nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒01‒02
eighteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. A Conceptual Framework for Interpreting Recorded Human History By Douglass C North; John Joseph Wallis; Barry R. Weingast
  2. Redistributive Politics with Distortionary Taxation By Crutzen, Benoît SY; Sahuguet, Nicolas
  3. The Age of Mass Migration: Economic and Institutional Determinants By Graziella Bertocchi; Chiara Strozzi
  4. Strategic approval voting in a large electorate By Jean-Francois Laslier
  6. The Political Economy of Investor Protection By Pietro Tommasino
  7. The Evolution of Citizenship: Economic and Institutional Determinants By Graziella Bertocchi; Chiara Strozzi
  8. Dictators, Repression and the Median Citizen: An “Eliminations Model” of Stalin’s Terror (Data from the NKVD Archives) By Gregory, Paul; Schrôder, Philipp; Sonin, Konstantin
  9. Real-time determinants of fiscal policies in the euro area: Fiscal rules, cyclical conditions and elections By Roberto Golinelli; Sandro Momigliano
  10. Opportunist politicians and the evolution of<br />electoral competition By Jean-Francois Laslier; Bilge Ozturck
  11. Political Effects on the Allocation of Public Expenditures : Empirical Evidence from OECD Countries By Niklas Potrafke
  12. When is Democracy an Equilibrium?: Theory and Evidence from Colombia's "La Violencia" By Mario Chacon; James A. Robinson; Ragnar Torvik
  13. On the Link Between Democracy and Environment By Drosdowski, Thomas
  14. Leading by example with and without exclusion power in voluntary contribution experiments By Werner Güth; M. Vittoria Levati; Matthias Sutter; Eline van der Heijden
  15. The Effects of Partisan Alignment on the Allocation of Intergovernmental Transfers. Differences-in-Differences Estimates for Spain By Albert Solé-Ollé; Pilar Sorribas-Navarro
  16. Cake Division by Majority Decision By Hans Gersbach; Bernhard Pachl
  17. Why do Differences in the Degree of Fiscal Decentralization Endure? By Xavier Calsamiglia; Teresa Garcia-Milà; Therese J. McGuire
  18. Parties Matter in Allocating Expenditures : Evidence from Germany By Niklas Potrafke

  1. By: Douglass C North; John Joseph Wallis; Barry R. Weingast
    Abstract: Neither economics nor political science can explain the process of modern social development. The fact that developed societies always have developed economies and developed polities suggests that the connection between economics and politics must be a fundamental part of the development process. This paper develops an integrated theory of economics and politics. We show how, beginning 10,000 years ago, limited access social orders developed that were able to control violence, provide order, and allow greater production through specialization and exchange. Limited access orders provide order by using the political system to limit economic entry to create rents, and then using the rents to stabilize the political system and limit violence. We call this type of political economy arrangement a natural state. It appears to be the natural way that human societies are organized, even in most of the contemporary world. In contrast, a handful of developed societies have developed open access social orders. In these societies, open access and entry into economic and political organizations sustains economic and political competition. Social order is sustained by competition rather than rent-creation. The key to understanding modern social development is understanding the transition from limited to open access social orders, which only a handful of countries have managed since WWII.
    JEL: A0 K0 K22 N0 N4 N40 O1 O4 P0 P1 P16 P2
    Date: 2006–12
  2. By: Crutzen, Benoît SY; Sahuguet, Nicolas
    Abstract: We extend the discussion of redistributive politics across electoral systems to allow for taxation to be distortionary. We allow politicians to choose any tax rate between zero and unity and then redistribute the money collected. We build on the model put forward by Myerson (1993) and Lizzeri and Persico (2001 and 2005) to show that the use of distortionnary taxation can be understood as an analysis of the trade-off between efficiency and targetability. We derive the equilibrium taxes and redistribution schemes with distortions. We show that the presence of distortions makes full taxation unattractive. We also derive the size of the government, the deadweight loss and inequality as a function of distortions.
