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on Positive Political Economics |
| By: | Grossman, Gene; Helpman, Elhanan |
| Abstract: | Polities differ in the extent to which political parties can pre-commit to carry out promised policy actions if they take power. Commitment problems may arise due to a divergence between the ex ante incentives facing national parties that seek to capture control of the legislature and the ex post incentives facing individual legislators, whose interests may be more parochial. We study how differences in "party discipline" shape fiscal policy choices. In particular, we examine the determinants of national spending on local public goods in a three-stage game of campaign rhetoric, voting, and legislative decision-making. We find that the rhetoric and reality of pork-barrel spending, and also the efficiency of the spending regime, bear a non-monotonic relationship to the degree of party discipline. |
| Keywords: | electoral competition; party politics; political economy; public goods |
| JEL: | D72 H41 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5233&r=pol |
| By: | Kai A. Konrad; Stergios Skaperdas |
| Abstract: | Leaders compensate supporters not just for performing their duties but also in order to preempt an overthrow by the same supporters. We show how succession rules affect the power of leaders relative to supporters as well as the resources expended on possible succession struggles. We compare two regimes of leadership succession: the conclave regime and the divide-et-impera regime which differ with respect to the role of supporters of the previous leader once the new leader takes power. The leadership rent is higher and supporters receive a lower compensation in the divide-et-impera regime, as supporters have to fight harder for succession to avoid the grim outcome of loss. A leader, then, would like to induce the divide-et-impera regime even when every supporter has veto power over his leadership. |
| Keywords: | political leadership, political support, political survival, successorship |
| JEL: | D72 D74 H50 N40 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1534&r=pol |
| By: | Toke Aidt; Jaysari Dutta; Vania Sena |
| Abstract: | We study the joint determination of corruption and economic growth. Our model can generate multiple equilibria when complementarity between corruption and growth is sufficiently strong. Our estimates of the impact of corruption on growth take into account that corruption is endogenous and that there may exist different growth/corruption regimes. In a cross section of countries in the 1990s,we identify two regimes, conditional on the quality of political institutions. In the regime with high quality political institutions, corruption has a negative impact on growth. In the regime with low quality institutions, corruption has, overall, little impact on growth, but, if anything, the impact is, surprisingly, positive. |
| Keywords: | Growth; corruption; threshold effects; governance; democracy; corruption. |
| JEL: | D72 D82 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0540&r=pol |
| By: | Mauricio Cárdenas; Roberto Junguito; Mónica Pachón |
| Abstract: | Abstract: The 1991 Colombian constitution strengthened the checks and balances of the political system by enhancing the role of Congress and the Constitutional Court, while somewhat limiting the powers of the president (who nonetheless remains extremely powerful even for Latin American standards). As a consequence of the larger number of relevant players, and the removal of barriers that restricted political participation, the political system gained in terms of representation. However, political transaction costs increased, making cooperation harder to achieve. We show that this has been typically the case of fiscal policy, where the use of rigid rules, the constitutionalization of some policies, and reduction in legislative success rates -due to the presence of a more divided and fragmented congress- have limited the adaptability and flexibility of policies. In contrast, in other areas of policy -such as monetary policy and regulation of public utilities- that were formally delegated to the technocracy, policies have been more adaptable to economic shocks, delivering better outcomes. |
| Keywords: | Instituciones Políticas |
| JEL: | E61 |
| Date: | 2005–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000147:001320&r=pol |
| By: | Gersbach, Hans; Liessem, Verena |
| Abstract: | When politicians are provided with insufficient incentives by the democratic election mechanism, social welfare can be improved by threshold contracts. A threshold contract stipulates the performance level that a politician must reach in order to obtain the right to stand for re-election. 'Read my lips' turns into 'read my contract'. Politicians can offer the threshold contracts during their campaign. These threshold contracts do not violate the liberal principle of free and anonymous elections in democracies. |
| Keywords: | democracy; elections; threshold contract |
| JEL: | D72 D82 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5175&r=pol |
