nep-pol New Economics Papers
on Positive Political Economics
Issue of 2011‒05‒14
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. Electoral Cycles in Active Labor Market Policies By Mechtel, Mario; Potrafke, Niklas
  2. Do political budget cycles differ in Latin American democracies? By Lorena Barberia; George Avelino
  3. Democracy, education and the quality of government By Fortunato, Piergiuseppe; Panizza, Ugo
  4. Do Local Elections in Non-Democracies Increase Accountability? Evidence from Rural China By Monica Martinez Bravo; Gerard Padro i Miquel; Nancy Qia; Yang Yao
  5. Politics and preschool : the political economy of investment in pre-primary education By Kosec, Katrina
  6. Beyond Identities: Support for Decentralisation Across Regions in Spain By Cesena , Marc Guinjoa; Casarramona , Toni Rodon
  7. A State is Born: Transport Infrastructure and Democracy in Somaliland By Azam, Jean-Paul
  8. An Analysis of Political and Institutional Power Dispersion: The Case of Turkey By Ibrahim Tutar; Aysit Tansel
  9. Corruption and Environmental Policy: An Alternative Perspective By Athanasios Lapatinas; Anastasia Litina; Eftichios S. Sartzetakis
  10. Preferences for redistribution : an empirical analysis. By Elvire Guillaud
  11. Political Parties in Business By Berhanu Abegaz
  12. Economic class and the distribution of income: A time-series analysis of the UK economy, 1955-2010 By Juan Carlos Cuestas; Bruce Philp

  1. By: Mechtel, Mario; Potrafke, Niklas
    Abstract: We examine how electoral motives influence active labor market policies that promote job-creation. Such policies reduce unemployment statistics. Using German state data for the period 1985 to 2004, we show that election-motivated politicians pushed job-promotion schemes before elections. --
    Keywords: political business cycles,opportunistic politicians,active labor market policies
    JEL: P16 J08 H72 E62 H61
    Date: 2011
  2. By: Lorena Barberia; George Avelino
    Abstract: We test for political budget cycles in a panel of eighteen Latin American democracies from 1973 to 2008. Recent studies have argued that the pattern of deficit cycles in a large cross-section of countries is driven by the experience of ‘‘new democracies.” As a large share of the countries that underwent democratization during this period are in Latin America, we seek to verify if these patterns are robust using an updated data set on fiscal expenditures, democratization and elections. Our results confirm that elections provoke increases in the fiscal deficit for Latin American democracies, but that this pattern is not contingent on a country being in the early phase of its democratic transition. We argue that these findings suggest that greater attention should be directed at the selection criteria utilized to define democracy and competitive elections when testing for political budget cycles.
    Date: 2011–04–30
  3. By: Fortunato, Piergiuseppe; Panizza, Ugo
    Abstract: This paper looks at how the interaction between democracy and education affects the quality of government. It models an economy in which politicians of heterogeneous quality can run for office and shows that education has a positive effect on the quality of selected officials only if democratic institutions are in place. The model also fi…nds that democracy has positive effect on the quality of government in countries with high levels of education but that political institutions are not correlated with the quality of government in countries with low levels of education. Cross-country and panel data regressions confirm that the interaction between democracy and education is positively associated with the quality of government.
    JEL: D72 H11 P16
    Date: 2011–04
  4. By: Monica Martinez Bravo; Gerard Padro i Miquel; Nancy Qia; Yang Yao
    Abstract: Unique survey data is used to study whether the introduction of local elections in China made local leaders more accountable towards local constituents. A simple model is developed to predict the effects on different policies of increasing local leader accountability, taking into account that there is an autocratic upper government. Variation in the timing of the top-down introduction of elections across villages is studied to estimate the causal effects of elections and find that elections affected policy outcomes in a way that is consistent with the predicted effects of increased local leader accountability. [BREAD Working Paper No. 300]. URL:[ rs/working/300.pdf].
