nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒10‒16
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Portfolio Managers and Elections in Emerging Economies: How investors dislike political uncertainty By Frot, Emmanuel; Santiso, Javier
  2. Democracy and innovation By Bruno S. Frey
  3. Exit Polls and Voter Turnout By Thomas Jensen; Asger Lau Andersen
  4. Protection for Free? The Political Economy of U.S. TariffSuspensions By Prachi Mishra; Anna Maria Mayda; Rodney D. Ludema
  5. Primaries: The Unifying Force By Rafael Hortala-Vallve; Hannes Mueller
  6. Mother, Can I trust the Government?Sustained Financial Deepening - A Political InstitutionsView By Geneviève Verdier; Marc Quintyn
  7. Windows Into Public Attitudes Towards Redistribution By Rebbecca Reed-Arthurs; Steven M. Sheffrin
  8. Political participation in Africa: Participatory inequalities and the role of resources By Isaksson, Ann-Sofie
  9. Understanding the Public's Attitudes towards Redistribution through Taxation By Rebbecca Reed-Arthurs; Steven M. Sheffrin
  10. Information Aggregation, Growth and Franchise Extension with Applications to Female Enfranchisement and Inequality By Christopher J Ellis; John Fender
  11. Private-activity municipal bonds: the political economy of volume cap allocation By Stephan Whitaker
  12. The Effectiveness of Macroeconomic Commitment in Weak(er) Institutional Environments By Sophia Gollwitzer; Marc Quintyn
  13. Do Religious Beliefs Explain Preferences for Income Redistribution? Experimental Evidence By Ilja Neustadt

  1. By: Frot, Emmanuel (Stockholm Institute of Transition Economics); Santiso, Javier (ESADE Business School)
    Abstract: This paper studies the effect of elections and democracy on bond and equity flows to emerging countries. Our results indicate that elections affect portfolio flows: the period following an election is generally characterised by a fall in equity flows, and this occurs only where the incumbent is not re-elected. We interpret this result as evidence that political uncertainty about future policies plays a key role in explaining the effect of elections. Bond flows decrease after an election that brings a change of ideology in government, with some evidence that this effect is stronger if such change is from right- to leftwing. This set of results suggests that investors value continuity and stability in the political environment, and dislike changes. Finally, democracy, in itself, is not found to significantly influence portfolio equity and bond flows, such that there is no democratic premium. On the other hand, a decrease in the democracy score implies lower equity flows. Investors value continuity (stable democracy level, even if low) rather than improvements (democratic transitions) but are responsive to a deterioration in the democratic environment that is often accompanied by less transparency, and therefore greater uncertainty.
    Keywords: Portfolio decisions; Elections
    JEL: F59 G11 G15
    Date: 2010–10–06
  2. By: Bruno S. Frey
    Keywords: Democracy, innovation, randomization, voting rules
    JEL: D02 D70 H1 O31
    Date: 2010–10
  3. By: Thomas Jensen (Department of Economics, University of Copenhagen); Asger Lau Andersen (Department of Economics, University of Copenhagen)
    Abstract: We set up a model of elections or referendums with two alternatives to study how voter turnout and election outcomes are affected by the publication of exit polls on election day. We find that the introduction of an exit poll influences the incentive to vote both before and after the poll is published, but the signs of the effects are generally ambiguous. The fact that exit polls influence the incentive to vote before they are even published is sometimes overlooked in the debate on their desirability. We show that this can lead to premature conclusions about the impact of exit polls on election outcomes.
    Keywords: elections, exit polls, voter turnout
    JEL: D71 D72 D82
    Date: 2010–09
  4. By: Prachi Mishra; Anna Maria Mayda; Rodney D. Ludema
    Abstract: This paper studies the political influence of individual firms on Congressional decisions to suspend tariffs on U.S. imports of intermediate goods. We develop a model in which firms influence the government by transmitting information about the value of protection, via costless messages (cheap-talk) and costly messages (lobbying). We estimate our model using firm-level data on tariff suspension bills and lobbying expenditures from 1999-2006, and find that indeed verbal opposition by import-competing firms, with no lobbying, significantly reduces the probability of a suspension being granted. In addition, lobbying expenditures by proponent and opponent firms sway this probability in opposite directions.
