nep-pol New Economics Papers
on Positive Political Economics
Issue of 2007‒12‒15
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Effects of Tax Competition when Politicians Create Rents to Buy Political Support By Wolfgang Eggert; Peter Birch Sørensen
  2. Voting Patterns, Party Spending and Space in England and Wales By David Cutts; Don Webber
  3. The Cleavage Model, Ethnicity and Voter Alignment in Africa: Conceptual and Methodological Problems Revisited By Gero Erdmann
  4. Growth, Volatility and Political Instability: Non-Linear Time-Series Evidence for Argentina, 1896-2000 By Nauro F. Campos; Menelaos G. Karanasos
  5. Micro-foundations of individual preferences for protectionism in Canada and Uruguay By Natalia Melgar
  7. Terrorism and Cabinet Duration: An Empirical Analysis By Martin Gassebner; Richard Jong-A-Pin; Jochen O. Mierau
  8. DEMOCRATIZATION AND GROWTH By Elias Papaioannou; Gregorios Siourounis
  9. Towards Measurement of Political Pressure on Central Banks in the Emerging Market Economies: The Case of the Central Bank of Egypt By Ibrahim L. Awad

  1. By: Wolfgang Eggert (University of Paderborn); Peter Birch Sørensen (Department of Economics, University of Copenhagen)
    Abstract: We set up a probabilistic voting model to explore the hypothesis that tax competition improves public sector efficiency and social welfare. In the absence of tax base mobility, distortions in the political process induce vote-maximising politicians to create rents to public sector employees. Allowing tax base mobility may be welfare-enhancing up to a point, because the ensuing tax competition will reduce rents. However, if tax competition is carried too far, it will reduce welfare by causing an underprovision of public goods. Starting from an equilibrium where tax competition has eliminated all rents, a coordinated rise in capital taxation will always be welfare-improving. For plausible parameter values it will even be welfare-enhancing to carry tax coordination beyond the point where rents to public sector workers start to emerge.
    Keywords: tax competition; rent seeking; probabilistic voting
    JEL: D72 D73 H87
    Date: 2007–12
  2. By: David Cutts (University of Manchester); Don Webber (University of the West of England)
    Abstract: There is a growing body of literature which suggests that voting patterns are not independent from space yet few empirical investigations exist which take explicit account of space. This article examines the determinants of voting patterns across constituencies in England and Wales using spatial econometric methods. The results suggest that while socioeconomic factors are key determinants of party vote shares in constituencies, there is strong spatial autocorrelation in voting patterns. We find that each major political party is influenced by space to different extents with the Liberal Democrats visibly exploiting spatial autocorrelation to increase their vote shares.
    Keywords: 2005 General Election, voting patterns, political party spending; spatial regression
    JEL: R59 C21
    Date: 2007–08
  3. By: Gero Erdmann (GIGA Institute of African Affairs)
    Abstract: Recent research on political parties and ethnicity has challenged the conventional wisdom about ethnicity as the major factor that explains voter alignment in Africa. The paper maintains that the cleavage model, although modified to include ethnicity, still provides heuristically the best foundation for the explanation of party formation and voting behaviour in Africa. It points out that inconclusive and contradicting research results about the salience of ethnicity can be attributed to a variety of unresolved methodological and conceptual problems linked to the ‘fluidity’ of the concept of ethnicity. To overcome these problems refined research designs and more sophisticated analytical tools are required. Finally, it is safe to assume that the relevance of ethnicity for the formation of party systems and voter alignment is not a uniform pattern across Africa, but will differ from one country to the other.
    Keywords: Africa, social cleavages, cleavage model, ethnicity, political parties, party systems
    Date: 2007–12
  4. By: Nauro F. Campos; Menelaos G. Karanasos
    Abstract: What is the relationship between economic growth and its volatility? Does political instability affect growth directly or indirectly, through volatility? This paper tries to answer such questions using a power-ARCH framework with annual time series data for Argentina from 1896 to 2000. We show that while assassinations and strikes (what we call “informal” political instability) have a direct negative effect on economic growth, “formal” political instability (constitutional and legislative changes) has an indirect (through volatility) negative impact. We also find preliminary support for the idea that while the effects of “formal” instability are stronger in the long-run, those of “informal” instability are stronger in the short-run.
