nep-pol New Economics Papers
on Positive Political Economics
Issue of 2011‒09‒16
nineteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Motivations and Electoral Competition: Equilibrium Analysis and Experimental Evidence By Michalis Drouvelis; Alejandro Saporiti; Nicolaas J. Vriend
  2. The Comparative Political Economy of Economic Geography By Wiberg, Magnus
  3. Vote-Buying and Reciprocity By Frederico Finan; Laura A. Schechter
  4. To vote or to abstain? An experimental study or first past the poste and PR elections By André Blais; Jean-Benoît Pilet; Karine Van Der Straeten; Jean-François Laslier; Maxime Heroux-Legault
  5. Voter Behavior and Seniority Advantage in Pork Barrel Politics By Rodet, Cortney S.
  6. Smooth Politicians and Paternalistic Voters: A Theory of Large Elections By Marco Faravelli; Randall Walsh
  7. The Political-Support View of Protection By Wilfred J. Ethier
  8. Autocracies and Development in a Global Economy: A Tale of Two Elites By Akerman, Anders; Larsson, Anna; Naghavi, Alireza
  9. Aligning With One's Own: Private Voting and Public Outcomes in Elections in Rural India By Raghbendra Jha; Hari K. Nagarajan; Kailash C. Pradhan
  10. An Experimental Study of Alternative Campaign Finance Systems: Donations, Elections and Policy Choices By Hanming Fang; Dmitry A. Shapiro; Arthur Zillante
  12. The Political Economy of International Environmental Agreements: A Survey By Leo Wangler; JJuan-Carlos Altamirano-Cabrera; Hans-Peter Weikard
  13. Price jitters: Do markets punish political stocks? By Ghosh, Saibal
  14. GINI DP 7: Income Distributions, Inequality Perceptions and Redistributive Claims in European Societies By István György Tóth; Keller, T.
  15. Policymakers' Horizon and Trade Reforms By Conconi, Paola; Facchini, Giovanni; Zanardi, Maurizio
  16. Fact Finding Trips to Italy: An experimental investigation of voter incentives By Rodet, Cortney S.
  17. Tax policy and income inequality in the U.S., 1978—2009: A decomposition approach By Olivier Bargain; Mathias Dolls; Herwig Immervoll; Dirk Neumann; Andreas Peichl; Nico Pestel; Sebastian Siegloch
  18. Consensus, institutions, and supply response : the political economy of agricultural reforms in Sub-Saharan Africa By Aksoy, Ataman; Onal, Anil
  19. Viewing tax policy through party-colored glasses: What German politicians believe By Janeba, Eckhard; Heinemann, Friedrich

  1. By: Michalis Drouvelis; Alejandro Saporiti; Nicolaas J. Vriend
    Date: 2011
  2. By: Wiberg, Magnus (Ministry of finance)
    Abstract: This paper examines how different electoral rules affect the location decisions of firms through the effect on regional policy. The equilibrium location of industry in the economically smaller (larger) region is higher under majoritarian (proportional) elections. The standard prediction in the economic geography literature, that the larger region becomes the core when trade barriers are reduced, no longer holds. The establishment of manufacturing production in the smaller region is increasing in the level of regional integration. As trade is in- creasingly liberalized, the economy features a reversed core-periphery equilibrium. This result holds under both electoral rules. However, firms locate to the smaller region at a relatively higher rate in the case of majoritarian voting, hence, the reversed equilibrium occurs for a relatively lower level of regional integration with majoritarian elections. Empirical evidence shows that the model is consistent with qualitative features of the data, and the results are robust to an instrumental variable strategy that accounts for the potential endogeneity of the electoral rule.
    Keywords: Economic Geography; Regional Policy; Electoral Rules
    JEL: D72 F12 R12
    Date: 2011–09–02
  3. By: Frederico Finan; Laura A. Schechter
    Abstract: While vote-buying is common, little is known about how politicians determine who to target. We argue that vote-buying can be sustained by an internalized norm of reciprocity. Receiving money engenders feelings of obligation. Combining survey data on vote-buying with an experiment-based measure of reciprocity, we show that politicians target reciprocal individuals. Overall, our findings highlight the importance of social preferences in determining political behavior.
