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on Positive Political Economics |
| By: | Daron Acemoglu; James A. Robinson |
| Abstract: | We construct a model of simultaneous change and persistence in institutions. The model consists of landowning elites and workers, and the key economic decision concerns the form of economic institutions regulating the transaction of labor (e.g., competitive markets versus labor repression). The main idea is that equilibrium economic institutions are a result of the exercise of de jure and de facto political power. A change in political institutions, for example a move from nondemocracy to democracy, alters the distribution of de jure political power, but the elite can intensify their investments in de facto political power, such as lobbying or the use of paramilitary forces, to partially or fully offset their loss of de jure power. In the baseline model, equilibrium changes in political institutions have no effect on the (stochastic) equilibrium distribution of economic institutions, leading to a particular form of persistence in equilibrium institutions, which we refer to as invariance. When the model is enriched to allow for limits on the exercise of de facto power by the elite in democracy or for costs of changing economic institutions, the equilibrium takes the form of a Markov regime-switching process with state dependence. Finally, when we allow for the possibility that changing political institutions is more difficult than altering economic institutions, the model leads to a pattern of captured democracy, whereby a democratic regime may survive, but choose economic institutions favoring the elite. The main ideas featuring in the model are illustrated using historical examples from the U.S. South, Latin America and Liberia. |
| JEL: | H2 N10 N40 P16 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12108&r=pol |
| By: | Kevin Roberts (Nuffield College, University of Oxford) |
| Abstract: | An intertemporal voting model is examined where, at each date, there is a pairwise majority vote between the existing chosen state and some other state, chosen randomly. Intertemporal voting simplifies the strategic issues and the agenda setting is as unrestricted as possible. The possibility of cycles is examined, both in the intertemporal extension to the Condorcet paradox and in more general examples. The set of possibilities is rich, as is demonstrated by an exhaustive study of a three person, three state world. Equilibrium in pure strategies may fail to exist but a weakening of the equilibrium concept to admit probabilistic voting allows a general existence result to be proved. The analysis leads to the development of a dominant state which extends the notion of a Condorcet winner. |
| Keywords: | Condorcet paradox; Condorcet winner; Condorcet winner; majority voting; intertemporal voting; strategic voting |
| JEL: | C73 D72 D78 |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:econwp:0515&r=pol |
| By: | J. Vernon Henderson; Ari Kuncoro |
| Abstract: | Indonesia has a tradition of corruption among local officials who harass and collect bribes from firms. Corruption flourished in the Suharto, pre-democracy era. This paper asks whether local democratization that occurred after Suharto reduced corruption and whether specific local politics, over and above the effects of local culture, affect corruption. We have a firm level data set for 2001 that benchmarks bribing activity and harassment at the time when Indonesia decentralized key responsibilities to local democratically elected governments. We have a second data set for 2004 on corruption at the end of the first democratic election cycle. We find that, overall, corruption declines between these time periods. But specific politics matter. Islamic parties in Indonesia are perceived as being anti-corruption. Our data show voting patterns reflect this belief and voters' perceptions have some degree of accuracy. In the first democratic election, localities that voted in legislatures dominated by secular parties, including Megawati's party, experienced significant relative increases in corruption, while the reverse was the case for those voting in Islamic parties. But in the second election in 2004, in those localities where corruption had increased under secular party rule, voters "threw the bums out of office" and voted in Islamic parties. |
| JEL: | H7 O1 P16 R5 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12110&r=pol |
| By: | Marco Bassetto; Jess Benhabib |
| Abstract: | We study a simple model of production, accumulation, and redistribution, where agents are heterogeneous in their initial wealth, and a sequence of redistributive tax rates is voted upon. Though the policy is infinite-dimensional, we prove that a median voter theorem holds if households have identical, Gorman aggregable preferences; furthermore, the tax policy preferred by the median voter has the “bang- bang” property. |
| Keywords: | Taxation ; Wealth |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-02&r=pol |
| By: | Ali al-Nowaihi (University of Leicester); Paul Levine (University of Surrey); Alex Mandilaras (University of Surrey) |
| Abstract: | A new perspective is provided on a puzzle that has emerged from the empirical lit- erature suggesting that government-independent central banks provide a `free lunch': lower in°ation is apparently achieved at no cost in terms of greater output variance. We assess the various explanations provided by the theoretical literature. After revis- iting the free lunch puzzle and con¯rming the empirical importance of open-economy effects, we develop a Rogoff-style delegation model that combines the latter with po- litical monetary cycle e®ects. We show that if all countries delegate monetary policy to government independent banks, as economies become more integrated then a low inflation, higher output variance trade-off re-emerges. |
| Keywords: | central bank independence, open economy, political uncertainty |
| JEL: | C72 E61 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0806&r=pol |
| By: | Marco Battaglini; Stephen Coate |
| Abstract: | This paper presents a dynamic political economy theory of public spending, taxation and debt. Policy choices are made by a legislature consisting of representatives elected by geographically-defined districts. The legislature can raise revenues via a distortionary income tax and by borrowing. These revenues can be used to finance a national public good and district-specific transfers (interpreted as pork-barrel spending). The value of the public good is stochastic, reflecting shocks such as wars or natural disasters. In equilibrium, policy-making cycles between two distinct regimes: “business-as-usual” in which legislators bargain over the allocation of pork, and “responsible-policy-making” in which policies maximize the collective good. Transitions between the two regimes are brought about by shocks in the value of the public good. In the long run, equilibrium tax rates are too high and too volatile, public good provision is too low and debt levels are too high. In some environments, a balanced budget requirement can improve citizen welfare. |
| JEL: | H6 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12100&r=pol |
| By: | Christopher Spencer (University of Surrey) |
| Abstract: | I examine the propensity of Bank of England Monetary Policy Committee (BoEMPC) members to cast dissenting votes. In particular, I compare the type and frequency of dissenting votes cast by socalled insiders (members of the committee chosen from within the ranks of bank staff) and outsiders (committee members chosen from outside the ranks of bank staff). Significant differences in the dissent voting behaviour associated with these groups is evidenced. Outsiders are significantly more likely to dissent than insiders; however, whereas outsiders tend to dissent on the side of monetary ease, insiders do so on the side of monetary tightness. I also seek to rationalise why such differences might arise, and in particular, why BoEMPC members might be incentivised to dissent. Amongst other factors, the impact of career backgrounds on dissent voting is examined. Estimates from logit analysis suggest that the effect of career backgrounds is negligible. |
| Keywords: | Monetary Policy Committee, insiders, outsiders, dissent voting, career backgrounds, appointment procedures |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0306&r=pol |