nep-pol New Economics Papers
on Positive Political Economics
Issue of 2011‒03‒26
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Campaign Contributions and Political Polarization By Tarhan, Simge
  2. What Drives U.S. Immigration Policy? Evidence from Congressional Roll Call Votes By Facchini, Giovanni; Steinhardt, Max
  3. Budget support and policy/political dialogue. Donor practices in handling (political) crises By Molenaers, Nadia; Cepinskas, Linas; Jacobs, Bert
  4. Inequality Perceptions, Distributional Norms, and Redistributive Preferences in East and West Germany By Kuhn, Andreas
  5. Escaping Political Extraction: Political Participation, Institutions, and Cash Holdings in China By Feng, Xunan; Johansson, Anders C.
  6. The Politicians' Wage Gap: Insights from German Members of Parliament By Andreas Peichl; Nico Pestel; Sebastian Siegloch
  7. Democratization and Civil Liberties: The Role of Violence During the Transition By Cervellati, Matteo; Fortunato, Piergiuseppe; Sunde, Uwe
  8. Independent Candidates in a Parliamentary Election in India: A Poisson Regression Model By Bhattacharya, Kaushik
  9. Endogenous Elites: Power Structure and Patron-Client Relationships By Petros G. Sekeris
  10. Can regional transfers buy public support? Evidence from EU structural policy By Osterloh, Steffen
  11. Policymakers' Votes and Predictability of Monetary Policy By Andrei Sirchenko
  12. Reestablishing the income-democracy nexus By Jess Benhabib; Alejandro Corvalan; Mark M. Spiegel
  13. Central Banks' Voting Records and Future Policy By Roman Horvath; Katerina Smidkova; Jan Zapal

  1. By: Tarhan, Simge
    Abstract: Political candidates raise campaign funds from a variety of sources. Whether contributions from certain sources should be restricted has been the subject of debate in the U.S. since the Federal Election Campaign Act of 1971. I contribute to this debate by showing that the source of contributions affects the policy choice of candidates. When lobby contributions are limited, and candidates need to choose between costly fundraising activities or self-financing of the campaign, two types of candidates emerge: "rich" candidates with non-partisan positions and "poor" candidates choosing policies along party lines. An implication of the model is that restricting self-finance causes policy platforms to diverge under certain conditions. For instance, the Millionaires' Amendment in McCain-Feingold, which raised limits on contributions for candidates whose opponent is relying heavily on personal funds, could increase political polarization in the United States.
    Keywords: Campaign finance; contribution limits; PACs; partisan voters; self-financing
    JEL: D72
    Date: 2010–11–01
  2. By: Facchini, Giovanni (Erasmus University Rotterdam); Steinhardt, Max (Hamburg Institute of International Economics (HWWI))
    Abstract: Immigration is one of the most hotly debated policy issues in the United States today. Despite marked divergence of opinions within political parties, several important immigration reforms were introduced in the post 1965 era. The purpose of this paper is to systematically analyze the drivers of congressional voting behavior on immigration policy during the period 1970-2006, and in particular, to assess the role of economic factors at the district level. Our findings provide robust evidence that representatives of more skilled labor abundant constituencies are more likely to support an open immigration policy concerning unskilled labor. Thus, a simple factor-proportions-analysis model provides useful insights regarding the policy making process on one of the most controversial facets of globalization.
    Keywords: immigration policy, voting, political economy
    JEL: F22 J61
    Date: 2011–03
  3. By: Molenaers, Nadia; Cepinskas, Linas; Jacobs, Bert
    Abstract: Budget support entered the aid scene at the turn of the millennium and it is considered as the aid modality par excellence to foster ownership and more effective aid through institutional reform. In 2008-2009 a number of political events in aid receiving African countries however pointed at the difficult relation between budget support and (political) governance. The paper analyzes donor policies and practices surrounding policy/political dialogue and budget support and offers a number of policy recommendations on where and how to deal with “political” issues. Based on a desk study carried in March-May 2010 at the request of the Belgian Directorate-General for Development Cooperation, the paper presents a substantial analysis of Mozambique and Zambia where two recent political crises were successfully resolved by five donor countries. The authors argue that using budget support to drive both democratic and economic change is hazardous. Acknowledging the synergy between policy and political dialogue, the paper posits that technocratic and democratic issues should be separated because there are obvious trade-offs between them. Democratic governance issues should be dealt with in a separate high level forum, and in a pro-active rather than reactive way. In addition, donors need to ensure their interventions do not undermine recipient countries efforts to democratize. In effect, they should lower their ambitions: 1) with regard to what they can do: change cannot be bought, it can only be supported; 2) with regard to what recipient governments can do: even when there is commitment, change is most often gradual, not in big leaps. If anything, politics and political savvy should be brought in more, because every reform (however technocratic) is profoundly political.