    Keywords: Corporate sector , Economic models , Import tariffs , Imports , Political economy , Tariff structures , Trade policy , United States ,
    Date: 2010–09–13
  5. By: Rafael Hortala-Vallve; Hannes Mueller
    Abstract: We present a formal model of intra-party politics to explain candidate selection within parties. We think of parties as heterogeneous groups of individuals who aim to implement a set of policies but who differ in their priorities. When party heterogeneity is too large, parties are in danger of splitting into smaller yet more homogeneous groups. In this context we argue that primaries can have a unifying role if the party elite cannot commit to policy concessions. Our model shows how alignment in the preferred policies of various factions within a party, the relative weight of each of these factions and the electoral system interact to create incentives for the adoption of primary elections. We discuss the existing empirical literature in the light of our theoretical predictions to provide a new, structured perspective on the adoption of primary elections.
    Date: 2010–09–30
  6. By: Geneviève Verdier; Marc Quintyn
    Abstract: Only a minority of countries have succeeded in establishing a developed financial system, despite widespread financial liberalization. Confronted with this finding, the political institutions view claims that sustained financial deepening is most likely to take place in institutional environments where governments effectively impose constraints on their own powers in order to create trust. This paper identifies over 200 post-1960 episodes of accelerations in financial development in a large cross-section of countries. We find that the likelihood of an acceleration leading to sustained financial development increases greatly in environments that have high-quality political institutions.
    Keywords: Credit expansion , Cross country analysis , Development , Economic growth , Financial systems , Governance , Political economy , Private sector ,
    Date: 2010–09–13
  7. By: Rebbecca Reed-Arthurs; Steven M. Sheffrin (Department of Economics, Tulane University)
    Keywords: redistribution, income taxation, public opinion
    JEL: H23 H29
    Date: 2010–09
  8. By: Isaksson, Ann-Sofie (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The aim of this paper is to examine the role of individual resource endowments for explaining individual and group variation in African political participation. Drawing on new data for more than 27 000 respondents in 20 emerging African democracies, the empirical findings suggest surprisingly weak explanatory power of the resource perspective, both for explaining individual variation and observed group inequalities in participation. In several cases, the relatively resource poor groups participate to a greater extent than the relatively resource rich.<p>
    Keywords: Political participation; Group inequalities; Resources; Africa; Afrobarometer
    JEL: D01 D72 O12 O55
    Date: 2010–08–03
  9. By: Rebbecca Reed-Arthurs; Steven M. Sheffrin (Department of Economics, Tulane University)
    Abstract: This paper explores the public's expressed attitudes towards redistribution, then addresses three important gaps in the literature on redistribution. First, studies of support for redistribution have used data focused on desires for transfers from the rich to the poor or to the poor in general, but redistributive polices may also benefit the middle class. Second, experimental research has shown that general views about redistribution may differ from concrete judgments about specific situations-yet much of the existing research uses responses to abstract questions. Finally, there is fundamental uncertainty as to what the public actually means when it suggests preferred distributions of the tax burden-are they expressing pure, ideal preferences, or combining these with their own views of the disincentive effects of higher tax rates? We use data from two nationally representative surveys on taxation and fairness as well as an experiment to address these issues. We find that Americans have some interest in redistribution to both the middle class and the poor. While demand for redistribution to the poor is influenced by many factors (including measures of altruism, political ideology and values) demand for redistribution to the middle class appears to be driven by self-interest and knowledge of the tax system. We find the determinants of demand to be similar under both abstract and concrete question forms. Finally, the experimental results suggest that not only does the public not include incentive effects into their expressions for desired progressivity; but that they do not believe they should be included-in other words, the public separates judgments of progressivity from judgments of economic efficiency.
