nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒02‒17
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Artificial States By William Easterly; Alberto Alesina; Janina Matuszeski
  2. Monetary Policy and the Political Support for a Labor Market Reform By Álvaro Aguiar; Ana Paula Ribeiro
  3. Political Careers or Career Politicians? Second Version By Andrea Mattozzi; Antonio Merlo
  4. The Class Content of Preferences Towards Anti-Inflation and Anti Unemployment Policies By Arjun Jayadev
  5. The Transparency of Politics and the Quality of Politicians By Andrea Mattozzi; Antonio Merlo
  6. Do Voters Vote Sincerely? Second Version By Arianna Degan; Antonio Merlo
  7. Mediocracy By Andrea Mattozzi; Antonio Merlo
  8. Are poor neighbourhoods opposed to democracy? The case of Antananarivo, Madagascar By François Roubaud; Jean-Michel Wachsberger
  9. Differentiation of Green Taxes: A Political-Economy Analysis for Germany By Anger, Niels; Böhringer, Christoph; Lange, Andreas
  10. The Political Economy of Infrastructure Investment in India By Chetan Ghate
  11. Political Institutions and the Development of Telecommunications By Veneta Andonova; Luis Diaz-Serrano
  12. Bicameralism and Government Formation, Second Version By Daniel Diermeier; Hulya Eraslan; Antonio Merlo
  13. Growth, public investment and corruption with failing institutions. By David De la Croix; Clara Delavallade

  1. By: William Easterly; Alberto Alesina; Janina Matuszeski
    Abstract: Artificial states are those in which political borders do not coincide with a division of nationalities desired by the people on the ground. We propose and compute for all countries in the world two new measures how artificial states are. One is based on measuring how borders split ethnic groups into two separate adjacent countries. The other one measures how straight land borders are, under the assumption the straight land borders are more likely to be artificial. We then show that these two measures seem to be highly correlated with several measures of political and economic success.
    Keywords: Artificial states, political borders
    JEL: O10 F50
    Date: 2006–09
  2. By: Álvaro Aguiar (CEMPRE, Faculdade de Economia, Universidade do Porto, Portugal); Ana Paula Ribeiro (CEMPRE, Faculdade de Economia, Universidade do Porto, Portugal)
    Abstract: Lagged benefits relative to costs can politically block an efficiency-enhancing labor market reform, lending support to the two-handed approach. An accommodating monetary policy, conducted alongside the reform, could help bringing the positive effects of the reform to the fore. In order to identify the mechanisms through which monetary policy may affect the political sustainability of a reform, we add stylized features of the labor market to a standard New-Keynesian model for monetary policy analysis. A labor market reform is modeled as a structural change inducing a permanent shift in the flexible-price unemployment and output levels. In addition to the permanent gains, the impact of the timing and magnitude of the reform-induced adjustments on the welfare of workers - employed and unemployed - is crucial to the political feasibility of the reform. Since the adjustments depend, on one hand, on the macroeconomic structure and, on the other hand, can be influenced by monetary policy, we simulate various degrees of output persistence across different policy rules. We find that, if inertias are present, monetary policy, even when conducted by an independent central bank, affects the political support for the reform. In general, the more expansionary (or the less contractionary) the policy is, the faster is the recovery to the new steady-state equilibrium and, thus, the stronger is the political support.
    Keywords: Monetary policy rules; Labor market reforms; Unemployment benefit; Political economy; New-Keynesian models
    JEL: E24 E37 E52 E61
    Date: 2007–02
  3. By: Andrea Mattozzi (Division of Humanities and Social Sciences, California Institute of Technology); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: Two main career paths are prevalent among politicians in modern democracies: there are career politicians (i.e., politicians who work in the political sector until retirement), and political careers (i.e., there are politicians who leave politics before retirement and work in the private sector). In this paper, we propose a dynamic equilibrium model of the careers of politicians in an environment with a private sector and a political sector, where individuals are heterogeneous with respect to their market ability and political skills. Our analysis provides an explanation for the existence of career politicians and individuals with political careers, and their motivations. We also investigate the effects of monetary incentives and other features of the political-economic environment on the quality of politicians and their careers. We show that an increase in the salary a politician receives while in office decreases the average quality of individuals who become politicians, decreases turnover in office, and may either decrease or increase the average quality of career politicians.
