nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒10‒07
fifteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Tribalism as a Minimax-Regret Strategy: Evidence from Voting in the 2007 Kenyan Elections By Mwangi S. Kimenyi; Roxana Gutierrez Romero
  2. Historical Origins of Schooling: The Role of Democracy and Political Decentralization By Francisco Gallego
  3. Identity, Grievances, and Economic Determinants of Voting in the 2007 Kenyan Elections By Mwangi S. Kimenyi; Roxana Gutierrez Romero
  4. I Will Survive: Capital Taxation, Voter Turnout and Time Inconsistency By Matteo Bassi
  5. Strategic Registration of Voters: The Chilean Case By Giacomo De Luca
  6. Lobbying, Corruption and Other Banes By Nauro F. Campos; Francesco Giovannoni
  7. Politician's Reputation and Policy (Un)persistence By Iconio Garrì
  8. International Migration and the Role of Institutions By Graziella Bertocchi; Chiara Strozzi
  9. An Egg Today and a Chicken Tomorrow: A Model of Social Security with Quasi-Hyperbolic Discounting By Matteo Bassi
  10. International Coordination and Domestic Politics By Kimiko Terai
  11. Historical Political Futures Markets: An International Perspective By Paul W. Rhode; Koleman Strumpf
  12. The Enfranchisement of Women and the Welfare State By Graziella Bertocchi
  13. Voting in the European Union - Central Europe’s lost voice By Ondřej Schneider
  14. Immigration and natives' attitudes towards the welfare state: Evidence from the European Social Survey By Claudia Senik; Holger Stichnoth; Karine Van der Straeten
  15. Impact of Macroeconomic, Political, and Institutional Factors on the Structure of Government Debt in Emerging Market Countries By Anastasia Guscina

  1. By: Mwangi S. Kimenyi (University of Connecticut); Roxana Gutierrez Romero (University of Oxford)
    Abstract: Although many studies find that voting in Africa approximates an ethnic census in that voting is primarily along ethnic lines, hardly any of the studies have sought to explain ethnic voting following a rational choice framework. Using data of voter opinions from a survey conducted two weeks before the December 2007 Kenyan elections, we find that the expected benefits associated with a win by each of the presidential candidates varied significantly across voters from different ethnic groups. We hypothesize that decision to participate in the elections was influenced by the expected benefits as per the minimax-regret voting model. We test the predictions of this model using data of voter turnout in the December 2007 elections and find that turnout across ethnic groups varied systematically with expected benefits. The results suggest that individuals participated in the elections primarily to avoid the maximum regret should a candidate from another ethnic group win. The results therefore offer credence to the minimax regret model as proposed by Ferejohn and Fiorina (1974) and refute the Downsian expected utility model.
    Keywords: Economics of Voting, Voting Paradox, Minimax-regret, Ethnic Divisions
    JEL: D72
    Date: 2008–06
  2. By: Francisco Gallego (Instituto de Economía. Pontificia Universidad Católica de Chile.)
    Abstract: Why does schooling attainment vary widely across countries? Why are differences in schooling attainment highly persistent? I show that cross-country differences in schooling are related to political institutions, such as democracy and local democracy (political decentralization), which are affected by colonial factors. By using the number of native cultures before colonization as an instrument for political decentralization, I show that, after controlling for the causal effect of income on schooling, the degree of democratization positively affects the development of primary education, whereas political decentralization has a positive and significant impact on more advanced levels of schooling.
    Keywords: Schooling, Political Decentralization, Democracy, Institutions, Colonialism, School Decentralization.
    JEL: I2 N3 O15
    Date: 2008
  3. By: Mwangi S. Kimenyi (University of Connecticut); Roxana Gutierrez Romero (University of Oxford)
    Abstract: What might have caused the post-2007 election violence in Kenya? Was it election irregularities as widely claimed or could it have been simmering ethnic-rivalries waiting to spill over? While not directly focusing on the post-election violence, we investigate a number of issues that divided Kenyans in the 2007 Presidential election. Following a rational choice framework and using survey data of voter opinions, we find that Kenyan voters are strategic, seeking to maximize their well-being and influenced by a number of factors that go beyond their ethnicity such as their absolute and relative living standards, access to public goods and also grievances arising from perceptions of discrimination. The evidence suggests that Kenyan voting behavior is economically motivated, with retrospective interests, thus contrasting other studies that consider Kenyans to be wholly identity voters. The study also reveals significant heterogeneity depending on the voters' primary loci of identification-- either in terms of their ethnicity, occupation or nationalistic terms (Kenyans). The apparent ethnic divisions have resulted in a polarized society with consequential weakening of the institutional base for economic development. The study points to the necessity of institutional reforms that can better harmonize ethnic claims and avert conflicts in the future.
