nep-pol New Economics Papers
on Positive Political Economics
Issue of 2010‒12‒18
25 papers chosen by
Eugene Beaulieu
University of Calgary

  1. Information Aggregation Through Costly Political Action By Susanne Lohmann
  2. Lobbying, political competition, and local land supply: recent evidence from Spain By Albert Sole-Olle; Elisabet Viladecans-Marsal
  3. How does political instability affect economic growth? By Ari Aisen; Francisco J. Veiga
  4. Intergovernmental Transfers and Re-Election Concerned Politicians By Hickey, Ross
  5. Cursed Resources? Political Conditions and Oil Market Outcomes. By Gilbert E. Metcalf; Catherine Wolfram
  6. Endorse or Not to Endorse: Understanding the Determinants of Newspapers' Likelihood of Making Political Recommendations By Fernanda Leite Lopez de Leon
  7. Determinants of government consumption expenditure in developing countries : a panel data analysis By Shonchoy, Abu S
  8. Cross-National and Cross-Ethnic Differences in Political and Leisure Attitudes. A Case of Luxemburg By KANKARASH Milosh; MOORS Guy
  9. The Tuesday Advantage of Candidates Endorsed by American Newspapers By Fernanda Leite Lopez de Leon
  10. The core of voting games with externalities By Aymeric Lardon
  11. Cronyism By Martins, Pedro S.
  12. Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions By Sambit Bhattacharyya; Roland Hodler
  13. The urban middle class in the instability of new democracies By Kawanaka, Takeshi
  14. Public Spending, Public Deficits, and Government Coalitions By André Blais; Jiyoon Kim; Martial Foucault
  15. Conditionality and Endogenous Policy Formationina Political Setting By S Mansoob Murshed
  16. Cyber-networks, physical coalitions and missing links : imagining and realizing dissent in Malaysia 1998-2008 By Khoo, Boo Teik
  17. Inequality and Education Funding: Theory and Evidence from the U.S. School Districts By Calin Arcalean; Ioana Schiopu
  18. When Does Government Debt Crowd Out Investment? By Nora Traum; Shu-Chun Yang
  19. Economic Foundation of Dictatorship in Resource Exporting Economies By Atallah, Samer
  20. Unilateral Tariff Liberalisation By Richard Baldwin
  21. Social preferences during childhood and the role of gender and age - An experiment in Austria and Sweden By Martinsson, Peter; Nordblom, Katarina; Rützler, Daniela; Sutter, Matthias
  22. Do Elections Matter for Economic Performance? By Paul Collier; Anke Hoeffler
  23. The Downsian Model of Electoral Participation: Formal Theory and Empirical Analysis of the Constituency Size Effect By Stephen Hansen; Thomas R Palfrey; Howard Rosenthal
  24. Policymakers' Votes and Predictability of Monetary Policy By Sirchenko, Andrei
  25. From immigrants to (non-)citizens: Political economy of naturalizations in Latvia By Artjoms Ivlevs; Roswitha M. King

  1. By: Susanne Lohmann
    Date: 2010–12–10
  2. By: Albert Sole-Olle; Elisabet Viladecans-Marsal (Universitat de Barcelona)
    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 compre- hensive 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: urban growth controls, political economy, land use regulations
    JEL: Q15 R52 H7
    Date: 2010
  3. By: Ari Aisen; Francisco J. Veiga
    Abstract: The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.
    Keywords: Economic growth; Political instability; Growth accounting; Productivity
    JEL: O43 O47
    Date: 2010–10
  4. By: Hickey, Ross
    Abstract: This paper studies intergovernmental transfers. Many intergovernmental transfers are said to serve political purposes. We augment a standard model of political career concerns to allow for multilevel governance. When elections are simultaneous, there is no equilibrium with non-zero transfers as the opportunity cost of a transfer is too high. However when elections are staggered, an equilibrium exists with positive transfers. These transfers are motivated by two factors; sabotaging challengers and rent smoothing. These transfers are non-partisan and an artifact of the electoral dynamics as prescribed by an electoral calendar and politicians' career concerns. This model produces an additional insight in understanding intergovernmental grants. These results are discussed with reference to the growing literature on the partisan basis of intergovernmental transfers.
