nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒06‒24
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. On the political economy of financial reform By Yongfu Huang
  2. Socially Optimal Districting: An Empirical Investigation By Stephen Coate; Brian Knight
  3. Bevolent Planners, Malevolent Dictators and Democratic Voters By Agell, Jonas; Persson, Mats
  4. The FTAA and the political economy of protection in Brazil and the US. By Marcelo de Paiva Abreu
  5. Does Opportunism Pay Off? By Linda Gonçalves Veiga; Francisco José Veiga
  6. The Institutional and Political Determinants of Fiscal Adjustment By Robert Lavigne
  7. Moral Norms in a Partly Compliant Society By Sebastian Kranz
  8. Cultures of Corruption: Evidence From Diplomatic Parking Tickets By Raymond Fisman; Edward Miguel
  9. Caryle, Malthus and Sismondi: The Origins of Carlyle’s Dismal View of Political Economy By Robert Dixon

  1. By: Yongfu Huang
    Abstract: This paper studies what induces governments to undertake reforms aimed at financial development. Its starting point is Abiad and Mody (AER 95(1), 2005). Rather than their ordered logit technique, it uses a within groups approach allowing for error dependence across countries and over time. This paper finds that policy change in a country is negatively rather than positively associated with its liberalization level, while the regional liberalization gap does not appear relevant. On the effects of shocks and crises, it suggests that some of the Abiad and Mody (2005) findings are robust, but others are fragile. Furthermore, it claims that the extent of democracy is important for this analysis, and identifes a negative effect of the extent of democracy on policy reform.
    Keywords: Financial liberalization; Financial reform; Political economy; Cross country dependence
    JEL: D72 F36 G18
    Date: 2006–06
  2. By: Stephen Coate; Brian Knight
    Abstract: This paper provides an empirical exploration of the potential gains from socially optimal districting. As emphasized in the political science literature, districting matters because it determines the seat-vote curve, which relates the fraction of seats parties obtain to their share of the aggregate vote. Building on the theoretical work of Coate and Knight (2006), which develops and analyzes the optimal seat-vote curve, this paper develops a methodology for computing actual and optimal seat-vote curves and for measuring the potential welfare gains that would emerge from implementing optimal seat-vote curves. This method is then applied to analyze districting plans in place during the 1990s to elect U.S. State legislators. The analysis shows that the plans used by the states in our data set generate seat-vote curves that are overly responsive to changes in voters' preferences. While there is significant variation across states, the potential welfare gains from implementing optimal seat-vote curves are on average small relative to the overall surplus generated by legislatures. This appears to be because seat-vote curves are reasonably close to optimal rather than because aggregate welfare is insensitive to varying districting plans. Interestingly, implementing proportional representation would produce welfare levels quite close to those achieved by implementing optimal seat-vote curves.
    JEL: D7 H7
    Date: 2006–06
  3. By: Agell, Jonas (Dept. of Economics, Stockholm University); Persson, Mats (Institute for International Economic Studies)
    Abstract: We study the size of government and of GDP, under autocratic and democratic rule, respectively. It turns out that first, both democratic and authoritarian rulers apply the Samuelson (1954) criterion when deciding on productive public goods. Second, the labor supply elasticity and the skewness of the ability distribution determine whether democracy or autocracy will lead to the highest output. Third, when the ability distribution is sufficiently skewed, the democratic majority will behave like a rational autocrat, who chooses the tax rate that maximizes tax revenue. Fourth, population ageing in Western societies may lead to the policy preferred by a rational autocrat.
    Keywords: Leviathan; democracy; median voter; redistribution; public goods
    JEL: D70 H20 H40
    Date: 2006–06–16
  4. By: Marcelo de Paiva Abreu
    Abstract: El interés en la culminación exitosa de las negociaciones del Area de Libre Comercio de las Américas (ALCA) de las economías latinoamericanas específicamente es muy heterogéneo. La lista de factores relevantes que explicarían estas divergencias incluye la orientación geográfica del comercio, la composición de las exportaciones, el grado de apertura de la economía, el nivel de protección y el compromiso con la liberalización del comercio. El éxito de las negociaciones del ALCA depende de manera crucial de la convergencia de ideas entre los Estados Unidos y MERCOSUR, especialmente Brasil, en relación al acceso de bienes en sus respectivos mercados internos.