    Date: 2010–12
  4. By: Kuhn, Andreas (University of Zurich)
    Abstract: This paper studies differences in inequality perceptions, distributional norms, and redistributive preferences between East and West Germany. As expected, there are substantial differences with respect to all three of these measures. Surprisingly, however, differences in distributional norms are much smaller than differences with respect to inequality perceptions or redistributive preferences. Nonetheless, individuals from East Germany tend to be more supportive of state redistribution and progressive taxation, and less likely to have a conservative political orientation, even conditional on having the same inequality perceptions and distributional norms.
    Keywords: subjective inequality indices, redistributive preferences, political preferences
    JEL: D31 D63 H50 J31
    Date: 2011–03
  5. By: Feng, Xunan (Shanghai Jiaotong University); Johansson, Anders C. (China Economic Research Center)
    Abstract: We study the effects of political participation on holdings of liquid assets in a transition economy. Previous research has shown that the risk of political extraction by politicians and bureaucrats in countries with weak institutions has an adverse effect on holdings of liquid assets. We propose that political participation by private entrepreneurs can function as a means to alleviate some of that risk. Our empirical results indicate that political participation is positively related to cash holdings in China, especially in regions with weak institutions proxied by lower GDP per capita, lower marketization levels, and weaker property protection. Cash holdings have a negative effect on firm value as measured by the market-to-book ratio. However, political participation, the combined effect of cash holdings and political participation, as well as the combined effect of cash holdings, political participation, and institutions are all positively associated with firm value. Political participation thus results in an improved ability for firms that function in an environment fraught with the risk of political extraction to increase their holdings of liquid assets as well as a related positive effect on firm value.
    Keywords: Political participation; Private entrepreneurs; Cash holdings; Political extraction; China
    JEL: G31 G32 G34 P48
    Date: 2011–03–15
  6. By: Andreas Peichl; Nico Pestel; Sebastian Siegloch
    Abstract: Using a unique dataset of German members of parliament with information on total earnings including outside income, this paper analyzes the politicians¿ wage gap (PWG). After controlling for observable characteristics as well as accounting for selection into politics, we find a positive PWG which is statistically and economically significant. It amounts to 40-60% compared to citizens with an executive position. Hence, we show that the widely held claim that politicians would earn more in the private sector is not confirmed by our data. Our findings are robust with respect to potential unobserved confounders. We further show that the PWG exceeds campaigning costs and cannot be justified by extraordinary workload. Hence, our results suggest that part of the PWG can be interpreted as rent extraction. This calls for a reform of the regulation of outside earnings, which account for a sizeable share of the wage premium.
    Keywords: Politicians' wage gap, descriptive representation, citizen-candidate model, political rents, outside earnings
    JEL: D72 H11 H83 J31 J45
    Date: 2011
  7. By: Cervellati, Matteo (University of Bologna); Fortunato, Piergiuseppe (UNCTAD); Sunde, Uwe (University of St. Gallen)
    Abstract: This paper investigates the role of violent civil conflicts during the process of democratization for the quality of emerging democracies, and in particular, the protection of civil (political and economic) liberties. A simple theory in which different groups may engage in violent conflict in order to become the ruler predicts a crucial role of the democratization scenario. A peaceful democratization leads to democracies with a high degree of civil liberties, reflecting a social contract according to which all groups are politically represented and the rulers deliberately abstain from wasteful rent extraction. A transition to democracy under a violent conflict is less likely to lead to a system with a high degree of civil liberties. Empirical evidence from the third wave of democratization based on a difference-in-difference methodology supports the theoretical predictions. The findings suggest that violent conflicts during the democratic transition have persistent negative effects on the quality of the emerging democracies.
    Keywords: democratization, civil conflict, violent democratization, civil liberties
    JEL: H10 O20 N10
    Date: 2011–03
  8. By: Bhattacharya, Kaushik
    Abstract: The paper attempts to explain the number of independent candidates in Indian parliamentary election in the year 2004. The statistical models developed are applications and generalizations of Poisson and Negative Binomial distributions. Our results suggest that the distribution of independent candidates can be explained well with a negative binomial probability model or its generalizations. Our results also help to identify three major factors behind the variations in the number of independent candidates. First, a major determinant of the number of independent candidates is political fractionalization. Results suggest that the number of non-independent candidates would typically lead to more independent candidates in the fray. Interestingly, our analysis points out that the major determinant appears to be political fractionalization at the State level rather than at the constituency itself. Second, we find some indirect evidence of presence of free riders. Free riders typically stand in urban constituencies and against the so called VIP candidates. Third, our results suggest that SC and ST constituencies would have typically lower number of independent candidates due to lack of potential candidates as compared to general constituencies.
