nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒10‒06
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Why is Economic Policy Different in New Democracies? Affecting Attitudes About Democracy By Adi Brender; Allan Drazen
  2. World on Fire? Democracy, Globalization and Ethnic Violence By Bezemer, Dirk; Jong-A-Pin, Richard
  3. The Causes of Excessive Deficits in the European Union By Vítor Castro
  4. Measuring the Compactness of Political Districting Plans By Roland G. Fryer, Jr; Richard T. Holden
  5. Vote-share Contracts and Democracy By Gersbach, Hans
  6. Effect of redrawing of political boundaries on voting patterns: evidence from state reorganization in India By Rajashri Chakrabarti; Joydeep Roy
  7. Economics Against Democracy By Manuel Couret Branco
  8. Farmers and Capitalism By Carney, Richard
  9. Foreign Direct Investment and Bilateral Investment Treaties an International Political Perspective. By Rodolphe Desbordes; Vincent Vicard
  10. Bonding Social Capital and Corruption: A Cross-National Empirical Analysis By Donna Harris
  11. Creating the Canada/Quebec Pension Plans: An Historical and Political Analysis By Kristina Babich; Daniel Béland

  1. By: Adi Brender; Allan Drazen
    Abstract: When democracy is new, it is often fragile and not fully consolidated. We investigate how the danger of a collapse of democracy may affect fiscal policy in new democracies in comparison to countries where democracy is older and often more established. We argue that the attitude of the citizenry towards democracy is important in preventing democratic collapse, and expenditures may therefore be used to convince them that "democracy works". We present a model focusing on the inference problem that citizens solve in forming their beliefs about the efficacy of democracy. Our approach differs from much of the literature that concentrates on policy directed towards anti-democratic elites, but our model can encompass that view and allows comparison of different apporoaches. We argue that the implications of the model are broadly consistent with the empirical patterns generally observed, including the existence of political budget cycles in new democracies not observed in established democracies.
    JEL: D72 H30 P16
    Date: 2007–10
  2. By: Bezemer, Dirk; Jong-A-Pin, Richard (Groningen University)
    Abstract: Recent studies suggest that democracy and globalization lead to ethnic hatred and violence in countries with a rich ethnic minority. We examine the thesis by Chua (2003) that democratization and globalization lead to ethnic violence in the presence of a market-dominant minority. We use different data sets to measure market dominant minorities and employ panel fixed effects regressions for a sample of 107 countries over the period 1984-2003. Our model contains two-way and three-way interactions to examine under which conditions democracy and globalization increase violence. We find no evidence for a worldwide Chua effect, but we do find support for Chua?s thesis for Sub-Saharan Africa.
    Date: 2007
  3. By: Vítor Castro (Universidade do Minho - NIPE)
    Abstract: Several studies have identified the factors that cause public deficits in industrial democracies. They consider that economic, political and institutional factors play an important role in the understanding of those deficits. However, the study of the determinants of excessive deficits remains practically unexplored. Since excessive deficits can have large negative spillover effects when countries are forming a monetary union without a centralised budget – as it is the case for a group of European countries – this paper tries to explore that gap in the literature by identifying the main causes of excessive deficits and the ways of avoiding them. Binary choice models are estimated over a panel of 15 European Union countries for the period 1970-2006, where an excessive deficit is defined as a deficit higher than 3% of GDP. Results show that a weak fiscal stance, low economic growth, the timing of parliamentary elections and majority left-wing governments are the main causes of excessive deficits in the EU countries. Moreover, the institutional constraints imposed after Maastricht over the EU countries’ fiscal policy have succeeded in reducing the probability of excessive deficits in Europe, especially in small countries. Therefore, this study concludes that supranational fiscal constraints, national efforts to reduce public debts, growth promoting policies and mechanisms to avoid political opportunism and partisan effects are essential factors for an EU country to avoid excessive deficits. Finally, the results presented in this paper raise the idea that a good strategy for the EU countries to avoid excessive deficits caused by the opportunistic behaviour of their policymakers would be to schedule elections for the beginning or the end of the year.
