nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒06‒03
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. An Influence of Voters' Preferences on the Stable Parliamentary Seat Share By Taeko Endo
  2. Fiscal Competition By David E. Wildasin;
  3. Bureaucratic Advice and Political Governance By Robin Boadway; Motohiro Sato
  4. Global Competition for Mobile Resources: Implications for Equity, Efficiency, and Political Economy By David E. Wildasin;
  5. National Party Politics and Supranational Politics in the European Union: New Evidence from the European Parliament By Clifford J. Carrubba; Matthew Gabel; Lacey Murrah; Ryan Clough; Elizabeth Montgomery; Rebecca Schambach
  6. Economic Voting and Electoral Behaviour: How do Individual, Local and National Factors Affect the Partisan Choice? By Andrew Leigh
  7. Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets By Andrew Leigh; Justin Wolfers
  8. Decentralization and Electoral Accountability: Incentives, Separation, and Voter Welfare By Jean Hindriks; Ben Lockwood
  9. Political Budget Cycles and Fiscal Decentralization By Gonzales, Paula; Hindriks, Jean; Lockwood, Ben; Porteiro, Nicolas Universidad Pablo de Olavide, Spain
  10. Does the World Economy Swing National Elections? By Andrew Leigh
  11. Productivity matters for trade policy : theory and evidence By Karacaovali, Baybars
  12. Judicial Selection: Ideology versus Character By Lawrence Solum
  13. On Ehrhart Polynomials and Probability Calculations in Voting Theory By Dominique Lepelley (CERESUR – University of la Reunion); Ahmed Louichi (CREM – CNRS); Hatem Smaoui (CREM – CNRS)
  14. The Political Economy of US Aid to Pakistan By Mumtaz Anwar; Katharina Michaelowa
  15. What’s the Difference Between a Donkey and an Elephant? Using Panel Data from US States to Estimate the Impact of Partisanship on Policy Settings and Economic Outcomes By Andrew Leigh
  16. Economic Rights, Human Development Effort and Institutions By Mwangi S. Kimenyi
  17. The Informational Value of Incumbency By Humberto Llavador; Carmen Beviá

  1. By: Taeko Endo
    Abstract: In this paper, we show that the dynamics of a parliament seat share using an adoptive process modeled by urn scheme. In particular, we clarify the condition under which one dominant party or co-existence arises, when voters recognize the political effectiveness as important. One of the important factors for voters to decide their voting is how a political party's proposal is close to their ideal, which reflects their religion, social class, age and so on. There exists another important factor to choose a party. In the literature it is often supposed that the winning party has the power to implement any proposal with probability 1. However, voters have room to consider the likelihood that a party will implement its proposal, i.e., the political effectiveness. Some of voters may be more in favor of the policy that was announced by the defeated party; others, on the contrary, may be in favor of the winning party's proposal. The actions taken by the government are influenced by voters. The influence of voters in favor of a proposal will become bigger if the proportion of seats obtained by the corresponding party. Clearly a party winning 51% of the seats will have more difficulty to carry out its proposal than one winning 80% of the seats. As show in Duverger(1967), voters for small parties will see that their vote is being `wasted' and they will switch to supporting a major party. We consider the case where voters pay attention to two points to choose a party; the closeness between a party's ideology and own ideal, and the political effectiveness. Here, we consider the simple society where there are two parties, say, X and Y, and three type voters, say, x, y, and z. Voter x receives positive benefit from X and negative one from Y. She always votes for party X tough X has any low seat share. Conversely, voter y obtains negative benefit from X and positive one from Y. He votes for party Y irrespective of the seat share of Y. Voter z gets the same benefits from both parties. Party X and Y are indifferent for voter z. Voter z votes for a party with higher seat share. Voter x and y count the closeness to a party strongly and they ignore the political effectiveness. Voter x has the low critical seat share to vote for party X and voter y has the high critical seat share to vote for X. Voter z pays attention to the political effectiveness. He has the moderate critical seat share to vote for party X. We regard a voter's critical seat share as a voter's preference. For purposes of comparison we consider two shapes of distribution of voters' preferences, bimodal and single-peaked. If voters' preferences are distributed as bimodal, each party has strong supporters who always vote for the support party and the proportion of voters who care the political effectiveness as important is small. As each party has strong supports potentially even if it leaves what initial state, in progress of time, two seat shares become equivalent, i.e., the long term co-existence is realized in the equilibrium. Conversely, if voters' preferences are distributed as single-peaked, most voters are interested in the political effectiveness. Then, a party with higher seat share is more attractive for voters and it gains an even higher seat share. After all, a party with a high initial seat share comes into power, i.e., the lock-in into one of political party is realized. The dynamics treated in this paper is the generalized urn process discussed in Hill et al. (1980), Arthur et al. (1983), and Dosi et al. (1994). As Dosi et al. (1994) mentioned, by specifying the function which characterizes an agent's behavior, it is possible to analyze the stochastic evolution of the share. We define the voters' behavioral patterns and demonstrate how the global forces ruling the dynamics of whole populations can be derived from the individual behavior of voters