    Keywords: mexico, one child policy, leader accountability, rural china, local constituents, elections, policies, local, villages, democracy, public goods, institutions,
    Date: 2011
  5. By: Kosec, Katrina
    Abstract: What drives governments with similar revenues to publicly provide very different amounts of goods for which private substitutes are available? Key examples are education and health care. This paper compares spending by Brazilian municipalities on pre-primary education -- a good that is also provided privately -- with spending on public infrastructure like parks and roads, which lacks private substitutes. Panel data from 1995-2008 reveal how the distribution of income affects public investment. Revenue is endogenous to investment outcomes, and the analysis addresses this problem by exploiting a 1998, nationwide education finance reform and several revisions to the policy. The author constructs a variable that captures exogenous variation in revenue generated by nonlinearities of the law to instrument for observed revenue. Municipalities with higher median income and more inequality are less likely to allocate revenue to education or to expand pre-primary enrollment. They are more likely to allocate revenue to public infrastructure. There is suggestive evidence that this occurs for two reasons, hypothesized in two separate literatures. In rich and unequal municipalities, fewer total people support public education spending (the collective choice channel), and also, any given poor person wanting public education has less influence over policymakers there (the political power channel).
    Keywords: Public Sector Management and Reform,Public Sector Economics,Primary Education,Access to Finance,Regional Governance
    Date: 2011–05–01
  6. By: Cesena , Marc Guinjoa; Casarramona , Toni Rodon
    Abstract: After thirty years of the Spanish territorial model being implemented, an important number of citizens in different regions are supporting higher levels of self-government. This article analyses the causal mechanisms put forward by the literature on territorial decentralisation to explain this phenomenon. The Spanish case is employed to quantitatively test the various explanations regarding support for decentralisation. Using a linear hierarchical model we show that, even in those regions without a different sub-national identity, citizens’ evaluation of the regional governments’ public policies is crucial in explaining support for a stronger regional government. In analysing political attitudes towards decentralisation, we highlight the importance of party competition as a crucial determinant, as well as the necessity to consider decentralisation as an endogenous process, in which parties and citizens interact and affect the final territorial model.
    Keywords: decentralisation; hierarchical model; national identification; autonomous community
    JEL: H7
    Date: 2011–03
  7. By: Azam, Jean-Paul
    Abstract: Somaliland has recently developed an unexpected democracy after seceding from chaos-ridden Somalia, while turning its port of Berbera into a success story, competing successfully with the long established ones in the Horn of Africa. A simple game-theoretic model is used to explain why the home-grown democratic institutions that developed in Somaliland are a key factor in making Berbera a credible outlet for the external trade of neighboring landlocked Ethiopia. The model shows that redistributing some of the resources from this trade is a key condition for sustaining this efficient political equilibrium.
    Date: 2010–09
  8. By: Ibrahim Tutar (Penetra Consulting); Aysit Tansel (Middle East Technical University,Institute for the Study of Labor (IZA) Bonn, Germany and Economic Research Forum (ERF) Cairo, Egypt)
    Abstract: This study examines the effects of fragmented governments and fiscal authorities on budget deficits in Turkey along with political business cycle effects. For econometric analysis we will use annual data from the period of 1960-2009. This paper sheds light on various dispersion indices and their use in the field of political power and fiscal performance. The results show that the power dispersion indices of governments and fiscal institutions significantly explain the increases in the ratio of budget deficit to GNP. The paper draws attention to the unification and better coordination of fiscal authorities in Turkey. The analysis has important policy implications for Turkey and other developing countries from the viewpoint of fragmented political and administrative dispersion of power and poor budget performances.
    Keywords: Political Business Cycles, Fragmentation and Power Dispersion, Public Budget, Turkey, Statistical Indices
    JEL: P16 H72 C22 C43
    Date: 2011–05
  9. By: Athanasios Lapatinas (University of Ioannina); Anastasia Litina (University of Ioannina); Eftichios S. Sartzetakis (University of Macedonia)
    Abstract: We construct an overlapping generations model in which agents live through two periods; childhood and adulthood. Each agent makes choices only as an adult, based on her utility that depends on her own consumption and the human capital and environmental quality endowed to her offspring. Entering adulthood, agents choose randomly between two occupations: citizens and politicians. Citizens are the only producers of a single good and choose the proportion of their income to declare to the tax authorities. Politicians decide upon the allocation of the tax revenue between environmental protection and education activities, taking as given the rates of peculation in each activity. In this context, two self-fulfilling stable equilibria can emerge, one associated with high and another with low corruption. Corrupted politicians induce high levels of tax evasion, reducing total public funds and thus environmental protection activities. This result is in accordance with existing empirical evidence and implies that environmental policies may fail in corrupt countries where they are used as means of supporting rent seeking activities instead of protecting the environment. A higher level political authority could intervene and force the low corruption equilibrium by choosing the appropriate tax rate and, through institutional changes, the rates of peculation.
