nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒04‒29
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Secondary Issues and Party Politics: An Application to Environmental Policy By Anesi, Vincent; De Donder, Philippe
  2. Indicators of Electoral Victory By Pablo Amoros; M. Socorro Puy
  3. Social Preferences and Redistribution Under Direct Democracy By Sanjit Dhami; Ali al-Nowaihi
  4. Duality of Power in the European Parliament By František Turnovec
  5. Nation States vs. United Empire: Effects of Political Competition on Economic Growth By Chu, Angus C
  6. Moderating Political Extremism: Single vs. Dual Ballot Elections By Massimo Bordignon; Guido Tabellini
  7. Impact of the 1999 Earthquakes on the Outcome of the 2002 Parliamentary Election in Turkey By Akarca, Ali T.; Tansel, Aysit
  8. Fast Track Authority and International Trade Negotiations By Conconi, Paola; Facchini, Giovanni; Zanardi, Maurizio
  9. The Political Economy of Growth: A Review By Hazama, Yasushi
  10. Political economics and normative analysis By Colin Jennings; Iain McLean
  11. Democracy, Diversification, and Growth Reversals By Cuberes, David
  12. Women's Liberation: What's in It for Men? By Doepke, Matthias; Tertilt, Michèle
  13. Effective Political Contests By Kaplan, Todd; Sela, Aner
  14. Civil Conflict, Federalism and Strategic Delegation of Leadership By Colin Jennings; Hein Roelfsema
  15. The economics of Communist Party membership - The Curious case of rising numbers and wage premium during China’s transition By Appleton, Simon; Song , Lina; Knight, John; Xia, Qingjie
  16. Does Membership in International Organizations Increase Governments’ Credibility? Testing the Effects of Delegating Powers By Axel Dreher; Stefan Voigt

  1. By: Anesi, Vincent; De Donder, Philippe
    Abstract: The paper develops a political economy model to assess the interplay between political party formation and an environmental policy dimension viewed as secondary to the redistributive dimension. We define being a secondary issue in terms of the intensity of preferences over this issue rather than in terms of the proportion of voters who care for the environment. We build on Levy (2004) for the political equilibrium concept, defined as the solution to a two stage game where politicians first form parties and where parties then compete by choosing a policy bundle in order to win the elections. We obtain the following results: i) The Pigouvian tax never emerges in an equilibrium; ii) The equilibrium environmental tax is larger when there is a minority of green voters; iii) Stable green parties exist only if there is a minority of green voters and income polarization is large enough relative to the saliency of the environmental issue. We also study the redistributive policies advocated by green parties.
    Keywords: electoral competition; income polarization; party formation; salience; stable green party
    JEL: D72 H23
    Date: 2008–04
  2. By: Pablo Amoros (Department of Economic Theory, Universidad de Málaga); M. Socorro Puy (Department of Economic Theory, Universidad de Málaga)
    Abstract: We study a two-party contest where candidates strategically allocate their campaign resources between two salient issues. We analyze to what extent the following indicators of a party's success predict the electoral victory: (1) the pre-campaign advantage, (2) the advantage on every salient issue, and (3) the advantage on campaign resources. We show that the electoral victory is guaranteed only when a party has a "sufficiently large" advantage on every salient issue. Otherwise no combination of these indicators ensures the electoral victory.
    Keywords: Election campaign, salient issues, majority voting
    JEL: D72 C70
    Date: 2008–04
  3. By: Sanjit Dhami; Ali al-Nowaihi
    Abstract: There is growing evidence on the roles of fairness and social preferences as fundamental human motives, in general, as well as in voting contexts. In contrast, models of political economy are based on selfish-voters who derive utility solely from 'own' payoff. We examine the implications of introducing voters with social preferences, as in Fehr and Schmidt (1999), in a simple general equilibrium model with endogenous labour supply. We demonstrate the existence of a Condorcet winner for voters, with heterogeneous social preferences (including purely selfish preferences), using the single crossing property of voters’ preferences. Relatively small changes in the preference of voters can have relatively large redistributive consequences. We implications for the size of the welfare state; regional integration; and issues of culture, identity and immigration.
