nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒05‒04
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Understanding Political Corruption in Low Income Countries By Pande, Rohini
  2. Schooling and Citizenship: Evidence from Compulsory Schooling Reforms By Thomas Siedler
  3. Politically Optimal Fiscal Policy By Michael Kumhof; Irina Yakadina
  4. Central Bank Autonomy: Lessons from Global Trends By Jean-Francois Segalotto; Martin Sommer; Marco Arnone; Bernard Laurens
  5. Corruption Perceptions vs. Corruption Reality By Olken, Benjamin
  6. Dynamic Incentives and the Optimal Delegation of Political Power By Eric Le Borgne; Gauti B. Eggertsson
  7. Endogenous Coalition Formation in Contests By Santiago Sanchez-Pages
  8. International financial linkages of Latin American banks - the effects of political risk and deposit dollarisation By Francisco Ramon-Ballester; Torsten Wezel
  9. What Is Political about Jurisprudence? Courts, Politics and Political Science in Europe and the United States By Rehder, Britta

  1. By: Pande, Rohini
    Abstract: Building on the large and growing empirical literature on the political behaviour of individuals in low income countries this chapter seeks to understand corruption through the lens of political economy -- particularly in terms of the political and economic differences between rich and poor countries. Our focus is on the political behaviour of individuals exposed to democratic political institutions. We review the existing literature on the determinants of individual political behaviour to ask whether we can understand the choice of political actors to be corrupt and, importantly, of other individuals to permit it, as a rational response to the social or the economic environment they inhabit. We also discuss the implications of this view of corruption for anti-corruption policies.
    Keywords: corruption; development
    JEL: O12
    Date: 2007–04
  2. By: Thomas Siedler (Institute for Social and Economic Research)
    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.
    Date: 2007–01
  3. By: Michael Kumhof; Irina Yakadina
    Abstract: Why do governments issue large amounts of debt? In what sense and for whom is such a policy optimal? We show that twisting the optimal taxation paradigm produces very reasonable predictions for debt and real interest rates. Adding an extra dimension of uncertainty about the political planning horizon gives rise to a positive and very plausible government debt-to-GDP ratio of about 55 percent in a model that otherwise predicts negative government debt. We quantify the impact of political uncertainty on steady state and business cycle dynamics. We illustrate how populist tax cuts can cause business cycle fluctuations.
    Keywords: Optimal Fiscal Policy , Incomplete Asset Markets , Political economy , government debt bias , Fiscal policy , Public debt , Gross domestic product , Political economy , Tax changes , Business cycles ,
    Date: 2007–03–29
  4. By: Jean-Francois Segalotto; Martin Sommer; Marco Arnone; Bernard Laurens
    Abstract: We calculate indexes of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indexes for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political autonomy of the central banks in emerging market and developing countries. Our analysis confirms that greater CBA has on average helped to maintain low inflation levels. The paper identifies four broad principles of central bank autonomy that have been shared by the majority of countries. Significant differences exist in the area of banking supervision where many central banks have retained a key role. Finally, we discuss the sequencing of reforms to separate the conduct of monetary and fiscal policies.
    Keywords: Central bank autonomy , political autonomy , economic autonomy ,
    Date: 2007–04–17
  5. By: Olken, Benjamin
    Abstract: Accurate citizen perceptions of corruption are crucial for the political process to effectively restrain corrupt activity. This paper examines the accuracy of these perceptions by comparing Indonesian villagers' stated beliefs about corruption in a road-building project in their village with a more objective measure of `missing expenditures' in the project. I find that villagers' beliefs do contain real information, and that villagers are sophisticated enough to distinguish between corruption in a particular road project and general corruption in the village. The magnitude of their information, however, is small, in part because officials hide corruption where it is hardest for villagers to detect. I also find that there are biases in beliefs that may affect citizens' monitoring behaviour. For example, ethnically heterogeneous villages have higher perceived corruption levels and greater citizen monitoring, but lower actual levels of missing expenditures. The findings illustrate the limitations of relying solely on corruption perceptions, whether in designing anti-corruption policies or in conducting empirical research on corruption.
