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on Positive Political Economics |
| By: | Ivo Bischoff (Justus-Liebig-University Gießen, Department of Economics); Lars Siemers (RWI Essen – Institute for Economic Research, Department of Public Finance) |
| Abstract: | In “The Myth of the Rational Voter” Brian Caplan shows that voters entertain systematically biased beliefs on a number of essential issues of economic policy and concludes that this leads democracies to choose bad policies. We introduce the psychological concept of mental models to address voters’ naive reasoning about the economy and thereby explain the persistent bias in beliefs. Next, we develop a game-theoretical model to show that this does not automatically lead to bad policy choices. The model formalizes Caplan’s thought experiment No. 4 by introducing endogenous party valence to a model of probabilistic voting. In so doing, we provide an investigation of when good policies are chosen in democracy. Based on our findings, we discuss the impact of different political institutions on economic outcomes. |
| Keywords: | Voting behaviour, dynamic party competition, valence, VP-functions, biased voting |
| JEL: | D72 D78 D83 D90 P16 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:200824&r=pol |
| By: | Albert Sole-Olle; Pilar Sorribas-Navarro (Universitat de Barcelona) |
| Abstract: | In this paper we test the hypothesis that intergovernmental grants allocated to co-partisans buy more political support than grants allocated to local governments controlled by opposition parties. We use a rich Spanish database containing information about the grants received by 617 municipalities during the period 1993-2003 from two different upper-tier governments (Regional and Upper-local), as well as data of municipal voting behaviour at three electoral contests held at the different layers of government during this period. Therefore, we are able to estimate two different vote equations, analysing the effects of grants given to aligned and unaligned municipalities on the vote share of the incumbent party/parties at the regional and local elections. We account for the endogeneity of grants by instrumenting them with the average amount of grants distributed by upper-layer governments. The results suggest that grants given to co-partisans buy some political support, but that grants given to the opposition do not bring any votes, suggesting that the grantee reaps as much political credit from intergovernmental grants as the grantor. |
| Keywords: | grants, voting, parties |
| JEL: | D72 C72 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2008206&r=pol |
| By: | John Maloney; Andrew Pickering |
| Abstract: | This paper investigates the impact of luck, defined as global economic growth, and competence, defined as the difference between domestic and world growth, on voting in general elections since 1960. The vote of incumbent parties of the right is found to be sensitive to luck, whereas that of incumbent parties of the left is not. This is consistent with the Clientele Hypothesis given electorates which fail to perfectly distinguish luck from competence. Economic competence plays a strong role in determining the vote, especially in high-income democracies. The electoral reward to competence is essentially equal across parties of either ideology, contra to the Saliency Hypothesis. The data are also supportive of the Territory Hypothesis, namely that greater ideological territory increases a party's relative vote share. |
| Keywords: | voting, ideology, luck, competence |
| JEL: | D72 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:08/607&r=pol |
| By: | DE LA CROIX, David (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); DELAVALLADE, Clara |
| Abstract: | We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the "technology of corruption" is the ease with which rent-seekers can capture a proportion of public spending. The "concentration of political power" is the extent to which rent-seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions respectively are limited. |
| Keywords: | economic growth, corruption, rule of law, incentive constraint, political power |
| JEL: | O41 H50 D73 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2008035&r=pol |
| By: | Eileen Fumagalli and Gaia Narciso |
| Abstract: | We question whether the impact of constitutions on economic outcomes (Persson and Tabellini, 2004) is direct. We show that voter turnout is a channel through which forms of government affect economic policies. We provide evidence of the existence of two relationships: the first links constitutions to voter turnout; the second connects voter turnout to policy outcomes. Presidential regimes are found to induce less voter participation in national elections. We then analyze the impact of constitutional variables and voter participation in shaping fiscal policies. Forms of governments lose their explanatory power once participation is accounted for. Higher participation induces an increase in government expenditure, total revenues and welfare state spending. We conclude that forms of government affect policy outcomes through electoral participation. |
| Date: | 2008–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp268&r=pol |
| By: | Russell Hillberry |
| Abstract: | Formal dimension-reduction techniques are frequently used to interpret data on legislative voting behavior. This study applies one such technique to countylevel election returns on 11 ballot measures in South Dakota’s 2006 general election. The measures on the 2006 ballot proposed substantial legal and policy changes, and spanned a broad area of the policy space. This and South Dakota’s high voter turnout levels makes it especially well-suited for the purpose of analyzing links between election returns and demographic and economic data. The factor analysis suggests a puritan-libertarian spectrum as the best 1-dimensional characterization of political divisions within the state. A county’s location on this spectrum is most strongly associated with measures of its population age and per capita income. Factor scores are very good predictors of support for the reelection of the incumbent Governor |