    Keywords: Direct democracy; redistribution; other-regarding preferences; single-crossing property
    JEL: D64 D72 D78
    Date: 2008–04
  4. By: František Turnovec (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Increasing number of studies is focusing attention to constitutional analysis of European Union institutions and distribution of intra-institutional and inter-institutional influence in the European Union decision making. Most of the studies are related to distribution of voting power in the EU Council of Ministers as reflecting the influence of member states (or, more precisely, member states governments). Significantly less attention is paid to the analysis of European Parliament (EP). In this paper we address the following question: Taking as decisional units national chapters of European political parties, is there a difference between a priori voting power of national groups in the case of “national” coordination of voting and in the case of “partisan” coordination of voting? By coordination of voting we mean two step process: in the first step there is an internal voting in the groups of units (national or partisan), in the second step there is a voting of aggregated groups (European political parties or national representations) in the EP. In the both cases the voting has an ideological dimension (elementary unit is a party), difference is only in dimension of aggregation. Power indices methodology is used to evaluate voting power of national party groups in the cases of partisan and national coordination of voting behaviour.
    Keywords: a priori voting power, European Parliament, European political parties, power indices, Shapley-Shubik power index
    JEL: D71 D74
    Date: 2008–04
  5. By: Chu, Angus C
    Abstract: Is the European nation-state system more favorable to economic growth than the united-empire system in ancient China? This paper develops an endogenous-growth model to analyze the conditions under which economic growth is higher under political fragmentation than political unification. Under political unification, the economy is vulnerable to excessive Leviathan taxation and the costs of unifying heterogeneous populations. Under political fragmentation, the competing rulers are constrained in taxation but spend excessively on military defense. If and only if the heterogeneity costs are sufficiently high relative to the mobility cost of citizens or equilibrium defense spending, then political fragmentation would be more favorable to growth than political unification. When the political regime is endogenously chosen by rulers, they do not always choose the growth-maximizing regime. In particular, there exists a range of values for the heterogeneity costs, in which political fragmentation is more favorable to growth but the rulers prefer political unification.
    Keywords: endogenous growth; Leviathan taxation; interstate competition; endogenous political regime
    JEL: H20 O43 H56
    Date: 2008–04–18
  6. By: Massimo Bordignon; Guido Tabellini
    Date: 2008–04–18
  7. By: Akarca, Ali T. (University of Illinois at Chicago); Tansel, Aysit (Middle East Technical University)
    Abstract: The two major earthquakes which struck northwestern Turkey in 1999, not only caused enormous amounts of death, destruction and suffering, but also exposed rampant government corruption involving construction and zoning code violations. The incompetence shown by the government in providing relief, the corruption allegations in regards to those efforts, and government’s failure to prosecute corrupt officials and businessmen, further angered the public. How voters responded to these in the 2002 parliamentary election is investigated, using cross-provincial data, and controlling for other social, political and economic factors. Our results show that voters held accountable all of the political parties which participated in governments during the last decade or so, and not just the incumbents in 2002. The party in charge of the ministry responsible for earthquake relief, and parties that served longest and controlled more of the city administrations in the quake zone were blamed more. The newly formed Justice and Development Party (AKP) was the beneficiary of the votes lost by these parties. The sensitivity shown by the electorate to real and perceived corruption implies that corruption problem will be tractable in Turkey, and can be reduced through increased transparency and democratization.
    Keywords: Turkey, earthquake, corruption, election, party preference
    JEL: D72 D73 Q54
    Date: 2008–04
  8. By: Conconi, Paola; Facchini, Giovanni; Zanardi, Maurizio
    Abstract: Fast Track Authority (FTA) is the institutional procedure in the Unites States whereby Congress grants to the President the power to negotiate international trade agreements. Under FTA, Congress can only approve or reject negotiated trade deals, with no possibility of amending them. In this paper, we examine the determinants of FTA voting decisions and the implications of this institutional procedure for trade negotiations. We describe a simple two-country trade model, in which industries are unevenly distributed across constituencies. In the foreign country, trade negotiating authority is delegated to the executive, while in the home country Congress can retain the power to amend trade agreements. We show that legislators’ FTA voting behavior depends on the trade policy interests of their own constituencies as well as those of the majority of Congress. Empirical analysis of the determinants of all FTA votes between 1974 (when fast track was first introduced) and 2002 (when it was last granted) provides strong support for the predictions of our model.
