nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒02‒27
four papers chosen by
Eugene Beaulieu
University of Calgary

  1. Endogenous Public Policy and Long-Run Growth: Some Simple Analytics By Christos Koulovatianos; Leonard J. Mirman
  2. How Do Political Changes Influence U.S. Bilateral Aid Allocations? Evidence from Panel Data By Fleck, Robert K.; Kilby, Christopher
  3. Discretional political budget cycles and separation of powers By Jorge Streb; Daniel Lema; Gustavo Torrens
  4. Corporate Rent-Seeking and the managerial soft-budget constraint By Rodolfo Apreda

  1. By: Christos Koulovatianos; Leonard J. Mirman
    Abstract: We study the determinants of voting outcomes on the provision of public consumption through marginal income taxes in the context of the simple linear growth model. We provide analytical results on how the dynamic politicoeconomic equilibrium maps the economic fundamentals to policies and long-run growth. We find that in a deterministic growth environment voters internalize, although imperfectly, the deadweight losses of taxation and vote for lower taxes when the productivity of capital is higher. Therefore, the politicoeconomic channel reinforces the positive role of productivity for growth. In a stochastic linear-growth environment where business cycles are driven by productivity shocks, in line with existing evidence, we find that the level of endogenous public consumption is procyclical but its share of GDP is countercyclical.
    JEL: C73 D72 E61 E62 O23
    Date: 2005–01
  2. By: Fleck, Robert K. (Montana State University Department of Agricultural Economics and Economics); Kilby, Christopher (Vassar College Department of Economics)
    Abstract: The allocation of development aid depends on political factors in countries that provide aid and in countries that receive aid. To provide new insight into the role of these factors, this paper conducts an econometric analysis of panel data on U.S. bilateral aid to 119 countries from 1960 to 1997. For each aid-receiving country, we employ variables to proxy for four aid allocation criteria: development concerns, strategic importance to the U.S., commercial importance to the U.S., and the degree of democratization. We find evidence that each of these variables influences the allocation of aid, although the evidence is stronger for some criteria (development concerns, commercial importance) than for others (strategic importance, degree of democratization). Furthermore, we find that the pattern of aid allocation depends on the composition of the U.S. government. When the president and Congress are liberal, development concerns appear to have more weight in the allocation process than when the president and/or Congress are more conservative. When the Congress is more conservative, commercial concerns appear to have more weight than when the Congress is liberal. These findings have practical importance in light of current attempts to overhaul the allocation of both bilateral and multilateral aid.
    Date: 2005–02
  3. By: Jorge Streb; Daniel Lema; Gustavo Torrens
    Abstract: In contrast to previous empirical work on electoral cycles, which implicitly assumes the executive has full discretion over fiscal policy, this paper contends that under separation of powers an unaligned legislature may have a moderating role. Focusing on the budget surplus, we find that stronger effective checks and balances explain why cycles are weaker in developed and established democracies. Once the discretional component of executive power is isolated, there are significant cycles in all democracies. Whether the political system is presidential or parliamentary, or the electoral rules are majoritarian or proportional, does not change the basic results.
    Keywords: political budget cycles, asymmetric information, discretion, separation of powers, checks and balances, veto players, rule of law
    JEL: D72 D78
    Date: 2005–02
  4. By: Rodolfo Apreda
    Abstract: This paper seeks to expand on two topical strands in Government Finance and Political Science literature, rent-seeking and the soft-budget constraint, so as to bring forth a strong linkage with corporate governance environments. It will attempt to accomplish this task by setting up a distinctive framework of analysis that hinges on incremental cash flows. Firstly, it claims that both rent-seeking behavior and the soft-budget constraint are worthy of being applied to corporate governance learning and practice. Secondly, the paper contributes to focus on cash-flows reliability and managers’ accountability. Thirdly, it is shown how conflicts of interest underlie rent-seeking behavior, and how the latter relates to the soft-budget constraint.
    Keywords: Rent-Seeking, Soft-Budget Constraint, Corporate Governance, Incremental Cash Flow model, Conflicts of Interest.
    JEL: G30 G34 D72 D74 D82
    Date: 2004–12

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