nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒03‒16
fifteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Women Political Leaders, Corruption and Learning: Evidence from a Large Public Program in India By Afridi, Farzana; Iversen, Vegard; Sharan, M.R.
  2. A Model of Chinese Central Government: the Role of Reciprocal Accountability By Mario Gilli; Yuan Li
  3. Immigrant Group Size and Political Mobilization: Evidence from the European Migration By Allison Shertzer
  4. Effects of political rivalry on public educational investments and income inequality: evidence from empirical data By Elena Sochirca; Óscar Afonso; Sandra Silva
  5. Persistent effects of empires: Evidence from the partitions of Poland By Irena Grosfeld; Ekaterina Zhuravskaya
  6. Emotions and Political Unrest By Francesco Passarelli; Guido Tabellini
  7. Does Democratization Spur Growth? An Examination over Time and Space By Andreas Assiotis
  8. Direct Democracy and Resource Allocation: Experimental Evidence from Afghanistan By Andrew Beath; Fotini Christia; Ruben Enikolopov
  9. The Political Economy of Finance By Enrico Perotti
  10. Inequality and happiness: When perceived social mobility and economic reality do not match. By Bjornskov, Christian; Dreher, Axel; Fischer, Justina A.V.; Schnellenbach, Jan; Gehring, Kai
  11. Public sector corruption and the probability of technological disasters By Eiji Yamamura
  12. Corruption and the Curse: The Dictator’s Choice By Mare Sarr; Tim Swanson
  13. The political economics of social health insurance: the tricky case of individuals’ preferences By Pfarr, Christian; Schmid, Andreas
  14. Ideology and fiscal policy: quasi-experimental evidence from the German States By Baskaran, Thushyanthan
  15. Do Politicians Serve the One Percent? Evidence in OECD Countries By Torija, P.

  1. By: Afridi, Farzana (Indian Statistical Institute); Iversen, Vegard (University of Manchester); Sharan, M.R. (Jameel Poverty Action Lab (JPAL))
    Abstract: We use the nation-wide policy of randomly allocating village council headships to women to identify the impact of female political leadership on the governance of projects implemented under the National Rural Employment Guarantee Act in India. Using primary survey data, we find more program inefficiencies and leakages in village councils reserved for women heads: political and administrative inexperience make such councils more vulnerable to bureaucratic capture. When using a panel of audit reports, governance improves as female leaders accumulate experience. These results suggest that female political leadership may generate gains in governance but only after the initial, gendered disadvantages recede. Our findings highlight capacity building as necessary for bolstering the effectiveness of political quotas for women.
    Keywords: political reservations, gender, NREGA, India
    JEL: P26 I38
    Date: 2013–02
  2. By: Mario Gilli; Yuan Li
    Abstract: Why was the same state in China able to promote economic growth in the reform era but not in the previous thirty years? In this paper we focus on a speci…c aspect that might help the search for a comprehensive explanation: the speci…c institutional arrangement that induced autocratic government to adopt growth-enhancing policies. To this aim, we consider a standard political agency model (Besley, 2006) where the incumbent leader may be either congruent or not, and where both types need the support of the selectorate to hold on to power. Our main result is that in autocracies without electoral discipline, to restrain the opportunistic behavior of a leader, the size of the selectorateshould be intermediate: if too small, the selectorateis captured by the leader and has no disciplinary role; if too big, the leaders incentives are diluted.
    Keywords: Accountability, Selectorate, Political agency, Chinese economic reform.
    JEL: D02 H11 D74
    Date: 2013–02
  3. By: Allison Shertzer
    Abstract: The United States absorbed nearly 22 million immigrants from Europe between 1880 and 1915. How did these immigrants, largely from undemocratic European states, become integrated into the American political system? This paper uses a newly assembled dataset of urban populations in the United States prior to World War I to investigate the decision of newly arrived immigrants to mobilize politically, focusing on the citizenship choice of foreign-born individuals in city wards. I find that immigrants were more likely to become politically active as their ethnic group’s share of the electorate grew, particularly in wards where the Democratic Party likely needed the vote of new immigrants to win elections.
