nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒11‒12
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Democracy Deficits, Inequality and Pollution. A Politico-Economic Analysis By Drosdowski, Thomas
  2. Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina By Emmanuel Abuelafia; Sergio Berensztein; Miguel Braun; Luciano di Gresia
  3. Political-support lobbies responses to international environmental agreements. By Houda Haffoudhi
  4. Social Conflict and Gradual Political Succession: An Illustrative Model By William Jack; Roger Lagunoff
  5. Price Political Uncertainty and Stock Market Returns: Evidence from the 1995 Quebec Referendum By Marie-Claude Beaulieu; Jean-Claude Cosset; Naceur Essaddam
  6. Social Capital in Central and Eastern Europe. A Critical Assessment and Literature Review By Dimitrina Mihaylova
  7. Trade Globalization and Political Liberalization: A Gravity Approach By Miaojie YU
  8. The logic of two-level games with endogenous lobbying : the case of international environmental agreements. By Houda Haffoudhi

  1. By: Drosdowski, Thomas
    Abstract: The article examines conditions, under which the degree of democratization influences environmental policy outcomes, with a given resource endowments' heterogeneity as a crucial feature of a politico-economic process. We develop an OLG model with pollution as an aggregate externality. The decisive voter, whose income can differ from the median one, chooses redistribution to finance abatement. By comparing the optimal taxation under alternative political regimes we analyze their implications for environment, efficiency and growth. We find that left regimes, choosing more progressive redistribution, maintain better environmental quality, which supports empirical research. Inequality does not appear to be harmful for the environment, and it dampens the effect of democracy imperfections on redistribution.
    Keywords: pollution, political economy, inequality, redistribution, growth
    JEL: D31 D63 D72 H23 Q53 Q58
    Date: 2005–10
  2. By: Emmanuel Abuelafia (CIPPEC); Sergio Berensztein (Universidad Torcuato di Tella); Miguel Braun (CIPPEC); Luciano di Gresia (Universidad Nacional de La Plata)
    Abstract: The budget process is increasingly considered key for reform efforts to improve fiscal outcomes. In this paper we embark on a political economy analysis of the budget process in Argentina, in the spirit of the IDB project “Political Institutions, Policymaking Processes and Policy Outcomes” in order to understand who determines budget outcomes in Argentina. In particular, we seek to characterize the institutional framework that regulates the budget preparation, approval, implementation and control. Furthermore, we identify which actors are involved both formally and informally in the process at each stage, and seek to understand their incentives and interactions. We find that the President has a de facto role that is much more powerful than what the laws and institutions of the budget process stipulate. However, the rigidity of the budget process, together with other constraints such as macroeconomic shocks, fiscal rules, agreements with International Financial Institutions (IFIs) and the influence of other actors such as governors, legislators and lobbies - have limited the ability of the Executive to substantially modify the budget process. Furthermore, compared with the period of high inflation of 1983-1991, in the past decade we have witnessed dramatic improvements in the institutionalization of the budget process, both in political and administrative terms. These reforms have accompanied a strong improvement in fiscal outcomes in the 1990s compared with the 1980s, and provided some of the tools necessary to limit the depth of the recent crisis and regain macroeconomic stability.
    JEL: D6 D7 H
    Date: 2005–11–08
  3. By: Houda Haffoudhi (LAEP)
    Abstract: Studies of the stability of international environmental agreements (IEAs) assumed a benevolent government who maximizes social welfare. The aim of our paper is to develop a theoretical framework in which the Governement's decisions are influenced by green and producer lobbies. To this end, we extend the political support approach of Hillman (1982) and model the IEA formation as a two stage non-cooperative game. Our work studies the coalition formation process and determines both coalition abatement level and the size of stable coalition. The basis conclusion that emerges from the analysis of politically motivated coalition formation is that government's decision depends not only on ecological vulnerability and abatement cost in each but also on the political strength of green lobby over industrial lobby and its capacities to give political support to the government.
