nep-pol New Economics Papers
on Positive Political Economics
Issue of 2009‒04‒13
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. Are State Elections Affected by the National Economy? Evidence from Australia By Andrew Leigh; Mark McLeish
  2. Trade, Development, and the Political Economy of Public Standards By Johan F.M. Swinnen; Thijs Vandemoortele
  3. Characterization of multidimensional spatial models of elections with a valence dimension By Azrieli, Yaron
  4. International Terrorism, Political Instability and the Escalation Effect By Campos, Nauro F.; Gassebner, Martin
  5. Democracy, Judicial Attitudes and Heterogeneity: The Civil Versus Common Law Tradition By Guerriero, C.
  6. The role of religion and political regime for human capital and economic development By Bednarik, Radek; Filipova, Lenka
  7. Integration, Labor Market Regulation, Lobbying, and Technological Change By Palokangas, Tapio K.
  8. Majority, proportionality, governability and factions By Migheli, Matteo; Ortona, Guido
  9. Economic Growth with Political Lobbying and Wage Bargaining By Palokangas, Tapio K.
  10. Education, Corruption and the Natural Resource Curse By Aldave, Iván; García-Peñalosa, Cecilia

  1. By: Andrew Leigh; Mark McLeish
    Abstract: Using data from 191 Australian state elections, we test how voters respond to economic conditions. We find that unemployment has a strong impact on election outcomes, with each additional percentage point of unemployment reducing the incumbent’s re-election probability by 3-5 per cent. However, when we separate luck (unemployment in other states) from competence (unemployment in that state relative to the rest of Australia), we find that both luck and competence are equally important. This is consistent with a psychological theory of the ‘fundamental attribution error’, in which observers consistently underestimate the importance of situational constraints. We also find evidence that unemployment driven by a clearly exogenous source – the United States economy – has a non-trivial impact on the re-election probability of Australian state governments. Our results suggest that Australian voters either retain too many state governments in economic booms, vote out too many state governments in recessions, or perhaps both.
    Keywords: rational voting; political business cycles; unemployment; elections
    JEL: D72 D80
    Date: 2009–01
  2. By: Johan F.M. Swinnen; Thijs Vandemoortele
    Abstract: This paper presents a political economy model of public standards in an open economy model. We use the model to derive the political optimum and to analyze different factors that have an influence on this political equilibrium. The paper discusses how the level of development influences the political equilibrium. We also analyze the relation between trade and the political equilibrium and compare this political outcome with the social optimum to identify under which cases ‘under-standardization’ or ‘over-standardization’ results, and which standards can be labeled as (producer)protectionist measures.
    Keywords: standards, political economy, trade, development
    JEL: F13 F59 H49 L15 O1
    Date: 2009
  3. By: Azrieli, Yaron
    Abstract: Spatial models of political competition are typically based on two assumptions. One is that all the voters identically perceive the platforms of the candidates and agree about their score on a "valence" dimension. The second is that each voter's preferences over policies are decreasing in the distance from that voter's ideal point, and that valence scores enter the utility function in an additively separable way. The goal of this paper is to examine the restrictions that these two assumptions impose, starting from a more primitive (and observable) data. Specifically, we consider the case where only the ideal point in the policy space and the ranking over candidates are known for each voter. We provide necessary and su±cient conditions for this collection of preference relations to be consistent with utility maximization as in the standard models described above. That is, we characterize the case where there are policies x1,...,xm for the m candidates and numbers v1,...,vm representing valence scores, such that a voter with an ideal policy y ranks the candidates according to vi-||xi-y||^2.
    Keywords: Elections; Spatial model; Valence; Euclidean preferences
    JEL: D72
    Date: 2009–03–30
  4. By: Campos, Nauro F. (Brunel University); Gassebner, Martin (ETH Zurich)
    Abstract: What are the main causes of international terrorism? The lessons from the surge of academic research that followed 9/11 remain elusive. The careful investigation of the relative roles of economic and political conditions did little to change the fact that existing econometric estimates diverge in size, sign and significance. In this paper we present a new rationale (the escalation effect) stressing domestic political instability as the main reason for international terrorism. Econometric evidence from a panel of more than 130 countries (yearly from 1968 to 2003) shows this to be a much more promising avenue for future research than the available alternatives.
