nep-pol New Economics Papers
on Positive Political Economics
Issue of 2009‒02‒14
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Institutions and Human Development Does Democracy Fulfill its 'Constructive' and 'Instrumental' Role? By Vollmer, Sebastian; Ziegler, Maria
  2. Awareness and AIDS: A Political Economy Model By Gani Aldashev; Jean-Marie Baland
  3. A Theory of Political Competition over Military Policy and Income Redistribution By Naoki Yoshihara
  4. The Labor Market of Italian Politicians By Antonio Merlo; Vincenzo Galasso; Massimiliano Landi; Andrea Mattozzi
  5. Mass Media and Public Policy:Global Evidence from Agricultural Policies By Alessandro Olper; Johan F.M. Swinnen
  6. On the General Existence of Pure Strategy Political Competition Equilibrium in Multi-dimensional Party-Faction Models By Naoki Yoshihara
  7. What determines debt intolerance? The role of political and monetary institutions By Raffaela Giordano; Pietro Tommasino
  8. Political Cycles in a Small Open Economy and the Effect of Economic Integration By Georgios Efthyvoulou
  9. Political connections and the process of going public: evidence from China By Francis , Bill B; Hasan, Iftekhar; Sun, Xian
  10. Role of media in curbing corruption: the case of Uganda under President Yoweri K. Museveni during the “no-party” system By Monica Nogara
  11. The Political Economy of Village Sanitation in South India: Capture or Poor Information? By Ban, Radu; Das Gupta, Monica; Rao, Vijayendra
  12. Bargaining one-dimensional policies and the efficiency of super majority rules By Clara Ponsatí; Daniel Cardona
  13. Parliamentary Election Cycles and the Turkish Banking Sector By Christopher F. Baum; Mustafa Caglayan; Oleksandr Talavera
  14. Institutional aspects of economic integration – economic integration and political integration By Duduiala-Popescu, Lorena

  1. By: Vollmer, Sebastian (University of GAottingen); Ziegler, Maria (University of GAottingen)
    Abstract: Institutions are a major field of interest in the study of development processes. The authors contribute to this discussion concentrating our research on political institutions and their effect on the non-income dimensions of human development. First, they elaborate a theoretical argument why and under what conditions democracies compared to autocratic political systems might perform better with regards to the provision of public goods. Due to higher redistributive concerns matched to the needs of the population democracies should show a higher level of human development. In the following they analyze whether our theoretical expectations are supported by empirical facts. The authors perform a static panel analysis over the period of 1970 to 2003. The model confirms that living in a democratic system positively affects human development measured by life expectancy and literacy rates even controlling for GDP. By analyzing interaction effects they find that the performance of democracy is rather independent of the circumstances. However, democracy leads to more redistribution in favor of health provision in more unequal societies.
    Keywords: human development; democracy; political institutions; life expectancy; literacy; panel analysis
    JEL: H11 I10 I20
    Date: 2009–01–01
  2. By: Gani Aldashev; Jean-Marie Baland
    Abstract: We present a simple political economy model that explains two major puzzles of government policies to combat HIV/AIDS epidemic: the lack of policy response in many countries where the epidemic is massive and the reversal of the downward trend in HIV prevalence in the countries that have adopted early agressive prevention campaigns. The model builds on the assumption that the unaware citizens impose a negative externality on the aware by increasing the risk of contagion. Prevention campaigns raise awareness of the current generation, which then partially transmit this awareness to the next generation, thus creating political support for the next-period awareness campaigns. The economy has two steady-state equilibria: the "good" one (with high awareness and low prevalence) and the "bad" one (low awareness, high prevalence). The "good" equilibrium is fragile, i.e. a sufficiently large exogenous drop in HIV prevalence undermines the next-generation political support for campaigns and makes the economy drift away towards the "bad" equilibrium.
    Keywords: HIV/AIDS, voting, overlapping generations, awareness
    JEL: I18 H51
    Date: 2008
  3. By: Naoki Yoshihara
    Abstract: We discuss political competition games between Left and Right parties, in which the policy space is two dimensional. One issue is the choice of proportional tax rate, and the second is the allocation of tax revenue between military policies and social welfare policies. On these political issues, the stylized fact is that left-wing parties prefer higher tax rates and lower military expenditure than do right-wing parties. We examine the kinds of political environments in which this fact can be rationalized as the equilibrium outcome of a given political game. By adopting the notion of the party-unanimity Nash equilibrium [Roemer (1998; 1999; 2001; 2005)], not only votersf economic motivations, but also their ideological positions are shown to be crucial factors in explaining stylized party behavior.
