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on Positive Political Economics |
| By: | Shuyun May Li; Solmaz Moslehi; Siew Ling Yew |
| Abstract: | This paper constructs a simple overlapping generations model to examine how the choice of public and private health expenditure is affected by preferences and economic factors under majority voting. In the model, agents with heterogeneous income decide how much to consume, save, and invest in private health care, and vote for the income tax to be used to finance public health. Agents.survival probabilities are endogenously determined by a CES composite of public and private health expenditure. For the two special cases that public and private health are complements or perfect substitutes, we show that the voting equilibrium is unique and locally stable. For the general case, we calibrate the model to Canadian data to conduct a quantitative analysis. Our results suggest that the public-private mix of health expenditure is quite sensitive to the degree of substitutability between private and public health and the relative effectiveness of public and private health. Using a sample of advanced democratic countries, we further infer these two parameters and construct the shares of public health in total health expenditure for each country, and find that the predicted values match the data quite well. |
| Keywords: | Public-private mix, Health expenditure, Majority voting, Overlapping generations model |
| JEL: | D7 H51 I1 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-11&r=pol |
| By: | Dash, Bharatee Bhusana (National Institute of Public Finance and Policy); Raja, Angara V. (Dept. of Economics, University of Hyderabad) |
| Abstract: | This study examines whether the allocation of public expenditures of the Indian states are significantly influenced by government specific political characteristics. Three types of government specific characteristics are considered forms of governments, ideology of the government, and the electoral cycle. A number of hypotheses are designed to link these characteristics with expenditure allocation. The hypotheses are tested using a panel dataset of 14 Indian states spread over 27 fiscal years, from 1980-81 to 2006-07. The overall findings of the study suggest that the relationship between expenditure allocation and political determinants across the Indian states validate the proposed hypotheses even after controlling for the traditional and other unobservable determinants. These findings are robust to various forms of sensitivity analyses. |
| Keywords: | Political determinants ; Expenditure ; Political parties ; Interest groups ; Indian states |
| JEL: | H0 H1 H2 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:12/101&r=pol |
| By: | Marina Agranov; Jacob K. Goeree; Julian Romero; Leeat Yariv |
| Abstract: | We use laboratory experiments to test for one of the foundations of the rational voter paradigm - that voters respond to probabilities of being pivotal. We exploit a setup that entails stark theoretical effects of information concerning the preference distribution (as revealed through polls) on costly participation decisions. The data reveal several insights. First, voting propensity increases systematically with subjects' predictions of their preferred alternative's advantage. Consequently, pre-election polls do not exhibit the detrimental welfare effects that extant theoretical work predicts. They lead to more participation by the expected majority and generate more landslide elections. Finally, we investigate subjects' behavior in polls and identify when Bandwagon and Underdog Effects arise. |
| Keywords: | Collective choice, polls, strategic voting |
| JEL: | C92 D02 D72 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:067&r=pol |
| By: | Rodrigo Martins (Faculty of Economics University of Coimbra and GEMF); Francisco José Veiga (University of Minho and NIPE) |
| Abstract: | This paper analyzes the impact of economic conditions on voter turnout at Portuguese legislative and municipal elections. We use four extensive datasets to estimate an economic turnout model in which local economic variables are included in quadratic form, so that non-linear effects can be taken into account. The first two datasets cover all mainland municipalities (currently 278), from 1979 to 2005. The other two are cross-sections of all 4037 mainland freguesias, used to analyze the determinants of turnout at the 2001 municipal elections and at the 2002 legislative elections. Empirical results indicate that the performance of the national economy is important only in legislative elections and that, in accordance with our expectations, the regional and local unemployment rates tend to have a non-linear relationship with turnout. |
| Keywords: | Turnout; Local Governments; Elections; Portugal; Economic Conditions. |
| JEL: | D72 H7 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2012-05&r=pol |
| By: | Martorana, Marco Ferdinando |