    Keywords: Fast Track Authority; Strategic Delegation; Trade Negotiations
    JEL: D72 F13
    Date: 2008–04
  9. By: Hazama, Yasushi
    Abstract: This cursory literature review discusses the direct and indirect effects of institutions, governance, and democracy on economic growth, and the following conclusions are drawn. First, institutions and governance have a positive effect on growth. Even reforms that are less than comprehensive can stimulate, though not sustain, growth. Second, democracy neither promotes nor hampers growth directly. It secures stability and resilience in growth. It also exerts impacts on sources of growth but its net effect remains inconclusive. There remains unanswered the question of why institutions and governance matter but not democracy does not. The difference may be partly due to negative effects on investment and labor supply as well as the low credibility of young or partial democracies.
    Keywords: Economic growth, Institutions, Governance, Democracy, Politics
    JEL: O43
    Date: 2008–03
  10. By: Colin Jennings; Iain McLean (Department of Economics, University of Strathclyde; Nuffield College, University of Oxford)
    Abstract: The approaches and opinions of economists often dominate public policy discussion. Economists have gained this privileged position partly (or perhaps mainly) because of the obvious relevance of their subject matter, but also because of the unified methodology (neo-classical economics) that the vast majority of modern economists bring to their analysis of policy problems and proposed solutions. The idea of Pareto efficiency and its potential trade-off with equity is a central idea that is understood by all economists and this common language provides the economics profession with a powerful voice in public affairs. The purpose of this paper is to review and reflect upon the way in which economists find themselves analysing and providing suggestions for social improvements and how this role has changed over roughly the last 60 years. We focus on the fundamental split in the public economics tradition between those that adhere to public finance and those that adhere to public choice. A pure public finance perspective views failures in society as failures of the market. The solutions are technical, as might be enacted by a benevolent dictator. The pure public choice view accepts (sometimes grudgingly) that markets may fail, but so, it insists, does politics. This signals institutional reforms to constrain the potential for political failure. Certain policy recommendations may be viewed as compatible with both traditions, but other policy proposals will be the opposite of that proposed within the other tradition. In recent years a political economics synthesis emerged. This accepts that institutions are very important and governments require constraints, but that some degree of benevolence on the part of policy makers should not be assumed non-existent. The implications for public policy from this approach are, however, much less clear and perhaps more piecemeal. We also discuss analyses of systematic failure, not so much on the part of markets or politicians, but by voters. Most clearly this could lead to populism and relaxing the idea that voters necessarily choose their interests. The implications for public policy are addressed. Throughout the paper we will relate the discussion to the experience of UK government policy-making.
    Keywords: public finance; public choice; political economics; normative analysis
    JEL: D6 D7
    Date: 2008–03
  11. By: Cuberes, David
    Abstract: There exists convincing evidence that democratic countries are less volatile. This conclusion is usually reached with respect to volatility as measured by the standard deviation of annual growth rates of per capita GDP which includes both low and high frequency fluctuations. However, recently several studies have documented that significant changes in trend-growth, such as growth accelerations that last a decade or similar periods of negative growth, are quite common. In this paper we ask whether democracy also has a stabilizing effect on trend-volatility, i.e. whether more democratic countries experience fewer and milder swings of trend-growth. We find a common phenomenon medium term reversals of growth, that is periods of exceptionally high growth are, on average, followed by periods of exceptionally low growth, and vice versa. The propensity to experience large swings of trend growth is not uniform across countries-less democratic countries are more susceptible to it. When compared with factors commonly associated with volatility such as measures of quality of institutions, macroeconomic policies and financial development, we find that democracy is the most robust predictor of a country's propensity for growth reversals. We construct a model in which non-democracies have high barriers of entry for new firms. This leads to less sectoral diversification: fewer sectors are operated but more resources are channeled to each. In an uncertain environment this leads to infrequent but large growth accelerations when one of the few sectors operated is successful. However, these accelerations are followed by large declines when fortunes change in favor of the missing sectors. We present empirical evidence that confirms the positive relationship between democracy and industrial diversification.