    Keywords: multidimensional political competition games, partyunanimity Nash equilibria, military expenditure, ideological concerns
    JEL: C62 C72 D72 D78
    Date: 2008–06
  4. By: Antonio Merlo; Vincenzo Galasso; Massimiliano Landi; Andrea Mattozzi
    Abstract: In this study, we analyze the career profiles of Italian politicians in the post-war period. Using a unique, newly collected data set that contains detailed information on all the politicians who have been elected to the Italian Parliament between 1948 and 2008, we address a number of important issues that pertain to: (1) their career paths prior to election to Parliament; (2) their parliamentary careers; and (3) their post-Parliament employment. Our data encompass two institutional regimes: the First Republic (1948-1993) and the Second Republic (1993-present), characterized by different electoral rules and party structures. After providing a comprehensive view of the career profiles of Italian politicians over the entire sample period, we highlight the major differences between the First and the Second Republic. We also compare the career paths of Italian legislators to those of the members of the United States Congress.
    Keywords: political careers, career politicians, Republic of Italy
    JEL: D72 J44 J45
    Date: 2008
  5. By: Alessandro Olper; Johan F.M. Swinnen
    Abstract: Mass media plays a crucial role in information distribution and thus in the political market and public policy making. Theory predicts that information provided by mass media reflects the media’s incentives to provide news to different types of groups in society, and affects these groups’ influence in policy-making. We use data on agricultural policy from 60 countries, spanning a wide range of development stages and media markets, to test these predictions. We find that, in line with theoretical predictions, public support to agriculture is strongly affected by the structure of the mass media. In particular, a greater role of the private mass media in society is associated with policies which benefit the majority more: it reduces taxation of agriculture in poor countries and reduces subsidization of agriculture in rich countries, ceteris paribus. The evidence is also consistent with the hypothesis that increased competition in commercial media reduces transfers to special interest groups and contributes to more efficient public policies.
    Keywords: Mass Media; Media Structure; Information; Agricultural Protection; Political Economy
    JEL: D72 D83 Q18
    Date: 2009
  6. By: Naoki Yoshihara
    Abstract: In this paper, we consider political competition games of two parties in multi-dimensional policy spaces, where the two parties have two factions, opportunists and militants, that intra-party bargain with each other. In such a game, we adopt the party-unanimity Nash equilibrium (PUNE) [Roemer (1998; 1999; 2001)] as an appropriate solution concept, and examine the general existence problem of this. In particular, we suppose that any faction of each party does not necessarily have dictatorial power. We then provide a general existence theorem for PUNE in this class of games.
    Keywords: multi-dimensional political competition games, partyunanimity Nash equilibria, pure-compromise PUNE
    JEL: M12 M5 J31 J33
    Date: 2008–11
  7. By: Raffaela Giordano (Bank of Italy, Structural Economic Analysis Department); Pietro Tommasino (Bank of Italy, Structural Economic Analysis Department)
    Abstract: Why do some states default on their debt more often than others? We argue that sovereign default is the outcome of a political struggle among different groups of citizens. It is more likely to happen if: (i) domestic debt-holders are relatively weak; (ii) the the political costs of the financial turmoil typically triggered by a sovereign bankrupcy are small. We show that these conditions are in turn more likely to be present if a country lacks a well-developed financial system and/or a sufficiently independent central bank.
    Keywords: fiscal sustainability, political economy, bank runs, central bank independance, financial development.
    JEL: E51 E52 H63
    Date: 2009–01
  8. By: Georgios Efthyvoulou (School of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: This paper examines whether partisan politics and opportunistic government behavior generate political cycles in a small open economy, and, if so, whether such effects survive under increased economic integration. We discuss evidence drawn from Cyprus for the period 1978-2006. The empirical analysis extends the work of Alesina et al. (1997) to accommodate the special features of the Cypriot economy in a controlled environment era and follows a more technical econometric approach to ensure that our estimations will not draw misleading inferences. The results are in line with the rational partisan model and are similar to the ones obtained for other countries. On the other hand, the findings for Cyprus support also the existence of an electoral cycle in fiscal policy and reject the one in monetary policy. We argue that the unique politico-economic profile of a country is crucial for the empirical success of different theories. Furthermore, we find that the reported effects do not persist in the run-up
    Date: 2008–09
  9. By: Francis , Bill B (Lally School of Management and Technology); Hasan, Iftekhar (Lally School of Management, Rensselaer Polytechnic Institute and Bank of Finland); Sun, Xian (Office of the Comptroller of the Currency, US Department of the Treasury)
    Abstract: We examine how political connections impact the process of going public. Specifically, we test how political connections impact the pricing of newly offered shares, the magnitude of underpricing, and the fixed cost of going public. Based on experiences of the new public firms in the Chinese security markets and using multiple measures of political connections, we find robust evidence that issuing firms with political connections reap significant preferential benefits from going public. To be specific, we find that firms – irrespective of ownership arrangements – with greater political connections have higher offering prices, less underpricing, and lower fixed costs during the going-public process.
