nep-pol New Economics Papers
on Positive Political Economics
Issue of 2012‒10‒27
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Government Policy with Time Inconsistent Voters By Leeat Yariv; Alessandro Lizzeri; Alberto Bisin
  2. The Partisan Consequences of Turnout Revisited By Kelly Rowe; Ignacio Lago; Santiago Lago Peñas
  3. The dynamics of public investment under persistent electoral advantag By Marina Azzimonti
  4. Using real-time data to test for political budget cycles By Haan, Jakob de; Sturm, Jan-Egbert; Jong-A-Pin, Richard
  5. The Viability of a Voting System that Allocates Parliamentary Seats According to Life Expectancy: An analysis using OLG models By Oguro, Kazumasa; Ishida, Ryo
  6. Forecasting 2012 United States Presidential election using Factor Analysis, Logit and Probit Models By Sinha, Pankaj; Thomas, Ashley Rose; Ranjan, Varun
  7. Political Ambiguity and Economic Development: The MENA Countries Pre-Commercial Procurement of Innovation By Juliane Brach; Willem Spanjers
  8. MPC Voting, Forecasting and Inflation By Wojciech Charemza; Daniel Ladley
  9. Fiscal Equalization and Political Conflict By Cubel, Maria
  10. Trade Policy Determinants and Trade Reform in a Developing Country: The Case of Colombia By Baybars Karacaovali
  11. Markets in political influence: rent-seeking, networks and groups By Murray, Cameron K.

  1. By: Leeat Yariv (California Institute of Technology); Alessandro Lizzeri (New York University); Alberto Bisin (New York University)
    Abstract: Behavioral economics presents a "paternalistic" rationale for government intervention. Current literature focuses on benevolent government. This paper introduces politicians who may indulge/exploit these behavioral biases. We present an analysis of the novel features that arise when the political process is populated by voters who may be time inconsistent, a' la Phelps and Polak (1968) and Laibson (1997). Time inconsistent voters exhibit demand for commitment. We show that electorally accountable politicians may choose policies that interfere with individuals' desire to commit, and that government may not be very effective in satisfying the demand for commitment.
    Date: 2012
  2. By: Kelly Rowe; Ignacio Lago; Santiago Lago Peñas
    Abstract: Why does the leftist party vote increase when turnout increases in some countries and not in others? Why does this happen in some instances in time but not in others? Thus far there exists no academic consensus on the relationship between turnout and electoral results. This paper argues that in order to adequately address these questions we need to focus on three elements: class voting, the mechanisms behind whether the correlation is observed over the short or longterm, and the use of more rigorous model specifications. By looking at the cases of Spain and Portugal, we find a correlation in the short and long-term for Spain but not for Portugal and this is due namely to the prominence of class voting in the former.
    Keywords: Voting behoviour, elections, turnout
    JEL: D72
    Date: 2012–09
  3. By: Marina Azzimonti (FRB of Philadelphia)
    Abstract: This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and its subsequent propagation to the economy. The struggle between groups that disagree on targeted transfers results in governments being endogenously short-sighted: Systematic underinvestment in infrastructure and overspending on public goods arise, beyond what is observed in symmetric environments. Because the party enjoying an electoral advantage is less short-sighted, it devotes a larger proportion of revenues to productive investment. Hence, political turnover induces economic fluctuations in an otherwise deterministic environment. I characterize analytically the long-run distribution of allocations, and show that output increases with electoral advantage, despite the fact that governments expand. Volatility is non-monotonic in electoral advantage and is an additional source of inefficiency. Using panel data from US States I confirm these findings, and show that there is an inverted U-shape relation between the volatility of public policy and electoral advantage.
