nep-pol New Economics Papers
on Positive Political Economics
Issue of 2006‒11‒25
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Instability and Inflation Volatility By Ari Aisen; Francisco José Veiga
  2. Minorities and Storable Votes By Alessandra Casella; Thomas Palfrey; Raymond Riezman
  3. Who Misvotes? The Effect of Differential Cognition Costs on Election Outcomes By Kelly Shue; Erzo F. P. Luttmer
  4. The political economy of unemployment and threshold effects. A nonlinear time series approach. By Ruthira Naraidoo; Patrick Minford; Ioannis A. Venetis
  5. Economic and Political Determinants of Tax Amnesties in the U.S. States By Eric Le Borgne
  6. A Simple Scheme to Improve the Efficiency of Referenda By Alessandra Casella; Andrew Gelman
  7. What Drives Media Slant? Evidence from U.S. Daily Newspapers By Matthew Gentzkow; Jesse M. Shapiro
  8. Political risk and export promotion: evidence from Germany By Moser, Christoph; Nestmann, Thorsten; Wedow, Michael
  9. Measures of Central Bank Autonomy: Empirical Evidence for OECD, Developing, and Emerging Market Economies By Jean-Francois Segalotto; Marco Arnone; Bernard Laurens
  10. Politico-Economic Causes of Labor Regulation in the United States: Rent Seeking, Alliances, Raising Rivals’ Costs (Even Lowering One’s Own?), and Interjurisdictional Competition By John T. Addison
  11. Merged Municipalities, Higher Debt: On Free-riding and the Common Pool Problem in Politics By Jordahl, Henrik; Liang, Che-Yuan
  12. Group and individual risk preferences : a lottery-choice experiment. By David Masclet; Youenn Loheac; Laurent Denant-Boemont; Nathalie Colombier
  13. The Measurement of Central Bank Autonomy: Survey of Models, Indicators, and Empirical Evidence By Jean-Francois Segalotto; Marco Arnone; Bernard Laurens

  1. By: Ari Aisen; Francisco José Veiga
    Abstract: The purpose of this paper is to empirically determine the causes of worldwide diversity of inflation volatility. We show that higher degrees of political instability, ideological polarization, and political fragmentation are associated with higher inflation volatility.
    Keywords: Inflation , volatility , political instability , institutions ,
    Date: 2006–10–04
  2. By: Alessandra Casella (Department of Economics, Columbia University); Thomas Palfrey (Division of Humanities, Cal Tech); Raymond Riezman (Department of Economics, University of Iowa)
    Abstract: The paper studies a simple voting system that has the potential to increase the power of minorities without sacrificing aggregate efficiency. Storable votes grant each voter a stock of votes to spend as desired over a series of binary decisions. By accumulating votes on issues that it deems most important, the minority can win occasionally. But because the majority typically can outvote it, the minority wins only if its strength of preference is high and the majority's strength of preference is low. The result is that with storable votes, aggregate efficiency either falls little or in fact rises. The theoretical predictions of our model are confirmed by a series of experiments: the frequency of minority victories, the relative payoff of the minority versus the majority, and the aggregate payoffs all match the theory.
    Date: 2005–11
  3. By: Kelly Shue; Erzo F. P. Luttmer
    Abstract: If voters are fully rational and have negligible cognition costs, ballot layout should not affect election outcomes. In this paper, we explore deviations from rational voting using quasi-random variation in candidate name placement on ballots from the 2003 California Recall Election. We find that the voteshares of minor candidates almost double when their names are adjacent to the names of major candidates on a ballot. Voteshare gains are largest in precincts with high percentages of Democratic, Hispanic, low-income, non-English speaking, poorly educated, or young voters. A major candidate that attracts a disproportionate share of voters from these types of precincts faces a systematic electoral disadvantage. If the Republican frontrunner Arnold Schwarzenegger and Democratic frontrunner Cruz Bustamante had been in a tie, adjacency misvoting would have given Schwarzenegger an edge of 0.06% of the voteshare. This gain in voteshare exceeds the margins of victory in the 2000 U.S. Presidential Election and the 2004 Washington Gubernatorial Election. We explore which voting technology platforms and brands mitigate misvoting.