    Keywords: Non-cooperative game, interest group, coalition theory, environmental policy.
    JEL: C72 D72 D78 Q28
    Date: 2005–09
  4. By: William Jack; Roger Lagunoff
    Date: 2005–11–04
  5. By: Marie-Claude Beaulieu; Jean-Claude Cosset; Naceur Essaddam
    Abstract: In this study, we investigate the short run effect of the October 30th, 1995 Quebec referendum on the common stock returns of Quebec firms. Our results show that the uncertainty surrounding the referendum outcome had an impact on stock returns of Quebec firms. We also find that the effect of the referendum varied with the political risk exposure of Quebec firms, that is, the structure of assets and principally the degree of foreign involvement.
    Keywords: Political uncertainty, stock market returns, 1995 Québec referendum
    JEL: G12 G14 G15 G31
    Date: 2005
  6. By: Dimitrina Mihaylova (Center for Policy Studies, Central European University)
    Abstract: Ever since the 1990s, social capital has attracted attention from social science researchers. With its focus on the importance of intangible resources such as trust, social capital appeared to supplement existing theories of social and economic change. For its early proponents such as Bourdieu, Coleman and more famously, Putnam, social capital could be understood as a critical component in social reproduction, educational achievement and administrative efficiency. Social capital seems especially relevant in Central and Eastern Europe and the countries of the former Soviet Union. Not only does it direct attention to informal networks as ways of getting things done, it also explores how strong ties of personal trust co-exist with low levels of general trust and how this can affect economic and political reform. In terms of its actual policy implications, the conclusions of social capital research have not always been clear and it may be fair to say that expectations have been scaled down since the World Bank declared that social capital to be the missing link. This study offers a critical review of over seventy studies that have applied social capital to developments in Central and Eastern Europe and the former Soviet Union. The author draws from a variety of social science disciplines as well as including several reports from international organisations. The review investigates five principal fields in which social capital has been used to date and to provides a series of suggestions as to how such research can help encourage institutional and policy innovation.
    JEL: O P
    Date: 2005–11–02
  7. By: Miaojie YU (Department of Economics, UC-Daivs)
    Abstract: This paper is an empirical investigation on the relationship between trade globalization and political liberalization. The sample is based on 157 countries from years 1957-1998, taking into consideration many social, economic, environmental, geographical, and historical factors. From this, an augmented gravity equation is estimated and evidence is found to support the prediction that political liberalization could discourage trade and trade could foster democracy.
    Keywords: Trade, Democracy, Gravity Equation
    JEL: F13 F14 P16
    Date: 2005–11–09
  8. By: Houda Haffoudhi (LAEP)
    Abstract: International environmental agreements (IEAs) are increasingly important in a globalized economy. The aim of our paper is study the effect of political pressure groups-lobbies on the size and stability of IEAs. To this purpose we use the framework of two-level games to explain how national political situation influences the decisions of governments at the international negotiations arena. We present an endogenous lobbying model in which we assume that lobbies try to influence the policy choice of governments by offering political contribution in return for policy compromise. Indeed, we use the "interest based explanation" of international environmental policy to describe the incentives of countries to join an agreement. This approach classifies countries in four categories : pushers, bystanders, intermediate and draggers. We found that, when government gives the same weight to contribution and to social welfare, the contributions from the industrial lobby give incentives to government (Pushers, intermediate) to participate in the grand coalition making it stable. Our results suggest that in order to sustain the grand coalition, weak global environmental agreements -i.e. those involving small abatement targets- should be negotiated. The result is similar if governments are more interested by political contribution. However, if governments care less about political contribution than about social welfare, industrial contribution is not enough to limit the free riding incentives of each type of government. In this situation, pushers are the more expected to sustain a small stable coalition.
    Keywords: Non-cooperative game, interest group, coalition theory, environmental policy.
    JEL: C72 D72 D78 Q28
    Date: 2005–09

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