nep-pol New Economics Papers
on Positive Political Economics
Issue of 2011‒08‒09
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. When Does Ethnic Diversity Lead to Violence? Evidence from the 2007 Elections in Kenya By Thomas Markussen; Kitavi Mbuvi
  2. Who trusts Berlusconi? An econometric analysis of the role of television in the political arena By Sabatini Fabio
  3. The Balanced U.S. Press By Riccardo Puglisi; James M. Snyder, Jr.
  4. Can Market Failure Cause Political Failure? By Madhav S, Aney; Maitreesh Ghatak; Massimo Morelli
  5. Tax return as a political statement By Libman, Alexander; Schultz, André; Graeber, Thomas
  6. On the political economics of tax reforms By Castanheira, Micael; Nicodème, Gaëtan; Profeta, Paola
  7. Trade Policy Making in a Model of Legislative Bargaining By Levent Celik; Bilgehan Karabay; John McLaren
  8. Political Parties and the Tax Level in the American states: A Regression Discontinuity Design By Leandro M. de Magalhães
  9. Effect of social capital on income distribution preferences: comparison of neighborhood externality between high- and low-income households By Yamamura, Eiji
  10. Does aid buy votes? By Paolo Pinotti; Riccardo Settimo
  11. Some conjectures on the two main power indices By Fabrice Barthelemy; Mathieu Martin; Bertrand Tchantcho
  12. Understanding R&D Policy: Efficiency or Politics? By Fidel Pérez Sebastián
  13. A comparison between the methods of apportionment using power indices: the case of the U.S. presidential elections By Fabrice Barthelemy; Mathieu Martin
  14. There Goes the Neighborhood? People’s Attitudes and the Effects of Immigration to Australia By Mathias Sinning; Matthias Vorell
  15. Voting on income-contingent loans for higher education By Elena Del Rey; Maria Racionero
  16. Inefficiencies from Metropolitan Political and Fiscal Decentralization: Failures of Tiebout Competition By Stephen Calabrese; Dennis N. Epple; Richard Romano

  1. By: Thomas Markussen (Department of Economics, University of Copenhagen); Kitavi Mbuvi (Kenya Institute of Education)
    Abstract: Some people have a concern for a fair distribution of incomes while others do not. Does such a concern matter for majority voting on redistribution? Fairness preferences are relevant for redistribution outcomes only if fair-minded voters are pivotal. Pivotality, in turn, depends on the structure of income classes. We experimentally study voting on redistribution between two income classes and show that the effect of inequality aversion is asymmetric. Inequality aversion is more likely to matter if the “rich” are in majority. With a “poor” majority, we find that redistribution outcomes look as if all voters were exclusively motivated by self-interest.
    Keywords: Conflict; ethnicity; poverty; unemployment; public services; Kenya
    JEL: D74 H4 J6 O55
    Date: 2011–07
  2. By: Sabatini Fabio
    Abstract: This paper contributes to the literature by carrying out the first econometric investigation into the role of television in the formation of political consensus in Italy. Based on probit and instrumental variables estimates, we find trust in television to be the most significant predictor of trust in the Italian prime minister. The latter is also strongly and negatively correlated with trust in the judicial system and tolerance towards immigrants.
    Date: 2011–07
  3. By: Riccardo Puglisi; James M. Snyder, Jr.
    Abstract: We propose a new method for measuring the relative ideological positions of newspapers, voters, interest groups, and political parties. The method uses data on ballot propositions. We exploit the fact that newspapers, parties, and interest groups take positions on these propositions, and the fact that citizens ultimately vote on them. We find that, on average, newspapers in the U.S. are located almost exactly at the median voter in their states. Newspapers also tend to be centrist relative to interest groups.
    JEL: D72 L82
    Date: 2011–07
  4. By: Madhav S, Aney; Maitreesh Ghatak; Massimo Morelli
    Abstract: We study how inefficiencies of market failure may be further amplified by political choices made by interest groups created in the inefficient market. We take an occupational choice framework, where agents are endowed heterogeneously with wealth and talent. In our model, market failure due to unobservability of talent endogenously creates a class structure that affects voting on institutional reform. In contrast to the world without market failure where the electorate unanimously vote in favour of surplus maximising institutional reform, we find that the preferences of these classes are often aligned in ways that creates a tension between surplus maximising and politically feasible institutional reforms.
    Keywords: occupational choice, adverse selection, property rights, assetliquidation, political failure, market failure.