    Keywords: Excessive public deficits; European Union; Political opportunism; Binary choice models
    JEL: E62 H6 O52
    Date: 2007
  4. By: Roland G. Fryer, Jr; Richard T. Holden
    Abstract: The United States Supreme Court has long recognized compactness as an important principle in assessing the constitutionality of political districting plans. We propose a measure of compactness based on the distance between voters within the same district relative to the minimum distance achievable -- which we coin the relative proximity index. We prove that any compactness measure which satisfies three desirable properties (anonymity of voters, efficient clustering, and invariance to scale, population density, and number of districts) ranks districting plans identically to our index. We then calculate the relative proximity index for the 106th Congress, requiring us to solve for each state's maximal compactness; an NP-hard problem. Using two properties of maximally compact districts, we prove they are power diagrams and develop an algorithm based on these insights. The correlation between our index and the commonly-used measures of dispersion and perimeter is -.22 and -.06, respectively. We conclude by estimating seat-vote curves under maximally compact districts for several large states. The fraction of additional seats a party obtains when their average vote increases is significantly greater under maximally compact districting plans, relative to the existing plans.
    JEL: H70 K19
    Date: 2007–10
  5. By: Gersbach, Hans
    Abstract: In this paper we introduce vote-share contracts. Such contracts contain a vote-share threshold that incumbents must reach in order to be reelected. In a simple model, we illustrate the working of vote-share contracts. Such vote-share contracts curb socially detrimental incumbency advantages by improving the average ability level of re-elected politicians and also increase effort. We show that the socially optimal vote-share threshold for incumbents is larger than one half. Competing candidates offer vote-share contracts with socially optimal thresholds.
    Keywords: elections; political contracts; vote-share thresholds
    JEL: D7 D82 H4
    Date: 2007–09
  6. By: Rajashri Chakrabarti; Joydeep Roy
    Abstract: This paper analyzes the effect of a redrawing of political boundaries on voting patterns and investigates whether it leads to closer conformity of an electorate's voting patterns with its political preferences. We study these issues in the context of a reorganization of states in India. In 2000, Madhya Pradesh, the biggest state in India before the reorganization, was subdivided into Madhya Pradesh and Chhattisgarh, the latter accounting for less than one-fourth of the electorate of undivided Madhya Pradesh. Using socioeconomic composition and traditional voting patterns, we argue that there are differences in political preferences between Madhya Pradesh and Chhattisgarh. Next, in the context of a theoretical model that captures some of the basic features of the electoral scenario of the two regions, we predict that before reorganization, the smaller region would vote strategically to elect representatives with preferences more closely aligned to those of the bigger region. Once Chhattisgarh became a separate state, however, this motive would no longer operate, and the voting distributions of the two regions would differ. Using detailed data on state elections in Madhya Pradesh and Chhattisgarh in 1993, 1998, and 2003 as well as a difference-in-differences estimation strategy, we find that voting patterns in the two regions were indeed very similar before reorganization but strikingly different afterwards, with a relative shift in Chhattisgarh toward its inherent political preferences. These findings are reasonably robust in that they continue to hold after controlling for other confounding factors and survive several sensitivity tests.
    Keywords: Political science ; Developing countries
    Date: 2007
  7. By: Manuel Couret Branco (Department of Economics, University of Évora)
    Abstract: I believe that freedom of choice constitutes a pillar of rational choice in economic theory, regardless of the definition of rational choice one adopts. On the other hand, economics being socially embedded, free choice in economics seems senseless without political freedom of choice. Democracy, therefore, plays an important role in economic efficiency as much as in social fairness. Following this line of thought one should expect that economics, both in theory and in practice, should permanently strengthen the role of democracy in its institutional construction. Unfortunately it does not seem to be the case. Although historically many of the democratic achievements in the past two centuries have been intimately connected to the development of liberal economics, one can assert that mainstream liberal economics is intrinsically contradictory with the democratic ideal. The first stage of the demonstration of this thesis concerns the dismounting of the naturalization process that economics has undergone with the purpose of transforming economic decisions into plain technical issues supposedly free from democratic debate.The second stage concerns the ways in which the market has managed to legitimise its hegemony in society and the reasons why this contributes to the erosion of democracy. Within this hegemony five aspects will be dealt with; the imposition of a market jurisdiction; the deregulation of the economy; the process of political and economic unaccountability; the de-politicization of free choice and the conflict between the territorialization of democracy and the de-territorialization of economics.
