nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒10‒27
four papers chosen by
Eugene Beaulieu
University of Calgary

  1. Oligarchic Versus Democratic Societies By Daron Acemoglu
  2. Income Heterogeneity and the Flypaper Effect By Witterblad, Mikael
  3. Do Political Parties Matter? Evidence from U.S. Cities By Fernando Ferreira; Joseph Gyourko
  4. Political Short-termism: A Possible Explanation By Iconio Garrì

  1. By: Daron Acemoglu
    Abstract: This paper develops a model to analyze economic performance under different political regimes. An oligarchic society, where political power is in the hands of major producers, protects their property rights, but also tends to erect significant entry barriers against new entrepreneurs. Democracy, where political power is more widely di used, imposes redistributive taxes on producers, but tends to avoid entry barriers. When taxes in democracy are high and the distortions caused by entry barriers are low, an oligarchic society achieves greater efficiency. Nevertheless, because comparative advantage in entrepreneurship shifts away from the incumbents, the inefficiency created by entry barriers in oligarchy deteriorates over time. The typical pattern is therefore one of rise and decline of oligarchic societies: of two otherwise identical societies, the one with an oligarchic organization will first become richer, but later fall behind the democratic society. I also discuss how democratic societies may be better able to take advantage of new technologies, how an oligarchic society might transition to democracy because of within-elite conflict, and how the unequal distribution of income in oligarchy supports the oligarchic institutions and may keep them in place even when they become significantly costly to society.
    Keywords: democracy, economic growth, entry barriers, oligarchy, political economy, redistribution, sclerosis.
    JEL: P16 O10
    Date: 2007
  2. By: Witterblad, Mikael (Department of Economics, Umeå University)
    Abstract: The purpose of this paper is to analyze the determinants of the local public expenditures and, in particular, try to explain the so called ’flypaper effect’. The analysis uses a political economy model to relate the existence and size of the flypaper effect to observable municipal characteristics such as the average tax base, income dispersion andwhether or not a change in the average tax base affects the tax share of the majority voter. The empirical part of the study is based on Swedish data on municipal expenditures and revenues for the period 1996-2004. The results show that the size of the flypaper effect varies among municipalities depending on the relative composition of grant and tax base.
    Keywords: Income Dispersion; Local Public Expenditures; Intergovernmental Relations
    JEL: D31 H72 H77
    Date: 2007–10–19
  3. By: Fernando Ferreira; Joseph Gyourko
    Abstract: We examine whether partisan political differences have important effects on policy outcomes at the local level using a new panel data set of mayoral elections in the United States. Applying a regression discontinuity design to deal with the endogeneity of the mayor's party, we find that party labels do not affect the size of government, the allocation of spending or crime rates, even though there is a large political advantage to incumbency in terms of the probability of winning the next election. The absence of a strong partisan impact on policy in American cities, which is in stark contrast to results at the state and federal levels of government, appears due to certain features of the urban environment associated with Tiebout sorting. In particular, there is a relatively high degree of household homogeneity at the local level that appears to provide the proper incentives for local politicians to be able to credibly commit to moderation and discourages strategic extremism.
    JEL: H7 R38
    Date: 2007–10
  4. By: Iconio Garrì (DEP, Università Cattolica)
    Abstract: Political short-termism obtains when a politician provides a public good that gives an immediate payoff while it would be optimal for the society that he provided a public good that gives a payoff only in the future. We consider a simple two-period political agency model and study whether reelection concern may give rise to political short-termism when voters are rational. We show that this can indeed be the case when politicians differ in their motivation and are better informed than the citizens: good politicians may (suboptimally) provide a public good that gives an immediate payoff because if they provided a public good that gives a payoff only in the second term, the citizens would consider it sufficiently likely that they are bad politicians and would therefore choose not to reelect them. Reelection concern may therefore reduce social welfare because of the undisciplining effect on the good politicians. Quite surprisingly, short-termism may however also be optimal for the society, because it gives rise to two additional effects on social welfare: (i) it increases the probability that in the future the office will be held by better politicians (selection effect) and (ii) bad politicians may choose to act more in line with the society's interest in order to be reelected (disciplining effect).
    Keywords: Political short-termism, electoral accountability, reputation, public goods
    JEL: D72 D82
    Date: 2007–10

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