nep-pol New Economics Papers
on Positive Political Economics
Issue of 2012‒03‒28
nineteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Looking Beyond the Incumbent: The Effects of Exposing Corruption on Electoral Outcomes By Chong, Alberto; De La O, Ana; Karlan, Dean S.; Wantchékon, Léonard
  2. Democratization and Civic Capital By Guiso, Luigi; Pinotti, Paolo
  3. The opposite Cycles of Laws and Decrees By Francesco Lagona; Antonello Maruotti; Fabio Padovano
  4. Optimal Districting with Endogenous Party Platforms By E Bracco
  5. Signalling, Incumbency Advantage, and Optimal Reelection Thresholds By Caselli, Francesco; Cunningham, Tom; Morelli, Massimo; Moreno de Barreda, Inés
  6. Awareness and AIDS: A Political Economy Perspective By Gani Aldashev; Jean-Marie Baland
  7. Vote Trading With and Without Party Leaders By Casella, Alessandra; Palfrey, Thomas R; Turban, Sébastien
  8. Intergenerational Voter Preference Survey - Preliminary Results By Aoki, Reiko; Vaithianathan, Rhema
  9. Voting under temptation By Monisankar Bishnu; Min Wang
  10. Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt By Song, Zheng Michael; Storesletten, Kjetil; Zilibotti, Fabrizio
  11. Pick Your Poison: Do Politicians Regulate When They Can’t Spend? By Johnson, Noel D; Matthew, Mitchell; Yamarik, Steven
  12. Political crises and risk of financial contagion in developing countries: Evidence from Africa By Simplice A , Asongu
  13. Political Connections and Social Networks in Targeted Transfer Programs: Evidence from Rural Ethiopia By Caeyers, Bet; Dercon, Stefan
  14. Inequality, tax avoidance and financial instability By Landier, Augustin; Plantin, Guillaume
  15. The Twoâ€Tiered Politics of Financial Reform in the United States By Wooley, John T.; Ziegler, J. Nicholas
  16. The Political Economy of Aid Flows to North Africa By Harrigan, Jane
  17. Uruguayâ..s Income Inequality and Political Regimes during 1981â..2010 By Amarante, Veronica; Vigorito, Andrea
  18. Political Institution and Long Run Economic Trajectory: Some Lessons from Two Millennia of Chinese Civilization By Ma, Debin
  19. A Re-examination of the Relation between Democracy and International Trade The Case of Africa By Balding, Christopher

  1. By: Chong, Alberto; De La O, Ana; Karlan, Dean S.; Wantchékon, Léonard
    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.
    Keywords: Accountability; Corruption; Elections; Information; Voting
    JEL: D72 D73 D82 D83
    Date: 2012–01
  2. By: Guiso, Luigi; Pinotti, Paolo
    Abstract: We document a sharp reversal in electoral participation between the North and the South of Italy after the 1912 enfranchisement which extended voting rights from a limited élite to (almost) all adult males. When voting was restricted to the élite, electoral turnout was higher in the South but falls significantly below that in the North after the enfranchisement. Furthermore the new gap is never bridged over the following century and participation remains lower in the South despite the enrichment of democratic institutions and further extension of voting rights to the female population during the post war democratic republic. This pattern in the data is consistent with a simple model where individuals’ voting in political elections is affected by private benefits and by civic duty, only elites can grab private benefits from participation in politics and civic culture differs across communities. We also find that extension of voting rights to non-elites results in a significant transfer of power to their political organizations only among populations with a high sense of civic duties. Together with the very persistent gap in participation between North and South our findings suggest that democratization – a process of concession of democratic rights – can benefit non-elites only when the latter have already a high sense of civic capital and is unlikely to be a viable avenue for inducing norms of civic behavior.
    Keywords: civic capital; culture; Democracy; institutions formation
    JEL: A1 E0 N4 Z1
    Date: 2012–02
  3. By: Francesco Lagona (DIPES, University Roma Tre, Italy); Antonello Maruotti (DIPES, University Roma Tre, Italy); Fabio Padovano (CREM-CNRS and Condorcet Center for Political Economy, Université Rennes, 1, France and DIPES, University Roma Tre, Italy)
    Abstract: The present study aims to test Meltzer and Richard’s (1981) hypothesis that lower-income individuals vote for candidates who favor higher taxes and more redistribution. Assuming that left-wing parties advocate a general increase in taxation, we estimate a vote function for the French Cantonal elections. We show clear-cut evidence that an increasing proportion of voters receiving social assistance raises the number of votes in favor of left-wing parties. This result highlights the importance of including redistribution aspects when estimating a vote function.
