nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒02‒12
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Ideology and existence of 50%-majority equilibria in multidimensional spatial voting models By Crès, Hervé; Ünver, Utku
  2. Do the rich vote Conservative because they are rich? By Lind, Jo Thori
  3. Democracy and Development: The Devil in the Details By Torsten Persson; Guido Tabellini
  4. BUDGET INFLEXIBILITY By Juan Carlos Echeverry; Leopoldo Fergusson; Pablo Querubín
  5. Legal-Political Factors and the Historical Evolution of the Finance-Growth Link By Michael D. Bordo; Peter L. Rousseau
  6. What does it take to sell Environmental Policy? An empirical Analysis of Referendum Data By Daniel Halbheer; Sarah Niggli; Armin Schmutzler
  7. Corruption and the Shadow Economy: An Empirical Analysis By Axel Dreher; Friedrich Schneider
  8. Power to the People? The Impact of Decentralization on Governance By Axel Dreher

  1. By: Crès, Hervé; Ünver, Utku
    Abstract: When aggregating individual preferences through the majority rule in an n-dimensional spatial voting model, the "worst-case" scenario is a social choice configuration where no political equilibrium exists unless a super majority rate as high as 1-1/n is adopted. In this paper the authors assume that a lower d-dimensional (d<n)linear map spans the possible candidates plateforms. These d "ideological" dimensions imply some linkages between the n political issues. The authors randomize over these linkages and show that there almost surely exists a50%-majority equilibria in the above worst-case scenario, when n grows to infinity.Moreover the equilibrium is the mean voter. The speed of convergence (toward 50%)of the super majority rate guaranteeing existence of equilibrium is computed for d= 1 and 2.
    Keywords: spatial voting; super majority; ideology; mean voter theorem; random point set
    JEL: C62 D72
    Date: 2006–02–06
  2. By: Lind, Jo Thori (Dept. of Economics, University of Oslo)
    Abstract: Political economy models predict that the rich oppose redistribution, and hence vote for conservative parties. Although this seems to fit the data well, I show that this is not true when we control for unobservable characteristics. Using Norwegian survey data, I study to what extent voting is caused by income. Unobserved characteristics correlated with income are handled by using fixed effects panel data discrete choice models. Although a positive association between income and conservative voting persists when controlling for unobservables, the magnitude of the effect is reduced by a factor of five. To correct for measurement error, I instrument income with average income by profession. The magnitude of the coefficients is increased, but the main conclusions remain.
    Keywords: Political economy; redistribution; voting; multinomial logit; panel data
    JEL: C23 C25 D31 D72 H11 H53
    Date: 2006–02–03
  3. By: Torsten Persson; Guido Tabellini
    Abstract: Does democrazy promote economic development? Reviews recent attempts to addresses this question that exploited within-country variation. It shows that the answer is largely postive, but also depends on the details of democratic reforms. First, the sequence of economic vs political reforms matters: countries liberalizing their economy before extending political rights do better. Second, different forms of democratic government lead to different economic policies, and this might explain why presidential democracy leads to faster growth than parliamentary democracy. Third, it is important to distinguish between expected and actual political reforms. Taking expectations of regime change into account helps identify a stronger growth effect of democracy.
  4. By: Juan Carlos Echeverry; Leopoldo Fergusson; Pablo Querubín
    Abstract: The study of budgetary institutions has long been an important topic in the economic literature. Nonetheless, the degree of rigidity or inflexibility in budget preparation, a prime preoccupation for policy makers and in particular for finance ministers since a long time ago, has been relatively unexplored. In this paper we show that budget inflexibility can take several forms and argue that it is likely to be closely related to various types of political conflict present in the budget process. Moreover, we study one particular form of budget inflexibility and its connection with one specific (but perhaps the most important) political force driving the budget process. More specifically, we discuss some of the consequences of "expenditure inflexibility," defined as the existence of transfers to special interests enjoying constitutional or legal protection which impede their modification in the short run, in a simple model of legislative bargaining that captures the Tragedy of the Commons present in public budget allocation.
    Date: 2005–09–05
  5. By: Michael D. Bordo (Rutgers University, New Brunswick, NJ USA and Research Associate, NBER.); Peter L. Rousseau (Vanderbilt University, Nashville, TN and Research Associate, NBER.)
    Abstract: Recent cross-country investigations of the role of institutional fundamentals such as the protection of property rights in promoting financial development have extended a literature that has for decades maintained that financial factors can affect real outcomes. In this paper we pursue this new direction by considering relationships between finance, growth, legal origin, and political environment in a historical cross-section of 17 countries covering the period from 1880 to 1997. We find that relationships between a county's legal origin (i.e., English, French, German, or Scandinavian) and financial development are roughly consistent with earlier findings but are not persistent. At the same time, political variables such as proportional representation election systems, frequent elections, universal female suffrage, and infrequent revolutions or coups seem linked to larger financial sectors and higher conditional rates of economic growth. Despite the explanatory power of some of our measures of the deeper "fundamentals", however, a significant part of the growth-enhancing role of financial development remains unexplained by them.
    Date: 2006–02–01
  6. By: Daniel Halbheer (Socioeconomic Institute, University of Zurich); Sarah Niggli; Armin Schmutzler (Socioeconomic Institute, University of Zurich)
    Abstract: We analyze the factors that influence the support for environmental policy proposals. Swiss referendum data show that proposals obtain more yes-votes if they do not restrict consumption possibilities directly, if they are endorsed by business associations, if environmental preferences are strong and economic conditions are favorable at the time of the referendum. Also, there are more pro-environmental votes in cantons with higher population density. On the other hand, yes-votes do not seem to depend on whether a proposal involves a tax or not.
    Keywords: environmental policy, direct democracy, referendum, public choice
    JEL: P16 Q28
    Date: 2003–06
  7. By: Axel Dreher (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Friedrich Schneider (Department of Economics, University of Linz, Austria)
    Abstract: This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a crosssection of 120 countries and a panel of 70 countries for the period 1994-2002. Our results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. We also find that stricter regulations increase both corruption and the shadow economy.
    Keywords: Corruption, Shadow Economy, Regulation, Tax Burden
    JEL: D73 H26
    Date: 2006–01
  8. By: Axel Dreher (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: The paper analyzes the impact of decentralization on governance employing four indicators of governance and five measures of decentralization. Depending on data availability, crosssections for a maximum of 129 countries are estimated. Results for a panel of about 70 countries over the period 1984-2001 are also presented. The results show that decentralization – measured as the share of sub-national employment, revenues or, respectively, expenditures – improves governance. This is particularly true for low income countries but – depending on the indicator employed – to some extent for high income countries also. However, the number of sub-national government tiers exerts a negative impact on some dimensions of governance.
    Keywords: Decentralization, Governance, Legal Quality, Judicial Independence, Federalism, Institutions
    JEL: H40 H71 H72 H77
    Date: 2006–01

This nep-pol issue is ©2006 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.