nep-pol New Economics Papers
on Positive Political Economics
Issue of 2012‒05‒22
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Incumbent Effects and Partisan Alignment in Local Elections: a Regression Discontinuity Analysis Using Italian Data By Bracco, Emanuele; Redoano, Michela; Porcelli, Francesco
  2. Does gender matter for public spending? Empirical evidence from Italian municipalities By Massimiliano Rigon; Giulia Martina Tanzi
  3. E-Lections: Voting Behavior and the Internet By Falck, Oliver; Gold, Robert; Heblich, Stephan
  4. Strategic Budgeteering and Debt Allocation By Troeger, Vera; Schneider, Christina J.
  5. Political connections and depositor discipline By M. DISLI; K. SCHOORS; J. MEIR
  6. The Political Economy of Distribution and Growth in Chile By Klaus Schmidt-Hebbel
  7. Toward a more general approach to political stability in comparative political systems By Apolte, Thomas
  8. Altruism and Voting: A Large-Turnout Result That Does not Rely on Civic Duty or Cooperative Behavior By Özgür Evren
  9. Schooling and Voter Turnout: Is there an American Exception? By Chevalier, Arnaud; Doyle, Orla
  10. Competitive Equilibrium in Markets for Votes By Alessandra Casella; Aniol Llorente-Saguer; Thomas R. Palfrey
  11. Redistributive Politics and Government Debt in a Borrowing-constrained Economy By Ryo Arawatari; Tetsuo Ono
  12. Economic and Politico-Economic Equivalence By Martín Gonzalez-Eiras; Dirk Niepelt
  13. Lobbying as a Guard against Extremism By Zudenkova, Galina
  14. The political economy of linguistic cleavages. By Desmet, Klaus; Ortuño, Ignacio; Weber, Shlomo
  15. The Political economy of environmental policy with overlapping generations By Karp, Larry; Rezai, Amon
  16. (When) Does Tit-for-Tat Diplomacy in Trade Policy Pay Off? By Barbara Dluhosch; Daniel Horgos
  17. Incumbent-Quality Advantage and Counterfactual Electoral Stagnation in the U.S. Senate By Ivan Pastine; Tuvana Pastine; Paul Redmond

  1. By: Bracco, Emanuele (University of Lancaster); Redoano, Michela (University of Warwick); Porcelli, Francesco (University of Warwick)
    Abstract: This paper provides a simple model to explain effect of political alignment between different tiers of government on policy choices and election outcomes. We derive precise predictions that, as long as voters attribute most of the credit for providing public goods to the local government: (i) aligned municipalities receive more grants, set lower taxes and provide more public goods, (ii) that the probability that the local incumbent is re-elected is higher in aligned municipalities compared to not aligned ones. Our empirical strategy to identify the alignment effects is built upon the fact that being or not aligned changes discontinuously at 50% of the vote share of local parties. This allows us to use sharp regression discontinuity design. Our theoretical predictions are largely con…rmed using a new dataset on Italian public finance and electoral data at the central and local level.
    Keywords: Fiscal Federalism, Political Competition, Accountability.
    Date: 2012
  2. By: Massimiliano Rigon (Bank of Italy); Giulia Martina Tanzi (Bank of Italy)
    Abstract: This paper studies whether the allocation of municipal expenditure in Italy is influenced by female representation in Municipal Councils. Despite the existence of gender-specific preferences in society, we find no clear evidence that the amount of resources distributed among different spending categories is significantly affected by politicians’ gender. The results are robust to a large variety of specifications and estimation techniques, where we also take into account the existence of an endogeneity problem. This is addressed using an instrumental variable approach, based on a temporary change in Italian law that reserved a gender quota in party lists for municipal elections, thus causing an exogenous increase in the number of women elected in Municipal Councils. The substantial absence of a gender bias is consistent with the median voter theorem, suggesting that politicians’ preferences and personal characteristics do not matter in public choices. Alternatively, it may be that gender is not one of the determinants of politicians’ voting behaviour, implying that the preferences of the women involved in political activities are close to those of their male colleagues.