    JEL: H23 H41 O1
    Date: 2011–09
  4. By: André Blais (UdeM - Université de Montréal - Université de Montréal); Jean-Benoît Pilet (Université Libre de Bruxelles - Département de Science Politique); Karine Van Der Straeten (CNRS, Toulouse School of Economics - [-]); Jean-François Laslier (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Maxime Heroux-Legault (Université de Montréal - [-])
    Abstract: We examine through an experimental design how rational and non-rational considerations affect the decision to vote or to abstain in First Past the Post and PR elections. We show that in both types of elections, but particularly so under PR, a majority of subjects do not make the "right" decision, that is, they do not choose the option that is the most beneficial to them, given. We also demonstrate that a social norm such as sense of civic duty plays a bigger role, even in the lab, and particularly so in PR elections. We suggest that civic duty has a greater impact under PR because this electoral system has a more complicated formula, making it more difficult for voters to realize that their vote is unlikely to substantially affect the outcome of the election.
    Keywords: Experiments, Voting, First Past the Post, Proportional Representation, Civic Duty
    Date: 2011–08–24
  5. By: Rodet, Cortney S.
    Abstract: This paper uses experiments to explore electoral accountability in a legislative system that favors seniority. Voters face a trade-off between pork barrel transfers and policy representation. Term limits are tested as a mechanism to reduce the cost of searching for a legislator who better represents voters on policy, as well as reducing the resulting asymmetric distribution of income. Subjects’ preferences on abortion are used in an innovative means of capturing incumbents’ policy choices where subject legislators vote to determine whether a donation is allocated to either a pro-choice or pro-life foundation.
    Keywords: voting; legislature; term limits; experiments
    JEL: C92 D89 D72 C91 P16
    Date: 2011–04
  6. By: Marco Faravelli; Randall Walsh
    Abstract: We propose a new game theoretic approach to modeling large elections that overcomes the “paradox of voting” in a costly voting framework, without reliance on the assumption of ad hoc preferences for voting. The key innovation that we propose is the adoption of a “smooth” policy rule under which the degree to which parties favor their own interests is increasing in their margin of victory. In other words, mandates matter. We argue that this approach is an improvement over the existing literature as it is consistent with the empirical evidence. Incorporating this policy rule into a costly voting model with paternalistic voters yields a parsimonious model with attractive properties. Specifically, the model predicts that when the size of the electorate grows without bound, limiting turnout is strictly positive both in terms of numbers and proportions. Further, the model preserves the typical comparative statics predictions that have been identified in the extant costly voting models such as the underdog effect and the competition effect. Finally, under the case of selfish agents, we are able to extend Palfrey and Rosenthal’s (1985) zero turnout result to a general class of smooth policy rules. Thus, this new approach reconciles the predictions of standard costly voting, both in terms of positive turnout and comparative statics predictions with the assumption of a large electorate environment.
    JEL: D72 H0
    Date: 2011–09
  7. By: Wilfred J. Ethier (Department of Economics, University of Pennsylvania)
    Abstract: This paper offers a selective, interpretative survey of the literature on the political-support component of the political economy of international trade policy. Much of the literature is characterized either by a discrepancy between what policymakers say they are doing and how the theory models their actions (the Cognitive Dissonance problem) or by a lack of a detailed microeconomic and micro-political foundation (the Black Box problem).
    Keywords: Political support f26ction, Protection For Sale, Cognitive Dissonance problem, Black Box problem
    JEL: F02 F13
    Date: 2011–07–26
  8. By: Akerman, Anders (Dept. of Economics, Stockholm University); Larsson, Anna (Dept. of Economics, Stockholm University); Naghavi, Alireza (University of Bologna and FEEM)
    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 autocracies 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 differ 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 inflow 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 O10 O24 P14 P16
    Date: 2011–06–01
  9. By: Raghbendra Jha; Hari K. Nagarajan; Kailash C. Pradhan
    Abstract: This paper has the objective of showing that identity based voting will lead to improvements in household welfare through increased access to welfare programs. Using newly available data from rural India, we establish that identity based voting will lead to enhanced participation in welfare programs and increased consumption growth. We also show that consumption growth is retarded if households do not engage in identity based voting. Using 3 stage least squares, we are able to show that identity based voting results from the externalities derived from membership in social and information networks, and such voting by enhancing participation in welfare programs leads to significant increases in household consumption growth.
