nep-pol New Economics Papers
on Positive Political Economics
Issue of 2012‒01‒03
twenty-one papers chosen by
Eugene Beaulieu
University of Calgary

  1. Looking Beyond the Incumbent: The Effects of Exposing Corruption on Electoral Outcomes By Alberto Chong; Ana L. De La O; Dean Karlan; Leonard Wantchekon
  2. Electoral rules and voter turnout By Guglielmo Barone; Guido de Blasio
  3. Does Gender Matter for Political Leadership? The Case of U.S. Mayors By Fernando Ferreira; Joseph Gyourko
  4. Out of Sight, Out of Mind:The Value of Political Connections in Social Networks By Quoc-Anh Do; Bang Dang Nguyen; Yen-Teik Lee; Kieu-Trang Nguyen
  5. Law, democracy and the quality of government in Africa By Simplice A, Asongu
  6. One Mandarin Benefits the Whole Clan: Hometown Infrastructure and Nepotism in an Autocracy By Kieu-Trang Nguyen; Quoc-Anh Do; Anh Tran
  7. Utopia becoming dystopia? Analyzing political trust among immigrants in Sweden By Adman, Per; Strömblad, Per
  8. Central Banks’ Voting Records and Future Policy By Roman Horváth; Kateøina Šmídková; Jan Zápal
  9. Incumbency, Party Identity and Governmental Lead: Evidence for Heterogeneous Incumbency Effects for Germany By Florian Ade; Ronny Freier; Christian Odendahl
  10. Theory and practice of falsified elections By Kapustenko, Oleg
  11. Economic voting and economic revolutionizing? The economics of incumbency changes in European democracies and revolutionary events in the Arab World By Möller, Marie
  12. Demographics and Factor Flows – A Political Economy Approach By Lena Calahorrano; Philipp an de Meulen
  13. Do Perceptions of Ballot Secrecy Influence Turnout? Results from a Field Experiment By Alan S. Gerber; Gregory A. Huber; David Doherty; Conor M. Dowling; Seth J. Hill
  14. Government quality determinants of stock market performance in developing countries By Simplice A, Asongu
  15. Democracy and stock market performance in developing countries By Simplice A, Asongu
  16. Heterogeneous Information and Trade Policy By Ponzetto, Giacomo AM
  17. Does Government Ideology Matter in Monetary Policy?: A Panel Data Analysis for OECD Countries By Ansgar Belke; Niklas Potrafke
  18. Income Inequality and Social Preferences for Redistribution and Compensation Differentials By William R. Kerr
  19. The Economics and Politics of Women's Rights By Matthias Doepke; Michèle Tertilt; Alessandra Voena
  20. Political Uncertainty and Risk Premia By Lubos Pastor; Pietro Veronesi
  21. What Drives Individual Attitude towards Immigration in South Africa? By Giovanni Facchini; Anna Maria Mayda; Mariapia Mendola

  1. By: Alberto Chong; Ana L. De La O; Dean Karlan; Leonard Wantchekon
    Abstract: Does information about rampant political corruption increase electoral participation and the support for challenger parties? Democratic theory assumes that offering more information to voters will enhance electoral accountability. However, if there is consistent evidence suggesting that voters punish corrupt incumbents, it is unclear whether this translates into increased support for challengers and higher political participation. We provide experimental evidence that information about copious corruption not only decreases incumbent support in local elections in Mexico, but also decreases voter turnout, challengers' votes, and erodes voters' identification with the party of the corrupt incumbent. Our results suggest that while flows of information are necessary, they may be insufficient to improve political accountability, since voters may respond to information by withdrawing from the political process. We conclude with a discussion of the institutional contexts that could allow increased access to information to promote government accountability.
