nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒11‒13
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. Legislative malapportionment and institutional persistence By Bruhn, Miriam; Gallego, Francisco; Onorato, Massimiliano
  2. How to Include Political Capabilities in the HDI? An Evaluation of Alternatives By José Antonio Cheibub
  3. Political Competition, Policy and Growth: Theory and Evidence from the United States By Timothy Besley; Torsten Persson; Daniel M. Sturm
  4. Islam and Democracy By Niklas Potrafke
  5. A construção política do estado By Pereira, Luiz Carlos Bresser
  6. Voting on traffic congestion policy with two levels of government By Russo, Antonio
  7. Democracy, inequality and the environment when citizens can mitigate privately or act collectively By Louis Hotte
  8. The Political Economy of Human Development By Robin Harding; Leonard Wantchekon
  9. Voting in international environmental agreements: Experimental evidence from the lab By Dannenberg, Astrid
  10. Politics and elections at the Spanish stock exchange By Ángel Pardo Tornero; María Dolores Furió Ortega
  11. Paying a Visit: The Dalai Lama Effect on International Trade By Andreas Fuchs; Nils-Hendrik Klann
  12. Fiscal Decentralization and Development: How Crucial is Local Politics? By Pal, Sarmistha; Roy, Jaideep

  1. By: Bruhn, Miriam; Gallego, Francisco; Onorato, Massimiliano
    Abstract: This paper argues that legislative malapportionment, denoting a discrepancy between the share of legislative seats and the share of population held by electoral districts, serves as a tool for pre-democratic elites to preserve their political power and economic interests after a transition to democracy. The authors claim that legislative malapportionment enhances the pre-democratic elite’s political influence by over-representing areas that are more likely to vote for parties aligned with the elite. This biased political representation survives in equilibrium as long as it helps democratic consolidation. Using data from Latin America, the authors document empirically that malapportionment increases the probability of transitioning to a democracy. Moreover, the data show that over-represented electoral districts are more likely to vote for parties close to pre-democracy ruling groups. The analysis also finds that overrepresented areas have lower levels of political competition and receive more transfers per capita from the central government, both of which favor the persistence of power of pre-democracy elites.
    Keywords: Parliamentary Government,Labor Policies,Emerging Markets,Political Economy,Political Systems and Analysis
    Date: 2010–11–01
  2. By: José Antonio Cheibub (Cline Center for Democracy at University of Illinois at Urgana-Champaign)
    Abstract: This paper evaluates existing measures of political regimes and political freedom with respect to their desirability as indicators of political capabilities. It argues that the focus of desirable measures should be on the political and civil institutions that affect individuals’ opportunities to pursue their goals (their capabilities). Attempts to capture “actual” capabilities are misleading since they replicate what the existing HDI already does and muddle a measure that derives power from its simplicity. The paper then suggests indicators that are intuitive, clear and sufficiently encompassing to capture the political and civil environment within which individuals must pursue their goals.
    Keywords: democracy, regime classification, civil and political freedom
    JEL: C80 O15
    Date: 2010–10
  3. By: Timothy Besley; Torsten Persson; Daniel M. Sturm
    Abstract: This paper develops a simple model to analyze how a lack of political competition may leadto policies that hinder economic growth. We test the predictions of the model on panel datafor the US states. In these data, we find robust evidence that lack of political competition in astate is associated with anti-growth policies: higher taxes, lower capital spending and areduced likelihood of using right-to-work laws. We also document a strong link between lowpolitical competition and low income growth.
    Keywords: political competition, competition, government, US, economic development
    JEL: D72 H11 H70 N12 O11
    Date: 2010–10
  4. By: Niklas Potrafke (Department of Economics, University of Konstanz, Germany)
    Abstract: Using the POLITY IV and Freedom House indices, Rowley and Smith (2009) found that countries with Muslim majorities enjoy less freedom and are less democratic than countries in which Muslims are a minority. Because the POLITY IV and Freedom House indices have been criticized on several grounds, I reinvestigate Rowley and Smith’s finding using the new Democracy-Dictatorship data from Cheibub et al. (2010). The empirical results confirm that countries with Muslim majorities are indeed less likely to be democratic.
