nep-pol New Economics Papers
on Positive Political Economics
Issue of 2011‒05‒24
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Divided Government versus Incumbency Externality Effect: Quasi-Experimental Evidence on Multiple Voting Decisions By Florian Ade; Ronny Freier
  2. Political cycles in income from privatization: The case of Albania By Imami, Drini; Lami, Endrit; Kächelein, Holger
  3. Individual support for economic and political changes: Evidence from transition countries, 1991-2004 By Riccardo Rovelli; Anzelika Zaiceva
  4. On Coalitional Stability and Single-peakedness By Hirofumi Yamamura
  5. The Dynamic Effects of Information on Political Corruption: Theory and Evidence from Puerto Rico By Gustavo J Bobonis; Luis R Cámara Fuertes; Rainer Schwabe
  6. Media Advertising and Ballot Initiatives: An Experimental Analysis By Allender, William J.; Richards, Timothy J.; Fang, Di; Doyon, Maurice
  7. Tying Your Enemy’s Hands in Close Races: The Politics of Federal Transfers in Brazil By Brollo, Fernanda; Nannicini, Tommaso
  8. Buying Votes and International Organizations By Axel Dreher; James Raymond Vreeland
  9. Conflict and Leadership: When is There a Hawkish Drift in Politics? By Siddhartha Bandyopadhyay; Mandar Oak
  10. Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment By Cruces, Guillermo; Perez Truglia, Ricardo; Tetaz, Martin
  11. Income and Democracy: Revisiting the Evidence By Enrique Moral-Benito; Cristian Bartolucci
  12. Explicating Corruption and Tax Evasion:Reflections on Greek Tragedy By Anastasia Litina; Theodore Palivos
  13. Political Affiliation and Exit Intentions of U.S. Dairy Farms By Costa, Rafael; Susanto, Dwi; Rosson, C. Parr
  14. Political economy studies: are they actionable ? some lessons from Zambia By Beuran, Monica; Raballand, Gael; Kapoor, Kapil
  15. Siting public facilities: a theoretical and empirical analysis of the Nimby syndrome in Italy By Roberta Occhilupo; Giuliana Palumbo; Paolo Sestito
  16. REAL EXCHANGE RATE DETERMINANTS IN TRANSITION ECONOMIES: Do Macroeconomic Fundamentals and Political Risk Play a Role? By Heboyan, Vahe; Gunter, Lewell F.
  17. Declining Inequality in Latin America: Some Economics, Some Politics By Nancy Birdsall; Nora Lustig; Darryl McLeod

  1. By: Florian Ade; Ronny Freier
    Abstract: This paper explores the interdependency of political institutions from the voter's perspective. Specifically, we are interested in three questions: (1) Does the partisan identity of the local mayor influence the voter's decision in the subsequent town council election?; (2) Does this partisan identity influence in ensuing higher level elections?; and (3) Do voters condition their vote for the mayor on the result of the last council election? We collected a unique data set for Germany in which we link election results for different political institutions at the municipal level. To identify causal effects, we rely on a regression discontinuity design focusing on close election outcomes. We find that the party of the mayor receives a bonus of 4-5 percentage points in vote share in the subsequent town council elections if, and only if, mayoral and council elections are held simultaneously. With regard to higher level elections, we find no effect for the party identity of the mayor on federal and European election outcomes. Using run-off mayor races, which are held shortly after council elections, we show that voters punish parties that performed strongly in the council election. To explain our empirical findings, we explore two mechanisms from the theoretical literature. We conclude that there is evidence both for an incumbency externality effect as well as a preference for divided government effect in opposite directions.