    Keywords: Corruption, Environmental Policy
    JEL: H2 H26 H3 Q56 Q58
    Date: 2011–02
  10. By: Elvire Guillaud (Centre d'Economie de la Sorbonne)
    Abstract: People's preferences for state intervention in social policies vary. A cross-section analysis on individual-level survey data is conducted here to highlight the link between the economic position of agents and their specific demand for redistribution. Controlling for a number of factors usually found to affect individual preferences in the literature, the egoistic motives for redistribution are taken seriously and this article focuses on the role played by the occupational status of individuals in shaping their preferences. Thus, the relative importance of economic factors in terms of current and expected gains is estimated, taking into account individuals' experience of social mobility and risk aversion. Furthermore, the research presented here identifies which socio-political groups may be formed on the basis of their preferences for redistribution.
    Keywords: Redistribution, occupation, social mobility, ordered logit regression.
    JEL: D31 D72 H23
    Date: 2011–04
  11. By: Berhanu Abegaz (Department of Economics, The College of William and Mary)
    Abstract: Why have some mono-parties in emerging market economies (such as Taiwan’s KMT and Ethiopia’s EPRDF) established formidable business empires while powerful ruling parties in socialist economies invariably decried them? The phenomenon of party-owned business (Parbus), much like military-controlled businesses, is an integral part of the drive for a total "capture," by an insurgent vanguard party, of key state and societal institutions in weak market economies. A Parbus-based fusion of political power and economic power is a conundrum for traditional conceptions of corruption, public enterprises, bona fide private enterprises, or oligarchy. Party-state capitalism is a novel phenomenon that is quite germane to the debate on developmental states and neo-patrimonialism especially in Asia and Africa. At the extreme ends of economic and political governance, the Parbus can be viewed as a market-defying institutionalization of grand corruption or as a market-facilitating strategy of shared growth. The parasitic rent-seeking interpretation is that the Parbus is an ingeniously disguised mechanism for tunneling public assets and for creating and redistributing economic rent in resource-poor, post-conflict societies where the state is the biggest economic prize. The alternative, developmental-vanguard, interpretation is that party-owned business empires constitute an innovative third way for responding effectively to paralyzing mix of market failure and government failure. The Parbus stem coordination failures and informational failures (such as investment pooling and allocation, and discovery of new products and markets) where the private sector itself engages in rent seeking as much as in profit seeking. The Parbus thus provide the ruling party investable funds to underwrite shared prosperity and, hence, legitimacy. The war chest of patronage finance can also be tapped to ward off political contenders. This paper makes a modest contribution to the scanty literature on a touchy subject by offering a theoretical framework buttressed by analytical studies of two canonical cases. It identifies key explanatory variables and outlines the conditions under which developmentalism or parasitism is likely to dominate. We argue that the overall impact of Parbus on long-term wealth creation and distribution revolves around four empirically measurable regime characteristics: insecurity, organizational capacity, ideology, and degree of centralization of inherited state. Self-confidence and organizational capacity are most decisive in determining the magnitude of socialization of economic losses and privatization of economic benefits. Three possible paths of evolution emerge: a paragonist path favoring transition to an open system, a parasitic path toward a poverty-tyranny trap, and a mutualist path of unstable equilibrium among state, party, and private competitors.
    Keywords: Party-state capitalism, party-owned companies, developmentalist state, Ethiopia, Taiwan.
    JEL: D72 F35 H41 L33 O57 P52
    Date: 2011–04–20
  12. By: Juan Carlos Cuestas (Department of Economics, The University of Sheffield); Bruce Philp (Division of Economics, Nottingham Trent University)
    Abstract: This paper contributes to our understanding of the determinants and dynamics of a Marxian surplus-value rate using quarterly UK data, 1955-2010, and the Johansen (1988, 1991) cointegration and vector error correction model (VECM). A conceptual model is introduced to define surplus-value and its component parts, before elaborating on theoretical issues which are important in estimating the rate. In the empirical analysis we seek to explain distributive conflict, paying attention to three forces which are traditionally seen as drivers of power in distributional struggle: (i) political party; (ii) the size of the “reserve army” of the unemployed; (iii) working class militancy. Our results suggest a positive impact of unemployment on the rate of surplus-value, and that falling working class militancy tends to raise the rate. Political party also affects the rate of surplus-value with a negative impact on the rate emanating from movement to left-wing government. This analysis demonstrates the ongoing relevance of Marxian economics in providing an alternative, robust and significant explanation of distribution in the post-war UK economy.
    Keywords: Educational loan, Risk aversiob
    JEL: D33 B51 C22
    Date: 2011–04

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