nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒07‒07
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Democracy and the curse of natural resources By Esther Hauk; Antonio Cabrales
  2. Corruption and Elections: An Empirical Study for a Cross-Section of Countries By Stefan Krause; Fabio Mendez
  3. Electoral Accountability and Corruption in Local Governments: Evidence from Audit Reports By Claudio Ferraz; Frederico Finan
  4. Social and Economic Determinants of Turkish Voter Choice in the 1995 Parliamentary Election By Ali T. Akarca; Aysit Tansel
  5. Exposing Corrupt Politicians: The Effects of Brazil’s Publicly Released Audits on Electoral Outcomes By Claudio Ferraz; Frederico Finan
  6. Making Autocracy Work By Besley, Timothy J.; Kudamatsu, Masayuki
  7. Markets vs. Politics, Correcting Erroneous Beliefs Differently By Martin Gregor
  8. Market Reform, Regional Energy and Popular Representation: Evidence from Post-Soviet Russia By Theocharis N. Grigoriadis; Benno Torgler
  9. The Origins of State Capacity: Property Rights, Taxation, and Politics By Besley, Timothy J.; Persson, Torsten
  10. Do Human Rights Offenders Oppose Human Rights Resolutions in the United Nations? By Axel Dreher; Bernhard Boockmann
  11. Economic and Political Inequality in Development: The Case of Cundinamarca, Colombia By Daron Acemoglu; María Angélica Bautista; Pablo Querubín; James A. Robinson
  12. Should Market Liberalization Precede Democracy? Causal Relations between Political Preferences and Development By Pauline Grosjean; Claudia Senik
  13. Protection for Sale Made Easy By Richard E. Baldwin; Frédéric Robert-Nicoud
  14. Entry and Asymmetric Lobbying: Why Governments Pick Losers By Richard E. Baldwin; Frédéric Robert-Nicoud
  15. Legal Origins and the Evolution of Institutions: Evidence from American State Courts By Daniel Berkowitz; Karen Clay
  16. After Johnny Came Marching Home: The Political Economy of Veterans' Benefits in the Nineteenth Century By Sung Won Kang; Hugh Rockoff

  1. By: Esther Hauk; Antonio Cabrales
    Abstract: We propose a theoretical model to explain empirical regularities related to the curse of natural resources. This is an explicitly political model which emphasizes the behavior and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction into our political economy model: policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. Natural resources may be bad for democracy by harming political turnover. Our model also suggests a non-linear dependence of human capital on natural resources. For low levels of democracy human capital depends negatively on natural resources, while for high levels of democracy the dependence is reversed. This theoretical finding is corroborated in both cross section and panel data regressions.
    Keywords: Curse of natural resources, democracy, political game, revolution, human capital.
    JEL: D72 H52 O13
    Date: 2007–06–20
  2. By: Stefan Krause; Fabio Mendez
    Abstract: In this paper, we study whether voters are more likely to “vote out” a corrupt incumbent than to re-elect him. Specifically, we examine whether they retract their support from political candidates who they think are corrupt by looking at changes in an index of corruption perceptions between the current and the last elections. Our results suggest that corruption in public office is effectively punished by voters. Furthermore, our findings support the idea that both the political system and the democratic experience are important determinants of the voters’ reaction and control of corruption: while voters in countries with parliamentary systems or with relatively low levels of democracy react negatively to an increase in corruption, no perceptible effect of this kind was found in countries with mature democracies; and the evidence is inconclusive in the case of countries with presidential systems.
    Date: 2007–06
  3. By: Claudio Ferraz (IPEA, Brazil); Frederico Finan (University of California, Los Angeles and IZA)
    Abstract: Political corruption is a concern of many modern democracies. It weakens democratic institutions, restricts public services, and lowers productivity undermining economic development. Yet despite its importance, our understanding of what determines corruption is limited. This paper uses a novel dataset of political corruption in local governments, constructed from reports of an anti-corruption program in Brazil, to test whether the possibility of re-election affects the level of rents extracted by incumbent politicians. Exploiting variation induced by the existence of a term limit, we find that in municipalities where mayors are in their final term, there is significantly more corruption compared to similar municipalities where mayors can still be re-elected. In particular, the share of resources misappropriated is, on average, 57 percent larger in municipalities with lame-duck mayors. The findings suggest that electoral rules that enhance political accountability play a crucial role in constraining politician’s corrupt behavior.
