nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒11‒05
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. A Political-Economy Theory of Trade Agreements By Giovanni Maggi; Andres Rodriguez-Clare
  2. Political and Public Finance Motives for Tariffs By Michael E. S. Hoffman
  3. Politico-Economic Determinants of American Trade Policy Attitudes By Michael E. S. Hoffman
  4. Impact of U.S. Tariffs on Democratic Vote Share By Miaojie Yu
  5. Politics and efficiency of separating capital and ordinary government budgets By Marco Bassetto; Thomas J. Sargent
  6. The Political Economy of Fixed Exchange Rates: A Survival Analysis By Ralph Setzer
  7. Distributional Conflict, The State, and Peacebuilding in Burundi By Léonce Ndikumana
  8. Cross-Country Determinants of Life Satisfaction: Exploring Different Determinants across Groups in Society. By Christian Bjørnskov; Axel Dreher; Justina A.V. Fischer
  9. Political Rents, Promotion Incentives, and Support for a Non-Democratic Regime By Valery Lazarev
  10. Development, Environmental Policy, and Mass Media: Theory and Evidence By Suphachol Suphachalasai
  11. "A Dynamic General Equilibrium Analysis of the Political Economy of Public Education." By Jorge Soares
  12. "Time-Consistent Polities and Growth in Developing Countries: An Empirical Analysis." By James L. Butkiewicz; Halit Yanikkaya

  1. By: Giovanni Maggi; Andres Rodriguez-Clare
    Abstract: We develop a model where trade agreements -- in addition to correcting terms-of-trade externalities -- help governments to commit vis-a-vis domestic industrial lobbies. The model allows us to explore how the characteristics of the political environment affect the structure of the trade agreement and the extent of trade liberalization. The model also highlights the role of intersectoral capital mobility in determining trade liberalization. In a dynamic extension of the model, we explore the extent to which trade liberalization occurs gradually, and how its speed depends on the fundamentals of the problem.
    JEL: D72 F13
    Date: 2005–10
  2. By: Michael E. S. Hoffman (U.S. Government Accountability Office)
    Abstract: Governments face many constraints when making taxation decisions, including revenue needs, political objectives, and administrative capacities. Tariffs have an appealing combination of features for politicians: they provide a stream of revenue that is easy to collect, as well as satisfying political objectives in import-competing industries. This paper describes the tax structure governments choose when they are not purely benevolent. In the model the government must finance a stream of public expenditures while simultaneously seeking campaign contributions to maximize political support. The predictions of the model are consistent with observed taxation decisions in developing and industrialized countries.
    Keywords: tariffs, political economy, development, tax regimes
    JEL: F1 F2
    Date: 2005–10–28
  3. By: Michael E. S. Hoffman (U.S. Government Accountability Office)
    Abstract: Voting behavior and constituent attitudes are central to many models of trade policy determination. Examining the demographic and economic variables that are associated with attitudes toward various trade policies can provide some insight into the public perception of globalization, and the political response to those perceptions. Using detailed response and demographic data from the Program on International Policy Attitudes survey “Americans on Globalization, Trade, and Farm Subsidies†I assess a number of potential determinants of trade policy attitudes. Educational attainment is most clearly associated with pro- trade attitudes, and party affiliation suggests a certain malleability of opinion on trade issues. In addition, there is substantial variation in the determinants of trade policy attitudes across policy variables.
    Keywords: trade policy, globalization, policy attitudes
    JEL: F1 F2
    Date: 2005–10–28
  4. By: Miaojie Yu
    Abstract: This paper provides evidence on an amended Mayer-Heckscher-Ohlin model with parties by studying the effects of U.S. tariffs on the Democratic vote share. The effects are estimated with fixed effects and Two-Stage Least Squares based on data from the House of Representatives from the years 1982 to 2000. Weighted trade policy proxy for each congressional district are constructed and shown to be significant. Overall, a 10% decrease of weighted tariffs leads to a 12% decrease in the Democratic vote share in the election to the House, ceteris paribus. Also, the predictions of the model for electoral outcome are consistent with today’s U.S. politics.
    Keywords: tariffs, Democratic vote share, campaign contributions, House election
    JEL: F13 F14 P16
    Date: 2005–11–03
  5. By: Marco Bassetto; Thomas J. Sargent
    Abstract: We analyze the democratic politics and competitive economics of a ‘golden rule’ that separates capital and ordinary account budgets and allows a government to issue debt to finance only capital items. Many national governments followed this rule in the 18th and 19th centuries and most U.S. states do today. We study an economy with a growing population of overlapping generations of long-lived but mortal agents. Each period, majorities choose durable and nondurable public goods. In a special limiting case with demographics that make Ricardian equivalence prevail, the golden rule does nothing to promote efficiency. But when the demographics imply even moderate departures from Ricardian equivalence, imposing the golden rule substantially improves the efficiency of democratically chosen allocations of public goods. We use some examples calibrated to U.S. demographic data and find greater benefits from adopting the golden rule at the state level or with 19th century demographics than under current national demographics.