    Date: 2012
  4. By: Haan, Jakob de; Sturm, Jan-Egbert; Jong-A-Pin, Richard (Groningen University)
    Abstract: We use real-time annual data on the fiscal balance, government current spending, current revenues and net capital outlays as published at a half yearly frequency in the OECD Economic Outlook for 25 OECD countries. For each fiscal year t we have a number of forecasts, a first release, and subsequent revisions. It turns out that revisions in the fiscal balance data are not affected by elections. However, we do find that governments spend more than reported before an election which provides support for moralhazard type of political budget cycle (PBC) models: through hidden efforts the incumbent tries to enhance his perceived competence. We also find that governments had higher current receipts than reported before an election, which is in line with adverse-selection type of PBC models in which incumbents signal competence through expansionary fiscal policy before the elections.
    Date: 2012
  5. By: Oguro, Kazumasa; Ishida, Ryo
    Abstract: This paper constructs an overlapping generations model in order to demonstrate low political intervention and interaction in the working and retired generations affect the allocation rate in future growth-stimulating public investment and the public pension. It also analyzes the possibility of moving to a voting system that allocates parliamentary seats according to life expectancy. The presented results suggest the following three main findings. Firstly, the voting system is important when population demographics change. Declining birthrates and an aging population may shorten the temporal perspective for policymaking over time. Any theoretical transition from the current voting system to a voting system that allocates parliamentary seats according to life expectancy would thus lengthen the temporal perspective for policymaking, potentially increasing the public investment rate and improving the utilities of the working and future generations. Secondly, when age-based voting turnout disparity is high, the shift from the current voting system to one based on life expectancy and region or life expectancy and age is possible. Thirdly, if both transitions from the current system are possible, moving to the latter would offer greater possibility for increasing the utilities of the working generation and future generations than moving to the former.
    Keywords: Public investment, Public pension, OLG model, Generational-based constituency bloc, Demeny voting system, Life expectancy
    JEL: D90 H50 H60 J18 O20
    Date: 2012–10
  6. By: Sinha, Pankaj; Thomas, Ashley Rose; Ranjan, Varun
    Abstract: Contemporary discussions on 2012 U.S Presidential election mention that economic variables such as unemployment rate, inflation, budget deficit/surplus, public debt, tax policy and healthcare spending will be deciding elements in the forthcoming November election. Certain researchers like Bartells and Zaller (2001), Lewis-Beck and Rice (1982), and Lichtman and Keilis-Borok (1996) have investigated the significance of non-economic variables in forecasting the U.S election. This paper investigates the influence of combination of various economic and non-economic variables as factors influencing the outcome of 2012 U.S Presidential election, using statistical factor analysis. The obtained factor scores are used to predict the vote share of the incumbent using regression model. The paper also employs logit and probit models to predict the probability of win for the incumbent candidate in 2012 U.S Presidential election. It is found that the factors combining above economic variables are insignificant in deciding the outcome of the 2012 election. The factor combining the non-economic variables such as Gallup Ratings, GIndex, wars and scandals has been found significantly influencing the public perception of the performance of the Government and its policies, which in turn affects the voting decision. The proposed factor regression model forecasts that the Democrat candidate Mr. Barack Obama is likely to get a vote share between 51.84% - 54.26% with 95% confidence interval in the forthcoming November 2012 U.S Presidential election. While, the proposed logit and probit models forecast the probability of win for the Democrat candidate Mr. Barack Obama to be 67.37% and 67.00%, respectively.
    Keywords: Factor Analysis; Logit and Probit model; 2012 U.S Presidential Election; Economic and non-economic variables
    JEL: C53 C5 D72 C2 C01 C1
    Date: 2012–10–15
  7. By: Juliane Brach (The Knowledge Company, Germany and Maastricht School of Management, The Netherlands, Contact:; Willem Spanjers (Kingston University, United Kingdom and Rimini Center for Economic Analysis, Italy. Contact:
    Abstract: In this paper we provide a coherent framework for analyzing the impact of incalculable political risk, i.e. political ambiguity, on economic development and the choice of development strategy. Using indicators for the levels of internal and external political ambiguity, we analyze the growth paths of MENA countries based on annual data for the period from 1980 to 2008. Succession rules for governments are our indicator for internal political ambiguity, the potential for becoming involved in disruptive international conflicts serves as an indicator for external political ambiguity. Our results show that political ambiguity has a negative impact on both the level of per capita GDP and its growth. Our theoretical model suggests that political ambiguity biases development strategies, leading to an underinvestment in intensive sources of growth.
