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on Positive Political Economics |
| By: | Dhingra, Swati |
| Abstract: | This paper examines the empirical validity of the Mayer-Heckscher-Ohlin (M-H-O) model. We test the inequality-tariff relationship studied by Dutt & Mitra (2002) as well as a large country version of Mayer’s model. Dutt and Mitra (2002) found support for the inequality-tariff implication of the model for a cross-section of countries in the 1980s, using physical capital and labor as the two factors in the MH- O model. Our results suggest that this finding is not robust. Instead, we find that when human capital and (unskilled) labor are taken as relevant factors, the Mayer implication is validated in the 1980s. Using cross-sectional country data, we also find that the Mayer implication holds for the 1990s with either physical capital or human capital. We discuss possible explanations for the different findings in the two periods. We extend the model to a large country and obtain tariff levels which are a function of the median voter component and a terms of trade factor. For the 1990s, the positive impact of terms of trade considerations on tariff levels across countries is validated. Using human capital, we find that the median voter component has a negative impact on tariffs in labor-abundant countries and a positive impact in capital-abundant countries. |
| Keywords: | median voter; Mayer; large country; terms of trade |
| JEL: | F59 F14 F13 |
| Date: | 2006–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:892&r=pol |
| By: | Lombardelli, Clare; Proudman, James; Talbot, James |
| Abstract: | We report the results of an experimental analysis of monetary policy decision making under uncertainty. A large sample of economics students played a simple monetary policy game, both as individuals and in committees of five players. Our findings - that groups make better decisions than individuals - accord with previous work by Blinder and Morgan. We also attempt to establish why this is so. Some of the improvement is related to the ability of committees to strip out the effect of bad play, but there is a significant additional improvement, which we associate with players learning from each other’s interest rate decisions. |
| Keywords: | Monetary policy; experimental economics; central banking; uncertainty |
| JEL: | G00 G0 |
| Date: | 2005–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:823&r=pol |
| By: | Rixen, Thomas; Rohlfing, Ingo |
| Abstract: | Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes’ similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement. |
| Keywords: | Theories of International Cooperation; International Trade; International Double Taxation; Bilateralism; Multilateralism |
| JEL: | F59 F53 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:325&r=pol |
| By: | Lupia, Arthur; Menning, Jesse |
| Abstract: | Analysts make competing claims about when and how politicians can use fear to gain support for suboptimal policies. Using a model, we clarify how common attributes of fear affect politicians’ abilities to achieve self-serving outcomes that are bad for voters. In it, a politician provides information about a threat. His statement need not be true. How citizens respond differs from most game-theoretic models – we proceed from more dynamic (and realistic) assumptions about how citizens think. Our conclusions counter popular claims about how easily politicians use fear to manipulate citizens, yield different policy advice than does recent scholarship on counterterrorism, and highlight issues (abstract, distant) and leaders (secretive) for which recent findings by political psychologists and public opinion scholars will – and will not – generalize. |
| Keywords: | emotions; behavioral economics; game theory; political science; incentives |
| JEL: | D83 H30 C72 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102&r=pol |
| By: | Masami Imai (Economics and East Asian Studies, Wesleyan University) |
| Abstract: | This paper uses newly compiled data on Thai family businesses and their direct participation in politics to examine whether the political participation of family business yields private economic payoff. The paper finds that the political participation of family members is positively associated with the profitability of family businesses. Furthermore, this “political benefit” is found to be particularly large when firms are connected to the cabinet members. These results support the crony capitalism view that powerful business groups in Thailand have an incentive to directly hold influential public offices in order to influence the economic policy in their favor. |
| Keywords: | Cronyism, Political Connection, Family Business, Thailand |
| JEL: | G38 O53 P16 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:wes:weswpa:2006-017&r=pol |
| By: | Lupia, Arthur; Prior, Markus |
| Abstract: | Surveys provide widely-cited measures of political knowledge. Do unusual aspects of survey interviews reduce their relevance? To address this question, we embedded a set of experiments in a representative survey of over 1200 Americans. A control group answered political knowledge questions in a typical survey context. Respondents in treatment groups received the same questions in different contexts. One group received a monetary incentive for answering questions correctly. Others were given more time to answer the questions. The treatments increase the number of correct answers by 11-24 percent. Our findings imply that conventional knowledge measures confound respondents’ recall of political information and their motivation to engage the survey question. The measures also provide unreliable assessments of respondents’ abilities to access information that they have stored in places other than their immediately available memories. As a result, existing knowledge measures likely underestimate peoples’ capacities for informed decision making. |
| Keywords: | political knowledge; economic knowledge; experimental economics; incentives; survey |
| JEL: | H30 H31 C90 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103&r=pol |
| By: | Rodrigo Menon S. Moita; Claudio Paiva |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2006:126&r=pol |
| By: | Lupia, Arthur; Levine, Adam S.; Menning, Jesse O.; Sin, Gisela |