    Keywords: distortionary taxation; redistributive politics
    JEL: D72 D78 H23 H31
    Date: 2006–12
  3. By: Graziella Bertocchi (Università di Modena e Reggio Emilia, CEPR, CHILD and IZA Bonn); Chiara Strozzi (Università di Modena e Reggio Emilia)
    Abstract: We study the determinants of 19th century mass migration with special attention to the role of institutional factors beside standard economic fundamentals. We find that economic forces associated with income and demographic differentials had a major role in the determination of this historical event, but that the quality of institutions also mattered. We evaluate separately the impact of political institutions linked to democracy and suffrage and of those institutions more specifically targeted at attracting migrants, i.e., citizenship acquisition, land distribution, and public education policies. We find that both sets of institutions contributed to this event, even after controlling for their potential endogeneity through a set of instruments exploiting colonial history and the quality of institutions inherited from the past.
    Keywords: 19th century international migration, institutions, migration policy, democracy, colonial history
    JEL: F22 P16 N33 O15 K40 F54
    Date: 2006–12
  4. By: Jean-Francois Laslier (PREG - Pole de recherche en économie et gestion - [CNRS : UMR7176] - [Polytechnique - X])
    Abstract: The paper considers approval voting for a large population of voters.<br />It is proven that, based on statistical information about candidate<br />scores, rational voters vote sincerly and according to a simple behavioral<br />rule. It is also proven that if a Condorcet-winner exists, this candidate<br />is elected.
    Keywords: Strategic Voting. Sincere voting. Approval voting. Condorcet.
    Date: 2006–12–21
  5. By: Jean-Francois Laslier (PREG - Pole de recherche en économie et gestion - [CNRS : UMR7176] - [Polytechnique - X]); Jörgen Weibull (PREG - Pole de recherche en économie et gestion - [CNRS : UMR7176] - [Polytechnique - X], SSE - Department of Economics - [Stockholm School of Economics])
    Abstract: According to Condorcet's jury theorem, informative voting<br />under majority rule leads to asymptotically efficient information aggregation:<br />As the jury size tends to infinity, the probability of a wrong decision goes to<br />zero. However, as is well-known by now, rational and privately informed voters<br />will condition their votes on being pivotal, and this may destroy their incentive<br />to vote informatively (according to their private information). We here restore<br />Condorcet's asymptotic efficiency result by way of modifying the aggregation<br />rule in such a way that (a) voters have an incentive to vote informatively and<br />(b) the collective decision is asymptotically efficient. The mechanism is an<br />ex-post randomization between majority rule applied to all votes and majority<br />rule applied to a randomly sampled subset of votes.
    Keywords: strategic voting, Condorcet, jury, information aggregation.
    Date: 2006–12–21
  6. By: Pietro Tommasino (Bank of Italy)
    Abstract: Why do some countries suffer from backward financial institutions and weak corporate governance rules? We show that, even if, overall, the economy would benefit corporate governance reforms, not all the agents would stand to gain from the improvement. In particular, entrepreneurs and firms that are already well-established fear better rules, which would allow the financing of new firms and enhance competition. As a consequence, industry incumbents will try to influence the political process to block the reforms. If national political institutions are weak, these efforts are likely be successful.
    Keywords: Corporate Governance, Entry, Financial Development, Investor Protection, Politics
    JEL: G30 G38 K22 K42 L11 O16 P16
    Date: 2006–12
  7. By: Graziella Bertocchi (Università di Modena e Reggio Emilia, CEPR, CHILD and IZA Bonn); Chiara Strozzi (Università di Modena e Reggio Emilia)
    Abstract: We investigate the origin and evolution of the legal institution of citizenship from a political economy perspective. We compile a new data set on citizenship laws across countries of the world which documents how these institutions have evolved in the postwar period. We show that, despite a persistent impact of the original legislation, they have responded endogenously and systematically to a number of economic determinants, such as migration, the size of government, and the demographic structure of the population. Overall, a large stock of migrants decreases the probability of adoption of a mix of jus soli and jus sanguinis provisions, while it pushes jus sanguinis countries toward the adoption of jus soli elements. The welfare burden proves not to be an obstacle for a jus soli legislation, while demographic stagnation encourages the adoption of mixed and jus soli regimes. We also gauge the potential role of legal, political and cultural determinants, and find that a jus sanguinis origin is a factor of resistance to change, that a high degree of democracy promotes the adoption of jus soli elements while the instability of state borders associated with decolonization impedes it, and that cultural factors have no impact.
