nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒03‒06
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  2. Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture By Marcela Eslava; Oskar Nupia
  3. The political dimension of inequality during economic development By Denis Cogneau
  4. Social information and bandwagon behaviour in voting: an economic experiment By Ivo Bischoff; Henrik Egbert
  5. An enabling mechanism for the creation, adjustment, and dissolution of states and governmental units By Hausken, Kjell; Knutsen, John F.
  6. Should tax bases overlap in a federation with lobbying? By Alejandro Esteller-Moré; Umberto Galmarini; Leonzio Rizzo
  7. Politics or mobility? Evidence from us excise taxation By Alejandro Esteller-Moré; Leonzio Rizzo
  8. The Political Economy of Intergenerational Income Mobility By Ichino, Andrea; Karabarbounis, Loukas; Moretti, Enrico
  9. Does Conflict Disrupt Growth? Evidence of the Relationship between Political Instability and National Economic Performance By Polachek, Solomon; Sevastianova, Daria
  10. Political contributions to influence consumers: the example of the u.s. drug reimportation debate By Anne Boring
  11. Reform Redux: Measurement, Determinants and Reversals By Nauro F. Campos; Roman Horvath
  12. The Political Economy of Indirect Control By Gerard Padró i Miquel; Pierre Yared

  1. By: Maria De Paola; Vincenzo Scoppa (Dipartimento di Economia e Statistica, Università della Calabria)
    Abstract: In this paper, using data from Italian local level governments for the years 1985- 2008, we investigate whether political competition affects the quality of elected politicians, as measured by using some ex-ante characteristics such as educational level and type of job held. We handle endogeneity problems through an instrumental variable approach using a variable which takes into account whether the previous legislature survived until the end of its legislative term as an instrument for political competition. Early termination increases political competition, without directly affecting the quality of candidates. Two Stage Least Square estimates support the assumption that political competition positively affects politician quality. Results are robust to different measures of political competition and to different specifications of the model.
    Keywords: Political Competition, Politicians, Political Selection
    JEL: D72 D78 J45
    Date: 2010–02
  2. By: Marcela Eslava; Oskar Nupia
    Abstract: The literature has come to no agreement about the empirical validity of the so-called weak government hypothesis. According to this hypothesis, political fragmentation should lead to higher government expenditure. With the aim of reconciling the empirical evidence with theory, in this paper we discuss and test a new hypothesis about this relationship: that fragmentation should matter for public spending only to the extent that the degree of polarization is high enough. Our results for a sample of presidential democracies show that a marginal change in the level of fragmentation in the governing coalition affects positively the size of the budget, but only if there is some degree of polarization. We also find that what matters for fiscal policy in presidential democracies is the degree of fragmentation and polarization within the governing coalition, rather than in the legislature at large. For parliamentary democracies we find erratic patterns for the relationship between fragmentation and public spending. Our results suggest interesting differences between presidential and parliamentary systems.
    Date: 2010–01–07
  3. By: Denis Cogneau (Paris School of Economics, DIAL, IRD, Paris)
    Abstract: European Enlightenment thinkers were right in stressing the political dimension of inequality, rather than referring to "natural differences" as some others did after them in the 19th or 20th centuries. Drawing from recent theoretical and empirical contributions in social sciences and in particular in economics, I try to sketch the lines of a research program dedicated to the politics of inequality on the one hand, to political inequalities on the other hand. _________________________________ Les penseurs européens des Lumières avaient raison de mettre en avant la dimension politique de l’inégalité, plutôt que de la renvoyer à l’expression de différences naturelles, comme d’autres l’ont fait après eux aux XIXè et XXè siècle. En m’appuyant sur des contributions théoriques et empiriques récentes en sciences sociales et particulièrement en économie, j’essaie d’esquisser les lignes d’un programme de recherche consacré à la politique des inégalités d’une part, et aux inégalités politiques d’autre part.
    Keywords: Inequality, Development, Political economy, Long-term history, Inégalité, Développement, Economie Politique, Histoire longue.
