nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒11‒20
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. Does Political Competition Matter for Economic Performance? Evidence from Sub-national Data By Saibal, Ghosh
  2. Conditionality and Endogenous Policy Formationina Political Setting By S Mansoob Murshed
  3. Is Fiscal Decentralization Harmful for Economic Growth? Evidence from the OECD Countries By Roberto Ezcurra; Andrés Rodríguez-Pose
  4. Identity, reputation and social interaction with an application to sequential voting By Emilio Barucci; Marco Tolotti
  5. Of Candidates and Character By B. Douglas Bernheim; Navin Kartik
  6. Public Ownership of Banks and Economic Growth – The Role of Heterogeneity By Tobias Körner; Isabel Schnabel
  7. The political-economy of tax reforms in Pakistan: the ongoing saga of the GST By Ahmad, Ehtisham
  8. Democracy under uncertainty: The ‘wisdom of crowds’ and the free-rider problem in group decision making By Kameda, Tatsuya; Tsukasaki, Takafumi; Hastie, Reid; Berg, Nathan
  9. Corruption and culture: An Experimental Analysis.. By Barr, Abigail; Serra, Danila
  10. BSocial preferences during childhood and the role of gender and age – An experiment in Austria and Sweden By Peter Martinsson; Katarina Nordblom; Daniela Rützler; Matthias Sutter

  1. By: Saibal, Ghosh
    Abstract: The study utilizes data on major Indian states for 1980-2004 to explore the impact of political competition on state-level income and fiscal variables. The findings suggest that increase in political competition leads to an increase in state per capita income and growth. Focusing on fiscal variables, the analysis indicates that tighter political competition increases economic expenditure.
    Keywords: political competition; economic performance; fiscal policy; sub-national; india
    JEL: H72 H71 P52
    Date: 2010–01
  2. By: S Mansoob Murshed
    Abstract: The paper examines two issues associated with aid and fiscal policy. First, how best the conditionality behind foreign aid, sometimes non-economic, is complied within a principal-agent framework. In a multiple task and multiple principal framework, principals are better off cooperating and making the agent’s efforts more complementary. Secondly, they examine endogenous policy formation in the context of domestic politics. This involves interaction between policymakers and domestic special interest groups. Outside donors need to be aware of these processes, so that they can ultimately influence it. They examine 3 endogenous policy processes: median voter, lobbying, and a combination of political contributions as well as altruism. [Discussion Paper No.2001/92]
    Keywords: aid conditionality, fiscal policy, political processes, endogenous policy, formation
    Date: 2010
  3. By: Roberto Ezcurra; Andrés Rodríguez-Pose
    Abstract: The global drive towards decentralization has been increasingly justified on the basis thatgreater transfers of resources to subnational governments are expected to deliver greaterefficiency in the provision of public goods and services and greater economic growth. Thispaper examines whether this is the case, by analysing the relationship betweendecentralization and economic growth in 21 OECD countries during the period between 1990and 2005 and controlling not only for fiscal decentralization, but also for political andadministrative decentralization. The results point towards a negative and significantassociation between fiscal decentralization and economic growth in the sample countries, arelationship which is robust to the inclusion of a series of control variables and to differencesin expenditure preferences by subnational governments. The impact of political andadministrative decentralization on economic growth is weaker and sensitive to the definitionand measurement of political decentralization.
    Keywords: Fiscal decentralization, political decentralization, administrative decentralization, economic growth, OECD
    JEL: H40 H52
    Date: 2010–05
  4. By: Emilio Barucci (Department of Applied Mathematics, Politecnico di Milano); Marco Tolotti (Department of Applied Mathematics, University Ca'Foscari of Venice)
    Abstract: We analyze binary choices in a random utility model assuming that the agent's preferences are affected by conformism (with respect to the behavior of the society) and coherence (with respect to his identity). We apply the analysis to sequential voting when voters like to win.
    Keywords: identity; reputation; social interaction; random utility models; voting system.
    JEL: D71 D81 C62
    Date: 2010–11
  5. By: B. Douglas Bernheim (Department of Economics, Stanford University, and Research Associate, National Bureau of Economic Research); Navin Kartik (Department of Economics, Columbia University)
    Abstract: We study the characteristics of self-selected candidates in corrupt political systems. Potential candidates differ along two dimensions of unobservable character: public spirit (altruism toward others) and honesty (the disutility suffered when selling out to special interests after securing office). Both aspects combine to determine an individual's quality as governor. We characterize properties of equilibrium candidate pools for arbitrary costs of running for office. As the cost of running vanishes, there is an essentially unique candidate pool, which is typically highly asymmetric: it consists of only the most dishonest individuals but a mixture of the most selfish and the most public-spirited ones. We explore how two policy instruments -- the governor's compensation and anti-corruption enforcement -- affect the expected quality of governance through candidate self-selection. We also examine the effects of incumbency and term limits on self-selection in a dynamic version of the model.
