nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒10‒30
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Competing on Good Politicians By Vincenzo Galasso; Tommaso Nannicini
  2. "Laffer paradox, Leviathan, and Political Contest" By Toshihiro Ihori; C.C. Yang
  3. Political ideology as a source of business cycles By marina, azzimonti
  4. Political Turnover, Taxes and the Shadow Economy By Ceyhun Elgin
  5. Lobbying, political competition, and local land supply: recent evidence from Spain By Albert Solé-Ollé; Elisabet Viladecans-Marsal
  6. Political Selection of Public Servants and Parliamentary Oversight By Thomas Braendle; Alois Stutzer
  7. Electoral rules and incentive effects of fiscal transfers: evidence from Germany By Peter Egger; Marko Koethenbuerger; Michael Smart
  8. The Simple Analytics of Elite Behaviour Under Limited State Capacity By Bourguignon, Francois; Verdier, Thierry
  9. Endogenous Constitutions: Politics and Politicians Matter, Economic Outcomes Don’t By Bernd Hayo; Stefan Voigt
  10. Corruption and the Composition of Public Expenditures: Evidence from OECD Countries By Hessami, Zohal
  11. Combinatorial Voting By David S. Ahn; Santiago Oliveros
  12. Poverty in the Eyes of Brazilian Elites By Reis, Elisa P.
  13. The 2010 Midterm Election for the US House of Representatives By Hibbs, Douglas A.
  14. On the Case for a Balanced Budget Amendment to the U.S. Constitution By Marina, Azzimonti; Marco, Battaglini; Stephen, Coate

  1. By: Vincenzo Galasso; Tommaso Nannicini
    Abstract: Is electoral competition good for political selection? To address this issue, we introduce a theoretical model where ideological parties select and allocate high-valence (experts) and lowvalence (party loyalists) candidates into electoral districts. Voters care about a national policy (e.g., party ideology) and the valence of their district’s candidates. High-valence candidates are more costly for the parties to recruit. We show that parties compete by selecting and allocating good politicians to the most contestable districts. Empirical evidence on Italian members of parliament confirms this prediction: politicians with higher ex-ante quality, measured by years of schooling, previous market income, and local government experience, are more likely to run in contestable districts. Indeed, despite being different on average, politicians belonging to opposite political coalitions converge to high-quality levels in close electoral races. Furthermore, politicians elected in contestable districts make fewer absences in parliament, due to a selection effect more than to reelection incentives.
    Date: 2010
  2. By: Toshihiro Ihori (Faculty of Economics, University of Tokyo); C.C. Yang (Institute of Economics, Academia Sinica)
    Abstract: This paper considers a political contest model wherein self-interested politicians seek rents from the public budget, while general voters make political efforts to protest against politicians' rent seeking directly (for example, through voting in referendums such as the passage of Proposition 13) or indirectly (for example, through donating money to organized groups such as the National Taxpayer Union). We show that the political contest may ironically lead to the Laffer paradox; that is, rent-seeking politicians may intend to set the tax rate higher than the revenue-maximizing rate. For taming Leviathans, political protests may not be as effective as competition among governments.
    Date: 2010–10
  3. By: marina, azzimonti
    Abstract: When the government must decide not only on broad public-policy programs but also on the provision of group-specific public goods, dynamic strategic inefficiencies arise. The struggle between opposing groups–that disagree on the composition of expenditures and compete for office–results in governments being endogenously short-sighted: systematic under-investment in infrastructure and overspending on public goods arises, as resources are more valuable when in power. This distorts allocations even under lump-sum taxation. Ideological biases create asymmetries in the group’s relative political power generating endogenous economic cycles in an otherwise deterministic environment. Volatility is non-monotonic in the size of the bias and is an additional source of inefficiency.
    Keywords: Public Investment; Commitment; Probabilistic Voting; Markov Equilibrium; Political Cycles; Time Consistency.
    JEL: E62 O23 H21 H11 H41 E61
    Date: 2010–06
  4. By: Ceyhun Elgin
    Date: 2010–08
  5. By: Albert Solé-Ollé (Universitat de Barcelona, IEB & Cesifo); Elisabet Viladecans-Marsal (Universitat de Barcelona & IEB)
    Abstract: We analyze whether local land supply is influenced by the degree of political competition, and interpret the findings as being indicative of the influence wielded by land development lobbies. We use a new database including both political and land supply data for more than 2,000 Spanish municipalities for the period 2003-2007. In Spain, land use policies are largely a local responsibility with municipalities having periodically to pass comprehensive land use plans. The main policy variable in these plans, and the one analyzed here, is the amount of land classified for potential development. We measure local political competition as the margin of victory of the incumbent government. We instrument this variable using the number of votes obtained by parties represented in local government when standing at the first national legislative elections following the re-establishment of democracy, and the number of votes they actually obtained regionally at the national legislative elections. The results indicate that stiffer political competition does indeed reduce the amount of new land designated for development. This effect is found to be most marked in suburbs, in towns with a high percent of commuters and homeowners, and in municipalities governed by the left.
    Keywords: Land use regulations, urban growth controls, political economy.
    JEL: H7 Q15 R52
    Date: 2010
  6. By: Thomas Braendle; Alois Stutzer (University of Basel)
    Date: 2010
  7. By: Peter Egger (ETH Zurich, CEPR & CESifo); Marko Koethenbuerger (University of Copenhagen & CESifo); Michael Smart (University of Toronto & CESifo)
    Abstract: The impact electoral rules and fiscal equalization programs have for local public finance are separately analyzed in the literature. This paper empirically analyzes whether legislator elected under different rules respond differently to changes in fiscal incentives. Using a reform of the electoral rule and the equalization system as a natural experiment, we find that municipalities which elect legislators under proportional rule react less strongly to changes in fiscal incentives.