    Keywords: Economic theory of legislation - Multilevel models - Poisson regression - Political legislation cycle - Random effects - Voters - Special interest groups
    JEL: H61 H62 C49
    Date: 2012–03
  4. By: E Bracco
    Abstract: This paper proposes a theory of socially optimal districting in a legislative-election model with endogenous party platforms. We generalize the model of Coate and Knight (2007), allowing parties to strategically condition their platforms on the districting. The socially optimal districting re ects the ideological leaning of the population, so that parties internalize voters' preferences in their policy platforms. The optimal seat-vote curve is unbiased when voters are risk-neutral, and -contrary to previous findings-biased against the largest partisan group when voters are risk-averse. The model is then calibrated by an econometric analysis of the elections of U.S. State legislators during the 1990s.
    Date: 2011
  5. By: Caselli, Francesco; Cunningham, Tom; Morelli, Massimo; Moreno de Barreda, Inés
    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. A simple calibration suggests the average quality of US Congress members would be maximised by requiring a 57% vote share for reelection.
    Keywords: Incumbency Advantage; Signalling; Sipermajority
    JEL: D72 D78 D82
    Date: 2012–02
  6. By: Gani Aldashev (Center for Research in the Economics of Development, University of Namur); Jean-Marie Baland (Center for Research in the Economics of Development, University of Namur; CEPR; BREADS)
    Abstract: Across African countries, prevention policies are unrelated to the prevalence of HIV/AIDS and, even in countries in which they were successful, these policies are often unstable or reversed. To explain these two puzzles, we propose a simple political economy model that examines how prevention policies and the epidemic dynamics are jointly determined. Prevention campaigns affect both citizens'behavior and their perception of the role of public policies in fighting AIDS. The behavioral changes induced by the policy, in turn, reduce the risk of infection for sexually active agents, and this creates political support for future policies. The two-way relationship between prevention policy and awareness generates two stable steady-state equilibria: high awareness/slow prevalence and low awareness/high prevalence. The low prevalence equilibrium is fragile: the economy can easily drift away towards the high prevalence rates as they also imply less active prevention policies. We then conduct an empirical analysis of the determinants of public support for HIV/AIDS policies using the 2005 Afrobarometer data. High prevalence rates translate into public support for prevention policies only in countries which carried out active prevention campaigns in the past. The proposed framework extends naturally to a large class of public health policies under which awareness partly follows from the policies themselves.
    Keywords: HIV/AIDS, voting, public health, awareness
    JEL: I18 H51
    Date: 2012–03
  7. By: Casella, Alessandra; Palfrey, Thomas R; Turban, Sébastien
    Abstract: Two groups of voters of known sizes disagree over a single binary decision to be taken by simple majority. Individuals have different, privately observed intensities of preferences and before voting can buy or sell votes among themselves for money. We study the implication of such trading for outcomes and welfare when trades are coordinated by the two group leaders and when they take place anonymously in a competitive market. The theory has strong predictions. In both cases, trading falls short of full efficiency, but for opposite reasons: with group leaders, the minority wins too rarely; with market trades, the minority wins too often. As a result, with group leaders, vote trading improves over no-trade; with market trades, vote trading can be welfare reducing. All predictions are strongly supported by experimental results.
    Keywords: Bargaining; Competitive equilibrium; Experiments; Votes market; Voting
    JEL: C72 C78 C92 D70 P16
    Date: 2012–02
  8. By: Aoki, Reiko; Vaithianathan, Rhema
    Abstract: We present results from a survey conducted in December 2011, in order to see if introduction of Demeny voting system will have the desired have effect of addressing gerentocracy. We have identified several facts from the survey that provides a positive answer to this question. We found that there is substantial difference of policy preference between voters with young children and those without, either because they have only older children or they have not children. When proxy votes (children’s votes) and their policy preferences are taken into account, the Demeny Voting Block ( voters with children + children)’s policy preferences of childrearing and education (employment is not as important) is different from non-Demeny Voting Block for whom pension and employment are priorities. However we found that party preference does not differ as starkly. This may be because the current electorate is already dominated by older voters, the all parties cater to them. Parties do not identify themselves with any policies in particular. This suggests that when Demeny voting system is introduced, party manifestos will be the first to change.
