nep-pol New Economics Papers
on Positive Political Economics
Issue of 2012‒12‒06
nineteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Do social benefits respond to crises? Evidence from Europe and Central Asia during the global crisis By Isik-Dikmelik, Aylin
  2. The Demand for Military Spending in Egypt By Aamer S. Abu-Qarn; Yasmine M. Abdelfattah; J. Paul Dunne; Shadwa Zaher
  3. Market Discipline Under A Politicised Multilateral Fiscal Rule - Lessons from the Stability and Growth Pact Debate By Matthias Bauer; Martin Zenker
  4. Political rights, taxation, and firm valuation: Evidence from Saxony around 1900 By Lehmann, Sibylle H.; Hauber, Philipp; Opitz, Alexander
  5. The European Commission’s Scoreboard of Macroeconomic Imbalances – The Impact of Preferences on an Early Warning System By Tobias Knedlik
  6. Refugee and Asylum Migration to the OECD: A Short Overview By Hatton, Timothy J.
  7. Minor Nuisance Around Foreign Exchange Markets - Lessons from the Stability and Growth Pact Debate By Matthias Bauer; Martin Zenker
  8. A Note on Backhouse and Medema: On Walras’ Contribution to the Definition of Economics By Vahabi, Mehrdad
  9. The political economy of trade and migration: Evidence from the U.S. Congress By Paola Conconi; Giovanni Facchini; Max F. Steinhardt; Maurizio Zanardi
  10. Collapsing Worlds and Varieties of welfare capitalism: In search of a new political economy of welfare By Waltraud Schelkle
  11. The Farm, the City, and the Emergence of Social Security By Elizabeth M. Caucutt; Thomas F. Cooley; Nezih Guner
  12. Political Economy of Public Policies: Insights from Distortions to Agricultural and Food Markets By Anderson, Kym; Rausser, Gordon; Swinnen, Johan
  13. Preferences for Redistribution in Europe By Javier Olivera
  14. Empowering women : evidence from a field experiment in Afghanistan By Beath, Andrew; Christia, Fotini; Enikolopov, Ruben
  15. A Political Economy Explanation for In-kind Redistribution: The Interplay of Corruption and Democracy By Zohal Hessami; Claudio Thum; Silke Uebelmesser
  16. Political Economy of Arab Revolutions: analysis and prospects for North-African Countries. By Mouhoud, El Mouhoub
  17. Party cues in elections under multilevel governance: Theory and evidence from US states By Geys, Benny; Vermeir, Jan
  18. Job Loss Fears and (Extremist) Party Identification: First Evidence from Panel Data By Geishecker, Ingo; Siedler, Thomas
  19. Who emerges from smoke-filled rooms? Political parties and candidate selection By Motz, Nicolas

  1. By: Isik-Dikmelik, Aylin
    Abstract: Social benefits can potentially play an important role in protecting the poor and minimizing the impacts of an economic crisis. While many studies estimate the impacts of a crisis, there is little evidence of the actual response of social safety nets to systematic shocks. This study traces the response of social benefits during the 2008-10 global crisis for 14 countries in Europe and Central Asia (ECA). The study first sets out a framework for defining the'expected'response of social benefits covering an assessment of pre-crisis preparedness of social benefits and the severity of the crisis for all countries in the ECA region to provide the context; and then develops a typology of all countries categorized by expected response. Using this typology the study analyzes the monthly administrative data on the observed patterns within social benefit programs. Main findings indicate that actual responses were largely in line with expectations. Pre-crisis preparedness clearly influenced the ability of social benefits to respond to the crisis. Unemployment benefits were generally the first line of response in countries that have them, while social assistance programs also expanded coverage during the crisis. Lessons learned from the 2008?2010 global crisis (such as the importance of structural reform, design, and implementation which affect the success of social benefits programs in crisis response) are also presented. The study concludes with some policy recommendations to help ECA countries prepare for future crises.
