nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒03‒28
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Political Economy of Agricultural Protection: Sweden 1887 By Sibylle Lehmann; Oliver Volckart
  2. Democracy, Redistributive Taxation and the Private Provision of Public Goods By Thomas Markussen
  3. Fiscal Transparency and Procyclical Fiscal Policy By Asger Lau Andersen; Lasse Holbøll Westh Nielsen
  4. Fiscal federalism and electoral accountability By Toke S. Aidt; Jayasri Dutta
  5. Voting on pensions : sex and marriage By LEROUX, Marie-Louise; PESTIEAU, Pierre; RACIONERO, Maria
  6. Costly information acquisition. Better to toss a coin? By Matteo Triossiv
  7. The Benefits of Costly Voting By Chakravarty, Surajeet; Kaplan, Todd R; Myles, Gareth
  8. Putting foxes in charge of the hen-house: the political economy of harvest quota regulations By John Boyce
  9. The costs of favoritism: Is politically-driven aid less effective? By Axel Dreher; Stephan Klasen; James Raymond Vreeland; Eric Werker

  1. By: Sibylle Lehmann (Max Planck Institute for Research on Collective Goods, Bonn); Oliver Volckart (London School of Economics and Political Science, Economic History Department)
    Abstract: We analyse the Swedish general elections that took place in spring and autumn 1887. Our aim is to discover which groups of voters were responsible for the severe losses that the supporters of free trade suffered in the second of these contests, and that allowed the protectionists to gain the majority in parliament and to initiate a new tariff policy. We find that while capital owners and wage earners consistently favoured free trade, in the spring election only the largest farmers supported protectionism. By autumn, political preferences among smallholders and middling farmers had shifted in favour of protectionism, too. As these groups were not specialised in the production of import competing goods, we assume that the political landslide in the autumn elections can be attributed to the influence of anti-free trade propaganda.
    Keywords: voting, election analysis, tariffs, trade policies
    JEL: N43 N53 N73
    Date: 2010–03
  2. By: Thomas Markussen (Department of Economics, University of Copenhagen)
    Abstract: The paper studies in a simple, Downsian model of political competition how the private provision of public goods is affected when it is embedded in a system of democracy and redistributive taxation. Results show that the positive effect of inequality on public goods production, which Olson (1965) pointed to, is weakened and might even be reversed in this context. Also, the median voter may choose a negative tax rate, even if he is poorer than the mean, in order to stimulate public goods production. The relevance of the model is illustrated with an application to the finance of higher education.
    Keywords: public goods; political economy; inequality; taxation; higher education
    JEL: D31 D7 H2 H41 I22
    Date: 2010–03
  3. By: Asger Lau Andersen (Department of Economics, University of Copenhagen); Lasse Holbøll Westh Nielsen (Department of Economics, University of Copenhagen)
    Abstract: This paper examines why fiscal policy is procyclical in developing as well as developed countries. We introduce the concept of fiscal transparency into a model of retrospective voting, in which a political agency problem between voters and politicians generates a procyclical bias in government spending. The introduction of fiscal transparency generates two new predictions: 1) the procyclical bias in fiscal policy arises only in good times; and 2) a higher degree of fiscal transparency reduces the bias in good times. We find solid empirical support for both predictions using data on both OECD countries and a broader set of countries.
    Keywords: fiscal transparency; fiscal policy; procyclicality; business cycle; political economy
    JEL: D72 E32 E62
    Date: 2010–03
  4. By: Toke S. Aidt (University of Cambridge); Jayasri Dutta (University of Birmingham)
    Abstract: We study the efficient allocation of spending and taxation authority in a federation in which federal politicians are exposed to electoral uncertainty. We show that centralization may, but need not, result in a loss of electoral accountability. We identify an important asymmetry between positive and negative externalities and show that centralization may not be efficient in economies with positive externalities even when regions are identical and centralization does not entail a loss of accountability. We also show that decentralization can only Pareto dominate centralization in economies with negative externalities.
