nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒06‒17
six papers chosen by
Eugene Beaulieu
University of Calgary

  1. Explaining Corporativism and Corruption By Luis G. González-Morales
  2. Selling Protection for Sale By Wilfred J. Ethier
  3. The Theory of Trade Policy and Trade Agreements: A Critique By Wilfred J. Ethier
  4. The Economic Effects of Direct Democracy - A Cross-Country Assessment By Stefan Voigt; Lorenz Blume
  5. Employment effects of centralization in wage setting in a median voter model By Ludsteck, Johannes
  6. Does Democracy Foster Trust? By Helmut Rainer; Thomas Siedler

  1. By: Luis G. González-Morales
    Abstract: A simple contract-theoretic model is used to show that, in a democratic system, positive political rents and efficient provision of public goods can characterize an equilibrium in the political contest. Moreover, this equilibrium is stable under the assumption that a fraction of the political rents can be shared with a subgroup of voters through corporativist arrangements. These features correspond fairly well to the presidential and corporativist political system of post-revolutionary Mexico.
  2. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: The Received Theory of trade policy, based solely on terms-of-trade externalities between national governments, has become the conventional wisdom among international trade theorists. But it displays two puzzles that render that theory inconsistent with reality. Significant empirical work, however, supports aspects of the Grossman-Helpman Protection-for-Sale model, a subset of the Received Theory. This paper shows that a simple formulation of the political economy of protection, that dispenses with terms-of-trade externalities, predicts the properties that the empirical work has confirmed, and is free of the counterfactual implications of the Received Theory. The implication is that, despite its claims to the contrary, the empirical literature offers no real support for the Protection-for-Sale model or, therefore, for the Received Theory.
    Keywords: The Protection-for-Sale model, the Received Theory, the Terms-of-Trade Puzzle, the Export-Subsidy-Transfer Puzzle
    JEL: F02 F13
    Date: 2006–05–08
  3. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: During the past half century, multilateral trade liberalization has reduced tariffs to historically low levels. The Received Theory of multilateral trade agreements, based solely on terms-of-trade externalities between national governments, offers an explanation that has become the conventional wisdom among international trade theorists. But it displays two puzzles that cast doubt on its practical relevance: the Terms-of-Trade Puzzle and the Anti-Trade-Bias Puzzle. This paper examines the consistency of the implications of the Received Theory with actual trade policy. The basic conclusion is that the theory is inconsistent with reality. Furthermore, it is the role of terms-of-trade externalities — the central component of the Received Theory — that is the sole cause of this inconsistency.
    Keywords: Political externalities, trade agreements, the Received Theory, the Terms-of-Trade Puzzle, the Anti-Trade-Bias Puzzle
    JEL: F02 F13
    Date: 2002–11–23
  4. By: Stefan Voigt (Department of Economics, University of Kassel); Lorenz Blume (Department of Economics, University of Kassel)
    Abstract: This is the first study that assesses the economic effects of direct democratic institutions on a cross country basis. Most of the results of the former intra-country studies could be confirmed. On the basis of some 30 countries, a higher degree of direct democracy leads to lower total government expenditure (albeit insignificantly) but also to higher central government revenue. Central government budget deficits are lower in countries using direct democratic institutions. As former intra-country studies, we also find that government effectiveness is higher under strong direct-democratic institutions and corruption lower. Both labor and total factor productivity are significantly higher in countries with direct democratic institutions. The low number of observations as well as the very general nature of the variable used to proxy for direct democracy clearly call for a more fine-grained analysis of the issues.
    JEL: H1 H3 H5 H8
    Date: 2006–05
  5. By: Ludsteck, Johannes (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Most models on centralization in wage setting rest on the assumption of identical firms. This stands in sharp contrast to informal statements against centralization wich rest on the argument that firms are heterogenous and that equal treatment of firms by unions must therefore be ineffcient. We analyse one aspect of this debate in the framework of a median voter model with heterogenous firms but we don't find unique negative employment effects. It may be cumbersome or even impossible to check whether the conditions for unique effects are met. Explorative investigations of the magnitude of the implied effects show however, that they are noteworthy only if differences between firms are large." (author's abstract, IAB-Doku) ((en))
    Keywords: Lohntheorie, Arbeitsmarkttheorie, Lohnfindung, Zentralisierung, Beschäftigungseffekte, Tarifverhandlungen - Effizienz, Gewerkschaft
    JEL: J51 J52
    Date: 2006–02–02
  6. By: Helmut Rainer (University of St. Andrews); Thomas Siedler (University of Essex, DIW Berlin and IZA Bonn)
    Abstract: The level of trust inherent in a society is important for a wide range of microeconomic and macroeconomic outcomes. This paper investigates how individuals’ attitudes toward social and institutional trust are shaped by the political regime in which they live. The German reunification is a unique natural experiment that allows us to conduct such a study. Using data from the German General Social Survey (ALLBUS) and from the German Socio- Economic Panel Study (SOEP), we obtain two sets of results. On one side, we find that, shortly after reunification, East Germans displayed a significantly less trusting attitude than West Germans. This suggests a negative effect of communism in East Germany versus democracy in West Germany on social and institutional trust. However, the experience of democracy by East Germans since reunification did not serve to increase levels of social trust significantly. In fact, we cannot reject the hypothesis that East Germans, after more than a decade of democracy, have the same levels of social distrust as shortly after the collapse of communism. In trying to understand the underlying causes, we show that the persistence of social distrust in the East can be explained by negative economic outcomes that many East Germans experienced in the post-reunification period. Our main conclusion is that democracy can foster trust in post-communist societies only when citizens’ economic outcomes are right.
    Keywords: social trust, institutional trust, political regimes
    JEL: P51 Z13
    Date: 2006–05

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