    Keywords: survey data, incentives, redistribution
    JEL: H24 H20
    Date: 2010–09
  10. By: Christopher J Ellis; John Fender
    Abstract: We develop a model of voluntary gradual franchise extension and growth based on the idea that voting is an information aggregation mechanism. A larger number of voters mean more correct decisions are made hence more output, but also imply that any incremental output needs to be shared among more individuals. These conflicting incentives are shown to lead to a dynamic model of franchise extensions that is not inconsistent with several real world episodes, including female enfranchisement. The model also predicts that in certain circumstances growth and enfranchisement will be accompanied by Kuznets curve type behaviour in inequality. Contrary to the preceding literature these conclusions do not rest on incentives for strategic delegation.
    Keywords: Democracy, Franchise Extension, Growth
    JEL: H0 P4 P16
    Date: 2010–08
  11. By: Stephan Whitaker
    Abstract: State governments allocate authority, under a federally imposed cap, to issue tax-exempt bonds that fund “private activities” such as industrial expansion, student loans, and low-income housing. This paper presents political economy models of the allocation process and an empirical analysis. Due to an idiosyncrasy of the tax code, the annual per capita volume cap varies widely across states. I estimate that, on average, there is an additional $0.80 per capita per year of borrowing for each additional dollar per capita of volume cap. This confirms that the cap is a binding constraint in most cases, and authority to issue tax-exempt bonds is a scarce resource. I find that mortgage revenue bonds and student loan bonds are the most responsive to differences in the cap. The gross state product and employment in manufacturing and utilities drive allocations to industrial development bonds and utilities bonds. While controlling for the size of the education sector, I find campaign contributions from educational interests are associated with higher authorizations for student loans. One result runs counter to the theoretical models. Higher campaign contributions from utilities interests are associated with lower utilities borrowing. Unions do not have an independent effect on allocations.
    Keywords: Municipal bonds ; Tax exemption
    Date: 2010
  12. By: Sophia Gollwitzer; Marc Quintyn
    Abstract: This paper analyzes the institutional conditions affecting the establishment and effectiveness of independent central banks and of budgetary institutions. It draws on the recent theory developed by North, Wallis and Weingast on the transition from a closed and fragile state to an open economic and political environment. The paper presents a composite indicator allowing for the identification of a country’s position along this transition path. The findings suggest that (i) while the establishment of autonomous central banks seems to be relatively independent from the broader institutional framework, sound budgetary institutions tend to be established in countries with higher levels of rule of law for the elites, and (ii) while central bank independence is effective in reducing inflation irrespective of a country’s position along the transition path, budget institutions seem to be most effective as a disciplining device in weak institutional environments.
    Keywords: Budgetary policy , Central bank autonomy , Central banks , Developed countries , Governance , Low-income developing countries , Political economy ,
    Date: 2010–08–23
  13. By: Ilja Neustadt (Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)
    Abstract: Due to the mixed empirical evidence bearing on the economic determinants, beliefs have been at the center of attention of research into preferences for income redistribution. We elicit preferences for income redistribution through a Discrete Choice Experiment performed in 2008 in Switzerland and relate them to several behavioral determinants, in particular to religious beliefs. Estimated marginal willingness to pay (WTP) is positive among those who do not belong to a religious denomination, and negative otherwise. However, the marginal WTP is shown to increase with a higher degree of religiosity. Moreover, those who state that luck or connections play a crucial role in determining economic success exhibit significantly higher WTP values than those who deem e?ort to be decisive.
    Keywords: Income redistribution, beliefs, religiosity, welfare state, preferences, willingness to pay, discrete choice experiments
    JEL: C35 C93 D63 H29
    Date: 2010–09

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