nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒12‒01
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Momentum and Social Learning in Presidential Primaries By Brian Knight; Nathan Schiff
  2. Dual Provision of Public Policies in Democracy By Christoph Luelfesmann
  3. Consumer Confidence and Elections By Gikas Hardouvelis; Dimitrios Thomakos
  4. Initial Factors Behind The Third Wave of Democratization By Elias Papaioannou; Gregorios Siourounis
  5. Political Monetary Cycles and a New de facto Ranking of Central Bank Independence By Alpanda, Sami; Honig, Adam
  6. Federations, Constitutions, and Political Bargaining By Anke S. Kessler; Christoph Luelfesmann; Gordon M. Myers
  7. Skilled Voices?: Reflections on Political Participation and Education in Austria By Florian Walter; Sieglinde Rosenberger
  8. Bargaining In Legislature: Number Of Parties And Ideological Polarization By Oskar Nupia
  9. The Impact of Political Risk on Sovereign Bond Spreads: Evidence from Latin America By Moser, Christoph

  1. By: Brian Knight; Nathan Schiff
    Abstract: This paper provides an investigation of the role of momentum and social learning in sequential voting systems. In the econometric model, voters are uncertain over candidate quality, and voters in late states attempt to infer the information held by those in early states from voting returns. Candidates experience momentum effects when their performance in early states exceeds expectations. The empirical application focuses on the responses of daily polling data to the release of voting returns in the 2004 presidential primary. We find that Kerry benefited from surprising wins in early states and took votes away from Dean, who held a strong lead prior to the beginning of the primary season. The voting weights implied by the estimated model demonstrate that early voters have up to 20 times the influence of late voters in the selection of candidates, demonstrating a significant departure from the ideal of "one person, one vote." We then address several alternative, non-learning explanations for our results. Finally, we run simulations under different electoral structures and find that a simultaneous election would have been more competitive due to the absence of herding and that alternative sequential structures would have yielded different outcomes.
    JEL: D7 D8
    Date: 2007–11
  2. By: Christoph Luelfesmann (Simon Fraser University)
    Abstract: This paper analyzes the provision of goods with consumption externalities (such as public policies) in hybrid settings: the `good' is provided in a democratic process by majority vote, but each individual agent is free to contribute additional amounts before or after the political decision has been made. Prominent examples include policy making in federal states, charities, and dual provision of health care. We show that regardless of the timing of private and public actions, the results of the median voter theorem apply. A move from a purely public system to a dual system with private ex-ante contributions is shown to be unambiguously preferred by everybody in society. In contrast, establishing an ex-post contribution regime may be opposed by a minority of high-preference individuals. The paper also derives results for a scenario with endogenous timing of private contributions. Most importantly, this general regime is shown to be majority preferred not only to the systems with ex-post and the ex-ante contributions, but also to an institutional setting with private but no public provision.
    Keywords: Public goods, Majority voting, private provision, dual provision, federalism, charities, health care.
    JEL: D02 D78 H11 H40 P16
    Date: 2007–10
  3. By: Gikas Hardouvelis; Dimitrios Thomakos
    Abstract: We investigate the behavior of consumer confidence around national elections in the EU-15 coun- tries during 1985:1-2007:3. Consumer con¯dence increases before the date of elections and falls subsequently by almost the same amount. It is able to predict the strength of the performance of the incumbent party and its probability of re-election both alone and in the presence of macro- economic and political variables. The post-election drop is negatively related to the previous run up and is a function of the political - but not the economic - environment. A similar rise and fall characterizes consumer confidence in the United States.
    Keywords: consumer confidence, national elections, incumbent party, macro-economy, fiscal conditions, political business cycle, EU-15, USA.
    Date: 2007
  4. By: Elias Papaioannou; Gregorios Siourounis
    Abstract: We identify permanent democratic transitions during the Third Wave of Democratization and the nineties, when many former socialist countries moved towards representative rule. Using subjective political freedom indicators, electoral archives, and historical resources in 174 countries in the period 1960-2005, we identify 63 incidents of permanent democratic transitions, 3 reverse transitions from relatively stable democracy to autocracy and 6 episodes of small improvements in representative norms (borderline democratizations). We also classify non-reforming countries to stable autocracies and always democratic. We then use the constructed dataset to identify the significant correlates of successful democratic transitions, placing an emphasis to those countries that were non-democratic in the beginning of the Third Wave.
    Keywords: democratization, political development, institutions.
    Date: 2007
  5. By: Alpanda, Sami; Honig, Adam
    Abstract: This paper examines the extent to which monetary policy is manipulated for political purposes by testing for the presence of political monetary cycles between 1972 and 2001. This is the first study of its kind to include not only advanced countries but also a large sample of developing nations where these cycles are more likely to exist. We estimate panel regressions of a monetary policy indicator on an election dummy and control variables. We do not find evidence of political monetary cycles in advanced countries but find strong evidence in developing nations. Based on our results, we construct a new de facto ranking of central bank independence derived from the extent to which monetary policy varies with the election cycle. Our ranking of CBI is therefore based on the behavior of central banks during election cycles when their independence is likely to be challenged or their lack of independence is likely to be revealed. The ranking also avoids well-known problems with existing measures of central bank independence.
