nep-pol New Economics Papers
on Positive Political Economics
Issue of 2008‒12‒14
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Democratization as a cost-saving device By Luis Angeles
  2. When Does Legal Origin Matter? By Mohammad Amin; Priya Ranjan
  3. Corruption and trust in political institutions in sub-Saharan Africa By Emmanuelle Lavallée; Mireille Razafindrakoto; François Roubaud
  4. Washington meets Wall Street: A Closer Examination of the Presidential Cycle Puzzle By R. Kraeussl; A. Lucas; D. Rijsbergen; P.J. van der Sluis; E. Vrugt
  5. Conditional Corruption By Bin Dong; Uwe Dulleck; Benno Torgler
  6. What do majority-voting politics say about redistributive taxation of consumption and factor income? Not much. By Jim Dolmas
  7. The Constitutionalisation of a Compound Democracy: Comparing the European Union with the American Experience By Sergio Fabbrini

  1. By: Luis Angeles
    Abstract: We propose a theoretical analysis of democratization processes in which an elite extends the franchise to the poor when threatened with a revo- lution. The poor could govern without changing the political system by maintaining a continuous revolutionary threat on the elite. Revolutionary threats, however, are costly to the poor and democracy is a superior sys- tem in which political agreement is reached through costless voting. This provides a rationale for democratic transitions that has not been discussed in the literature
    Date: 2008–11
  2. By: Mohammad Amin (World Bank); Priya Ranjan (Department of Economics, University of California-Irvine)
    Abstract: A vast literature documents better economic institutions in common law compared with civil law countries. The present paper argues that legal origin alone is insufficient to explain differences in the quality of economic institutions across countries. Rather, it is the interaction between legal origin and the quality of political institutions that is important. Empirical evidence from a cross-section of 90 countries on entry regulation, a measure of how business friendly economic institutions are towards firms, strongly supports our claim. For example, we find that the number of procedures required to start a business are lower in common law compared with civil law countries by 2.5 procedures or 24.3% of the sample mean. However, this difference varies sharply across the sample of countries with high and low levels of political accountability. It equals a large 3.4 procedures (37% of the sample mean) for the former and a mere 1.1 procedures (9.7% of the sample mean) for the latter. We conclude that legal origin matters for the quality of economic institutions but only when political accountability is high. We provide a plausible explanation for this phenomenon based on recent findings in the literature on political economy.
    Keywords: Legal origin; Regulation,; Political institutions
    JEL: H11 K2 P48 P51
    Date: 2008–12
  3. By: Emmanuelle Lavallée (DIAL, Paris); Mireille Razafindrakoto (DIAL, IRD, Paris); François Roubaud (DIAL, IRD, Paris)
    Abstract: (english) This paper analyzes the impact of corruption on the extent of trust in political institutions using a rich collection of comparable data provided by the Afrobarometer surveys conducted in 18 sub-Saharan African countries. More specifically, we set out to test the “efficient grease” hypothesis that corruption can strengthen citizens’ trust since bribe paying and clientelism open the door to otherwise scarce and inaccessible services and subsidies, and that this increases institutional trust. Our findings reject this theoretical argument. We show that corruption never produces trust-enhancing effects regardless of the evaluation of public service quality. The results reveal how perceived and experienced corruption impact negatively, but differently, on citizens’ trust in political institutions. The adverse effect of perceived corruption decreases with the fall in public service quality, whereas the negative effect of experienced corruption decreases as public service quality increases. _________________________________ (français) Cet article explore les interactions entre la confiance institutionnelle et la corruption à partir d’un riche corpus d’enquêtes-ménages comparables : les enquêtes Afrobaromètre réalisées dans 18 pays d’Afrique sub-saharienne. Plus précisément, il teste les théories de l’ « huile dans les rouages » selon lesquelles la corruption peut renforcer la confiance des citoyens en leur permettant d’accéder à des services publics autrement inaccessibles. Nos résultats infirment clairement ces théories. Nous montrons que la corruption réduit clairement la confiance et ce quelque soit la qualité des services gouvernementaux. Ils suggèrent toutefois que l’expérience et la perception de la corruption ont des effets distincts sur la confiance institutionnelle.
    Keywords: Corruption, Institutions.