    Keywords: Political effectiveness, Voter's preference, Urn process
    JEL: D72
    Date: 2004–08–11
  2. By: David E. Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky);
    Abstract: The theory of fiscal competition seeks to ascertain how fiscal policymaking is affected by competitive pressures faced by governments. This requires a theory of policy choice, and, as such, the theory of fiscal competition lies squarely in the realm of political economy. This essay presents a concise overview of some of the principal themes that have figured prominently in economic analyses of fiscal competition and identifies significant gaps that warrant further attention and that may occupy the attention of investigators in the years to come. It first sketches a model that has been used frequently in theoretical and empirical analyses of fiscal competition, emphasizing how fiscal policies affect the welfare (real incomes) of various groups and how these impacts depend on the mobility of resources. Subsequent sections address parts of the subject that are less well-settled, highlighting, for example, the fact that exit (or entry) options for mobile resources alters the payoffs from alternative fiscal policies among those who participate actively in the political process and, thus, participation incentives. Two intertemporal aspects of fiscal competition are emphasized: the determination of the "degree" of factor mobility, especially for the purposes of empirical analysis, and the issue of time-varying policies, commitment, and dynamic consistency. The paper also discusses the role of institutions, and particularly of higher- and lower-level governments (i.e., the vertical and horizontal structure of government), in fiscal competition.
    Keywords: Fiscal Competition, Political Economy
    JEL: H77
    Date: 2005–06
  3. By: Robin Boadway (Queen's University); Motohiro Sato (Hitotsubashi University)
    Abstract: Politicians typically do not know what policies are best for achieving their broad objectives, so rely on bureaucrats for advice. Bureaucrats are better informed, so can manipulate outcomes by proposing policies that suit their interests. We capture this conflict of interests using a model of political decision-making that focuses on the interaction between politicians and the bureaucracies that advise them. In the basic model, a representative bureaucrat, knowing the characteristics of a given project, recommends to a representative politician whether to adopt it. If the politician chooses to adopt the project, its characteristics are revealed ex post. On the basis of the revealed outcome, the politician decides whether to discipline the bureaucrat. The bureaucrat anticipates imperfectly the chances of discipline when making an ex ante recommendation. When project characteristics are multi-dimensional, the politician can choose whether to seek advice from one bureaucrat or more than one. We compare outcomes in these centralized and decentralized regimes.
    Keywords: bureaucracy, governance
    JEL: H11 D73
    Date: 2006–05
  4. By: David E. Wildasin (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky);
    Abstract: International integration of markets for labor and capital has far-reaching policy implications in economies where governments pursue extensive programs of redistribution through tax and transfer policies. The large fiscal impacts that result from movement of high- and low-income populations, as well as of capital, affect the benefits, costs, and political payoffs of redistributive policies, creating incentives for fiscal competition that may limit the extent of redistribution over time. Migration and capital flows are dynamic adjustment mechanisms, analysis of which can shed light on the consequences of structural changes such as globalization of factor markets and EU enlargement.
    Keywords: Fiscal Competition
    JEL: H77
    Date: 2005–11
  5. By: Clifford J. Carrubba (Department of Political Science, Emory University); Matthew Gabel (Department of Political Science, University of Kentucky); Lacey Murrah (Department of Political Science, Emory University); Ryan Clough (Department of Political Science, Emory University); Elizabeth Montgomery (Department of Political Science, Emory University); Rebecca Schambach (Department of Political Science, Emory University)
    Abstract: Political parties play an important role in structuring political competition at different levels of governance in the European Union (EU). The political parties that contest national elections also participate in the EU legislative institutions, with the governing parties at the national level participating in the Council of Ministers and a broad range of national parties represented in the European Parliament (EP). Recent research indicates that national parties in the EP have formed ideological coalitions -- party groups -- that represent transnational political interests. These party groups appear to manage legislative behavior such that national interests -- which dominate the Council of Ministers -- are subjugated to ideological conflict. In this paper, we demonstrate that the roll-call vote evidence for the impact of party groups in the EP is misleading. Because party groups have incentives to select votes for roll call so as to hide or feature particular voting patterns, the true character of political conflict is never revealed in roll calls.