    Keywords: terrorism, international terrorism, political instability, escalation
    JEL: C25 D72 F59 H56 P48
    Date: 2009–03
  5. By: Guerriero, C.
    Abstract: A key issue in the design of a legal system is the choice of the mechanism aggregating preferences over the level of deterrence. While under Case law appellate judges’ biases offset one another at the cost of volatility of precedents, under Statute law the Legislator chooses certain rules that are biased only when bribes are accepted: i.e., when political institutions are weak and/or the preference heterogeneity is sufficiently high. Thus, only in the last scenario, Case law can outperform Statute law. Also, institutions fostering limited discretion by lower courts improve the performance of Case law. Instrumental variables estimates based on historical data from 156 countries confirm this prediction.
    Keywords: legal origins, culture, democracy, economic development.
    JEL: K40 Z1 H11 P16
    Date: 2009–04–08
  6. By: Bednarik, Radek; Filipova, Lenka
    Abstract: In this paper, we focus on the research of the impact of religion and political regime on human capital and economic development. There is a lot of incentive literature concerning the impact of political regime and religion on the economic development. However, we use different approach to show the mutual dependence of variables and offer another aspect of economic development relating to religion which is secularization and the principle of equal rights. We use three equation model to verify two hypotheses in our paper. The first, that differences in GDP per capita among countries determined by technological progress are influenced by religion and political regime. The second, that there is the interplay between GDP and educational level and education and political regime.
    Keywords: economic development; political regime; religion; human capital
    JEL: O10 C33
    Date: 2009–04–08
  7. By: Palokangas, Tapio K. (University of Helsinki)
    Abstract: This paper examines an economic union where oligopolistic firms produce by skilled and unskilled labor and do in-house R&D by skilled labor. The planner of the union accepts new members to the union, regulates the labor market through a minimum wage for unskilled labor and supports firms by taxation. Firms and workers lobby the planner for prospective policy. It is shown that in the political equilibrium small unions regulate the labor market but do not support firms, while large unions deregulate the labor market and support firms.
    Keywords: economic integration, minimum wage, market power, endogenous technological change
    JEL: F15 J50 O40
    Date: 2009–03
  8. By: Migheli, Matteo; Ortona, Guido
    Abstract: Commonsense wisdom claims that majoritarian parliaments produce more efficient governments than proportional ones, because there are less decisors involved. Empirical evidence gives poor support to this claim. A possible explanation is that the real decisors may be not the parties, but the factions within them. We (a) assumed as factions of parties in system i the parties that provide the same government coalition in pure proportionality, (b) considered some stylized real cases, i.e. Germany, The Netherlands and Italy and (c) looked through simulation for a weight of factions such that governability is lower in FPTP than in threshold proportionality. In one case (The Netherlands) this can occur only under peculiar circumstances; in another one (Italy) it occurs for a high role of the factions, and in the last one it occurs also for a low role of the factions. Overall, our results provide support for the suggested hypothesis.
    Keywords: simulation, electoral systems, threshold proportionality, governability
    JEL: A12 C15 D72
    Date: 2009–04
  9. By: Palokangas, Tapio K. (University of Helsinki)
    Abstract: This paper examines an economy with a large number of industries, each producing a different good. Technological change follows a Poisson process where firms improve their productivity through investment in R&D. The less there are firms in the economy or the more they can coordinate their actions, the higher their profits. Labor is used in production or R&D. All workers are unionized and their wages depend on relative union bargaining power. If this power is high enough, then there is involuntary unemployment. Both workers and firms lobby the central planner of the economy which affects firms' and unions' market power. The main findings of the paper can be summarized the follows. The central planner can increase its welfare either (a) by increasing the level of income or (b) by speeding up economic growth. If (a) is more effective than (b), then the central planner eliminates union power altogether to have full employment. On the other hand, if (b) is more effective than (a), then the central planner supports labor unions to promote cost-escaping R&D.
    Keywords: economic integration, labor unions, market power, endogenous technological change
    JEL: F15 J50 O40
    Date: 2009–03
  10. By: Aldave, Iván (Central Bank of Peru and GREQAM); García-Peñalosa, Cecilia (GREQAM and CNRS)
    Abstract: The empirical evidence on the determinants of growth across countries has found that growth is lower when natural resources are abundant, corruption widespread and educational attainment low. An extensive literature has examined the way in which these three variables can impact growth, but has tended to address them separately. In this paper we argue that corruption and education are interrelated and that both crucially depend on a country’s endowment of natural resources. The key element is the fact that resources affect the relative returns to investing in human and in political capital, and, through these investments, output levels and growth. In this context, inequality plays a key role both as a determinant of the possible equilibria of the economy and as an outcome of the growth process.
    Keywords: natural resources, corruption, human capital, growth, inequality
    JEL: O11 O13 O15
    Date: 2009–04

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