nep-pol New Economics Papers
on Positive Political Economics
Issue of 2012‒02‒20
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. Business taxes and the electoral cycle By Foremny, Dirk; Riedel, Nadine
  2. Adaptive voting: an empirical analysis of participation and choice By Martorana, Marco F.; Mazza, Isidoro
  3. Political Ideology and Economic Growth in a Democracy : The French Experience, 1871 - 2009 By François Facchini; Mickaël Melki
  4. Politics and Consumer Prices in Africa By Simplice A, Asongu
  5. Voting as a Signaling Device By R. Emre Aytimur; Aristotelis Boukouras; Robert Schwager
  6. One Person, Many Votes: Divided Majority and Information Aggregation By Micael Castanheira De Moura; Laurent Bouton
  7. Do Political Institutions Affect the Choice of the U.S. Cross-Listing Venue? By Jean-Claude Cosset; Charles Martineau; Anis Samet
  8. The political economy of development assistance: peril to government quality dynamics in Africa By Simplice A, Asongu
  9. Signalling, Incumbency Advantage, and Optimal Reelection Thresholds By Francesco Caselli; Thomas E. Cunningham; Massimo Morelli; Inés Moreno de Barreda
  10. Coalition formation: the role of procedure and policy flexibility By Eligius Hendrix; Annelies De Ridder; Agnieszka Rusinowska; Elena Saiz
  11. Is There Such Thing as Middle Class Values? Class Differences, Values and Political Orientations in Latin America By López-Calva, Luis Felipe; Rigolini, Jamele; Torche, Florencia
  12. Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises By Atif R. Mian; Amir Sufi; Francesco Trebbi

  1. By: Foremny, Dirk; Riedel, Nadine
    Abstract: The purpose of this paper is to assess whether politicians manipulate the timing of tax rate changes in a strategic way to maximize reelection prospects. To do so, we exploit the German local business tax as a testing ground which is set autonomously by German municipalities. As election dates vary across local councils, the data allows us to disentangle effects related to the timing of elections from common trends. Using a rich panel data-set for German municipalities, we assess the impact of elections on local business tax choices. The findings support the notion of a political cycle in tax setting behavior as the growth rate of the local business tax is significantly reduced in the election year and the year prior to the election, while it jumps up in the year after the election. This pattern turns out to be robust against a number of sensitivity checks. --
    Keywords: local business tax choice,political economy,election cycle
    JEL: H25 H71 D72
    Date: 2012
  2. By: Martorana, Marco F.; Mazza, Isidoro
    Abstract: Dynamic models of learning and adaptation have provided realistic predictions in terms of voting behavior. This study aims at contributing to their empirical verification by investigating voting behavior in terms of participation as well as choice. We test through panel data methods an outcome-based learning mechanism based on the following assumptions: (a) people expect that the party they do not support will be unable to bring economic improvements; (b) they receive a feedback whose impact depends on the consistency between their last voting behavior and personal economic improvements (or worsening) from the last election; (c) they tend to discard choices associated to an inconsistent feedback. Results show that feedbacks of this sort affect persistence of voting behavior, interpreted as participation and voting choice. Age and trade union affiliation reinforce this adaptive behavior. The analysis also investigates the intensity of the learning feedback, differentiating between a strong inconsistent feedback, which leads to a vote switch in favor of the opponent party, and a weak inconsistent feedback, which induces just abstention rather than a vote switch.
    Keywords: voting; bounded rationality; learning; political accountability
    JEL: D03 C23 D72 C25
    Date: 2012–01–23
  3. By: François Facchini (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Mickaël Melki (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne)
    Abstract: This paper examines the influence of political ideology on economic growth in the French democracy since 1871. It does so by addressing three main issues : the property and the reliability of a political ideology index in the long-run, the robustness of the relationship between ideology and growth and the specific channels through which political ideology affects economic performance. The main conclusion is that, compared with right-wing parties in power, left-wing governments have promoted equity at the expense of economic growth. It also appears that the main channel through which political ideology has impacted economic performance all along the French democratic experience is the budgetary tool (i.e. fiscal and redistributive policies) which influenced employment and income inequalities. By contrast, there seems to be less or even no empirical support for explanations based on the monetary policy or regulation, such as trade policies or the labor market regulation.
    Keywords: French economic history, 19th century, 20th century, political ideology, partisanship, growth, government performance, fiscal policy, public spending, unemployment, inequality.
    Date: 2012–01
  4. By: Simplice A, Asongu
    Abstract: The motivations of the Arab Spring that have marked the history of humanity over the last few months have left political economists, researchers, governments and international policymakers pondering over how the quality of political institutions affect consumer welfare in terms of commodity prices. This paper investigates the effect of political establishments on consumer prices in the African continent. Findings suggest that in comparison with authoritarian regimes, democracies better provide for institutions that keep inflationary pressures on commodity prices in check. As a policy implication, improving the quality of democratic institutions will ameliorate consumer welfare through lower inflation rates. Such government quality institutional determinants include, among others: voice and accountability, rule of law, regulation quality, control of corruption and press freedom.
    Keywords: Consumer prices; Political institutions; Welfare; Africa
    JEL: O1 I30 Q00 P00 P50
    Date: 2012–01–25
  5. By: R. Emre Aytimur (Georg-August-University Göttingen); Aristotelis Boukouras (Georg-August-University Göttingen); Robert Schwager (Georg-August-University Göttingen)
    Abstract: In this paper, citizens vote in order to influence the election outcome and in order to signal their unobserved characteristics to others. The model is one of rational voting and generates the following predictions: (i) The paradox of not voting does not arise, because the benefit of voting does not vanish with population size. (ii) Turnout in elections is positively related to the size of the local community and the importance of social interactions. (iii) Voting may exhibit bandwagon effects and small changes in the electoral incentives may generate large changes in turnout due to signaling effects. (iv) Signaling incentives increase the sensitivity of turnout to voting incentives in communities with low opportunity cost of social interaction, while the opposite is true for communities with high cost of social interaction. Therefore, the model predicts less volatile turnout for the latter type of communities.