    Keywords: gender, political representation, municipal expenditure, instrumental variable
    JEL: C23 C36 D78 H72 J16
    Date: 2012–04
  3. By: Falck, Oliver (Ifo Institute for Economic Research); Gold, Robert (Max Planck Institute for Economics); Heblich, Stephan (University of Stirling)
    Abstract: This paper analyses the effect of information disseminated by the Internet on voting behavior. We address endogeneity in Internet availability by exploiting regional and technological peculiarities of the preexisting voice telephony network that hinder the roll-out of fixed-line broadband infrastructure for high-speed Internet. We find small negative effects of Internet availability on voter turnout, and no evidence that the Internet systematically benefits single parties. Robustness tests including placebo estimations from the pre-Internet era confirm our results. We relate differences in the Internet effect between national and local elections to a crowding out of national but not local newspapers.
    Keywords: elections, political economy, instrumental variables, mass media, internet
    JEL: D72 C50 L86
    Date: 2012–05
  4. By: Troeger, Vera (University of Warwick); Schneider, Christina J. (University of California, San Diego)
    Abstract: This paper analyzes how opportunistic governments choose between alternative fiscal policies in order to increases their chances of re-election. To increase the provision of public goods shortly before elections – and thus, to generate a fiscal political business cycles – governments may either increase deficits or redistribute governmental resources from longterm efficient sources to short-term efficient public programs. We argue that incumbents who face highly competed elections principally have an incentive to spend more on public goods even though these investments are not efficient in the long term. In principal, they would do so by increasing the deficits (with re-balancing the budget after the election). However, our model demonstrates that incumbents would even electioneer at the cost of long-term investments if the extent of fiscal transparency does not allow them to finance the provision of public goods with higher deficits. In other words, if elections are close and voters may observe the governmental deficit, then governments tend to increase the provision of public goods – and consequently, their electoral prospects – by a redistribution of budget resources from long-term efficient investment to a short-term provision of public goods. We test the predictions with new data on the composition of government consumption for 17 OECD countries over 35 years. The preliminary findings suggest that governments indeed reshuffle resources from long-term efficient investment to short-term public goods before elections especially if elections are contested.
    Date: 2012
    Abstract: We analyze how political connections affect depositor discipline in a sample of Turkish banks. Banks with former members of parliament at the helm enjoy reduced depositor discipline, especially if the former politician’s party is currently in power, but less so if the former politician served as a minister. Banks with structural problems are more likely to appoint former politicians, but our results remain robust after controlling for selection effects. Ministers may reduce depositor discipline less because they signal severe problems and because the additional government deposits they bring to the bank during their term tend to depart with them.
    Keywords: Depositor Discipline; Political connections; Banks
    JEL: G1 G2 D7
    Date: 2012–04
  6. By: Klaus Schmidt-Hebbel
    Abstract: This paper addresses the following questions on the political economy of distribution and growth in Chile. How does Chile compare to the world in government size, income distribution, and per capita GDP? Which is the relation between income distribution, government size and structure, and growth in a political-economy model of endogenous growth? How do changes in income distribution affect growth through changes in the size of government, in a model calibrated for Chile? Which are the dynamics of distribution and growth, when they are shaped by political leadership, the policy-making process, and the quality of institutions and policies? Under which conditions of such dynamics does a non-monotonic relation between income distribution and growth emerge, akin to the Kuznets curve? How do Chile’s leadership, policy-making process, and reforms affect equity and growth? Which are the political economy requirements for successful adoption of ten key reforms to support growth and equity in Chile?
    Keywords: Fiscal Income distribution, economic growth, political economy
    JEL: O15 O40 P16
    Date: 2012
  7. By: Apolte, Thomas
    Abstract: This paper provides a general framework for analyzing political (in)stability in comparative political systems. It distinguishes different subgroups of a society, some of which have a potential for pursuing a redistribution of wealth in its broadest sense via constitutional or non-constitutional government overturns. Political instability implies a cycle of overturns and redistributions with no stable equilibrium. It will be shown that individual incentives for participating in overturn attempts hinge not upon specific distributions of wealth but are rather dependent on the respective structure and credibility of promises and threats within and across the different subgroups of the society. What is more, without credible commitments of the incumbent governments to a carrot-and-stick policy there will be the danger of endless over-turn and redistribution cycles, leading to failed states. For much the same reason, democratic constitutions contain effective measures against redistribution cycles. Stability within non-democracies, by contrast, can be explained by the fact that commitments among potential re-bels cannot be backed by formal institutions, whereas incumbent governments can use their legal surrounding for developing institutions that, in turn, help them to embed potentially threatening societal groups into a system of carrot and stick. --
    Keywords: political economy,revolutions,credible commitments
    JEL: D72 D74 O15 P16
    Date: 2012
  8. By: Özgür Evren (New Economic School)
    Abstract: I propose a game-theoretic model of costly voting that predicts signi…cant turnout rates even when the electorate is arbitrarily large. The model has two key features that jointly drive the result: (i) some agents are altruistic (or ethical), (ii) among the agents who prefer any given candidate, the fraction of altruistic agents is uncertain. When deciding whether to vote or not, an altruistic agent compares her private voting cost with the expected contribution of her vote to the welfare of the society. Under suitable homogeneity assumptions, the asymptotic predictions of my model coincide with those of Feddersen and Sandroni (2006a) up to potential differences between the respective parameters that measure the importance of the election. I demonstrate with an example that these homogeneity assumptions are not necessary for qualitative predictions of my model. I also show that when the fractions of altruistic agents are known, turnout rates will typically be close to zero in a large election, despite the presence of altruism.