    Keywords: Regression discontinuity design, municipality data, local election results, divided government effect, incumbency externality effect
    JEL: H10 H11 H77
    Date: 2011
  2. By: Imami, Drini; Lami, Endrit; Kächelein, Holger
    Abstract: The phenomenon of manipulation of the economy by the incumbent for electoral purpose is called Political Business Cycles (PBC). Using policy control economic instruments, such as fiscal and monetary instruments, governments may manipulate the economy to gain electoral advantage by producing growth and decreasing unemployment before elections. Earlier research on PBC in Albania found clear evidence of fiscal expansion before elections. In addition to increased income from taxes and borrowing, another source of financing the increased fiscal expansion in transition countries may be income from privatization, which is also the object of the analysis of this paper. In our analysis we apply standard econometric approach, used widely for research related to PBC. We test if income from privatization increases before elections. We find statistically significant increase of income from privatization before general (parliamentary) elections, which may lead us to conclude that one of the reasons may be to finance increased expenditures before elections. Another motivation, behind this behavior of the incumbent, may be rent - seeking. These results are of particular interest, as it is for the first time that income from privatization is analyzed in conjunction with PBC. --
    Keywords: Albania,Political Business Cycle,Privatization
    JEL: E32 O23 H61
    Date: 2011
  3. By: Riccardo Rovelli; Anzelika Zaiceva
    Abstract: Using a unique dataset, we propose a new measure of public evaluation of transitional reforms and study, for the first time, the evolution of support for economic and political reforms in 14 transition economies over 1991-2004. We show that support for economic changes has been increasing over time after an initial dip, while support for political reforms has generally been higher. Support attitudes are lower among the old, less skilled, unemployed, poor, and those living in the CIS countries, especially during the 1990s. We also find evidence that transition-related hardship, opinions on the speed of reforms, political preferences and preferences towards redistribution, ideology and social capital matter. Finally, we show that preferences for state ownership and the quality of political institutions contribute mostly to explaining the lower levels of support in the CIS countries.
    Keywords: political economy; public support; reforms; transition
    JEL: O57 A13 P26 P36
    Date: 2011–05
  4. By: Hirofumi Yamamura (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: We study a one-dimensional voting game in which voters choose a policy from a one-dimensional policy set over which voters have single-peaked preferences. The purpose of this paper is to analyze coalitional behaviors under any given voting mechanism. We employ the notion of strong Nash equilibrium and identify a necessary and su¢ cient condition for a voting mechanism to possess a strong Nash equilibrium by using the minimax theorem. We moreover show that any strong Nash outcome, if it exists, results in an outcome recommended by a particular augmented median voter rule.
    Keywords: Single-peakedness, Augmented median voter rule, Strong Nash equilibrium, Coalition-proof Nash Equilibrium, Minimax theorem, Manipulation.
    JEL: D78 D72 C70
    Date: 2011–05
  5. By: Gustavo J Bobonis; Luis R Cámara Fuertes; Rainer Schwabe
    Abstract: Does the disclosure of information about corrupt activities induce a sustained reduction in corruption? We use publicly released routine audits of municipal governments in Puerto Rico to answer this question. We first develop a political agency model where voters re-elect incumbents based on their performance while in office. We show that, because voters cannot directly observe incumbents’ actions, an incumbent whose reputation improved in the previous term is likely to engage in more rent-seeking activities in a future term. Guided by this model, we use longitudinal data on audit results to examine the long-term consequences of providing information to voters on levels of political corruption. We find that municipal corruption levels in subsequent audits are on average the same in municipalities audited preceding the previous election and those not audited then. In spite of this, mayors in municipalities audited preceding the previous election have higher re-election rates, suggesting that audits enable voters to select more competent politicians. We conclude that short-term information dissemination policies do not necessarily align politicians’ long-term actions with voter preferences as politicians exploit their reputational gains by extracting more rents from office.
    Keywords: corruption; information; political agency; dynamic incentives
    JEL: D72 O12
    Date: 2011–05–09
  6. By: Allender, William J.; Richards, Timothy J.; Fang, Di; Doyon, Maurice
    Abstract: Spending on political advertising increases with every election cycle, not only for congressional or presidential candidates, but also for state-level ballot initiatives. There is little research in marketing, however, on the effectiveness of political advertising at this level. In this study, we conduct an experimental analysis of advertisements used during the 2008 campaign to mandate new animal welfare standards in California (Proposition 2). Using subjects' willingness to pay for cage-free eggs as a proxy for their likely voting behavior, we investigate whether advertising provides real information to likely voters, and thus sharpens their existing attitudes toward the issue, or whether advertising can indeed change preferences. We find that advertising in support of Proposition 2 was more effective in raising subjects' willingness to pay for cage-free eggs than ads in opposition were in reducing it, but we also find that ads in support of the measure reduce the dispersion of preferences and thus polarize attitudes toward the initiative. More generally, political ads are found to contain considerably more "hype" than "real information" in the sense of Johnson and Myatt (2006).
