nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒10‒08
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Minorities and Storable Votes By Alessandra Casella; Thomas Palfrey; Raymond Riezman
  2. Tax Evasion and the Importance of Trust By Hammar, Henrik; Jagers, Sverker; Nordblom, Katarina
  3. Puzzling Tax Structures in Developing Countries: A Comparison of Two Alternative Explanations By Roger Gordon; Wei Li
  4. What Citizens Know Depends on How You Ask Them: Experiments on Time, Money and Political Knowledge By Markus Prior; Arthur Lupia
  5. Does Centralised Wage Setting Lead into Higher Taxation By Juha Kilponen; Pekka Sinko
  6. Were Bush Tax Cut Supporters “Simply Ignorant?” A Second Look at Conservatives and Liberals in “Homer Gets a Tax Cut” By Arthur Lupia; Adam S. Levine; Jesse O. Menning; Gisela Sin
  7. Reputation and Rhetoric in Elections By Enriqueta Aragonès; Thomas R. Palfrey; Andrew Postlewaite

  1. By: Alessandra Casella; Thomas Palfrey; Raymond Riezman
    Abstract: The paper studies a simple voting system that has the potential to increase the power of minorities without sacrificing aggregate efficiency. Storable votes grant each voter a stock of votes to spend as desidered over a series of binary decisions. By cumulating votes on issues that it deems most important, the minority can win occasionally. But because the majority typically can outvote it, the minority wins only of its strength of preferences is high and the majority's strength of preferences is low. The result is that aggregate efficiency either falls little or in fact rises. The theoretical predictions are confirmed by a series of experiments: the frequency of minority victories, the relative payoff of the minority versus the majority, and the aggregate payoffs all match the theory.
    JEL: C9 D7 H1 K19
    Date: 2005–10
  2. By: Hammar, Henrik (Department of Economics, Göteborg University and National Institute of Economic Research (NIER)); Jagers, Sverker (Department of Political Science, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law)
    Abstract: Unless people pay the taxes they are obliged to pay, a general welfare state will eventually collapse. Thus, for the welfare state to survive in the long run, tax compliance is of utmost importance. Using Swedish individual survey data we analyze which factors affect the perception of tax evasion. The analysis is conducted on ten different taxes and the results differ widely. Hence, we show that it is important to study different taxes separately rather than treating tax evasion as one common phenomenon. In this paper we focus on the importance of different kinds of trust. Whether or not people in general are regarded as trustworthy only has a minor impact on perceived tax evasion. Instead, what matters is trust or distrust in politicians. People who distrust the parliament are more likely than others to think that tax evasion is common, and the result holds for most of the taxes studied. This may have severe long-run consequences for the welfare state. If people stop trusting their leading politicians, social norms about tax compliance deteriorate and the possibilities of collecting taxes for maintain- ing the welfare state are reduced. <p>
    Keywords: trust in politicians; generalized trust; social capital; general welfare state; tax policy; tax compliance
    JEL: H11 H26 Z13
    Date: 2005–09–27
  3. By: Roger Gordon; Wei Li
    Abstract: Observed economic policies in developing countries differ sharply both from those observed among developed countries and from those forecast by existing models of optimal policies. For example, developing countries rely little on broad-based taxes, and make substantial use of tariffs and seignorage as nontax sources of revenue. The objective of this paper is to contrast the implications of two models designed to explain such anomalous policies. One approach, by Gordon-Li (2005), focuses on the greater difficulties faced in poor countries in monitoring taxable activity, and explores the best available policies given such difficulties. The other, building on Grossman-Helpman (1994), presumes that political-economy problems in developing countries are worse, leading to worse policy choices. The paper compares the contrasting theoretical implications of the two models with the data, and finds that the political-economy approach does poorly in reconciling many aspects of the data with the theory. In contrast, the forecasts from Gordon-Li model are largely consistent with the data currently available.
    JEL: H21 O23 O17 F13 F23
    Date: 2005–10
  4. By: Markus Prior (Princeton University); Arthur Lupia (University of Michigan)
    Abstract: Surveys provide widely cited measures of political knowledge. Do unusual aspects of survey interviews affect these measures? An experiment on a nationally representative sample of over 1200 Americans provides an answer. Respondents are randomly assigned to one of four groups. A control group answers questions in a typical survey context. Respondents in three treatment groups are given a longer window of time in which to answer questions, a small monetary incentive for answering questions correctly, or both. These variations increase performance significantly for almost every knowledge question we asked. Overall, average knowledge scores in the treatment groups are 11-24 percent higher than in the control group. The treatments also cause significant reductions in the magnitude of respondents’ errors on open-ended questions. The findings imply that new elicitation strategies can improve our understanding of what citizens know about politics and other socially relevant phenomena.
