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on Positive Political Economics |
| By: | Jo Thori Lind; Dominic Rohner |
| Abstract: | No voters cast their votes based on perfect information, but better educated and richer voters are on average better informed than others. We develop a model where the voting mistakes resulting from low political knowledge reduce the weight of poor voters, and cause parties to choose political platforms that are better aligned with the preferences of rich voters. In US election survey data, we find that income is more important in affecting voting behavior for more informed voters than for less informed voters, as predicted by the model. Further, in a panel of US states we find that when there is a strong correlation between income and political information, Congress representatives vote more conservatively, which is also in line with our theory. |
| Keywords: | Redistribution, welfare spending, information, income, voting, political economics |
| JEL: | D31 D72 D82 H53 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:036&r=pol |
| By: | Dorin Jula; Nicolae-Marius Jula |
| Abstract: | In Romania, the 2008 local elections were held based on a new electoral law. The main changes concerned the election of chairpersons of county councils by uninominal voting, shifting of the general and presidential elections and the introduction of a uninominal voting system for parliamentary elections, with a correction of the total number of seats according to the total number of votes obtained by each party on national level. Voting behavior in local elections on 1st June 2008 was primarily determined by political reasons (loyal voters) and was influenced by the effect of the local leaders and the noise produced by ethnic vote. For all parties, prominent leaders drew votes. Inertia in voting behavior (electorate’s fidelity) influenced all parties’ results and the ethnic behavior had a strong effect on nationalist parties. At regional level, the electoral impact of economic variables was marginal. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa11p1256&r=pol |
| By: | Francesco Caselli; Andrea Tesei |
| Abstract: | We study theoretically and empirically whether natural resource windfalls affect political regimes. We document the following regularities. Natural resource windfalls have no effect on the political system when they occur in democracies. However, windfalls have significant political consequences in autocracies. In particular, when an autocratic country receives a positive shock to its flow of resource rents it responds by becoming even more autocratic. Furthermore, there is heterogeneity in the response of autocracies. In deeply entrenched autocracies the effect of windfalls on politics is virtually nil, while in moderately entrenched autocracies windfalls significantly exacerbate the autocratic nature of the political system. To frame the empirical work we present a simple model in which political incumbents choose the degree of political contestability by deciding how much to spend on vote-buying, bullying, or outright repression. Potential challengers decide whether or not to try to unseat the incumbent and replace him. The model uncovers a reason for the asymmetric impact of resource windfalls on democracies and autocracies, as well as the differential impact within autocratic regimes. |
| Keywords: | natural resources, elections, political accountability |
| JEL: | D72 D78 Q33 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1091&r=pol |
| By: | Tarishi Matsuoka (Graduate School of Economics, Kyoto University, Japan Society for Promotion of Science); Katsuyuki Naito (Graduate School of Economics, Kyoto University); Keigo Nishida (Graduate School of Economics, Kyoto University) |
| Abstract: | This paper proposes a model to examine conditions in which a government policy to improve imperfect credit markets is practiced through a democratic political process, and analyzes interactions between the politically implemented policy and economic development. The policy increases the welfare of middle-income individuals who can start new investments at the expense of poor and rich individuals. The preferences for the policy are thus non-monotonic over income levels. The realization of the policy strongly depends on the level of capital and the extent of income inequality. The low level of capital and high income inequality make the policy hard to implement, which is likely to cause the economy to fall into a poverty trap. |
| Keywords: | Keywords: financial development, economic development, income inequality,majority voting |
| JEL: | D72 G18 O11 O15 O16 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:793&r=pol |
| By: | Christoph Basten (European University Institute, Badia Fiesolana, Via dei Roccettini 9, I-50014 San Domenico di Fiesole, Italy.); Frank Betz (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany.) |
| Abstract: | We investigate the effect of Reformed Protestantism, relative to Catholicism, on preferences for leisure and for redistribution and intervention in the economy. With a Fuzzy Spatial Regression Discontinuity Design, we exploit a historical quasiexperiment in Western Switzerland, where in the 16th century a so far homogeneous region was split and one part assigned to convert to Protestantism. We find that Reformed Protestantism reduces the fraction of citizens voting for more leisure by 13, and that voting for more redistribution and government intervention by respectively 3 and 11 percentage points. These preferences are found to translate into greater income inequality, but we find no robust effect on average income. JEL Classification: Z12, D72, H23, N33. |
| Keywords: | Max Weber, culture, protestant work ethic, political preferences, regression discontinuity design. |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111393&r=pol |
| By: | Laszlo A. Koczy (Institute of Economics - Hungarian Academy of Sciences); Mikl¢s Pinter (Department of Mathematics - Corvinus University Budapest) |
