nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒01‒12
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Voting with Your Feet: Political Competition and Internal Migration in the United States By Liu, Wai-Man; Ngo, Phong
  2. Political Uncertainty and Accounting Conservatism: Evidence from the U.S. Presidential Election Cycle By Dai, Lili; Ngo, Phong T. H.
  3. Elections, Political Competition and Bank Failure By Liu, Wai-Man; Ngo, Phong
  4. Why Do Voters Dismantle Checks and Balances? By Ragnar Torvik; Daron Acemoglu; James A. Robinson
  5. Diffusion and Spatial Equilibrium of a Social Norm: Voting Participation in the United States, 1920-2008 By Coleman, Stephen
  6. Small is beautiful, at least in high-income democracies: the distribution of policy-making responsibility, electoral accountability, and incentives for rent extraction By Hamilton, Alexander
  7. Incumbency Effects in Germany: Federal and Mayoral Elections By Sieger, Philip
  8. The Political Sustainability of Germany's Environmental Tax Rate By Roeder, Kerstin; Habla, Wolfgang
  9. Home Voters, House Prices, and the Political Economy of Zoning By Dascher, Kristof
  10. Growth-Friendly Dictatorships By Giacomo De Luca; Anastasia Litina; Petros G. Sekeris
  11. The Role of Female Agency in Politics: A Global Study, 1850-2000 By Selin Dilli
  12. When to Attack an Oppressive Government? By Bilkic, Natasa; Gries, Thomas
  13. Government Is Whose Problem? By Jon D. Wisman
  14. Political reservations and women's entrepreneurship in India By Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D.
  15. Political Economy of Banking Regulation By Buck, Florian; Schliephake, Eva
  16. Protest Attitudes and Stated Preferences: Evidence on Scale Usage Heterogeneity By Maria A. Cunha-e-Sá; Luis C. Nunes; Vladimir Otrachshenko

  1. By: Liu, Wai-Man; Ngo, Phong
    Abstract: Do people "vote with their feet" due to a lack of political competition? We formalize the theory of political competition and migration to show that increasing political competition lowers political rent leading to net in-migration. Our empirical application using US data supports this prediction. We …find that an increase in political competition - in the order of magnitude observed in US Southern states during the post-war period - leads to an increase in net migration of approximately 36 individuals per 1000 population. In comparison, birth rates over the last century ranged between 70 and 150 births per 1000 population.
    Keywords: political competition; internal migration; welfare; Voting Rights Act
    JEL: H70 J61 N92 D72
    Date: 2012–10–16
  2. By: Dai, Lili; Ngo, Phong T. H.
    Abstract: We document a positive association between political uncertainty and accounting conservatism. In the year prior to a U.S. presidential election, on average, accounting conservatism increases by nearly 20 percent. This election year effect is stronger when the election is closer, when the incumbent president is not seeking re-election, and when the incumbent party is Democrat. In the post-election year, conservatism is lower relative to the non-election period when the incumbent party wins, but remains higher under an opposition party victory. Moreover, the election year effect varies across industries and companies, and remains unchanged under different empirical specifications. For example, the impact of an election is greater for politically sensitive industries and for companies with less anti-takeover provisions, and is robust when we control for the business cycle. Collectively, we show the political process is important in determining accounting choices through the uncertainty channel.
    Keywords: accounting conservatism; political uncertainty; election cycle
    JEL: M41 G38 G34 D72
    Date: 2013–01–04
  3. By: Liu, Wai-Man; Ngo, Phong
    Abstract: We model and predict that politicians have incentives to delay bank failure in election years and that this incentive is exacerbated if the election is close. Our empirical application using the US data supports these predictions. At the bank level, we show that bank failure in an election year is four times less likely to occur if the election was among the most competitive (top quartile). At the state level, bank failure is about 1.8 times less likely to occur in an election year. A three point swing in the competitiveness of the election increases this election year bias to 2.2.
