nep-pol New Economics Papers
on Positive Political Economics
Issue of 2009‒08‒30
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Temporal aggregation in political budget cycles By Jorge M. Streb; Daniel Lema
  2. Politics, Policies and the Dynamics of Aggregate Productivity in Colombia By Marcela Eslava; Marcela Melendez
  3. Why do Education Vouchers Fail? By Peter Bearse, Buly A. Cardak, Gerhard Glomm, B. Ravikumar
  4. Political Economy of Ramsey Taxation By Daron Acemoglu; Mikhail Golosov; Aleh Tsyvinski
  5. Veto Power and Wealth: Analysis of the Development of the Swiss Old Age Security By Zenker, Christina G.
  6. In the eye of the beholder: subjective inequality measures and the demand for redistribution By Andreas Kuhn
  7. Biofuels production versus forestry in the presence of lobbies and technological change By Hammes, Johanna Jussila

  1. By: Jorge M. Streb; Daniel Lema
    Abstract: While existing cross-country studies on political budget cycles rely on annual data, we build a panel with quarterly and monthly data from Latin American and OECD countries over the 1980-2005 period. Disaggregated data allow to center the electoral year more precisely, and show the effects are concentrated in a three-quarter window around elections. Cycles are statistically significant only in Latin America, but the pattern is similar to OECD countries: the budget surplus/GDP ratio falls in the election period and rises in the post-election period. In line with the logic of rational opportunistic manipulation, these effects cancel out.
    Keywords: temporal aggregation, electoral window, pre- and post-electoral effects, political budget cycles, rational opportunistic cycles
    JEL: D72 D78 H60
    Date: 2009–08
  2. By: Marcela Eslava; Marcela Melendez
    Abstract: This paper describes private actors’ involvement in Colombia’s policymaking process. While more transparent and formal channels are used to discuss horizontal policies, they are also less effective. The adoption of targeted policies, however, follows a faster track and depends more on political power than on those policies’ potential as engines for productivity growth. Data targeted policies and political characteristics across sector-region units are used to further characterize the different groups’ weight in policymaking, and the effect of the implied unbalance on aggregate productivity. Electoral weight and being represented by business groups and associations are found to be important determinants of the policy benefits received by a sector in a region, especially when activities are located in regions affected by armed conflict. It is also found that the resulting imbalance of policies damages aggregate productivity.
    Keywords: Productivity, political economy, interest groups, targeted policies
    JEL: O43 O25 P16
    Date: 2009–08
  3. By: Peter Bearse, Buly A. Cardak, Gerhard Glomm, B. Ravikumar (University of North Carolina at Greensboro, La Trobe University,Indiana Univeristy, University of Iowa)
    Abstract: We examine quantitatively why uniform vouchers have repeatedly su¤ered electoral defeats against the current system where public and private schools coexist. We argue that the topping-up option available under uniform vouchers is not sufficiently valuable for the poorer households to prefer the uniform vouchers to the current mix of public and private education. We then develop a model of publicly funded means-tested edu- cation vouchers where the voucher received by each household is a linearly decreasing function of income. Public policy, which is determined by majority voting, consists of two dimensions: the overall funding level (or the tax rate) and the slope of the means testing function. We solve the model when the political decisions are sequential ?households vote ?rst on the tax rate and then on the extent of means testing. We establish that a majority voting equilibrium exists. We show that the means-tested voucher regime is majority preferred to the status-quo. These results are robust to alternative preference parameters, income distribution parameters and voter turnout.
    Date: 2009–08
  4. By: Daron Acemoglu; Mikhail Golosov; Aleh Tsyvinski
    Abstract: We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the discount factor of the politician is equal to or greater than that of the citizens, the Chamley-Judd result of zero long-run taxes holds. In contrast, if the politician is less patient than the citizens, the best (subgame perfect) equilibrium from the viewpoint of the citizens involves long-run capital taxation.
    JEL: E6 E62 H21
    Date: 2009–08
  5. By: Zenker, Christina G.
    Abstract: Switzerland was one of the last OECD-countries to introduce a program for old age security – the AHV. For many decades, expenditures both in absolute terms and as a portion of GDP remained low in OECD comparison. In the 1970ies however, expenditures exploded – within 10 years, the expenditures as a percentage of GDP doubled. This article explains this astonishing development by applying the veto player theory. Veto player theory is useful to determine changes in the policy stability. The higher the policy stability, the more difficult it is to move away from the political status quo. The lower the policy stability, the more probable it is that reforms and changes in government programs can be achieved. This article shows that the policy stability was particularly high in the constitution phase (from 1890 to 1947) and the consolidation phase (from 1974 to the present) and low in the phase in between (from 1948 to 1973), when the foundation for the expansion was set.
    Keywords: Veto player theory; Political Institutions; Direct Democracy; Social Spending
    JEL: H55 D02 D72
    Date: 2009–08
  6. By: Andreas Kuhn
    Abstract: This paper presents a simple conceptual framework intended for describing individuals' subjective evaluations of occupational wage inequality and their demand for redistribution. Most importantly, the framework explicitly allows for the distinction between individuals' perceptions and their normative beliefs. I illustrate the framework using Swiss survey data from the International Social Survey Program. While most individuals accept quite large wage differentials across occupations, they also prefer a lower level of overall wage inequality than what they perceive to exist. Consistent with previous evidence, the empirical analysis also shows that financial self-interest, social norms about distributive justice and perceptions of how wages are determined in reality all simultaneously influence the demand for redistribution. Finally, I show that subjective inequality measures and the demand for redistribution are substantially significant predictors of both individuals' support for government intervention and their party identification. This result provides indirect evidence on the presumed link between perceptions and beliefs on the one hand and and political outcomes on the other hand.
    Keywords: Subjective inequality measures, demand for redistribution, distributive justice, party identification, support for the welfare state
    JEL: D3 D63 H1
    Date: 2009–08
  7. By: Hammes, Johanna Jussila (VTI)
    Abstract: We study the political determination of a hypothetical land tax, which internalises a negative environmental externality from biofuels. The tax allocates land from biofuels towards forestry. Lobbying affects the tax rate, so that the sector with the lower elasticity of land demand determines the direction in which the tax deviaties from the social optimum. Lobbying by the sector with higher elasticity of land demand cancels partly out the other sector's lobbying. The politically optimal tax rate is "self-enhancing" in that the tax lowers the elasticity of land demand in the sector which initially had a lower elasticity, and raises it in the other sector. This can dwarf the government's other attempts to support the production of biofuels. Finally, technological progress in biofuels serves to strengthen that sector by lowering its elasticity of land demand, and weakens the forestry sector by raising its elasticity of land demand. Depending on the initial tax rate, this can be welfare enhancing or lowering. Furthermore, it can lead to excessive deforestation.
    Keywords: Biofuels; forestry; land use; political economy; technological change
    JEL: D78 H23 O13 O30 Q15 Q23 Q24 Q42 Q55
    Date: 2009–07–08

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