    Keywords: economic development, decision making, ambiguity, development strategy, political economy, Middle East and North Africa
    JEL: O14 O33 O53 D81
    Date: 2012–10
  8. By: Wojciech Charemza; Daniel Ladley
    Abstract: This paper considers the effectiveness of monetary policy committee voting when the inflation forecast signals, upon which decisions are based, may be subject to manipulation. Using a discrete time intertemporal model, we examine the distortions resulting from such manipulation under a three-way voting system, similar to that used by the Bank of Sweden. We find that voting itself creates persistence in inflation. Whilst altering the forecast signal, even if well intentioned, results in a diminished probability of achieving the inflation target. However, if committee members ‘learn’ in a Bayesian manner, this problem is mitigated.
    Keywords: Voting Rules; Monetary Policy; Inflation Targeting
    JEL: E47 E52 E58
    Date: 2012–10
  9. By: Cubel, Maria (University of Barcelona)
    Abstract: In this paper we analyze the political viability of equalization rules in the context of a decentralized country. We explore the idea that when equalization rules are perceived as unfair, regions may initiate a political conflict. Regions are formed by identical individuals who, through lobbying, try to obtain a higher share from the (equalization) pool of resources. Political conflict is measured as the total contribution to lobbying. We conclude that the onset of conflict depends on the degree of publicness of the regional budget and the relative size of the regions. When regional budgets are used to provide pure public goods, full fiscal equalization is politically feasible. However, fiscal equalization is not immune to conflict when budgets are used to provide private goods or a linear combination of private and public goods. The likelihood of political conflict decreases as the regions become similar in size.
    Keywords: political conflict; lobbying; fiscal equalization; social decision rules
    JEL: D31 D74 H77 R51
    Date: 2012–10–19
  10. By: Baybars Karacaovali (Department of Economics, University of Hawaii at Manoa, USA)
    Abstract: In this paper, I start out with a standard political economy of trade policy model to guide the subsequent estimation of the determinants of trade policy in a developing country. I carefully test the model with Colombian data from 1983 to 1998 accounting for endogeneity and omitted variable bias concerns and then expand it empirically in several directions. I show that it is important to control for the impact of a drastic trade reform shock that a¤ects all sectors and disentangle its e¤ect from preferential trade agreements (PTAs). I ?nd that protection is higher in sectors that are impor- tant exports for preferential partners which may be seen as a stumbling block e¤ect of PTAs for Colombia. I also relax the assumption of ?xed political weights that measure the extra importance of producers?welfare relative to consumers in the government objective. I measure the impact of sectoral characteristics on tari¤s indirectly through political weights as a novel alternative to nonstructurally estimating them as deter- minants of protection. Accordingly, I obtain more realistic estimates for the political weights further contributing to the literature.
    Keywords: Political economy of trade policy, trade liberalization, preferential trade agreements, empirical trade
    JEL: F13 F14 F15
    Date: 2012–10
  11. By: Murray, Cameron K.
    Abstract: Mainstream economic theories of rent-seeking and interest groups typically ignore the parallel, yet highly relevant, streams of research on social networks and groups. Incorporating these broader social and psychological theories into economic models of rent-seeking appear to be a promising avenue for developing an integrated theory of the market for political influence that predicts many of the observed stylised facts, and can better inform policy makers. Such a theory has the potential to predict the often conflicting findings of empirical studies - such as significant underinvestment in rent-seeking, loyalty of political donors and recipients, and the variation in the prevalence of the ‘revolving door’ across industries. This review highlights the shortcomings of basic rent-seeking theory and analyses how network and group concepts can improve the alignment between theory and evidence. Directions in research and policy analysis based on an integrated model are discussed.
    Keywords: Rent-seeking; networks; groups
    JEL: L14 D7 H0 A12 Z13 A14
    Date: 2012–10–19

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