    JEL: H0
    Date: 2011–12
  2. By: Guglielmo Barone (Bank of Italy); Guido de Blasio (Bank of Italy)
    Abstract: The paper investigates the effect of electoral rules on voter turnout. It focuses on Italian municipalities, where voting schemes are differentiated by the size of the city: a single ballot system applies to municipalities with less than 15,000 inhabitants, while a dual ballot system is in place above that threshold. By exploiting this discontinuity, the paper finds that the dual ballot increases participation at the local polls, with an estimated effect of about 1 percentage point. The increase in voter turnout is associated with wider political representation, politicians of higher quality, greater fiscal discipline, and more robust local development. Finally, we document that the higher political participation triggered by local electoral rules extends to nationwide voting contexts.
    Keywords: voter turnout, electoral systems, regression discontinuity design
    JEL: D72 H73
    Date: 2011–11
  3. By: Fernando Ferreira; Joseph Gyourko
    Abstract: What are the consequences of electing a female leader for policy and political outcomes? We answer this question in the context of U.S. cities, where women’s participation in mayoral elections increased from negligible numbers in 1970 to about one-third of the elections in the 2000’s. We use a novel data set of U.S. mayoral elections from 1950 to 2005, and apply a regression discontinuity design to deal with the endogeneity of female candidacy to city characteristics. In contrast to most research on the influence of female leadership, we find no effect of gender of the mayor on policy outcomes related to the size of local government, the composition of municipal spending and employment, or crime rates. While female mayors do not implement different policies, they do appear to have higher unobserved political skills, as they have a 6-7 percentage point higher incumbent effect than a comparable male. But we find no evidence of political spillovers: exogenously electing a female mayor does not change the long run political success of other female mayoral candidates in the same city or of female candidates in local congressional elections.
    JEL: H0 J0
    Date: 2011–12
  4. By: Quoc-Anh Do (School of Economics, Singapore Management University, Singapore 178903); Bang Dang Nguyen (Finance and Accounting Group, Judge Business School, University of Cambridge, Cambridge CB2 1AG, U.K); Yen-Teik Lee (Department of Finance, Lee Kong Chian School of Business, Singapore Management University, Singapore 178899); Kieu-Trang Nguyen (SPEA, Indiana University, Bloomington, IN 47401, U.S.A)
    Abstract: This paper investigates the impact of social-network connections to politicians on firm value. We focus on the networks of university classmates and alumni among directors of U.S. public firms and congressmen. Using the Regression Discontinuity Design based on close elections from 2000 to 2008, we identify that a director’s connection to an elected congressman causes a Weighted Average Treatment Effect on Cumulative Abnormal Returns of -2.65% surrounding the election date. The effect is robust and consistent through various specifications, parametric and nonparametric, with different outcome measures and social network definitions, and across many subsamples. We find evidence to support the hypothesis that firms benefit more when connected politicians remain in state politics than when they move to federal office. Overall, our study identifies the value of political connections through social networks and uncovers its variation across different states and between state and federal political environments.
    Keywords: Social network; political connection; close election; regression discontinuity design; firm value.
    JEL: D72 D73 D85 G3 G10 G11 G14 G30 C21
    Date: 2011–12
  5. By: Simplice A, Asongu
    Abstract: This paper examines the big questions of African comparative politics. It assesses the interaction of three crucial components in the development of the continent: law, democracy and quality of government. Political regimes of democracy, polity and autocracy are instrumented with income-levels, legal-origins, religious-dominations and press-freedom levels to account for government quality dynamics of corruption-control, government-effectiveness, voice and accountability, political-stability, regulation quality and rule of law. Findings indicate democracy has an edge over autocracy while the later and polity overlap. A democracy that takes into account only the voice of the majority is better in government quality than autocracy, while a democracy that takes into account the voice of the minority (polity) is worse in government quality than autocracy. As a policy implication, democracy once initiated should be accelerated to edge the appeals of authoritarian regimes and reap the benefits of time and level hypotheses.