    Keywords: Safety Nets and Transfers,Social Protections&Assistance,Labor Policies,Economic Theory&Research,Gender and Law
    Date: 2012–11–01
  2. By: Aamer S. Abu-Qarn (Ben Gurion University of the Negev); Yasmine M. Abdelfattah (British University in Egypt); J. Paul Dunne (University of Cape Town, RSA); Shadwa Zaher (British University in Egypt)
    Abstract: Egypt plays a pivotal role in the security of the Middle East as the doorway to Europe and its military expenditure reflects its involvement in the machinations of such an unstable region, showing considerable variation over the last forty years. These characteristics make it a particularly interesting case study of the determinants of military spending. This paper specifies and estimates an econometric model of the Egyptian demand for military spending, taking into account important strategic and political factors. Both economic and strategic factors are found to play a role in determining military burden/spending, with clear positive effects of lagged military burden, suggesting some sort of institutional inertia, plus negative output and net exports effects. The strategic effect as a result of the impact of Israel’s military burden is mostly positive and significant, though its impact is reduced when the impact of important strategic events are taken into account. The military spending of Egypt’s allies Jordan and Syria generally seems to have had no effect on Egypt’s spending. These results are consistent over a range of econometric techniques.
    Keywords: Egypt, demand for military expenditure, political determinants, strategic determinants, cointegration
    JEL: H56 O53
    Date: 2012
  3. By: Matthias Bauer (Graduate Programme "Global Financial Markets"); Martin Zenker (Graduate Programme "Soziale Marktwirtschaft")
    Abstract: Does a multilateral fiscal rule improve market discipline in a monetary union? This paper studies the impact of political events that systematically undermined the Stability and Growth Pact (SGP) on EMU sovereign default risk for the period 2001 to 2005. For various EMU member countries our findings suggest that credit risk did not increase in the SGP's early years in response to the political undermining of the Pact. Due to the existence of systematic volatility effects we conclude that from its beginning the Pact was not perceived as a credible institution by financial markets. Bond markets have not been the watchdogs the proponents of transparency enhancing fiscal rules frequently claim them to be. Investors did not anticipate any serious consequences arriving from political non-ownership of the Pact and corresponding fiscal leeway on national public finances in the euro zone back then. In this context, policymakers working on a reform of Europe's fiscal framework should abstain from enhancing multilateral fiscal rules lacking political ownership, including the reformed SGP and the new "European Fiscal Compact".
    Keywords: fiscal rules, market discipline, sovereign credit risk, GARCH
    JEL: E62 F55 C22 C58
    Date: 2012
  4. By: Lehmann, Sibylle H.; Hauber, Philipp; Opitz, Alexander
    Abstract: The extension of the franchise to social groups with less property and income is associated with greater income redistribution from the rich to the poor and extension in the provision of public goods, which leads to the growth of government expenditure. All of these expected changes are costly and therefore a higher taxation of citizens and industrial firms can be expected, which might have negative effects on investors behavior. The present paper studies the effects of changes in the suffrage in the Kingdom of Saxony at the end of the 19th Century on stock market prices of Saxon firms listed on the Berlin stock exchange: Here the electoral law was changed twice: In 1896 a very restrictive franchise was introduced, which was abolished in 1909 and replaced by a more democratic electoral law. By applying standard event study methodology, we can provide evidence that the restriction of the electoral law had positive effects on Saxon firms on the stock market, whereby the extension in 1909 had negative effects on the stock market. --
    Keywords: Financial History,Taxation,Stock Markets,Event Study,Investors,Suffrage,Elections
    JEL: G11 G14 G18 D72 N23 N43
    Date: 2012
  5. By: Tobias Knedlik
    Abstract: The European Commission’s Scoreboard of Macroeconomic Imbalances is a rare case of a publicly released early warning system (EWS). That allows for analyzing the preferences of the involved politicians with regard to the two potential errors of an EWS – missing a crisis and issuing a false alarm. This is done for the first time for EWS in general by using a standard signals approach including a preference-based optimization approach to set thresholds. It is shown that in general, the thresholds of the scoreboard are set low (resulting in more alarm signals) as compared to a neutral stand.