| JEL: | D72 Y80 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1021&r=pol |
| By: | Sambit Bhattacharyya; Roland Hodler |
| Abstract: | We study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions. Our game-theoretic model predicts that natural resources lead to an increase in corruption if the quality of the democratic institutions is relatively poor, but not otherwise. We use panel data covering the period 1980 to 2004 and 99 countries to test this theoretical prediction. Our estimates confirm that the relationship between resource abundance and corruption depends on the quality of the democratic institutions. In particular, resource abundance is positively associated with corruption only in countries that have endured a nondemocratic regime for more than 60 percent of the years since 1956. Our main results hold when we control for the effects of income, time varying common shocks, regional fixed effects and various additional covariates. They are also robust to various alternative measures of natural resources, corruption and the quality of the democratic institutions. These findings imply that democratization can be a powerful tool to reduce corruption in resource-rich countries. |
| Keywords: | Natural resources; democracy; political institutions; corruption |
| JEL: | D7 O1 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1047&r=pol |
| By: | Baslevent, Cem; Akarca, Ali T. |
| Abstract: | Using data drawn from a survey conducted shortly after the 2002 elections, we investigate the Justice and Development Party’s (AKP) election victory from the perspective of inter-party vote movements. Our aim is not only to identify the parties from which the AKP votes originated, but also the segments of these parties' voter bases the party appealed to in particular. Descriptive statistics suggest that almost all of the voters who had voted for the pro-Islamist party in 1999, about half of those who supported the center-right and the ultra-nationalist parties, and one-fifth to two fifth of the supporters of the center-left parties were captured by the AKP. Given that the actual vote share of the party was 34.3 percent, we interpret these figures as evidence of further voter realignment after the election. Our econometric work reveals that confidence in the economic performance of the party was a leading factor in the election outcome. For the voters attracted from the left-of-center parties, ideological factors also played an important role, whereas in the case of voters transferred from the far-right pro-Islamist and ultra-nationalist parties, it was the demographic factors. For the voters coming from the center-right, both sets of variables were important. |
| Keywords: | Turkey; elections; party choice; voter behavior; logit estimation |
| JEL: | D7 D72 |
| Date: | 2008–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11683&r=pol |
| By: | Henning, Christian |
| Abstract: | Abstract€Ԕhis paper studies the role of political institutions in determining the political success of agriculture in avoiding taxation or attracting government transfers in developing and industrialized countries, respectively. The model is based on a probabilistic voting environment, where in industrialized countries rural districts are less ideologically committed than urban districts, while in developing countries urban districts are less ideologically committed than rural districts. 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 legislature, this generates a conflict between the government, who will tend to favor rural (urban) districts, and its parliamentary majority, that will be dominated by urban (rural) concerns. As district size grows and the electoral system converges to a pure proportional system, both of these biases are attenuated. Overall, an opposite nonlinear relationship between district size and agricultural subsidies on the one hand and district size and taxation on the other hand follows, i.e. in developing countries taxation of agriculture first increases and then decreases with district magnitude, while 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 when compared to parliamentary systems, while the level of agricultural taxation is amplified in presidential systems. Empirical results from cross-country analysis including 37 countries over 20 years mainly support our theory. |
| Keywords: | Political Institutions, Agricultural Protection, Probabilistic Voting Model, International Relations/Trade, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae08:43872&r=pol |
| By: | Patricia Funk; Christina Gathmann |
| Abstract: | In spite of increasing representation of women in politics, little is known about their impact on policies. Comparing outcomes of parliaments with different shares of female members does not identify their causal impact because of possible differences in the underlying electorate. This paper uses a unique data set on voting decisions to sheds new light on gender gaps in policy making. Our analysis focuses on Switzerland, where all citizens can directly decide on a broad range of policies in referendums and initiatives. We show that there are large gender gaps in the areas of health, environmental protection, defense spending and welfare policy which typically persist even conditional on socio-economic characteristics. We also find that female policy makers have a substantial effect on the composition of public spending, but a small effect on the overall size of government. |
| Keywords: | Female Policy Makers, Political Gender Gaps, Switzerland |
| JEL: | H10 J16 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1126&r=pol |