    Keywords: Animal Welfare, Proposition 2, Cage Free eggs, Willingness to Pay, BDM auction, Political Advertising, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Marketing, Political Economy, Production Economics, Public Economics,
    Date: 2011
  7. By: Brollo, Fernanda (Universidad de Alicante); Nannicini, Tommaso (Bocconi University)
    Abstract: This paper uses a quasi-experimental strategy to disclose utterly political reasons behind the allocation of intergovernmental transfers in a federal state. We apply a regression discontinuity design in close elections to identify the effect of political alignment on federal transfers to municipal governments in Brazil. We find that municipalities where the mayor is affiliated with the coalition of the Brazilian President receive larger (discretionary) infrastructure transfers by about 40% in pre-election years. This effect is mainly driven by the fact that the federal government penalizes municipalities run by mayors from the opposition coalition who won by a narrow margin, thereby tying their hands for the next election.
    Keywords: federal transfers, political alignment, regression discontinuity
    JEL: C21 D72 H77
    Date: 2011–05
  8. By: Axel Dreher (Heidelberg University); James Raymond Vreeland (Georgetown University)
    Abstract: This study explores a basic idea in political economy: Trading money for political influence. Our focus is at the level of international institutions, where governments may exploit their influence in one organization to gain leverage over another. In particular, we consider the lending activities of the International Monetary Fund (IMF) and voting behavior at the United Nations Security Council (UNSC). Analyzing an original dataset on the successful and failed resolutions of the UNSC, we find evidence of vote-buying.
    Keywords: IMF; UN Security Council; Voting; Aid
    JEL: O19 O11 F35
    Date: 2011–05–10
  9. By: Siddhartha Bandyopadhyay (Department of Economics, University of Birmingham); Mandar Oak (School of Economics, University of Adelaide)
    Abstract: We analyze an agency model of political competition to examine whether con?ict encourages hawkish behavior, and if such behavior can itself aggravate con?ict. We consider situations of conflict between a state and an insurgent group, such as conflict over a piece of land. Negotiations are carried out on behalf of the state by a democratically elected leader whose ability and ideology are imperfectly observed by the electorate. A more capable leader can take a hardline position in the negotiations (i.e. cede less land to the insurgents) at a lower expected cost (modeled as the cost of continued insurgency) than a less capable one. Similarly, an ideologically hawkish leader enjoys greater intrinsic utility from retaining land than a less hawkish leader. Two main results that emerge are: certain types of politicians may be excessively hawkish as compared to their first best policy choices, which itself increases the probability of conflict; and for any credible voting strategy, the re-election probability of a hawk is greater than that of a dove. Finally, we show that the voting equilibrium of this game does not always achieve a constrained Pareto optimum suggesting that third party mediation may improve welfare.
    Keywords: Confl?ict, hawkish drift
    JEL: C72 D82 P16
    Date: 2011
  10. By: Cruces, Guillermo (CEDLAS-UNLP); Perez Truglia, Ricardo (Harvard University); Tetaz, Martin (CEDLAS-UNLP)
    Abstract: Individual perceptions of income distribution play a vital role in political economy and public finance models, yet there is little evidence regarding their origins or accuracy. This study examines how individuals form these perceptions and posits that systematic biases arise from the extrapolation of information extracted from reference groups. A tailored household survey provides original evidence on the significant biases in individuals’ evaluations of their own relative position in the distribution. Furthermore, the data supports the hypothesis that the selection process into the reference groups is the source of those biases. Finally, this study also assesses the practical relevance of these biases by examining their impact on attitudes towards redistributive policies. An experimental design incorporated into the survey provides consistent information on the own ranking within the income distribution to a randomly selected group of respondents. Confronting agents’ biased perceptions with this information has a significant effect on their stated preferences for redistribution. Those who had overestimated their relative position and thought of themselves relatively richer than they were demand higher levels of redistribution when informed of their true ranking. This relationship between biased perceptions and political attitudes provides an alternative explanation for the relatively low degree of redistribution observed in modern democracies.
    Keywords: perceptions of income distribution, limited information, preferences for redistribution, field experiment
    JEL: D31 D83 H24 H53 I30
    Date: 2011–05
  11. By: Enrique Moral-Benito; Cristian Bartolucci
    Abstract: It is well-known in the literature that income per capita is strongly correlated with the level of democracy across countries. In an influential paper, Acemoglu et al. (2008) find that this linear correlation disappears once they control for country-specific effects focusing on within-country variation. In this paper we find evidence of a non-linear effect from income to democracy even after controlling for country-specific effects. While a positive effect emerges for poor countries, this effect vanishes for rich countries.