    Keywords: Law; Politics; Democracy; Government Policy; Development
    JEL: P43 O10 K00 P16 P50
    Date: 2011–12–20
  6. By: Kieu-Trang Nguyen (SPEA, Indiana University, Bloomington, IN 47401, U.S.A); Quoc-Anh Do (School of Economics, Singapore Management University, Singapore 178903); Anh Tran (SPEA, Indiana University, Bloomington, IN 47401, U.S.A)
    Abstract: This paper studies nepotism by government officials in an authoritarian regime. We collect a unique dataset of political promotions of officials in Vietnam and estimate their impact on public infrastructure in their hometowns. We find strong positive effects on several outcomes, some with lags, including roads to villages, marketplaces, clean water access, preschools, irrigation, and local radio broadcasters, as well as the hometown’s propensity to benefit from the State’s “poor commune support program”. Nepotism is not limited to only top-level officials, pervasive even among those without direct authority over hometown budgets, stronger when the hometown chairperson’s and promoted official’s ages are closer, and where provincial leadership has more discretionary power in shaping policies, suggesting that nepotism works through informal channels based on specific political power and environment. Contrary to pork barrel politics in democratic parliaments, members of the Vietnamese legislative body have little influence on infrastructure investments for their hometowns. Given the top-down nature of political promotions, officials arguably do not help their tiny communes in exchange for political support. Consistent with that, officials favor only their home commune and ignore their home district, which could offer larger political support. These findings suggest that nepotism is motivated by officials’ social preferences directed towards their related circles, and signals an additional form of corruption that may prevail in developing countries with low transparency.
    Keywords: nepotism, infrastructure construction, official’s hometown, political connection,political promotion, social preference, directed altruism
    JEL: O12 H54 H72 D72 D64
    Date: 2011–12
  7. By: Adman, Per (Department of Government, Uppsala University); Strömblad, Per (Institute for Futures Studies)
    Abstract: This paper aims to increase our knowledge on the political trust of immigrants’ in established democracies. Utilising Swedish survey data, based on a large oversample of respondents with a foreign background, we show that immigrants from countries more plagued by corruption place significantly higher trust in political institutions in Sweden in comparison with both immigrants from more auspicious institutional settings and with the native population. However, we also find that an initially bright view of the Swedish institutional qualities tend to attenuate over time, as immigrants from countries of high corruption develop more critical viewpoints. In con-trast to reasonable expectations, we nonetheless find that this decrease in trust is not explained by experiences of discrimination. Overall, the hypotheses elaborated and tested in this paper may be regarded as a more general contribution to a theory on how political trust is related to experiences and expectations of political institutions.
    Keywords: political trust of immigrants’; Swedish survey data; experiences and expectations of political institutions
    JEL: C42
    Date: 2011–12–19
  8. By: Roman Horváth (IES, Charles University Prague); Kateøina Šmídková (IES, Charles University Prague); Jan Zápal (London School of Economics)
    Abstract: We assess whether the voting records of central bank boards are informative about future monetary policy. First, we specify a theoretical model of central bank board decision-making and simulate the voting outcomes. Three different versions of model are estimated with simulated data: 1) democratic, 2) consensual and 3) opportunistic. These versions differ in the degree of informational influence between the chairman and other board members influence prior to the voting. The model shows that the voting pattern is informative about future monetary policy provided that the signals about the optimal policy rate are noisy and that there is sufficient independence in voting across the board members, which is in line with the democratic version. Next, the model predictions are tested on real data on five inflation targeting countries (the Czech Republic, Hungary, Poland, Sweden and the United Kingdom). Subject to various sensitivity tests, it is found that the democratic version of the model corresponds best to the real data and that in all countries the voting records are informative about future monetary policy, making a case for publishing the records.
    Keywords: monetary policy, voting record, transparency, collective decision-making.
    JEL: C78 D78 E52 E58
    Date: 2011–12
  9. By: Florian Ade; Ronny Freier; Christian Odendahl
    Abstract: Do incumbents in an election have an advantage, and if so, are these advantages heterogeneous across parties or government and opposition? We first present a theoretical discussion on the possible heterogeneity of incumbency effects in a pure two-party system. Then, we estimate the incumbency effect for the direct district candidates in German federal and state elections using a regression discontinuity design (RDD). When studying the heterogeneity in these effects, we find that incumbents from both large parties, the center-right CDU and the center-left SPD, have an advantage only if the SPD is in government. This effect is robust and shows even in state elections that are unrelated to federal elections - calling into question the findings of average incumbency effects in the literature. Because this effect is stronger in the East than in the West and only shows post reunification, we hypothesise that the emergence of the socialist party "The Left" may be behind this heterogeneity.