    JEL: O12 O16 O17 I
    Date: 2011–07
  5. By: Libman, Alexander; Schultz, André; Graeber, Thomas
    Abstract: The accuracy of a tax return is usually interpreted as an outcome of the tax evasion decision by an individual. However, in non-democratic regimes with predatory blackmail tax systems it is possible that large sums voluntarily reported by influential politicians or businessmen may be used as political statements. By openly acknowledging one's personal income an individual can signal the strength of one's position, or, on the contrary, the submissiveness to the political leadership. In this paper we explore the idea of the tax return as a political statement and test it using a unique dataset of the tax returns filed by the Russian regional governors and the members of their families for the year 2009. Our results conjecture that Russian governors may deliberately file their tax return as a political statement to signal their strength vis-à-vis the central government. --
    Keywords: tax compliance,communication in non-democracies,Russian regions
    JEL: D73 D78 H26 P26
    Date: 2011
  6. By: Castanheira, Micael; Nicodème, Gaëtan; Profeta, Paola
    Abstract: There is often a gap between the prescriptions of an “optimal” tax system and actual tax systems, some of which can be neither efficient economically nor efficient at redistributing income. With a focus on personal income taxes, this paper reviews the political economics literature on tax systems and reforms to see whether political mechanisms allow us to better understand why tax systems look the way they look. Finally, we exploit a database of reforms in labour taxation in the European Union to check the determinants of all reforms, on the one hand, and of targeted reforms, on the other hand. The results fit well with political economy theories and show that political variables carry more weight in triggering reforms than economic variables. This shed light on whether and how tax reforms are achievable. It also explains why many reforms that seem economically optimal fail to be implemented.
    Keywords: personal income tax; political economy; taxation
    JEL: H11 H21 H24 P16
    Date: 2011–08
  7. By: Levent Celik; Bilgehan Karabay; John McLaren
    Abstract: In democracies, trade policy is the result of interactions among many agents with different agendas. In accordance with this observation, we construct a dynamic model of legislative trade policy-making in the realm of distributive politics. An economy consists of different sectors, each of which is concentrated in one or more electoral districts. Each district is represented by a legislator in the Congress. Legislative process is modeled as a multilateral sequential bargaining game a la Baron and Ferejohn (1989). Some surprising results emerge: bargaining can be welfare-worsening for all participants; legislators may vote for bills that make their constituents worse off; identical industries will receive very different levels of tariff. The results pose a challenge to empirical work, since equilibrium trade policy is a function not only of economic fundamentals but also of political variables at the time of congressional negotiations – some of them random realizations of mixed bargaining strategies.
    JEL: C72 C78 D72 F13
    Date: 2011–07
  8. By: Leandro M. de Magalhães
    Abstract: With a regression discontinuity design I show that the partisan identity of the majority in the state House of Representatives has no causal effect on the tax level. This result goes against recent findings in the political economy literature. In the state Senate I find a significant discontinuity in the tax level, but I also find a discontinuity in the density of the forcing variable - which implies that we can not interpret the discontinuity in the Senate as a causal relation. Another contribution of the paper is to investigate under which conditions slim majorities in the American states (as opposed to close election) are appropriate for a regression discontinuity design.
    Keywords: Regression discontinuity design, Democrats, Republicans, divided government, line item veto, tax level.
    JEL: D72 H1 H2
    Date: 2011–07
  9. By: Yamamura, Eiji
    Abstract: This paper explores how individual preferences for income redistribution are influenced by social capital, which is measured by rates of participation in community activities. I combined individual-level data and place of residence data to examine how social capital accumulated in residential areas influences an individual’s preference for income redistribution. After controlling for individual characteristics, I obtained the following key findings: people are more likely to prefer income redistribution in areas with higher rates of community participation. This tendency is more clearly observed in high-income groups than in low-income groups. This implies that one’s preference for income redistribution is influenced by psychological externalities.
    Keywords: Redistribution; Social capital; Inequality; Externality
    JEL: D63 H20 D30 Z13
    Date: 2011–07–24
  10. By: Paolo Pinotti (Banca d'Italia); Riccardo Settimo (Banca d'Italia)
    Abstract: We use data for 143 developing countries during the period 1980-2004 to study empirically the relationship between multilateral aid (as proxied by IDA flows) and support for US foreign policy, as measured by voting alignment at the United Nations General Assembly. Our identifica¬tion strategy exploits exogenous variations in international commodity prices and natural disasters to address causality from aid to voting. Our results suggest that, even though multilateral and bilateral aid flows are both associated with greater voting alignment, the causal effect of multilateral aid is not significantly different from zero. This result is robust to controlling for other determinants of voting patterns, for unobserved heterogeneity at the country level and for common time trends.