    Keywords: Career Concerns; Public Economics; Intergovernmental Transfers
    JEL: H10 H77
    Date: 2010–08
  5. By: Gilbert E. Metcalf; Catherine Wolfram
    Abstract: We analyze how a country's political institutions affect oil production within its borders. We find a pronounced negative relationship between political openness and volatility in oil production, with democratic regimes exhibiting less volatility than more autocratic regimes. This relationship holds across a number of robustness checks including using different measures of political conditions, instrumenting for political conditions and using several measures of production volatility. Political openness also affects other oil market outcomes, including total production as a share of reserves. Our findings have implications both for interpreting the role of institutions in explaining differences in macroeconomic development and for understanding world oil markets.
    Date: 2010
  6. By: Fernanda Leite Lopez de Leon (School of Economics, University of East Anglia)
    Abstract: This paper investigates the determinants of newspapers' provision for political endorsements. I empirically examine the role of newspapers' political preferences and market competition on newspapers' decision. Regression results suggest that market competition inhibits newspapers from making endorsements. Results from a simple model show that newspapers' ideology determine their endorsements, turning partisan papers more likely to make political recommendations and more likely to endorse challengers than non-partisan newspapers.
    Date: 2010–12–11
  7. By: Shonchoy, Abu S
    Abstract: The paper focuses on the recent pattern of government consumption expenditure in developing countries and estimates the determinants which have influenced government expenditure. Using a panel data set for 111 developing countries from 1984 to 2004, this study finds evidence that political and institutional variables as well as governance variables significantly influence government expenditure. Among other results, the paper finds new evidence of Wagner's law which states that peoples' demand for service and willingness to pay is income-elastic hence the expansion of public economy is influenced by the greater economic affluence of a nation (Cameron1978). Corruption is found to be influential in explaining the public expenditure of developing countries. On the contrary, size of the economy and fractionalization are found to have significant negative association with government expenditure. In addition, the study finds evidence that public expenditure significantly shrinks under military dictatorship compared with other form of governance.
    Keywords: Developing countries, Public expenditures, Corruption, Government expenditure, Fractionalization, Governance, Political institutions and Extreme bound analysis
    JEL: E01 E2 E61 E62 H50 H60 O11 O5 H2 H4 H5 H6
    Date: 2010–12
  8. By: KANKARASH Milosh; MOORS Guy
    Keywords: cross-cultural research; measurement equivalence; attitudes; latent class factor analysis; European Value Study
    Date: 2010–12
  9. By: Fernanda Leite Lopez de Leon (School of Economics, University of East Anglia)
    Abstract: This paper documents the electoral advantage of candidates who have a newspaper endorsement republished on Election Day in comparison to other endorsed candidates. I provide evidence that this advantage is not driven by a selection effect, suggesting that it is instead explained by readers deciding how to vote based on endorsements read on Election Day. I reject some other mechanisms that could explain the influence of this endorsement, but the advice provided on the day of the election. Moreover, candidates that have a different political orientation from their endorsing newspapers benefit more from this endorsement than other candidates. These results are based on a newly-compiled dataset matching county-level data of 826 endorsed candidates election results with newspaper and county characteristics.
    Date: 2010–12–11
  10. By: Aymeric Lardon (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: The purpose of this article is to analyze a class of voting games in which externalities are present. We consider a society in which coalitions can be formed and where a finite number of voters have to choose among a set of alternatives. A coalition is winning if it can veto any proposed alternative. In our model, the veto power of a coalition is dependent on the coalition formation of the outsiders. We show that whether or not the core is non-empty depends crucially on the expectations of each coalition regarding outsiders' behavior when it wishes to veto an alternative. On the one hand, if each coalition has pessimistic expectations, then the core is non-empty if and only if the dimension of the set of alternatives is equal to one. On the other hand, if each coalition has optimistic expectations, the non-emptiness of the core is not ensured.