    Keywords: Political monetary cycles; central bank independence
    JEL: E58 E52
    Date: 2007–10
  6. By: Anke S. Kessler (Simon Fraser University); Christoph Luelfesmann (Simon Fraser University); Gordon M. Myers (Simon Fraser University)
    Abstract: The paper studies a world where a region provides essential inputs for the successful implementation of a local public policy project with spill-overs, and where bargaining between different levels of government may ensure efficient decision making ex post. We ask whether the authority over the public policy measure should rest with the local government or be centralized, allowing financial relationships within the federation to be designed optimally. We show that centralization is always dominant when governments are benevolent, and that both governance structures are otherwise inefficient as long as political bargaining is disregarded. With bargaining, however, the first best can often be achieved under decentralization, but not under centralization. At the root of the result is the alignment of decision making over both essential inputs and final project size under decentralization.
    Keywords: Federalism, Constitutions, Decentralization, Grants, Political Bargaining.
    JEL: D23 D78 H21 H77
    Date: 2007–10
  7. By: Florian Walter; Sieglinde Rosenberger
    Abstract: This study, part of OECD/CERI's project on Measuring the Social Outcomes of Learning, investigates the relationship between educational attainment and political participation in Austria. First, a model based on various theoretical considerations is introduced. This incorporates direct educational effects as well as indirect effects that occur through material resources, social capital, civic orientations and values. Using a multivariate analytical approach the model is applied to the 2002 European Social Survey. Three forms of political participation are distinguished, namely voting, elite-directed and elite-challenging activities. Educational attainment is found to have significant effects on all three types but the strongest impact is on elite-challenging activities. The latter includes forms of political action such as signing petitions and buying or boycotting certain products which are increasingly accepted as a legitimate way to express one's political preferences. Most of the effects of education arise through intermediate variables, including social capital (especially affiliation with non-political organisations), civic orientations (political interest as well as internal and external efficacy) and individual (postmaterialist) values. The effect of education on elite-directed activity operated primarily through organisational affiliation, as well as internal and external efficacy. In contrast, the effect of education on elite-challenging activity seems to be fostered via social environments that combine high levels of political interest, interpersonal trust, postmaterialist values and a certain degree of scepticism against political institutions. The paper concludes with suggestions for policy and research. <BR>Ce rapport, publié dans le cadre du projet « Mesurer les retombées sociales de l'éducation », étudie la relation entre niveau d'instruction et participation politique en Autriche. Dans un premier temps, il présente un modèle basé sur diverses considérations théoriques. Cela comprend à la fois les effets éducatifs directs et indirects qui se produisent en fonction des ressources matérielles, du capital social, des orientations civiques et des valeurs. A partir d'une approche analytique à plusieurs variables, le modèle est appliqué à l'Enquête Sociale Européenne de 2002. On distingue trois formes de participation politique, à savoir le vote, les activités conduites par l'élite et celles contestant l'élite. On s'aperçoit que le niveau d'instruction a des effets significatifs sur ces trois formes de participation, et plus particulièrement sur les activités contestant l'élite. Ces dernières incluent des actions politiques telles que la signature de pétitions, l'achat ou le boycott de certains produits, actions qui sont de plus en plus considérées comme une façon légitime d'exprimer ses préférences politiques. La plupart des effets de l'éducation se produisent au moyen de variables intermédiaires, notamment le capital social (et plus particulièrement l'affiliation à des organisations apolitiques), les orientations civiques (l'intérêt politique tout comme l'efficacité interne ou externe) et les valeurs (post-matérialistes) individuelles. L'éducation exerce un impact sur les activités conduites par l'élite principalement via l'affiliation à des organisations, et via l'efficacité interne et externe. Quant aux effets de l'éducation sur les activités contestant l'élite, ils s'exercent par le biais de l'environnement social qui inclut à la foi un niveau élevé d'intérêt politique, la confiance interpersonnelle, des valeurs post-matérialistes et un certain degré de scepticisme vis-à-vis des institutions politiques. En conclusion, ce rapport fait des recommandations en matière de politique et de recherche.
    Date: 2007–11–23
  8. By: Oskar Nupia
    Abstract: This paper studies whether a government party always prefers to negotiate with another compact party rather than with many different parties in a legislature. We claim that the interaction between ideological polarization and number of parties plays an important role in this decision. We start by modeling two types of legislatures: The 2-parties legislature, in which the government party negotiates with another compact party; and the m+1-parties legislature, in which it negotiates with m>2 parties. Parties negotiate on both a public (ideological) and a distributive (private) policy. Our main result shows that the government party does not always prefer to negotiate in a bilateral situation. If the level of ideological polarization in the 2-parties legislature is high enough, it prefers to negotiate with m less polarized parties. We also find that if there are two legislatures with the same number of parties, the government party prefers to negotiate in that with the smallest level of ideological polarization.
    Date: 2007–10–21
  9. By: Moser, Christoph
    Abstract: Sovereign risk is defined as a country’s ability-to-pay and willingness-to-pay its debt. This paper examines how cabinet reshuffles affecting the ministry of finance or economics are perceived by sovereign bond holders in twelve Latin American countries from 1992 to 2005. We find that such political news instantaneously increases bond spreads. Furthermore, spreads trend significantly upward in the 40 days leading up to the minister change, before flattening out on a higher level in the 40 days thereafter. Evidence suggests that uncertainty about the future course of economic policy and the government’s willingness-to-pay increases refinancing costs for respective emerging markets.
    Keywords: political instability, country risk, bond spreads, Latin America
    JEL: F30 F34 G14 H63
    Date: 2007

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