    Keywords: foreign aid, UN Assembly, voting, international financial institutions
    JEL: F35 O10
    Date: 2011–07
  11. By: Fabrice Barthelemy; Mathieu Martin; Bertrand Tchantcho (THEMA, Universite de Cergy-Pontoise; THEMA, Universite de Cergy-Pontoise; University of Yaounde I, Ecole Normale Superieure, Cameroon, PO Box 47 Yaounde)
    Abstract: The purpose of this paper is to present a structural specification of the Shapley- Shubik and Banzhaf power indices in a weighted voting rule. We compare them in term of the cardinality of the sets of power vectors (PV). This is done in different situations where the quota or the number of seats are fixed or not.
    Keywords: Shapley-Shubik, Banzhaf, power index, power vectors.
    JEL: C7 D7
    Date: 2011
  12. By: Fidel Pérez Sebastián (Universidad de Alicante)
    Abstract: This paper searches for the determinants of government-funded R&D. The goal is to disentangle whether the efficiency considerations overwhelmingly emphasized by the theoretical literature are indeed the main driving force behind public R&D expenditures. Another goal of the paper is to assess whether other types of innovation policy such as the degree of patent protection can have an impact on private R&D. I find that there are important differences between rich and poor nations at this respect. In particular, R&D-specific efficiency factors are not significant to explain public R&D in rich nations, whereas related variables such as the access to private credit and knowledge spillovers are important in less developed economies; in rich countries, public innovation effort can be better explained by the political economy variables that determine the size of governments. Private R&D, on the other hand, depends in high income economies on R&D policies that try to improve R&D efficiency, but is highly determined by government size in less income nations. Results suggest that more research on political economy theories of innovation is essential to understand R&D investment.
    Keywords: R&D, policy, market failures, political factors
    Date: 2011–07
  13. By: Fabrice Barthelemy; Mathieu Martin (THEMA, Universite de Cergy-Pontoise; THEMA, Universite de Cergy-Pontoise)
    Abstract: In this paper, we compare five well-known methods of apportionment, the ones by Adams, Dean, Hill, Webster and Jefferson. The criteria used for this comparison is the minimization of a distance between a power vector and a population vector. The power is measured with the well-known Banzhaf power index and the populations are the ones of the different States of the U.S. We first explain under which conditions this comparison makes sense. We then compare the apportionment methods in terms of their ability to bring closer the power of the States to their relative population. The U.S. presidential election by Electors is studied through 22 censuses since 1790. Our analysis is largely based on the book written by Balinski and Young (2001). The empirical findings are linked with theoretical results.
    Keywords: Banzhaf index, methods of apportionment, distances, balance population-power.
    JEL: C7 D7
    Date: 2011
  14. By: Mathias Sinning; Matthias Vorell
    Abstract: This paper compares the effects of immigration flows on economic outcomes and crime levels to the public opinion about these effects using individual and regional data for Australia. We employ an instrumental variables strategy to account for non-random location choices of immigrants and find that immigration has no adverse effects on regional unemployment rates, median incomes, or crime levels. This result is in line with the economic effects that people typically expect but does not confirm the public opinion about the contribution of immigration to higher crime levels, suggesting that Australians overestimate the effect of immigration on crime.
    JEL: F22 J61
    Date: 2011–07
  15. By: Elena Del Rey; Maria Racionero
    Abstract: We consider risk-averse individuals who differ in two characteristics - ability to benefit from education and inherited wealth - and analyze higher education participation under two alternative financing schemes - tax subsidy and (risk-sharing) income-contingent loans. With decreasing absolute risk aversion, wealthier individuals are more likely to undertake higher education despite the fact that, according to the stylized financing schemes we consider, individuals do not pay any up-front financial cost of education. We then determine which financing scheme arises when individuals are allowed to vote between schemes. We show that the degree of risk aversion plays a crucial role in determining which financing scheme obtains a majority, and that the composition of the support group for each financing scheme can be of two different types.
    JEL: H52 I22 D72
    Date: 2011–07
  16. By: Stephen Calabrese; Dennis N. Epple; Richard Romano
    Abstract: We examine the welfare effects of provision of local public goods in an empirically relevant setting using a multi-community model with mobile and heterogeneous households, and with flexible housing supplies. We characterize the first-best allocation and show efficiency can be implemented with decentralization using head taxes. We calibrate the model and compare welfare in property-tax equilibria, both decentralized and centralized, to the efficient allocation. Inefficiencies with decentralization and property taxation are large, dissipating most if not all the potential welfare gains that efficient decentralization could achieve. In property tax equilibrium centralization is frequently more efficient! An externality in community choice underlies the failure to achieve efficiency with decentralization and property taxes: Poorer households crowd richer communities and free ride by consuming relatively little housing thereby avoiding taxes.
    JEL: H1 H4 H7 H73 R1
    Date: 2011–07

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