nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒07‒05
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Democratization and Growth By Elias Papaioannou; Gregorios Siourounis
  2. Essays on Political Economy By Paulo Melo-Filho
  3. Political Polarization and the Size of Government By Lindqvist, Erik; Östling, Robert
  4. A Political Economy Model of Merger Policy in International Markets By Motta, Massimo; Ruta, Michele
  5. Ambiguity and Extremism in Elections By Alberto F. Alesina; Richard T. Holden
  6. Foreign Influence and Welfare By Antràs, Pol; Padró i Miquel, Gerard
  7. Democracy, Autocracy and the Likelihood of International Conflict By Tangerås, Thomas
  8. Direct Democracy and Local Public Goods: Evidence from a Field Experiment in Indonesia By Benjamin A. Olken
  9. The Political Economics Side of the J-Curve By António Caleiro
  10. An International Perspective on Political Scandals By Weeber, Stan
  11. Macroeconomic imbalances, socio-political instability and public provision: effects on private investment By Constantina Kottaridi; Monica Escaleras
  12. The Politics of Social Policy Reform in the United States: The Clinton and the W. Bush Presidencies Reconsidered By Daniel Béland; Alex Waddan
  13. Openness, Bureaucratic Corruption and Public Policy in an Endogenous Growth Model By Rangan Gupta; Emmanuel Ziramba

  1. By: Elias Papaioannou; Gregorios Siourounis
    Abstract: This paper challenges cross-sectional findings that democracy has a negligible effect on growth. We employ a new dataset of political transitions during the Third Wave of Democratization and examine the within effect of democratization in countries that abandoned autocracy and consolidated representative institutions. The panel estimates imply that on average democratizations are associated with a one half increase in annual per capita growth. The dynamic analysis reveals that: while during the transition growth is slow, in the medium and long run it stabilizes at a higher level. This evidence favours development theories of democratic rule and Friedrich Hayek (1960)’s idea that the merits of democracy appear in the long run..
    Keywords: event study, institutions, political economy, democracy, annual growth.
    Date: 2008
  2. By: Paulo Melo-Filho
    Date: 2008–06–30
  3. By: Lindqvist, Erik (Research Institute of Industrial Economics (IFN)); Östling, Robert (Stockholm School of Economics)
    Abstract: We study the effect of political polarization on government spending and redistribution using the dispersion of self-reported political preferences as our measure of polarization. Politically polarized countries have lower levels of redistribution and government consumption. The relationship between political polarization and the size of government is stronger in democratic countries, indicating that the effect goes through the political system. The results are robust to a large set of controlvariables, including GDP per capita and income inequality.
    Keywords: Political Polarization; Social Cohesion; Ethnic Fractionalization; Social Capital; Size of Government
    JEL: H11 H20 H41
    Date: 2008–05–15
  4. By: Motta, Massimo; Ruta, Michele
    Abstract: This paper looks at the political economy of merger policy under autarky and in international markets. We assume that merger policy is decided by antitrust authorities (whose objective is to maximize welfare) but can be influenced by governments, which are subject to lobbying by the firms (be they insiders or outsiders to the merger). We argue that political economy distortions may explain some of the recently observed merger policy conflicts between authorities and politicians, as well as between institutions belonging to different countries. We illustrate our analysis with applications motivated by recent merger cases, which have been widely debated in the international press.
    Keywords: Antitrust policy; European Union; Lobbying; Mergers
    JEL: D72 F59 H11 L40
    Date: 2008–06
  5. By: Alberto F. Alesina; Richard T. Holden
    Abstract: We analyze a model in which voters are uncertain about the policy preferences of candidates. Two forces affect the probability of electoral success: proximity to the median voter and campaign contributions. First, we show how campaign contributions affect elections. Then we show how the candidates may wish to announce a range of policy preferences, rather than a single point. This strategic ambiguity balances voter beliefs about the appeal of candidates both to the median voter and to the campaign contributors. If primaries precede a general election, they add another incentive for ambiguity, because in the primaries the candidates do not want to reveal too much information, to maintain some freedom of movement in the policy space for the general election. Ambiguity has an option value.
    JEL: H1
    Date: 2008–06
  6. By: Antràs, Pol; Padró i Miquel, Gerard
    Abstract: How do foreign interests influence the policy determination process? What are the welfare implications of such foreign influence? In this paper we develop a model of foreign influence and apply it to the study of optimal tariffs. We develop a two-country voting model of electoral competition, where we allow the incumbent party in each country to take costly actions that probabilistically affect the electoral outcome in the other country. We show that policies end up maximizing a weighted sum of domestic and foreign welfare, and we study the determinants of this weight. We show that foreign influence may be welfare-enhancing from the point of view of aggregate world welfare because it helps alleviate externalities arising from cross-border effects of policies. Foreign influence can however prove harmful in the presence of large imbalances in influence power across countries. We apply our model of foreign influence to the study of optimal trade policy. We derive a modified formula for the optimal import tariff and show that a country's import tariff is more distorted whenever the influenced country is small relative to the influencing country and whenever natural trade barriers between the two countries are small.