    Keywords: Islam, religion, democracy, political institutions
    JEL: Z12 O11 P16 P48 F59
    Date: 2010–11–04
  5. By: Pereira, Luiz Carlos Bresser
    Abstract: In the relations between society and the state, the two forms of politicallyorganized societies – the nation and civil society – play a key role, as also do classcoalitions and political pacts. The relation between both is dialectical, but, initially, thestate exerts more influence on the society; as democratization takes place this relationgradually changes in favor of society. Despite the fact that politics (the art of governingthe state) is subjected to economic and political constraints, it counts with a relativeautonomy. It is not the state but politics that has relative autonomy. Whereas societyand the economy are the realm of necessity, politics is the realm of men’s will andfreedom. The deterministic political theories that search to predict political behavior failbecause they ignore this relative autonomy of politics. It is through politics, in theframework of the democratic state, that men and women build their state and theirsociety.
    Date: 2010–11–05
  6. By: Russo, Antonio
    Abstract: I study how the political decision process affects urban traffic congestion policy. First, I look at the case of a single government deciding, through majority voting, on a monetary charge to be paid to drive to a city's Central Business District (CBD): if the majority of individuals prefers to drive more (resp. less) than the average, a voting equilibrium with lower (higher) charge emerges. Next, I consider the case of two government levels involved in traffic policy: parking charges in (resp. cordon tolls around) a city's CBD and capacity investments are chosen by a local (resp. regional) government, through a majority voting process. While tax exporting motives and the imperfect coordination among the two governments may lead to higher overall charges than in the case of a single government, strong preferences for driving across the population can still bring to an equilibiurm with suboptimal total charges.
    Keywords: traffic congestion policy; cordon tolls; parking; voting; fiscal competition;
    JEL: H77 D78 H23 L98
    Date: 2010–11–06
  7. By: Louis Hotte (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: We study the political economy of the environment in autocratic, weak and strong democracies when individuals can either mitigate the health consequences of domestic pollution privately or reduce pollution collectively through public policy. The setting is that of a small open economy in which incomes depend importantly on trade in dirty goods, where income inequality and the degree to which ordinary citizens exert voice in each dimension of the policy process distinguishes elites and ordinary citizens. The recognition that the health consequences of pollution can be dealt with privately at a cost adds an important dimension to the analysis of the political economy of environmental regulation, especially for an open economy. When private mitigation is feasible, inequality of incomes leads to an unequal distribution of the health burden of pollution (in accordance with the epidemiologic evidence), thus polarizing the interests of citizens in democracies and of ordinary citizens and elites in non-democratic regimes. Inequality in the willingness to bear the cost of private mitigation in turn interacts with the pollution costs and income benefits of trade in dirty goods to further polarize interests concerning both environmental stringency and the regulation of trade openness. In this context, we show how the eco-friendliness ranking of different political regimes varies with the cost of private mitigation and with the extent of income inequality, tending to converge when mitigation costs are high, and even producing a ranking reversal between democracies and autocracies, and between weak and strong democracies, when costs lie in an intermediate range.
    Keywords: pollution, environmental regulation, private mitigation, income inequality, democracy, trade, welfare, collective choice, political economy
    JEL: C7 D7 F18 Q56
    Date: 2010
  8. By: Robin Harding (New York University); Leonard Wantchekon (New York University)
    Abstract: What are the causes and consequences of human development? In the twenty years since the publication of the first Human Development Report (HDR), political scientists have invested a great deal of time and effort into answering this question. So what do we know? In this paper we seek to review these labors, the fruits of which can be summarized as follows. Democracy causes, but is not caused by, economic development. While total economic growth is no higher as a result of democratic institutions, they are more conducive than non-democratic alternatives to the growth of per capita income, which is an important aspect of individual well-being. Democratic institutions are also conducive to improvements in the two other essential elements of human development, longevity and knowledge - democracy has a positive effect on indicators of education and health. Given these findings, it seems pertinent to ask why democracy has such effects. Our conclusion from the literature is that the positive impact of democratic institutions stems from their provision of accountability structures. But in providing these structures, what democracy offers is the opportunity for human development. It is no guarantee of its realization, and in the absence of factors such as information and participation this opportunity can be missed.
    Keywords: Human Development, Democracy, Political Institutions, Accountability, Income, Education, Health.