    Keywords: politicians, parties, careers in politics
    JEL: D72 J44 J45
    Date: 2005–12–05
  4. By: Arjun Jayadev
    Abstract: This paper assesses class based preferences towards anti-inflationary and anti-unemployment policy. Using a consistent cross-country social survey, I find that the working class broadly defined, and those with lower occupational skill and status are more likely to prioritize combating unemployment rather than inflation. The result is robust to the inclusion of several plausible controls. The idea that the working class is less ‘relatively inflation averse’ is consistent with earlier predictions coming from large body of political economy research in the 1970s. The finding that inflation and unemployment aversion have a distinct class character has implications for current debates on the implications of macroeconomic policies such as inflation targeting..
    Keywords: Inflation; Unemployment; Social surveys, Radical Political Economy
  5. By: Andrea Mattozzi (Division of Humanities and Social Sciences, California Institute of Technology); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: In this paper, we analyze the relationship between the transparency of politics and the quality of politicians in a model of parties’ political recruitment. We find that an increase in the transparency of politics reduces the average quality of the politicians a party recruits in equilibrium
    Keywords: Transparency, politicians, parties, political recruitment
    JEL: D72 J44 J45
    Date: 2007–01–03
  6. 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 address the following question: To what extent is the hypothesis that voters vote sincerely testable or falsifiable? We show that using data only on how individuals vote in a single election, the hypothesis that voters vote sincerely is irrefutable, regardless of the number of candidates competing in the election. On the other hand, using data on how the same individuals vote in multiple elections, the hypothesis that voters vote sincerely is potentially falsifiable, and we provide general conditions under which the hypothesis can be tested. We then consider an application of our theoretical framework and assess whether the behavior of voters is consistent with sincere voting in U.S. national elections in the post-war period. We find that by and large sincere voting can explain virtually all of the individual-level observations on voting behavior in presidential and congressional U.S. elections in the data.
    Keywords: voting, spatial models, falsifiability, testing.
    JEL: D72 C12 C63
    Date: 2006–03–01
  7. By: Andrea Mattozzi (Division of Humanities and Social Sciences, California Institute of Technology); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: In this paper, we study the initial recruitment of individuals in the political sector. We propose an equilibrium model of political recruitment by a party who faces competition for political talent from the lobbying sector. We show that a political party may deliberately choose to recruit only mediocre politicians, in spite of the fact that it could afford to recruit better individuals who would like to become politicians. We argue that this finding may contribute to explain the observation that in many countries the political class is mostly composed of mediocre people.
    Keywords: politicians, parties, political recruitment
    JEL: D72 J44 J45
    Date: 2006–12–01
  8. By: François Roubaud (DIAL, IRD, Paris); Jean-Michel Wachsberger (DIAL, Lasmas, Gracc)
    Abstract: The citizens of Madagascar, and especially the capital Antananarivo, display marked support for democracy : adoption of its principles, rejection of authoritarian regimes, etc. The poor populations are no different from the other social groups in this respect. Nevertheless, living in a poor district induces the adoption of values and attitudes of distrust of democracy unlikely to be explained by sociological composition effects. This study is based on representative first-hand surveys at national level and in the capital. The neighbourhood effects, which form real political socialisation vehicles, are updated by an innovative use of the survey’s sampling plan. This is, to our knowledge, the first quantitative study to show such a phenomenon in Africa. We propose a certain number of interpretations of this situation, which prompt a reconsideration of the positive role that studies normally ascribe to associative participation as a factor for democratic reinforcement. These findings put forward new arguments in favour of socially balanced urban policies. _________________________________ A Madagascar, et tout particulièrement dans la capitale, Antananarivo, les citoyens font preuve d’un soutien marqué à la démocratie : adoption de ses principes, rejet des régimes autoritaires, etc. Les populations pauvres ne se distinguent en rien des autres couches sociales sur ce plan. Néanmoins, résider dans un quartier pauvre conduit à adopter des valeurs et attitudes de défiance vis-à-vis de la démocratie, qui ne sont pas susceptibles d’être expliquées par des effets de composition sociologique. Cette étude est basée sur des enquêtes représentatives de première main, tant au niveau national que de la capitale. Les effets de quartiers, qui apparaissent comme de véritables matrices de socialisation politique, sont mis à jour grâce à une exploitation originale du plan de sondage de l’enquête. Il s’agit à notre connaissance de la première étude quantitative faisant état d’un tel phénomène en Afrique. Nous proposons un certain nombre d’interprétations à cet état de fait, qui conduisent notamment à reconsidérer le rôle positif habituellement attribué dans la littérature à la participation associative comme facteur de renforcement démocratique. Ces résultats donnent de nouveaux arguments en faveur de politiques urbaines de mixité sociale.