| By: | Meffert, Michael F. (Sonderforschungsbereich 504); Gschwend, Thomas (Sonderforschungsbereich 504) |
| Abstract: | The paper tests the theory of strategic voting for multiparty systems with proportional representation and coalition governments at the micro-level. The study focuses in particular on the question whether participation in repeated elections allows voters to learn from experience and enables them to optimize their decision behavior. An economic group experiment with decision scenarios of varying degrees of difficulty was used to test decision making at both the individual and group level. The results suggest that a majority of voters were able to pursue successful decision strategies and that the difficulty of the decision scenarios affected the voting performance of the participants as expected. However, a learning effect is not supported by the data. |
| Date: | 2008–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:sfbmaa:08-10&r=pol |
| By: | Vincent Rebeyrol (Centre d'Economie de la Sorbonne et Paris School of Economics); Julien Vauday (Centre d'Economie de la Sorbonne et Paris School of Economics) |
| 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. |
| JEL: | F13 D70 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:bla08036&r=pol |
| By: | Bertoni, D.; Olper, A. |
| Abstract: | The paper deals with the political economy determinants of EU agri-environmental measures (AEMs) applied by 59 regional/country units, during the 2001-2004 period. Five different groups of determinants, spanning from positive and negative externalities to political institutions, are highlighted and tested using an econometric model. The main results suggest that AEMs implementation is mostly affected by the strength of farm lobbies, political institutions and the demand for positive externalities. On the contrary, AEMs do not seem implemented by the willingness to address negative externalities. |
| Keywords: | Agri-environmental Measures, Political Economy, EU Regions, Environmental Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae08:44435&r=pol |
| By: | Cuberes, David; Jerzmanowski, Michal |
| Abstract: | There is much evidence that less democratic countries experience more high-frequency growth volatility. In this paper we report a similar finding about volatility in the medium term: we find evidence that reversals of trend-growth are sharper and more frequent in non-democracies. Motivated by this evidence, we construct a model in which non-democracies have high barriers of entry for new firms. This leads to less sectoral diversification and so, in an uncertain environment, to larger growth swings in less democratic countries. We present empirical evidence that confirms the positive relation between democracy and industrial diversification. |
| Keywords: | medium term growth; growth volatility; democracy; diversification |
| JEL: | O11 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11646&r=pol |
| By: | Swinnen, J.F.M.; Vandemoortele, T. |
| Abstract: | This paper presents a general political economy model of standards. We use the model to derive political and social optima of nutrition and health standards in food markets, and to identify under which cases €ܵnderstandardizationÂ€Ý or €ܯver-standardizationÂ€Ý will result. The paper analyses the impact of trade and development on the political equilibrium as well as the role of the media and consumer perceptions. |
| Keywords: | Political Economy, Standards, Food Markets, Food Consumption/Nutrition/Food Safety, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae08:44364&r=pol |
| By: | Ernesto Dal Bó; MartÃn Rossi |
| Abstract: | We evaluate the effects of the duration of legislative terms on the performance of legislators. We exploit a natural experiment in the Argentine House of Representatives where term lengths were assigned randomly. Results for various objective measures of legislative output show that longer terms enhance legislative performance. We use a second experiment in the Argentine Senate to determine whether our results are specific to a particular chamber and a particular time. The results from the Senate reinforce the idea that longer terms enhance legislative productivity. Our results highlight limits to classic theories of electoral discipline (Barro 1973, Ferejohn 1986) predicting that shorter terms, by tightening accountability, will incentivize hard work by politicians. We discuss and test possible explanations. Our results suggest that the "accountability logic" is overcome by an "investment logic." |
| JEL: | H1 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14511&r=pol |
| By: | Bruno S. Frey; Benno Torgler |
| Abstract: | In the course of history, a large number of politicians have been assassinated. Rational choice hypotheses are developed and tested using panel data covering more than 100 countries over a period of 20 years. Several strategies, in addition to security measures, are shown to significantly reduce the probability of politicians being attacked or killed: extended institutional and governance quality, democracy, voice and accountability, a well functioning system of law and order, decentralization via the division of power and federalism, larger cabinet size and strengthened civil society. There is also support for a contagion effect. |
| Keywords: | Assassinations; rational choice; governance; democracy; dictatorship; deterrence; protection |
| JEL: | D01 D70 K14 K42 Z10 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2008-25&r=pol |
| By: | Swinnen, Johan F.M. |
