nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒01‒16
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Electoral Rules, Political Competition and Fiscal Expenditures: Regression Discontinuity Evidence from Brazilian Municipalities By Chamon, Marcos; de Mello, João M. P.; Firpo, Sergio
  2. Tax Contracts and Elections By Hans Gersbach; Maik T. Schneider
  3. How much income redistribution? An explanation based on vote-buying and corruption By Loukas Balafoutas
  4. Political Persistence, Connections and Economic Growth By Giorgio Bellettini; Carlotta Berti Ceroni; Giovanni Prarolo
  5. Off-the-peak preferences over government size By Francisco Mart’nez-Mora; M. Socorro Puy
  6. A communication game on electoral platforms By Demange, Gabrielle; Van Der Straeten, Karine
  7. Oil Rents, Corruption, and State Stability: Evidence From Panel Data Regressions By Rabah Arezki; Markus Bruckner
  8. Rain and the Democratic Window of Opportunity By Markus Brückner; Antonio Ciccone
  9. On the relation between income inequality and happiness: Do fairness perceptions matter? By Bjornskov, Christian; Dreher, Axel; Fischer, Justina AV; Schnellenbach, Jan
  10. Parallel axiomatizations of majority and unanimity By Quesada, Antonio
  11. Governance and Deforestation Due to Agricultural Land Expansion By Gregmar I. Galinato; Suzette P. Galinato
  12. Voting on Thresholds for Public Goods: Experimental Evidence By Julian Rauchdobler; Rupert Sausgruber; Jean-Robert Tyran
  13. A short step between democracy and dictatorship By Quesada, Antonio
  14. Allocation by coercion By Quesada, Antonio
  15. Why we should all care about social institutions related to gender inequality By Boris Branisa; Stephan Klasen; Maria Ziegler
  16. Voting with Feet: Community Choice in Social Dilemmas By Gürerk, Özgür; Irlenbusch, Bernd; Rockenbach, Bettina
  17. Decision by majority and the right to vote By Quesada, Antonio

  1. By: Chamon, Marcos (International Monetary Fund); de Mello, João M. P. (Pontifical Catholic University of Rio de Janeiro (PUC-Rio)); Firpo, Sergio (São Paulo School of Economics)
    Abstract: We exploit a discontinuity in Brazilian municipal election rules to investigate whether political competition has a causal impact on policy choices. In municipalities with less than 200,000 voters mayors are elected with a plurality of the vote. In municipalities with more than 200,000 voters a runoff election takes place among the top two candidates if neither achieves a majority of the votes. We show that the possibility of runoff increases political competition. We use the discontinuity as a source of exogenous variation to infer causality from political competition to fiscal policy. Our results suggest that political competition induces more investment and less current expenditures, particularly personnel expenditures. The impact of political competition is larger when incumbents can run for reelection, suggesting incentives matter insofar as incumbents can themselves remain in office.
    Keywords: electoral systems, political competition, regression discontinuity, fiscal expenditures
    JEL: H72 D72 C14 P1
    Date: 2009–12
  2. By: Hans Gersbach (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland); Maik T. Schneider (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: In this paper we examine the impact of tax contracts as a novel institution on elections, policies, and welfare. We consider a political game in which three parties compete to form the government. Parties have policy preferences about the level of public-good provision and benefit from perks when in office. A government raises taxes for both purposes. We show that tax contracts yield moderate policies and lead to lower perks by avoiding the formation of grand coalitions in order to win government. Moreover, in polarized societies they unambigously improve the welfare of the median voter.
    Keywords: political contracts, elections, government formation, tax promise
    JEL: D72 D82 H55
    Date: 2009–12
  3. By: Loukas Balafoutas
    Abstract: This paper studies how income tax rates are determined and how they are related to government corruption in the form of fund capture. A model is presented where rich voters can block redistribution by buying the votes of some poor voters. In equilibrium there is only limited redistribution and income tax rates are a negative function of government corruption. When rich voters can bribe the government, an additional equilibrium with zero taxation is possible. The link between corruption and tax rates is tested using cross country data; the empirical evidence is fully consistent with the predictions of the model.