    Keywords: Democracy, Market, Politics, Liberal Economics, Participation
    JEL: A1 B4 H4 H5 I3 J8 K0
    Date: 2007
  8. By: Carney, Richard
    Abstract: Most analyses of modern capitalism focus on bargains struck between workers, managers, and owners (and the different types of firms they inhabit). But considering the substantial influence of institutional inertia on modern outcomes, it is necessary to examine the origins, and to consider which actors were most important in the early construction of capitalist systems. In this regard, farmers have played a critical role. I examine four cases - early 19th Century United States, early 20th Century United States, post-WWII France, and post-WWII Japan - to assess farmers’ influence on the origins of contemporary institutions, and find that they have played an important, though frequently overlooked, role.
    Keywords: political economy; capitalism; financial institutions; economic development
    JEL: P0 N20
    Date: 2007–09–24
  9. By: Rodolphe Desbordes (IRES-UCL et University of Strathclyde); Vincent Vicard (Centre d'Economie de la Sorbonne)
    Abstract: Most of the literature dealing with the location of foreign direct investment (FDI) has ignored the fact that multinational enterprises (MME) are not stateless and that their activities take place within an international political system : the return on their FDI can be influenced by the quality of interstate political relations between their home and host countries. This paper investigates whether the quality of interstate political relations between countries influences the volume of bilateral FDI. Thanks to the construction of a new indicator of the quality of interstate political relations, it is found that better interstate political relations foster bilateral FDI, through the signature of a bilateral investment treaty (BIT) may dampen the impact of their fluctuations. In addition, the effect of a variation in the quality of domestic institutions increases with the entry into force of a BIT, suggesting that the latter signals the credibility of an institutional improvement. Overall, when both indirect effects are considered, the entry into force of a BIT increases bilateral FDI stocks by 16%, on average, a lower impact than those found in previous studies. This effect nevertheless significantly differs according to the quality of both interstate political relations and domestic institutions.
    Keywords: Foreign direct investment, interstate political relations, bilateral investment treaties, institutions.
    JEL: F21 F53 F59
    Date: 2007–07
  10. By: Donna Harris (Department of Land Economy, University of Cambridge, UK)
    Abstract: This paper considers the relationship between corruption and bonding social capital, which is characterised by high level of particularised trust and reciprocity amongst families and close friends. The main conjecture is that bonding social capital is likely to increase corruption and that it affects corruption not only directly, but also indirectly through other factors. Empirical results from the third wave of the World Value Survey confirm that bonding social capital leads to higher level of perceived corruption, particularly public and political corruption, when it discourages trust and cooperation towards outsiders. Bonding social capital also increases corruption indirectly by reducing opportunistic behaviour and imposing peer pressure on the ingroup members to reciprocate in a corrupt exchange i.e. to ‘return the favour’. This mechanism makes a corrupt transaction more predictable, i.e. increasing the confidence that the ‘goods’ will be delivered as promised and thus, leads to high level of corruption.
    Keywords: Corruption, Social Capital, Social Norms, Social Networks
    JEL: Q2 Q4 R4
    Date: 2007
  11. By: Kristina Babich; Daniel Béland
    Abstract: Drawing on recent historical institutionalist scholarship, this paper explores the debates leading to the enactment of the Canada/Quebec Pension Plans (C/Q.P.P.) in 1965. More specifically, this analysis underlines the respective role of and the interaction between political institutions, business and labor power, and changing ideas about the role of public and private pensions in Canada. As argued, although the ideas that guided the enactment of C/Q.P.P. stressed the key role of private benefits, the enduring weight of Canadian-style federalism mitigated the impact of interest groups, especially business organizations, on the legislative process. Overall, the paper suggests that students of social policy should pay closer attention to the interaction between political institutions, interest group mobilization, and changing ideas about the relationship between public and private benefits.
    Keywords: pensions, ideas, institutions, federalism, politics, social policy, business, labor, private benefits, Canada
    JEL: I38 H77
    Date: 2007–08

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