    JEL: H77
    Date: 2005–09
  6. By: Andrew Leigh
    Abstract: What impact do income and other demographic factors have on a voter’s partisan choice? Using post-election surveys of 14,000 voters in ten Australian elections between 1966 and 2001, I explore the impact that individual, local and national factors have on voters’ decisions. In these ten elections, the poor, foreign-born, younger voters, voters born since 1950, men, and those who are unmarried are more likely to be left-wing. Over the past 35 years, the partisan gap between men and women has closed, but the partisan gap has widened on three dimensions: between young and old; between rich and poor; and between native-born and foreign-born. At a neighbourhood level, I find that, controlling for a respondent’s own characteristics, and instrumenting for neighbourhood characteristics, voters who live in richer neighbourhoods are more likely to be right-wing, while those in more ethnically diverse or unequal neighbourhoods are more likely to be left-wing. Controlling for incumbency, macroeconomic factors do not seem to affect partisan preferences – Australian voters apparently regard both major parties as equally capable of governing in booms and busts.
    Keywords: elections, voting, partisanship, income, inequality, neighbourhood effects
    JEL: D31 D72 E24
    Date: 2005–04
  7. 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.
    Keywords: Voting, elections, prediction markets, opinion polling, macroeconomic voting
    JEL: D72 D84
    Date: 2005–11
  8. By: Jean Hindriks (Department of Economics, CORE, Université Catholique de Louvain); Ben Lockwood (CEPR and Department of Economics, University of Warwick)
    Abstract: This paper studies the relationship between fiscal decentralization and electoral accountability, by analyzing how decentralization impacts upon incentive and selection effects, and thus on voter welfare. The effect of fiscal centralization on voter welfare works through two channels: (i) via its effect on the probability of pooling by the bad incumbent; (ii) conditional on the probability of pooling, the extent to which, with centralization, the incumbent can divert rents in some regions without this being detected by voters in other regions (selective rent diversion). Both these effects depend on the information structure; whether voters only observe fiscal policy in their own region, in all regions, or an intermediate case with a uniform tax across all regions. More voter information does not necessarily raise voter welfare, and under some conditions, voter would choose uniform over differentiated taxes ex ante to constrain selective rent diversion.
    Keywords: fiscal federalism; decentralization; elections; accountability
    JEL: D72 D73 H41 H77
    Date: 2005–03
  9. By: Gonzales, Paula (Universidad Pablo de Olavide, Spain); Hindriks, Jean (Universite Catholique de Louvain, Belgium); Lockwood, Ben (University of Warwick); Porteiro, Nicolas Universidad Pablo de Olavide, Spain
    Abstract: In this paper, we study a model à la Rogoff (1990) where politicians distort fiscal policy to signal their competency, but where fiscal policy can be centralized or decentralized. Our main focus is on how the equilibrium probability that fiscal policy is distorted in any region (the political budget cycle, PBC) differs across fiscal regimes. With centralization, there are generally two effects that change the incentive for pooling behavior and thus the probability of a PBC. One is the possibility of selective distortion: the incumbent can be re-elected with the support of just a majority of regions. The other is a cost distribution effect, which is present unless the random cost of producing the public goods is perfectly correlated across regions. Both these effects work in the same direction, with the general result that overall, the PBC probability is larger under centralization (decentralization) when the rents to office are low (high). Voter welfare under the two regimes is also compared: voters tend to be better off when the PBC probability is lower, so voters may either gain or lose from centralization. Our results are robust to a number of changes in the specification of the model.
    Date: 2006
  10. By: Andrew Leigh
    Abstract: Do voters reward national leaders who are more competent economic managers, or merely those who happen to be in power when the world economy booms? According to rational voting models, electors should parse out the state of the world economy when deciding whether to re-elect their national leader. I test this theory using data from 268 democratic elections held between 1978 and 1999, comparing the effect of world growth (“luck”) and national growth relative to world growth (“competence”). In the preferred specification, which allows for countries to have different degrees of global integration, an extra percentage point of world growth boosts incumbents’ chances of re-election by 9 percent, while an extra percentage point of national growth relative to world growth only boosts an incumbent’s chances of re-election by 4 percent. Voters are more likely to reward competence in countries that are richer and better educated. Controlling for income, higher rates of newspaper readership reduce the returns to luck, while higher rates of television viewing reduce the returns to competence.