    Date: 2012–02
  9. By: Monisankar Bishnu (Indian Statistical Institute, New Delhi); Min Wang (Michigan State Universitywth)
    Abstract: In the presence of temptation and self-control preferences as in Gul and Pesendorfer, the optimal policy is to subsidize savings when consumers are tempted by "excessive" impatience (Krusell, Kuruscu and Smith, 2010). However, in the homogeneous agents model, taxation loses an important property in that it fails to reduce the inequality through redistribution. Thus the phenomenon that welfare improves on subsidizing savings may vanish when the agents differ in their abilities to earn income. They may well choose a positive tax if they are from low ability group where the redistribution effect of tax dominates the temptation effect. In a political economy, a situation may easily arise where a negative tax will never be implemented. When agents are homogeneous, as temptation grows, optimal subsidy on saving increases. The corresponding result in the heterogeneous agents case is that as temptation grows, the political support for the subsidy increases.
    Keywords: Temptation, self-control, optimal tax, voting
    Date: 2012–01
  10. By: Song, Zheng Michael; Storesletten, Kjetil; Zilibotti, Fabrizio
    Abstract: This paper proposes a dynamic politico-economic theory of fiscal policy in a world comprising a set of small open economies, whose driving force is the intergenerational conflict over debt, taxes, and public goods. Subsequent generations of voters choose fiscal policy through repeated elections. The presence of young voters induces fiscal discipline, i.e., low taxes and low debt accumulation. The paper characterizes the Markov-perfect equilibrium of the voting game in each economy, as well as the stationary equilibrium debt distribution and interest rate of the world economy. The equilibrium can reproduce some salient features of fiscal policy in modern economies.
    Keywords: Fiscal discipline; Fiscal policy; General equilibrium; Government debt; High debt in Greece and Italy; Intergenerational conflict; Markov equilibrium; Political economy; Public goods; Repeated voting
    JEL: D72 E62 H41 H62 H63
    Date: 2012–01
  11. By: Johnson, Noel D; Matthew, Mitchell; Yamarik, Steven
    Abstract: We investigate whether laws restricting fiscal policies across U.S. states lead politicians to adopt more partisan regulatory policy instead. We first show that partisan policy outcomes do exist across U.S. states, with Republicans cutting taxes and spending and Democrats raising them. We then demonstrate that these partisan policy outcomes are moderated in states with no-carry restrictions on public deficits. Lastly, we test whether unified Republican or Democratic state governments regulate more when constrained by no-carry restrictions. We find no-carry laws restrict partisan fiscal outcomes but tend to lead to more partisan regulatory outcomes.
    Keywords: Regulation; Taxation; Local Public Finance; U.S. States; Balanced Budget Rules
    JEL: L51 H11 D02
    Date: 2012–02
  12. By: Simplice A , Asongu
    Abstract: The recent waves of political crises in Africa and the Middle East have inspired the debate over how political instability could pose a risk of financial contagion to emerging countries. With retrospect to the Kenyan political crisis, our findings suggest stock markets in Lebanon, Mauritius were contaminated while Nigeria experienced a positive spillover. Our results have two major implications. Firstly, we have confirmed existing consensus that African financial markets are increasingly integrated. Secondly, we have also shown that international financial market transmissions not only occur during financial crisis; political crises effects should not be undermined.
    Keywords: Political crisis; contagion; developing countries; equity markets
    JEL: O55 F50 F30 G15 G10
    Date: 2011–07–01
  13. By: Caeyers, Bet; Dercon, Stefan
    Abstract: Despite increasingly large scale social protection programs in Africa, we have limited evidence on the local political economy of their allocation. We investigate community-based processes for food aid allocation and the role of political and social networks, using the case of Ethiopia in the aftermath of a serious drought in 2002. Local political authorities are in charge of food transfers, in terms of free food aid or food-for-work programs. We find that although targeting is clearly imperfect, free food aid is responsive to need, as well as targeted to households with less access to support from relatives or friends. We also find a strong correlation with political connections: households with close associates in official positions have more than 12 % higher probability of obtaining free food than households that are not well connected. This effect is large: someone without political connections has the same probability of getting food aid than someone more than twice as rich, but with these connections. The correlation with political connections is specifically strong in the immediate aftermath of the drought. Payment for food-for-work is also about a third higher for those with political connections. Although these programs appear to be responsive to need, in future it is crucial to look more closely at the local political economy of these programs.
    Keywords: Africa; food aid; political economy; targeting; transfers
    JEL: H53 I38 O11
    Date: 2012–02
  14. By: Landier, Augustin; Plantin, Guillaume
    Abstract: We model the link between inequality, lack of political commitment, and ex-cessive risk taking. If politicians cannot commit to a long-term tax schedule, increasing returns to tax avoidance induce the middle class to take on non rewarded ?nancial risk despite risk aversion. Electoral pressure may lead an incumbent politician to endorse this excessive risk taking if income inequal-ities are large. By increasing the scope for tax avoidance, globalization of capital and human capital markets might have increased ?nancial fragility.