    Keywords: incumbency advantage, regression discontinuity design, federal elections, state elections
    JEL: H10 H11 H77
    Date: 2011
  10. By: Kapustenko, Oleg
    Abstract: An analysis of falsified election results is presented. A model of the falsification process is proposed and simulations are performed. The model fits well the data of the parliamentary elections in Russia on December 4, 2011. It is shown that the "noise" of false votes is well separated from the fair “signal”, which can be extracted with high statistical accuracy (less than l%) allowing quantitative reconstruction of the falsification patterns.
    Keywords: election; ballot stuffing; statistical analysis
    JEL: D72
    Date: 2011–12–23
  11. By: Möller, Marie
    Abstract: While people in democracies can vote their government out when they are discontent with its policies, those in dictatorships cannot do so. They can only attempt to expel the dictator via mass protests or revolutions. Based on a general cause-and-effect mechanism, the author analyzes whether such mass protests are more likely when the economic situation is poor and vote outs are more likely under bad economic conditions. The empirical analysis provides evidence of economic voting in the European democracies. On the other hand, the results for the Arab World show that economic revolutionizing does not occur there. For this reason, the economics of the Arab Spring are analyzed in greater detail. It can be concluded that bad policy is punished in democracies only. Therefore, by using positive analysis, the investigation demonstrates the malfunctioning of the political market in dictatorships. -- In diesem Aufsatz wird der Zusammenhang von Abwahl- bzw. Revolutionswahrscheinlichkeit und der ökonomischen Performance untersucht. Basierend auf einem allgemeinen Ursache-Wirkungs-Mechanismus werden die Thesen abgeleitet, dass eine schlechte ökonomische Performance zwar die Abwahlwahrscheinlichkeit erhöht, nicht jedoch die Revolutionswahrscheinlichkeit, da das Zustandekommen einer Revolution davon abhängt, ob das Kollektivgutproblem gelöst werden kann. Die empirische Analyse der europäischen Demokratien zeigt, dass eine schlechte ökonomische Performance vor einem Wahltermin häufiger mit einer Abwahl als mit einer Wiederwahl einhergeht. Die Untersuchung für Revolutionen und Aufstände in der arabischen Welt dagegen zeigt, dass dort kein solcher Zusammen-hang besteht, weshalb eine genauere Betrachtung der potentiellen ökonomischen Ursachen des arabischen Frühlings erfolgt. Ausgehend von der Annahme, dass die ökonomische Performance auch ein Maß für die Qualität der Regierungsarbeit ist, liefert die Analyse ein weiteres, nicht normatives Argument für die Überlegenheit von demokratischen Systemen gegenüber nicht-demokratischen, da schlechte Regierungsführung in letzeren nicht unmittelbar bestraft wird.
    Keywords: economic voting,revolutionary events,Arab Spring,political economy,political protest,degree of democracy,dictatorship,Revolution,Abwahl,Arabischer Frühling,Demokratie,Diktatur,Neue politische Ökonomie
    JEL: D72 H11 P0
    Date: 2011
  12. By: Lena Calahorrano; Philipp an de Meulen
    Abstract: We investigate the effect of population aging on international factor flows in a political-economy framework. Political barriers to immigration in developed countries and insecure property rights in developing countries impede factor flows. Taking into account different generations’ conflicting attitudes towards immigration and expropriation, we explore how these policy barriers interact. We find that incentives to expropriate increase as more emigration from the developing country takes place. Meanwhile, the industrialized country admits less immigrants as less capital is allocated to the developing country. Furthermore, the effects of population aging on international factor flows are considerably underestimated if one does not take into consideration the interactions between immigration and expropriation policies.
