nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒01‒05
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Strategic Voting for Noncooperative Environmental Policies in Open Economies By Hattori, Keisuke
  2. Habit formation, strategic extremism and debt policy By Egil Matsen; Øystein Thøgersen
  3. Is There an Incumbency Advantage or a Cost of Ruling in Proportional Election Systems? By Liang, Che-Yuan
  4. Why Votes Have a Value By Ingolf Dittmann; Dorothea Kübler; Ernst Maug; Lydia Mechtenberg
  5. Containing ethnic conflicts through ethical voting? Evidence from Ethiopia By Marie-Anne Valfort
  6. Public and private environmental spending. A political economy approach By Pierre-André Jouvet; Philippe Michel; Pierre Pestieau
  7. Explaining Party Emergence in Swedish Local Politics 1973–2002 By Erlingsson, Gissur Ó.
  8. Investor Protection and Interest Group Politics By Lucian A. Bebchuk; Zvika Neeman
  9. Effect of Corruption on Tax Revenues in the Middle East By Patrick A. Imam; Davina F. Jacobs
  10. A comparison between the methods of apportionment using power indices: the case of the U.S. presidential election By Fabrice Barthélémy; Mathieu MARTIN
  11. The Impact of Political Risk on Sovereign Bond Spreads - Evidence from Latin America By Moser, Christoph

  1. By: Hattori, Keisuke
    Abstract: In this paper, we construct a political-economy model of international noncooperative environmental policymaking, and examine the strategic incentives for voters to elect an environmental policymaker in open economies. We show that under several circumstances, citizens have an incentive to deliberately vote for a candidate whose environmental preferences differ from their own. Further, the strategic voting incentives are crucially depend on the environmental policy tools employed by the government, the international market structures, and the degree of product differentiation among firms.
    Keywords: strategic voting; the race to the bottom; market structure; environmental policy
    JEL: F18 D72 D43
    Date: 2007–12–18
  2. By: Egil Matsen (Department of Economics, Norwegian University of Science and Technology); Øystein Thøgersen (Department of Economics, Norwegian School of Economics and Business Administration, and CESifo,)
    Abstract: We suggest a probabilistic voting model where voters’ preferences for alternative public goods display habit formation. Current policies determine habit levels and in turn the future preferences of the voters. This allows the incumbent to act strategically in order to influence the probability of re-election. Comparing to a benchmark case of a certain re-election, we demonstrate that the incumbent’s optimal policy features both a more polarized allocation between the alternative public goods and a debt bias.
    Keywords: Budget deficits; voting; extremism; habit formation
    JEL: D72 D78 H62
    Date: 2007–12–11
  3. By: Liang, Che-Yuan (Department of Economics)
    Abstract: This paper investigates the effect of political representation on the electoral outcome at the party level in a proportional multiparty election system using data from Swedish local government elections. There are two notions of representation in a council; the first is to hold seats, and the second is to belong to the ruling coalition. I refer to the effect of the former as the incumbency effect and the effect of the latter as the effect of ruling. To identify causal effects, I use the discontinuous variations in the number of seats and ruling (as a coalition receives a majority of the seats) to isolate exogenous variation in incumbency and ruling respectively. I find an advantage of 0.11 percent of the votes for each percent of incumbency. 11 percent of the votes in an election are therefore determined by incumbency, a figure close to the advantage found in majoritarian systems. However, the advantage differs significantly between parties. Further, I find no effects of ruling, contrary to the commonly found cost of ruling in proportional systems.
    Keywords: incumbency advantage; cost of ruling; proportional elections; multiparty systems; local governments; regression-discontinuity
    JEL: D72 D73
    Date: 2007–12–19
  4. By: Ingolf Dittmann; Dorothea Kübler; Ernst Maug; Lydia Mechtenberg
    Abstract: We perform an experiment where subjects pay for the right to participate in a shareholder vote. We find that experimental subjects are willing to pay a significant premium for the voting right even though there should be no such premium in our setup under full rationality. Private benefits from controlling the firm are absent from our setup and overconfidence cannot explain the size of the observed voting premium. The premium disappears in treatments where voting has no material consequences for the subjects. We conclude that individuals enjoy being part of a group that exercises power and are therefore willing to pay for the right to vote even when the impact of their own vote on their payoffs is negligible.
