nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒04‒04
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Fiscal Centralization and the Political Process By Facundo Albornoz; Antonio Cabrales
  2. Political attitudes under repression: evidence from North Korean refugees By Noland, Marcus; Haggard, Stephan
  3. The differences in attitudes about their society between 14 year old pupils with and without an immigration background; a cross-national comparison By Prokic, Tijana; Dronkers, Jaap
  4. A panel study on the relationship between corruption and government size By Go, Kotera; Okada, Keisuke; Samreth, Sovannroeun
  5. The Costs of Favoritism: Is Politically-Driven Aid Less Effective? By Dreher, Axel; Klasen, Stephan; Vreeland, James Raymond; Werker, Eric
  6. The Troubling Economics and Politics of Paying Interest on Bank Reserves: A Critique of the Federal Reserve’s Exit Strategy By Thomas I Palley
  7. Good girl–bad boy. Making identity statements when answering a questionnaire By Bente Halvorsen
  8. The composition and interests of Russia’s business lobbies: A test of Olson’s “encompassing organization” hypothesis By Weill, Laurent; Solanko, Laura

  1. By: Facundo Albornoz; Antonio Cabrales
    Abstract: We study the dynamic support for fiscal decentralisation in a political agency model from the perspective of a region. We show that corruption opportunities are lower under centralization at each period of time. However, centralization makes more difficult for citizens to detect corrupt incumbents. Thus, corruption is easier under centralization for low levels of political competition. We show that the relative advantage of centralization depends negatively on the quality of the local political class, but it is greater if the center and the region are subject to similar government productivity shocks. When we endogenize the quality of local politicians, we establish a positive link between the development of the private sector and the support for decentralization. Since political support to centralization evolves over time, driven either by economic/political development or by exogenous changes in preferences over public good consumption, it is possible that voters are (rationally) discontent about it. Also, preferences of voters and the politicians about centralization can diverge when political competition competition is weak.
    Keywords: decentralization, centralization, political agency, quality of politicians, corruption
    JEL: H11 D72 D73 P16
    Date: 2010–03
  2. By: Noland, Marcus; Haggard, Stephan
    Abstract: What do citizens of highly repressive regimes think about their governments? How do they respond to high levels of repression? This paper addresses these questions by examining the political attitudes of North Korean refugees. Unsurprisingly the evaluations of regime performance are negative, and there is some evidence that they are becoming more so, even among the core political class and government or party workers. While the sample marginally overrepresents groups with the most negative evaluation of the regime, multivariate analysis is used to generate projections of the views of the wider population; this exercise indicates that that the null hypothesis that the refugees accurately represent the views of the resident population cannot be rejected at the 95 percent level. However the survey also shows that the barriers to effective communication and collective action remain high; repression works to deter political activity. Partly due to economic exigency, partly due to repression, private defiance of the government takes the form of “everyday forms of resistance,” such as listening to foreign media and engaging in market activities. Although not overtly political, these actions have long-term political consequences.
    Keywords: information cascades; preference falsification; North Korea; refugees; political repression; unification
    JEL: P2 D83 Z13
    Date: 2010–03
  3. By: Prokic, Tijana; Dronkers, Jaap
    Abstract: In this paper we analyze the attitudes of 14 year old children of first and second generation immigrants and their civic attitudes about (aspects of) the society of destination. We use data from the Civic Education Study conducted by International Educational Association (IAE) in 1999. This Civic Education Study tests civic knowledge, civic attitudes and civic participation of 14 year old students. We have five dependent variables in 11 countries: trust in government related institution positive attitudes towards immigrants, positive attitudes towards one’s nation of residence positive attitudes towards women’s rights and civic participation. 14-year pupils with an immigrant background had stronger positive attitudes towards immigrants, stronger negative attitudes towards women’s political and economic rights, stronger negative attitudes towards the nation of residence and less outspoken lower trust in government related institutions. Second generation pupils do not deviate less than first generation, neither pupils in more inclusive societies differ less.
