nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒06‒18
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Democracy, Technology, and Growth By Philippe Aghion; Alberto Alesina; Francesco Trebbi
  2. The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach By Jan Schnellenbach; Lars Feld; Christoph schaltegger
  3. Democracy and globalisation By Barry Eichengreen; David Leblang
  4. Choosing Electoral Rules in the Presence of Corruption By Tavares, Samia
  5. Why Doesn't Capitalism Flow to Poor Countries? By Rafael Di Tella; Robert MacCulloch
  6. Majoritarian Delays By Julio, Paulo
  7. Do Freedom of Information Laws Decrease Corruption? By Tavares, Samia
  8. A Direct Test of the Homevoter Hypothesis By Carolyn A. Dehring; Craig A. Depken, II; Michael R. Ward
  9. Rational ignorance is not bliss: When do lazy voters learn from decentralised policy experiments? By Jan Schnellenbach

  1. By: Philippe Aghion; Alberto Alesina; Francesco Trebbi
    Abstract: We explore the question of how political institutions and particularly democracy affect economic growth. Although empirical evidence of a positive effect of democracy on economic performance in the aggregate is weak, we provide evidence that democracy influences productivity growth in different sectors differently and that this differential effect may be one of the reasons of the ambiguity of the aggregate results. We provide evidence that political rights are conducive to growth in more advanced sectors of an economy, while they do not matter or have a negative effect on growth in sectors far away from the technological frontier. One channel of explanation goes through the beneficial effects of democracy and political rights on the freedom of entry in markets. Overall, democracies tend to have much lower entry barriers than autocracies, because political accountability reduces the protection of vested interests, and entry in turn is known to be generally more growth-enhancing in sectors that are closer to the technological frontier. We present empirical evidence that supports this entry explanation.
    JEL: H7
    Date: 2007–06
  2. By: Jan Schnellenbach (University of Heidelberg, Department of Economics); Lars Feld (University of Heidelberg, Department of Economics); Christoph schaltegger (Eidgenössisches Finanzdepartement, Bern, Switzerland)
    Abstract: The paper compares decision-making on the centralisation of public goods provision in the presence of regional externalities under representative and direct democratic institutions. A model with two regions, two public goods and regional spillovers is developed in which uncertainty over the true preferences of candidates makes strategic delegation impossible. Instead, it is shown that the existence of rent extraction by delegates alone suffices to make cooperative centralisation more likely through representative democracy. In the non-cooperative case, the more extensive possibilities for institutional design under representative democracy increase the likelihood of centralisation. Direct democracy may thus be interpreted as a federalism-preserving institution.
    Keywords: centralisation; direct democracy; representative democracy; public good provision.
    JEL: H11 H77 H72 H73
    Date: 2007–05
  3. By: Barry Eichengreen (University of California, Berkeley - Department of Economics); David Leblang
    Abstract: The relationship between democracy and globalisation has been the focus of substantial policy and academic debate. Some argue that democracy and globalisation go hand in hand suggesting that unrestricted international transactions leads to increased political accountability and transparency. And, politically free societies are likely to have minimal restrictions on the mobility of goods and services across national borders. Others argue that the causal relationship should be reversed: democracies are more likely to have closed markets and vice versa. We examine these relationships between political democracy and trade and financial globalisation over the period 1870-2000 and treat both democracy and globalisation as both cause and effect. Our empirical strategy uses instrumental variables and estimates relationships using the Generalised Method of Moments framework. Our general findings support the hypothesis of a positive two-way relationship between democracy and globalisation.
    Keywords: Democracy, globalisation
    JEL: D72 F02 F41 N10 P51
    Date: 2006–12
  4. By: Tavares, Samia
    Abstract: Corruption is a problem that has been shown to adversely affect a country’s development. Recent studies have shown that a country’s electoral system can affect its corruption level. But if that is the case, then electoral rules could be chosen to maximize opportunities for corruption. This paper uses the recent wave of democratization and the resulting writing of new constitutions, which entailed in many cases the adoption of a new electoral system, to analyze the choice of electoral rules. Results suggest that more corrupt countries are more likely to adopt a plurality system than less corrupt ones.