    Keywords: accountability, corruption, local governments, re-election
    JEL: D72 D78 H41 O17
    Date: 2007–06
  4. By: Ali T. Akarca (University of Illinois at Chicago); Aysit Tansel (Middle East Technical University and IZA)
    Abstract: 1995 Turkish parliamentary election was held almost under the conditions of a controlled experiment. The unique cross-section data pertaining to this election is utilized to study the voter behavior in Turkey. Turkish voters are found to take government’s economic performance into account but not look back beyond one year. A poor performance is found to benefit the extremist opposition parties at the expense of the major incumbent party. The minor incumbent and the centrist opposition parties appear to be unaffected by economic conditions. Voters also exhibit a tendency to vote against the parties holding power. The party preferences of Turkish voters depend on their socioeconomic characteristics as well.
    Keywords: elections, voter behavior, economic voting, party preference, Turkey
    JEL: D72
    Date: 2007–06
  5. By: Claudio Ferraz (IPEA, Brazil); Frederico Finan (University of California, Los Angeles and IZA)
    Abstract: This paper examines whether access to information enhances political accountability. Based upon the results of Brazil’s recent anti-corruption program that randomly audits municipal expenditures of federally-transferred funds, it estimates the effects of the disclosure of local government corruption practices upon the re-election success of incumbent mayors. Comparing municipalities audited before and after the elections, we show that the audit policy reduced the incumbent’s likelihood of re-election by approximately 20 percent, and was more pronounced in municipalities with radio stations. These findings highlight the value of information and the role of the media in reducing informational asymmetries in the political process.
    Keywords: corruption, political agency, transparency, information
    JEL: D72 D78 H41 O17
    Date: 2007–06
  6. By: Besley, Timothy J.; Kudamatsu, Masayuki
    Abstract: One of the key goals of political economy is to understand how institutional arrangements shape policy outcomes. This paper studies a comparatively neglected aspect of this - the forces that shape heterogeneous performance of autocracies. The paper develops a simple theoretical model of accountability in the absence of regularized elections. Leadership turnover is managed by a selectorate - a group of individuals on whom the leader depends to hold onto power. Good policy is institutionalized when the selectorate removes poorly performing leaders from office. This requires that the selectorate’s hold on power is not too dependent on a specific leader being in office. The paper looks empirically at spells of autocracy to establish cases where it has been successful according to various objective criteria. We use these case studies to identify the selectorate in specific instances of successful autocracy. We also show that, consistent with the theory, leadership turnover in successful autocracies is higher than in unsuccessful autocracies. Finally, we show by exploiting leadership deaths from natural causes that successful autocracies appear to have found ways for selectorates to nominate successors without losing power - a feature which is also consistent with the theoretical approach.
    Keywords: autocracy; democracy; development; dictatorship; political economy
    JEL: P16 P26
    Date: 2007–06
  7. By: Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In the fields of social choice, public choice and political economics, the main difference between private and political choice is whether individual preferences are aggregated to make a decision. A much less studied difference is whether beliefs are aggregated to make a decision. In this paper, we argue that the need for aggregation creates different incentives for belief updates in private and political choice. We review contemporary theories of biased beliefs in politics: Bayesian misperceptions, behavioral anomalies, and rational irrationality. We examine assumptions and consequences of all the approaches vis-à-vis issues of common knowledge, stability, symmetry, and multiplicity of stable states. As a route for further analysis, we construct an evolutionary model including a coordination failure. Differences in learning dynamics make the political play of this baseline game Pareto-inferior to the private play.