| Abstract: | Voting power in voting situations is measured by the probability of changing decisions by altering the cast 'yes' or 'no' votes. Recently this analysis has been extended by strategic abstention. Abstention, just as 'yes' or 'no' votes can change decisions. This theory is often applied to weighted voting situations, where voters can cast multiple votes. Measuring the power of a party in a national assembly seems to fit this model, but in fact its power comprises of votes of individual representatives each having a single vote. These representatives may vote yes or no, or may abstain, but in some cases they are not even there to vote. We look at absentees not due to a conscious decision, but due to illness, for instance. Formally voters will be absent, say, ill, with a certain probability and only present otherwise. As in general not all voters will be present, a thin majority may quickly melt away making a coalition that is winning in theory a losing one in practice. A simple model allows us to differentiate between winning and more winning and losing and less losing coalitions reected by a voting game that is not any more simple. We use data from Scotland, Hungary and a number of other countries both to illustrate the relation of theoretical and effective power and show our results working in the practice. |
| Keywords: | a priori voting power; power index; being absent from voting; minority; Shapley-Shubik index; Shapley value |
| JEL: | C71 D72 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1129&r=pol |
| By: | Olivier Ledoit |
| Abstract: | Democracy is defined by two core tenets: voice and pluralism. Within these constraints, a wide variety of regime types can be designed. We show that the only new, untested form of democracy is when every citizen is governed by the political party of his/her choice. Multiple full-fledged governments would coexist in the same national territory at the same time, each one sovereign only over the people who chose to vote for it - hence the name: "Choice Democracy". Choice Democracy can be regarded as pure polyarchy, the broadest form of political competition, and a robust mechanism for disciplining government agencies. We argue that this system makes democracy more stable by reducing the risk of revolutionary and financial crises. We develop a theory for the optimal number of governments per countries, where the answer is determined by a trade-off between cooperation and competition. We also provide evidence indicating that Choice Democracy would be viable in the real world. |
| Keywords: | Democracy, choice, polyarchy, stability, competition, effciency |
| JEL: | H11 H41 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:038&r=pol |
| By: | Battaglini, Marco |
| Abstract: | We present a dynamic model of electoral competition to study the determinants of fiscal policy. In each period, two parties choose electoral platforms to maximize the expected number of elected representatives. The electoral platform includes public expenditure, redistributive transfers, the tax rate and the level of public debt. Voters cast their vote after seeing the platforms and elect representatives according to a majoritarian winner take all system. The level of debt, by affecting the budget constraint in future periods, creates a strategic linkage between electoral cycles. We characterize the Markov equilibrium of this game when public debt is the state variable, and study how Pareto efficiency depends on the electoral rule and the underlying fundamentals of the economy. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8633&r=pol |
| By: | Marco Battaglini; Stephen Coate |
| Abstract: | This paper explores the interaction between fiscal policy and unemployment. It develops a dynamic economic model in which unemployment can arise but can be mitigated by tax cuts and public spending increases. Such policies are fiscally costly, but can be financed by issuing government debt. In the context of this model, the paper analyzes the simultaneous determination of fiscal policy and unemployment in long run equilibrium. Outcomes with both a benevolent government and political decision-making are studied. With political decision-making, the model yields a simple positive theory of fiscal policy and unemployment. |
| JEL: | E6 E62 H3 H63 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17562&r=pol |
| By: | Thibault Darcillon (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | Applying regressions on a sample of 18 OECD countries from 1970 to 2009 using new indicators, we find that right-wing governments liberalize more the financial sector that left-wing governments. We show that if a left-wing government accepts to liberalize the financial sector, an increase of social security expenditures can facilitate the adoption of a new legislation in the financial sector. To estimate the impact of the government partisan affiliation on the corporate governance legislation, we use a probit model and a conditional Cox model in gap time in 16 OECD over the 1970-2009 period. Statistically, we find that right-wing governments enhance more pro-shareholder policies. |
| Keywords: | Political Partisanship, financial liberalization, corporate governance, institutional change. |
| JEL: | G38 C33 P16 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11063&r=pol |
| By: | Peichl, Andreas; Pestel, Nico; Siegloch, Sebastian |
| Abstract: | Using a unique dataset of German members of parliament (MPs) this paper analyzes the politicians’ wage gap (PWG). After controlling for observable characteristics as well as accounting for election probabilities and campaigning costs, we find a positive income premium for MPs which is statistically and economically significant. Our results are consistent with the citizen candidate model: The PWG amounts to 35–65% when comparing MPs to citizens in an executive position. However, it shrinks to zero when restricting the control group to top-level executives. This suggests that German politicians do not receive excessive pay when compared to senior executives. |