    Keywords: tax rates, vote-buying, lobbying, government corruption
    JEL: D72 D73 H2 H3
    Date: 2009–12
  4. By: Giorgio Bellettini (University of Bologna); Carlotta Berti Ceroni (University of Bologna); Giovanni Prarolo (University of Bologna)
    Abstract: Using data on a panel of 56 democratic countries in the period 1975-2004, we find evidence of a negative association between political stability and economic growth which is stronger and empirically more robust in countries with high bureaucratic costs. Motivated by these results, which contrast with previous contributions, we develop a model of growth with quality improvements where political connections with long-term politicians can be exploited by low-quality producers to defend their monopoly position and prevent innovation and entry of high-quality competitors. This requires that the incumbent politician remains in office and that the red-tape cost advantage granted by political connections is large relative to the quality upgrade related to innovation. Consistently with our empirical findings, the model delivers a negative association between the probability that the incumbent politician remains in office and average economic growth in the presence of high bureaucratic costs.
    Keywords: Political Persistence, Growth, Innovation
    JEL: O43
    Date: 2009–12
  5. By: Francisco Mart’nez-Mora (University of Leicester); M. Socorro Puy (Department of Economic Theory, Universidad de M‡laga)
    Abstract: In this paper, we analyze the political consequences derived from policy preferences which are non-symmetric around the peak. While the assumption of symmetric preferences is innocuous in political equi- libria with platforms convergence, it is not neutral when candidates are differentiated. Following the citizen-candidate approach, we show that a larger government size emerges when preferences of the me- dian voter off-the-peak are more intense towards overprovision (what we call wasteful preferences), whereas a smaller government results when her preferences are more intense towards underprovision (what we call scrooge preferences). We next study the determinants of the shape of preferences off-the-peak and find that: (i) A positive sign of the third derivative of the policy-induced utility function indicates wasteful preferences, while a negative sign indicates scrooge prefer- ences. (ii) The analog of KimballÕs coefficient of prudence (which is closely related to Arrow-PrattÕs coefficient of risk aversion), can be used to measure degrees of wastefulness and scroogeness. (iii) Sym- metric preferences require imposing quite stringent restrictions on the policy problem. Numerical examples illustrate the discrepancies de- rived from symmetric preferences versus scrooge preferences in terms of equilibrium predictions.
    Keywords: Single-peaked preferences, citizen-candidate, coefficient of prudence, differentiated platforms, risk-aversion
    JEL: D72 H31 H5
    Date: 2009–12
  6. By: Demange, Gabrielle (Paris School of Economics (EHESS)); Van Der Straeten, Karine (Toulouse School of Economics)
    Abstract: This paper proposes a game to study strategic communication on platforms by parties. Parties’ platforms have been chosen in a multidimensional policy space, but are imperfectly known by voters. Parties strategically decide the emphasis they put on the various issues, and thus the precision of the information they convey to voters on their position on each issue. The questions we address are the following: what are the equilibria of this communication game? How many issues will they address? Will parties talk about the same issues or not? Will they talk on issues that they "own" or not?
    JEL: C70 D70
    Date: 2009–11–23
  7. By: Rabah Arezki; Markus Bruckner
    Abstract: We examine the effects of oil rents on corruption and state stability exploiting the exogenous within-country variation of a new measure of oil rents for a panel of 31 oil-exporting countries during the period 1992 to 2005. We find that an increase in oil rents significantly increases corruption, significantly deteriorates political rights while at the same time leading to a significant improvement in civil liberties. We argue that these findings can be explained by the political elite having an incentive to extend civil liberties but reduce political rights in the presence of oil windfalls to evade redistribution and conflict. We support our argument documenting that there is a significant effect of oil rents on corruption in countries with a high share of state participation in oil production while no such link exists in countries where state participation in oil production is low.