    Keywords: Fiscal federalism, local public goods, externalities, performance voting,turnout uncertainty, electoral accountability
    JEL: D72 D78 H41
    Date: 2010
  5. By: LEROUX, Marie-Louise (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); PESTIEAU, Pierre (University of Liege, CREPP, CORE, PSE and CEPR); RACIONERO, Maria (School of Economics, Australian National University)
    Abstract: Existing political economy models of pensions focus on age and productivity. In this paper we incorporate two additional individual characteristics: sex and marital status. We ignore the role of age, by assuming that people vote at the start of their life, and characterize the preferred rate of taxation that finances a Beveridgean pension scheme when individuals differ in wage, sex and marital status. We allow for two types of couples: one-breadwinner and two-breadwinner couples. Marriage pools both wage and longevity differences between men and women. Hence singles tend to have more extreme preferred tax rates than couples. We show that the majority voting outcome depends on the relative number of one-breadwinner couples and on the size of derived pension rights.
    Keywords: social security, differential longevity, majority voting, individualization of pension rights
    JEL: D72 D78 H55
    Date: 2009–09–01
  6. By: Matteo Triossiv
    Abstract: Citizens have little and uneven levels of political knowledge, consistently with the rational ignorance hypothesis. The paper presents a strategic model of common value elections with endogenous information acquisition accounting for these facts. It proves, that contrary to the most optimistic positions about direct democracy, majoritarian elections can fail to aggregate information, when voters have heterogeneous skills. Informational inefficiencies can be partially corrected by improving the skills of the electorate as the population increase or by limiting participation to most competent citizens. The first interpretation is consistent with Rousseau view that an educated citizenry is necessary for a well functioning democracy. The second interpretation provides rational foundations for an epistocratic form of government. JEL Classification Numbers: C72, D72, D82. Keywords: Costly Information Acquisition, Condorcet Jury Theorem.
    Date: 2010
  7. By: Chakravarty, Surajeet; Kaplan, Todd R; Myles, Gareth
    Abstract: We present a costly voting model in which each voter has a private valuation for their preferred outcome of a vote. When there is a zero cost to voting, all voters vote and hence all values are counted equally regardless of how high they may be. By having a cost to voting, only those with high enough values would choose to incur this cost. Hence, the outcome will be determined by voters with higher valuations. We show that in such a case welfare may be enhanced. Such an effect occurs when there is both a large enough density of voters with low values and a high enough expected value.
    Keywords: costly voting; externalities.
    JEL: C70 D72
    Date: 2010–03–13
  8. By: John Boyce
    Abstract: This paper considers a dynamic common agency model of natural resource harvest quota regulation in which both conservationists and harvesters vie to influence the regulator's quota allocations as well as the choice of regulator. Conservationists tend to benefit from the adoption of regulation since the regulator will reduce the aggregate harvest quota relative to the unregulated equilibrium. Harvesters, however, only support the adoption of regulation if the regulator places sufficient weight on their welfare. Because harvester's support of regulation is conditional while conservationist's support of regulation is unconditional, harvester's interests tend to be over-represented in the truthful Markov Perfect equilibrium.
    JEL: D72 C73 Q28 Q38
    Date: 2010–01–16
  9. By: Axel Dreher (Georg-August University Göttingen); Stephan Klasen (Georg-August University Göttingen); James Raymond Vreeland (Georgetown University); Eric Werker (Harvard Business School)
    Abstract: As is now well documented, aid is given for both political as well as economic reasons. The conventional wisdom is that politically-motivated aid is less effective in promoting developmental objectives. We examine the ex-post performance ratings of World Bank projects and generally find that projects that are potentially politically motivated – such as those granted to governments holding a non-permanent seat on the United Nations Security Council or an Executive Directorship at the World Bank – are no more likely, on average, to get a negative quality rating than other projects. When aid is given to Security Council members with higher short-term debt, however, a negative quality rating is more likely. So we find evidence that World Bank project quality suffers as a consequence of political influence only when the recipient country is economically vulnerable in the first place.
    Keywords: World Bank; Aid Effectiveness; Political Influence; United Nations Security Council
    JEL: O19 O11 F35
    Date: 2010–03–11

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