    Keywords: trust; immigrants; 14-year old pupils; cross-national analyses
    JEL: D64
    Date: 2010–03
  4. By: Go, Kotera; Okada, Keisuke; Samreth, Sovannroeun
    Abstract: Using panel data from 1996 to 2005, this paper shows that the effect of government size on corruption is positive at a low level of democracy, but it is negative at a high level. This finding could fill the gaps in previous studies whose findings on the relationship between corruption and government size are controversial.
    Keywords: Corruption; Government size; Democracy; Panel data
    JEL: D73 H11 C23
    Date: 2010–02
  5. By: Dreher, Axel (University of Göttingen); Klasen, Stephan (University of Göttingen); Vreeland, James Raymond (Georgetown University); Werker, Eric (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
  6. By: Thomas I Palley
    Abstract: The Federal Reserve has recently activated its newly acquired powers to pay interest on reserves of depository institutions. The Fed maintains its new policy increases economic efficiency and intends it to play a lead role in the exit from quantitative easing. This paper argues it is a bad policy that (1) has a deflationary bias; (2) is costly to taxpayers and that cost will increase as normal conditions return; and (3) establishes institutional lock-in that obstructs desirable changes to regulatory policy. The paper recommends repealing the Fed’s power to pay interest on bank reserves. Second, the Fed should repeal regulation Q that prohibits payment of interest on demand deposits. Third, the Fed should immediately implement an alternative system of asset based reserve requirements (liquidity ratios) that will improve monetary control and can help exit quantitative easing at no cost to the public purse. Now is the optimal time for this change. Lastly, the paper argues the new policy of paying interest on reserves reveals the troubling political economy governing the actions of the Federal Reserve and policy recommendations of the economics profession.
    Keywords: Interest on reserves, asset based reserve requirements, liquidity ratios
    JEL: E40 E42 E43
    Date: 2010
  7. By: Bente Halvorsen (Statistics Norway)
    Abstract: Environmental policy analyses often draw on stated preferences, with most humans having strong preferences with respect to how we view ourselves and how we would like others to perceive us. This may create systematic differences between reported and real behavior, making policy analysis based on stated preferences difficult. In this paper, we model how social and moral norms and the image we would like to project affect reported and actual behavior. We illustrate the model using data from a stated preference survey reporting environment-related household behavior in ten OECD countries. We find clear evidence of how norms and identity statements affect reported behavior. We also find evidence of the misrepresentation of preferences, both among respondents complying with and protesting the norm. Over- and understatements appear to be evenly distributed, and is thus not expected to significantly bias the mean results.
    Keywords: Household behavior; Environment; Norms; Stated preferences.
    JEL: B41 D1 Q28 Q38 Q48
    Date: 2010–03
  8. By: Weill, Laurent (BOFIT); Solanko, Laura (BOFIT)
    Abstract: Why are some lobby groups less benign in their external effects than others? Nearly three decades ago, Mancur Olson (1982) proposed that less-encompassing lobby groups with their constituents collectively representing a narrow range of sectors are more apt to seek the types of subsidies, tariffs, tax loopholes, and competition-limiting regulations that impose costs on the rest of society. To the best of our knowledge, Olson’s oft-cited hypothesis has yet to be actually tested, due perhaps to the absence of adequate data on general policy preferences of various types of lobbies. Thus, we examine a pair of surveys from 2003 and 2004 which were targeted at managers of business associations (lobby groups) and their enterprise constituents to directly test Olson’s hypothesis. Managers from a diverse array of Russian industrial firms and business associations were asked similar questions regarding their attitudes to policies that explicitly benefit well-defined sectoral or regional interests and, implicitly, impose external costs. The pattern of responses is striking. Managers of less-encompassing associations and the constituent firms of such groups are much more apt to see such policies in a favorable light. In contrast, more-encompassing associations and their member display greater skepticism toward narrowly targeted government interventions. Our results strongly support Olson’s hypothesis.
    Keywords: business associations; encompassing interests; Russia; Olson
    JEL: D02 D70 L31
    Date: 2010–03–25

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