    JEL: B2 N3 O1
    Date: 2009–11
  4. By: Ivo Bischoff (University of Kassel, Nora-Platiel-Straße 4, D-34109 Kassel); Henrik Egbert (University of Gießen, Licher Straße 66, D-35394 Gießen)
    Abstract: We present an economic experiment on the impact of social information on voter behaviour and find strong support for bandwagon behaviour in voting decisions. In total, 418 subjects participated in the experiment. Bandwagon behaviour is found among both male and female subjects.
    Keywords: C90, D72
    Date: 2010
  5. By: Hausken, Kjell; Knutsen, John F.
    Abstract: The article proposes an enabling mechanism for the creation, adjustment and dissolution of governmental units, giving autonomy to each individual as in a direct democracy. The mechanism is designed such that Pareto optimality is possible, in contrast to earlier models which make various assumptions such as majority voting. Individuals are taken seriously acknowledging that they are best equipped to find their own solutions. The emphasis is on the practical approach of how individuals discover and implement their subjective preferences and how this discovery and implementation process can be facilitated and corresponding costs lowered. Governmental units are subjected to some of the same market forces as business firms. This brings the interaction between governmental units closer to a market structure, and serves to eliminate or reduce many of the coercive elements of government. --
    Keywords: Territorial units,individual liberty,individual decision making,individual welfare,competitive markets,public choice,governmental units,endogenous determination of borders,constitutional economics,political economy
    JEL: H4 H5 H11
    Date: 2010
  6. By: Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Umberto Galmarini (Università dell'Insubria); Leonzio Rizzo (Università di Ferrara & IEB)
    Abstract: We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives.
    Keywords: vertical tax externalities, tax assignment, lobbying, specific taxation
    JEL: H71 H77 D70
    Date: 2010
  7. By: Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Leonzio Rizzo (Università di Ferrara & IEB)
    Abstract: We test for the state interdependence of gasoline and cigarette taxation in the US (1975-2006). We estimate a tax reaction function, and find that state interdependence is due solely to yardstick competition, since any interaction disappears completely in the case of states with lame duck governors. This result holds for both taxes: the short-run reaction of those states whose governor is eligible to stand for reelection is 0.13 and 0.21 for gasoline and cigarette taxation, respectively. In the long run, the cigarette tax rates levied in a jurisdiction match those of its neighbors perfectly, while the long-run reaction in the case of gasoline is much lower at 0.72.
    Keywords: Tax competition, political accountability, excise taxes
    JEL: H71 H77
    Date: 2010
  8. By: Ichino, Andrea (University of Bologna); Karabarbounis, Loukas (Harvard University); Moretti, Enrico (University of California, Berkeley)
    Abstract: The intergenerational elasticity of income is considered one of the best measures of the degree to which a society gives equal opportunity to its members. While much research has been devoted to measuring this reduced-form parameter, less is known about its underlying structural determinants. Using a model with exogenous talent endowments, endogenous parental investment in children and endogenous redistributive institutions, we identify the structural parameters that govern the intergenerational elasticity of income. The model clarifies how the interaction between private and collective decisions determines the equilibrium level of social mobility. Two societies with similar economic and biological fundamentals may have vastly different degrees of intergenerational mobility depending on their political institutions. We offer empirical evidence in line with the predictions of the model. We conclude that international comparisons of intergenerational elasticity of income are not particularly informative about fairness without taking into account differences in politico-economic institutions.
    Keywords: intergenerational mobility, public education, political institutions
    JEL: E24 J62 J68 P16
    Date: 2010–02
  9. By: Polachek, Solomon (Binghamton University, New York); Sevastianova, Daria (University of Southern Indiana)
    Abstract: Current empirical growth models limit the determinants of country growth to geographic, economic, and institutional variables. This study draws on conflict variables from the Correlates of War (COW) project to ask a critical question: How do different types of conflict affect country growth rates? It finds that wars slow the economy. Estimates indicate that civil war reduces annual growth by .01 to .13 percentage points, and high-intensity interstate conflict reduces annual growth by .18 to 2.77 percentage points. On the other hand, low-intensity conflict slows growth much less than high-intensity conflict, and may slightly increase it. The detrimental effect of conflict on growth is intensified when examining non-democracies, low income countries, and countries in Africa.