    Keywords: Independent Candidates; Election; Poisson; Negative Binomial
    JEL: C25
    Date: 2010–05
  9. By: Petros G. Sekeris (Center for Research in the Economics of Development, University of Namur)
    Abstract: In weak institutional settings, autocrats barter political and economic concessions for support to remain in power and extract rents. Instead of viewing the favors’ beneficiaries, i.e. the elites, as an exogenous entity, we allow the king to decide whom to coopt provided the subjects are heterogeneous in the potential support - their strength - they could bring to the regime. While the ruler can select the elites on the basis of their personal characteristics, an alternative strategy consists in introducing some uncertainty in the cooptation process. The latter strategy allows the king to reduce the clients’ cooptation price since in the event of a revolution the likelihood of being included in the future body of elites is lower. We show that weak rulers are more likely to coopt the society’s strongest individuals, while powerful rulers diversify the composition of their clientele. Moreover, when agents value more future discounted outcomes, the king is more likely to randomly coopt subjects. Weak institutions Autocracy Rent seeking Elites
    Keywords: Weak Institutions, Autocracy, Rent Seeking, Elites.
    Date: 2010–03
  10. By: Osterloh, Steffen
    Abstract: Regional transfers are assumed to have an impact on the public opinion towards the benefactor, but empirical evidence is still scarce. In this paper we test this hypothesis for the structural funds of the European Union (EU) by combining detailed data on regional transfers with public opinion surveys. A positive impact of transfers on public support for the EU can be confirmed. Moreover, we scrutinize the role of awareness of being a recipient of funds in this process. In particular, we find that the impact of the amount of transfers on the individual's awareness is heterogenous and particularly depends on education. Finally, we show that the type of information source which arouses the citizen's awareness of the transfers affects the impact on his opinion. --
    Keywords: Regional policy,vote purchasing,public opinion,European Union
    JEL: D72 F59 H73
    Date: 2011
  11. By: Andrei Sirchenko
    Abstract: The National Bank of Poland does not publish the Monetary Policy Council's voting records before the subsequent policy meeting. Using real-time data, this paper shows that a prompter release of the voting records could improve the predictability of policy decisions. The voting patterns reveal strong and robust predictive content even after controlling for policy bias and responses to in.ation, real activity, exchange rates and financial market information. They contain information not embedded in the spreads and moves in the market interest rates, nor in the explicit forecasts of the next policy decision made by market analysts in Reuters surveys. Moreover, the direction of policymakers' dissent explains the direction of analysts.forecast bias. These findings are based on the voting patterns only, without the knowledge of policymakers' names.
    Keywords: monetary policy; predictability; policy interest rate; voting records; real-time data
    JEL: D70 E52 E58
    Date: 2011
  12. By: Jess Benhabib; Alejandro Corvalan; Mark M. Spiegel
    Abstract: A number of recent empirical studies have cast doubt on the "modernization theory" of democratization, which posits that increases in income are conducive to increases in democracy levels. This doubt stems mainly from the fact that while a strong positive correlation exists between income and democracy levels, the relationship disappears when one controls for country fixed effects. This raises the possibility that the correlation in the data reflects a third causal characteristic, such as institutional quality. In this paper, we reexamine the robustness of the income-democracy relationship. We extend the research on this topic in two dimensions: first, we make use of newer income data, which allows for the construction of larger samples with more within-country observations. Second, we concentrate on panel estimation methods that explicitly allow for the fact that the primary measures of democracy are censored with substantial mass at the boundaries, or binary censored variables. Our results show that when one uses both the new income data available and a properly non linear estimator, a statistically significant positive income-democracy relationship is robust to the inclusion of country fixed effects.
    Keywords: Income
    Date: 2011
  13. By: Roman Horvath; Katerina Smidkova; Jan Zapal
    Abstract: We assess whether the voting records of central bank boards are informative about future monetary policy. First, we specify a theoretical model of central bank board decision-making and simulate the voting outcomes. Three different versions of model are estimated with simulated data: 1) democratic, 2) consensual and 3) opportunistic. These versions differ in the extent to which the chairman and other board members exchange information prior to the voting. The model shows that the voting pattern is informative about future monetary policy provided that the signals about the optimal policy rate are noisy and that there is sufficient independence in voting across the board members, which is in line with the democratic version. Next, the model predictions are tested on real data on six countries (the Czech Republic, Hungary, Poland, Sweden, the United Kingdom and the United States). Subject to various sensitivity tests, it is found that the democratic version of the model corresponds best to the real data and that in all countries the voting records are informative about future monetary policy, making a case for publishing the records.
    Keywords: Collective decision-making, monetary policy, transparency, voting record.
    JEL: C78 D78 E52 E58
    Date: 2010–12

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