nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒11‒04
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Road to Power: Partisan Loyalty and the Centralized Provision of Local Infrastructure By Marcelin Joanis
  2. Centrist's Curse? An Electoral Competition Model with Credibility Constraints By Selim Ergun
  3. The Democratic Transition. A study of the causality between income and the Gastil democracy index By Martin Paldam; Erich Gundlach
  4. From Plurality Rule to Proportional Representation By Selim Ergun
  5. Income and Democracy. A Comment on Acemoglu, Johnson, Robinson, and Yared (2008) By Erich Gundlach; Martin Paldam
  6. The sustainable cooperative tariffs : a political economy perspective By Racem Mehdi
  7. Determinants of agricultural protection from an international perspective: The role of political institutions By Henning, Christian H.C.A.
  8. Trade, conflicts and political integration : explaining the heterogeneity of regional trade agreements By Vincent Vicard
  9. Growth, public investment and corruption with failing institutions By David De La Croix; Clara Delavallade
  10. An alternative approach of valence advantage in spatial competition By Guillaume Hollard; Stéphane Rossignol
  11. Endogenous Protection in General Equilibrium: estimating political weights in the EU By Joseph Francis Francois; Douglas Nelson; Annette Pelkmans-Balaoing
  12. Live or let die : intra-sectoral lobbying on entry By Vincent Rebeyrol; Julien Vauday
  13. Tax Salience, Voting, and Deliberation By Rupert Sausgruber; Jean-Robert Tyran
  14. Corruption Epidemics By Seidel, Tobias; Egger, Peter H.; Becker, Sascha O.
  15. Values and Norms Matter – On the Basic Determinants of Long-Run Economic Development By Sang-Min Park; Stefan Voigt
  16. Federalism and Decentralization – A Critical Survey of Frequently Used Indicators By Lorenz Blume; Stefan Voigt
  17. Heterogeneous Lobbying Efficiency By Julien Vauday

  1. By: Marcelin Joanis (Université de Sherbrooke, GREDI and CIRANO)
    Abstract: Because they yield durable and visible benefits to voters, public infrastructure expenditures are an attractive instrument for politicians to build enduring electoral support in their constituencies. Static models of special-interest politics typically predict that public spending should be targeted at swing voters, at the expense of voters who display strong partisan loyalty. Yet static theories are not well-suited to capture the implications of long-run relationships between political parties and their loyal supporters. To address this limitation, I set out a simple dynamic probabilistic voting model in which a government allocates a fixed budget across electoral districts that differ in their loyalty to the ruling party. The model predicts that the contemporaneous geographic pattern of spending depends on the way the government balances long-run ‘machine politics’ considerations with the more immediate concern to win over swing voters. To assess the empirical relevance of both forces, I analyze rich data on road spending from a panel of electoral districts in Québec. Empirical results exploiting the province’s linguistic fragmentation provide robust evidence that partisan loyalty is a key driver of the geographic allocation of spending, in contrast with the standard ‘swing voter’ view.
    Keywords: partisan loyalty, swing voters, political competition, local public goods, distributive politics, long-run relationships
    Date: 2008
  2. By: Selim Ergun (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: I analyze a model of electoral competition in which a candidate?s reputation and his need of cred- ibility restricts his policy choice to a certain subset of the policy space, its ideology set. Candidates are o¢ ce-motivated. They care about winning and also about the share of votes they get. I consider both two and three party systems. I describe the equilibrium outcomes assuming that plurality rule applies, and obtain for two party competition, in some cases, equilibrium outcomes di¤erent than what the median voter theorem suggests because of the restrictions on the ideology sets implied by the credibility constraints. I show that centrist parties are disadvantaged compared to leftist and rightist ones, since, in equilibrium, leftist and rightist parties choose policy points that are as close as possible to each other and obtain votes from the centrist parties?ideology set. A centrist candidate needs a higher concentration of voters in his credibility set compared to his opponents in order to have a chance to win. I also analyze a run-off system for three parties and show that centrist parties have more opportunities to win under this rule than under plurality rule.
    Keywords: Electoral competition, plurality, run-off, credibility, spatial models.