    Keywords: Identity Based Voting, Panchayats, Decentralization, Devolution
    JEL: D7 D72 D73
    Date: 2011
  10. By: Hanming Fang; Dmitry A. Shapiro; Arthur Zillante
    Abstract: We experimentally study the effect of alternative campaign finance systems – as characterized by different information structure about donors – on donations, election outcomes, political candidates' policy choices, and welfare. Three alternative campaign finance systems are considered: a full anonymity (FA) system in which neither the politicians nor the voters are informed about the donors' ideal policies or levels of donations; a partial anonymity (PA) system in which only the politicians, but not the voters, are informed about the donors' ideal policies and donations; and finally a no anonymity (NA) system in which both the politicians and the voters are informed about the donors' ideal policies and donations. We find that donors contribute less in the FA system than in the PA and NA system, and candidates are less likely to deviate from their ideal policies under FA than under the PA and NA systems. The effect of donations on the candidate's policy deviations differs in FA from that in PA and NA. Specifically, in the FA system larger donations lead to smaller deviations from the candidate's ideal policy; but in the NA and PA systems, larger donations lead to larger deviations. As a result we observe that the donations lead to a centrist bias in the candidate's policy choices, i.e., donations are more likely to make extreme candidate move to the center than to make centrist candidate move to the right. This centrist bias is present more robustly in FA treatments. Finally, we find that donors greatly benefit from the possibility of donations regardless of the finance system. Voter welfare remains virtually unchanged under the PA and NA systems, especially when there is competition among the donors. Our findings provide the first experimental evidence supportive of Ayres and Ackerman's (2002) campaign finance reform proposal.
    JEL: D72
    Date: 2011–09
  11. By: Marco Faravelli; Randall Walsh
    Date: 2011–09–08
  12. By: Leo Wangler (School of Economics and Business Administration, Friedrich-Schiller-University Jena); JJuan-Carlos Altamirano-Cabrera (Universidad Autonoma Metropolitana-Azcapotzalco, Department of Economics, Growth and Environment Group, Mexico City, Mexico); Hans-Peter Weikard (Environmental Economics and Natural Resources Group, Wageningen University, The Netherlands.)
    Abstract: This paper surveys the recent literature on the political economy of the formation of international environmental agreements. The survey covers theoretical modelling approaches and empirical studies including experimental work. Central to our survey is the question how the political process impacts different stages of agreement formation and stability. Relevant are the rules defined during pre-negotiations that govern negotiations, ratification and implementation. Strategic delegation and lobbying are directly relevant during the negotiation and ratification phases. Implementation, the choice of policy instruments at the national level, will also be impacted by lobbying and indirectly influence negotiations.
    Keywords: international environmental agreements, coalition formation, coalition stability, environmental policy-making, strategic delegation, interest groups, free-rider incentives, determinants of international environmental cooperation, public goods experiments
    JEL: D72 D62 C72 H41
    Date: 2011–09–05
  13. By: Ghosh, Saibal
    Abstract: The paper examines the impact of firms exhibiting political connection on their stock market performance. The results appear to suggest that the performance of ‘political’ stocks has been significantly weak. This is apparent in simple univariate tests that compare the political stocks across various industry categories or even comparisons of political versus apolitical stocks. The regression analysis indicates that the returns on political stocks are on average, over 20% lower as compared to stocks without any political association.
    Keywords: political connection; buy-and-hold abnormal returns; India
    JEL: G32 P52
    Date: 2011–06
  14. By: István György Tóth (TÁRKI Social Research Institute); Keller, T.
    Abstract: In this paper we analyse how redistributive preference relates to actual income and to its distribution. For measuring the relationship on macro level, we defi ne distance based measures of income inequality (P-ratios, based on data from LIS) and test them for their direct and for their contextual effects on aggregate (country level) and on individual redistributive claims. For measuring redistributive preference we develop a composite index using available public opinion (Eurobarometer) data for the European Union member states. On macro level there is a continued and high support of state redistribution in many European countries but the cross-country variance is also high. Preferences for redistribution correspond to various aspects of inequality (most notably, to the extent and depth of relative poverty). On micro level the redistributive preference, while mostly derived from rational self interest (material position, labour market status, expected mobility), is also driven by general attitudes about the role of personal responsibility in one’s own fate and by general beliefs about causes of poverty and the like. While the affl uent, the middle and the poor have different appetite for redistribution everywhere, the distance between their attitudes also seems to be determined by the distance between their relative positions (ranks in the distribution). In countries having larger level of aggregate inequalities the general redistributive preference (of the rich, of the middle and of the poor) is higher, however in countries with very high levels of inequalities the difference in redistribution preference begins to decrease, which is a hint for a curvilinear relationship. The slope of this socioeconomic gradient seems, however, steeper in countries with middle inequality levels. The results of the paper can contribute to a refi nement of the predictions developed in the frame of the median voter theorem and, via this, to a better understanding of political processes. JEL Classification: D31, D63, H3
    Date: 2011–02
  15. By: Conconi, Paola; Facchini, Giovanni; Zanardi, Maurizio
    Abstract: Does policymakers’ horizon affect their willingness to support economic reforms? Voting in the U.S. Congress provides an ideal setting to address this question. Differences between the House and Senate, in which members serve two-year and six-year mandates respectively, allow to examine the role of term length; the staggered structure of the Senate allows to compare the behavior of different "generations" of senators and study the impact of election proximity. Considering all major trade liberalization reforms undertaken by the U.S. since the early 1970’s, we find that Senate members are more likely to support them than House members. However, inter-cameral differences disappear for third-generation senators, who face re-election at the same time as House members. Considering Senate votes alone, we find that the last generation is more protectionist than the previous two, a result that holds both when comparing different senators voting on the same bill and individual senators voting on different bills. Inter-generational differences disappear instead for senators who hold safe seats or have announced their retirement, indicating that the protectionist effect of election proximity is driven by legislators’ fear of losing office.