    Keywords: early warning system, scoreboard, preferences, incentives, political economy
    JEL: G01 F47 F53
    Date: 2012–11
  6. By: Hatton, Timothy J. (Australian National University)
    Abstract: This paper provides an overview of asylum migration from poor strife-prone countries to the OECD since the 1950s. I examine the political and economic factors in source countries that generate refugees and asylum seekers. Particular attention is given to the rising trend of asylum applications up to the 1990s, and the policy backlash that followed. I consider the political economy of restrictive asylum policies, especially in EU countries, as well as the effectiveness of those policies in deterring asylum seekers. The paper concludes with an outline of the assimilation of refugees in host country labour markets.
    Keywords: refugees, asylum migration, asylum policy
    JEL: F22 F55 J61
    Date: 2012–11
  7. By: Matthias Bauer (Graduate Programme "Global Financial Markets"); Martin Zenker (Graduate Programme "Soziale Marktwirtschaft")
    Abstract: This paper studies the impact of political events that systematically undermined the Stability and Growth Pact (SGP) on the euro's foreign exchange expectation bias for the period 2001 to 2005. Our findings suggest that euro foreign exchange markets were attentive to the political dispute over the enforcement of the SGP's rules. The results indicate that foreign exchange markets anticipated the gradual demise of the SGP. 1) For the expectation bias in euro foreign exchange markets we do not find systematic level effects. 2) Since volatility decreases following "destabilising" political events, we conclude that already in the early years of the SGP regime the demise of the original Pact was anticipated by foreign exchange market participants. The conclusion is that a politicised multilateral fiscal rule does not improve market discipline, which could be a crucial argument against the new "European Fiscal Compact".
    Keywords: fiscal rules, market discipline, FX markets, GARCH
    JEL: E62 F31 F33 C22 C58
    Date: 2012
  8. By: Vahabi, Mehrdad
    Abstract: In this paper, I argue that the insightful and rich collection of various definitions of economics provided by Backhouse and Medema (2009a,b) suffers from a major shortcoming: it misses Walras’ contributions on this topic. Borrowing from the authors’ taxonomy, I will show that Walras’ ‘synthetic method’ provides a particular interpretation that brings together ‘wealth-based,’ ‘scarcity-based,’ and ‘market-exchange based’ definitions of economics. Finally, I will argue that the ‘scarcity-based’ definition of economics originated with the Walrases (the father and son) rather than Robbins ([1932]1935). Walras pioneered the notion of scarcity as a subjective agent-based reality existing at an individual level.
    Keywords: Applied political economy; pure political economy; scarcity; social economics; Walrasian definitions of economics
    JEL: B31 B13
    Date: 2012–04
  9. By: Paola Conconi (Université Libre de Bruxelles, ECARES and CEPR); Giovanni Facchini (University of Nottingham, Universitá degli Studi di Milano, CEPR, CES-Ifo, IZA and LdA); Max F. Steinhardt (Hamburg Institute for International Economics, LdA and CELSI); Maurizio Zanardi (Université Libre de Bruxelles and ECARES)
    Abstract: Over the last decades, the United States has become increasingly integrated in the world economy. Very low trade barriers and comparatively liberal migration policies have made these developments possible. What drove US congressmen to support the recent wave of globalization? While much of the literature has emphasized the differences that exist between the political economy of trade and migration, in this paper we find that important similarities should not be overlooked. In particular, our analysis of congressional voting between 1970 and 2006 suggests that economic drivers that work through the labor market play an important role in shaping representatives’ behavior on both types of policies. Representatives from more skilled-labor abundant districts are more likely to support both trade liberalization and a more open stance vis-à-vis unskilled immigration. Still, important systematic differences exist: welfare state considerations and network effects have an impact on the support for immigration liberalization, but not for trade; Democratic lawmakers are systematically more likely to support a more open migration stance than their Republican counterparts, whereas the opposite is true for trade liberalization.
    Keywords: Trade Reforms, Immigration Reforms.
    JEL: F22 J61
    Date: 2012–11
  10. By: Waltraud Schelkle
    Abstract: The study of welfare capitalism is concerned with a founding question of political economy, namely how capitalism and democracy can be combined. Ever since the publication of Esping-Andersen’s Three Worlds of Welfare Capitalism in 1990, the answer was sought in identifying ideal types of welfare states that support a class compromise. The Varieties of (Welfare) Capitalism literature is increasingly used as a complementary theory of production systems although its rationale for social policies is largely incompatible with the Worlds typology. This article argues, first, that popular regime typologies have degenerated as a research programme, notwithstanding their many achievements. The main reason for this lies in a simplistic notion of the relationship between politics and economics in modern society. Secondly, the article outlines an alternative for analysing welfare provisions and their evolution, drawing on insights of the new politics and the new economics of welfare. This framework can give a systematic account of welfare program restructuring that undermines regime typologies. It suggests a different question for the political economy of welfare, namely how capitalism and democracy can be kept distinct.
