nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒11‒18
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Electoral rules, political competition and fiscal spending : regression discontinuity evidence from Brazilian municipalities By Marcos Chamon; João Manoel Pinho de Mello; Sergio Firpo
  2. Populist fiscal policy By Khemani, Stuti; Wane, Waly
  3. Explaining Institutional Change: Why Elected Politicians Implement Direct Democracy By David Hugh-Jones
  4. Determinants and Impact of Private Politics: An Empirical Analysis By Gupta, Sonam; Innes, Robert
  5. Economic Impact of Political Cycles – The Relevance of European experinces for Romania By Jula, Dorin
  6. A computational voting model By Luigi Maregno; Corrado Pasquali
  7. Strategic power indices: Quarrelling in coalitions By László Á. Kóczy
  8. Storable Votes and Agenda Order Control. Theory and Experiments By Alessandra Casella
  9. Does Politics Matter in EPA's Monitoring Activities? Evidence from Facility Level Data on Enforcement of Clean Air Laws By Innes, Robert; Mitra, Arnab

  1. By: Marcos Chamon (International Monetary Fund); João Manoel Pinho de Mello (Department of Economics PUC-Rio); Sergio Firpo (Escola de Economia de São Paulo, FGV)
    Abstract: We exploit a discontinuity in Brazilian municipal election rules to investigate whether political competition has a causal impact on policy choices. In municipalities with less than 200,000 voters mayors are elected with a plurality of the vote. In municipalities with more than 200,000 voters a run-off election takes place among the top two candidates if neither achieves a majority of the votes. At a first stage, we show that the possibility of runoff increases political competition. At a second stage, we use the discontinuity as a source of exogenous variation to infer causality from political competition to fiscal policy. Our second stage results suggest that political competition induces more investment and less current spending, particularly personnel expenses. Furthermore, the impact of political competition is larger when incumbents can run for reelection, suggesting incentives matter insofar as incumbents can themselves remain in office.
    Keywords: Electoral Systems; Strategic Voting; Political Competition; Regression Discontinuity; Fiscal Spending. JEL Codes: H72; D72; C14; P1
    Date: 2008–10
  2. By: Khemani, Stuti; Wane, Waly
    Abstract: Political economy explanations for fiscal profligacy are dominated by models of bargaining among organized interest groups over group-specific targeted benefits financed by generalized taxation. These models predict that governments consisting of a coalition of political parties spend more than single-party regimes. This paper presents an alternative model-that of populist pressure on political parties to spend more on the general public good, financed by costly income taxation-and obtains the opposite prediction. According to this model, public spending and taxes are lower under coalition governments that can win elections more cheaply. Indeed, in order to win elections, coalition partners need to satisfy a smaller share of swing voters than does a single-party government that enjoys narrower support from its core constituency. A coalition government therefore spends less on the public good to capture the share of the swing vote necessary for re-election. Using data from more than 70 countries during the period 1970-2006, the paper provides robust supporting evidence for this alternative model.
    Keywords: Parliamentary Government,Public Sector Economics&Finance,Debt Markets,Economic Theory&Research,E-Government
    Date: 2008–10–01
  3. By: David Hugh-Jones (Max Planck Institute of Economics, Jena)
    Abstract: In existing models of direct democratic institutions, the median voter beneï¬ts, but representative politicians are harmed since their policy choices can be overridden. This is a puzzle, since representative politicians were instrumental in creating these institutions. I build a model of direct democracy that explains why a representative might beneï¬t from tying his or her own hands in this way. The key features are (1) that voters are uncertain about their representative's preferences; (2) that direct and representative elections are complementary ways for voters to control outcomes. The model shows that some politicians beneï¬t from the introduction of direct democracy, since they are more likely to survive representative elections: direct democracy credibly prevents politicians from realising extreme outcomes. Historical evidence from the introduction of the initiative, referendum and recall in America broadly supports the theory, which also explains two empirical results that have puzzled scholars: legislators are trusted less, but reelected more, in US states with direct democracy. I conclude by discussing the potential for incomplete information and signaling models to improve our understanding of institutional change more generally.
    Keywords: direct democracy, institutional change, referendums
    JEL: D72
    Date: 2008–11–10
  4. By: Gupta, Sonam; Innes, Robert
    Abstract: This paper studies the links between private politics, environmental performance of firms and regulatory activity by the government. Following the terminology coined by Baron (2001), "private politics" refers to the individual or collective actions initiated by public interest and activist groups to further their objectives without relying on the law or regulation. In this paper, we focus on the determinants and effects of two such private political actions, boycotts and proxy contests. We have unique data on boycotts for the time period 1988-95 and on proxy votes for the time period 1988-2000. We find that the size of a firm is an important predictor of the fact if a firm will be chosen as a target of an activist campaign. We find MIXED support for Baron's (2006) theory that activist campaigns will focus on "soft targets" (progressive firms). Our preliminary findings show that private politics does spur the firms to adopt voluntary environmental systems. Specifically, we find that the boycotts increase the probability of adoption of an environmental management system by 27-33 percent.
