nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒03‒10
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. On the Justice of Voting Systems By Jose Apesteguia; Miguel A. Ballester; Rosa Ferrer
  2. The Relation between Democracy and Religion: Towards a European Discursive Model? By Camil Ungureanu
  3. Do Voters Vote Sincerely? By Degan, Arianna; Merlo, Antonio
  4. Political Rents in a Non-Corrupt Democracy By Svaleryd, Helena; Vlachos, Jonas
  5. Making Trade Policy in a New Democracy after a Deep Crisis: Indonesia By Kelly Bird; Sandy Cuthbertson; Hal Hill
  6. Does Parental Unemployment Cause Right-Wing Extremism? By Thomas Siedler
  7. Growth, Public Investment and Corruption with Failing Institutions By David de la Croix; Clara Delavallade
  8. To Segregate or to Integrate: Education Politics and Democracy By David de la Croix; Matthias Doepke
  9. Schooling and Citizenship : Evidence from Compulsory Schooling Reforms By Thomas Siedler
  10. Are Fiscal Adjustments less Successful in Decentralized Governments? By Christoph A. Schaltegger; Lars P. Feld
  11. Beyond legal origin and checks and balances : political credibility, citizen information, and financial sector development By Keefer, Philip
  12. Two Views on Institutions and Development: The Grand Transition vs. the Primacy of Institutions By Martin Paldam; Erich Gundlach
  13. Aid and Growth: Politics Matters? By Matteo Bobba; Andrew Powell
  14. What other sciences look like By Josep M. Colomer
  15. Corrupt Bureaucracy and Growth By Djumashev, Ratbek
  16. How do coalitions get built - Evidence from an extensive form coalition game with renegotiation & externalities By Gary E Bolton; Jeannette Brosig

  1. By: Jose Apesteguia; Miguel A. Ballester; Rosa Ferrer
    Abstract: What are the best voting systems in terms of utilitarianism? Or in terms of maximin, or maximax? We study these questions for the case of three alternatives and a class of structurally equivalent voting rules. We show that plurality, arguably the most widely used voting system, performs very poorly in terms of remarkable ideals of justice, such as utilitarianism or maximin, and yet is optimal in terms of maximax. Utilitarianism is best approached by a voting system converging to the Borda count, while the best way to achieve maximin is by means of a voting system converging to negative voting. We study the robustness of our results across different social cultures, measures of performance, and population sizes.
    Keywords: Voting, Scoring Rules, Utilitarianism, Maximin, Maximax, Impartial Culture Condition
    JEL: D00 D63 D71 D72
    Date: 2006–11
  2. By: Camil Ungureanu
    Abstract: In this paper we advance the argument that, under certain socio-political and cognitive conditions, the manifestation of religion in the opinion-oriented public spheres can have an inherent value for democratic life. However, it is only after processes of selective interpretation and transformation through inclusive discursive practices that religious semantic contents may legitimately influence decisional interpretations of constitutional principles and rights. This model draws on republicanism and deliberative democracy: given that these two conceptions do not start out from an abstract principle of liberty as non-interference but from a multidimensional conception of freedom embedded in various historical contexts of mutual recognition, they are more predisposed to provide conceptual resources for envisaging a discursive relation between democracy and religion.
    Keywords: democracy; fundamental/human rights
    Date: 2006–12–01
  3. By: Degan, Arianna; Merlo, Antonio
    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 behaviour 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 behaviour in presidential and congressional U.S. elections in the data.
    Keywords: falsifiability; spatial models; testing; voting
    JEL: C12 C63 D72
    Date: 2007–03
  4. By: Svaleryd, Helena (Research Institute of Industrial Economics); Vlachos, Jonas (Stockholm University)
    Abstract: A fundamental problem in all political systems is that the people in power may extract rents to the detriment of the general public. In a democracy, electoral competition and information provided by the media may keep such rent extraction at bay. We develop a simple model where rents are decreasing in the degree of political competition and voter information. In line with our theoretical predictions, we find that both increased political competition and increased local media coverage reduce direct measures of (legal) political rents among local governments in a non-corrupt democracy (Sweden). Our findings also indicate that the two dimensions of accountability are substitutes rather than complements.