    Keywords: bank failure; elections; political competition
    JEL: D73 D72 G28 G21
    Date: 2012–10–16
  4. By: Ragnar Torvik (Department of Economics, Norwegian University of Science and Technology); Daron Acemoglu; James A. Robinson
    Abstract: Voters often dismantle constitutional checks and balances on the executive. If such checks and balances limit presidential abuses of power and rents, why do voters support their removal? We argue that by reducing politician rents, checks and balances also make it cheaper to bribe or infuence politicians through non-electoral means. In weakly-institutionalized polities where such non-electoral infuences, particularly by the better organized elite, are a major concern, voters may prefer a political system without checks and balances as a way of insulating politicians from these induences. When they do so, they are effectively accepting a certain amount of politician (presidential) rents in return for redistribution. We show that checks and balances are less likely to emerge when the elite is better organized and is more likely to be able to infuence or bribe politicians, and when inequality and potential taxes are high (which makes redistribution more valuable to the majority). We also provide case study evidence from Bolivia, Ecuador and Venezuela and econometric evidence on voter attitudes from a Latin American survey consistent with the model.
    Keywords: corruption, checks and balances, political economy, redistribution, separation of powers, taxes
    JEL: O17 P48
    Date: 2013–01–04
  5. By: Coleman, Stephen
    Abstract: Social conformity can spread social norms and behaviors through a society. This research examines such a process geographically and over time for voting, which is strongly influenced by the norm that citizens should vote. A mathematical model for the spread of voting participation under the influence of social conformity is developed based on the diffusion equation, and predictions are tested with spatial analysis of state-level voter turnout in American presidential elections from 1920 to 2008. Results show that voter turnout has converged to a stable equilibrium in its geographical distribution across the states—but it is an equilibrium that results in persistent differences at the state level. Turnout increases about one percentage point with each degree of latitude.
    Keywords: social norm; voter turnout; social conformity; spatial model; equilibrium; diffusion
    JEL: C02 D72 Z13 C21
    Date: 2012–12–31
  6. By: Hamilton, Alexander
    Abstract: Why is there significant variation in rent extraction among high-income democracies? A large number of political economy investigations into this research question have found that a long period of democratic rule and high per capita income are associated with less rent extraction among public policy-makers. However, attempts to explain the residual, yet significant, variation in rent extraction among countries that possess both these characteristics have been significantly more circumspect and disputed. This paper explores how the distribution of policy-making responsibilities between electorally accountable decision-makers and their electorally unaccountable public policy-making counterparts determines the optimal level of rents extracted in any given high-income democracy context. Specifically, the paper formally models how: (1) variation in the ratio of electorally accountable decision-makers to electorally unaccountable decision-makers, by altering (2) voters'evaluation of incumbent competency, changes (3) the incentives that policy-makers, wishing to remain in office, have to minimize their short-term level of rent extraction in order to signal their competency and hopefully retain office. Given these"career concerns,"the theoretical model predicts that an increase or decrease in the ratio will be associated with more or less rent extraction. This hypothesis is then tested empirically. Establishing that the ratio does robustly predict variation in rent extraction is a significant finding, as it can enable analysts to predict how changes in policy-making contexts may affect the incentives for good governance in this sub-set of countries.