    Keywords: Political Economy,
    Date: 2008
  5. By: Jula, Dorin
    Abstract: The research was dedicated to the analysis of the interactions between political processes and economic activities. Explicitly, the research focussed on the theoretical and empirical study concerning the economic impact of political cycles and, especially, to evaluate the relevance of European experiences for Romania. The analysis was focused to the following subjects: to overview the existent literature on the interactions between political processes and economic activities – political implications of the economic status (the so-called vote – popularity function), and economic impact of the political behaviours – the political business cycles (section 1); to analyse specific features of the vote – popularity functions and the political business cycles in the developed economies and, especially, in the European Union Countries, by over viewing relevant empirical studies (section 2); to survey the literature concerning models and empirical evidences of the interactions between political processes and economic activity for the developing countries (section 3) and for the East European Candidate Countries (section 4); to analyse the interactions between the political processes and the economic dynamics in Romania – macroeconomic signals of the political business cycles, and estimation of regional vote-popularity function (section 5); to discuss the consequences of political business cycles for the processes of transition and the European integration (section 6).
    JEL: C52 D72 J64 O11 P26 R50
    Date: 2008–11
  6. By: Luigi Maregno; Corrado Pasquali
    Abstract: Social choice models usually assume that choice is among exogenously given and non decomposable alternatives. Often, on the contrary, choice is among objects that are constructed by individuals or institutions as complex bundles made of many interdependent components. In this paper we present a model of object construction in majority voting and show that, in general, by appropriate changes of such bundles, different social outcomes may be obtained, depending upon initial conditions and agenda, intransitive cycles and median voter dominance may be made appear or disappear, and that, finally, decidability may be ensured by increasing manipulability or viceversa.
    Keywords: Social choice; object construction power; agenda power; intran- sitive cycles; median voter theorem.
    JEL: D71 D72
    Date: 2008–11–11
  7. By: László Á. Kóczy (Department of Economics, Maastricht University)
    Abstract: While they use the language of game theory known measures of a priory voting power are hardly more than statistical expectations assuming voters behave randomly. Focusing on normalised indices we show that rational players would behave differently from the in-dices predictions and propose a model that captures such strategic behaviour.
    Keywords: Banzhaf index, Shapley-Shubik index, a priori voting power, rational players
    JEL: C71 D72
    Date: 2008–11
  8. By: Alessandra Casella
    Abstract: The paper studies a voting scheme where members of a committee voting sequentially on a known series of binary proposals are each granted a single extra bonus vote to cast as desired - a streamlined version of Storable Votes. When the order of the agenda is exogenous, a simple sufficient condition guarantees the existence of welfare gains, relative to simple majority voting. But if one of the voters controls the order of the agenda, does the scheme become less efficient? The endogeneity of the agenda gives rise to a cheap talk game, where the chair can use the order of proposals to transmit information about his priorities. The game has multiple equilibria, differing systematically in the precision of the information transmitted. The chair can indeed benefit, but the aggregate welfare effects are of ambiguous sign and very small in all parameterizations studied. The theoretical conclusions are tested through laboratory experiments. Subjects have difficulty identifying the informative strategies, and tend to cast the bonus vote on their highest intensity proposal. As a result, realized payoffs are effectively identical to what they would be if the agenda were exogenous. The bonus vote matters; the chair's control of the agenda does not.
    JEL: C9 D02 D7 D8
    Date: 2008–11
  9. By: Innes, Robert; Mitra, Arnab
    Abstract: This paper studies the potential effects of political pressure on environmental law enforcement in the Unites States. Prior work, most notably the key works of Deily and Gray, document the sensitivity of U.S. environmental enforcement to economic circumstances of regulated firms. However, the sensitivity of environmental enforcement may be motivated not only by cost-benefit criterion (economic costs of environmental enforcement against troubled firms in high unemployment areas are high) but also by political considerations, and most likely both. We are interested in identifying whether political influence directly affected environmental enforcement during the years 1990-2005, which cover most part of the Bush and Clinton administrations. Using political, demographic and income related data from various sources and mapping them with EPA's data on facility level inspection, we find evidence that political processes at the local, state and federal level do matter for facility level inspection.
    Keywords: Environmental Economics and Policy,
    Date: 2008

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