| Abstract: | Traditional rational choice theories of voting state that, in a scenario with positive voting costs, people will vote only when they are pivotal. This hypothesis is contradicted by the frequent observation of relatively high rates of electoral turnout. Over the last few decades, several approaches have been developed in attempts to explain the paradox of not voting and to define more realistic behavioural rules, both within the rational voter framework and in opposition to that paradigm. This study offers a critical review of bounded rationality-based dynamic models. This class of model seems to be more promising than previous models in that it offers results consistent with observed voting patterns and investigates voter choices while assuming that social processes develop continuously. |
| Keywords: | voting behavior; bounded rationality; dynamic models |
| JEL: | D03 D72 C73 |
| Date: | 2011–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37592&r=pol |
| By: | Sutter, Camille |
| Abstract: | Political Economy of famines mainly focuses on political regimes to understand the role of institutions. In this paper, we investigate a broader concept, state legitimacy, and its role on one specific development outcome, famine management. State legitimacy refers to the political history of a country, meaning the embedding of state and society. Using a database of Sub-Saharan countries observed from 1980 to 2005, we use three empirical strategies: logit on famine occurrence, negative binomial regression and Arellano-Bond dynamic model on the number of years of famines. They all lead to the same results: there is room for a political economy of famine based on an analysis of state. State legitimacy prevents famines, controlling for shocks countries might go through, and controlling for the quality of government. The main contributions of this paper are first to consider the role of state legitimacy in the political economy of famines and second to apply the concept in an empirical analysis, using for the first time a state legitimacy variable. |
| Keywords: | Democracy; Famine; Institutions; State Legitimacy; Sub-Saharan Africa |
| JEL: | O55 H11 I18 I3 Q18 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37621&r=pol |
| By: | Geys, Benny |
| Abstract: | Political parties are often argued to compete for voters by stressing issues they feel they own - a strategy known as 'selective emphasis'. While usually seen as an electorally rewarding strategy, this article argues that cultivating your themes in the public debate is not guaranteed to be electorally beneficial and may even become counter-productive. It describes the conditions under which 'selective emphasis' becomes counter-productive, and applies the argument to recent discussions regarding the strategies of mainstream parties confronting the extreme right. -- |
| Keywords: | issue salience,issue ownership,party competition |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbfff:spii2012102&r=pol |
| By: | Ivar Kolstad; Arne Wiig |
| Abstract: | While democracy is commonly believed to reduce corruption, there are obvious endogeneity problems in measuring the impact of democracy on corruption. This paper addresses the endogeneity of democracy by exploiting the common observation that democracies seldom go to war against each other. We instrument for democracy using a dummy variable reflecting whether a country has been at war with a democracy in the period 1946-2009, while controlling for the extent to which countries have been at war in general. We find that democracy to a significant extent reduces corruption, and the effect is considerably larger than suggested by estimations not taking endogeneity into account. Democracy is hence more important in combating corruption than previous studies would suggest. |
| Keywords: | Democracy, corruption, conflict, endogeneity |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:chm:wpaper:wp2011-4&r=pol |
| By: | Marco Antonielli; Lapo Filistrucchi (Università degli Studi di Firenze) |
| Abstract: | We analyse a newspaper market where two editors first choose the political position of their newspaper, then set cover prices and advertising tariffs. We build on the work of Gabszewicz, Laussel and Sonnac (2001, 2002), whose model of competition among newspaper publishers we take as the stage game of an infinitely repeated game, and investigate the incentives to collude and the properties of the collusive agreements in terms of welfare and pluralism. We analyse and compare two forms of collusion: in the first, publishers cooperatively select both prices and political position; in the second, publishers cooperatively select prices only. We show that collusion on prices reinforces the tendency towards a Pensée Unique discussed in Gabszewicz, Laussel and Sonnac (2001), while collusion on both prices and the political line would tend to mitigate it. Our findings question the rationale for Joint Operating Agreements among US newspapers, which allow publishers to cooperate in setting cover prices and advertising tariffs but not the editorial line. We also show that, whatever the form of collusion, incentives to collude first increase, then decrease as advertising revenues per reader increase. |
| Keywords: | collusion, newspapers, two-sided markets, indirect network effects, pluralism, spatial competition |