    Keywords: public choice; political economics; beliefs; learning;
    JEL: B53 D72 D83
    Date: 2007–06
  8. By: Theocharis N. Grigoriadis; Benno Torgler
    Abstract: This article investigates the relative impact of regional energy production on the energy voting choices of State Duma deputies between 1994 and 2003, controlling for other factors such as party affiliation, electoral mandate, committee membership and socio-demographic parameters. We apply Poole’s optimal classification method of roll call votes using an ordered probit model to explain energy market reform in the first decade of Russia’s democratic transition. Our main finding is that the gas production factor is inter temporally important in the formation of the deputies’ legislative choices and shows Gazprom’s strategic position in the post-Soviet Russian economy. The oil production factor is variably significant in the two first Dumas, when the main legislative debates on oil privatization occur. The energy committee membership tends to consistently explain pro-reform voting choices. The pro-and anti-reform poles observed in our Poole-based single dimensional scale are not necessarily connected with liberal and state-oriented policies respectively.
    Keywords: energy regulation, market reform, energy resources, roll call votes, legislative politics, State Duma, Russia
    JEL: Q40 D72 K23 P27 P37 P31 R11
    Date: 2007–06–28
  9. By: Besley, Timothy J.; Persson, Torsten
    Abstract: Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.
    Keywords: development; property rights; state capacity
    JEL: D70 E60 H10 K40 O10
    Date: 2007–06
  10. By: Axel Dreher (KOF Swiss Economic Institute, ETH Zurich Switzerland and CESifo, Germany); Bernhard Boockmann (Centre for European Economic Research (ZEW), Mannheim)
    Abstract: We investigate voting behavior on human rights in the United Nations General Assembly (UNGA). Our central question is whether countries with a low human rights record systematically oppose human rights resolutions. An instrumental account of voting would suggest that these countries aim to weaken UN human rights resolutions since they could be future targets of these policies. If reputation aspects and other non-instrumental motives dominate, the influence can go in either direction. We estimate determinants of voting on the basis of 13,000 individual voting decisions from 1980 to 2002. Our results from ordered probit estimation show that a country’s human rights situation is irrelevant to voting behavior if regional dependence of voting is controlled for. This suggests that countries’ voting decisions are not made independently from each other. The results also show that simple rules for aggregating voting choices can lead to misleading results.
    Keywords: Voting, Human Rights, United Nations, Instrumental Voting
    JEL: D
    Date: 2007–04
  11. By: Daron Acemoglu; María Angélica Bautista; Pablo Querubín; James A. Robinson
    Abstract: Is inequality harmful for economic growth? Is the underdevelopment of Latin America related to its unequal distribution of wealth? A recently emerging consensus claims not only that economic inequality has detrimental effects on economic growth in general, but also that differences in economic inequality across the American continent during the 19th century are responsible for the radically different economic performances of the north and south of the continent. In this paper we investigate this hypothesis using unique 19th century micro data on land ownership and political office holding in the state of Cundinamarca, Colombia. Our results shed considerable doubt on this consensus. Even though Cundinamarca is indeed more unequal than the Northern United States at the time, within Cundinamarca municipalities that were more unequal in the 19th century (as measured by the land gini) are more developed today. Instead, we argue that political rather than economic inequality might be more important in understanding long-run development paths and document that municipalities with greater political inequality, as measured by political concentration, are less developed today. We also show that during this critical period the politically powerful were able to amass greater wealth, which is consistent with one of the channels through which political inequality might affect economic allocations. Overall our findings shed doubt on the conventional wisdom and suggest that research on long-run comparative development should investigate the implications of political inequality as well as those of economic inequality.
    JEL: H27 N01 N1 N16 O1 O11 O16 O54
    Date: 2007–06
  12. By: Pauline Grosjean (European Bank for Reconstruction and Development); Claudia Senik (Paris School of Economics, University Paris-IV Sorbonne, IUF and IZA)
    Abstract: This paper is dedicated to the relation between market development and democracy. We distinguish contexts and preferences and ask whether it is true that the demand for democracy only emerges after a certain degree of market development is reached, and whether, conversely, democratization is likely to be an obstacle to the acceptation of market liberalization. Our study hinges on a new survey rich in attitudinal variables: the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank, in 28 post-Transition countries. Our identification strategy consists in relying on the specific situation of frontier-zones. We find that democracy enhances the support for market development whereas the reverse is not true. Hence, the relativist argument according to which the preference for democracy is an endogenous byproduct of market development is not supported by our data.
