nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒10‒22
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Public Information and Electoral Bias By Taylor, Curtis; Yildirim, Huseyin
  2. Legal Pluralism and the Politics of Constitutional Definition By Gavin Anderson
  3. Social Conflict and Gradual Political Succession: An Illustrative Model By William Jack (Georgetown University) and Roger Lagunoff (Georgetown University)
  4. Front-Loaded or Back-Loaded Fiscal Adjustments: What Works in Emerging Market Economies? By Carlos Mulas-Granados; Emanuele Baldacci; Benedict J. Clements; Sanjeev Gupta
  5. Can Public Discussion Enhance Program Ownership? By Peter Isard; Allan Drazen
  6. The Political Economy of Conditional and Unconditional Foreign Assistance: Grants vs. Loan Rollovers By Wolfgang Mayer; Alex Mourmouras
  7. Money-Based Versus Exchange-Rate-Based Stabilization: Is There Space for Political Opportunism? By Ari Aisen
  8. Who Controls the Budget: The Legislature or the Executive? By Ian Lienert
  9. Global Aging and Fiscal Policy with International Labor Mobility: A Political Economy Perspective By Mehmet S. Tosun
  10. The Political Economy of Seigniorage By Ari Aisen; Francisco José Veiga
  11. Mean voting rule and strategical behavior: an experiment By Marchese, Carla; Montefiori, Marcello
  12. The Political Economy of Violence and Distribution in Ancient Times: A Note on the Relationship between Specific Investments and the Evolution of Early Human Societies By Alberto Battistini
  13. Contest with Attack and Defence: Does Negative Campaigning Mobilize or Demobilize the Electorate? By raphael soubeyran

  1. By: Taylor, Curtis; Yildirim, Huseyin
    Abstract: We present a theory of strategic voting that predicts elections are more likely to be close and voter turnout is more likely to be high when citizens possess better public information about the composition of the electorate. These findings are disturbing because they suggest that providing more information to potential voters about aggregate political preferences (e.g., through polls, political stock markets, or expert forecasts) may actually undermine the democratic process. We show that if the distribution of preferences is common knowledge, then strategic voting leads to a stark neutrality result in which the probability that either alternative wins the election is 12. This occurs because membersof the minority compensate exactly for their smaller group size by voting with higher frequency. By contrast, when citizens are symmetrically ignorant about the distribution of types, the majority is more likely to win the election and expected voter turnout is lower. Indeed, when the population is large and voting costs are small, the majority wins with probability arbitrarily close to one in equilibrium. Welfare is, therefore, unambiguously higher when citizens possess less information about the distribution of political preferences.
  2. By: Gavin Anderson
    Abstract: This paper addresses the counterhegemonic potential of rights constitutionalism in the age of globalization, and in particular its capacity to respond to the rise of significant forms of private power. It locates this issue in the context of the paradigmatic debate of modern law between liberal legalism and legal pluralism. The latter challenges the core epistemological assumptions of orthodox constitutional thought that law is exclusively state law (by positing the existence of non-state legal orders) and that this tends towards coherence and effectiveness. For legal pluralism, constitutionalism's importance does not lie primarily in the outcome of normative argument, but in symbolic terms as a legitimating discourse. Accordingly, to claim that law only emanates from state institutions, and is an effective tool of social engineering, is not simply an analytical statement, but reflects a substantive political agenda. The politics of definition of classical liberalism and the 'new constitutionalism' are contrasted to consider how they set the parameters for political debate. The former, which views constitutionalism as negative limits on the state, reinforces hegemonic interests by its narrow conception of political power as inhering in public institutions, whereas the latter, by locating constitutional norms, for example in the actions of multinational corporations, potentially opens up private power to constitutional scrutiny. It is concluded that the prospects for counterhegemonic constitutionalism lie in opening up the politics of definition of constitutional law to critical debate.