    Keywords: balance of powers; electoral competition; externalities; foreign influence; import tariffs; welfare
    JEL: D62 D72 D74 F11 F13 F51 F59 P16
    Date: 2008–06
  7. By: Tangerås, Thomas (Research Institute of Industrial Economics (IFN))
    Abstract: This is a game-theoretic analysis of the link between regime type and international conflict. The democratic electorate can credibly punish the leader for bad conflict outcomes, whereas the autocratic selectorate cannot. For the fear of being thrown out of office, democratic leaders are (i) more selective about the wars they initiate and (ii) on average win more of the wars they start. Foreign policy behaviour is found to display strategic complementarities. The likelihood of interstate war, therefore, is lowest in the democratic dyad (pair), highest in the autocratic dyad with the mixed dyad in between. The results are consistent with empirical findings.
    Keywords: Democracy; Autocracy; War; Maximal Equilibrium
    JEL: D72 D74 D82
    Date: 2008–06–13
  8. By: Benjamin A. Olken
    Abstract: This paper presents an experiment where 48 Indonesian villages were randomly assigned to choose development projects through either representative-based meetings or direct election-based plebiscites. Plebiscites resulted in dramatically higher satisfaction among villagers, increased knowledge about the project, greater perceived benefits, and higher reported willingness to contribute. Changing the political mechanism had much smaller effects on the actual projects selected, with some evidence that plebiscites resulted in projects chosen by women being located in poorer areas. The results show that direct participation in political decision making can substantially increase satisfaction and legitimacy, even when it has little effect on actual decisions.
    JEL: D72
    Date: 2008–06
  9. By: António Caleiro (Department of Economics, University of Évora)
    Abstract: About twenty years ago, an article by van der Ploeg analysed the implications of the J-curve effect for the political business cycle in a small open economy [van der Ploeg (1989c)]. It was then shown that a sudden jump on the exchange rates in the election day should be observed if the government, in order to maximise its popularity, explores a J-curve effect. As a way of celebrating this work, that should have been more influential, it is presented in the paper a simulation study, which confirms that exchange rate overvaluation result a la van der Ploeg.
    Keywords: Exchange rates, J-Curve, Partisan Business Cycles, Political Business
    JEL: E31 E32 F31
    Date: 2008
  10. By: Weeber, Stan
    Abstract: This comparative study of political scandals in Italy, France, Spain, Japan, Russia and the United States led to the development of a sociology-based generalized stage model that is an initial step in explaining why scandals arise and how they are worked through and resolved. A crucial phase is the conflict phase between elites and masses, where potential scandals may die while others accelerate. The question of which events evolve to scandal and which do not is also likely to be worked through in this phase. The norm of reciprocity between officials and the public played a significant role in both scandal acceleration and scandal delimitation.
    Keywords: economics and politics of scandals; comparative study; stage model of scandals; multi-theoretical approach
    JEL: Z10
    Date: 2008–06–30
  11. By: Constantina Kottaridi; Monica Escaleras
    Abstract: Most studies on private investment focus either in the macroeconomic conditions or political conditions to explain private investment patterns. We go a step further and examine empirically the joint effect of macroeconomic imbalances, sociopolitical instability and public provision on private investment using data from 50 developing countries between 1970 and 2000. Our results show that real exchange rate uncertainty and socio-political instability jointly have a negative impact on private investment. Further, our results establish a detrimental effect of public provision when measured as public investment, but a beneficial effect when measured by infrastructure availability. Interesting policy implications stemming from the analysis regard the implementation of macro policies serving to limit excess volatility in relative prices, institutional reforms that lessen social tensions and provision of adequate amount and quality of public infrastructure to enable investment undertaking by lowering investors’ costs.
    Keywords: Private investment, real exchange rate, socio-political instability, public provision
    Date: 2008
  12. By: Daniel Béland; Alex Waddan
    Abstract: The purpose of this paper is to examine what key reform attempts during the Bill Clinton and George W. Bush presidencies reveal about the wider possibilities for social policy change in the United States. Most particularly, why were Presidents Clinton and Bush able to achieve their goals in some policy realms but so badly defeated in others? As argued, institutional variation from one policy area to another helps answer this question. On the one hand, strong institutional obstacles in the fields of Social Security and health insurance largely explain the defeat of the most ambitious social policy proposal put forward by each president. On the other hand, successful reforms occurred in a comparatively favourable institutional context. Yet, the analysis also suggests that paying close attention to the strategic ideas of political actors as they interact with existing institutions and policy legacies is necessary to fully understand the politics of social policy reform.
    Keywords: social policy, Medicare, Social Security, welfare, institutions, United States
    JEL: H55 I38
    Date: 2008–06
  13. By: Rangan Gupta (Department of Economics, University of Pretoria); Emmanuel Ziramba (Department of Economics, University of South Africa)
    Abstract: In this paper, we develop a dynamic general equilibrium overlapping generations monetary endogenous growth model of a financially repressed small open economy characterized by bureaucratic corruption, and, in turn, analyze optimal policy decisions of the government following an increase in the degree of corruption. Unlike as suggested in the empirical literature, we find that increases in the degree of corruption should ideally result in a fall in seigniorage, as an optimal response of the benevolent government. In addition, higher degrees of corruption should also be accompanied with lower levels of financial repression.
    Keywords: Bureaucratic Corruption, Macroeconomic Policy, Openness
    JEL: D73 E63 F43
    Date: 2008–06

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