    Keywords: Election, Economics of Voting, Ethnic Divisions, Conflict
    JEL: D72 D74
    Date: 2008–09
  4. By: Matteo Bassi (Università di Salerno, CSEF Toulouse School of Economics (GREMAQ))
    Abstract: This paper reconsiders the debate around the political determination of capital income taxes and explains why such taxes survive in most OECD countries. The political economy literature on redistributive politics (Persson and Tabellini 2003) emphasizes the role played by the lower class in the political arena: being labor more concentrated than capital, the majority of the population benefits by overtaxing capital and undertaxing labour. However, in reality, political participation (voting, lobbying, protesting etc.) is positively correlated with income. Therefore, a paradoxical result emerges: why do the upper class, who is politically more active and own most of the capital, still favour a positive capital tax? Hence, voters' income is not the sole relevant variable in the political determination of the capital tax. To reconcile this apparent puzzle, we propose a model that incorporates time inconsistency à la Laibson in individual preferences We show that time inconsistent individuals are politically more homogeneous (or “single-minded”) than far-sighted, and prefer to tax more capital income, instead of labor income, since accumulated saving are below the planned (and optimal) level and the distortionary effects of a higher capital tax are not only reduced but also delayed in time. We demonstrate that, since politicians find easier to please hyperbolic voters by proposing a tax policy that includes lower labor and higher capital taxes compared to an economy with only far sighted. Moreover, we show that, as the proportion of time inconsistent individuals in the population increases, the tax policy becomes more and more biased towards capital taxation.
    Keywords: Political Economy, Multidimensional Voting, Capital Taxation, Redistribution, Hyperbolic Discounting
    JEL: A12 D72 H21 H24 H31
    Date: 2008–09–26
  5. By: Giacomo De Luca
    Abstract: In this paper we investigate how the employment relationship, if it implies transfer of rents, may allow employers to control the voting behavior of their workers and lead to strategic registration of voters. This is feasible when individual voting behavior is observable, as in open ballot elections. More easily controlled voters are more likely registered providing an even larger impact of vote controlling on election results. Making individual vote truly secret (for instance with the adoption of a secret ballot) significantly reduces this control. Moreover, we show that as long as electoral districts are heterogeneous enough, i.e., contain also free voters, any attempt to control votes on the basis of district aggregate results is bound to fail. We test the predictions of the model by examining in detail the effects of the introduction of thesecret ballot in Chile in 1958.
    Date: 2008–06
  6. By: Nauro F. Campos; Francesco Giovannoni
    Abstract: Although the theoretical literature often uses lobbying and corruption synonymously, the empirical literature associates lobbying with the preferred mean for exerting influence in developed countries and corruption with the preferred one in developing countries. This paper challenges these views. Based on whether influence is sought with rule-makers or rule-enforcers, we develop a conceptual framework that highlights how political institutions are instrumental in defining the choice between bribing and lobbying. We test our predictions using survey data for about 6000 firms in 26 countries. Our results suggest that (a) lobbying and coruption are fundamentally different, (b) political institutions play a major role in explaining whether firms choose bribing or lobbying, (c) lobbying is more effective then corruption as an instrument of political influence, and (d) lobbying is more powerful than corruption as an explanatory factor for enterprise growth, even in poorer, often seen as highly corrupt, less developed countries.
