nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒02‒26
five papers chosen by
Eugene Beaulieu
University of Calgary

  1. Who Adjusts and When? On the Political Economy of Reforms By Alberto Alesina; Silvia Ardagna; Francesco Trebbi
  2. Politics in Wage setting: Does government colour matter? By Kåre Johansen; Ørjan Mydland; Bjarne Strøm
  3. Special Interest Groups and the Allocation of Public Funds By Monica Singhal
  4. How's Your Government? International Evidence Linking Good Government and Well-Being By John F. Helliwell; Haifang Huang
  5. Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets By Andrew Leigh; Justin Wolfers

  1. By: Alberto Alesina; Silvia Ardagna; Francesco Trebbi
    Abstract: Why do countries delay stabilizations of large and increasing budget deficits and inflation? And what explains the timing of reforms? We use the war of attrition model as a guidance for our empirical study on a vast sample of countries. We find that stabilizations are more likely to occur when time of crisis occur, at the beginning of term of office of a new government, in countries with "strong" governments (i.e. presidential systems and unified governments with a large majority of the party in office), and when the executive faces less constraints. The role of external inducements like IMF programs has at best a weak effect, but problem of reverse causality are possible.
    JEL: G0 H0
    Date: 2006–02
  2. By: Kåre Johansen (Department of Economics, Norwegian University of Science and Technology); Ørjan Mydland; Bjarne Strøm (Department of Economics, Norwegian University of Science and Technology)
    Abstract: This paper studies the relationship between wage formation and the political colour of the government in an economy with centralized wage bargaining. Ideological, organizational and personal ties between the central trade union and the social democratic political party suggest that the trade union may behave significantly different in wage negotiations under a social democratic than under a conservative government. Using time series data for Norway, we estimate that changing from a conservative to a social democratic central government significantly reduces manufacturing wages and makes wages more responsive to unemployment. This result is consistent with a wage bargaining model augmented by political preferences of the union leaders and suggests that the effect of bargaining coordination depends on the political colour of the government. The estimated effects are both robust with respect to model specification and stable over time.
    Keywords: Wages; political regime;time series analysis
    JEL: J31 J51
    Date: 2006–01–31
  3. By: Monica Singhal
    Abstract: A long-standing puzzle in the fiscal federalism literature is the empirical non-equivalence in government spending from grants and other income. I propose a fully rational model in which violations of fungibility arise from dynamic interactions between politicians and interest groups with the ability to raise funds for local government. The predictions of the model are tested by exploiting unique features of windfalls received by states under a settlement with the tobacco industry. Although windfalls are unrestricted, the median state increased spending on tobacco control programs from zero to $2.30 per capita upon receipt of funds. The marginal propensity to spend on such programs is 0.20 from settlement revenue and zero from overall income. States which were not involved in the settlement lawsuits spend less. The findings are consistent with the predictions of the model when political partisanship is introduced: Republican governors spend less and factors which should lead to political convergence increase spending for Republicans and decrease spending for Democrats. These results cannot be explained by existing models in the literature.
    JEL: H7 D7 H1
    Date: 2006–02
  4. By: John F. Helliwell; Haifang Huang
    Abstract: In this paper we employ World Values Survey measures of life satisfaction as though they were direct measures of utility, and use them to evaluate alternative features and forms of government in large international samples. We find that life satisfaction is more closely linked to several World Bank measures of the quality of government than to real per capita incomes, in simple correlations and more fully specified models explaining international differences in life satisfaction. We test for differences in the relative importance of different aspects of good government, and find a hierarchy of preferences that depends on the level of development. The ability of governments to provide a trustworthy environment, and to deliver services honestly and efficiently, appears to be of paramount importance for countries with worse governance and lower incomes. The balance changes once acceptable levels of efficiency, trust and incomes are achieved, when more value is attached to building and maintaining the institutions of electoral democracy.
    JEL: H11 I31 P52
    Date: 2006–01
  5. By: Andrew Leigh; Justin Wolfers
    Abstract: We review the efficacy of three approaches to forecasting elections: econometric models that project outcomes on the basis of the state of the economy; public opinion polls; and election betting (prediction markets). We assess the efficacy of each in light of the 2004 Australian election. This election is particularly interesting both because of innovations in each forecasting technology, and also because the increased majority achieved by the Coalition surprised most pundits. While the evidence for economic voting has historically been weak for Australia, the 2004 election suggests an increasingly important role for these models. The performance of polls was quite uneven, and predictions both across pollsters, and through time, vary too much to be particularly useful. Betting markets provide an interesting contrast, and a slew of data from various betting agencies suggests a more reasonable degree of volatility, and useful forecasting performance both throughout the election cycle and across individual electorates.
    JEL: D72 D84
    Date: 2006–02

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