nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒03‒15
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Entry, Public Policies, and the Economy By Casey B. Mulligan; Kevin K. Tsui
  2. A Dynamic Model of Democratic Elections in Multidimensional Policy Spaces By John Duggan; Jeffrey S. Banks
  3. Politicians' Outside Earnings and Electoral Competition By Becker, Johannes; Peichl, Andreas; Rincke, Johannes
  4. Electoral Rules and Politicians’ Behavior: A Micro Test By Gagliarducci, Stefano; Nannicini, Tommaso; Naticchioni, Paolo
  5. Electoral Goals and Center-State Transfers: A Theoretical Model and Empirical Evidence from India By Arulampalam, Wiji; Dasgupta, Sugato; Dhillon, Amrita; Dutta, Bhaskar
  6. Trust in International Organizations: An Empirical Investigation Focusing on the United Nations By Benno Torgler
  7. From Violence to Voting: War and political participation in Uganda By Christopher Blattman
  8. Endogenous information in committees and aggregation of information in large elections By Oliveros, Santiago
  9. The sustainable cooperative tariffs : a political economy perspective By Racem Mehdi
  10. Political Accountability, Fiscal Conditions, and Local Government Performance – Cross-Sectional Evidence from Indonesia By Sebastian Eckardt
  11. Is there an election cycle in public employment? Separating time effects from election year effects By Dahlberg, Matz; Mörk, Eva
  12. Adopting the Euro in Post-Communist Countries: An Analysis of the Attitudes toward the Single Currency By Allam, Miriam S.,; Achim Goerres
  13. The Impact of Direct Democracy and Local Autonomy on Tax Morale in Switzerland By Benno Torgler
  14. Trust, Honesty and Regulations By Pinotti, Paolo
  15. Public Accountability and the Public Sphere of International Governance By Jens Steffek
  16. Extremism: Root Causes and Strategic Use in Conflicts By Elie Appelbaum
  17. International Economic Policy: Was There a Bush Doctrine? By Barry Eichengreen; Douglas A. Irwin

  1. By: Casey B. Mulligan; Kevin K. Tsui
    Abstract: This paper presents a theory of competition for political leadership between incumbent leaders and their challengers in which the possible equilibrium political market structures range from pure monopoly (unchallenged dictatorship) to perfectly competitive (ideal democracy). Leaders are constrained by the threat of "entry" or their ability to tax (or both), so that regimes with no challengers may nonetheless implement policies in the public interest. We offer economic interpretations of why democratic countries are associated with higher wages, why resource abundant countries tend to be nondemocratic, and how technological change affects political development. By focusing on the incentives for political entry, we show how trade sanctions and other policies designed to promote democracy may actually have the unintended consequences of discouraging political competition.
    JEL: H11 L12 P16
    Date: 2008–03
  2. By: John Duggan (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158); Jeffrey S. Banks (Division of Humanities and Social Sciences, California Institute of Technology)
    Abstract: We propose a general model of repeated elections. In each period, a challenger is chosen from the electorate to run against an incumbent politician in a majority-rule election, and the winner then selects a policy from a multidimensional policy space. Individual policy preferences are private information, whereas policy choices are publicly observable. We prove existence and continuity of equilibria in “simple” voting and policy strategies; we provide examples to show the variety of possible equilibrium patterns in multiple dimensions; we analyze the effects of patience and office-holding benefits on the persistence of policies over time; and we identify relationships between equilibrium policies and the core of the underlying voting game. As a byproduct of our analysis, we show how equilibrium incentives may lead elected representatives to make policy compromises, even when binding commitments are unavailable. We provide an informational story for incumbency advantage. Finally, we give an asymptotic version of the median voter theorem for the one-dimensional model as voters becomes arbitrarily patient.