    Keywords: Corruption , Economic models , Fiscal policy , Fiscal transparency , Governance , Oil exporting countries , Oil production , Oil revenues , Political economy , Public enterprises ,
    Date: 2009–12–04
  8. By: Markus Brückner; Antonio Ciccone
    Abstract: According to the economic approach to political transitions, transitory negative economic shocks can open a window of opportunity for democratic improvement. Testing the theory requires a source of transitory shocks to the aggregate economy. We use rainfall shocks in Sub-Saharan African countries and find that negative rainfall shocks are followed by significant improvement in democratic institutions. Instrumental variables estimates indicate that following a transitory negative income shock of 1 percent, democracy scores improve by 0.9 percentage points and the probability of a democratic transition increases by 1.3 percentage points.
    Date: 2009–12
  9. By: Bjornskov, Christian; Dreher, Axel; Fischer, Justina AV; Schnellenbach, Jan
    Abstract: In this paper, we revisit the association between happiness and inequality. We argue that the perceived fairness of the income generation process affects this association. Building on a two-period model of individual life-time utility maximization, we predict that persons with higher perceived fairness will experience higher levels of life-time utility and are less in favor of income redistribution. In societies with a high level of actual social mobility, income inequality is perceived more positively with increased expected fairness. The opposite is expected for countries with low actual social mobility, due to an increasing relevance of a disappointment effect resulting from unsuccessful individual investments. Using the World Values Survey data and a broad set of fairness measures, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the disappointment effect in low social mobility countries. In contrast, the results for high-mobility countries turn out to be ambiguous.
    Keywords: Happiness; life satisfaction; subjective well-being; inequality; income distribution; redistribution; political ideology; justice; fairness; World Values Survey
    JEL: D31 H40 J62 I31 Z13
    Date: 2009–12–21
  10. By: Quesada, Antonio
    Abstract: The relative majority rule and the unanimity rule are characterized for the case in which there are only two alternatives. The main axioms are motivated by a principle of binary representativeness: the aggregation of the preferences of n voters is the result of splitting the n voters into two groups, aggregating the preferences of the voters of each group, selecting for each group a representative that adopts the preference of the group, and finally aggregating the preferences of the two representatives. The two characterizations are shown to differ from each other in just one axiom, expressing strategyproofness (unanimity) or group strategyproofness (majority).
    Keywords: Social welfare function; relative majority rule; unanimity rule; representativeness; axiomatic characterization; two alternatives.
    JEL: D71
    Date: 2009–12–16
  11. By: Gregmar I. Galinato; Suzette P. Galinato (School of Economic Sciences, Washington State University)
    Abstract: This article examines the effect of governance on forest cover in developing countries. We develop a theoretical model that explains how governance, particularly corruption control and politically stability, affects deforestation due to agricultural land expansion. The theoretical model shows the importance of the complementarity or substitutability of technology and land use in determining the effect of governance on agricultural land expansion and, consequently, forest cover. We complement the theoretical model with a structural empirical analysis to measure the effect of corruption control and political stability on deforestation in developing countries through two direct channels of deforestation: agricultural land expansion and road building. We find that political stability has a positive and significant effect on forest cover but corruption control has a negative and significant effect on forest cover due to increased agricultural land expansion.
    Keywords: Deforestation, Governance, Corruption, Political stability
    JEL: Q23 O10
    Date: 2009–12
  12. By: Julian Rauchdobler (Department of Public Economics, University of Innsbruck); Rupert Sausgruber (Department of Public Economics, University of Innsbruck); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: Introducing a threshold in the sense of a minimal project size transforms a public goods game with an inefficient equilibrium into a coordination game with a set of Pareto-superior equilibria. Thresholds may therefore improve efficiency in the voluntary provision of public goods. In our one-shot experiment, we find that coordination often fails and exogenously imposed thresholds are ineffective at best and often counter-productive. This holds under a range of threshold levels and refund rates. We test if thresholds perform better if they are endogenously chosen, i.e. if a threshold is approved in a referendum, because voting may facilitate coordination due to signaling and commitment effects. We find that voting does have signaling and commitment effects but they are not strong enough to significantly improve the efficiency of thresholds.