    Keywords: citizenship laws, international migration, legal origins, democracy, borders
    JEL: P16 K40 F22 O15
    Date: 2006–12
  8. By: Gregory, Paul; Schrôder, Philipp; Sonin, Konstantin
    Abstract: This paper sheds light on dictatorial behavior as exemplified by the mass terror campaigns of Stalin. Dictatorships - unlike democracies where politicians choose platforms in view of voter preferences - may attempt to trim their constituency and thus ensure regime survival via the large scale elimination of citizens. We formalize this idea in a simple model and use it to examine Stalin’s three large scale terror campaigns with data from the NKVD state archives that are accessible after more than 60 years of secrecy. Our model traces the stylized facts of Stalin’s terror and identifies parameters such as the ability to correctly identify regime enemies, the actual or perceived number of enemies in the population, and how secure the dictator's power base is, as crucial for the patterns and scale of repression.
    Keywords: Dictatorial systems; NKVD; OPGU; Soviet State and Party archives; Stalinism
    JEL: N44 P00 P26
    Date: 2006–12
  9. By: Roberto Golinelli (University of Bologna, Department of Economics); Sandro Momigliano (Bank of Italy, Economic Research Department)
    Abstract: We examine the impact of four factors on the fiscal policies of the euro-area countries over the last two decades: the state of public finances, the European fiscal rules, cyclical conditions and general elections. We rely on information actually available to policy-makers at the time of budgeting in constructing our explanatory variables. Our estimates indicate that policies have reacted to the state of public finances in a stabilizing manner. The European rules have significantly affected the behaviour of countries with excessive deficits. Apart from these cases, the rules appear to have reaffirmed existing preferences. We find a relatively large symmetrical counter-cyclical reaction of fiscal policy and strong evidence of a political budget cycle. The electoral manipulation of fiscal policy, however, occurs only if the macroeconomic context is favourable.
    Keywords: fiscal policy, real-time information, euro-area countries, stabilisation policies, fiscal rules, political budget cycle
    JEL: E61 D72 E62 H60
    Date: 2006–12
  10. By: Jean-Francois Laslier (PREG - Pole de recherche en économie et gestion - [CNRS : UMR7176] - [Polytechnique - X]); Bilge Ozturck (Department of Economics - [Galatasaray University])
    Abstract: We study a unidimensional model of spatial competition between two parties with two types of politicians. The office oriented politicians, referred to as “opportunist” politicians, care only about the spoils of the office. The policy oriented politicians, referred to as “militant” politicians have ideological preferences on the policy space. In this framework, we compare a winner-take-all system, where all the spoils go to the winner, to a proportional system, where the spoils of office are split among the two parties proportionally to their share of the vote.<br />We study the existence of short term political equilibria and then, within an evolutionary setup, the dynamics and stability of policies and of party membership decisions.
    Keywords: Political competition. Opportunism. Downs.
    Date: 2006–12–21
  11. By: Niklas Potrafke
    Abstract: This paper examines the effects of political determinants on the allocation of public expenditures. Analyzing an OECD panel from 1990 to 2004, a SURE model controls for the contemporaneous correlation between the different expenditure categories (COFOG). I find that left governments set other priorities than right governments: In particular, they increase spending for "Environment protection", "Recreation; Culture and Religion" and "Education". The number of coalition partners as well as minority governments affects the allocation of public expenditures, too. In contrast, there are no election and pre-election year effects.
    Keywords: Allocation of public expenditures, partisan politics
    JEL: D72 E62 H50
    Date: 2006
  12. By: Mario Chacon; James A. Robinson; Ragnar Torvik
    Abstract: The conventional wisdom in political science is that for a democracy to be consolidated, all groups must have a chance to attain power. If they do not then they will subvert democracy and choose to fight for power. In this paper we show that this wisdom is seriously incomplete because it considers absolute, not relative payoffs. Although the probability of winning an election increases with the size of a group, so does the probability of winning a fight. Thus in a situation where all groups have a high chance of winning an election, they may also have a high chance of winning a fight. Indeed, in a natural model, we show that democracy may never be consolidated in such a situation. Rather, democracy may only be stable when one group is dominant. We provide a test of a key aspect of our model using data from "La Violencia", a political conflict in Colombia during the years 1946-1950 between the Liberal and Conservative parties. Consistent with our results, and contrary to the conventional wisdom, we show that fighting between the parties was more intense in municipalities where the support of the parties was more evenly balanced.
