nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒03‒13
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Fiscal equalization and political conflict By Maria Cubel
  2. How does political instability affect economic growth? By Ari Aisen; Francisco José Veiga
  3. Measuring Institutions: Indicators of Political Rights, Property Rights and Political Instability in Malawi By Johannes Fedderke; Julia Garlick
  4. Conflict and Leadership: Why is There a Hawkish Drift in Politics? By Siddhartha Bandyopadhyay; Mandar Oak
  5. Power, ideology, and electoral competition By Alejandro Saporiti
  6. Where do Creditor Rights Matter? Creditor Rights, Political Constraints, and Cross-Border M&A Activity. By Martin Gassebner; Pierre-Guillaume Méon
  7. Determinants of Constitutional Change: Why Do Countries Change Their Form of Government? By Bernd Hayo; Stefan Voigt
  8. Political Disagreement and Delegation in a Multi-Level Governance Setting By Annemarije Oosterwaal; Diane Payne; René Torenvlied
  9. Democratic Errors By Christopher J. Ellis; John Fender
  10. On Waves in War and Elections Wavelet Analysis of Political Time-Series By Luís Francisco Aguiar; Pedro C. Magalhães; Maria Joana Soares
  11. Two-sided Intergenerational Transfer Policy and Economic Development: A Politico-economic Approach By Naito, Katsuyuki

  1. By: Maria Cubel (University of Barcelona & IEB)
    Abstract: In this paper we analyze the political viability of equalization rules in the context of a decentralized country. In concrete terms, we suggest that when equalization devices are perceived as unfair by one or more regions, political conflict may emerge as a result. Political conflict is analysed through a non cooperative game. Regions are formed by identical individuals who, through lobbying, try to impose their regional preferences on the rest of the country, and political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget. When regional budgets are used to provide pure public goods, proportional equalization is politically feasible. However, no equalization rule is immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods.
    Keywords: political conflict, lobbying, equalization grants, social decision rules
    JEL: D74 D31 H77 R51
    Date: 2010
  2. By: Ari Aisen (Central Bank of Chile and International Monetary Fund); Francisco José Veiga (Universidade do Minho - NIPE)
    Abstract: The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.
    Keywords: Economic growth, political instability, growth accounting, productivity
    JEL: O43 O47
    Date: 2010
  3. By: Johannes Fedderke; Julia Garlick
    Date: 2010
  4. By: Siddhartha Bandyopadhyay; Mandar Oak
    Abstract: We analyze an agency model of political competition to examine whether conflict encourages hawkish behavior, and if such behavior can itself aggravate conflict. We consider situations of conflict between a state and an insurgent group, such as a conflict over a piece of land. Negotiations are carried on behalf of the state, by a democratically elected leader, whose ability and ideology are imperfectly observed by the electorate. A more capable leader can cede less land at a lower cost (modeled as the probability of the conflict continuing the next period) than a less capable one, while an ideologically hawkish leader enjoys a greater intrinsic utility from retaining land than a less hawkish leader. Two main results that emerge are: certain types of politicians may be excessively hawkish, (as compared to their fi…rst best policy choices), which itself increases the probability of conflict and for any credible voting strategy the probability of re-election for a hawk is greater than for a dove. Finally, we show that the voting equilibrium of this game does not always achieve a constrained Pareto optimum suggesting that third party mediation may improve welfare.
    Keywords: Conflict, hawkish drift
    JEL: C72 D82 P16
    Date: 2010–03
  5. By: Alejandro Saporiti
    Date: 2010
  6. By: Martin Gassebner (ETH Zurich, KOF Swiss Economic Institute, Zurich.); Pierre-Guillaume Méon (Centre Emile Bernheim and DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.)
    Abstract: In this paper, we evaluate the impact of creditor rights and political risk on both the number and the value of cross-border M&A flows in a gravity model using a negative binomial model and Heckman’s two-stage selection model, respectively. Our results confirm that creditor-friendly rules and political risk decrease M&A inflows. The impact of formal legal rules is, however, almost entirely driven by politically stable countries, where those rules can be expected to hold. De jure rules therefore only matter where political stability is achieved.
    Keywords: Mergers and acquisitions, multinational firms, creditor rights, political risk, gravity model.