    Keywords: Altruism; Utilitarianism; Voting; Turnout; Pivotal Voter
    JEL: D64 D72
    Date: 2012–04
  9. By: Chevalier, Arnaud (Royal Holloway, University of London); Doyle, Orla (University College Dublin)
    Abstract: One of the most consistent findings in studies of electoral behaviour is that individuals with higher education have a greater propensity to vote. The nature of this relationship is much debated, with US studies generally finding evidence of a causal relationship, while European studies generally reporting no causal effect. To assess whether the US is an exception we rely on an international dataset incorporating 38 countries, the ISSP (International Social Survey Programme) from 1985 to 2010. Both instrumental variable and multi-level modelling approaches reveal that the US is an outlier regarding the relationship between education and voter turnout. Moreover, country-specific institutional and economic factors do not explain the heterogeneity in the relationship of interest. Alternatively, we show that disenfranchisement laws in the U.S. mediate the effect of education on voter turnout, such that the education gradient in voting is greater in U.S. States with the harshest disenfranchisement legislature. As such, the observed relationship between education and voting is partly driven by the effect of education on crime.
    Keywords: voter turnout, education, disenfranchisement laws
    JEL: D72 I20 K42
    Date: 2012–05
  10. By: Alessandra Casella (Columbia University, NBER and CEPR); Aniol Llorente-Saguer (Max Planck Institute for Research on Collective Goods, Bonn); Thomas R. Palfrey (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We develop a competitive equilibrium theory of a market for votes. Before voting on a binary issue, individuals may buy and sell their votes with each other. We define the concept of ex ante vote-trading equilibrium, and show by construction that an equilibrium exists. The equilibriumwe characterize always results in dictatorship if there is any trade, and the market for votes generates welfare losses, relative to simple majority voting, if the committee is large enough or the distribution of values not very skewed. We test the theoretical implications by implementing a competitive vote market in the laboratory using a continuous open-book multi-unit double auction.
    Keywords: Experiments, voting, Markets, Vote Trading, Competitive Equilibrium
    JEL: C92 C72 D70 P16
    Date: 2012–02
  11. By: Ryo Arawatari (Graduate School of Economics, Nagoya University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: We develop a two-period, three-class of income model where low-income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends-against-the-middle equilibrium where the constrained low-income and the unconstrained high-income agents favor low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure might be below the efficient levels, and the spread of income distribution results in a lower debt-to-GDP ratio.
    Keywords: Government debt; Borrowing constraints; Voting; Structure-induced equilibrium; Income inequality.
    JEL: D72 H52 H60
    Date: 2011–01
  12. By: Martín Gonzalez-Eiras (Universidad de San Andrés); Dirk Niepelt (Study Center Gerzensee, University of Bern, IIES Stockholm University)
    Abstract: We extend "economic equivalence" results, like the Ricardian equivalence proposition, to the political sphere where policy is chosen sequentially. We derive conditions under which a policy regime (summarizing admissible policy choices in every period) and a state are "politico-economically equivalent" to another such pair, in the sense that both pairs give rise to the same equilibrium allocation. We apply the conditions in the context of politico-economic theories of government debt as a means to i) deliver intergenerational transfers or ii) smooth tax distortions. We find that certain politico-economic models of social security or variants thereof can be re-interpreted as novel politico-economic theories of debt while other models cannot, possibly explaining the political conflict surrounding social security reform. We also find that in environments with distorting taxes, economic equivalence relations between policies with different levels of debt do not extend to the political sphere.