| Abstract: | In a recent edition of Perspectives on Politics, Larry Bartels examines the high levels of support for tax cuts signed into law by President Bush in 2001. In so doing, he characterizes the opinions of “ordinary people” as lacking “a moral basis” and as being based on “simple-minded and sometimes misguided considerations of self interest.” He concludes that “the strong plurality support for Bush’s tax cut...is entirely attributable to simple ignorance.” Our analysis of the same data reveals different results. We show that for a large and politically relevant class of respondents – people who describe themselves as “conservative” or “Republican” – rising information levels increase support for the tax cuts. Indeed, using Bartels’ measure of political information, we show that the Republican respondents rated “most informed” supported the tax cuts at extraordinarily high levels (over 96%). For these citizens, Bartels’ claim that “better-informed respondents were much more likely to express negative views about the 2001 tax cut” is simply untrue. We then show that Bartels’ results depend on a very strong assumption about how information affects public opinion. He restricts all respondents -- whether liberal or conservative, Republican or Democrat – to respond to increasing information levels in identical ways. In other words, he assumes that if more information about the tax cut makes liberals less likely to support it, then conservatives must follow suit. This assumption is very presumptive about the policy trade-offs that different people should make. Our analysis, by contrast, allows people of different partisan or ideological identities to react to higher information levels in varying ways. This flexibility has many benefits, one of which is a direct test of Bartels’ restrictive assumption. We demonstrate that the assumption is untrue. Examined several ways, our findings suggest that much of the support for the tax cut was attributable to something other than “simple ignorance.” Bartels’ approach is based on a very strong presumption about how citizens should think and what they should think about. We advocate a different approach, one that takes questions of public policy seriously while respecting ideological and partisan differences in opinion and interest. Indeed, citizens have reasons for the opinions and interests they have. We may or may not agree with them. However, we, as social scientists, can contribute more by offering reliable explanations of these reasons than we can by judging them prematurely. By turning our attention to explaining differences of opinion, we can help to forge a stronger and more credible foundation for progress in meeting critical social needs. |
| Keywords: | tax cut; President Bush; Republicans; conservatives; information; competence; public policy |
| JEL: | D80 H23 D8 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:348&r=pol |
| By: | Lupia, Arthur |
| Abstract: | A form of elitism undermines much writing on voter competence. The elitist move occurs when an author uses a self-serving worldview as the basis for evaluating voters. Such elitism is apparent in widely cited measures of “political knowledge” and in common claims about what voters should know. The elitist move typically limits the credibility and practical relevance of the analysis by leading writers to draw unreliable conclusions about voter competence. I propose a more constructive way of thinking about what voters know. Its chief virtue is its consistency with basic facts about the relationship between information and choice. |
| Keywords: | information; search; competence; political knowledge; public policy |
| JEL: | H00 D8 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:349&r=pol |
| By: | Kapstein, Ethan; Converse, Nathan |
| Abstract: | Since the “third wave” of democratization began in 1974, nearly 100 states have adopted democratic forms of government, including, of course, most of the former Soviet bloc nations. Policy-makers in the west have expressed the hope that this democratic wave will extend even further, to the Middle East and onward to China. But the durability of this new democratic age remains an open question. By some accounts, at least half of the world’s young democracies—often referred to in the academic literature as being “unconsolidated” or “fragile”—are still struggling to develop their political institutions, and several have reverted back to authoritarian rule. Among the countries in the early stages of democratic institution building are states vital to U.S. national security interests, including Afghanistan and Iraq. The ability of fledgling democracies to maintain popular support depends in part on the ability of their governments to deliver economic policies that meet with widespread approval. But what sorts of economic policies are these, and are they necessarily the same as the policies required for tackling difficult issues of economic stabilization and reform? Conversely, what sorts of economic policies are most likely to spark a backlash against young and fragile democratic regimes? Do the leaders of young democracies face trade-offs as they ponder their electoral and economic strategies? These are among the questions we explore in this paper, which provides an overview of the monograph we are currently writing on the economics of young democracies. We do so first by exploring the hypothesized relationships between democratic politics and economic policy, as well as the findings of several important empirical studies with respect to the economic performance of young democracies around the world. We then provide some descriptive statistics on how the new democracies have fared in practice, making use of a new dataset that we have compiled (and which, among other things, is more up-to-date than most others cited herein). Do the data reveal any distinctive economic patterns with respect to democratic consolidation and reversal? We will show that they do. In particular, we find that deteriorating or stagnant economic performance constitutes a red flag or warning signal that the country is at risk of democratic reversal. Moreover, we find considerable variation in economic performance, suggesting that the design of political institutions in new democracies may have a significant influence on the probability of their survival. |
| Keywords: | democracy; economic growth; inflation; political development |
| JEL: | P16 P17 E52 E62 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:553&r=pol |
| By: | Krupnikov, Yanna; Levine, Adam S.; Lupia, Arthur; Prior, Markus |
| Abstract: | We re-examine whether the broad support for repeal of the estate tax is a result of citizen ignorance. We find that increasing information about the estate tax or politics in general has very different effects on Republicans and Democrats. While high and low-information Republicans support estate tax repeal, Democratic support is higher among those who know less. However, most highly-informed people in both parties support repeal. We also show that standard surveys overestimate the extent of misinformation about the estate tax. Therefore, “ignorance” is not a compelling explanation of why so many people support estate tax repeal. |
| Keywords: | estate tax; voter competence; survey research; experimental economics; public policy |
| JEL: | H20 H30 K10 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:346&r=pol |