    JEL: D01 D72 D83 J10
    Date: 2006–11
  4. By: Ruthira Naraidoo (Keele University, Centre for Economic Research and School of Economic and Management Studies); Patrick Minford (Cardiff Business School, Aberconway Building, Cardiff University); Ioannis A. Venetis (University of Patras, Department of Economics)
    Abstract: This paper develops a political economy model of multiple unemployment equilibria to provide a theory of an endogenous natural rate of unemployment using a nonlinear threshold model for a number of OECD countries. The theory here sees the natural rate and the associated path of unemployment as a reaction to shocks (mainly demand in nature) and the institutional structure of the economy. The channel through which these two forces feed on each other is a political economy process whereby voters with limited information on the natural rate react to shocks by demanding more or less social protection. The empirical results obtained confirm the existence of multiple and ``moving'' equilibria (``vicious'' and ``virtuous'' circles). The nonlinear model is compared with a linear version with the nonlinear framework always exhibiting superior in-sample fit and generally better out-of-sample predictive accuracy. The conclusion is that macroeconomics and supply side policies feed on each other via the political economy.
    Keywords: Equilibrium unemployment, political economy, threshold model, forecasting
    JEL: E24 E27 P16
    Date: 2006–10
  5. By: Eric Le Borgne
    Abstract: This paper revisits earlier studies on the determinants of tax amnesties. The novel findings are (i) amnesties are more likely to be declared during fiscal stress periods, and (ii) political factors significantly affect the introduction and timing of amnesties. In particular, the paper empirically disentangles opposite theoretical effects to show that governors perceive amnesties as another revenue source (rather than a tax increase alternative). Finally, supporting evidence shows that by breaking horizontal equity, amnesties might be perceived as unfair: a significant correlation exists between governors who lost their reelection bids and the introduction of a tax amnesty during their election years.
    Keywords: Tax amnesty , gubernatorial elections , Cox model ,
    Date: 2006–10–16
  6. By: Alessandra Casella (Department of Economics, Columbia University); Andrew Gelman (Department of Statistics, Columbia University)
    Abstract: This paper proposes a simple scheme designed to elicit and reward intensity of preferences in referenda: voters faced with a number of binary proposals are given one regular vote for each proposal plus an additional number of bonus votes to cast as desired. Decisions are taken according to the majority of votes cast. In our base case, where there is no systematic difference between proposals’ supporters and opponents, there is always a positive number of bonus votes such that ex ante utility is increased by the scheme, relative to simple majority voting. When the distributions of valuations of supporters and opponents differ, the improvement in efficiency is guaranteed if the distributions can be ranked according to first order stochastic dominance. If they are, however, the existence of welfare gains is independent of the exact number of bonus votes.
    Date: 2005–11
  7. By: Matthew Gentzkow; Jesse M. Shapiro
    Abstract: We construct a new index of media slant that measures whether a news outlet's language is more similar to a congressional Republican or Democrat. We apply the measure to study the market forces that determine political content in the news. We estimate a model of newspaper demand that incorporates slant explicitly, estimate the slant that would be chosen if newspapers independently maximized their own profits, and compare these ideal points with firms' actual choices. Our analysis confirms an economically significant demand for news slanted toward one's own political ideology. Firms respond strongly to consumer preferences, which account for roughly 20 percent of the variation in measured slant in our sample. By contrast, the identity of a newspaper's owner explains far less of the variation in slant, and we find little evidence that media conglomerates homogenize news to minimize fixed costs in the production of content.
    JEL: D78 K23 L82
    Date: 2006–11
  8. By: Moser, Christoph; Nestmann, Thorsten; Wedow, Michael
    Abstract: Political risk represents an important hidden transaction cost that reduces international trade. This paper investigates the claim that German public export credit guarantees (Hermes guarantees) mitigate this friction to trade flows and hence promote exports. We employ an empirical trade gravity model, where we explicitly control for political risk in the importing country in order to evaluate the effect of export guarantees. The idea behind export promotion through public export credit agencies (ECAs) is that the private market is unable to provide adequate insurance for all risks associated with exports. As a consequence, firms' export activities are limited in the absence of insurance provision. Using a novel data set on guarantees we estimate the effect of guarantees in a static and dynamic panel model. We find a statistically and economically significant positive effect of public export guarantees on exports which indicates that export promotion is indeed effective. Furthermore, political risk turns out to be a robust determinant of exports and hence should be taken into account in any empirical model of trade.
    Keywords: public export credit guarantees, political risk, panel regression
    JEL: C23 F13 H81
    Date: 2006
  9. By: Jean-Francois Segalotto; Marco Arnone; Bernard Laurens
    Abstract: This paper presents an update of the Grilli-Masciandaro-Tabellini (GMT) index of central bank (CB) autonomy, based on CB legislation as of end-2003. The index is applied to a set of OECD and developing countries, and emerging market economies. For a smaller set of countries, the paper presents a reconstruction of the GMT index based on Cukierman (1992) and assesses changes in CB autonomy between 1992 and 2003. The results point to a significant increase in CB autonomy, in particular for developing countries. In most cases, this improvement has involved a three-stage process: an initial stage in which the political foundations for CB autonomy are laid; a second stage in which operational autonomy develops; and a final stage in which CBs gain further political autonomy in terms of policy formulation and the appointment of senior management.