    Keywords: beliefs; corruption; perception
    JEL: D73
    Date: 2007–04
  6. By: Eric Le Borgne; Gauti B. Eggertsson
    Abstract: This paper proposes a theory to explain why a politician delegates policy tasks to a technocrat in an independent institution. It formalizes the rationales for delegation highlighted by Hamilton (1788) and by Blinder (1998). Delegation trades-off the cost of having a possibly incompetent technocrat with a long-term job contract against the benefit of having a technocrat who (i) invests more effort into the specialized policy task and (ii) is better insulated from the whims of public opinion. One natural application of the theory is in the field of monetary policy where the model provides a new theory of central bank independence.
    Keywords: Delegation , elections , career concerns , learning-by-doing , insulation , Central Bank Independence ,
    Date: 2007–04–17
  7. By: Santiago Sanchez-Pages
    Abstract: This paper analyzes coalition formation in a model of contests with linear costs. Agents first form groups and then compete by investing resources. Coalitions fight for prizes that are assumed to be subject to rivalry, so their value is non-increasing in the size of the group. This formulation encompasses as particular cases some models proposed in the rent-seeking literature. We show that the formation of groups generates positive spillovers and analyze two classes of games of coalition formation. A contest among individual agents is the only stable outcome when individual defections leave the rest of the group intact. More concentrated coalition structures, including the grand coalition, are stable when groups collapse after a defection, provided that rivalry is not too strong. Results in a sequential game of coalition formation suggest that there exists a non-monotonic relationship between the level of underlying rivalry and the level of social conflict.
    Keywords: Contests, coalition formation, conflict, rivalry.
    JEL: C72 D72 D74
  8. By: Francisco Ramon-Ballester (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Torsten Wezel (Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany.)
    Abstract: This paper empirically investigates the extent to which the financial linkages of Latin American banks with the exterior are influenced by political risk and deposit dollarisation. We find that the sum of banks’ foreign assets and liabilities is a function of risk-return considerations and excess domestic credit demand. An increase in political risk is shown to be associated with a build-up of foreign positions by the banking sector, but this adverse effect on the banking system is mitigated in economies with a high share of dollarised deposits. These relationships largely hold when the determinants of foreign assets and liabilities are estimated separately, with risk-induced capital flight being moderated by a high degree of deposit dollarisation. While changes in overall country risk including the risk of macro collapse drive official capital outflows, for a wider measure of capital flight including informal flows only changes in political risk matter. In each case, deposit dollarisation is shown to possess a risk-mitigating property. The results suggest caution with active dedollarisation strategies in highly dollarised economies where political instability remains an issue. JEL Classification: E42, F36, G21.
    Keywords: Dollarisation, political risk, banking systems, financial integration, Latin America.
    Date: 2007–03
  9. By: Rehder, Britta
    Abstract: Abstract Abstract This paper reflects on the literature on courts and politics in Europe and the United States. US-American Political Science has dealt for over fifty years with the role of courts and judges as political actors, whereas this perspective has only recently emerged in Europe. The debates differ not only with regard to the number of articles written, but also with regard to their content. This paper discusses the different research perspectives that are being pursued on both sides of the Atlantic. While a major part of the US-American literature investigates the politics of judicial action and the politicization of the legal system, research on European courts confines itself to analyzing the effects of judicial action, often describing them in terms of juridification. Based on a review of the existing literature, this paper suggests that European scholars ought to take crucial assumptions of the US-American research tradition more seriously. Zusammenfassung Zusammenfassung Während die US-amerikanische Politikwissenschaft seit über fünfzig Jahren Gerichte als politische Akteure begreift und untersucht, hat sich dieses Verständnis in Europa erst seit Kurzem durchgesetzt. Dabei unterscheiden sich die Forschungsperspektiven erheblich. Ein bedeutender Teil der US-amerikanischen Literatur hat die rechtswissenschaftlichen Ansätze zur Erklärung juristischer Entscheidungen herausgefordert, indem er die politischen Grundlagen der Rechtsprechung und damit die Politisiertheit des Rechtssystems untersucht. Demgegenüber beschränkt sich die europabezogene Forschung meist auf die Analyse der Auswirkungen rechtlichen Handelns auf Politik. Die Effekte werden dabei häufig als Verrechtlichung beschrieben. Der vorliegende Text arbeitet die verschiedenen Forschungstraditionen heraus und plädiert dafür, zentrale Annahmen der US-amerikanischen Forschung auch in Europa stärker als bisher zu berücksichtigen.
    Keywords: political science; judicial review; comparative law; court politics; legal culture
    Date: 2007–04–15

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