    Keywords: corruption; electoral system; government; democracy
    JEL: D73 H77 D72 H11
    Date: 2007–02–06
  5. By: Rafael Di Tella; Robert MacCulloch
    Abstract: We find anecdotal evidence suggesting that governments in poor countries have a more left wing rhetoric than those in OECD countries. Thus, it appears that capitalist rhetoric doesn't flow to poor countries. A possible explanation is that corruption, which is more widespread in poor countries, reduces more the electoral appeal of capitalism than that of socialism. The empirical pattern of beliefs within countries is consistent with this explanation: people who perceive corruption to be high in their country are also more likely to lean left ideologically (and to declare support for a more intrusive government in economic matters). Finally, we present a model explaining the corruption-left connection. It exploits the fact that an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat. After observing corruption, voters who care about fairness react by increasing taxes and moving left. There is a negative ideological externality since the existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the electoral appeal of capitalism.
    JEL: E62 K42 P16
    Date: 2007–06
  6. By: Julio, Paulo
    Abstract: This paper illustrates how delayed debt stabilizations can arise in a society without any emerging conflict of interests among its members. We argue that, under a majority voting rule, the economy may generate excessive levels of government spending and larger debts over time,and that this delay is increasing in income inequality. The intuitionfor this result is simple: a majority of citizens may and in delaying stabilizations a way to increase government expenditures, transferring in this way resources from the richest to the poorest citizens in the economy. This process may explain the upward trend and the diffculty to reduce public expenditures, the so called ratchet effect.
    Date: 2007
  7. By: Tavares, Samia
    Abstract: It has been argued that greater transparency is needed to reduce corruption. One way of increasing transparency is through the adoption of Freedom of Information (FOI) laws. This paper uses the introduction of FOI laws as a natural experiment to determine their effect on corruption. Using a sample of democratic countries and two different corruption indices, I find that countries that adopted FOI laws saw an increase in corruption. Results are robust throughout different specifications. Moreover, I find that countries with plurality systems potentially experienced a decrease in corruption following the adoption of FOI legislation. Having a parliamentary system, however, had no impact on the effect of the reform.
    Keywords: Corruption; freedom of information; transparency; accountability
    JEL: K39 D73 D72 H11 K42
    Date: 2007–05–02
  8. By: Carolyn A. Dehring (Department of Insurance, Legal Studies and Real Estate, The University of Georgia); Craig A. Depken, II (Department of Economics, University of Texas at Arlington); Michael R. Ward (Department of Economics, University of Texas at Arlington)
    Abstract: We propose a methodology that facilitates a direct test of the homevoter hypothesis, which posits that homeowner/voter support for a public good project is positively related to the project’s expected effect on property values. First, we estimate how events that indicate an increasing probability that the public good project will be undertaken impact local residential property values before the referendum is held. These pre-vote impacts are considered noisy signals to homeowners about the market’s assessment of the net marginal benefits of the project. Second, we aggregate these market signals to the precinct level and relate them to precinct-level voting results concerning the proposed project. We apply this method to the 2004 referendum in Arlington, Texas, concerning a publicly subsidized stadium to host the NFL Dallas Cowboys. The analysis supports the homevoter hypothesis and establishes a possible methodology for future evaluations in this small but growing empirical literature.
    Keywords: economic impact, event studies, sports, property values, stadiums
    JEL: R58 H71 L83
    Date: 2007–06
  9. By: Jan Schnellenbach (University of Heidelberg, Department of Economics)
    Abstract: A popular argument about economic policy under uncertainty states that decentralisation offers the possibility to learn from local or regional policy experiments. We argue that such learning processes are not trivial and do not occur frictionlessly: Voters have an inherent tendency to retain a given stock of policy-related knowledge which was costly to accumulate, so that yardstick competition is improbable to function well particularly for complex issues if representatives’ actions are tightly controlled by the electorate. Decentralisation provides improved learning processes compared to unitary systems, but the results we can expect are far from the ideal mechanisms of producing and utilising knowledge often described in the literature.
    Keywords: Policy decentralisation; fiscal competition; model uncertainty; collective learning.
    JEL: H73 O31 D83
    Date: 2007–05

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