    Keywords: Democracy; growth reversals; diversification; structural breaks
    JEL: O11 O43 O16 O57
    Date: 2008–04–23
  12. By: Doepke, Matthias; Tertilt, Michèle
    Abstract: The nineteenth century witnessed dramatic improvements in the legal rights of married women. Given that these changes took place long before women gained the right to vote, they amounted to a voluntary renouncement of power by men. In this paper, we investigate men's incentives for sharing power with women. In our model, women's legal rights set the marital bargaining power of husbands and wives. We show that men face a tradeoff between the rights they want for their own wives (namely none) and the rights of other women in the economy. Men prefer other men's wives to have rights because men care about their own daughters and because an expansion of women's rights increases educational investments in children. We show that men may agree to relinquish some of their power once technological change increases the importance of human capital. We corroborate our argument with historical evidence on the expansion of women's rights in England and the United States.
    Keywords: Economic Growth; Human Capital; Political Economy; Return to Education; Women's Rights
    JEL: D13 E13 J16 N30 O43
    Date: 2008–04
  13. By: Kaplan, Todd; Sela, Aner
    Abstract: We study two-stage political contests with private entry costs. We show that these political contests could be ineffective, namely, the chance of low ability candidates participating in the contest might be higher than the chance of high ability candidates participating in the contest (and winning). However, by imposing a costly requirement (fee) on the winner of the contest, one can guarantee that the contest will be effective.
    Keywords: All-pay auctions; Contests; Entry costs
    JEL: D44 O31 O33
    Date: 2008–04
  14. By: Colin Jennings (Department of Economics, University of Strathclyde); Hein Roelfsema (Utrecht School of Economics, Utrecht University)
    Abstract: This article analyses negative externalities that policy makers in one region or group may impose upon the citizens of neighbouring regions or groups. These externalities may be material, but they may also be psychological (in the form of envy). The latter form of externality may arise from the production of "conspicuous" public goods. As a result, decentralized provision of conspicuous public goods may be too high. Potentially, a centralized legislature may internalize negative externalities. However, in a model with strategic delegation we argue that the median voter in each jurisdiction may anticipate a reduction in local public goods supply and delegates to a policymaker who cares more for public goods than she does herself. This last effect mitigates the expected benefits of policy centralization. The authors' theory is then applied to the setting of civil conflict, where they discuss electoral outcomes in Northern Ireland and Yugoslavia before and after significant institutional changes which affected the degree of centralization. These case studies provide support for the authors' theoretical predictions.
    Keywords: conflict; federalism; strategic delegation
    JEL: D72 D74 H77
    Date: 2008–03
  15. By: Appleton, Simon; Song , Lina; Knight, John; Xia, Qingjie
    Abstract: Why is it that, as the Chinese Communist Party has loosened its grip, abandoned its core beliefs, and marketized the economy, its membership has risen markedly along with the economic benefits of joining? We use three national household surveys, spanning eleven years, to answer this question with respect to labour market rewards in urban China. We conceptualize individual demand for Party membership as an investment in “political capital” that brings monetary rewards in terms of higher wages. This wage premium has risen with the growing wage differentials associated with the emergence of a labour market and the continuing value of political status in the semi-marketized transitional economy. However, a demand-side explanation does not explain the fact that the wage premium is higher for the personal characteristics that reduce the probability of membership. We develop an explanation in terms of a rationing of places and a scarcity value for members with those characteristics.
    Keywords: China; Communist Party; labour market; economic transition; wages
    JEL: J08 J31
    Date: 2006
  16. By: Axel Dreher (KOF Swiss Economic Institute, ETH Zurich); Stefan Voigt (MACIE (Marburg Center for Institutional Economics), Marburg, Germany)
    Abstract: This paper analyzes whether nation-state governments can increase their credibility by becoming members of international organizations. Credibility is an important asset because it determines the real interest rate and is expected to have an important impact on investment and growth. It is hypothesized that the degree of delegation to international organizations can improve the credibility of nation-state governments. This hypothesis is tested by introducing three new indicators for international delegation. On the basis of panel data for up to 136 countries and the time period from 1984 to 2004, membership in international organizations is significantly and robustly linked with better credibility, here proxied for by country risk ratings. Two more results stand out: the longer a country has had a high level of membership, the higher its credibility, ceteris paribus; and: the credibility-enhancing effect is strongest in countries whose domestic institutions are weak.
    Keywords: Delegation of Competence, Credibility, Dilemma of the Strong State, International Organizations
    JEL: F02 F21 H11 K33 P26
    Date: 2008–04

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