    JEL: D72
    Date: 2006–12
  13. By: Drosdowski, Thomas
    Abstract: Using a considerable number of theoretical and empirical sources, we analyze the relationship between democracy and environment. First, we compare the situation in democracies and non-democracies. Later, we discuss environmental distribution conflicts and the role of economic growth. In addition, we illuminate the way in which democratization influences environmental policies, concentrating on the role of economic inequality. Moreover, we discuss the impact of electoral rules and systems, as well as polluting lobbies. Finally, we consider political alternatives and sum up the main conclusions.
    Keywords: democracy, environmental policy, political economy
    JEL: D72 Q56 Q58
    Date: 2006–12
  14. By: Werner Güth; M. Vittoria Levati; Matthias Sutter; Eline van der Heijden
    Abstract: We examine the effects of leading by example in voluntary contribution experiments. Leadership is implemented by letting one group member contribute to the public good before followers do. Such leadership increases contributions in comparison to the standard voluntary contribution mechanism, especially so when it goes along with authority in the form of granting the leader exclusion power. Whether leadership is fixed or rotating among group members has no significant influence on contributions. Only a minority of groups succeeds in endogenously installing a leader, even though groups with leaders are much more efficient than groups without a leader.
    Keywords: Voluntary contribution experiment, leadership, exclusion power, endogenous selection
    JEL: C72 C92 H41
    Date: 2006–12
  15. By: Albert Solé-Ollé; Pilar Sorribas-Navarro
    Abstract: In this paper we test the hypothesis that municipalities aligned with upper-tier grantor governments (i.e., controlled by the same party) will receive more grants than those that are unaligned. We use a rich Spanish database, which provides information on grants received by nearly 900 municipalities during the period 1993-2003 from three different upper-tier governments (i.e., Central, Regional and Upper-local). Since three elections were held at each tier during this period, we have enough within-municipality variation in partisan alignment to provide differences-in-differences estimates of the effects of alignment on the amount of grants coming from each source. Moreover, the fact that a municipality may simultaneously receive grants from aligned and unaligned grantors allows us to use a triple-differences estimator, which consists of estimating the effects of changing alignment status on the change in grants coming from the aligned grantors relative to the change in grants coming from the unaligned ones. The results suggest that partisan alignment has a sizeable positive effect on the amount of grants received by municipalities.
    Keywords: grant allocation, alignment, electoral competition
    JEL: C72 D72
    Date: 2006
  16. By: Hans Gersbach; Bernhard Pachl
    Abstract: We consider a collective choice process where three players make proposals sequentially on how to divide a given quantity of resources. Afterwards, one of the proposals is chosen by majority decision. If no proposal obtains a majority, a proposal is drawn by lot. We establish the existence of the set of subgame perfect equilibria, using a suitable refinement concept. In any equilibrium, the first agent offers the whole cake to the second proposal-maker, who in turn offers the whole cake back to the first agent. The third agent is then indifferent about dividing the cake between himself and the first or the second agent.
    Keywords: division of a cake, majority decisions, tie-breaking rules
    JEL: C72 D30 D39 D72
    Date: 2006
  17. By: Xavier Calsamiglia; Teresa Garcia-Milà; Therese J. McGuire
    Abstract: Differences in the degree of fiscal decentralization observed between the U.S. and many countries in Europe cannot be explained within the standard theory of fiscal decentralization. By introducing preferences for solidarity – equality in the provision of public goods and services across regions – we show that different decentralization schemes can coexist as efficient choices. We develop a model of fiscal decentralization that incorporates tastes for solidarity, multiple levels of government, and various tax and transfer instruments. We find that when solidarity is added to the traditional fiscal-federalism framework, the choice along the decentralized-to-centralized spectrum shifts toward a more centralized system.
    JEL: H20 H40 H70
    Date: 2006
  18. By: Niklas Potrafke
    Abstract: I test if parties matter with respect to the allocation of public expenditures in Germany. Considering the allocation of rights and duties due to the federal structure, two econometric models are estimated. First, a SURE model analyses spending at the federal level for the period from 1950 to 2003 and finds evidence for partisan politics and election year effects. Second, I examine the spending behaviour in the states from 1974 to 2004 in a panel data framework. In comparison to the federal level, policy has weaker impacts on the allocation of expenditures in the states.
    Keywords: Allocation of public expenditures, partisan politics, fiscal federalism
    JEL: D72 H50 H72
    Date: 2006

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