    Keywords: war, economic growth, conflict
    JEL: C2 O1 O47 O57 P47 P52
    Date: 2010–02
  10. By: Anne Boring (Université Paris-Dauphine, LEDa, IRD, UMR225-DIAL, Paris)
    Abstract: To reduce pharmaceutical prices, some legislators have been trying to pass bills authorizing the reimportation of prescription drugs to the United States. Pharmaceutical companies oppose reimportation, by elaborating a message (foreign drugs are of lower quality than domestic drugs) to influence legislators and their constituents. The industry gives contributions to legislators to spread its anti-reimportation message. The amount it gives depends on legislators’ and constituents’ characteristics. The legislators who receive the most are those whose constituents are most likely to oppose reimports. _________________________________ Afin de réduire les prix des produits pharmaceutiques, des législateurs tentent depuis plusieurs années de faire passer des lois qui autoriseraient la ré-importation de médicaments aux Etats-Unis. Les entreprises pharmaceutiques s’opposent aux ré-importations en élaborant un argument pour influencer les législateurs et leurs électeurs. Ici, l’argument est que les médicaments vendus à l’étranger sont de moins bonne qualité que ceux vendus aux Etats- Unis. L’industrie pharmaceutique finance les législateurs américains pour diffuser ce message contre les ré-importations. Le montant qu’elle donne dépend des caractéristiques des législateurs et de leurs électeurs. Les législateurs qui reçoivent le plus de financement sont ceux dont les électeurs ont le plus de chances d’être opposés aux ré-importations.
    Keywords: political contributions, lobbying, drug reimportation, pharmaceutical industry, protectionism, financement politique, lobbying, ré-importations, médicaments, industrie pharmaceutique, protectionnisme.
    JEL: D72 F14 L65
    Date: 2010–01
  11. By: Nauro F. Campos; Roman Horvath
    Abstract: What do we know about the effects of structural reforms? One main reason the answer may be “little†is inadequate measurement. In this paper we put forward improved measures of economic liberalization across countries over time. We show that structural reforms, carefully measured, follow richer dynamics (than those from existing indexes) which are very closely linked to the theoretical work. For example, we find FDI inflows reduce the likelihood of privatization reversals and labour strikes increase that of price liberalization reversals. We also find that our new measures, in standard specifications, have larger and more precisely estimated impacts on growth.
    Keywords: Structural reforms, reform reversals, price liberalization, trade liberalization, privatization, political economy.
    JEL: E23 D72 H26 O17
    Date: 2009–12
  12. By: Gerard Padró i Miquel; Pierre Yared
    Abstract: This paper characterizes the efficient sequential equilibrium when a government uses indirect control to exert its authority. We develop a dynamic principal-agent model in which a principal (a government) delegates the prevention of a disturbance—such as riots, protests, terrorism, crime, or tax evasion—to an agent who has an advantage in accomplishing this task. Our setting is a standard dynamic principal-agent model with two additional features. First, the principal is allowed to exert direct control by intervening with an endogenously determined intensity of force which is costly to both players. Second, the principal suffers from limited commitment. Using recursive methods, we derive a fully analytical characterization of the likelihood, intensity, and duration of intervention. The first main insight from our model is that repeated and costly interventions are a feature of the efficient equilibrium. This is because they serve as a punishment to induce the agent into desired behavior. The second main insight is a detailed analysis of a fundamental tradeoff between the intensity and duration of intervention which is driven by the principal’s inability to commit. Finally, we derive sharp predictions regarding the impact of various factors on likelihood, intensity, and duration of intervention. We discuss these results in the context of some historical episodes.
    JEL: D02 D82 H1
    Date: 2010–02

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