    Keywords: Demographic change; political economy; migration; foreign direct investment
    JEL: D78 F21 F22 J10
    Date: 2011–12
  13. By: Alan S. Gerber; Gregory A. Huber; David Doherty; Conor M. Dowling; Seth J. Hill
    Abstract: Although the secret ballot has long been secured as a legal matter in the United States, formal secrecy protections are not equivalent to convincing citizens that they may vote privately and without fear of reprisal. We present survey evidence that those who have not previously voted are particularly likely to voice doubts about the secrecy of the voting process. We then report results from a field experiment where we provided registered voters with information about ballot secrecy protections prior to the 2010 general election. We find that these letters increased turnout for registered citizens without records of previous turnout, but did not appear to influence the behavior of citizens who had previously voted. These results suggest that although the secret ballot is a long-standing institution in the United States, providing basic information about ballot secrecy can affect the decision to participate to an important degree.
    JEL: H0 H1 Z0
    Date: 2011–12
  14. By: Simplice A, Asongu
    Abstract: How do government policies and institutions affect stock market performance? As stock markets grow broader and deeper in developing countries, the question becomes more critical. Government quality dynamics of corruption-control, government-effectiveness, political-stability or no violence, voice and accountability, regulation quality and rule of law are instrumented with income-levels, religious-dominations, press-freedom degrees and legal origins to account for stock market performance dynamics of capitalization, value traded, turnover and number of listed companies. The results demonstrate a significant positive association between stock market performance measures and the quality of government institutions. These findings suggest countries with better developed government institutions would favor stock markets with higher market capitalization, better turnover ratios, higher value in shares traded and a greater number of listed companies.
    Keywords: Financial Markets; Government Policy; Political Economy
    JEL: P43 G18 G28 G10 P16
    Date: 2011–12–20
  15. By: Simplice A, Asongu
    Abstract: This is paper is a natural extension of Yang (2011) where-in democracy is not positively related to stock market development. We postulate that when moment conditions of stock market performance are accounted for, democracy improves financial markets in developing countries. Channels of democracy, polity and autocracy are instrumented with legal-origins, religious-legacies, income-levels and press-freedom qualities. As a policy implication democracies have important effects on both the degree of competition for public office and the quality of public policies that favor stock market performance in developing countries.
    Keywords: Financial Markets; Government Policy; Political Economy; Development
    JEL: P43 G18 G28 G10 P16
    Date: 2011–12–20
  16. By: Ponzetto, Giacomo AM
    Abstract: Protectionism enjoys surprising popular support, in spite of deadweight losses. At the same time, trade barriers appear to decline with public information about protection. This paper develops an electoral model with heterogeneously informed voters which explains both facts and predicts the pattern of trade policy across industries. In the model, each agent endogenously acquires more information about his sector of employment. As a result, voters support protectionism, because they learn more about the trade barriers that help them as producers than those that hurt them as consumers. In equilibrium, asymmetric information induces a universal protectionist bias. The structure of protection is Pareto inefficient, in contrast to existing models. The model predicts a Dracula effect: trade policy for a sector is less protectionist when there is more public information about it. Using a measure of newspaper coverage across industries, I find that cross-sector evidence from the United States bears out my theoretical predictions.
    Keywords: Dracula effect; Imperfect information; Media coverage; Pareto inefficiency; Protectionism; Voters
    JEL: D72 D83 F13
    Date: 2011–12
  17. By: Ansgar Belke; Niklas Potrafke
    Abstract: This paper examines whether government ideology has influenced monetary policy in OECD countries. We use quarterly data in the 1980.1-2005.4 period and exclude EMU countries. Our Taylor-rule specification focuses on the interactions of a new time-variant index of central bank independence with government ideology. The results show that leftist governments have somewhat lower short-term nominal interest rates than rightwing governments when central bank independence is low. In contrast, short-term nominal interest rates are higher under leftist governments when central bank independence is high. The effect is more pronounced when exchange rates are flexible. Our findings are compatible with the view that leftist governments, in an attempt to deflect blame of their traditional constituencies, have pushed market-oriented policies by delegating monetary policy to conservative central bankers.