    Date: 2008–09
  7. By: Iconio Garrì (Università Cattolica)
    Abstract: We consider a political career concern model where politicians differ in their information on the states of the world in different periods and the outcome of a policy in different periods depends on the same state of the world. We show that a politician may continue to implement the past policy even when a policy change would be socially preferable (perverse policy persistence): changing his mind would indeed damage his reputation, and so reduce his probability of being reelected. Under the standard assumption that once ousted from office a politician cannot run again for election, the old politician is never reelected (incumbency disadvantage). However, when there is a positive probability that a politician who was ousted from office in the past will stand for reelection in the future, reputational concern may induce a new politician not to continue the policy introduced by another politician even when this is not socially desirable (perverse policy unpersistence): confirming a previous decision made by another politician would indeed improve the reputation of a potential rival in the next elections, and so reduce his probability of being reelected. When equilibrium exhibits policy persistence by the incumbent politician and policy unpersistence by the new politician, the voters' choice between the two politicians is actually a choice between changing or not changing the policy introduced in the previous period. Since politicians have policy expertise, voters believe that the initial policy is more likely to be the optimal one, and so they reelect the candidate who implemented it, i.e., the incumbent politician (incumbency advantage).
    Keywords: Policy persistence, policy unpersistence, reputation, incumbency advantage, incumbency disadvantage, bad reputation.
    JEL: D72 D82
    Date: 2008–09
  8. By: Graziella Bertocchi; Chiara Strozzi
    Abstract: We study the determinants of international migration with special attention to the role of institutional factors other than economic and demographic fundamentals. We evaluate the impact of political institutions and of those institutions specifically targeted at attracting migrants. For a dataset on 19th century migration, we find that economic and demographic differentials play a major role, but that the quality of institutions also matter. We produce evidence that both political and migration institutions represent significant factors of attraction, even after controlling for their potential endogeneity through a set of instruments exploiting colonial history and the institutions inherited from the past.
    Keywords: International Migration, Institutions, Democracy, Migration Policy, Colonial History
    JEL: F22 P16 O15
    Date: 2008–03
  9. By: Matteo Bassi (Università di Salerno, CSEF Toulouse School of Economics (GREMAQ))
    Abstract: Strotz (1956) first suggested that individuals are more impatient when making short-run tradeoffs than long-run ones. Many experimental studies supports his conjecture. Motivated by recent evidence from the British Department of Work and Pension (2006), this paper applies this behavioral framework to retirement decisions. We propose a three-periods OLG model with quasi-hyperbolic consumers whosave for post retirement consumption in the first period and choose their retirement age in the second. We show that this behavioral assumption explains the observed drop in post retirement consumptiondue to lack of saving and the high level of voluntary (i.e. not due to disability or dismission from the firm) early exit from the labor force. When deciding about their retirement age, workers weight too much the costs of remaining at work (i.e. disutility of working, implicit tax on continued activity) and too little the benefits of postponed retirement (i.e. increase of the Bismarckian component of the pension formula), perceived as too far in the future. We investigate the implications of time inconsistent preferences for a political economy model in which voters determine simultaneously thesize and the degree of redistribution of the pension system. We show that, when voting over thepayroll tax, time inconsistent young workers, who look for a commitment device that increases boththeir saving and retirement age, form a coalition with rich in order to decrease the size of the system. When voting over the degree of redistribution, they form a coalition with poor individuals as to in-crease the at part of the pension formula. Our political model provides a political justification for the negative relationship between size and redistribution observed in most OECD countries (Disney 2004).
    Keywords: Hyperbolic Discounting, Majority Voting, Redistribution, Retirement Age, Saving Behaviour
    JEL: A12 D91 E21 H55 J64
    Date: 2008–09–26
  10. By: Kimiko Terai (Hosei University)
    Abstract: We examine how international coordination between countries generates a trend to establish an international institution for the provision of global public goods. In the present model, the forces creating movement to international agreement are a politician's opportunistic motive for re-election, and his optimistic expectation of unanimous consent on agreement between countries. If a politician expects another politician in a neighboring country to signal his good performance to his citizens by participating in the agreement, he also decides to participate in the agreement, which then brings benefit spillovers to his country. Furthermore it is shown that, by dividing political authorities for coordination between the executive and politicians, observed over-compliance in the agreement by participating countries can be explained.