    Keywords: Smoking, Voting, dual-class shares, paradox of voting, experimental economics
    JEL: C92 D72 G32
    Date: 2007–12
  5. By: Marie-Anne Valfort (Paris School of Economics)
    Abstract: In an ethnically polarized country, does aversion towards inter-ethnic inequity induce citizens to vote for a party promoting an equitable allocation of national resources among ethnic groups? We base our analysis on a survey that we conducted among 331 students from Addis Ababa University. We show that aversion towards inter-ethnic inequity does exert a significant influence on university students’ vote. Yet, its relative impact is small in comparison to the impact of ethnic group loyalty which determines ethnic voting. We provide confirmation that some specific sociodemographic characteristics significantly (i) increase the degree of aversion towards inter-ethnic inequity and (ii) lower ethnic group loyalty. Those characteristics have in common that they reduce the ‘psychological’ distance between ethnic groups, like living in a cosmopolitan city and having parents belonging to different ethnic groups.
    Keywords: Africa, Ethiopia, ethnic conflict, voting behavior, aversion towards inter-ethnic inequity.
    JEL: D02 D63 D64 D72 H77 N47
    Date: 2007–11
  6. By: Pierre-André Jouvet; Philippe Michel; Pierre Pestieau
    Abstract: This paper studies the determination of public investment in environmental quality when there are private alternatives. Public investment is chosen by majority voting. When consumption and environmental quality are complementary one may observe a solution of the type "ends against the middle".
    Date: 2007
  7. By: Erlingsson, Gissur Ó. (The Ratio Institute)
    Abstract: Since individuals demanding formations of new parties face a collective action problem, I inquire why people form new parties, and why this political strategy became increasingly popular between 1973 and 2002 in Swedish municipalities. Case-studies indicate that ‘strong emotions’ – i.e. anger, frustration and indignation – mobilize rational actors to start up new parties. However, ‘strong emotions’ only explain why individuals form parties in the first place, not why party formation has become a popular strategy. Hence, I hypothesize that entrepreneurs forming parties at t inspire potential entrepreneurs in neighbouring municipalities at t + 1. Since previous attempts to explain the increasing number of new parties in Sweden have failed, I maintain that the support the hypothesis gains adds important knowledge to this field.
    Keywords: Party entrepreneurs; new parties; emotional arousal; rational imitation; local politics; Sweden
    JEL: D01 D71 D72 H41
    Date: 2008–01–03
  8. By: Lucian A. Bebchuk; Zvika Neeman
    Abstract: We model how lobbying by interest groups affects the level of investor protection. In our model, insiders in existing public companies, institutional investors (financial intermediaries), and entrepreneurs who plan to take companies public in the future, compete for influence over the politicians setting the level of investor protection. We identify conditions under which this lobbying game has an inefficiently low equilibrium level of investor protection. Factors that operate to reduce investor protection below its efficient level include the ability of corporate insiders to use the corporate assets they control to influence politicians, as well as the inability of institutional investors to capture the full value that efficient investor protection would produce for outside investors. The interest that entrepreneurs (and existing public firms) have in raising equity capital in the future reduces but does not eliminate the distortions arising from insiders' interest in extracting rents from the capital public firms already have. Our analysis generates testable predictions, and can explain existing empirical evidence, regarding the way in which investor protection varies over time and around the world.
    JEL: D72 G20 G30 K22 O16
    Date: 2007–12
  9. By: Patrick A. Imam; Davina F. Jacobs
    Abstract: This study estimates the impact of corruption on the revenue-generating capacity of different tax categories in the Middle East. We find that the low revenue collection as a share of GDP there compared to other middle-income regions is due in part to corruption, and certain taxes are more affected than others. Taxes that require frequent interaction between the tax authority and individuals, such as taxes on international trade, seem to be more affected by corruption than most other types of taxation. This suggests that if governments need to raise more tax revenues in a way that minimizes distortions and maximizes social welfare, they should implement reforms that either reduce corruption or raise revenues from tax categories that are less susceptible to corruption. Possible reforms of the revenue system and administration are examined.
    Keywords: Corruption , Middle East , Tax revenues , Taxes , Tax systems , Tax administration ,
    Date: 2007–11–30
  10. By: Fabrice Barthélémy (THEMA, Université de Cergy-Pontoise); Mathieu MARTIN (THEMA, Université de Cergy-Pontoise)
    Abstract: In this paper, we compare the five more famous methods of apportionment, the methods of Adams, Dean, Hill, Webster and Jefferson. The criteria used for this comparison is the minimization of a distance between a power vector and a population vector. The power is measured with the well-known Banzhaf power index. The populations are the ones of the different States of the U.S. We then compare the apportionment methods in terms of their ability to bring closer the power of the States to their relative population: this ensures that every citizen in the country gets the same power. The U.S. presidential election by Electors is studied through 22 censuses since 1790. Our analysis is largely based on the book written by Balinski and Young (2001). The empirical findings are linked with theoretical results.
    Keywords: Banzhaf index, methods of apportionment, distances, balance population-power.
    JEL: C7 D7
    Date: 2007
  11. 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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