nep-pol New Economics Papers
on Positive Political Economics
Issue of 2012‒06‒05
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. A rationale for intra-party democracy By Zudenkova, Galina
  2. Political agency model of persistent electoral success with endogenous rents By Vukovic, Vuk
  3. Optimal Districting with Endogenous Party Platforms By E Bracco
  4. The Effects of Democratization on Public Goods and Redistribution: Evidence from China By Monica Martinez-Bravo; Gerard Padró i Miquel; Nancy Qian; Yang Yao
  5. Does Immigration into Their Neighborhoods Incline Voters Toward the Extreme Right? The Case of the Freedom Party of Austria By Halla, Martin; Wagner, Alexander F.; Zweimüller, Josef
  6. Inefficient Predation, Information, and Contagious Institutional Change By Paul Maarek; Michael Dorsch
  7. Party Nomination Procedures and Quality of Government By Fernando Aragon
  8. Government spending, corruption and economic growth By G. d'Agostino; J.P Dunne; L. Pieroni
  9. An Empirical Investigation into the Determinants of Trade Policy Bias By Hink, Matthew J.; Cardwell, Ryan T.; Lawley, Chad
  10. The Political Risks of Fighting Market Failures: Subversion, Populism and the Government Sponsored Enterprises By Edward L. Glaeser

  1. By: Zudenkova, Galina
    Abstract: This paper provides a rationale for intra-party democracy within a political agency model with moral hazard. The focus is on the party's internal procedures for policy determination. I show that democratizing those procedures benefits the party leadership, which seeks to maximize joint reelection chances of the party's incumbents. The reason is that under intra-party democracy, the voters adopt less demanding reappointment rules and reelect the party's incumbents more often than under leaders-dominated party structure. My results therefore indicate that democratizing policy determination processes within the party is in the interests of both the leadership and the ordinary members. The voters in turn are equally well off regardless of the party's internal procedure for policy determination.
    Keywords: Intra-party democracy; Leaders-dominated party; Policy determination; Party internal structure; Political agency; Moral hazard
    JEL: D72
    Date: 2012–05–21
  2. By: Vukovic, Vuk
    Abstract: The paper presents a political agency model that observes how budgetary decisions on public good production affect the prospects of holding office for an incumbent political party. A simple budgetary function is broadened to include other expenditures such as public sector wages and social transfers so as to present a constraint to rent-extraction. Upon this a ratio of public goods to other expenditures is determined, which the party must keep within certain boundaries set by the voters. Rents are extracted from public good expenditures instead of being exogenously given as a part of a budget, as the party must be able to conceal rent-extraction due to constitutional boundaries. The incumbent’s decision on rents and public good production directly affects the state of the economy upon which the voters decide whether to re-elect the incumbent or not. Incumbents make their decisions based on observing the economic growth shock. For high levels of growth they decide to respect the voter re-election rule, while for low levels they will defect and extract maximum rents. In a repeated game setting an incumbent will always chose the optimal strategy with respect to the observed growth shock. This way, for high enough levels of economic growth an incumbent party may stay in office for an infinite amount of periods and keep maximizing rents with respect to the given constraints, without having to trade-off rents for holding office. The paper presents empirical evidence on United States gubernatorial and state legislature elections from 1992 to 2008 to evaluate the underlining theory.
    Keywords: Political agency; rent-extraction; public good production; political parties; endogenous rents
    JEL: C71 H72 D72 C33
    Date: 2011–09–01
  3. 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
  4. By: Monica Martinez-Bravo; Gerard Padró i Miquel; Nancy Qian; Yang Yao
    Abstract: This study investigates the effects of introducing elections on public goods and redistribution in rural China. We collect a large and unique survey to document the history of political reforms and economic policies and exploit the staggered timing of the introduction of elections for causal identification. We find that elections significantly increase public goods expenditure, the increase corresponds to demand and is paralleled by an increase in public goods provision and local taxes. We also find that elections cause significant income redistribution within villages. The results support the basic assumptions of recent theories of democratization (Acemoglu and Robinson, 2000; Lizzeri and Persico, 2004). In addition, we show that the main mechanism underlying the effect of elections is increased leader incentives.
    JEL: H11 O38 P16
    Date: 2012–05
  5. By: Halla, Martin (University of Linz); Wagner, Alexander F. (University of Zurich); Zweimüller, Josef (University of Zurich)
    Abstract: This paper explores one potentially important channel through which immigration may drive support for extreme right-wing parties: the presence of immigrants in one's neighborhood. We study the case of the Freedom Party of Austria (FPÖ). Under the leadership of Jörg Haider, this party increased its share of votes from less than 5 percent in the early 1980s to 27 percent by the year 1999. Using past regional settlement patterns as a source of exogenous variation, we find a significantly positive effect of the residential proximity of immigrants on FPÖ votes, explaining roughly a quarter of the cross-community variance in FPÖ votes. It is the presence of low- and medium-skilled immigrants that drives this result; high-skilled immigrants have no (or even a negative) effect on FPÖ votes.