    Date: 2008–03
  3. By: Becker, Johannes; Peichl, Andreas; Rincke, Johannes
    Abstract: This paper deals with the impact of electoral competition on politicians' outside earnings. We propose a simple theoretical model with politicians facing a tradeoff between allocating their time to political effort or to an alternative use generating outside earnings. The model has a testable implication stating that the amount of time spent on outside work is negatively related to the degree of electoral competition. We test this implication using a new dataset on outside earnings of members of the German federal assembly. Taking into account the potential endogeneity of measures of political competition that depend on past election outcomes, we find that politicians facing low competition have substantially higher outside earnings.
    Keywords: Outside earnings; Electoral competition
    JEL: D72 J22 J45
    Date: 2008–03–12
  4. By: Gagliarducci, Stefano (CEMFI, Madrid); Nannicini, Tommaso (Universidad Carlos III, Madrid); Naticchioni, Paolo (University of Rome La Sapienza)
    Abstract: Theory predicts that the majoritarian electoral system should produce more targeted redistribution and lower politicians’ rents than proportional representation. We test these predictions using micro data for the mixed-member Italian House of Representatives, which allow us to sidestep the identification problems of previous studies based on country-level data. In particular, we address the nonrandom selection into different electoral systems by exploiting a distinctive feature of the Italian two-tier elections from 1994 to 2006: candidates could run for both the majoritarian and the proportional tier, but if they won in both tiers they had to accept the majoritarian seat. Focusing on elections decided by a narrow margin allows us to generate quasi-experimental estimates of the impact of the electoral rule. The main results confirm theoretical predictions, as majoritarian representatives put forward a higher proportion of bills targeted at local areas and show lower absenteeism rates than their proportional colleagues.
    Keywords: electoral rule, politicians, targeted redistribution, rent-seeking, regression discontinuity design, treatment effect
    JEL: C20 D72 D78 P16
    Date: 2008–02
  5. By: Arulampalam, Wiji (University of Warwick); Dasgupta, Sugato (Jawaharlal Nehru University); Dhillon, Amrita (University of Warwick); Dutta, Bhaskar (University of Warwick)
    Abstract: We construct a model of redistributive politics where the central government is opportunistic and uses its discretion to make transfers to state governments on the basis of political considerations. These considerations are the alignment between the incumbent parties at the central and state levels and whether a state is a swing state or not. A testable prediction from the model is that a state that is both swing and aligned with the central government is especially likely to receive higher transfers. We test this prediction using Indian data for 14 states from 1974-75 to 1996-97. We find that a state which is both aligned and swing in the last state election is estimated to receive 16% higher transfers than a state which is unaligned and non-swing.
    Keywords: redistributive politics, alignment, swing, electoral competition
    JEL: C72 D72
    Date: 2008–02
  6. By: Benno Torgler
    Abstract: The literature on social capital has strongly increased in the last two decades, but there still is a lack of substantial empirical evidence about the determinants of international trust. This empirical study analyses a cross-section of individuals, using micro-data from the World Values Survey, covering 38 countries, to investigate trust in international organizations, specifically in the United Nations. In line with previous studies on international trust we find that political trust matters. We also find that social trust is relevant, but contrary to previous studies the results are less robust. Moreover, the paper goes beyond previous studies investigating also the impact of geographic identification, corruption and globalization. We find that a higher level of (perceived) corruption reduces the trust in the UN in developed countries, but increases trust in developing and transition countries. A stronger identification with the world as a whole also leads to a higher trust in the UN and a stronger capacity to act globally in economic and political environment increases trust in the UN.