    Keywords: Monetary policy, Taylor rule, government ideology, partisan politics, central bank independence, panel data
    JEL: E52 E58 D72 C23
    Date: 2011
  18. By: William R. Kerr
    Abstract: In cross-sectional studies, countries with greater income inequality typically exhibit less support for government-led redistribution and greater acceptance of wage inequality (e.g., United States versus Western Europe). If individual nations evolve along this pattern, a vicious cycle could form with reduced social concern amplifying primal increases in inequality due to forces like skill-biased technical change. Exploring movements around these long-term levels, however, this study finds mixed evidence regarding the vicious cycle hypothesis. On one hand, larger compensation differentials are accepted as inequality grows. This growth in differentials is of a smaller magnitude than the actual increase in inequality, but it is nonetheless positive and substantial in size. Weighing against this, growth in inequality is met with greater support for government-led redistribution to the poor. These patterns suggest that short-run inequality shocks can be reinforced in the labor market but do not result in weaker political preferences for redistribution.
    JEL: D31 D33 D61 D63 D64 D72 H23 H53 I38 J31 R11
    Date: 2011–12
  19. By: Matthias Doepke; Michèle Tertilt; Alessandra Voena
    Abstract: Women's rights and economic development are highly correlated. Today, the discrepancy between the legal rights of women and men is much larger in developing compared to developed countries. Historically, even in countries that are now rich women had few rights before economic development took off. Is development the cause of expanding women's rights, or conversely, do women's rights facilitate development? We argue that there is truth to both hypotheses. The literature on the economic consequences of women's rights documents that more rights for women lead to more spending on health and children, which should benefit development. The political-economy literature on the evolution of women's rights finds that technological change increased the costs of patriarchy for men, and thus contributed to expanding women's rights. Combining these perspectives, we discuss the theory of Doepke and Tertilt (2009), where an increase in the return to human capital induces men to vote for women's rights, which in turn promotes growth in human capital and income per capita.
    JEL: J10 N30 O10
    Date: 2011–12
  20. By: Lubos Pastor (University of Chicago - Booth School of Business); Pietro Veronesi (University of Chicago - Booth School of Business)
    Abstract: We analyze how changes in government policy affect stock prices. Our general equilibrium model features uncertainty about government policy and a government that has both economic and non-economic motives. The government tends to change its policy after performance downturns in the private sector. Stock prices fall at the announcements of policy changes, on average. The price fall is expected to be large if uncertainty about government policy is large, as well as if the policy change is preceded by a short or shallow downturn. Policy changes increase volatility, risk premia, and correlations among stocks. The jump risk premium associated with policy decisions is positive, on average.
    Date: 2011–09
  21. By: Giovanni Facchini (Erasmus University, University of Milan, Centro Studi Luca d’Agliano, CEPR and CES-Ifo); Anna Maria Mayda (Georgetown University, Centro Studi Luca d’Agliano, CEPR and IZA); Mariapia Mendola (University of Milan Bicocca and Centro Studi Luca d’Agliano)
    Abstract: This paper empirically investigates the determinants of individual attitudes towards immigration in South Africa using the 1996, 2001 and 2007 rounds of the World Value Survey. The main question we want to answer is whether South African public opinion on migration is affected by the potential labor market competition of migrants towards natives. We investigate this issue by estimating the impact of survey respondents’ individual skill on their pro-migration attitudes. Our estimates show that the impact of individual skill – measured both with educational attainment and an occupationbased measure – is positive and significant in both 1996 and 2001. Given that in both years immigrants to South Africa are on average more skilled than natives, we conclude that the labor-market channel does not play a role in preference formation over immigration. What might explain the positive impact of individual skill are noneconomic determinants.
    Keywords: Immigration Attitudes; South Africa
    JEL: F22 J61
    Date: 2011–12–27

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