    Date: 2005
  6. By: Ralph Setzer
    Date: 2005
  7. By: Léonce Ndikumana
    Abstract: This paper examines the causes of conflict in Burundi and discusses strategies for building peace. The analysis of the complex relationships between distribution and group dynamics reveals that these relationships are reciprocal, implying that distribution and group dynamics are endogenous. The nature of endogenously generated group dynamics determines the type of preferences (altruistic or exclusionist), which in turn determines the type of allocative institutions and policies that prevail in the political and economic system. While unequal distribution of resources may be socially inefficient, it nonetheless can be rational from the perspective of the ruling elite, especially because inequality perpetuates dominance. However, because unequal distribution of resources generates conflict, maintaining a system based on inequality is difficult because it requires ever increasing investments in repression. It is therefore clear that if the new Burundian leadership is serious about building peace, it must engineer institutions that uproot the legacy of discrimination and promote equal opportunity for social mobility for all members of ethnic groups and regions.
    Date: 2005
  8. By: Christian Bjørnskov; Axel Dreher; Justina A.V. Fischer
    Abstract: This paper explores a wide range of determinants of life satisfaction exploiting a database of 73 countries, based in turn on about 100 000 observations. The determinants can be categorized in four groups: political, economic, institutional factors and human development and culture. The relevance of these factors is estimated on country-level averages of satisfaction of sub-groups of national populations according to gender, income and political orientation, using OLS, robust regression and Extreme Bounds Analysis techniques. Our results show that only a small number of factors robustly influence life satisfaction across countries while the importance of a large number of alternative factors suggested in the previous literature is rejected.
    JEL: I31 H10 H40
    Date: 2005–10
  9. By: Valery Lazarev
    Abstract: This paper analyzes the economic foundations of a non-democratic political regime, where the ruling bureaucracy captures rents through collective control over state property and job assignment. The model developed here yields the equilibrium in the "political labor market," where the ruling bureaucracy buys services and political support of activists recruited from the working population. The underlying implicit contract requires that the incumbent bureaucrats retire after a certain time to allow for deferred promotion of activists into rent-paying positions. The major implications are that the stability of a non-democratic regime is consistent with high-income gap between the rulers and the rest of the population, strengthened when government pursues an active investment policy, and is not directly affected by public goods provision or the rate of economic growth. The results of econometric analysis of panel data from former Soviet states for the period of 1956-1968 confirm the predictions of the model.
    Keywords: non-democratic regimes, bureaucracy, hierarchy, political support, promotion incentives, implicit contract, Soviet Union
    JEL: D72 J45 N44 P30
    Date: 2004–03
  10. By: Suphachol Suphachalasai (Department of Land Economy, University of Cambridge)
    Abstract: This paper investigates the relationship between development, environmental policy determination, and mass media. It stresses the role of mass media as a channel through which the level of development influence environmental policy making. Special interests appear to wield considerable influence over environmental policies, and create policy distortion. We develop a model with two political parties competing in election and policy influence by special interests to study environmental policy determination. Mass media acts as information provider to voters in the election. It informs voters regarding environmental policy platforms announced by the political parties. The theory suggests that, as development progresses, environmental awareness rises and so does the demand for environmental news. This induces profit maximizing media form to report more environmental news, and in turn keeps voters better informed regarding the policy platforms of the parties. We find that, in equilibrium, a more stringent environmental policy is implemented when the voters are better informed through mass media. The model also demonstrates the way in which process of development brings about the stringency of environmental policy at a level closer to the social optimum when special interests present. Empirical evidence across countries supports our fndings.
    Keywords: Environmental Policy, Mass Media, Special Interests, Electoral Competition
    JEL: D72 D8 H23
    Date: 2005–02
  11. By: Jorge Soares (Department of Economics,University of Delaware)
    Abstract: The primary objective of this paper is to highlight the distinct roles of altruism and of self-interest in the political determination of a public education policy. I assess the relative importance of three factors in the determination of the equilibrium level of this policy: altruism, the impact of public funding of education on social security benefits and its impact on factor prices. I then focus on the impact of implementing a social security system on the equilibrium levels of education funding and on welfare. I find that although, in the benchmark economy, the presence of social security might generate support for public funding of education, its overall effect on the well-being of individuals is negative for any level of social security taxation. are particularly well-suited for analyzing the dynamics going forward in time even though the dynamics are ill-defined in this direction. In particular, we analyze the inverse limit of the cash-in-advance model of money and illustrate how information about the inverse limit is useful for detecting or ruling out complex dynamics.
    Keywords: Public Education, Voting, General Equilibrium.
    JEL: D78 E62 I22
    Date: 2005
  12. By: James L. Butkiewicz (Department of Economics,University of Delaware); Halit Yanikkaya (Department of Economics Celal Bayar University)
    Abstract: Property rights are known to promote economic growth. Durable political regimes, regardless of type, can create stable environments that facilitate growth. Polity stability has an effect similar to property rights, promoting investment enhancing growth. Examination of the growth effects of regime stability finds that stable polities are important for growth in autocracies, but not democracies. That regime stability is not important for democracies indicates that parameter heterogeneity can be important when estimating empirical growth models. Not just democracies, but also stable autocracies with predictable rules-of-the-game create positive environments for economic growth.
    Keywords: Property Rights, Stability, Growth, Democracy, Autocracy
    JEL: O40 H11
    Date: 2005

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