    Keywords: International Organizations, United Nations, International Trust, Political Trust, Social Trust, Corruption, Globalization
    JEL: Z13 D73 O19
    Date: 2007–12
  7. By: Christopher Blattman (Center for Global Development & Yale University)
    Abstract: What is the political legacy of violent conflict? This paper presents evidence for a link between war, violence and increased individual political participation and leadership among former combatants and victims of violence, and uses this link to understand the deeper determinants of individual political behavior. The setting is northern Uganda, where rebel recruitment methods generated quasiexperimental variation in who became a rebel conscript and who did not. Original survey data shows that the exogenous element of conscription (by abduction) leads to significantly greater political participation later in life. The principal determinant of this increased political participation, moreover, appears to be war violence experienced. Meanwhile, abduction and violence do not appear to affect multiple nonpolitical types of community participation. I show that these patterns are not easily explained by models of participation based on simple rational preferences, social preferences, mobilization by elites, or information availability. Only ‘expressive’ theories of participation appear consistent with the patterns observed, whereby exposure to violence augments the value a person places on the act of political expression itself. The implications for general theories of political participation are discussed.
    Date: 2008–01
  8. By: Oliveros, Santiago
    Abstract: We study aggregation of information when voters can collect information of different precision, with increased precision entailing an increasing marginal cost. In order to properly understand the incentives to collect information we introduce another dimension of heterogeneity: on top of the ideological dimension we allow for different levels of intensity in preferences. Contrary to traditional models of endogenous information, in equilibrium, there are voters that use signals of different qualities. Our strategy to show existence allows us to deal with 1) different voting rules, 2) asymmetric priors, and 3) asymmetric distribution of types. After characterizing all symmetric Bayesian equilibria in pure strategies, we show that information aggregation implies a very unique relation between the parameters of the electorate and the voting rule. In a sense, information aggregation is a knife edge result: it is not robust to small changes in the electorate. We also show that, under the same symmetric conditions in Martinelli's (2006) more specialized model, the Condorcet Jury Theorem holds under the same cost conditions.
    Keywords: Endogenous Information; Aggregation of Information; Heterogeneity.
    JEL: D71 D72 D82
    Date: 2077–10–11
  9. By: Racem Mehdi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, ESSECT - Université de Tunis)
    Abstract: The purpose of this paper is to examine the international trade cooperation in order to determine the sustainable cooperative tariff rates in a political economy perspective. This paper establishes a tariff-setting game among two countries as a two-phase game : negotiation phase and implementation phase. Our results show the following points. First, the sustainable cooperative tariff rate depends on the political weight placed by government on domestic import-competing industry, on the political influence of the foreign export industry and on the economic stakes of domestic tariff policy in these two sectors. Second, international cooperation is sustainable when governments involved in tariff negotiation are patient enough. Third, difference in patience affects the relative bargaining power of governments.
    Keywords: Trade negotiation, political economy, repeated game.
    Date: 2008–03
  10. By: Sebastian Eckardt
    Abstract: What makes governments tick? Why are some public institutions more successful than others in managing resources and delivering services? And even more vitally, how can malfunctioning institutions be reformed so that they perform their responsibilities more effectively? This paper contributes to our understanding of theses overarching questions by exploring the interactions between political institutions and public sector performance in the context of decentralization and local governance. It shows -both theoretically and empirically- that performance outcomes are determined by the extent to which people can hold their governments accountable through political institutions. The basic hypothesis underlying this research is that political accountability, either by encouraging sanctions upon non-compliant public agents or simply by reducing the informational gap regarding government activities, will create forceful incentives for elected officials and civil servants to reduce opportunistic behavior and improve performance. Using a cross-sectional regression the hypothesis is empirically tested against evidence from newly empowered local governments in Indonesia. The empirical findings broadly support our hypotheses. Improved public services on the ground, both in terms of quantity and quality, require informed and well functioning decision making processes that allocate resources to priority areas that meet the demand of the broader community.
    Keywords: governance, public services, fiscal decentralization
    JEL: D2 D7 H2 H7 O1
    Date: 2007–02
  11. By: Dahlberg, Matz (IFAU - Institute for Labour Market Policy Evaluation); Mörk, Eva (IFAU - Institute for Labour Market Policy Evaluation)
    Abstract: Do governments increase public employment in election years? This paper investigates this question by using data from Sweden and Finland, two countries that are similar in many respects but in which local elections are held at different points in time. We can thereby separate an election effect from other time effects. Our results indicate that there is a statistically significant election year effect in local public employment, a production factor that is highly visible in the welfare services provided by the local governments in the Scandinavian countries. The effect also seems to be economically significant; the municipalities employ 0.6 more full-time employees per 1,000 capita in election years than in other years (which correspond to an increase by approximately 1 percent).
