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on Positive Political Economics |
| By: | Daron Acemoglu; James A. Robinson; Ragnar Torvik |
| Abstract: | Voters often dismantle constitutional checks and balances on the executive. If such checks and balances limit presidential abuses of power and rents, why do voters support their removal? We argue that by reducing politician rents, checks and balances also make it cheaper to bribe or influence politicians through non-electoral means. In weakly-institutionalized polities where such non-electoral influences, particularly by the better organized elite, are a major concern, voters may prefer a political system without checks and balances as a way of insulating politicians from these influences. When they do so, they are effectively accepting a certain amount of politician (presidential) rents in return for redistribution. We show that checks and balances are less likely to emerge when (equilibrium) politician rents are low; when the elite are better organized and are more likely to be able to influence or bribe politicians; and when inequality and potential taxes are high (which makes redistribution more valuable to the majority). We show that the main intuition, that checks and balances, by making politicians “cheaper to bribe,” are potentially costly to the majority, is valid under different ways of modeling the form of checks and balances. |
| JEL: | H1 O17 P48 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17293&r=pol |
| By: | Aney, Madhav; Ghatak, Maitreesh; Morelli, Massimo |
| 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: | adverse selection; asset liquidation; market failure; occupational choice; political failure; property rights |
| JEL: | O12 O16 O17 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8533&r=pol |
| By: | Bossi, Luca (University of Pennsylvania); Gumus, Gulcin (Florida Atlantic University) |
| Abstract: | In this paper, we set up a three-period stochastic overlapping generations model to analyze the implications of income inequality and mobility for demand for redistribution and social insurance. We model the size of two different public programs under the welfare state. We investigate bidimensional voting on the tax rates that determine the allocation of government revenues among transfer payments and old-age pensions. We show that the coalitions formed, the resulting political equilibria, and the demand for redistribution crucially depend on the level of income inequality and mobility. |
| Keywords: | redistribution, mobility, inequality, structure induced equilibrium |
| JEL: | D72 H53 H55 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5909&r=pol |
| By: | Anders Akerman; Anna Larsson; Alireza Naghavi |
| Abstract: | Data on the growth performances of countries with similar comparative (dis)advantage and political institutions reveal a striking variation across world regions. While some former autoc- racies such as the East Asian growth miracles have done remarkably well; others such as the Latin American economies have grown at much lower rates. In this paper; we propose a political economy explanation of these diverging paths of development by addressing the preferences of the country?s political elite. We build a theoretical framework where factors of production owned by the political elites di¤er across countries. In each country; the incumbent autocrat will cater to the preferences of the elites when setting trade policy and the property rights regime. We show how stronger property rights may lead to capital accumulation and labor reallocation to the manufacturing sector. This; in turn; can lead to a shift in the comparative advantage; a decision to open up to trade and an in?ow of more productive foreign capital. Consistent with a set of stylised facts on East Asia and Latin America; we argue that strong property rights are crucial for success upon globalization. |
| Keywords: | Autocracy; Growth; Political Elites; Landowners; Capitalists; Growth Miracles; Trade; Comparative Advantage; Capital Mobility; Property Rights |
| JEL: | F10 F20 P14 P16 O10 O24 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:065&r=pol |
| By: | Xavier Debrun |
| Abstract: | Despite growing interest among policymakers, there is no theory of independent fiscal institutions. The emerging literature on "fiscal councils" typically makes informal parallels with the theory of central bank independence, but a very simple formal example shows that such a shortcut is flawed. The paper then illustrates key features of a model of independent fiscal agencies, and in particular the need (1) to incorporate the intrinsically political nature of fiscal policy - which precludes credible delegation of instruments to unelected decisionmakers - and (2) to focus on characterizing "commitment technologies" likely to credibly increase fiscal discipline. |
| Keywords: | Fiscal policy , Central bank autonomy , Political economy , Budget deficits , Budgetary policy , Inflation , |
| Date: | 2011–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/173&r=pol |
| By: | Bargain, Olivier (University College Dublin); Dolls, Mathias (University of Cologne); Immervoll, Herwig (World Bank); Neumann, Dirk (University of Cologne); Peichl, Andreas (IZA); Pestel, Nico (IZA); Siegloch, Sebastian (IZA) |
| Abstract: | We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method that allows us to disentangle mechanical effects due to changes in pre-tax incomes from direct effects of policy reforms. While tax reforms implemented under Democrat administrations, in particular the EITC reforms in the 1990s and the ARRA in 2009, had an equalizing effect at the lower half of the distribution, the disequalizing effects of Republican reforms are due to tax cuts for high-income families. As a consequence of partisan politics, overall policy effects almost cancel out over the whole time period. |
| Keywords: | tax policy, inequality, redistribution, political economy, Great Recession |
| JEL: | H23 H31 H53 P16 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5910&r=pol |
| By: | John Manuel Luiz; Luis Brites Pereira; Guilherme Oliveira |
| Abstract: | In this paper we focus on the role of political and economic institutions in Mozambique’s development. We produce a set of institutional indicators for Mozambique for the period 1900 through to 2005. The first index tracks political freedoms and is unique in its duration and complexity. The second index is a measure of property rights for Mozambique and such a measure has not existed previously and certainly not for this length of time. The construction of these indices is a painstaking process through historical records but it provides us with a richness of institutional data previously not available. The new institutional indices will allow us to explore the role of the institutional environment in determining economic growth and development in Mozambique over time. |
| Keywords: | Political Rights, Property Rights, Insitutional Indicators, Mozambique |
| JEL: | N47 K00 O55 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:219&r=pol |
| By: | Loayza, Norman V.; Rigolini, Jamele; Calvo-Gonzalez, Oscar |
| Abstract: | In the past three decades, emerging countries have gone through extensive decentralization reforms. Yet, there are no studies assessing quantitatively the relative importance of various factors known to affect the success of decentralization. This paper builds on a comprehensive dataset the authors constructed for Peru, which merges municipal fiscal accounts with information about municipalities'characteristics such as population, poverty, education, and local politics. The paper then analyzes the leading factors affecting the ability of municipalities to execute the allocated budget using complementary methodologies, from least squares to quantile regression analyses. According to the existing literature and the Peruvian context, the analysis divides these factors into four categories: the budget size and allocation process; local capacity; local needs; and political economy constraints. Although all four factors affect decentralization, the largest determinant of spending ability is the adequacy of the budget with respect to local capacity. The results confirm the need for decentralization to be implemented gradually over time in parallel with strong capacity building efforts. |
| Keywords: | Public Sector Expenditure Policy,Subnational Economic Development,Debt Markets,Political Economy,Municipal Financial Management |
| Date: | 2011–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5763&r=pol |