    Date: 2010–11
  6. By: Tobias Körner (Ruhr Graduate School in Economics); Isabel Schnabel (University of Mainz, CEPR, and MPI Bonn)
    Abstract: In an influential paper, La Porta, Lopez-De-Silanes and Shleifer (2002) argued that public ownership of banks is associated with lower GDP growth. We show that this relationship does not hold for all countries, but depends on a country’s financial development and political institutions. Public ownership is harmful only if a country has low financial development and low institutional quality. The negative impact of public ownership on growth fades quickly as the financial and political system develops. In highly developed countries, we find no or even positive effects. Policy conclusions for individual countries are likely to be misleading if such heterogeneity is ignored.
    Keywords: Public banks, economic growth, financial development, quality of governance, political institutions
    JEL: G18 G21 O16
    Date: 2010–09
  7. By: Ahmad, Ehtisham
    Abstract: Should tax reforms be guided by rules of thumb suggested by the IMF, or directions or reform based on analytical approaches, such as optimal tax theory? In many cases, the applications of the directions of reformâwhich suggest a differentiation of the structure given distributional, incentive and revenue concerns, can be brought close to the IMF prescriptions by a judicious balancing of tax instrumentsâsuch as a single or dual rate VAT together with systems of excises. But in some cases, such as Pakistan, neither prescription has yielded either the revenues anticipated, nor the necessary salutary effect on incentives for productionâdespite repeated attempts during successive IMF programs over 20 years. The proposition in this paper is that the collusion between vested interests, including the tax administration has led to the difficulties that have also exacerbated the âtrust deficitâ between the federation and the provinces. In this paper we examine issues of collusion between the tax administration and vested interests, and also difficulties arising from assigning a very mobile base to a level of government that does not have the technical capability to administer it. Section I examines method, based on the theory of reform. Section II posits the antecedents of tax reform in Pakistan over the past 50 years. Section III focuses on the design and implementation of the GST. Section IV examines the political economy of provincial revenue assignments; and Section V concludes.
    Keywords: Financial Economics, Political Economy,
    Date: 2010–10
  8. By: Kameda, Tatsuya; Tsukasaki, Takafumi; Hastie, Reid; Berg, Nathan
    Abstract: We introduce a game theory model of individual decisions to cooperate by contributing personal resources to group decisions versus by free-riding on the contributions of other members. In contrast to most public-goods games that assume group returns are linear in individual contributions, the present model assumes decreasing marginal group production as a function of aggregate individual contributions. This diminishing marginal returns assumption is more realistic and generates starkly different predictions compared to the linear model. One important implication is that, under most conditions, there exist equilibria where some, but not all members of a group contribute, even with completely self-interested motives. An agent-based simulation confirms the individual and group advantages of the equilibria in which behavioral asymmetry emerges from a game structure that is a priori perfectly symmetric for all agents (all agents have the same payoff function and action space, but take different actions in equilibria). And a behavioral experiment demonstrates that cooperators and free-riders coexist in a stable manner in groups performing with the non-linear production function. A collateral result demonstrates that, compared to a ―dictatorial‖ decision scheme guided by the best member in a group, the majority-plurality decision rules can pool information effectively and produce greater individual net welfare at equilibrium, even if free-riding is not sanctioned. This is an original proof that cooperation in ad hoc decision-making groups can be understood in terms of self-interested motivations and that, despite the free-rider problem, majority-plurality decision rules can function robustly as simple, efficient social decision heuristics.
    Keywords: group decision making under uncertainty; free-rider problem; majority-plurality rules; marginally-diminishing group returns; evolutionary games; behavioral experiment
    Date: 2010
  9. By: Barr, Abigail; Serra, Danila
    Abstract: Why do some people choose corruption over honesty and others not? Do the social norms and values prevailing in the societies in which they grew up affect their decisions? In 2005, we conducted a bribery experiment and found that, among undergraduates, we could predict who would act corruptly with reference to the level of corruption in their home country. Among graduate students we could not. In 2007, we replicated our result and also found that time spent in the UK was associated with a decline in the propensity to bribe, although this does not explain our inability to predict graduate behaviour. We conclude that, while corruption may, in part, be a cultural phenomenon, individuals should not be prejudged with reference to their country of origin.
    JEL: D73 C91 Z13
    Date: 2010
  10. By: Peter Martinsson; Katarina Nordblom; Daniela Rützler; Matthias Sutter
    Abstract: We examine social preferences of Swedish and Austrian children and adolescents using the experimental design of Charness and Rabin (2002). We find that difference aversion decreases while social-welfare preferences increase with age.
    Keywords: social preferences; children; adolescents; distributional experiment; Austria; Sweden.
    JEL: C91 D63 D64
    Date: 2010–11

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