    Keywords: Election Proximity; Term Length; Trade Reforms
    JEL: D72 F10
    Date: 2011–09
  16. By: Rodet, Cortney S.
    Abstract: This paper addresses the interaction of voter information and seniority on electoral accountability. We test whether information leads voters to be less tolerant of moral hazard in a legislative system favoring seniority. A simple game theoretic model is used to predict outcomes in a pork-barrel experiment where subjects act as legislators and voters. Senior legislators have an advantage in providing transfers which presents the opportunity to shirk where legislators can enrich themselves at the expense of voters. Voter information about incumbent behavior is varied across experimental treatments. We find that accountability increases when voters can compare their own legislator’s behavior to the behavior of others. Despite the fact that voters succumb to the incentives of seniority, information is effective in deterring legislator shirking.
    Keywords: voting; experiments; information; principal-agent problem
    JEL: C92 D89 D72 C91 P16
    Date: 2011–09
  17. By: Olivier Bargain (UC Dublin, IZA and CEPS/INSTEAD); Mathias Dolls (University of Cologne and IZA); Herwig Immervoll (OECD, ISER and IZA); Dirk Neumann (University of Cologne and IZA); Andreas Peichl (IZA, University of Cologne, ISER and CESifo); Nico Pestel (University of Cologne and IZA); Sebastian Siegloch (University of Cologne and 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
  18. By: Aksoy, Ataman; Onal, Anil
    Abstract: During the late 1980s and the 1990s, most countries in Sub-Saharan Africa implemented agricultural policy reforms, along with national political and economic reforms. The agricultural reforms focused on opening up processing and marketing activities to increased competition and eliminating export taxes and restrictions to improve producer incentives. In eight of nine country/commodity case studies analyzed in this paper, output responded positively in the short run to the reforms. In many cases, however, the initial supply response was not sustained in the face of subsequent shocks. The studies suggest that stakeholder consensus on the distribution of sector-specific rents is a key variable affecting the sustainability of supply responses. Agricultural sector reforms lead to large changes in income distribution. The greater the acceptance of the distribution of rents following the reforms, the better sectors are able to accommodate subsequent shocks. In cases where the initial consensus on the distribution of rents is weak, shocks lead to reform reversals in some cases or an inability to design necessary support institutions in others. The diversity in outcomes across similar products and countries suggests it is possible to achieve sector and local level results that differ from national ones.
    Keywords: Markets and Market Access,Crops&Crop Management Systems,Emerging Markets,Economic Theory&Research,Labor Policies
    Date: 2011–08–01
  19. By: Janeba, Eckhard; Heinemann, Friedrich
    Abstract: Abstract: The process of globalization has an important impact on national tax policies. Most of the literature does not focus directly on the political decision making process and assumes that the desired tax policy is responding to objective underlying tradeoffs. Based on an original survey of members of German national parliament (Bundestag) in 2006/7 we document a strong ideological bias among policy makers with respect to the perceived mobility of international tax bases (real capital and paper profits). Ideology influences also directly and indirectly the perceived national autonomy in tax setting and preferences for a EU minimum tax for companies. There seems little consensus as to what the efficiency costs of capital taxation in open economies are, even though our survey falls in a period of extensive debate about and actual adoption of a company tax reform bill in Germany.
    Keywords: Globalization; business taxation; beliefs; member of parliament; profit shifting; party discipline; yardstick competition
    JEL: H25 D83 D78
    Date: 2011–08

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