    Keywords: voting games; externalities; core
    Date: 2010
  11. By: Martins, Pedro S. (Queen Mary, University of London)
    Abstract: Politicians can use the public sector to give jobs to cronies, at the expense of the efficiency of those organisations and general welfare. Motivated by a simple model of cronyism that predicts spikes in appointments to state-owned firms near elections, we regress 1980-2008 monthly hirings across all state-owned Portuguese firms on the country’s political cycle. In most specifications, we also consider private-sector firms as a control group. Consistent with the model, we find that public-sector appointments increase significantly over the months just before a new government takes office. Hirings also increase considerably just after elections but only if the new government is of a different political colour than its predecessor. These results also hold when conducting the analysis separately at different industries and most job levels, including less skilled positions. We find our evidence to be consistent with cronyism and politically-induced misallocation of public resources.
    Keywords: corruption, matched employer-employee panel data, public-sector employment
    JEL: J45 H11 J23
    Date: 2010–11
  12. By: Sambit Bhattacharyya; Roland Hodler
    Abstract: We theoretically and empirically examine the relationship between natural resource revenues and financial development. In the theoretical part, we present a politico-economic model in which contract enforcement is low and decreasing in resource revenues when political institutions are poor, but high otherwise. As poor contract enforcement leads to low financial development, the model predicts that resource revenues hinder financial development in countries with poor political institutions, but not in countries with comparatively better political institutions. We test our theoretical predictions systematically using panel data covering the period 1970 to 2005 and 133 countries. Our estimates confirm our theoretical predictions. Our main results hold when we control country fixed effects, time varying common shocks, income and various additional covariates. They are also robust to alternative estimation techniques, various alternative measures of financial development and political institutions, as well as across different samples and data frequencies. We present further evidence using panel data covering the period 1870 to 1940 and 31 countries.
    Keywords: Natural resources; political institutions; financial development
    JEL: D7 O1
    Date: 2010
  13. By: Kawanaka, Takeshi
    Abstract: The recent revolts of the middle class in the national capitals of the Philippines and Thailand have raised a new question about democratic consolidation. Why would the urban middle class, which is expected to stabilize democracy, expel the democratically elected leaders through extra-constitutional action? This article seeks to explain such middle class deviation from democratic institutions through an examination of urban primacy and the change in the winning coalition. The authoritarian regime previously in power tended to give considerable favor to the primate city to prevent it revolting against the ruler, because it could have become a menace to his power. But after democratization the new administration shifts policy orientation from an urban to rural bias because it needs to garner support from rural voters to win elections. Such a shift dissatisfies the middle class in the primate city. In this article I take up the Philippines as a case study to examine this theory.
    Keywords: Philippines, Middle classes, Internal politics, Urban societies, Democracy, Institutions, Urban primacy, Coalition, Middle class
    Date: 2010–11
  14. By: André Blais; Jiyoon Kim; Martial Foucault
    Abstract: The study examines the relationship between types of government and level of public spending. There are two competing perspectives about the consequences of coalition governments on the size of public expenditures. The most common argument is that government spending increases under coalition governments, compared with one-party governments. Another line of thought contends that coalition governments often are stalled in the status quo due to the veto power of each member. Our analysis of public spending in 33 parliamentary democracies between 1972 and 2000 confirms the latter argument that coalition governments have a status quo bias. Particularly, we find that single-party governments are apt to modify the budget according to the current fiscal condition, which enables them to increase or decrease spending more flexibly. On the contrary, coalition governments find it difficult not only to decrease spending under difficult fiscal conditions but also to increase it even under a more favourable context, because each member of the coalition has a veto power. <P>L'étude examine la relation entre les types de gouvernement et le niveau des dépenses publiques. Il existe dans la littérature deux points de vue divergents sur les conséquences des gouvernements de coalition sur la taille des dépenses publiques. L'argument le plus commun est que les augmentations de dépenses publiques des gouvernements de coalition augmentent davantage que les gouvernements à parti unique. Une autre ligne de pensée soutient que les gouvernements de coalition sont souvent installés dans le statu quo en raison du droit de veto de chaque parti de la coalition. Notre analyse des dépenses publiques dans 33 démocraties parlementaires entre 1972 et 2000 confirme que les gouvernements de la coalition ont un biais de statu quo. En particulier, nous constatons que les gouvernements à parti unique sont plus enclins à modifier le budget en fonction de leur solde budgétaire, ce qui leur permet d'augmenter ou de diminuer les dépenses de manière plus souple. Au contraire, les gouvernements de coalition ont non seulement du mal à diminuer les dépenses fiscales dans des conditions difficiles, mais aussi de l'augmenter, même dans un contexte plus favorable, parce que chaque membre de la coalition peut menacer d’utiliser son droit de veto.