| JEL: | L41 L82 D43 K21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2012_07.rdf&r=pol |
| By: | Shinji Takagi (Graduate School of Economics, Osaka University); Kenichi Hirose (Otaru University of Commerce); Issei Kozuru (Kosei Securities Testing the Effectiveness of Market-B) |
| Abstract: | The paper tests the effectiveness of marginal reserve requirements employed by the Japanese authorities in the 1970s to influence short-term capital flows, thereby contributing to the ongoing debate on the use of capital controls\market- or price-based ones in particular. While the case for using market-based controls almost entirely relies on the mixed evidence from the experience of Chile with unremunerated reserve requirements in the 1990s, testing for their effectiveness on the volume of inflows is hampered by the endogeneity of such a measure, which is typically imposed or intensified when inflows surge. We address this problem by applying the method of propensity score matching and find that an increase in marginal reserve requirements modestly reduced the volume of short-term capital inflows through non-resident free-yen accounts. The impact was not statistically significant, however, implying that the price elasticity of short-term capital flows was small. We conclude that market-based controls must be nearly prohibitive, perhaps combined with administrative measures, to be effective in a meaningful way.The paper presents a political economy model of official foreign exchange market intervention and tests the model against the recent experience of Japan. In several industrial countries, the government is responsible for intervention decisions while the central bank is given operational independence in its conduct of monetary policy. The paper models the interaction between the two agencies, empirically tests the central bank reaction function, and considers conditions under which intervention might change monetary policy. Daily Japanese intervention data give broad support to the prediction of the model with respect to central bank behavior. Although it is difficult to be definitive about the hidden motive of central bank actions, during the extraordinary period of 2001-04 when Japan remained under deflationary pressure, the central bank, faced with large political costs of sterilization, accommodated a considerable portion of the massive interventions made by the government. Under normal conditions coordination between the two agencies might be desirable, not least to make the signal of any intervention credible, but giving an alternative agency the authority over intervention decisions can be a means of enhancing democratic accountability for an independent central bank while preserving the credibility of monetary policy. |
| Keywords: | foreign exchange market intervention; central banking; quantitative easing; Japanese intervention |
| JEL: | E42 E58 F31 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1204&r=pol |
| By: | Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn); Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | We propose a new approach to the normative analysis of public-good provision. In addition to individual incentive compatibility, we impose conditions of robust implementability and coalition proofness. Under these additional conditions, participants' contributions can only depend on the level of public-good provision. For a public good that comes as a single indivisible unit, provision can only depend on the population share of people in favour of provision. Robust implementability and coalition proofness thus provide a foundation for the use of voting mechanisms. The analysis is also extended to a specifi cation with more than two public-good provision levels. |
| Keywords: | Mechanism Design, Public-good provision, Large Economy, Voting Mechanisms |
| JEL: | D82 H41 D70 D60 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2011_31&r=pol |
| By: | Philipp Doerrenberg (CGS, University of Cologne); Denvil Duncon (Indiana University); Clemens Fuest (University of Oxford); Andreas Peichl (IZA, University of Cologne, ISER and CESifo) |
| Abstract: | This paper is the first to provide evidence of efficient taxation of groups with heterogeneous levels of 'tax morale'. We set up an optimal income tax model where high tax morale implies a high subjective cost of evading taxes. The model predicts that 'nice guys finish last': groups with higher tax morale will be taxed more heavily, simply because taxing them is less costly. Based on unique cross-country micro data and an IV approach to rule out reverse causality, we find empirical support for this hypothesis. Income groups with high tax morale systematically face higher average and marginal tax rates. To the best of our knowledge, this is the first paper to investigate whether differences in tax morale affect the distribution of the tax burden across different groups of taxpayers. |
| Keywords: | tax morale, tax compliance, optimal taxation, political economy |
| JEL: | H2 H3 D7 |
| Date: | 2012–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:03-02&r=pol |