    Keywords: International environmental agreements; Global public goods; Re-election pressure; Division of authorities
    JEL: D72 D78 D82 H87 Q58
    Date: 2008–09
  11. By: Paul W. Rhode; Koleman Strumpf
    Abstract: Political future markets, in which investors bet on election outcomes, are often thought a recent invention. Such markets in fact have a long history in many Western countries. This paper traces the operation of political futures markets back to 16th Century Italy, 18th Century Britain, and 19th Century United States. In the United States, election betting was a common part of political campaigns in the antebellum period, but became increasingly concentrated in the organized futures markets in New York City over the postbellum period.
    JEL: G10 N12 N14 P16
    Date: 2008–10
  12. By: Graziella Bertocchi
    Abstract: We offer a rationale for the decision to extend the franchise to women within a politico-economic model where men are richer than women, women display a higher preference for public goods, and women’s disenfranchisement carries a societal cost. We first derive the tax rate chosen by the male median voter when women are disenfranchised. Next we show that, as industrialization raises the reward to mental labor relative to physical labor, women’s relative wage increases. When the cost of disenfranchisement becomes higher than the cost of the higher tax rate which applies under universal enfranchisement, the male median voter is better off extending the franchise to women. A consequent expansion of the size of government is only to be expected in societies with a relatively high cost of disenfranchisement. We empirically test the implications of the model over the 1870-1930 period. We proxy the gender wage gap with the level of per capita income and the cost of disenfranchisement with the presence of Catholicism, which is associated with a more traditional view of women’s role and thus a lower cost. The gender gap in the preferences for public goods is proxied by the availability of divorce, which implies marital instability and a more vulnerable economic position for women. Consistently with the model’s predictions, women suffrage is affected positively by per capita income and negatively by the presence of Catholicism and the availability of divorce, while women suffrage increases the size of government only in non-Catholic countries.
    Keywords: Women Suffrage, Inequality, Public Goods, Welfare State, Culture, Family, Divorce
    JEL: P16 J16 N40 H50
    Date: 2008–05
  13. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; Georgetown University)
    Abstract: Ten Central European countries became members of the European Union in the years 2004 - 2007. They constitute 20% of the EU’s total population; and even though their economic output is much lower, it rises dynamically. New members’ impact on the EU policies has nevertheless been limited. This is due not only to the arcane voting rules within the EU, but also to the lack of a common agenda among the Central European countries. Our paper illustrates that the new members rarely vote together and that their influence is thus fairly limited. We argue that as the EU seemingly lacks energy to implement further reforms that would stimulate its economy, impetus for change may come from Central European countries. To that end, however, they have to coordinate their voting and become a more coherent voting group than they are now.
    Keywords: European Union, voting system, European Council, new member states
    JEL: J08 J51 K31
    Date: 2008–09
  14. By: Claudia Senik; Holger Stichnoth; Karine Van der Straeten
    Abstract: Does immigration reduce natives' support for the welfare state? Evidence from the European Social Survey (2002/2003) suggests a more qualified relation. For Europe as a whole, there is only weak evidence of a negative association between the perceived presence of immigrants and natives' support for the welfare state. However, this weak average relationship masks considerable heterogeneity across countries. We distinguish two channels through which immigration could affect natives' support for the welfare state: a pure dislike of immigrants and concerns about the economic consequences of immigration. We find (1) that people who hold both negative views about immigrants generally tend to be less supportive of income redistribution, and (2) that they become even less supportive if they perceive a high share of immigrants in the population.
    Date: 2008
  15. By: Anastasia Guscina
    Abstract: Debt crises that have shaken Latin America, Asia, and Russia have brought an increasing attention to the structure of debt in emerging market countries. Using the newly released Jeanne-Guscina EM Government Debt Database 2006 this paper empirically explores the role of macroeconomic, political, and institutional factors in determining the structure of government debt. Results show that unstable macroeconomic environment, poor quality institutions, and uncertain political climate hinder the development of domestic debt market. Moreover, such instability shifts the debt structure away from long-term local currency fixed rate debt towards short-term debt or to debt indexed to foreign currency, short-term interest rates or inflation. Original sin seems to be on the way out, as more and more countries are issuing local currency debt at longer maturities-which can be explained by successful macroeconomic stabilization policies and lessons learned from the debt crises.
    Keywords: Emerging markets , Domestic debt , Financial crisis , Political economy , Financial institutions , Financial stability , Interest rates , Inflation , Working Paper ,
    Date: 2008–08–28

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