| By: | Konrad, Kai A; Skaperdas, Stergios |
| Abstract: | Leaders compensate supporters not just for performing their duties but also in order to preempt an overthrow by the same supporters. We show how succession rules affect the power of leaders relative to supporters as well as the resources expended on possible succession struggles. We compare two regimes of leadership succession: the conclave regime and the divide-et-impera regime which differ with respect to the role of supporters of the previous leader once the new leader takes power. The leadership rent is higher and supporters receive a lower compensation in the divide-et-impera regime, as supporters have to fight harder for succession to avoid the grim outcome of loss. Leaders, then, would like to induce the divide-et-impera regime even when every supporter has veto power over his leadership. |
| Keywords: | political leadership; political support; political survival; successorship |
| JEL: | D72 D74 H50 N40 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5206&r=pol |
| By: | James E. Alt (Department of Government, Harvard University); David Dreyer Lassen (Department of Economics, University of Denmark) |
| Abstract: | The paper investigates the effects of checks and balances on corruption. Within a presidential system, effective separation of powers is achieved under divided government, with the executive and legislative branches being controlled by different political parties. When government is unified, no effective separation exists even within a presidential system, but, we argue, can be partially restored by having an accountable judiciary. Our empirical findings show that divided government and elected, rather than appointed, state supreme court judges are associated with lower corruption and, furthermore, that the effect of an accountable judiciary is stronger under unified government, where government cannot control itself. The effect of an accountable judiciary seems to be driven primarily by judges chosen through direct elections, rather than those exposed to a retention vote following appointment. |
| Keywords: | separation of powers; corruption; rent seeking; checks and balances; political institutions; judicial independence; rule of law |
| JEL: | D72 D73 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:05-12&r=pol |
| By: | Gustav Papanek (Boston University); Oldrich Kyn (Boston University) |
| Abstract: | Empirical study, using regression analysis of the combined cross-section and time series data for 83 countries. The following hypotheses are tested: (1) The Kuznets Curve does not exist. That is, the level of per capita income has no effect on income distribution, once other relevant factors are taken into account. (2) Even if the Kuznets Curve exists, the relationship between per capita income and income distribution is not stable over time. (3) Differences in socio-political systems are much more important than per capita income in explaining cross-country variations in income distribution. It will be more egalitarian in countries that are Communist, or suffer extensive government intervention in the economy, or have no dualistic socio-political structure. (4) Spread of education leads to greater income equality. (5) Rate of growth does not affect income distribution. (6) Structure of the economy, especially the relative importance of primary and manufactured exports, is a major factor in income distribution. (7) There are no systematic differences in income distribution among the major regions of the world, once such explanatory variables as socio-political systems or education are included in the analysis. |
| Keywords: | Income Distribution, Economic Inequality, Kuznets Curve |
| JEL: | P Q Z |
| Date: | 2005–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpot:0509018&r=pol |
| By: | James L.Butkiewicz (Department of Economics,University of Delaware); Halit Yanikkaya (Department of Economics, Celal Bayar University) |
| Abstract: | This paper investigates the effects of sociopolitical instability on long-run growth. The impacts of socio-political instability are estimated by cross-country growth regressions for a panel of nations over a thirty-year sample period. Overall, our results are consistent with the existing literature implying that, at best, a weak relationship exists between sociopolitical instability and growth. More importantly, this relationship depends crucially on the measure of sociopolitical instability used. Specifically, while government instability and social instability measures typically have weak and, in some instances, a positive, relationship with growth, political violence indicators have a negative and significant impact on growth. Furthermore, our results indicate that sociopolitical instability has larger adverse effects on countries with higher levels of development and democracy. Although the issue of potential reverse causality is widely emphasized in the literature, our IV estimation results imply that simultaneity is not a severe problem for estimates of empirical growth models including sociopolitical instability measures. On the contrary, the effects of outlier countries and, to a lesser degree, parameter heterogeneity are much more serious problems for estimates using these variables. Length pages: 30 pages |