    Keywords: information economics, political information, experimental economics, incentives
    JEL: C9
    Date: 2005–10–05
  5. By: Juha Kilponen (Bank of Finland); Pekka Sinko (Prime Minister's Office)
    Abstract: This paper studies implications of centralised wage setting for the level of taxation and public expenditure in an analytical model with unionised labour markets. We extend the previous studies by allowing for both demand and supply effects of labour. Also, in addition to the standard social planner approach, we consider a political economy set up, where the tax rate is chosen to maximise the welfare of a median voter. Our results suggest that when working hours are endogenous, the relationship between the degree of centralisation and the labour tax rate is ambiguous. In particular, if the marginal utility from public provision is sufficiently low, centralised wage setting implies lower optimal tax rate on labour. This is due to a 'budgetary discipline effect', which reduces the optimal tax rate preferred by the median voter under centralised wage setting.
    Keywords: Taxation, wage setting, public expenditure, median voter
    JEL: J
    Date: 2005–09–30
  6. By: Arthur Lupia (University of Michigan); Adam S. Levine (University of Michigan); Jesse O. Menning (University of Michigan); Gisela Sin (University of Michigan)
    Abstract: In a recent edition of Perspectives on Politics, Larry Bartels examines the high levels of support for tax cuts signed into law by President Bush in 2001. In so doing, he characterizes the opinions of “ordinary people” as being based on “simple-minded and sometimes misguided considerations of self interest” and concludes that “the strong plurality support for Bush’s tax entirely attributable to simple ignorance.” Our analysis of the same data reveals different results. We show that for a large and politically relevant class of respondents – people who describe themselves as “conservative” or “Republican” – increasing information levels increase support for the tax cuts to the extent that they have any affect at all. Indeed, using Bartels’ measure of political information, we show that the Republican respondents rated most informed supported the tax cuts at extraordinarily high levels (over 96%). For these citizens, Bartels’ claim that “better-informed respondents were much more likely to express negative views about the 2001 tax cut” is simply untrue. We then show that Bartels’ results depend on a very strong assumption about how information affects public opinion. He restricts all respondents -- whether liberal or conservative, Republican or Democrat – to respond to increasing information levels in identical ways. In other words, he assumes that if more information about the tax cut makes liberals less likely to support it, then conservatives must follow suit. This assumption is very presumptive about the policy and value trade- offs that different people should make. Our analysis, by contrast, allows people of different partisan or ideological identities to react to higher information levels in varying ways. This flexibility has many benefits, one of which is a direct test of Bartels’ restrictive assumption. We demonstrate that the assumption is untrue. Examined several ways, our findings suggest that much of the support for the tax cut was attributable to something other than “simple ignorance.” Bartels’ approach is based on a very strong presumption about how citizens should think and what they should think about. We advocate a different approach, one that takes questions of public policy seriously while respecting ideological and partisan differences in opinion and interest. Indeed, citizens have reasons for the opinions and interests they have. We may or may not agree with them. However, we, as social scientists, can contribute more by offering reliable explanations of these reasons than we can by judging them prematurely. By turning our attention to explaining differences of opinion, we can help to forge a stronger and more credible foundation for progress in meeting critical social needs.
    Keywords: public opinion, tax policy, incomplete information, welfare economics
    JEL: D6 D7 H
    Date: 2005–10–05
  7. By: Enriqueta Aragonès (Institut d’Anàlisi Econòmica); Thomas R. Palfrey (Departments of Politics and Economics, Princeton University); Andrew Postlewaite (Department of Economics, University of Pennsylvania)
    Abstract: We analyze conditions under which campaign rhetoric may affect the beliefs of the voters over what policy will be implemented by the winning candidate of an election. We develop a model of repeated elections with complete information in which candidates are purely ideological. We analyze an equilibrium in which voters’ strategies involve a credible threat to punish candidates who renege of their campaign promises, and all campaign promises are believed by voters, and honored by candidates. We characterize the maximal credible campaign promises and obtain that the degree to which promises are credible in equilibrium is an increasing function of the value of a candidate’s reputation.
    Keywords: Repeated Elections, Commitment, Reputation
    JEL: D72
    Date: 2005–04–11

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