    Date: 2012–02
  13. By: Zudenkova, Galina
    Abstract: This paper analyzes endogenous lobbying over a unidimensional policy issue. Individuals differ in policy preferences and decide either to join one of two opposite interest lobbies or not to take part in lobbying activities. Once formed, lobbies make contributions to the incumbent government in exchange for a policy favor as in a common-agency model. An equilibrium occurs only if no lobby member would prefer his lobby to cease to exist. I show the existence of an equilibrium with two organized lobbies. Individuals with more extreme preferences are more likely to join lobbying activities. Therefore, the lobbyists are rather extremists than moderates. However, the competition between those extreme lobbies results in a more moderate policy outcome relative to that initially preferred by the pro- or anti-policy government. Lobbies therefore guard against extremism, while acting as moderators of the government's preferences. JEL classification: D72. Keywords: common agency; endogenous lobbying; extremism.
    Keywords: Lobbisme, Grups de pressió, 32 - Política,
    Date: 2012
  14. By: Desmet, Klaus; Ortuño, Ignacio; Weber, Shlomo
    Abstract: This paper uses a linguistic tree, describing the genealogical relationship between all 6912 world languages, to compute measures of diversity at different levels of linguistic aggregation. By doing so, we let the data inform us on which linguistic cleavages are most relevant for a range of political economy outcomes, rather than making ad hoc choices. We find that deep cleavages, originating thousands of years ago, lead to better predictors of civil conflict and redistribution. The opposite pattern emerges when it comes to the impact of linguistic diversity on growth and public goods provision, where finer distinctions between languages matter
    Keywords: Ethnolinguistic cleavages; Diversity; Linguistic trees; Civil conflict; Redistribution; Public goods; Growth;
    JEL: H1 N4 O4 O5
    Date: 2012–03
  15. By: Karp, Larry; Rezai, Amon
    Abstract: A two-sector OLG model illuminates previously unexamined intergenerationaleffects of a tax that protects an environmental stock. A traded asset capitalizes the economic returns to future tax-induced environmental improvements, benefiting the current asset owners, the old generation. Absent a transfer, the tax harms the young generation by decreasing their real wage. Future generations benefit fromthe tax-induced improvement in environmental stock. The principalintergenerational conflict arising from public policy is between generationsalive at the time society imposes the policy, not between generations alive at different times. A Pareto-improving policy can be implemented under various political economy settings.
    Keywords: Natural Resources and Conservation, Economics, open-access resource, two-sector overlapping generations, resource tax, generational conflict, environmental policy, dynamic bargaining
    Date: 2012–05–07
  16. By: Barbara Dluhosch; Daniel Horgos
    Abstract: In international relations, short-run incentives for non-cooperation often dominate. Yet, (external) institutions for enforcing cooperation are hampered by national sovereignty, supposedly strengthening the role of selfenforcing mechanisms. This paper examines their scope with a focus on contingent protection aka tit-for-tat in trade policy. By highlighting various strategies in a (linear) partial-equilibrium framework, we show that retaliation of non- cooperative behavior by limiting market access works as a disciplining device independently of supply and demand parameters. Our theoretical results are backed by empirical evidence that countries more frequently involved in WTO-mediated disputes entailing tit-for-tat strategies pursue on average more liberal trade regimes.
    Keywords: Int. Political Economy, Trade Policy Conflicts, Tit-for-Tat, WTO Dispute Settlement
    JEL: F13 F51 D74
    Date: 2012–05
  17. By: Ivan Pastine (University College Dublin); Tuvana Pastine (NUI Maynooth); Paul Redmond (NUI Maynooth)
    Abstract: This paper presents a simple statistical exercise to provide a benchmark for the degree of electoral stagnation without direct officeholder benefits or challenger scare-off effects. Here electoral stagnation arises solely due to incumbent-quality advantage where the higher quality candidate wins the election. The simulation is calibrated using the observed drop-out rates in the U.S. Senate. From 1946 to 2010, the observed incumbent reelection rate is 81.7 percent; the benchmark with incumbent-quality advantage alone is able to generate a reelection rate of 78.2 percent. In the sub-sample from 1946 to 1978, the reelection rate from the simulation is almost identical to the observed. The rates diverge in the second part of the sub-sample from 1980 to 2010, possibly indicating an increase in electoral stagnation due to incumbency advantage arising for reasons other than incumbent-quality advantage.
    Keywords: Incumbent-Quality Advantage, Counterfactual Electoral Stagnation
    Date: 2012–05–10

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