    Keywords: electoral incentives; signaling; voting
    JEL: C70 D72 D80
    Date: 2012–01–26
  6. By: Micael Castanheira De Moura; Laurent Bouton
    Abstract: This paper shows that information imperfections and common values can solve coordination problems in multicandidate elections. We analyze an election in which (i) the majority is divided between two alternatives and (ii) the minority backs a third alternative, which the majority views as strictly inferior. Standard analyses assume voters have a fixed preference ordering over candidates. Coordination problems cannot be overcome in such a case, and it is possible that inferior candidates win. In our setup the majority is also divided as a result of information imperfections. The majority thus faces two problems: aggregating information and coordinating to defeat the minority candidate. We show that when the common value component is strong enough, approval voting produces full information and coordination equivalence: the equilibrium is unique and solves both problems. Thus, the need for information aggregation helps resolve the majority's coordination problem under approval voting. This is not the case under standard electoral systems.
    JEL: C72 D72 D82 D81
    Date: 2012–01–10
  7. By: Jean-Claude Cosset; Charles Martineau; Anis Samet
    Abstract: We study the impact of political institutions on foreign firms’ choice of their U.S. cross-listing venue. Using two measures of political institutions (an index of political rights and a political constraint index) and controlling for various firm-level and country-level characteristics, we show that foreign firms from countries with weak political institutions are more likely to cross-list in the U.S. via the over-the-counter market and less likely to opt for an exchange-listed program (i.e., New York, Nasdaq, and AMEX).
    Keywords: Cross-listing, Political institutions, Legal institutions
    JEL: G15 G32 G34 G38 P48
    Date: 2012
  8. By: Simplice A, Asongu
    Abstract: This paper assesses the effectiveness of foreign aid in improving government institutions in 52 African countries using updated data(1996-2010). Findings suggest development assistance deteriorates government quality dynamics of corruption-control, political-stability, rule of law, regulation quality, voice and accountability and government effectiveness. It is therefore a momentous epoque to solve the second tragedy of foreign aid; high time economists and policy makers start rethinking the models and theories on which foreign aid is based. In the meantime, it is up to people who really care about the poor to hold aid agencies accountable for results.
    Keywords: Foreign Aid; Political Economy; Development; Africa
    JEL: F35 F50 O55 O10 B20
    Date: 2012–02–09
  9. By: Francesco Caselli; Thomas E. Cunningham; Massimo Morelli; Inés Moreno de Barreda
    Abstract: Much literature on political behavior treats politicians as motivated by reelection, choosing actions to signal their types to voters. We identify two novel implications of models in which signalling incentives are important. First, because incumbents only care about clearing a reelection hurdle, signals will tend to cluster just above the threshold needed for reelection. This generates a skew distribution of signals leading to an incumbency advantage in the probability of election. Second, voters can exploit the signalling behavior of politicians by precommitting to a higher threshold for signals received. Raising the threshold discourages signalling effort by low quality politicians but encourages effort by high quality politicians, thus increasing the separation of signals and improving the selection function of an election. This precommitment has a simple institutional interpretation as a supermajority rule, requiring that incumbents exceed some fraction of votes greater than 50% to be reelected.
    JEL: D72 D78 D82
    Date: 2012–02
  10. By: Eligius Hendrix (Wageningen University, Logistics, Decision and Information Sciences - wageningen University); Annelies De Ridder (Nijmegen School of Management - Radboud university of Nijmegen); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Elena Saiz (Nijmegen School of Management - Radboud university of Nijmegen)
    Abstract: A spatial model of coalition formation is used together with data from Dutch elections and theoretical instances to study different procedures of coalition formation. The model shows that procedure plays an important role in reaching a coalition agreement and that political parties do not necessarily benefit from being a first-mover. Moreover, it is shown that a decrease in a party's flexibility can be (dis)advantageous in coalition negotiations. Furthermore, certain power sharing tactics appear not always to lead to an agreement that is in a party's advantage. The main message put forward is that the procedure of forming a coalition plays a more important role than is usually acknowledged in literature and practice.
    Date: 2012
  11. By: López-Calva, Luis Felipe (World Bank); Rigolini, Jamele (World Bank); Torche, Florencia (New York University)
    Abstract: Middle class values have long been perceived as drivers of social cohesion and growth. In this paper we investigate the relation between class (measured by the position in the income distribution), values, and political orientations using comparable values surveys for six Latin American countries. We find 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, we do not find strong evidence of any "middle class particularism": values appear to gradually shift with income, and middle class values lay between the ones of poorer and richer classes. If any, the only peculiarity of middle class values is moderation. We also find 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: middle class, income, values, political orientations
    JEL: D3 D7 O1 Z1
    Date: 2012–01
  12. By: Atif R. Mian; Amir Sufi; Francesco Trebbi
    Abstract: Debtors bear the brunt of a decline in asset prices associated with financial crises and policies aimed at partial debt relief may be warranted to boost growth in the midst of crises. Drawing on the US experience during the Great Recession of 2008-09 and historical evidence in a large panel of countries, we explore why the political system may fail to deliver such policies. We find that during the Great Recession creditors were able to use the political system more effectively to protect their interests through bailouts. More generally we show that politically countries become more polarized and fractionalized following financial crises. This results in legislative stalemate, making it less likely that crises lead to meaningful macroeconomic reforms.
    JEL: G01 G33 G38 H1
    Date: 2012–02

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