    Keywords: Democracy; Income; Lipset hypothesis; panel data
    JEL: D72 E21 C23
    Date: 2011
  12. By: Anastasia Litina (Department of Economics, University of Ioannina); Theodore Palivos (Department of Economics, University of Macedonia)
    Abstract: Do developed countries experience extensive corruption and if so how should they treat it? Evidence from countries in which tax evasion and various forms of corruption coexist and interact (e.g. Greece) indicates that the answer is positive. We address this problem by constructing an overlapping generations model com- prising two distinct groups of agents, citizens and politicians. Citizens decide the fraction of their income that they report to the tax authorities. Politicians decide the fraction of the public budget that they peculate. In such a context, multiple self-ful?lling equilibria can emerge: a "good"("bad") equilibrium with low (high) corruption and high (low) level of spending on education. It is shown that standard deterrence policies (e.g., fines) cannot eliminate multiplicity. Interestingly, whenever corruption may corrupt, policies that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibrium.
    Keywords: Corruption, Tax Evasion, Multiple Equilibria, Stigma.
    JEL: D73 E62 H26
    Date: 2011–05
  13. By: Costa, Rafael; Susanto, Dwi; Rosson, C. Parr
    Abstract: The United States dairy industry is heavily dependent on foreign labor. Current and newly proposed U.S. immigration policies have been appointed to disrupt the agricultural labor availability, especially that of hired foreign labor. A national survey of dairy farmers across herd sizes and regions of the U.S. was conducted for the year 2009 and the results were used to evaluate the extent to which hired foreign labor dependence will affect the exit intentions in dairy farming. The political affiliation of dairy farmers was based on the 2008 election map and their locations. Our findings indicate that the expected probability of exit from dairy farming increased as the use of hired foreign labor intensified. Results also suggest that states with Republican political affiliation has a greater probability of exiting dairy operations with more stricter immigration laws.
    Keywords: immigration, political affiliation, foreign labor, exit intention, dairy industry., Farm Management, Financial Economics, Labor and Human Capital,
    Date: 2011
  14. By: Beuran, Monica; Raballand, Gael; Kapoor, Kapil
    Abstract: In recent years, the number of studies looking at the effect of politics on economic outcomes has flourished. For developing economies, these studies are useful to better understand why long overdue reforms are not implemented. The studies analyze the overall context within which reforms are being implemented and the underlying incentive framework. However, it seems difficult to make such studies actionable, especially in sectors where donors have a heavy presence that can sometimes distort incentives in addition to the reluctance from some governments to amend the existing systems in place. This paper focuses on some conclusions emerging from the political economy diagnostics carried out in Zambia in various sectors in recent years. Based on interviews of World Bank task managers, the paper attempts to assess the relevance of these studies for the implementation of projects and the policy dialogue and draws lessons on how they have influenced the implementation of the World Bank's support to programs in various sectors in Zambia as well as the main challenges for this type of exercise.
    Keywords: Environmental Economics&Policies,Political Economy,Governance Indicators,Debt Markets,Public Sector Corruption&Anticorruption Measures
    Date: 2011–05–01
  15. By: Roberta Occhilupo (Bank of Italy, Economics, research and international relations); Giuliana Palumbo (Bank of Italy, Economics, research and international relations); Paolo Sestito (Bank of Italy, Economics, research and international relations)
    Abstract: The paper discusses the economic problem and the institutional features underlying the Nimby syndrome, and illustrates preliminary empirical evidence for Italy. It argues that siting procedures taking local preferences into account should be preferred when the heterogeneity in preferences across communities is greater than the heterogeneity in constructing and operating costs across sites. The elicitation of preferences is better pursued through auction-like mechanisms rather than multilateral negotiations if: the characteristics of the facility and the institutional context are such that credible information about the risks associated with the facility are available; conflicting preferences at the local level can be preliminarily aggregated; and compensations are mainly monetary. Empirical results suggest that the intensity of local opposition is greater when the perceived risk associated with the facility is higher and more concentrated, and the communication between different levels of government poor. The conflict between highly centralized siting procedures and highly decentralized administrative institutions, the difficulty of providing credible information about the risks associated with the facility, and low political commitment are identified as the critical points.
    Keywords: siting procedures, local preferences, constructing and operating costs, auction, negotiation
    JEL: D73 D82 H7 D44
    Date: 2011–04
  16. By: Heboyan, Vahe; Gunter, Lewell F.
    Keywords: International Relations/Trade, Risk and Uncertainty,
    Date: 2011
  17. By: Nancy Birdsall (Center for Global Development); Nora Lustig (Department of Economics, Tulane University); Darryl McLeod (Economics Department, Fordham University)
    Keywords: income inequality, Latin America
    Date: 2011–05

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