    Keywords: Economic Theory&Research,Public Sector Corruption&Anticorruption Measures,Political Economy,Investment and Investment Climate,Parliamentary Government
    Date: 2013–01–01
  7. By: Sieger, Philip
    Abstract: In this paper incumbency effects in Federal Elections and Mayoral Elections in Germany are estimated using a quasi-experimental design which allows for causal inference under a set of rather mild assumptions. Relying on nonparametric and parametric estimation procedures and exploiting a recently developed bandwidth selection criteria, incumbency effects for the two major parties in Germany cause an increase in vote share of 1.4%-1.7% in Federal Elections. Analyzing Mayoral Elections, the causal effect of incumbency is about ten times larger with an increase in vote share of 14%-17%. Both results are robust with respect to the inclusion of further covariates. These huge differences might possibly be explained by the differences in visibility and popularity of mayors compared to candidates in Federal Elections. --
    JEL: C14 C21 D72
    Date: 2012
  8. By: Roeder, Kerstin; Habla, Wolfgang
    Abstract: We analyze the German ecotax package in a model of overlapping generations and majority voting. The package consists of the ecotax rate and the budgetary rule which assigns a fraction of the tax revenue to the reduction of pension contributions while holding pension benefits constant. The old and the young generation have different preferences with respect to the tax rate and the use of the tax revenue. Our theoretical model as well as the calibration of our model show that the median voter s preferred tax rate may well exceed the efficient tax rate whenever his income is sufficiently high. This is the likelier the more CO2 is degraded and removed from the atmosphere. Furthermore, the median voter prefers earmarking of tax revenue to reductions in pension contributions. The latter is quite an accurate prediction of the situation in Germany where the share of tax revenue devoted to the pension scheme amounts to more than 90%. --
    JEL: H23 H55 D78
    Date: 2012
  9. By: Dascher, Kristof
    Abstract: One explanation of the recent real estate bubble might point to homeowners' artificially restricting housing supply. While empirical work has not found unequivocal evidence in support of this hypothesis, homeowners may well be restricting supply nonetheless, and without this restriction manifesting itself in a simple -- or even partial -- positive correlation between homeownership and rent. Three points emphasized in this paper's model cloud the relationship between homeownership and rent observed in the data. First, rent rises diffuse across cities. Second, homeowners may only wish to impose restrictions to supply if tenants are not few. And third, homeowners may negotiate supply restrictions in neighboring tenant-dominated cities, giving rise to homeowner-tenant coalitions in non-obvious ways. -- The paper's empirical part tests the model against a data set that combines micro data on homeowners and rents with information on East Germany's large scale demolition, with this demolition interpreted as one striking instance of zoning. --
    JEL: R31 H73 D72
    Date: 2012
  10. By: Giacomo De Luca (University of York, United Kingdom); Anastasia Litina (CREA, University of Luxembourg); Petros G. Sekeris (FNRS and CRED, University of Namur, Belgium)
    Abstract: In this paper we show that in highly unequal societies, different societal groups may support a rent-seeking dicator serving their interests better than the median voter in a democratic regime. Importantly, it is the stakes of dictator in the economy, in the form of capital ownership, that drives the support of individuals. In particular, in highly societies ruled by a capital-rich dictator endowed with the power to tax and appropriate at will, the elites support dictatorial policies that generate higher growth rates than the ones obtained under democracy. Such support arises despite the total absence of checks and balances on the dictator.
    Date: 2012
  11. By: Selin Dilli (Universiteit Utrecht)
    Abstract: Over the last 200 years, an upward trend in democracy has been observed both cross-nationally and within nations. Previous studies attributed a major role to the developmental, historical, and more recently diffusional characteristics in explaining this democratization process. Although these predictors are robust predictors of democracy, they neglect the role of gender inequalities in democratic outcomes. In its attempt to overcome this shortcoming, this study introduces the concept of “female agency” to study the impact of gender inequalities on the democratization process. The results of both panel data and cross sectional data analysis show that women’s unequal position, both in the private and in the public sphere, are meaningful sources of explanation for within and cross national differences in democracy. This implies that future studies in democratization should include a gendered and capability perspective to have a full understanding of the underlying mechanisms.