    Date: 2007–09
  5. By: Natalia Melgar (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: Even when the majority of economists agree on the benefits of free trade, everywhere we turn to,trade is restricted. In contexts where politicians offer different policy options and voters demand them based on their individual preferences, one may ask what determines personal preferences on trade policy; which economic, cultural, social elements shape them. The goal of this paper is to answer these questions in the case of two different economies: Canada and Uruguay. The data source is the module on National Identity (2003) which was carried out in accordance with the International Social Survey Program. Based on probit models, the main conclusion of this paper is that the evidence does not support the conclusions on preference formation of the Hecksher-Ohlin trade model, while elements such as religion, political preferences, and nationalism, as well as demographic characteristics, have a significant impact on trade policy preferences.
    Keywords: Preferences, micro-foundations, protectionism, rationality, ISSP
    JEL: D01 F13
    Date: 2007–11
  6. By: Paulo Roberto Arvate; George Avelino; José A. Tavares
    Date: 2007
  7. By: Martin Gassebner (Department of Management, Technology, and Economics, ETH Zurich); Richard Jong-A-Pin (University of Groningen, Faculty of Economics and Business, The Netherlands); Jochen O. Mierau (University of Groningen, Faculty of Economics and Business, The Netherlands)
    Abstract: We examine the relationship between terrorism and cabinet duration. Our data set includes more than 2,400 cabinets in over 150 countries in the period 1968-2002. We find a small, but significant effect of terrorism on the probability of government failure. Furthermore, we find that the impact of terrorism depends on the type of attack and is larger in case of more severe attacks. Marginal effect calculations show that the impact of terror on cabinet duration is larger than the impact of economic variables such as economic growth, but less than the impact of a civil war or a government crisis. Our results suggest that cabinets in countries with high levels of terrorism are particularly vulnerable to terrorist attacks.
    Keywords: terror, political stability, cabinet dissolution
    JEL: D72 F59 C25
    Date: 2007–11
  8. By: Elias Papaioannou; Gregorios Siourounis
    Abstract: This paper challenges cross-sectional findings that democratic institutions have a negligible direct effect on economic growth. We employ a newly constructed data-set of permanent democratic transitions during the so-called Third Wave of Democratization and examine the within effect of democratization in countries that abandoned autocracy and consolidated representative institutions. We study democratization in a before-after event study approach that enables us to control for time-invariant country-specific effects and general time trends. The panel estimates imply that on average democratizations are associated with a one half to one percent increase in annual per capita growth. The dynamic analysis also reveals a J-shaped growth pattern: during the transition growth is slow and on average negative; in the medium and especially long run, however, growth stabilizes at a higher level. The evidence supports "development" theories of democracy and growth that highlight the positive impact of representative institutions on economic activity. They also favour Friedrich Hayek (1960)’s idea that the merits of democracy appear in the long run.
    Date: 2007–10
  9. By: Ibrahim L. Awad (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper assesses whether the legal independence granted to the Central Bank of Egypt (CBE) under the latest legislation is factual. I followed Fry’s methodology, which assumes that the level of independence of the central bank is determined by fiscal attributes. In an attempt to develop Fry’s method, I used a simple criterion to assess the central bank’s independence, namely, that the central bank is actually independent if it can fulfill its money supply target. Applying this criterion to the CBE and some other CBs in the developed countries and emerging market economies, we find that: (i) the legal independence granted to the CBE under the latest legislation is not factual; although the final objective of monetary policy is to achieve price stability, the CBE failed to fulfill its money supply target and achieve price stability, because it was responsive to political pressure and did not react to fulfill its money supply target; (ii) such political pressure on the CBE is due to fiscal attributes, as measured by domestic credit to the government; (iii) CBs whose independence is factual, according to our criterion, showed a negative relationship between the legal indices, as measured by the GMT index, and the fiscal attributes measured by DCGY. However, the relationship was anomalous when measured by the rate of inflation.
    Keywords: monetary policy, central bank independence, fiscal dominance political pressure
    JEL: E51 E59 H75 C23
    Date: 2007–12

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