    Keywords: provision of public goods; threshold; voting; experiments
    JEL: H41 D72 C92
    Date: 2009–12
  13. By: Quesada, Antonio
    Abstract: The majority rule and the hierarchically dictatorial rule are both characterized when preferences are defined over two alternatives. The majority rule is characterized in terms of seven axioms. The hierarchically dictatorial rule is characterized in terms of six of these seven axioms and the negation of the seventh, so each rule can be seen as obtained from the other by negating just one of the axioms. The pivotal axiom holds that, for societies with at least three members, the frequency with which indifference is the result of the preference aggregation must be smaller than the frequency with which one of the alternatives is declared preferred to the other.
    Keywords: Social welfare function; majority rule; dictatorship; axiomatic characterization; two alternatives.
    JEL: D71
    Date: 2009–12–19
  14. By: Quesada, Antonio
    Abstract: The problem of allocating indivisible goods is considered when groups of individuals can make use of their power to plunder other groups. A monarch in a group of individuals is an individual who always obtains one of his most preferred goods. A Paretian condition together with a requirement of robust stability lead to the existence of monarchs in all subsets of individuals, except possibly one.
    Keywords: Allocation rule; dictator; indivisible good; power; coalition formation.
    JEL: D71 D61 D85
    Date: 2009–11–30
  15. By: Boris Branisa (University of Göttingen); Stephan Klasen (University of Göttingen); Maria Ziegler (University of Göttingen)
    Abstract: Institutions are a major factor explaining development outcomes. This study focuses on social institutions related to gender inequality understood as long-lasting norms, values and codes of conduct that shape gender roles, and presents evidence on why they matter for development. We derive hypotheses from existing theories and empirically test them at the cross-country level with linear regressions using the newly created Social Institutions and Gender Index (SIGI) and its subindices as measures for social institutions. We find that apart from geography, political system, religion, the level of economic development, one has to consider social institutions related to gender inequality to better account for differences in development. Our results show that social institutions that deprive women of their autonomy and bargaining power in the household, or that increase the private costs and reduce the private returns to investments into girls, are associated with lower female education, higher fertility rates and higher child mortality. Moreover, social institutions related to gender inequality are negatively associated with governance measured as rule of law and voice and accountability.
    Keywords: Social institutions; SIGI; Gender inequality; Fertility; Child and infant mortality; Female education; Governance
    JEL: D63 I10 I20 H1 J16
    Date: 2009–11–13
  16. By: Gürerk, Özgür (University of Erfurt); Irlenbusch, Bernd (London School of Economics); Rockenbach, Bettina (University of Erfurt)
    Abstract: Economic and social interactions often take place in open communities but the dynamics of the community choice process and its impact on cooperation of its members are yet not well understood. We experimentally investigate community choice in social dilemmas. Participants repeatedly choose between a community with and an alternative without punishment opportunities. Within each community a social dilemma game is played. While the community with punishment grows over time and fully cooperates, the alternative becomes depopulated. We analyze the success of this "voting with feet" mechanism and find that endogenous self-selection is key while slow growth is less decisive.
    Keywords: cooperation, social dilemmas, community choice, punishment, voting with feet
    JEL: C72 C92 H41
    Date: 2009–12
  17. By: Quesada, Antonio
    Abstract: The (relative) majority rule is a benchmark collective decision norm. This paper provides a simple characterization of the majority rule, for the two-alternative case, that relies on the following property: the choice prescribed by the rule to a group I of individuals must be the one that would be prescribed in at least 50% of the strict subgroups that can be formed in I. This property means if some subgroup is denied the right to participate in the collective decision, the most likely event is that the exclusion of the subgroup will have no effect on the decision.
    Keywords: Social welfare function; majority rule; axiomatic characterization; two alternatives; manipulation.
    JEL: D71
    Date: 2009–12–17

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