    JEL: D72
    Date: 2008–10–23
  3. By: Martin Paldam; Erich Gundlach
    Abstract: The paper considers the transformation of the political system as countries pass through the Grand Transition from a poor developing country to a wealthy developed country. In the process most countries change from an authoritarian to a democratic political system. This is shown by using the Gastil democracy index from Freedom House. First, the basic pattern of correlations reveals that a good deal of the short- to medium-run causality appears to be from democracy to income. Then a set of extreme biogeographic instruments is used to demon¬strate that the long-run causality is from income to democracy. The long-run result survives various robustness tests. We show how the Grand Transition view resolves the seeming contradiction between the long-run and the short- to medium-run effects
    Keywords: Paths of development, democracy, biogeography
    JEL: B25 O10
    Date: 2008–10
  4. By: Selim Ergun (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: I consider the decision of a parliament that might change the electoral system for the forthcoming elections from plurality rule to proportional representation. Parties are o¢ ce-motivated. They care about winning and about the share of seats obtained. I consider two di¤erent scenarios of how parties in the government share the spoils of o¢ ce: Equally or proportionally to their share of seats. If the government is formed by a single party and parties expect that each party will obtain the same share of votes in the next election the electoral rule will never be changed. That is, for a change to occur the government should be formed by a coalition. I ?nd that a change is more likely to occur when the number of parties is larger and also when the spoils of o¢ ce are shared equally among the members in the governing coalition. I extend these results to analyze the decision of a change from a less proportional rule to a more proportional one.
    Keywords: Electoral systems, Plurality, Proportional Representation, Coalitions.
    JEL: D72 H10
    Date: 2008–10–23
  5. By: Erich Gundlach; Martin Paldam
    Abstract: Acemoglu, Johnson, Robinson, and Yared (2008) demonstrate that estimation of the standard adjustment model with country-fixed and time-fixed effects removes the statistical significance of income as a causal factor of democracy. We argue that their empirical approach must produce insignificant income effects and that a small change in the estimation process immediately reveals the strong effect of income on democracy
    Keywords: Democracy, Modernization hypothesis, fixed-effects estimation
    JEL: D72 O43
    Date: 2008–10
  6. 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
  7. By: Henning, Christian H.C.A.
    Abstract: "This paper explores the role of political institutions in determining the ability of agriculture to avoid taxation in developing countries or attract government transfers in industrialized countries. The utilized model is based on a probabilistic voting environment, wherein rural districts are less ideologically committed than urban districts in industrialized countries, and the reverse is true in developing countries. As a consequence, in industrialized (developing) countries rural (urban) districts are pivotal in determining the coalition that obtains a majority, whereas urban (rural) districts are pivotal within the majority itself. In bargaining at the level of the legislature, this generates a conflict between a government that tends to favor rural (urban) districts, and a parliamentary majority that is dominated by urban (rural) concerns. As district size grows and the electoral system converges to a purely proportional system, both of these biases are attenuated. Overall, we see opposing nonlinear relationships between district size and agricultural subsidies on the one hand and district size and taxation on the other. In developing countries, taxation of agriculture first increases and then decreases with district magnitude; in industrialized countries, agricultural subsidization first increases and then decreases with district magnitude. Moreover, the impact of district magnitude on the level of agricultural subsidization is attenuated in presidential versus parliamentary systems, while the level of agricultural taxation is amplified in presidential systems. In the present paper, these findings are first theorized and then empirically confirmed by a cross-country analysis of data from 37 countries over a 20-year period." from authors' abstract
    Keywords: political economy of agricultural protectionism, Agricultural policies, Urban-rural differences, political institutions,
    Date: 2008
  8. By: Vincent Vicard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper investigates the determinants of the shape of regional trade agreements (RTAs). Because the world is constituted by independent political entities, international trade flows take place in a system where property rights are unsecured and RTAs should be understood as regulation mechanisms. In this theoretical framework, trade and security issues interact in the formation of RTAs, so that their determinants differ according to their level of political integration, defined by their ability to promote the negotiated settlement of conflicts. Empirical results confirm that countries more subject to interstate disputes and naturally more opened to trade are more likely to create politically integrated regional agreements, such as common markets or custom unions. On the contrary, international insecurity deters less integrated agreements implying a weak institutional framework, such as preferential or free trade agreements.