    Keywords: Antananarivo, Citoyenneté démocratique, Madagascar, participation associative, pauvreté, effets quartier, Antananarivo, democratic citizenship, Madagascar, associative participation, poverty, neighbourhood effects.
    JEL: C25 D60 D71 D72 I31 I32
    Date: 2007–02
  9. By: Anger, Niels; Böhringer, Christoph; Lange, Andreas
    Abstract: In this paper we study political-economy determinants of the differentiation of environmental taxes between sectors. Using a common-agency model, we provide predictions on tax differentiation which are then tested using data from the German Ecological Tax Reform. As the reform is revenue neutral and reduces labor costs, tax differentiation is not only determined by the activity of lobby groups favoring reduced tax rates, but also by the groups’ interest in revenue rebates to labor. Empirical data underpin our theoretical findings: A regression analysis of Germany’s green tax reform explains environmental tax differentiation by the presence of sectoral interest groups. Besides market concentration and energy demand elasticities, the exposure of industries to international trade flows plays an important role in the environmental tax design.
    Keywords: environmental tax reform, interest groups, common agency
    JEL: D62 H23 P16
    Date: 2006
  10. By: Chetan Ghate
    Abstract: We construct a simple political economy model with imperfect capital markets to explain infrastructure investments across Indian states. The model predicts that: i) the fixed cost of accessing the modern sector, ii) the initial stock of infrastructure, iii) median voter wealth, and iv) corruption, can all potentially explain why different states have different level of infrastructure investments. The theoretical model is motivated by recent empirical work on India that argues that there as on why per capita income across Indian states have diverged is because of the distribution of infrastructure investments. The model suggests that reducing leakages in funds earmarked for infrastructure and reducing the ?xed costs of accessing the modern sector - beyond their other well known effects - are policy complements. Together, they can incentivize politicians to spend more on infrastructure.
    Keywords: Public investment, positive political economy, median voter theorem
    JEL: P16 E43 O40
    Date: 2007–02
  11. By: Veneta Andonova (Universidad de los Andes); Luis Diaz-Serrano (Universitat Rovira i Virgili, CREB and IZA)
    Abstract: It has traditionally been argued that the development of telecommunications infrastructure is dependent on the quality of countries’ political institutions. We estimate the effect of political institutions on the diffusion of three telecommunications services and find it to be much smaller in cellular telephony than in the others. By evaluating the importance of institutions for technologies rather than for industries, we reveal important growth opportunities for developing countries and offer policy implications for alleviating differences between countries in international telecommunications development.
    Keywords: political constraints, telecommunications, GMM, economic development
    JEL: O1 O3
    Date: 2007–01
  12. By: Daniel Diermeier (MEDS,Kellogg School of Management, Northwestern University); Hulya Eraslan (Finance Department, Wharton School, University of Pennsylvania); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: In this paper we present a structural approach to the study of government formation in multi-party parliamentary democracies. The approach is based on the estimation of a stochastic bargaining model which we use to investigate the effects of specific institutional features of parliamentary democracy on the formation and stability of coalition governments. We then apply our methodology to estimate the effects of governmental bicameralism. Our main findings are that eliminating bicameralism does not affect government durability, but does have a significant effect on the composition of governments leading to smaller coalitions. These results are due to an equilibrium replacement effect: removing bicameralism affects the relative durability of coalitions of different sizes which in turn induces changes in the coalitions that are chosen in equilibrium.
    Keywords: Political Stability, Government Formation, Government Dissolution, Bicameralism, Comparative Constitutional Design
    JEL: D72 H19 C73
    Date: 2002–05–01
  13. By: David De la Croix (CORE, Université Catholique de Louvain); Clara Delavallade (Centre d'Economie de la Sorbonne)
    Abstract: Corruption is thought to prevent poor countries from catching-up. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distorsion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individuals' choice between productive activity and rent-seeking. At equilibrium, the intensity of corruption and the structure of public investment are determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption yet still the possibility of corruption distorts the allocation of public investment, thus hampering growth. We test the implications of the model on a panel of countries estimating a system of equations with instrumental variables. We find that countries with a high predatory technology invest more in housing and physical capital in comparison with health and education. For equal initial conditions, such countries grow slower and have higher corruption, in particular when political power is concentrated.
    Keywords: Public investment, optimal growth, corruption, political power.
    JEL: O41 H50 D73
    Date: 2006–10

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