    Keywords: political connections; IPO; emerging markets
    JEL: G24 G30 G32 G34 G38 H00
    Date: 2009–02–03
  10. By: Monica Nogara
    Abstract: Free, independent and hard-hitting media can play an important role in curbing corruption. Media in Uganda has enjoyed considerable freedom in this regard since Museveni came to power in 1986. The evolving power structure and a changing media landscape, however, have presented both challenges and opportunities for media’s watchdog role on corruption. This paper will explore how this environment defined such role between 1986 and 2006 during Museveni’s “no-party” rule. It argues that, although media won important battles to promote accountability in public offices, the regime’s complex power structure has consistently challenged their role as an instrument of public accountability.
    Keywords: corruption, media, press freedom, governance, rule of law
    JEL: D72 D73 D81 D82 D83 H11 K40 L82
    Date: 2009–01
  11. By: Ban, Radu (The World Bank); Das Gupta, Monica (The World Bank); Rao, Vijayendra (The World Bank)
    Abstract: Despite efforts to mandate and finance local governments' provision of environmental sanitation services, outcomes remain poor in the villages surveyed in the four South Indian states. The analysis indicates some key issues that appear to hinder improvements in sanitation. Local politicians tend to capture sanitary infrastructure and cleaning services for themselves, while also keeping major village roads reasonably well-served. Their decisions suggest, however, that they neither understand the health benefits of sanitation, nor the negative externalities to their own health if surrounding areas are poorly served. Our findings suggest that improving sanitary outcomes requires disseminating information on the public goods nature of their health benefits, as well as on the local government's responsibilities. It also requires putting public health regulations in place, along with measures to enable accountability in service provision.
    Keywords: access to services; accountability; Accounting; affiliates; agricultural output; agriculture; air; air freight; air transport; Backbone; bank loans; Bank of Tanzania; Banking sector
    Date: 2008–12–01
  12. By: Clara Ponsatí; Daniel Cardona
    Abstract: We consider negotiations selecting one-dimensional policies. Individuals have single-peaked preferences, and they are impatient. Decisions arise from a bargaining game with random proposers and (super) majority approval, ranging from the simple majority up to unanimity. The existence and uniqueness of stationary subgame perfect equilibrium is established, and its explicit characterization provided. We supply an explicit formula to determine the unique alternative that prevails, as impatience vanishes, for each majority. As an application, we examine the efficiency of majority rules. For symmetric distributions of peaks unanimity is the unanimously preferred majority rule. For asymmetric populations rules maximizing social surplus are characterized.
    Date: 2008–12–17
  13. By: Christopher F. Baum (Boston College; DIW Berlin); Mustafa Caglayan (University of Sheffield); Oleksandr Talavera (Aberdeen Business School, Robert Gordon University)
    Abstract: This paper analyzes the effects of parliamentary election cycles on the Turkish banking system. Using annual bank-level data representing all banks in Turkey during 1963-2005, we find that there are meaningful differences in the structure of assets, liabilities and financial performance across different stages of the parliamentary election cycle. However, we find that government-owned banks operate similarly to both domestic and foreign-owned private sector banks before, during and after elections. Our estimates also show that government-owned banks underperform their domestic and foreign-owned private sector counterparts.
    Keywords: elections, state banks, domestic banks, foreign-owned banks, loans, interest rate margin
    JEL: G21 G28
    Date: 2009–02–12
  14. By: Duduiala-Popescu, Lorena
    Abstract: Economic integration is defined as the elimination of economic borders between two or more savings. In turn, an economic border demarcation over which any actual or potential mobility of goods, services and factors of production and communication flows, is relatively low. On both sides of a frontier economy, pricing and quality of goods, services and factors are only marginally influenced by flows across borders.
    Keywords: economic integration; political integration; effective competition; potential competition; federation
    JEL: F22 F59 F43 A11 F15 F02 A19 F01 F36
    Date: 2009–02–08

This nep-pol issue is ©2009 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.