    Keywords: female agency, women's empowerment, democracy, political outcomes
    Date: 2013–01
  12. By: Bilkic, Natasa; Gries, Thomas
    Abstract: Initiating a conflict is an investment in social, political or economic change. The decision to attack is sequential in time, irreversible and, more important, includes highly uncertain and erratic threats and opportunities yet completely disregarded in confict theory. In this dynamic model of decision making we focus on the time dimension of an escalating conflict. In order to cover the effects of high uncertainties we extend methods in real option theory by introducing a discontinuous Ito-L vy Jump Diffusion processes. We analytically derive a threshold that triggers the attack and determine the expected time of action. With this new discontinuous processs we are able to show that an increasing number and intensity of oppressive government actions may lead to an earlier outbreak of conflict. However, even if latent conflicts are not immediately solved policies can prolong the peace period to find a long term solution to the conflict. --
    JEL: D74 D81 C61
    Date: 2012
  13. By: Jon D. Wisman
    Abstract: This article addresses the political meaning of President Ronald Reagan's 1981 declaration that "government is the problem." Whereas historically the state had been used by elites to extract as much surplus as possible from producers, with democratization of the franchise, the state became the sole instrument that could limit, or even potentially end, the extraction of workers' surplus. Once control of the state is in principle democratized by the ballot box, the fortunes of the elite depend solely upon controlling ideology. In 1955, Simon Kuznets offered the highly influential conjecture that while rising inequality characterizes early economic development, advanced development promises greater equality. However, rising inequality in most wealthy countries over the past four decades has challenged this hypothesis. What those who embraced Kuznets' conjecture failed to recognize is the dynamics by which the rich, with their far greater command over resources, education, and status, inevitably regain control over ideology and thereby the state. Over the course of history, only the very severe crisis of the 1930s discredited their ideology and led to a sustained period of rising equality. However, by 1980 they had regained ideological ascendancy. This article examines how this struggle over ideology has unfolded in the U.S. since the democratization of the franchise in the late nineteenth century. It concludes with reflections on whether the current crisis holds promise of again de-legitimating the elites' hold on power and ushering in another period of rising equality.
    Keywords: Inequality, ideology, class power, democracy, Kuznets' curve.
    JEL: B00 N32 N42 O15 Z13
    Date: 2013
  14. By: Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D.
    Abstract: This paper quantifies the link between the timing of state-level implementations of political reservations for women in India with the role of women in India's manufacturing sector. It does not find evidence that overall employment of women in manufacturing increased after the reforms. However, the analysis finds significant evidence that more women-owned establishments were created in the unorganized/informal sector. These establishments were concentrated in industries where women entrepreneurs have been traditionally active and the entry was mainly found among household-based establishments. This heightened entrepreneurship does not appear linked to changes in reporting, better access to government contracts and business, or improved financing environments. One interpretation of these results is that the implementation of the political reservations inspired more women to open establishments, and they did so at a small establishment scale in industries where they had experience and/or the support networks of other women.
    Keywords: Access to Finance,Water and Industry,Gender and Development,Rural Development Knowledge&Information Systems,Gender and Law
    Date: 2013–01–01
  15. By: Buck, Florian; Schliephake, Eva
    Abstract: The paper argues that national regulators can improve the stability of the domestic banking sector via two substitutable policy instruments; minimum capital requirements and effort spend on domestic supervision. Both tools increase the soundness of a national banking system, but they imply different cost burdens between domestic banks and taxpayers. The optimal domestic policy choice is characterised by trading off marginal costs and benefits born by each party. However, the optimal policy choice changes if banks are allowed to be mobile. We show that countries are better off by harmonising capital requirements on an international standard la Basel, since harmonisation counters a regulatory race with other jurisdictions and will increase national utility. --
    JEL: G18 L51 D78
    Date: 2012
  16. By: Maria A. Cunha-e-Sá; Luis C. Nunes; Vladimir Otrachshenko
    Abstract: We contribute to the stated preference literature by addressing scale usage heterogeneity regarding how individuals answer attitudinal questions capturing lack of trust in institutions and fairness issues. Using a latent class model, we conduct a contingent valuation study to elicit the willingness-to-pay to preserve a recreational site. We find evidence that respondents within the same class, that is, with similar preferences and attitudes, interpret the Likert scale differently when answering the attitudinal questions. We identify different patterns of scale usage heterogeneity within and across classes and associate them with individual characteristics. Our approach contributes to better a understanding of individual behavior in the presence of protest attitudes. JEL codes: C35, Q51
    Keywords: Scale usage heterogeneity, Likert scale, protest attitudes, contingent valuation, latent class model
    Date: 2012

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