| Abstract: | Important changes took place in agricultural policies in Europe in the 19th and 20th century. The dramatic nature of the changes are illustrated by two years, a century apart: 1860 and 1960. In the 1860s European nations agree on a series of trade agreements which spread free trade across the continent. In the 1960s European nations conclude an international agreement which spreads heavy government intervention and protection against imports across the continent. This paper reviews the nature and the causes of these dramatic changes in agricultural and trade policies, from the beginning of the 19th century to the second half of the 20th century, when agricultural policies are integrated in (what is to become) the European Union. |
| Keywords: | Political Economy, Agricultural Policy, Europe, Historical Perspective, Agricultural and Food Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae08:43859&r=pol |
| By: | Sergio Espuelas Barroso; Margarita Vilar Rodriguez (Universitat de Barcelona) |
| Abstract: | The main objective of this paper is to analyse the origins of the welfare state in Spain using the theoretical framework designed by Peter Lindert. With this aim, we offer an econometric analysis of the factors that determined the evolution of the Spanish social spending between 1880 and 1960. By using new quantitative evidence, we constructed a panel-data set divided in five years periods with the percentage of social spending disaggregated in three groups: health care, social security and welfare. Our analysis allows us to put the Spanish case within the international debate on the historical determinants of the welfare state. The results obtained highlight a number of interesting features specific to this country. On the one hand, Spanish social spending as a percentage of GDP remained relatively low compared to the figures recorded by other countries during the period under study. On the other hand, demographic factors played a determining role in the initial stages of the development of welfare state, while economic growth had a more ambiguous influence. The political and public finance variables also exercised some influence on the growth in public spending. However, globalisation was not a motivating force behind the welfare state in Spain. |
| Keywords: | political economy, welfare state, public policy, spanish social policy, determinants of growth of public social spending |
| JEL: | H0 H5 F18 D6 N4 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2008209&r=pol |
| By: | Furtan, W.H.; Jensen, M.S.; Sauer, J. |
| Abstract: | The Common Agricultural Policy is modelled as a club good providing the European Union (EU) farmer with financial benefits. We build an economic model which explains how much farmers in individual EU countries invest in rent-seeking activities in order to test for free-riding behaviour on lobbying costs. For our investigation we group the EU member countries by farm structure, and the type of benefit received. We explain the fees paid by farmers for lobbying by other countries fees, political variables, and country and regional agricultural characteristics. The model shows that some member countries free ride on others. This suggests a form of policy path dependency and leads to a suboptimal investment on lobbying of 7.5%. |
| Keywords: | free-riding, rent-seeking, Common Agricultural Policy, Agricultural and Food Policy, International Relations/Trade, Political Economy, D72, Q18, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaa107:6600&r=pol |
| By: | Raffaella Coppier (University of Macerata); Elisabetta Michetti (University of Macerata) |
| Abstract: | <p><p> </p></p><p align="left">This paper analyzes the relation existing between corruption, monitoring and output in</p><div align="left">an economy. By solving a dynamic game we prove that equilibrium output is a non-linear</div><div align="left">upper-hemicontinuous function (MP function) of the monitoring level implemented by the</div><div align="left">State on corruption, presenting 3 different equilibrium scenarios. According to our model,</div><div align="left">we analyze the optimal strategy depending on the policy objective of the State and we</div><div align="left">prove that if the State is budget constrained the optimal policy can lead the economy to</div><div align="left">an equilibrium with widespread corruption and maximum production.</div> |
| Keywords: | Policy analysis,Equilibrium production,Corruption,Dynamic game |
| JEL: | O1 O11 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:mcr:wpdief:wpaper00022&r=pol |
| By: | Julien Vauday (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| 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. |
| JEL: | F13 D70 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:bla08053&r=pol |
| By: | Gabriel Leite Mota; Paulo Trigo Pereira |
| Abstract: | Since Jeremy Bentham, utilitarians have argued that happiness, not just income or wealth, is the maximand of individual and social welfare. By contrast, Rawls and followers argue that to share a common perception of living in a just society is the “ultimate good” and that individuals have a moral ability to evaluate just institutions. In this paper we argue that just institutions, apart from their intrinsic value, also have an instrumental value, both in economic performance and in happiness. Thus happiness -- or subjective well being -- is analyzed as being a function of economic well-being, the quality of public institutions and social ties. Cross section individual data from citizens in OECD countries show that income, education and the perceived quality of institutions have the highest impact on life satisfaction, followed by social capital. Country analysis shows a non linear but positive influence of per capita GDP on life satisfaction, but also that unemployment and inflation reduce average happiness, the former effect being stronger. Finally, better quality public institutions and having more social capital also bring more happiness. We conclude with some policy implications. |
| Keywords: | Happiness; Democracy; Social Capital; Quality of Institutions |
| JEL: | D63 D69 D78 J10 Z13 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp402008&r=pol |