    Keywords: Election cycle; public employment; exogenous elections
    JEL: D72 H72 P16
    Date: 2008–03–10
  12. By: Allam, Miriam S.,; Achim Goerres
    Abstract: Abstract Abstract This paper reflects on the literature on courts and politics in Europe and the United States. US-American Political Science has dealt for over fifty years with the role of courts and judges as political actors, whereas this perspective has only recently emerged in Europe. The debates differ not only with regard to the number of articles written, but also with regard to their content. This paper discusses the different research perspectives that are being pursued on both sides of the Atlantic. While a major part of the US-American literature investigates the politics of judicial action and the politicization of the legal system, research on European courts confines itself to analyzing the effects of judicial action, often describing them in terms of juridification. Based on a review of the existing literature, this paper suggests that European scholars ought to take crucial assumptions of the US-American research tradition more seriously. Zusammenfassung Zusammenfassung Abstract The new EU member states in Central and Eastern Europe achieved an economic and political tour de force on their way to EU accession. Their next challenge is the entry to the eurozone. Thus, the dynamics of public opinion toward the euro become crucial for political leaders. We test three perspectives − economic, political, and historical-ideational − with individual-level survey data from eight countries and conclude that the combined model best explains variations in support for the euro. In an environment of volatility in post-communist Europe, macro variables of economic and historicalideational factors have the strongest impact on individual attitudes, while micro-variables of economic self-interest do not further our understanding of euro support. Thus, distributional issues matter less than the aggregate national performance and experience. Political parties that garner support for the euro should therefore concentrate on economic consolidation and political stability rather than politicizing a winner−loser cleavage. Zusammenfassung Unter gewaltigen Anstrengungen haben es die postkommunistischen Regierungen in Ost- und Mitteleuropa geschafft, ihre Länder sicher zum EU-Beitritt zu führen. Als Nächstes sehen sie sich mit der Einführung des Euro als Gemeinschaftswährung konfrontiert. Infolgedessen wird für demokratische Politiker die öffentliche Meinung über die Euro-Einführung enorm wichtig. Wir testen drei theoretische Schulen (ökonomisch, politisch und historisch) in Bezug auf ihre Erklärungskraft für das Verständnis individueller Einstellungen zum Euro. Als empirische Evidenz dienen uns individuelle Umfragedaten aus acht Ländern. Wir stellen fest, dass bei dem kombinierten Modell aller Theorieschulen der Verständnisgewinn am größten ist. Im Kontext postkommunistischer Volatilität haben auf der gesellschaftlichen Ebene die wirtschaftlichen und historischen Faktoren den größten Einfluss. Auf der Individualebene haben die Variablen, die materielles Eigeninteresse messen, nur geringe Aussagekraft. Folglich sind nicht die wirtschaftlichen Verteilungswirkungen der Euro-Einführung und diesbezügliche Erwartungen, sondern die nationale Performanz und historische Erfahrung von Bedeutung. Politische Parteien sollten sich deswegen bei ihren Versuchen, demokratische Unterstützung für die Euro-Einführung zu sammeln, auf wirtschaftliche Konsolidierung und politische Stabilität konzentrieren und nicht eine Konfliktlinie zwischen Gewinnern und Verlierern der Euro-Einführung politisieren
    Keywords: European identity; public opinion; currency; economic integration; EMU; EMU; Euro; East-Central Europe; East-Central Europe; political science; economics
    Date: 2008–03–05
  13. By: Benno Torgler
    Abstract: This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme) and the macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy.