    Keywords: rational voting; elections; growth; media
    JEL: D72 D80 O40
    Date: 2004–12
  11. By: Karacaovali, Baybars
    Abstract: There is a growing literature that investigates the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. The author shows that this assumption is not valid in general, both theoretically and empirically, and that researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias. On the theory side, he demonstrates that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. The link between productivity and tariffs is maintained after the author includes in his political economy model a learning-by-doing motive of protection, which also serves as the source of liberalization. On the empirical side, he examines total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998, and finds that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, he controls for the endogeneity of the two main right-hand-side variables-the inverse import penetration to import demand elasticity ratio and productivity-by using materials prices, the capital to output ratio, a measure of scale economies, and the TFP of the upstream industries as robust instruments. The author also accounts for the large trade liberalization between 1990 and 1992, and finds that the sectors with a higher productivity gain are liberalized less. Finally, he illustrates a system of equations estimation and shows that the positive impact of liberalization on productivity grows stronger when corrected for the endogeneity bias.
    Keywords: Economic Theory & Research,Free Trade,Political Economy,Trade Policy,Trade Law
    Date: 2006–05–01
  12. By: Lawrence Solum (University of San Diego)
    Abstract: Part I of Judicial Selection: Ideology versus Character sets the stage for an argument that character and not political ideology should be the primary factor in the selection of judges. Political ideology has played an important role in judicial selection, from John Adams's entrenchment of federalists as judges after the election of 1800 to the Roosevelt's selection of progressives, liberals, and New Dealers, the contemporary era, from the failed nominations of Fortas, Haynsworth, Carswell to the defeat of Robert Bork, the narrow confirmation of Clarence Thomas. But until recently, political ideology has played its role behind the scenes - mostly off the official record of the judicial nomination and confirmation process. Perhaps the most important evidence of the new emphasis on political ideology in judicial selection is Senator Charles Schumer's op/ed Judging by Ideology, which argued for the proposition that political ideology and not character or competence should be the explicit on-the-record basis for Democratic opposition to Republican judicial nominees. Part II investigates the case for the ideological selection of judges. This investigation begins with Senator Schumer's argument for explicit consideration of political ideology in the confirmation process and then proceeds to the development of a two dimensional model of judicial attitudes. The first dimension is a simple left-right measure of political ideology. The second dimension represents judicial philosophy as a position on a continuous real line, the origin of which is perfect instrumentalism (decisions are entirely a function of ideology) and the endpoint of which is perfect formalism (decisions are entirely a function of the legal materials). Given a scenario in which Democrats can block Republican nominees (or vice versa), the simple model yields a confirmation space, defined as the set of judges whose position in the two-dimensional attitude space are acceptable to both parties. Part III presents the case for the primacy of character in judicial selection. The argument begins with the uncontroversial observation that almost every theorist of judicial decision can accept a thin theory of judicial vice. No one believes that cowardly, stupid, foolish, or corrupt characters are suitable for the position of judge. The next move is to argue that similar agreement can be reached on a thin theory of judicial virtue, the characteristics of mind and will that are necessary for excellent judging given any reasonable theory as to what constitutes a good judicial decision. Part IV moves beyond a theory of judicial virtue by investigating the particular virtue of justice. The paper argues that justice is best understood as lawfulness. A good judge is nominos; she grasps and respects the nomos, the laws, norms, and customs generally accepted by her community. Part V answers a series of objections to character-driven judicial selection. These include the objections (1) that judicial selectors lack sufficient evidence of character, (2) that there are no objective criteria for good character, (3) that character is a private matter, and (4) that selection on the basis of character is not politically feasible. In each case, the objection, while it might be apropos of some character-driven theory of judicial selection, is inapplicable to the kind of aretaic theory developed in Parts III and IV of the paper. Part V concludes by noting that when ideological struggle is intense, nonideological judging becomes all the more necessary to realize the rule of law.
  13. By: Dominique Lepelley (CERESUR – University of la Reunion); Ahmed Louichi (CREM – CNRS); Hatem Smaoui (CREM – CNRS)
    Abstract: In voting theory, analyzing how frequent is an event (e.g. a voting paradox) is, under some specific but widely used assumptions, equivalent to computing the exact number of integer solutions in a system of linear constraints. Recently, some algorithms for computing this number have been proposed in social choice literature by Huang and Chua [17] and by Gehrlein ([12, 14]). The purpose of this paper is threefold. Firstly, we want to do justice to Eug`ene Ehrhart, who, more than forty years ago, discovered the theoretical foundations of the above mentioned algorithms. Secondly, we present some efficient algorithms that have been recently developed by computer scientists, independently from voting theorists. Thirdly, we illustrate the use of these algorithms by providing some original results in voting theory.
    Keywords: voting rules, manipulability, polytopes, lattice points, algorithms.