    Keywords: International conflicts, political integration, regionalism, trade, war.
    Date: 2008–03
  9. By: David De La Croix (CORE - Department of Economics - Université Catholique de Louvain); Clara Delavallade (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: Corruption is thought to prevent poor countries from catching up with richer ones. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distorsion, we propose a dynamic model where households vote for the composition of public spending, subject to an incentive constraint reflecting individuals' choice between productive activity and rent-seeking. In equilibrium, the structure of public investment is determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption but the possibility of corruption still distorts the allocation of public investment. We test the implications of the model on a set of countries using a two-stage least squares estimation. We find that developing countries with high predatory technology invest more in housing and physical capital in comparison with health and education. The reverse is true for developed countries.
    Keywords: Public investment, optimal growth, corruption, political power.
    Date: 2008–05
  10. By: Guillaume Hollard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Stéphane Rossignol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: This paper explores a two-candidate spatial voting model, where one candidate has a valence advantage. Contrary to previous models, we introduce a multiplicative advantage, rather than an additive one. This takes into account the possible interaction between the quality of a candidate and his policy platform. This leads to a strikingly different model, in which all extreme voters support the favored candidate.
    Keywords: Spatial voting, Valence advantage
    Date: 2008–06
  11. By: Joseph Francis Francois (Department of Economics, Johannes Kepler University Linz, Austria); Douglas Nelson; Annette Pelkmans-Balaoing (Erasmus University Rotterdam)
    Abstract: We examine the political economy underpinnings of import protection in general equilibrium. Starting from a dual theoretical representation of production, trade, and consumption, we map a general representation of the real economy to underlying political processes aka the political support function to derive a general representation of the determinants of import protection. This includes the relatively standard approach of examining the pattern of tariffs in a Grossman-Helpman framework, as well as recent extensions linked to upstream and downstream linkages between sectors. Because we start from a relatively generic general equilibrium model of production, we have an immediate bridge between the theory and general equilibrium-based estimates of the welfare effects and rents generated by tariffs. We therefore follow the development of our generalized theoretical framework by introducing the use of general equilibrium estimates of the direct and indirect marginal impacts of protection at the sector level for econometric estimation of the revealed pattern of policy weights. This GE approach yields direct estimates of political weights based on economic effects, including cross-industry effects. The resulting weights lend insight into relative protection of agriculture and manufacturing. Working with data on the European union, we find that the strength of downstream linkages matters for policy weights and rates of protection, as does the national posture of industry. We also find support for a general political support function in the determination of tariffs, though results are mixed for the more narrow Grossman-Helpman specification. In the EU, nationality of industry seems to play a role in the setting of Community-wide import protection.
    Keywords: political weights, political economy of import protection, Grossman-Helpman model
    JEL: F13 F14 D72
    Date: 2008–09
  12. By: Vincent Rebeyrol (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Julien Vauday (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: Since the GATT/WTO hinders tariffs manipulation, the Technical Barriers to Trade (TBT's) are a growing and appealing protection tool. The endogenous protection literature has shown that a government's taste for protection creates an incentive for lobbying. Since regulations at the origin of such barriers have to be borne also by domestic sectors, due to the National Treatment WTO's principle, this creates conflicts of interests within a sector enhancing an intra-sectoral competition. This paper develops a political economy framework based on common agency under complete information that highlights this issue. The political competition opposes productive versus non productive firms in this context rather than domestic versus foreign ones, contrasting with the literature. Some apparently unorganized sectors, i.e. that are not protected, may actually be sectors where lobbies are biased towards non productive firms. Therefore, we should be cautious when empirically studying the relationship between the levels of protection and contributions.
    Keywords: Endogenous protection, Truthful equilibrium, firm heterogeneity.
    Date: 2008–05
  13. By: Rupert Sausgruber (University of Innsbruck); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: Tax incentives can be more or less salient, i.e. noticeable or cognitively easy to process. Our hypothesis is that taxes on consumers are more salient to consumers than equivalent taxes on sellers because consumers underestimate the extent of tax shifting in the market. We show that tax salience biases consumers’ voting on tax regimes, and that experience is an effective de-biasing mechanism in the experimental laboratory. Pre-vote deliberation makes initially held opinions more extreme rather than correct and does not eliminate the bias in the typical committee. Yet, if voters can discuss their experience with the tax regimes they are less likely to be biased.