    Keywords: Tax Morale, Shadow Economy, Tax Compliance, Tax Evasion, Direct Democracy, LocalAutonomy
    JEL: H26 H73 D70
    Date: 2007–12
  14. By: Pinotti, Paolo
    Abstract: This paper investigates the importance of cultural traits for understanding the causes and consequences of government intervention in the economy. First, it presents a simple model in which, under reasonable assumptions about the structure of the economy and the individual values and beliefs, more trustful individuals prefer lower product market regulation. This theoretical prediction is supported by evidence from international survey data. Second, it shows that, if trust predicts trustworthiness across countries, lower honesty would drive both greater regulation and higher incidence of illegal activities. It follows that some of the negative effects usually associated with government intervention may indeed be a consequence of underlying cultural traits. In particular, evidence from cross-country data suggests that a large part of the effect of regulation on corruption and unofficial activity estimated in previous studies can be attributed to omitted variation in trust and honesty.
    Keywords: trust; honesty; regulations; corruption; unofficial economy
    JEL: L51 D02 Z10 K42
    Date: 2008–03
  15. By: Jens Steffek
    Abstract: In the literature on European and global governance there is a trend to conceptualize ‘public accountability’ as accountability to national executives, to peers, to markets, to ombudsmen, or to courts. While the empirical analysis of multiple accountability relations within governance networks has its merits the creeping re-conceptualization of ‘public accountability’ as an umbrella term tends to obfuscate one crucial dimension of it: the critical scrutiny of citizens and the collective evaluation of governance through public debate. This paper critically discusses the advance of managerial and administrative notions of accountability into international governance and advocates a return to a narrow conception of public accountability as accountability to the wider public. It then proceeds to investigate the public sphere of European and global governance, its actors, achievements and shortcomings, in order to assess the prospects for public accountability beyond the state. Evidence is found to support the claim that the transnational public sphere is capable of putting pressure on governance institutions in case of massive maladministration, and of generating and promoting new political concerns and demands that in turn are taken up by the institutions of governance.
    Keywords: accountability; European public space; governance; institutions; networks
    Date: 2008–02–15
  16. By: Elie Appelbaum (York University, Canada)
    Abstract: This paper examines the interaction between root causes, domestic policy considerations and the use of extremism as a strategic tool in an external conflict. Within a two-country three-stage game, we show that, in general, domestic policies will be used strategically to achieve the desired level of extremism. We also show that the level of extremism decreases and social/economic conditions improve when a country becomes wealthier, more powerful, more socially concerned, less nationalistic, relatively less concerned with external considerations and when the value of the contested asset decreases. These effects are due to external strategic considerations, rather than domestic ones.
    Keywords: Extremism, Root Causes, Credible Threats, Bargaining, Power, Social/Economic Conditions
    JEL: C78 D74
    Date: 2008–01
  17. By: Barry Eichengreen; Douglas A. Irwin
    Abstract: While many political scientists and diplomatic historians see the Bush presidency as a distinctive epoch in American foreign policy, we argue that there was no Bush Doctrine in foreign economic policy. The Bush administration sought to advance a free trade agenda but could not avoid the use of protectionist measures at home -- just like its predecessors. It foreswore bailouts of financially-distressed developing countries yet ultimately yielded to the perceived necessity of lending assistance -- just like its predecessors. Not unlike previous presidents, President Bush also maintained a stance of benign neglect toward the country's current account deficit. These continuities reflect long-standing structures and deeply embedded interests that the administration found impossible to resist. We see the next administration as having to address many of the same problems subject to the same constraints. The trade policy agenda will evolve slowly, with questions about the viability of multilateral liberalization under the WTO and the degree to which labor and environmental conditions can be included in trade agreements. Policy toward China will continue to confront difficult choices: even if it succeeds in pressuring the country to reduce its accumulation of dollar reserves, thereby easing the current account imbalance with the United States, this may only imply a more difficult market for U.S. Treasury debt and higher interest rates at home. Continuity will therefore remain the rule.
    JEL: F0
    Date: 2008–03

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