    Keywords: immigration, political economy, voting
    JEL: P16 J61
    Date: 2012–05
  6. By: Paul Maarek; Michael Dorsch (THEMA, Universite de Cergy-Pontoise; The American University of Paris)
    Abstract: This paper presents an agency theory of revolutionary political transitions from autocracy to democracy. We model authoritarian economic policy as the equilibrium outcome of a repeated game between an elite ruling class and a disenfranchised working class, in which workers have imperfect information about the elite's policy choice and the economy's productive capacity. We characterize the conditions under which, in equilibrium, (i) the elite will set inecient economic institutions under the threat of revolution, (ii) information shocks can catalyze democratic revolutions that may be contagious among similar countries, and (iii) democracy can be consolidated following a political transition
    Keywords: Political transition, Revolution, Asymmetric information, Contagion, Democratic consolidation, Arab Spring
    JEL: D71 D74 P48
    Date: 2012
  7. By: Fernando Aragon (Simon Fraser University)
    Abstract: This paper explores empirically the relation between party's procedures to nominate candidates, such as primaries, and quality of government. Using a panel data of Latin America countries, I find robust evidence that the quality of government is higher during the mandate of primary-nominated presidents. The empirical strategy exploits within country variation and controls for relevant covariates at country and party level. Using an instrumental variable approach with determinants of primary adoption produces similar results. The findings are consistent with primaries increasing incentives among candidates to improve policy design, and suggest that party institutions matter for governance.
    Keywords: Governance; Political parties; Candidate nomination procedures; Primaries
    JEL: H11 H80
    Date: 2012–05
  8. By: G. d'Agostino; J.P Dunne (SALDRU, School of Economics, University of Cape Town); L. Pieroni
    Abstract: This paper considers the effects of corruption and government spending on economic growth. It starts from an endogenous growth model and extends it to account for the detrimental effects of corruption on the potentially productive components of government spending, namely military and investment spending. The resulting model is estimated on a sample of African countries and the results show, first, that the growth rate is strongly influenced by the interaction between corruption and military burden, with the interaction between corruption and government investment expenditure having a weaker effect. Second, allowing for the cyclical economic fluctuations in specific countries leaves the estimated elasticities close to those of the full sample. Third, there are significant conditioning variables that need to be taken into account, namely the form of government, political instability and natural resource endowment. These illustrate the cross country heterogeneity when accounting for quantitative direct and indirect effects of key variables on economic growth. Overall, these findings suggest important policy implications.
    Keywords: corruption; military spending; development economics; panel data; Africa
    JEL: O57 H5 D73
    Date: 2012
  9. By: Hink, Matthew J.; Cardwell, Ryan T.; Lawley, Chad
    Abstract: There exists an extensive literature that attempts to identify important factors that determine trade policies. An understanding of these important factors could be useful when negotiating trade agreements, especially in agriculture, which is a relatively heavily supported industry. Limao and Panagariya (L&P, 2007) modify Grossman and Helpman’s (G&H, 1994) lobbying model in an attempt to understand why anti-trade bias (as opposed to pro-trade bias, which is predicted by the G&H (1994) model) is the predominant pattern in observed trade policy. L&P (2007) propose that governments seek to reduce inequality between sectors by modifying trade policies in a way that reallocates income from the larger to the smaller sector. We use measures of trade bias calculated in the World Bank Distortions to Agricultural Incentives database (Anderson and Valenzuela, 2008) in an effort to explain trade bias in agriculture. We find little empirical evidence that governments pursue agricultural trade policies to reduce inequality within the agricultural sector. Lagged trade policies are significant determinants of current trade policy, suggesting the presence of policy persistence. We conclude that it is difficult to generalise determinants of trade policy across a wide and long panel of countries, and that specific knowledge of governments’ priorities are required to explain trade bias.
    Keywords: Agricultural Policy, Trade Policy, Political Economy, Agricultural and Food Policy, International Development, International Relations/Trade, Political Economy, Q17 Q18,
    Date: 2012
  10. By: Edward L. Glaeser
    Abstract: There are many possible ways of reforming the Government-Sponsored Enterprises that insure mortgages against default, including a purely public option, complete privatization or a hybrid model with private firms and public catastrophic insurance. If the government is sufficiently capable and benign, either public intervention can yield desirable outcomes; the key risks of any reform come from the political process. This paper examines the political risks, related to corruption and populism, of differing approaches to the problems of monopoly, externalities and market breakdowns in asset insurance. If there is a high probability that political leadership will be induced to pursue policies that maximize the profitability of private entities at the expense of taxpayers, then purely public options create lower social losses. If there is a high probability that leaders will pursue a populist agenda of lowering prices or borrowing costs, then catastrophic risk insurance can lead to lower social losses than either complete laissez-faire of a pure public option.
    JEL: D0 G0 H0
    Date: 2012–05

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