    JEL: F23 G18 G34 P16
    Date: 2010–03
  7. By: Bernd Hayo (Philipps-University Marburg); Stefan Voigt (University of Hamburg)
    Abstract: A country’s form of government has important economic and political consequences, but the determinants that lead societies to choose either parliamentary or presidential systems are largely unexplored. This paper studies this choice by analyzing the factors that make countries switch from parliamentary to presidential systems (or vice versa). The analysis proceeds in two steps. First, we identify the survival probability of the existing form of government (drawing on a proportional hazard model). In our model, which is based on 169 countries, we find that geographical factors and former colonial status are important determinants of survival probability. Also, presidential systems are, ceteris paribus, more likely to survive than parliamentary ones. Second, given that a change has taken place, we identify the underlying reasons based on panel data logit models. We find that domestic political factors are more important than economic ones. The most important factors relate to intermediate internal armed conflict, sectarian political participation, degree of democratization, and party competition, as well as the extent to which knowledge resources are distributed among the members of society.
    Keywords: Constitutional change, institutional dynamics, form of government, endogenous constitutions, separation of powers
    JEL: H11 K10 P48
    Date: 2010
  8. By: Annemarije Oosterwaal (Department of Sociology / ICS, Utrecht University); Diane Payne (School of Sociology/Geary Institute, University College Dublin); René Torenvlied (Department of Sociology / ICS, Utrecht University)
    Abstract: A large share of delegation models takes into account the effect of political disagreement when explaining delegation. Yet, delegation models make sharply contrasting predictions on how political disagreement translates into the level of discretion delegated to agencies. Moreover, empirical findings are contradictory. The current paper addresses this puzzle by disentangling mechanisms driving the effect of political disagreement on delegation. Furthermore, we distinguish conditions interacting with the effect of political disagreement on discretion. We apply the conditions to the research context of the present paper: economic restructuring in the UK under New Labour, which took place in a multi-level governance setting. We derive hypotheses on the effect of political disagreement on discretion and explore our theoretical predictions with the use of a novel dataset on economic restructuring in the UK under New Labour (Bennett and Payne 2000). Our analysis show that political disagreement leads to lower levels of discretion delegated.
    Date: 2010–03–03
  9. By: Christopher J. Ellis; John Fender
    Abstract: We combine Acemoglu and Robinson’s model of the economic origins of democracy with Lohmann’s model of political mass protest. This allows us to analyze the economic causes of political regime change based on the microfoundations of revolution. We are able to derive conditions under which democracy arises peacefully, when it occurs only after a revolution, and when oligarchy persists. We model these possibilities in a world of asymmetric information where information cascades are possible, and where these cascades may involve errors in the sense that they make everyone worse off.
    Keywords: Democracy, Information Cascades, Revolution
    JEL: H0 P4 P16
    Date: 2010–01
  10. By: Luís Francisco Aguiar (Universidade do Minho - NIPE); Pedro C. Magalhães (University of Lisbon, Social Sciences Institute); Maria Joana Soares (Universidade do Minho)
    Abstract: Spectral analysis and ARMA models have been the most established weapons of choice for the detection of cycles in time series data. However, such techniques are only appropriate when periodic components are time invariant. This has led some scholars to disregard the possibility of irregular cycles. We aim to contribute to further reconsideration of the possibility of cycles in political phenomena by introducing wavelet analysis. Its main contribution comes from the ability to estimate the spectral characteristics of a time series as a function of time, thus revealing how its different periodic components change over time, while preserving rigorous standards of statistical inference. We demonstrate the usefulness of wavelet analysis with two applications. The first concerns the possibility of long-cycles in wars, one of the central puzzles in the international relations sub-field. The second concerns election returns in presidential and congressional elections in the United States, where the existence of cyclical patterns has been equally controversial. Contrary to the prevailing wisdom, wavelet analysis allows the detection of transient and coexisting cycles, shedding some light over phenomena that have remained unaddressed so far.
    Date: 2010
  11. By: Naito, Katsuyuki
    Abstract: We consider an overlapping generations model with public education and social security where the overall size of these policies is determined in a repeated voting game. We investigate the interaction between the politically determined policies and economic development in a Markov perfect equilibrium. The following results are obtained. First, the level of human capital determines whether these policies are sustained in the Markov perfect equilibrium. Second, if the level of initial human capital is sufficiently high, human capital grows forever. In contrast, if the level of initial human capital is low, the economy might be caught in a poverty trap.
    Keywords: Public education; Social security; Markov perfect equilibrium; Economic development
    JEL: H55 O16
    Date: 2010–02–27

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