    Keywords: globalization
    Date: 2005–05–15
  3. By: William Jack (Georgetown University) and Roger Lagunoff (Georgetown University) (Department of Economics, Georgetown University)
    Abstract: This paper studies the evolution of political institutions in the face of conflict. We examine institutional reform in a class of pivotal mechanisms — institutions that behave as if the resulting policy were determined by a “pivotal” decision maker drawn from the potential population of citizens and who holds full policy-making authority at the time. A rule-of-succession describes the process by which pivotal decision makers in period t + 1 are, themselves, chosen by pivotal decision makers in period t. Two sources of conflict - class conflict, arising from differences in wealth, and ideological conflict, arising from differences in preferences are examined. In each case, we characterize the unique Markov Perfect Equilibrium of the associated dynamic political game, and show that public decision-making authority evolves monotonically downward in wealth and upward in ideological predisposition toward the public good. We then examine rules-of-succession when ideology and wealth exhibit correlation. Classification-JEL Codes: C73, D72, D78
    Keywords: Social Conflict, Rule of Succession, Dynamic political game
  4. By: Carlos Mulas-Granados; Emanuele Baldacci; Benedict J. Clements; Sanjeev Gupta
    Abstract: This paper investigates the political and economic determinants of successful fiscal adjustment in 25 emerging market economies from 1980 to 2001. The results show that large and back-loaded fiscal adjustments have the highest likelihood of success. Fiscal consolidations based on expenditure cuts increase the probability of approaching and achieving fiscal sustainability but are insufficient to maintain it unless accompanied by revenue reforms. Adjustment episodes launched in countries where governments enjoy a parliamentary majority and do not face imminent elections, are found to be more successful. Fiscal consolidations undertaken under IMF-supported programs also have a higher probability of success.
    Keywords: Emerging markets , Transition economies , Fiscal policy , Economic models , Structural adjustment ,
    Date: 2004–09–02
  5. By: Peter Isard; Allan Drazen
    Abstract: We use the concepts of deliberative democracy from political science and cheap talk from economics to develop a better understanding of how public discussion can contribute to building and demonstrating ownership of IMF programs and hence to program success. We argue that ownership is more complex than many discussions of it would suggest, since it must include not only the willingness to carry out a program, but also the technical capacity and especially the political ability to do so. Public discussion can serve a number of purposes, each of which can be better understood by moving to a more formal treatment. We illustrate our points by means of simple examples. We also consider some of the drawbacks of public discussion, especially as applied to IMF programs.
    Date: 2004–09–13
  6. By: Wolfgang Mayer; Alex Mourmouras
    Abstract: Improving the effectiveness of financial assistance programs is a priority of international financial institutions (IFIs). This paper examines the effectiveness of alternative assistance instruments in a dynamic political economy framework. Economic policies of the receiving country are distorted by the influence of a domestic interest group. The assistance-providing IFI aims at reducing these distortions. The IFI provides assistance either as grants or loans, and either conditionally on reducing policy distortions or unconditionally. The paper shows that, other things constant, one-time grants are more effective than loan rollovers when assistance is unconditional, but that the opposite is true when assistance is conditional.
    Keywords: Political economy , Conditionality , Financial assistance , Economic models , Loans ,
    Date: 2004–03–22
  7. By: Ari Aisen
    Abstract: In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Since exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations (MBS) generate a consumption bust followed by a recovery, policymakers may consider the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections while MBS are set after them.
    Keywords: Stabilization measures , Anti-inflation policy , Economic models ,
    Date: 2004–06–22
  8. By: Ian Lienert
    Abstract: Country-specific factors prevent a strong linear relationship between the legislature's budgetary powers and the extent of its separation from the executive. Electoral and voting systems, bicameralism, constitutional and legal constraints, voluntary contracts of political parties, and long-standing traditions all influence the relative budgetary powers of executives and legislatures. Differences in the legislature's budgetary authority in twenty-eight countries with five different forms of government are examined. It is concluded that differences in budgetary powers within a particular form of government are as great as those between different forms of government.