    Keywords: Accountability; Political Competition; Media; Political Rents
    JEL: D72 H10 H70
    Date: 2007–02–16
  5. By: Kelly Bird; Sandy Cuthbertson; Hal Hill
    Abstract: This paper examines the recent political economy of trade policy in Indonesia against the backdrop of two key events: the deep economic crisis of 1997-98, and the transition from three decades of rapid growth under an authoritarian regime to a weaker but democratic state. We investigate both international and domestic trade policy. The international trade policy regime has remained largely open, perhaps surprisingly in view of the unpopularity of liberal economic policies in the wake of the crisis and the forces advocating more protectionist policies. However, this openness is precarious, and lacks both institutional and community opinion support. In contrast, while remaining largely open at the international border, domestic barriers to trade have increased. This conjunction of economic crisis and weak, democratic states is a common phenomenon in the developing world, and the lessons for trade policy from the Indonesian experience over this decade are therefore relevant to many other countries.
    Keywords: Trade Reform, Political Economy, Domestic Trade, Indonesia
    Date: 2007
  6. By: Thomas Siedler
    Abstract: Recent years have witnessed a rise in right-wing extremism among German youth and young adults. This paper investigates the extent to which the experience of parental unemployment during childhood affects young people's far right-wing attitudes and xenophobia. Estimates from three German data sets show a positive relationship between growing up with unemployed parents and right-wing extremism, with xenophobia in particular. This paper uses stark differences in unemployment levels between East and West Germany, both before and after reunification, to investigate a causal relationship. Instrumental variables estimates suggest strong and significant effects of parental unemployment on right-wing extremism. Various panel estimates also point to a positive relationship. The results are consistent with classical theories of economic interest and voting behaviour which predict that persons who develop feelings of economic insecurity are more susceptible to right-wing extremism and anti-foreign sentiments.
    Keywords: Right-wing extremism, unemployment, instrumental variables estimations, panel estimators, intergenerational links
    JEL: C23 D72 J6 P16
    Date: 2007
  7. By: David de la Croix (Department of Economics and CORE, Université Catholique de Louvain); Clara Delavallade (Panthéon Sorbonne Economie, Université Paris 1, CNRS)
    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 distortion, 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: 2007
  8. By: David de la Croix (Department of Economics and CORE, Université Catholique de Louvain); Matthias Doepke (University of California, Los Angeles, CEPR, and NBER)
    Abstract: The governments of nearly all countries are major providers of primary and secondary education to its citizens. In some countries, however, public schools coexist with private schools, while in others the government is the sole provider of education. In this study,we askwhy different societiesmake different choices regarding the mix of private and public schooling. We develop a theory which integrates private education and fertility decisionswith voting on public schooling expenditures. In a given political environment, high income inequality leads to more private education, as rich people opt out of the public system. Comparing across political systems, we find that concentration of political power can lead to multiple equilibria in the determination of public education spending.
    JEL: D72 I21 H42 O10
    Date: 2007
  9. By: Thomas Siedler
    Abstract: This paper examines whether schooling has a positive impact on individual's political interest, voting turnout, democratic values, political involvement and political group membership, using the German General Social Survey (ALLBUS). Between 1949 and 1969 the number of compulsory years of schooling was increased from eight to nine years in the Federal Republic of Germany, gradually over time and across federal states. These law changes allow one to investigate the causal impact of years of schooling on citizenship. Years of schooling are found to be positively correlated with a broad range of political outcome measures. However, when exogenous increase in schooling through law changes is used, there is no evidence of a causal effect running from schooling to citizenship in Germany.
    Keywords: Voting, civic engagement, education, externalities, instrumental variables estimation
    JEL: I2 H4 H23
    Date: 2007
  10. By: Christoph A. Schaltegger; Lars P. Feld
    Abstract: A common political claim is that decentralized governments undermine policy makers’ ability to fight fiscal imbalance. This paper examines how different fiscal institutions influence the likeli-hood of a successful fiscal adjustment. Using a panel of the Swiss cantons from 1981 to 2001, we first analyze the episodes of tight fiscal policy and their macroeconomic consequences. Then, we empirically investigate the determinants of successful long-la¬sting deficit reductions. Contrary to the popular claim, we find that fiscal decentralization increases the probability of a successful fiscal consolidation. In addition, the results point to an important role of intergovernmental grants and the circumstances, in particular the size of fiscal imbalance in the years before the consolida-tion in determining a successful adjustment policy. Furthermore, coalition governments and large parliaments less likely implement successful fiscal stabilizations. Finally, there is some weak evidence that spending cuts are more promising in reaching a long-lasting fiscal adjustment than revenue increases.