    Keywords: publics spending, coalition government, single-party, electoral systems, fiscal deficit, panel data, dépenses publiques, gouvernement de coalition, parti unique, systèmes électoraux, solde budgétaire, données de panel
    Date: 2010–12–01
  15. 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. [Discussion Paper No.2001/92]
    Keywords: aid conditionality, fiscal policy, political processes, endogenous policy formation
    Date: 2010
  16. By: Khoo, Boo Teik
    Abstract: From September 1998 to March 2008, dissident cyber-networks in Malaysia developed connections with physical coalitions that contributed to the Opposition’s historic gains in the 12th General Election of March 2008. To succeed in entrenching a ‘two-coalition system’, however, the component parties of the Opposition coalition (Pakatan Rakyat) must establish its ‘missing links’, namely, extensive and deep organizational networks in society that would permit the coalition to move from imagining and realizing dissent to institutionalizing it meaningfully.
    Keywords: Malaysia, Internal politics, Elections, Network, Internet, Malaysian politics, 2008 General Election, Opposition coalitions, Malaysiakini, Malaysia Today, Raja Petra Kamaruddin, Anwar Ibrahim, Cyber-networks
    Date: 2010–08
  17. By: Calin Arcalean (ESADE Ramon Llull University); Ioana Schiopu (ESADE Ramon Llull University)
    Abstract: We investigate the relationship between inequality and education funding in a model of probabilistic voting over public education spending where the private option is available. A change in inequality can have opposite effects at different income levels: higher inequality decreases public spending per student and increases enrollment in public schools in poor economies, while the opposite holds in the rich ones. A change in the tax base can also have non-monotonic e¤ects. We also study the implications of different voting participation across income groups. The predictions of the model are supported by U.S. school district-level data.
    Date: 2010–09
  18. By: Nora Traum (Indiana University - Bloomington); Shu-Chun Yang (Congressional Budget Office)
    Abstract: We investigate the relationship between inequality and education funding in a model of probabilistic voting over public education spending where the private option is available. A change in inequality can have opposite effects at different income levels: higher inequality decreases public spending per student and increases enrollment in public schools in poor economies, while the opposite holds in the rich ones. A change in the tax base can also have non-monotonic effects. We also study the implications of different voting participation across income groups. The predictions of the model are supported by U.S. school district-level data.
    Date: 2010–05
  19. By: Atallah, Samer
    Abstract: This paper explains the lack of democratization in resource exporting countries using a two period resource extraction model. There are two classes of agents: elite who own capital and natural resources and citizens who own labor. The elite announce, in the rst period, their plans for resource extraction and investment in the economy. Citizens, in the second period, decide whether to conduct a revolution against elite to capture their share of rents from un-extracted resources. Government policies are designed to ensure that the elite remain in power and that citizens do not have the incentive to revolt. These policies subsidize extraction and investment during the rst period. The extraction subsidy reduces the benet of revolution while the investment subsidy increases its cost. On the other hand, policies in the democracy case are not constrained by the revolution threat and represent the median voter preferences. The resource is over extracted in the non-democratic case compared to the democratic case. Also, investment in the non-resource sector is lower. The important nding of the model is that extraction path goes against price signals; rst period extraction increases with the increase of the resource price in the second period. Non-Democratic institution is the rational choice of the elite even with the costly policies to prevent a revolution.