    Keywords: Electoral rule, form of municipal government, fiscal equalization, business tax rates, comparative political economy.
    JEL: D7 H7 C2
    Date: 2010
  8. By: Bourguignon, Francois; Verdier, Thierry
    Abstract: This paper discusses the issue of taxation and redistribution in economies dominated by Elites with limited state capacity. Within a simple aggregate framework, we discuss the political economy incentives of Elites to tax, redistribute and increase state capacity. In particular, the analysis highlights the role of complementarities or substitutability in the production process between the factors controlled by the Elite and other social groups and shows the existence of natural increasing returns for Elites to increase state capacity. The paper also discusses how the incentives for state capacity building are affected by political threats of power shifting.
    Keywords: Elites, redistribution, political economy, state capacity building
    Date: 2010
  9. By: Bernd Hayo (Philipps University Marburg); Stefan Voigt (University of Hamburg)
    Abstract: We study changes in the form of government as an example of endogenously determined constitutions. For a sample of 202 countries over the period 1950–2006, we find that most changes are relatively small and roughly equally likely to be either in the direction of more parliamentarian or more presidential systems. Based on a fixed effects ordered logit panel data model estimated over the period 1951–2000 for 146 countries, we find that such changes in the constitution can be explained by characteristics of the political system, internal and external political conflicts, and political leaders, whereas economic and socio-demographic variables do not matter.
    Keywords: Constitutional change, form of government, endogenous constitutions, separation of powers, relevance of leaders
    JEL: H11 K10 P48
    Date: 2010
  10. By: Hessami, Zohal
    Abstract: This paper analyzes how corruption affects the composition of public expenditures. First, a two-stage rent-seeking model with endogenous rent-setting is derived that captures both "political corruption" and "bureaucratic corruption". The model illustrates how asymmetries between industries in the degree of competition and in the difficulty of concealing bribery may influence the allocation of public spending. The theoretical implications are tested with a panel dataset for 26 OECD countries over the 1996 - 2008 period. The results suggest that the shares of spending on health and environmental protection increase, while the shares of spending on social protection and recreation, culture and religion decline with higher levels of corruption. The significance of these distortions is robust to a variety of specifications such as fixed effects, random effects, seemingly unrelated regressions, the inclusion of additional controls, and the use of alternative corruption indicators.
    Keywords: Corruption; rent-seeking; public expenditures; budget composition
    JEL: D73 H50 H11 D72
    Date: 2010–09–26
  11. By: David S. Ahn; Santiago Oliveros
    Date: 2010–10–18
  12. By: Reis, Elisa P.
    Abstract: This paper discusses data from a survey and in-depth interviews on elite perceptions of poverty in Brazil. De Swaan tried to identify the circumstances under which elites are willing to mobilize resources in order to promote poverty reduction. This paper questions if de Swaan’s analysis applies to Brazil. The main finding is that two parts of de Swaan’s thesis do apply: that poverty is a problem for the rich in the sense that it generates negative externalities that they would like to reduce; and that the elite believe that there are effective remedies. What is missing for Brazilian elites is the third element, namely that the elite see poverty as their responsibility to do something about it.
    Keywords: elites, poverty, economic sociology, political culture
    Date: 2010
  13. By: Hibbs, Douglas A.
    Abstract: The number of House seats won by the president's party at midterm elections is well explained by three pre-determined or exogenous variables: (1) the number of House seats won by the in-party at the previous on-year election, (2) the vote margin of the in-party's candidate at the previous presidential election, and (3) the average growth rate of per capita real disposable personal income during the congressional term. Given the partisan division of House seats following the 2008 on-year election, President Obama's margin of victory in 2008, and the weak growth of per capita real income during the first 6 quarters of the 111th Congress, the Democrat's chances of holding on to a House majority by winning at least 218 seats at the 2010 midterm election will depend on real income growth in the 3rd quarter of 2010. The data available at this writing indicate the that Democrats will win 211 seats, a loss of 45 from the 2008 on-year result that will put them in the minority for the 112th Congress.
    Keywords: US House of Representatives; 2010 election; economics and elections
    JEL: C53 E17 Y80 D72 P16
    Date: 2010–09–22
  14. By: Marina, Azzimonti; Marco, Battaglini; Stephen, Coate
    Abstract: This paper uses the political economy model of Battaglini and Coate (2008) to analyze the impact of a balanced budget rule that requires that legislators do not run deficits. It considers both a strict rule which cannot be circumvented and a rule that can be overridden by a super-majority of legislators. A strict rule leads to a gradual but substantial reduction in the level of public debt. In the short run, citizens will be worse off as public spending is reduced and taxes are raised to bring down debt. In the long run, the benefits of a lower debt burden must be weighed against the costs of greater volatility in taxes and less responsive public good provision. To quantify these effects, the model is calibrated to the U.S. economy using data from 1940-2005. While the long run net benefits are positive, they are outweighed by the short run costs of debt reduction. A rule with a super-majority override has no effect on citizen welfare or fiscal policy.
    Keywords: Balanced Budget Amendment; Political Economy; Markov Equilibrium; Bargaining
    JEL: H21 C70 D60 E60
    Date: 2010

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