    Keywords: tax salience; learning; deliberation; voting
    JEL: C92 H22 D72
    Date: 2008–10
  14. By: Seidel, Tobias; Egger, Peter H.; Becker, Sascha O.
    Abstract: When estimating the determinants of perceived corruption, economists assumed that there is full independence across countries. In the presence of peer-group or learning effects through cross-border economic activity (such as trade or labor migration), this assumption might be violated. We provide evidence that this is the case. Using a cross-section of 123 economies for the year 2000, we illustrate that corruption in one country spills over to adjacent economies. This finding implies that institutional changes reducing corruption in one country lead to smaller but qualitatively similar effects in neighboring countries.
    Keywords: Spatial econometrics; Institutions; Perceived corruption
    Date: 2008–06
  15. By: Sang-Min Park (MACIE (University of Marburg)); Stefan Voigt (MACIE (University of Marburg), CESifo and Alfried-Krupp Institute for Advanced Studies)
    Abstract: Over the last couple of decades, it has become a commonplace to claim that “institutions matter” for economic development. Yet, institutions are not exogenous but the result of hu-man action. It is argued here that the values and norms held by substantial parts of society’s members are an important determinant of its institutions. It is further argued that values and norms have both a direct and an indirect effect on economic development: the direct effect materializes because the values and norms also contain the work ethic which, if transformed into behavior, should have direct consequences on economic development. The indirect effect is conjectured to work via the relevant institutions: if institutions are important for economic development and institutions are influenced by the values and norms, then this is a more indi-rect channel through which values and norms can display their impact.
    Keywords: Institutions, Values and Norms, Democracy, Rule of Law, Culture, Social Capi-tal, Civil Society, Economic Development, Total Factor Productivity
    JEL: E19 E66 O11 O12 O17 Z13
    Date: 2008
  16. By: Lorenz Blume (Department of Economics, Universitaet Kassel); Stefan Voigt (Marburg Center for Institutional Economics, Philipps University Marburg)
    Abstract: The economic effects of federalism are unclear: some papers find that federalism has strong positive effects on a number of economically relevant variables, others find negative effects. The results often crucially hinge upon the proxies for federalism used. In this paper, we critically survey the existing indicators for both federalism and fiscal decentralization. We argue that federalism is a constitutional institution whereas decentralization is (the outcome of) a policy choice and that the two ought to be systematically distinguished because decentralization can also occur in non-federally structured states. We further argue that institutional details are very important with regard to federalism and that dummy variables usually capture only very specific aspects of the institutional details. We use factor analysis to test whether the latent variables behind the observed indicators support these assumptions. It is shown that more than two important factors result, implying that a more fine-grained differentiation beyond the distinction between federalism and decentralization might be in order. The correlations of the most important proxies for various aspects of federalism and decentralization with a number of (quasi-) exogenous variables as well as with institutional variables are usually rather modest.
    Keywords: Federalism, Fiscal federalism, Decentralization
    JEL: H1 H3 H5 H8
    Date: 2008
  17. By: Julien Vauday (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: Firms are actively involved in the formation of policies. So far, the literature has focused on the relationship between exposure to the competition and the level of protection. The ability of lobbies to achieve a more favorable policy is then directly related to the reaction of their welfare to the policy. This monotonic relationship contradicts the idea that all lobbies do not have the same efficiency. Indeed, this efficiency cannot be uniquely driven by the exposure to competition. This paper proposes an original approach of the lobbying activity taking into account that lobbies' efficiency is heterogeneous. Just as there are some skilled and unskilled cards players. This paper highlights two types of efficiency, the passive and the active. First, according to the sensitivity of the government to the policy, two lobbies equally affected by the policy may pay different contributions to obtain the same protection level. Second, if the active efficiency is introduced, then two lobbies exhibiting the same sensitivity to the policy may obtain two different equilibrium policies.
    Keywords: Endogeneous policy decision, strategic lobbying, heterogeneous efficiency.
    Date: 2008–09

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