    Keywords: Budgets , Legislation , Budgetary policy ,
    Date: 2005–06–22
  9. By: Mehmet S. Tosun
    Abstract: This paper uses an overlapping generations model with international labor mobility and a politically responsive fiscal policy to examine aging in developed and developing regions. Migrant workers change the political structure composed of young and elderly voters in both labor-receiving and labor-sending countries. Numerical simulations show that the developed region benefits more from international labor mobility through the contribution of migrant workers as laborers, savers, and voters. The developing region experiences significant growth in all specifications but benefits more under international capital mobility. Restricting political participation of migrant workers in the developed region produces inferior growth results.
    Keywords: Population , Aging , Fiscal policy , Labor mobility , Capital flows , Economic models , Political economy ,
    Date: 2005–07–28
  10. By: Ari Aisen; Francisco José Veiga
    Abstract: While most economists agree that seigniorage is one way governments finance deficits, there is less agreement about the political, institutional, and economic reasons for relying on it. This paper investigates the main determinants of seigniorage using panel data on about 100 countries, for the period 1960-1999. Estimates show that greater political instability leads to higher seigniorage, especially in developing, less democratic, and socially polarized countries, with high inflation, low access to domestic and external debt financing and with higher turnover of central bank presidents. One important policy implication of this study is the need to develop institutions conducive to greater economic freedom as a means to lower the reliance on seigniorage financing of public deficits.
    Keywords: Political economy , Currency issuance , Money supply , Economic models ,
    Date: 2005–09–20
  11. By: Marchese, Carla; Montefiori, Marcello
    Abstract: This paper considers the problem of voting about the quantity of a public good. An experiment has been run in order to test the extent of the strategic bias that arises in the individual vote when the social choice rule is to select the mean of the quantities voted for; conflicting theoretical predictions are available in the literature on this purpose. The political implications of the mean rule and its e.ects upon e.ciency are also discussed. The role of voters’ information is considered. A comparison is made with the working of the median rule.
    JEL: C91 D72
    Date: 2005–10
  12. By: Alberto Battistini
    Abstract: this paper combines the economic concept of specific investment with anthropological evidence on three early human societies –the disbanding groups of pre-anatomically modern humans, the huntergatherers’ egalitarian communities, and the primitive states or chiefdoms. This combination is aimed to provide a single framework for thinking of the institutional evolution of their political organizations and, therefore, of the associated mode of regulation of violence and distribution. Specifically, I examine a circular causation mechanism by which exogenous ‘technological’ conditions determine the basic type of economic activity together with the associated degree of investments’ specificity. The resulting safeguards are expressed in political terms and, in turn, the way these political organizations regulate the level of violence in the society implements a distribution of goods and power which has the effect of reinforcing the initial kick in terms of the economic structure. Thus, at the cost of some loss in formal sophistication, the paper stresses the two-way link between the economical, the political and the distributional sphere, and discusses grouplevel mechanisms to restrain behaviour that –exogenous to every individual in the group but endogenous to groups’ behaviour- are not caught by conventional modelling about the origins of order.
    Keywords: micro-foundations of groups; macro-foundations of individuals; self-reinforcing mechanisms.
    JEL: D30 H11 K10 L22 N40
    Date: 2005–09
  13. By: raphael soubeyran (GREQAM)
    Abstract: We present a general model of two players contest with two types of efforts. Contrary to the classical models of contest, where each player chooses a unique effort, and where the outcome depends on the efforts of all the players, contestants are allowed to reduce the effort of the opponent. Defence increases one's chance of winning while attack annihilates the defence of the opponent. This model has many applications as political campaigning, wars, lobbies competitions, job promotion competitions, or sport contests. We study the general model of contest with attacks and defences and propose an application to negative political campaigns, where two candidates arbitrate between disparaging their opponent or valorizing their own image. We propose sufficient conditions for the existence and unicity of the symmetric Nash equilibrium of the contest game. In the application, we contribute to the very empirically debated question dealing with the effect of attack on voters turnout, and show that the conclusion depends on the distribution of voters sensitivity to defence and attack. Furthermore, contrary to the literature, we show that an underdog candidate may be less aggressive than his opponent.
    Keywords: Contest, Rent-seeking, Sabotage, Negative Campaigning, Turnout
    JEL: D74 D72 C72
    Date: 2005–10–18

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