    Keywords: FTAA, Economic policy, Brazil, United States, MERCOSUR
    JEL: F13 F15
    Date: 2006–03
  5. By: Linda Gonçalves Veiga (Universidade do Minho - NIPE); Francisco José Veiga (Universidade do Minho - NIPE)
    Abstract: This article tests the hypothesis that the opportunistic manipulation of financial accounts by mayors increases their chances of re-election. Working with a large and detailed dataset comprising all Portuguese mainland municipalities, which covers the municipal elections that took place from 1979 to 2001, we clearly show that increases in investment expenditures and changes in the composition of spending favouring highly visible items are associated with higher vote percentages for incumbent mayors seeking re-election. Our results also indicate that the political payoff to opportunistic spending increased after democracy became well-established in the country.
    Keywords: Voting functions, opportunism, local governments, elections, Portugal.
    JEL: D72 H72
    Date: 2006
  6. By: Robert Lavigne
    Abstract: The author empirically assesses the effects of institutional and political factors on the need and willingness of governments to make large fiscal adjustments. In contrast to earlier studies, which consider the role of political economy determinants only during periods of fiscal consolidation, the author expands the field of analysis by examining periods when governments should be making fiscal efforts but fail to do so (or do not try), as well as periods when no adjustment is required. To analyze this greater range of fiscal situations, a multinomial logit framework is applied to a panel of 61 advanced and developing countries, generating a sample size significantly larger than previous work. A key finding is that the political economy factors favouring the maintenance of sensible fiscal policies are different from those that increase the probability of achieving an exceptional adjustment. For instance, the results for developing countries indicate that sound economic institutions help governments avoid dire fiscal situations; however, those countries that actually succeed in making lasting adjustments in the face of a serious need tend to have weak institutions. There is also some evidence that high levels of transfers and subsidies diminish the probability of successful adjustment in developing countries, and that legislative majorities improve the odds. In advanced countries, strong democratic institutions appear to increase the likelihood of avoiding situations of fiscal distress.
    Keywords: Fiscal policy; Econometric and statistical methods; Development economics; International topics
    JEL: E62 O17 O19
    Date: 2006
  7. By: Sebastian Kranz
    Abstract: This paper analyses competition of moral norms and institutions in a society where a fixed share of people unconditionally complies with norms and the remaining people act selfishly. Whether a person is a norm-complier or selfish is private knowledge. A model of voting-by-feet shows that those norms and institutions arise that maximize expected utility of norm-compliers, taken into account selfish players' behavior. Such complier optimal norms lead to a simple behavioral model that, when combined with preferences for equitable outcomes, is in line with the relevant stylized facts from a wide range of economic experiments, like reciprocal behavior, costly punishment, the role of intentions, giving in dictator games and concerns for social efficiency. The paper contributes to the literature on voting-by-feet, institutional design, ethics and social preferences.
    Keywords: moral norms, social preferences, fairness, reciprocity, rule utilitarianism, voting-by-feet, farsighted-stability, cultural evolution, golden rule, social norms
    JEL: A13 C7 D02 D63 D64 D71 D8 Z13
    Date: 2006–05
  8. By: Raymond Fisman; Edward Miguel
    Abstract: Corruption is believed to be a major factor impeding economic development, but the importance of legal enforcement versus cultural norms in controlling corruption is poorly understood. To disentangle these two factors, we exploit a natural experiment, the stationing of thousands of diplomats from around the world in New York City. Diplomatic immunity means there was essentially zero legal enforcement of diplomatic parking violations, allowing us to examine the role of cultural norms alone. This generates a revealed preference measure of government officials' corruption based on real-world behavior taking place in the same setting. We find strong persistence in corruption norms: diplomats from high corruption countries (based on existing survey-based indices) have significantly more parking violations, and these differences persist over time. In a second main result, officials from countries that survey evidence indicates have less favorable popular views of the United States commit significantly more parking violations, providing non-laboratory evidence on sentiment in economic decision-making. Taken together, factors other than legal enforcement appear to be important determinants of corruption.
    JEL: K42 Z13 D73 P48
    Date: 2006–06
  9. By: Robert Dixon
    Abstract: While it is correct to say that Carlyle first applied the exact phrase “dismal science” to political economy in his 1849 article on plantation labour in the West Indies, I argue that Carlyle came to the view that political economy was “dismal” well before that time. Indeed, his negative attitude can be seen quite clearly in his earlier published reactions to the writings of Malthus (and Sismondi, amongst others) on population growth and its consequences and also to the perceived ‘materialistic’ nature of the subject matter of political economy.
    Date: 2006

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.