensions of the political regime and on the whether there is an old technology that may be substituted by the new technology. This differential effect of institutions on the diffusion of technologies with a predecessor constitutes the central element of our identification strategy. To implement this test we use technology diffusion data from Comin and Hobijn [2004]. We find that the relevant institutional variables have a differential effect on the diffusion of technologies with a predecessor technology as predicted by the theory. We show that this result is unlikely to be driven by omitted variables, or reverse causality.
    JEL: N10 O30 O57
    Date: 2005–01
  3. By: Gordon H. Hanson; Kenneth F. Scheve; Matthew Slaughter
    Abstract: In the absence of distortionary tax and spending policies, freer immigration and trade for a country would often be supported by similar groups thanks to similar impacts on labor income. But government policies that redistribute income may alter the distributional politics. In particular, immigrants may pay taxes and receive public services. Imports, obviously, can do neither of these. This suggests quite different political coalitions may organize around trade and immigration. In this paper we develop a framework for examining how pre-tax and post-tax cleavages may differ across globalization strategies and also fiscal jurisdictions. We then apply this framework to the case of individual immigration and trade preferences across U.S. states. We have two main findings. First, high exposure to immigrant fiscal pressures reduces support for freer immigration among natives, especially the more-skilled. Second, there is no public-finance variation in opinion over trade policy, consistent with the data that U.S. trade policy has negligible fiscal-policy impacts. Public-finance concerns appear to be crucial in shaping opinions towards alternative globalization strategies.
    JEL: F2 H3
    Date: 2005–01
  4. By: Marco Bassetto; Thomas Sargent
    Abstract: We analyze the democratic politics of a rule that separates capital and ordinary account budgets and allows the government to issue debt to finance capital items only. Many national governments followed this rule in the 18th and 19th centuries and most U.S. states do today. This simple 1800s financing rule sometimes provides excellent incentives for majorities to choose an efficient mix of public goods in an economy with a growing population of overlapping generations of long-lived but mortal agents. In a special limiting case with demographics that make Ricardian equivalence prevail, the 1800s rule does nothing to promote efficiency. But when the demographics imply even a moderate departure from Ricardian equivalence, imposing the rule substantially improves the efficiency of democratically chosen allocations. We calibrate some examples to U.S. demographic data. We speculate why in the twentieth century most national governments abandoned the 1800s rule while U.S. state governments have retained it.
    JEL: E6 H6 H7
    Date: 2005–01
  5. By: Amal Sanyal; Kunal Sengupta
    Abstract: A decision maker is contemplating an action whose outcome is state dependent. She has a ‘prior’ over the states of the world and before choosing an action, she can consult an ‘expert’. We model the communication game between the decision maker and the expert as a ‘cheap-talk’ game. Expert quality however is heterogenous. Some can obtain informative signals while the others can not. Since an expert known to be informed earns a rent in the future, uninformed experts would like to disguise as informed.We show that such concern for future reputation imposes severe constraints on the possibility of beneficial communication. Decision makers who can benefit from such communication are characterized in terms of the relevant parameters which include the prior of the decision makers and the cost of mistaken decisions. Next we address the issue of delegation. The questions that we ask are which decision makers choose to delegate, and to whom they delegate. In situations involving public goods, we characterize the decision makers who will strictly prefer to delegate, and show that when delegation occurs, the delegate is necessarily more extreme than the original decision maker in terms of her prior.
    Keywords: Cheap-talk, delegation, reputation, median voter.
    JEL: D82 D72
    Date: 2005–01–10

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