    Date: 2011–10
  15. By: Wooley, John T.; Ziegler, J. Nicholas
    Abstract: The literature on regulation has typically emphasized the ability of concentrated interest groups to secure the rules they prefer. One view argues that concentrated interests are consistently able to impose diffuse costs across large and unorganized interests. A second, largely compatible, view emphasizes the ability of powerful interest groups to mobilize expertise and to provide informational goods to politicians who adjust their legislative proposals accordingly. This paper shows that the Dodd†Frank legislation for financial reregulation in 2010 departs from both versions of this now conventional wisdom. Instead, this paper shows that both political parties adopted what we call a twoâ€tier political strategy of (1) maintaining good relations with the established financial elite and (2) simultaneously responding to the demands of grassâ€roots advocacy groups for more stringent regulation. As a result, Doddâ€Frank Act falls far short of a thoroughâ€going redesign of the regulatory landscape, but also amounted to considerably more than business as usual. While the Doddâ€Frank Act creates new regulatory instruments and powers that hold the potential for farâ€reaching changes, most of the existing agencies and market participants remain intact. This pattern of twoâ€tier politics is evident through the four primary policy domains treated in the legislation: macroprudential regulation, consumer protection, reestablishment of the partition between deposit banking versus proprietary trading (the Volcker Rule), and the regulation of derivatives trading.
    Keywords: Finance and Financial Management
    Date: 2011–10–17
  16. By: Harrigan, Jane
    Abstract: This paper provides an historical overview of aid flows to North Africa. It assesses the aid allocation process and argues that past aid flows to the region have been heavily influenced by donor political interests. This has reduced the effectiveness of aid which, with the exception of Tunisia, has not been associated with sustained economic growth. The Arab Spring provides an opportunity to reappraise aid flows to North Africa and it is argued that future flows need to support the democratization process, generate pro-poor growth, support social safety nets and address the pressing issues of widening inequalities and unemployment.
    Keywords: aid allocation, aid effectiveness, North Africa
    Date: 2011
  17. By: Amarante, Veronica; Vigorito, Andrea
    Abstract: This study assesses the evolution of inequality in Uruguay during 1981-2010, considered as subperiods built on the basis of the main policy regimes observed: extreme right (1981-84), centre-right (1985-89), right (1990-2004), and centre-left (2005-10). Income inequality diminished during the restoration of democracy, but started to grow steadily in the mid-1990s and despite recent redistributive reforms, continued to grow, albeit modestly, until 2007. In 2008 inequality lessened, continuing this trend through 2009 and 2010.Trade liberalization, suppression of centralized wage-setting mechanisms, the drop in minimum wages and the lack of a social protection system oriented to the most deprived households explain the rise in inequality during the last decade. In a context of a stable macroeconomic system, the recent fall in inequality resulted from a reduction in labour income inequality and the introduction of noncontributory public transfers schemes.
    Keywords: inequality, Uruguay, transfers, wage-setting mechanisms, returns to education, political regimes
    Date: 2011
  18. By: Ma, Debin
    Abstract: Based on a reconstruction of a weighted index of political unification and a time series of incidences of warfare for the past two millennia, this paper develops a narrative to show that the establishment and consolidation towards a single unitary monopoly of political power in China was an endogenous historical process. Drawing on new institutional economics, this article develops a historical narrative to demonstrate that monopoly rule, a long time-horizon and the large size of the empire could give rise to a path of low-taxation and dynastic stability co-evolving with the growth of a private sector under China’s imperial system. But the fundamental problems of incentive misalignment and information asymmetry within its centralized and hierarchical political structure also placed limits to institutional change necessary for modern economic growth.
    Keywords: incentive and information; political institution; unification and fragmentation; warfare
    JEL: H50 N4 O11
    Date: 2012–01
  19. By: Balding, Christopher
    Abstract: Scholars and policy makers believe that democracy will bring prosperity through integration into the global economy via increased international trade. This study tests two theories as to why democracies might trade more. First, political freedom may be correlated with economic freedom, thus prompting higher levels of economic activity, thereby driving states to trade more. Second, democracy implies higher quality governance either through institutions or policy-making procedures. I utilize a bilateral gravity trade model covering approximately 150 countries from 1950 to 1999, with fixed effects for time, importers and exporters. I find the theory that democracy, and many of its components, promotes international trade unconvincing. Economic freedom does not have the expected impact on international trade levels, but quality of governance variables have broad economic and statistical significance.
    Keywords: trade, democracy, governance, Africa, gravity model
    Date: 2011

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