| Keywords: | politicians’ wage gap; citizen-candidate model; office remuneration; outside earnings |
| JEL: | J45 J31 H11 H83 D72 |
| Date: | 2011–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34595&r=pol |
| By: | Bruno Amable (Centre d'Economie de la Sorbonne, CEPREMAP et IUF); Elvire Guillaud (Centre d'Economie de la Sorbonne); Stefano Palombarini (LED - Université Paris 8) |
| Abstract: | There are many apparent similarities between the current political and economic situations of France and Italy. The mainstream view is that at least part of the neo-liberal strategy could be a solution to the economic problems of both variants of the European model of capitalism. However, the difficulties met by the implementation of these strategies by Sarkozy and Berlusconi lead to believe that the success or failure of neo-liberalisation has less to do with its (lack of) macroeconomic merits than with the stability of the socio-political alliances that support it. In this respect, France and Italy are markedly different. This paper shows that even if the "hard core" of the neoliberal social bloc is roughly the same in both countries, this core constitutes a minority of the electorate ; a neoliberal strategy must therefore rely on an extended social coalition, which might not be similar between countries. The Great Recession revealed part of the structural characteristics that set both countries apart. The aim of this article is to show that the consideration of the different socio-political alliances found in each country can help to understand how Italy and France ended up on different economic trajectories. |
| Keywords: | Institutions, model of capitalism, neoliberal reforms, political crisis. |
| JEL: | P16 P51 B52 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11051&r=pol |
| By: | Zohal Hessami (Department of Economics, University of Konstanz, Germany) |
| Abstract: | So far no existing study has analyzed what determines people’s trust in the IMF, the World Bank, and the WTO even though – in the absence of democratic accountability – this is one of the few ways to assess the legitimacy of these institutions. This study is intended to fill this gap in the literature based on Eurobarometer survey data from the EU-15 countries. The estimation results suggest that individual characteristics (gender, international background, formal education level, personal income, ideological preferences, interest in politics, and exposure to media) as well as the extent of globalization influence trust in the three international organizations. The state of the economy only has a significant effect on trust in the WTO. Moreover, respondents’ attitudes towards globalization have a bearing on trust in all three international organizations. Survey items on individual knowledge and perceptions of the WTO allow us to test additional hypotheses that apply to this institution alone. We find that familiarity with the WTO fosters trust. Finally, beliefs that the EU is well-represented in the WTO, that the WTO has a good reputation and that it is a democratic and necessary institution increases repondents’ propensity to trust the WTO. |
| Keywords: | Institutional trust, International economic organizations, Globalization, International Monetary Fund, World Bank, World Trade Organization |
| JEL: | F13 F15 F33 F53 O19 |
| Date: | 2011–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1144&r=pol |
| By: | Hessami, Zohal |
| Abstract: | So far no existing study has analyzed what determines people’s trust in the IMF, the World Bank, and the WTO even though – in the absence of democratic accountability – this is one of the few ways to assess the legitimacy of these institutions. This study is intended to fill this gap in the literature based on Eurobarometer survey data from the EU-15 countries. The estimation results suggest that individual characteristics (gender, international background, formal education level, personal income, ideological preferences, interest in politics, and exposure to media) as well as the extent of globalization influence trust in the three international organizations. The state of the economy only has a significant effect on trust in the WTO. Moreover, respondents’ attitudes towards globalization have a bearing on trust in all three international organizations. Survey items on individual knowledge and perceptions of the WTO allow us to test additional hypotheses that apply to this institution alone. We find that familiarity with the WTO fosters trust. Finally, beliefs that the EU is well-represented in the WTO, that the WTO has a good reputation and that it is a democratic and necessary institution increases repondents’ propensity to trust the WTO. |
| Keywords: | Institutional trust; International economic organizations; Globalization; International Monetary Fund; World Bank; World Trade Organization |
| JEL: | F15 F13 F53 O19 F33 |
| Date: | 2011–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34550&r=pol |
| By: | Lopez-Calva, Luis F.; Rigolini, Jamele; Torche, Florencia |
| Abstract: | Middle class values have long been perceived as drivers of social cohesion and growth. This paper investigates the relation between class (measured by position in the income distribution), values, and political orientations using comparable values surveys for six Latin American countries. The analysis finds that both a continuous measure of income and categorical measures of income-based class are robustly associated with values. Both income and class tend to display a similar association to values and political orientations as education, although differences persist in some important dimensions. Overall, there is no strong evidence of any"middle class particularism": values appear to gradually shift with income, and middle class values are between the ones of poorer and richer classes. If any, the only peculiarity of middle class values is moderation. The analysis also finds changes in values across countries to be of much larger magnitude than the ones dictated by income, education, and individual characteristics, suggesting that individual values vary primarily within bounds dictated by each society. |