    Keywords: welfare state, political economy, comparative politics, varieties of capitalism
    JEL: P16 H53 A12
    Date: 2012–11
  11. By: Elizabeth M. Caucutt; Thomas F. Cooley; Nezih Guner
    Abstract: We study the social, demographic and economic origins of social security. The data for the U.S. and for a cross section of countries suggest that urbanization and industrializa- tion are associated with the rise of social insurance. We describe an OLG model in which demographics, technology, and social security are linked together in a political economy equilibrium. In the model economy, there are two locations (sectors), the farm (agricul- tural) and the city (industrial) and the decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Farmers rely on land inheritance for their old age and do not support a pay- as-you-go social security system. With structural change, people migrate to the city, the land loses its importance and support for social security arises. We show that a calibrated version of this economy, where social security taxes are determined by majority voting, is consistent with the historical transformation in the United States.
    Keywords: Social Security, Political Economy, Structural Change, Migration
    JEL: H55 H3 D72
    Date: 2012–11–19
  12. By: Anderson, Kym; Rausser, Gordon; Swinnen, Johan
    Abstract: The agricultural and food sector is an ideal case for investigating the political economy of public policies. Many of the policy developments in this sector since the 1950s have been sudden and transformational, while others have been gradual but persistent. This article reviews and synthesizes the literature on trends and fluctuations in market distortions and the political-economy explanations that have been advanced. Based on a rich global data set covering a half-century of evidence on commodities, countries, and policy instruments, we identify hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible.
    Keywords: Distortions to agricultural markets; economics of farm and food politics
    JEL: D72 D78 F13 F14 N50 Q17 Q18
    Date: 2012–11
  13. By: Javier Olivera (UCD Geary Institute, University College Dublin)
    Abstract: This paper analyses the determinants of preferences for redistribution in a pool of 33 European countries over the period 2002-2010. We find that income inequality affects positively the individual demand for redistribution and that the actual level of redistribution implemented in the country decreases the support for more redistribution. Furthermore, a fixed effect model applied to pseudo panels constructed over that period confirms that increases in income inequality over time raise the demand for redistribution. This result is predicted by standard political economy models but has found little empirical support. We show that at least in Europe growing income inequality leads to more individual support for redistribution.
    Keywords: Redistribution, Income Inequality, Social Preferences, Pseudo-Panels
    JEL: D31 D63 D72 H20
    Date: 2012–11–20
  14. By: Beath, Andrew; Christia, Fotini; Enikolopov, Ruben
    Abstract: In societies with widespread gender discrimination, development programs that encourage female participation in local governance can potentially redress gender imbalances in economic, political, and social outcomes. Using a randomized field experiment encompassing 500 Afghan villages, this study finds that a development program which incorporates mandated female participation increases female mobility and involvement in income generation, but does not change female roles in family decision-making or attitudes toward the general role of women in society.
    Keywords: Gender and Law,Gender and Health,Housing&Human Habitats,Anthropology,Gender and Development
    Date: 2012–11–01
  15. By: Zohal Hessami (Department of Economics, University of Konstanz, Germany); Claudio Thum (Center for Economic Studies, University of Munich, Germany); Silke Uebelmesser (Department of Economics, University of Jena, Germany)
    Abstract: This paper identifies a novel political-economy explanation for the observed variation in the cash and in-kind (basic health care, public housing or food stamps) mixture of social transfers. We put forward the hypothesis that the share of in-kind transfers is positively correlated with corruption in democratic countries. The argument is derived in a theoretical model which assumes that it is easier for politicians to appropriate cash transfers than in-kind transfers. Voters in corrupt countries know that cash transfers invite corrupt behavior and therefore they elect parties that opt for in-kind redistributive measures. The empirical analysis for 34 OECD countries over the 1984 – 2007 period provides robust evidence in favor of this hypothesis. Moreover, the positive correlation between the in-kind share of social transfers and perceived corruption is stronger for the “most democratic” OECD countries and in countries with specific institutional characteristics such as free media that further enhance democratic accountability.