    Keywords: Central bank autonomy , political autonomy , economic autonomy ,
    Date: 2006–10–19
  10. By: John T. Addison (University of South Carolina, Queen’s University Belfast, Universidade de Coimbra/GEMF and IZA Bonn)
    Abstract: This paper offers an eclectic survey of the political economy of labor regulation in the United States at federal and state levels along the dimensions of occupational health and safety, unjust dismissal, right-to-work, workplace safety and workers’ compensation, living wages, and prevailing wages. We discuss rent seeking/predation, coalition formation, judicial review, and interjurisdictional competition as well as the implications of union decline. Our analysis should help dispel any notion that the U.S. labor market is unregulated while also indicating that the political process shows some sensitivity to benefits and costs.
    Keywords: labor regulation, regulatory capture, interjurisdictional competition, judicial review, OSHA, unjust dismissals, workplace safety, right-to-work, living wage ordinances, prevailing wages, unionism.
    JEL: H70 J28 J38 J41 J48 J58 J65 J80 K31
    Date: 2006–10
  11. By: Jordahl, Henrik (Research Institute of Industrial Economics); Liang, Che-Yuan (Department of Economics)
    Abstract: We use the 1952 Swedish municipal amalgamation reform to study free-riding and the common pool problem in politics. We expect municipalities that were affected by the reform to increase their debt in anticipation of a merger, and this effect to be larger if they were merged with many other populous municipalities (i.e. facing a large common pool). We use ordinary least squares and matching on the complete cross section of rural municipalities for the period 1947-1951, fixed effects when exploiting the panel features, as well as a geographical instrumental variables strategy. We find an average treatment effect close to the amount that the average merged municipality increased its debt with during this period, which corresponds to 2.8 percent of average income or 63 percent of the average increase in income. However, we do not find larger increases in municipalities that were part of a larger common pool.
    Keywords: Common pool; municipal amalgamation; local governments
    JEL: D72 H73 H74 H77 R53
    Date: 2006–10–19
  12. By: David Masclet (CREM, Department of Economics, University of Rennes 1 et CIRANO,Montréal); Youenn Loheac (Graduate School of Management of Brittany et Centre d'Economie de la Sorbonne); Laurent Denant-Boemont (CREM, Department of Economics, University of Rennes 1); Nathalie Colombier (CREM, Department of Economics, University of Rennes 1)
    Abstract: This paper focuses on decision making under risk, comparing group and individual risk preferences in a lottery-choice experiment inspired by Holt and Laury (2002). The experiment presents subjects with a menu of unordered lottery choices which allows us to measure risk aversion. In the individual treatment, subjects make lottery choices individually ; in the group treatment, each subject was placed in an anonymous group of three, where unanimous lottery choice decisions were made via voting. Finally, in a third treatment, called the choice treatment, subjects could choose whether to be on their own or in a group. our main findings are that groups are more likely than individuals to choose safe lotteries for decisions with low winning percentages. Moreover, groups converge toward less risky decisions because subjects who were relatively less risk averse were more likely to change their vote in order to conform to the group average decision ; more risk-averse individuals were less likely to change their preferences. Finally our results reveal a positive relationship between preference for risk and willingness to decide alone.
    Keywords: Experiment, decision rule, individual decision, group decision.
    JEL: C91 C92 D81 D70 M10
    Date: 2004–10
  13. By: Jean-Francois Segalotto; Marco Arnone; Bernard Laurens
    Abstract: This paper presents a survey of the literature on the measurement of central bank autonomy. We distinguish inputs that constitute the building blocks in the literature, and the literature that builds on them. Issues including sensitivity analysis, robustness, and endogeneity are discussed. The review shows that empirical evidence regarding the beneficial effects of central bank autonomy is substantial, although some technical issues still remain for further research. In particular, central bank autonomy raises the issue of subjecting the monetary authorities to democratic control; this calls for additional research on the linkages between central bank autonomy and accountability and transparency. Additional empirical analysis on the relationship between the financial strength of the central bank and its de facto autonomy, and between its autonomy and financial stability, would also be desirable.
    Keywords: Central bank autonomy , political autonomy , economic autonomy ,
    Date: 2006–10–19

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