    Keywords: Fiscal Adjustment; Consolidation Policy; Fiscal Decentralization; Fiscal Institutions
    JEL: E61 E63 H61
    Date: 2007–03
  11. By: Keefer, Philip
    Abstract: The existing literature emphasizes and contrasts the role of political checks and balances and legal origin in determining the pace of financial sector development. This paper expands substantially on one aspect of this debate: the fact that government actions that promote financial sector development, whether prudent financial regulation or secure property and contract rights, are public goods and sensitive to political incentives to provide public goods. Tests of hypotheses emanating from this argument yield four new conclusions. First, two key determinants of those incentives-the credibility of pre-electoral political promises and citizen information about politician decisions-systematically promote financial sector development. Second, these political factors, along with political checks and balances, operate in part through their influence on the security of property rights, an argument asserted but not previously tested. Third, contrary to findings elsewhere in the literature, the political determinants of financial sector development are significant even in the presence of controls for legal origin. Finally, and again in contrast to the literature, the evidence here suggests that legal origin primarily proxies for political phenomena. Legal origin is a largely insignificant determinant of financial sector development when those phenomena are fully taken into account.
    Keywords: Economic Theory & Research,Privatization,Political Economy,Inequality,Legal Products
    Date: 2007–03–01
  12. By: Martin Paldam; Erich Gundlach
    Abstract: The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as transitions occurring at roughly the same level (zones) of development. The Primacy of Institutions (PoI) view claims that economic development is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find con-vincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI. However, democracy is mainly an effect of development as suggested by the GT. We conclude that the empirical results are far too mixed to allow for a robust assessment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries.
    Keywords: Grand transition, primacy of institutions, democracy, corruption, development
    JEL: B25 O1
    Date: 2007–03
  13. By: Matteo Bobba (Inter-American Development Bank); Andrew Powell (Inter-American Development Bank)
    Abstract: The literature on aid effectiveness has focused more on recipient policies than the determinants of aid allocation yet a consistent result is that political allies obtain more aid from donors than non-allies. This paper shows that aid allocated to political allies is ineffective for growth, whereas aid extended to countries that are not allies is highly effective. The result appears to be robust across different specifications and estimation techniques. In particular, new methods are employed to control for endogeneity. The paper suggests that aid allocation should be scrutinized carefully to make aid as effective as possible.
    Keywords: : Aid impact; Economic growth; Instrumental Variables; Generalized method of moments; Panel data
    JEL: O1 O2 O4 C23
    Date: 2007–01
  14. By: Josep M. Colomer
    Abstract: In order to have references for discussing mathematical menus in political science, I review the most common types of mathematical formulae used in physics and chemistry, as well as some mathematical advances in economics. Several issues appear relevant: variables should be well defined and measurable; the relationships between variables may be non-linear; the direction of causality should be clearly identified and not assumed on a priori grounds. On these bases, theoretically-driven equations on political matters can be validated by empirical tests and can predict observable phenomena.
    Keywords: natural and social sciences, econometrics, political science methods, mathematical models, regression analysis
    Date: 2007–03
  15. By: Djumashev, Ratbek
    Abstract: In this paper, we analyze implications of corruption on growth. We extend existing growth models by incorporating ubiquitous corruption as a by-product of the public sector. Corruption affects both taxation and public good provision, and therefore causes income redistribution and inefficiencies in the public sector. These effects of corruption lead to lower growth through distortions of investment incentives and resources allocation.
    Keywords: Corruption; growth; public goods; tax evasion
    JEL: H40 D92 O17 E60
    Date: 2006
  16. By: Gary E Bolton; Jeannette Brosig
    Abstract: We investigate a three-person coalition game in which one bargainer, the builder, can propose and build a coalition over two stages. In equilibrium, coalition building ends with an efficient grand coalition, while the equilibrium path is contingent on the values of the two-person coalitions and associated externality payoffs. Considering relative payoffs need not change the equilibrium path. Nevertheless, outcomes in the experiment are often inefficient. One explanation is that bargainers have difficulties anticipating the future actions of other bargainers. This problem might be mitigated by allowing bargainers to communicate prior to each stage. A test finds that communication does in fact increase efficiency, although unevenly, and at the cost of the builder. The study implies that the nature and pattern of communication among bargainers is a critical factor in efficient coalition building.
    Keywords: coalitional bargaining, communication, game theory, experiment
    JEL: C7 C9 D7
    Date: 2007–03–06

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