    JEL: D73 P48
    Date: 2008–09
  4. By: R. Kraeussl (VU University Amsterdam); A. Lucas (VU University Amsterdam); D. Rijsbergen (VU University Amsterdam); P.J. van der Sluis (VU University Amsterdam); E. Vrugt (APG Investments)
    Abstract: This paper tests the policitcal dimensions of the presidential cycle effect in U.S. financial markets. The presidential cycle effect states that average stock market returns are significantly higher in the last two years compared to the first two years of a presidential term. We confirm the robust existence of this cycle in U.S. stock markets as well as bond markets. As most rational theories to explain the cycle were falsified by earlier empirical work, this paper sets out to test the presidential cycle election (PCE) theory as an alternative explanation. The PCE theory states that incumbent parties and presidents have an incentive to manipulate the economy (via budget expansions, taxes, etc.) to remain in power. We formulate seven different propositions relating to fiscal, monetary, tax, and political implications of PCE theory. We find no statistically significant evidence confirming the PCE theory as a plausible explanation for the presidential cycle effect. The existence of the presidential cycle effect in U.S. financial markets thus remains a puzzle that cannot be easily explained by politicians mis-using their economic influence to remain in power.
    Keywords: political economy; inefficient markets; market anomalies; calendar effects
    JEL: G14 P16 E32
    Date: 2008–10–23
  5. By: Bin Dong; Uwe Dulleck; Benno Torgler
    Abstract: We argue that the decision to bribe bureaucrats depends on the frequency of corruption within a society. We provide a behavioral model to explain this conduct: engaging in corruption results in a disutility of guilt. This implies that people observe a lower probability to be involved in corruption if on average the guilt level of others within a country is higher. We also explore whether - and to what extent - group dynamics or socialization and past experiences affect corruption. In other words, we explore theoretically and empirically whether corruption is contagious and whether conditional cooperation matters. We use the notion of “conditional corruption” for these effects. The empirical section presents evidence using two data sets at the micro level and a large macro level international panel data set covering almost 20 years. The results indicate that the willingness to engage in corruption is influenced by the perceived activities of peers and other individuals. Moreover, the panel data set at the macro level indicates that the past level of corruption has a strong impact on the current corruption level.
    Keywords: corruption; contagion effect; conditional cooperation; interdependent preferences
    JEL: K42 D72 D64 O17 J24
    Date: 2008–11
  6. By: Jim Dolmas
    Abstract: Tax rates on labor income, capital income and consumption-and the redistributive transfers those taxes finance-differ widely across developed countries. Can majority-voting methods, applied to a calibrated growth model, explain that variation? The answer I fund is yes, and then some. In this paper, I examine a simple growth model, calibrated roughly to U.S. data, in which the political decision is over constant paths of taxes on factor income and consumption, used to finance a lump-sum transfer. I first look at outcomes under probabilistic voting, and find that equilibria are extremely sensitive to the specification of uncertainty. I then consider other ways to restrict the range of majority-rule outcomes, looking at the model's implications for the shape of the Pareto set and the uncovered set, and the existence or non-existence of a Condorcet winner. Solving the model on discrete grid of policy choices, I find that no Condorcet winner exists and that the Pareto and uncovered sets, while small relativeto the entire issue space, are large relative to the range of tax policies we see in data for a collection of 20 OECD countries. Taking that data as the issue space, I find that none of the 20 can be ruled out on effciency grounds, and that 10 of the 20 are in the uncovered set. Those 10 encompass policies as diverse as those of the US, Norway and Austria. One can construct a Condorcet cycle including all 10 countries' tax vectors. ; The key features of the model here, as compared to other models on the endogenous determination of taxes and redistribution, is that the issue space is multidimensional and, at the same time, no one voter type is suffciently numerous to be decisive. I conclude that the sharp predictions of papers in this literature may not survive an expansion of their issue spaces or the allowance for a slightly less homogeneous electorate.
    Keywords: Taxation ; Consumption (Economics) ; Income tax ; Fiscal policy
    Date: 2008
  7. By: Sergio Fabbrini
    Abstract: Based on an interpretation of the European Union (EU) as a compound democracy, this article argues that the constitutionalisation of the European Union is necessarily a contested process.. A compound democracy is defined as a union of states constituted by units of different demographic size, political history and geographical interests, and as such is necessarily characterized by different views on its constitutional identity. The EU experience is analyzed from the perspective of the United States (US), which is a compound democracy by design. In both cases, constitutionalisation has been an open and contested process. However, whereas the US process was based on a common constitutional framework, at least since the Civil War, and has been ordered by a supermajority procedure for settling disputes, the EU lacks a document that embodies a shared language and a procedure that is able to solve the disputes. As a result, the process of constitutionalisation in the EU, contrary to the one in the US, ends up periodically in stalemate.
    Keywords: constitutional change; constitution building; Constitution for Europe; European Convention
    Date: 2008–11–03

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