    JEL: D70 D71
    Date: 2006
  14. By: Mumtaz Anwar (University of the Punjab, Lahore Pakistan & Hamburg Institute of International Economics HWWA); Katharina Michaelowa (Hamburg Institute of International Economics)
    Abstract: Variations of bilateral aid flows are difficult to explain on the basis of official development objectives or recipient need. At the example of US aid to Pakistan, this paper suggests alternative political economic explanations, notably the relevance of ethnic lobbying and the relevance of US business interests. Time series regressions for the period from 1980 to 2002 and logistic regressions based on votes for the Pressler and the Brown Amendment confirm the significance of these political economic determinants. While in case of the Pressler Amendment, the direct influence of population groups of Indian and Pakistani origins seems to have played a predominant role, the role of ethnic business lobbies appears to have dominated in the context of the Brown Amendment. Time series analysis also provides some evidence for the impact of US business interests based on FDI and exports, but these effects appear to be comparatively small.
    Keywords: Public Choice, ethnic lobbying, foreign aid
    JEL: D70 F35
    Date: 2004–11–26
  15. By: Andrew Leigh
    Abstract: Using panel data from US states, I measure the impact of partisanship on a wide range of different policy settings and economic outcomes. Across 32 measures, there are surprisingly few differences in policy settings, social outcomes and economic outcomes under Democrats and Republicans. In terms of policies, Democratic Governors tend to prefer slightly higher minimum wages and more redistributive taxes. Under Republican Governors, incarceration rates are higher, while welfare caseloads are higher under Democratic Governors. In terms of social and economic outcomes, Democratic Governors tend to preside over higher median post-tax income, lower post-tax inequality, and lower unemployment rates. However, for 25 of the 32 dependent variables, gubernatorial partisanship does not have a statistically significant impact on policy outcomes and social welfare. I find no evidence of gubernatorial partisan differences in welfare generosity, the number of government employees or their salaries, state revenue, incarceration rates, execution rates, pre-tax incomes and inequality, crime rates, suicide rates, and test scores. These results are robust to the use of regression discontinuity estimation, to take account of the possibility of reverse causality. Overall, it seems that Governors behave in a fairly non-ideological manner.
    Keywords: median voter theorem, partisanship, state government, taxation, expenditure, welfare, crime, growth
    JEL: D72 D78 H71 H72 I38
    Date: 2005–11
  16. By: Mwangi S. Kimenyi (University of Connecticut)
    Abstract: This paper focuses on the link between economic rights and institutions. Simple analysis of data is used to demonstrate countries' human development effort in advancing economics rights of the citizens. A country's human development effort is evaluated on the basis of the well-being of the poorest members of the society. An analysis of data reveals that there is a wide variation in countries' pro-poor stance. While it is accepted that positive rights are pro-poor, this paper argues that so too are negative economic rights and in fact the two are complements rather than substitutes. Classifying countries into human development income deficit and human development effort deficit, it is demonstrated that a large number of countries could achieve higher welfare levels for the poor if they improved on bother positive and negative economic rights. The paper attempts to explain variations in the observed commitment to economic rights by focusing on pro-poor institutions. The basic thesis advanced in the paper is that pro-poor policies are more likely to be implemented and sustained in those institutions where power is sufficiently diffused such that even the poor have leverage over policy outcomes. The paper focuses on how institutions impact on power diffusion and therefore the adoption of pro-poor growth and policies. The failure of countries to adopt pro-poor growth and policies is attributed to institutional failures manifested in concentration of power. The policy recommendations emanating from the analysis focus on institutional reforms to enhance power diffusion. These policies include enlarging the political space through democratization, strengthening institutions and capacity to fight corruption and improve transparency, and bringing the government closer to the people through appropriate design and implementation of decentralization schemes. Some recent examples of improvements in economic rights following power diffusion are provided.
    JEL: O15 I30 I31
    Date: 2005–10
  17. By: Humberto Llavador; Carmen Beviá
    Abstract: This paper proposes an argument that explains incumbency advantage without recurring to the collective irresponsibility of legislatures. For that purpose, we exploit the informational value of incumbency: incumbency confers voters information about governing politicians not available from challengers. Because there are many reasons for high reelection rates different from incumbency status, we propose a measure of incumbency advantage that improves the use of pure reelection success. We also study the relationship between incumbency advantage and ideological and selection biases. An important implication of our analysis is that the literature linking incumbency and legislature irresponsibility most likely provides an overestimation of the latter.
    Keywords: Incumbency, information, candidate quality, selection bias, ideology
    JEL: D72 D78
    Date: 2006–04

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