    Keywords: In-kind social transfers, redistribution, corruption, democracy, social expenditures
    JEL: D7 H42
    Date: 2012–11–19
  16. By: Mouhoud, El Mouhoub
    Abstract: Des similitudes expliquent la diffusion du processus révolutionnaire arabe : une polarisation sectorielle des économies, une gestion rentière des ressources, des taux d’emplois faibles et des taux d’expatriation de qualifiés anormalement élevés. Enfin, un même pacte externe avec les puissances occidentales et interne entre les élites. Ces pactes ont implosé. Cet article propose de nouvelles directions pour ces économies, combinant intégration régionale et stratégie de rattrapage par les services.
    Abstract: Several similarities explain the spread of the Arab revolutionary process : the polarization of economies to limited sectors, a rentier-based management of resources, very low employment rates and extremely high rates of skilled migration. Finally, a similar external pact with the Western powers, and an inner pact between elites that have both imploded. This article suggests new directions for these economies that would combine regional integration and a catch-up strategy via service activities.
    Keywords: Economie politique; Moyen-Orient et Afrique du Nord; révolutions arabes; chômage; éducation supérieure; corruption; pacte interne et externe; political economy; Middle East and North Africa; unemployment; tertiary education; internal and international pact;
    JEL: O15 O55 P52 P59
    Date: 2012
  17. By: Geys, Benny; Vermeir, Jan
    Abstract: In federal countries, competence for policy matters is often shared between various levels of government. As only overall outcomes are observed, this might blur accountability by decreasing voters' ability to infer information about the performance of their leaders. In this article, we analyse how party cues (i.e., politicians' party membership acting as a cue towards their characteristics) affect voters' incomplete information about politicians in a federal setting. We first of all show that party cues allow indirect inference regarding politicians using observed policy outcomes, alleviating the accountability problem. Empirical evidence from US presidential election results across all 50 US states over the period 1972-2008 provides support for this proposition. Yet, while the availability of party cues in a federal setting increases the national incumbents' effort in some cases, it may reduce effort particularly when the regional incumbent if of a different party. --
    Keywords: federalism,accountability,multilevel governance,party cues
    JEL: D72 H30 H77
    Date: 2012
  18. By: Geishecker, Ingo (University of Göttingen); Siedler, Thomas (University of Hamburg)
    Abstract: There is a large body of literature analyzing the relationship between objective economic conditions and voting behavior, but there is very little evidence of how perceived economic insecurity impacts on political preferences. Using seventeen years of household panel data from the German Socio-Economic Panel, we examine whether job loss fears impact on individuals’ party identification. Consistent with the deprivation theory, we find strong and robust evidence that subjective job loss fears foster affinity for parties at the far right-wing of the political spectrum. The effects are broadly comparable in direction and magnitude with the ones from objective unemployment and being out of the labor force. However, our empirical estimates do not suggest that job loss fears result in people withdrawing their support from political parties altogether or increasingly identify with extremist left-wing parties.
    Keywords: job insecurity, party identification, prospective voting, economic worries
    JEL: J01 J63 P16
    Date: 2012–11
  19. By: Motz, Nicolas
    Abstract: This paper presents a model of candidate selection through political parties where politicians differ in terms of their quality and their favored policies. The central assumption is that political parties are better informed about their potential candidates than voters are. In addition, parties pursue political goals that differ from the interest of the median voter. Questions of interest include whether voters can gain information about candidates by observing the parties choice and to what extent parties select the candidates preferred by the median voter. The results depend crucially on how competitive the race is. Under strong competition, nominating a politically more extreme politician is a signal of high quality. Sufficient competition also induces parties to act in the interest of the median voter most of the time. Nevertheless, in most cases the median voter would be better off if parties shared his political preferences.
    Keywords: Political parties; electoral competition; valence; candidate selection; primaries
    JEL: D72
    Date: 2012–11

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