    JEL: I00 O11 O12
    Date: 2010–10
  9. By: Dannenberg, Astrid
    Abstract: This paper experimentally analyzes the effects if signatories to an international environmental agreement (IEA) apply different voting schemes to determine the terms of the agreement. To this end, unanimity, qualified majority voting, and simple majority voting are compared with respect to the resulting pollution abatement level and social welfare. At first sight in line with theoretical predictions, the experiment shows that the change of the voting scheme implemented in an IEA does not significantly change social welfare. However, changing the majority required to determine the terms of an IEA alters the 'depth and breadth' of cooperation. The coalitions under the unanimity rule are relatively large and implement moderate effort levels while the coalitions with majority votes implement very high effort levels but attract only few participants. --
    Keywords: international environmental agreements,cooperation, voting
    JEL: C72 C92 D71 H41
    Date: 2010
  10. By: Ángel Pardo Tornero (Dpto. Economía Financiera y Actuarial); María Dolores Furió Ortega (Universitat de València)
    Abstract: This paper examines the influence of Spanish major political events on the stock market performance. The analytical results demonstrate that there are no systematic differences in excess returns in the last two years preceding an election, that market responses are of the same magnitude when incumbents win or lose the election, and that there is no difference between the excess returns during left-leaning and right-leaning governments. Regarding to the stock market performance around election dates, negative price changes are observed in the days prior to elections, reverting to positive once the election takes place. Our results are in line with the work of Brown, Harlow and Tinic (1988) on the Uncertain Information Hypothesis that postulates that volatility of stock returns increases following the arrival of unexpected information and prices rise as uncertainty is resolved.convirtiéndose en incrementos con posterioridad a las mismas. Estos resultados son consistentes con la hipótesis de información incierta de Brown et al. (1988), de acuerdo con la cual, la volatilidad de los rendimientos de las acciones se incrementa con la aparición en el mercado de información que no se esperaba y los precios se recuperan a medida que desaparece la incertidumbre. Este trabajo examina la influencia de la política en el comportamiento del mercado bursátil español. Analíticamente se demuestra que no hay diferencias sistemáticas en los rendimientos anormales de las acciones durante los dos años anteriores a la celebración de elecciones, que la respuesta del mercado es la misma con independencia de que un determinado partido revalide su victoria electoral y que no existen diferencias entre los rendimientos anormales de las acciones observados bajo gobiernos de izquierdas o de derechas. Con respecto al comportamiento de las acciones durante el periodo anterior y posterior a la fecha de las elecciones, se observan disminuciones en los precios en los días previos a las elecciones
    Keywords: política, rendimientos anormales, comportamiento del mercado bursátil politics, excess returns, stock market performance
    JEL: G14 D81 H11
    Date: 2010–10
  11. By: Andreas Fuchs; Nils-Hendrik Klann
    Abstract: The Chinese government frequently threatens that meetings between its trading partners’ officials and the Dalai Lama will be met with animosity and ultimately harm trade ties with China. We run a gravity model of exports to China from 159 partner countries between 1991 and 2008 to test to which extent bilateral tensions affect trade with autocratic China. In order to account for the potential endogeneity of meetings with the Dalai Lama, the number of Tibet Support Groups and the travel pattern of the Tibetan leader are used as instruments. Our empirical results support the idea that countries officially receiving the Dalai Lama at the highest political level are punished through a reduction of their exports to China. However, this ‘Dalai Lama Effect’ is only observed for the Hu Jintao era and not for earlier periods. Furthermore, we find that this effect is mainly driven by reduced exports of machinery and transport equipment and that it disappears two years after a meeting took place.
    Keywords: International Trade, International Political Economy, Diplomatic Relations, Exports to China, Tibet, Dalai Lama
    JEL: F13 F51 F59
    Date: 2010–10–19
  12. By: Pal, Sarmistha (Brunel University); Roy, Jaideep (University of Birmingham)
    Abstract: Does fiscal decentralization in a politically decentralized less developed country help strengthen democratic institutions at the grass root level? And is the impact of such decentralization on local politics important in determining local development? Our study on Indonesia suggests that fiscal decentralization enhanced free and fair local elections, though the incidence of elite capture, and the consequent breakdown of local democracy, was also present in significant proportions. Fiscal decentralization promoted development mostly in communities which transited out from elite capture to embrace free and fair elections. This was followed by communities that experienced the emergence of elite capture. Communities that continued to remain under either elite capture or free and fair elections did the worst. These findings suggest that while the emergence of elite capture exists, it may not necessarily be the most harmful. Instead, and surprisingly so, stability of local polity hurts development the most.
    Keywords: local politics, less developed nation, decentralization
    JEL: D72 H77 O18
    Date: 2010–10

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