nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒08‒26
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Electoral Uncertainty and the Volatility of International Capital Flows By Roberto Chang
  2. Globalization and Democracy By Barry Eichengreen
  3. Behavioral Foundations of Democracy and Development By Ethan Kapstein
  4. Informative Voting and the Samuelson Rule By Felix Bierbrauer; Marco Sahm
  5. Shackling the footloose firm? Factor interests and majority voting By Belfrage , Carl-Johan; Gallo, Fredrik
  6. Market, Social Cohesion, and Democracy By José Antonio Ocampo
  7. A Structural Model of Turnout and Voting in Multiple Elections By Arianna Degan; Antonio Merlo

  1. By: Roberto Chang
    Abstract: I study a small open economy in which elections affect and are affected by capital inflows. Two candidates, one favoring workers and another favoring entrepreneurs, run for office; the winner chooses taxes, which affect investment returns. A pro labor victory results in a "sudden stop" in investment and capital flows, reflecting a time inconsistency problem. The pro business candidate is free from time inconsistency but becomes less attractive to voters if the foreign debt is larger. Hence electoral outcomes depends on the size of the debt, which itself depends on expectations about the election. The model's politico economic equilibria has several implications. Politico economic links exacerbate the responses of financial variables to exogenous shocks. Self fulfilling equilibria may exist. Policies that alleviate the pro labor candidate's commitment problem contribute to financial stability but also, and perhaps more surprisingly, to the chances of a pro labor victory in the elections. A redistribution of wealth has ambiguous although predictable effects on politico economic outcomes.
    JEL: F34 F41
    Date: 2006–08
  2. By: Barry Eichengreen
    Abstract: The connections between globalization and democracy are a classic question in international political economy and a topic much debated in foreign policy circles. While the analytical literature is extensive, few previous studies have acknowledged the possibility of bidirectional causality or developed an instrumental variables strategy suitable for addressing it. We do so in this paper and apply our approach to an extensive historical data set. The results suggest the existence of positive relationships running both ways between globalization and democracy, though exceptions obtain at particular times (during the Bretton Woods era) and places (in labor scarce economies).
    JEL: F0 F00
    Date: 2006–08
  3. By: Ethan Kapstein
    Abstract: Since 1974 the world has experienced a “third wave” of democratization. Ensuring that these new democracies consolidate is critical to both global prosperity and peace. Unfortunately, the academic literature that might help policy-makers shape appropriate foreign assistance programs remains underdeveloped, in that it lacks strong behavioral foundations, or explanations of why people act the way they do. This paper argues that the process of democratic consolidation requires a transition from clientelistic to contractual exchange relationships. Without that transition, efforts to promote democratic consolidation are unlikely to succeed.
    Keywords: democracy, foreign assistance, economic development
    JEL: O17 F35 D73
    Date: 2004–12
  4. By: Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany.; Marco Sahm (Lehrstuhl für Finanzwissenschaft, Ludwigstrasse 28 Vgb. III, 80539 München, Germany.
    Abstract: We study the classical free-rider problem in public goods provision in a large economy with uncertainty about the average valuation of the public good. Individual preferences over public goods are shaped by a skill and a taste parameter. We use a mechanism design approach to solve for the optimal utilitarian provision rule. The relevant incentive constraints for information aggregation ensure that individuals behave as if they were engaging in informative voting over the level of public good provision. It is shown that the use of information by an optimal provision rule is inversely related to the polarization of preferences which results from the properties of the skill distribution.
    Keywords: information aggregation, informative voting, public goods, two-dimensional heterogeneity
    JEL: H41 D71 D72 D82
    Date: 2006–07
  5. By: Belfrage , Carl-Johan (Department of Economics, Lund University); Gallo, Fredrik (Department of Economics, Lund University)
    Abstract: Adding majority voting to a simple new economic geography model, we analyse under which circumstances politically determined barriers to international firm relocation exist. Two countries, differing in market size, consider abolishing restrictions on firm mobility. Eliminating these restrictions will fully or partially de-industrialize the small country as firms relocate to the larger market. We show that there is unanimous support for (resistance against) the removal of obstacles to firm relocation in the large (small) country if the country size difference is small, while a large difference in size gives rise to domestic conflicts of interest and international cross-factor alignments of interests. Furthermore, trade liberalisation may have facilitated the removal of barriers to firm relocation in large countries. Finally, political integration between trading countries is likely to contribute to the removal of barriers to firm relocation, and support for (resistance against) such a development comes primarily from the immobile factor in the large (small) country.
    Keywords: barriers to firm relocation; new economic geography; majority voting; public policy
    JEL: F12 F13 F15
    Date: 2006–08–11
  6. By: José Antonio Ocampo
    Abstract: This paper offers three guiding principles for a better relationship between the economy and democracy: democracy as the extension of citizenship; democracy as diversity; and democracy as complementary to clear, strong macroeconomic rules. This view, it is argued, implies that economic and social institutions must be subject to democratic political choice. In this context, it analyses the role of both national and international institutions in improving the complementarity of the market, social cohesion and democracy. The central role of economic and social rights serves as the overarching framework for the analysis.
    Keywords: citizenship, democracy, social cohesion, market economy, inequality, property rights
    JEL: H1 H4 I3 E61 D6 F02
    Date: 2006–02
  7. By: Arianna Degan (Département des sciences économiques, Université du Québec à Montréal); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: In this paper, we propose a unified approach to study participation and voting in multiple elections. The theoretical framework combines an “uncertain-voter” model of turnout with a spatial model of voting behavior. We apply our framework to study turnout and voting in U.S. national (presidential and congressional) elections, and structurally estimate the model using individual-level data for the 2000 elections. The estimated model replicates the patterns of abstention, selective abstention, split-ticket voting, and straight-ticket voting observed in the data. We also quantify the relationships between observed individual characteristics and unobserved citizens’ ideological preferences, information, and civic duty. Finally, we assess the effects of policies that may increase citizens’ information and sense of civic duty on their turnout and voting behavior.
    Keywords: elections, turnout, selective abstention, split-ticket voting
    JEL: D72
    Date: 2004–04–01

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