| Keywords: | Inequality,Economic Theory&Research,Social Inclusion&Institutions,Labor Policies,Access&Equity in Basic Education |
| Date: | 2011–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5874&r=pol |
| By: | Colignatus, Thomas |
| Abstract: | Economic theory needs a stronger defence against unwise application of mathematics. Mathematicians are trained for abstract thought and not for empirical science. Their contribution can wreak havoc, for example in education with real life pupils and students, in finance by neglecting real world risks that contribute to a world crisis, or in voting theory where they don’t understand democracy. In 1951 the mathematician Kenneth Arrow formulated his Impossibility Theorem in social welfare theory and since then mathematicians have been damaging democracy. My book Voting Theory for Democracy (VTFD) tries to save democracy and social welfare from such destruction. VTFD applies deontic logic to Arrow’s Theorem and shows that Arrow’s interpretation cannot hold. The editor of a journal in voting matters has VTFD reviewed by a mathematician instead of a researcher who is sensitive to economics, democracy and empirical issues. Guess what happens. The review neglects economics, democracy and empirical issues. Curiously it also neglects the argument in deontic logic, perhaps given the distinction between mathematics and logic. Given the importance of democracy it is advisable that economists study the situation and rethink how economics and mathematics interact in practice. |
| Keywords: | economic crisis; voting theory; democracy; economics and mathematics; |
| JEL: | D71 A10 P16 |
| Date: | 2011–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34615&r=pol |
| By: | Leonardo Becchetti (Department of Economics, Universitˆ Tor Vergata) |
| Abstract: | The vote with the wallet is a new, emerging feature of economic participation and democracy in the globally-integrated market economy. This expression identifies the pivotal role that responsible consumption and investment can play in addressing social and environmental emergencies which have been aggravated by the asymmetry of power between domestic institutions and global corporations. In this paper, we examine (both in general and by using examples drawn from the financial and non-financial sectors) how ÒvotingÓ for producers which are at the forefront of a three-sided efficiency which reconciles the creation of economic value with social and environmental responsibility, may generate contagion effects by triggering ethical imitation of traditional profit-maximizing actors, thereby enhancing the production of positive social and environmental externalities. Within this new framework policies which reduce the search and information costs of voting with the wallet may help socioeconomic systems to exploit the bottom-up market forces of other-regarding preferences, thereby enhancing opportunities to achieve well-being with reduced top-down government intervention |
| Keywords: | social responsibility, other regarding preferences. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ent:wpaper:wp33&r=pol |
| By: | Katherina Popkova |
| Abstract: | This paper analyses the influence of the exchange rate regime of a country on the level of tolerated corruption with a special focus on the interdependency of monetary and fiscal policies. Using a simple theoretical framework based on Barro-Gordon-Model I compare independent monetary policy with a tight peg arrangement in order to find out which regime is more likely to induce governments to intensify the fight against corruption. It is shown that if corruption has a considerable positive impact on output, a tight peg regime can increase tolerated corruption. However, if corruption has a negative effect on output, a pegged exchange rate regime will lead to a lower level of tolerated corruption. The issue of particular interest appears to be the finding that a strong positive impact of corruption on output can induce governments to choose a pegging regime while a weak positive impact of corruption (and a negative influence of corruption even more) provides an incentive to keep monetary independence. |
| Keywords: | Exchange Rate Regime, Monetary Policy, Fiscal Policy, Corruption |
| JEL: | E52 E58 E61 E63 F33 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:sie:siegen:148-11&r=pol |
| By: | William R. Kerr; William F. Lincoln; Prachi Mishra |
| Abstract: | We study the determinants of the dynamics of firm lobbying behavior using a panel data set covering 1998-2006. Our data exhibit three striking facts: (i) few firms lobby, (ii) lobbying status is strongly associated with firm size, and (iii) lobbying status is highly persistent over time. Estimating a model of a firm's decision to engage in lobbying, we find significant evidence that up-front costs associated with entering the political process help explain all three facts. We then exploit a natural experiment in the expiration in legislation surrounding the H-1B visa cap for high-skilled immigrant workers to study how these costs affect firms' responses to policy changes. We find that companies primarily adjusted on the intensive margin: the firms that began to lobby for immigration were those who were sensitive to H-1B policy changes and who were already advocating for other issues, rather than firms that became involved in lobbying anew. For a firm already lobbying, the response is determined by the importance of the issue to the firm's business rather than the scale of the firm's prior lobbying efforts. These results support the existence of significant barriers to entry in the lobbying process. |
| JEL: | D72 D73 D78 F22 F23 J61 O31 O38 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17577&r=pol |