    Keywords: market and democracy, sequencing of development, transition economies, attitudinal variables, cross-country survey
    JEL: H1 H5 P2 P3 P5 O1 O12 O57
    Date: 2007–06
  13. By: Richard E. Baldwin; Frédéric Robert-Nicoud
    Abstract: Formal analysis of the political economy of trade policy was substantially redirected by theappearance of Gene Grossman and Elhanan Helpman's 1994 paper, "Protection for Sale".Before that article a fairly wide range of approaches were favoured by various authors onvarious issues, but afterwards, the vast majority of theoretical tracts on endogenous tradepolicy have used the Protection for Sale framework (PFS for short) as their main vehicle. Thereason, of course, is that the framework is both respectable - because its microfoundationsare distinctly firmer than were those of the earlier lobbying approaches - and it is very easyto work with. Despite the popularity of the PFS framework, it appears that no one haspresented a simple diagram that illustrates how the PFS frameworks and explains why it is soeasy. This short note aims to remedy that ommission.
    Keywords: protection for sale, endogenous protection
    JEL: H32 P16
    Date: 2007–06
  14. By: Richard E. Baldwin; Frédéric Robert-Nicoud
    Abstract: Governments frequently intervene to support domestic industries, but a surprising amount ofthis support goes to ailing sectors. We explain this with a lobbying model that allows forentry and sunk costs. Specifically, policy is influenced by pressure groups that incur lobbyingexpenses to create rents. In expanding industries, entry tends to erode such rents, but indeclining industries, sunk costs rule out entry as long as the rents are not too high. Thisasymmetric appropriability of rents means losers lobby harder. Thus it is not that governmentpolicy picks losers, it is that losers pick government policy.
    Keywords: Lobbying, Sunset Industries, Sunk Costs
    JEL: H32 P16
    Date: 2007–05
  15. By: Daniel Berkowitz; Karen Clay
    Abstract: Several important studies of institutions assume that the quality of institutions is persistent following some formative historic event. The assumption of institutional persistence, however, begs the question of how these institutions persisted. To better understand this issue, this paper examines the evolution of state courts in the United States. We begin by reviewing the evidence that France, Spain, and Mexico operated civil-law legal systems in territory that would later make up thirteen states. One important philosophical difference between civil-law and common-law legal systems arises from differences in their beliefs regarding the appropriate degree of judicial independence. To show how these beliefs, if persistent, would manifest themselves, we present a model in which legislatures allocate budgets to their judges. In the model, common and civil-law legislatures have different preferences regarding the level of judicial independence. Our model predicts civil-law legislatures will give fewer discretionary resources to their judges when judicial elections are replaced by a system of appointments. We confirm this prediction using state-level data for the period 1961-1999. Finally, we argue that one important reason why civil-law preferences for a weak judiciary appear to have persisted in the American states is that the political culture within state legislatures is slow-moving.
    Date: 2007–06
  16. By: Sung Won Kang; Hugh Rockoff
    Abstract: This paper explores new estimates of the number of veterans and the value of veterans' benefits -- both cash benefits and land grants -- from the Revolution to 1900. Benefits, it turns out, varied substantially from war to war. The veterans of the War of 1812, in particular, received a smaller amount of benefits than did the veterans of the other nineteenth century wars. A number of factors appear to account for the differences across wars. Some are familiar from studies of other government programs: the previous history of veterans' benefits, the wealth of the United States, the number of veterans relative to the population, and the lobbying efforts of lawyers and other agents employed by veterans. Some are less familiar. There were several occasions, for example, when public attitudes toward the war appeared to influence the amount of benefits. Perhaps the most important factor, however, was the state of the federal treasury. When the federal government ran a surplus, veterans were likely to receive additional benefits; when it ran a deficit, veterans' hopes for additional benefits went unfilled. Veterans' benefits were, to use the terms a bit freely, more like a luxury than a necessity.
    JEL: N11 N4
    Date: 2007–07

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