    Keywords: resource curse; political transition; institutions
    JEL: Q32 Q34 D72
    Date: 2010–05
  20. By: Richard Baldwin
    Abstract: Unilateral tariff liberalisation by developing nations is pervasive but our understanding of it is shallow. This paper strives to partly redress this lacuna on the theory side by introducing three novel political economy mechanisms with particular emphasis is on the role of production unbundling. One mechanism studies how lowering frictional barriers to imported parts can destroy the correlation of interests between parts producers and their downstream customers. A second mechanism studies how Kojima’s pro-trade FDI raises the political economy cost of maintaining high upstream barriers. The third works via a general equilibrium channel whereby developing country’s participation in the supply chains of advanced-nation industries undermines their own competitiveness in final goods, thus making final good protection more politically costly. In essence, developing nations’ pursuit of the export-processing industrialisation undermines their infant-industry industrialisation strategies.
    JEL: F1 F13
    Date: 2010–12
  21. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University); Rützler, Daniela (Department of Public Economics, University of Innsbruck, Austria); Sutter, Matthias (Department of Public Economics, University of Innsbruck, Austria)
    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.<p>
    Keywords: social preferences; children; adolescents; distributional experiment; Austria; Sweden.
    JEL: C91 D63 D64
    Date: 2010–12–10
  22. By: Paul Collier; Anke Hoeffler
    Abstract: In mature democracies, elections discipline leaders to deliver good economic performance. Since the fall of the Soviet Union most developing countries also hold elections, but these are often marred by illicit tactics. Using a new global data set, this paper investigates whether these illicit tactics are merely blemishes or substantially undermine the economic efficacy of elections. We show that illicit tactics are widespread, and that they reduce the incentive for governments to deliver good economic performance. Revisiting the celebrated result that ‘leaders matter’, we show that it is dependent upon the absence of clean elections: changes of leader matter a lot in systems without clean elections, whereas in those with clean elections they are not significant.
    Date: 2010
  23. By: Stephen Hansen; Thomas R Palfrey; Howard Rosenthal
    Date: 2010–12–10
  24. By: Sirchenko, Andrei
    Abstract: This paper provides empirical evidence in favor of prompter and more detailed release of Monetary Policy Council's voting records, not published by National Bank of Poland before subsequent MPC meeting. The study shows that voting records, if they were available, could improve predictability of upcoming policy decisions. They reveal strong and robust predictive content as a supplementary factor after controlling for MPC policy bias and responses to inflation, real activity, exchange rates and financial market information. The voting patterns contain information not embedded in the market expectations of future policy, as revealed by the spreads and moves in the market interest rates, and even explicit forecasts of the next policy decision, made by market analysts in Reuters surveys before each policymaking meeting. Moreover, the direction of dissent explains the direction of private sector forecast bias. These findings are based on real-time data and voting patterns only, without knowledge of policymakers' names attached to each vote
    Keywords: monetary policy, interest rate, predictability, voting, real-time data
    Date: 2010–12–05
  25. By: Artjoms Ivlevs (Department of Economics, University of the West of England); Roswitha M. King (Østfold University College and University of Latvia)
    Abstract: Latvia enjoys the dubious distinction of having the highest population share of ethnic minorities and foreign-born residents in the European Union. In addition there exists a peculiar Latvian “institution”, a category of resident known as “non-citizen”, originating from the Soviet era migration flows. This “non-citizen” status has a number of serious disadvantages relative to citizen status. It is, therefore, of interest why a significant number of “non-citizen” opt to keep this status, although they have the opportunity to obtain full citizenship, and why others choose to become citizen. Using data from a representative 2007 survey of 624 former and current non-citizens in a multinomial probit model reveals characteristics of those who want to remain non-citizen, and of those who have obtained citizen status, are in the process of obtaining it or plan to do so in the future. Proficiency level of the state language (Latvian) is the single most significant correlate of the willingness to obtain citizenship. Significant influence also accrues to age, gender, education, emigration intentions and municipality level factors – the unemployment rate and the share of non-citizens
    Keywords: Immigrants, non-citizens, naturalization, integration, Latvia, political economy.
    JEL: F22 J15 J61
    Date: 2010–12

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