| Keywords: | Socio-political Instability; Political Violence; Growth |
| JEL: | O40 K40 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:04-04&r=pol |
| By: | Mike Felgenhauer (University of Mannheim.); Hans Peter Grüner (University of Mannheim, IZA, Bonn, and CEPR, London. Correspondence address: Hans Peter Grüner, University of Mannheim, Department of Economics, D-68131 Mannheim, Germany.) |
| Abstract: | Some committees convene behind closed doors while others publicly discuss issues and make their decisions. This paper studies the role of open and closed committee decision making in presence of external influence. We show that restricting the information of interest groups may reduce the bias towards special interest politics. Moreover, there are cases where benefits from increasing the number of decision makers can only be reaped if the committee's sessions are not public. In open committees benefits from voting insincerely accrue not only when a decision maker's vote is pivotal. As the number of voters increases, the cost of voting insincerely declines in an open committee because the probability of being pivotal declines. This is not the case in a closed committee where costs and benefits of insincere voting only arise when a voter is pivotal. |
| Keywords: | Committees; interest groups; voting; common agency. |
| JEL: | D71 D72 D73 |
| Date: | 2003–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20030293&r=pol |
| By: | Ludger Schuknecht (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany) |
| Abstract: | The paper analyses the EU fiscal rules from a political economy perspective and derives some policy lessons. Following a literature survey, the paper stresses the importance of appropriate incentives for rule compliance in an environment where national fiscal sovereignty precludes the option of centralised enforcement. In addition, the paper stresses the importance of clear and simple rules and in particular the 3% deficit limit in anchoring expectations of fiscal discipline and facilitating public and market monitoring of public finances. This, in turn, strengthens incentive for rule compliance. Moreover, the paper discusses the interests of the most important players in European fiscal rule formation and the importance of choosing the appropriate time for initiating a reform debate. |
| Keywords: | Political economy; fiscal rules; Stability and Growth Pact; deficits; institutional reform. |
| JEL: | D7 H3 H6 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20040421&r=pol |
| By: | Mika Tujula (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Guido Wolswijk (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany) |
| Abstract: | Fiscal balances have deteriorated quickly in recent years, bringing back to the foreground the question what factors help explain such sharp changes. This paper takes a broad perspective at the issue regarding countries included, the range of explanatory variables tried, and the time-span. The empirical analysis shows that changes in budget balances are affected by debt growth, macroeconomic developments and political factors. In particular, we find that the run-up to EMU induced additional consolidation in Europe and that budget balances deteriorate markedly in election years. Asset prices also may affect budgets, but the impact remains limited in normal times. |
| Keywords: | Fiscal policy; asset prices; economic growth; budget balance; Stability and Growth Pact. |
| JEL: | E61 E62 H61 H62 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20040422&r=pol |
| By: | Elias Papaioannou (London Business School) |
| Abstract: | This paper uses a large panel of bilateral bank flow data to assess how institutions and politics affect international capital -bank in particular- flows. The following key findings emerge: 1) The empirical "gravity" model is the benchmark in explaining the volume of international banking activities. 2) Conditioned on standard gravity factors (distance, GDP, population), well-functioning institutions are a key driving force for international bank flows. Specifically, foreign banks invest substantially more in countries with i) uncorrupt bureaucracies, ii) high-quality legal system, and iii) a non-government controlled banking system. 3) Beyond institutions, politics exert also a firstorder impact. 4) The European Integration process has spurred cross-border banking activities between member states. These results are robust to various econometric methodologies, samples and the potential endogeneity of institutional characteristics. The strong institutions/politics-bank flows nexus has strong implications for asset trade and international macro theories, which have not modelled these relationships explicitly. |
| Keywords: | banks, capital flows, institutions, law and finance, politics |
| JEL: | F34 F21 G21 K00 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050437&r=pol |