    JEL: D72 J15 N31
    Date: 2013–02
  4. By: Elena Sochirca (CEF.UP and FEP, Universidade do Porto); Óscar Afonso (CEF.UP and FEP, Universidade do Porto); Sandra Silva (CEF.UP and FEP, Universidade do Porto)
    Abstract: In this paper we intend to empirically examine how different political institutions may define the long-term economic development, determined by educational investments and income inequality. With this objective, we assess the impact of political rivalry on four selected macroeconomic variables: public investments in education, individual learning choice, GDP per capita and income inequality, motivated by previous theoretical results. We first construct a composite political rivalry indicator and examine how it varies across different groups of countries. Then, using cross-sectional data, we perform a series of regressions for examining political rivalry effects on the selected variables. Our empirical findings indicate that in lower income countries there is indeed a significant negative impact of political rivalry, which increases with the decrease in the development level. The same is not confirmed for higher-income countries, which may suggest that the relationship between political rivalry and the examined variables may, in fact, be weaker in these countries, or that relevant mechanisms may differ with the level of development.
    Keywords: economic development; human capital accumulation; inequality; institutions; political rivalry; public education.
    JEL: H21 H40 H52 E24 I24 O43 P0
    Date: 2013–02
  5. By: Irena Grosfeld (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Ekaterina Zhuravskaya (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We use spatial regression discontinuity analysis to test whether the historical partition of Poland among three empires--Russia, Austria‐Hungary, and Prussia--has a persistent effect on political outcomes in contemporary Poland and to examine the channels of this influence. We find that the main difference in voting across Polish territories attributed by many observers to the legacy of empires is driven by omitted variables. However, empires do have a significant causal effect. The lands that belonged to Prussia (compared with those that belonged to Russia) vote more for anticommunist (post‐Solidarity) parties. This difference is largely explained by the persistent effect of infrastructure built by Prussians at the time of industrialization. The former Austrian lands (compared with former Russian lands) votes more for religious conservatives and for liberals. The difference in the vote for religious conservatives is explained by persistent differences in church attendance driven by vastly different policies of the two empires toward the Catholic Church. Higher support for liberals on the Austrian side is partly explained by a persistent belief in democracy, which is a legacy of decentralized democratic governance of the Austrian empire.
    Keywords: Persistence ; Empires ; Culture ; Poland ; Partitions
    Date: 2013–02–28
  6. By: Francesco Passarelli; Guido Tabellini
    Abstract: This paper formulates a general theory of how political unrest influences public policy. Political unrest is motivated by emotions. Individuals engage in protests if they are aggrieved and feel that they have been treated unfairly. This reaction is predictable because individuals have a con sistent view of what is fair. This framework yields novel insights about the sources of political influence of different groups in society. Even if the government is benevolent and all groups have access to the same technology for political participation, equilibrium policy can be distorted. Individuals form their view of what is fair taking into account the current state of the world. If fewer aggregate resources are available, individuals accept a lower level of welfare. This resignation effect in turn induces a benevolent government to procrastinate unpleasant policy choices.
    Date: 2013
  7. By: Andreas Assiotis
    Abstract: Many studies have considered how democratization affects economic growth. We expand this work by allowing short and long run effects of democracy upon growth to differ since effects during political transitions need not coincide with those under established democracies. We also allow these short and long run effects to differ across world regions since the effects of democracy upon economic growth need not be the same across countries, either. Using annual, cross-county data from 1960 to 2010, we find that democratizations increased growth rates in sub-Saharan Africa both in the short run and in the long run but lowered them in Europe. Effects in other regions appear less strong. Our results suggest that democratizations could be most beneficial for growth in poorer, less stable regions. We also do not find any evidence of a transitional cost. Finally, some support though mixed suggests that democracy’s ability to mitigate effects of ethnic heterogeneity provides a partial explanation for the cross regional heterogeneity.
    Keywords: Democratization, Democracy, Economic Growth
    Date: 2013–03
  8. By: Andrew Beath (Office of the Chief Economist for East Asia and the Pacific, World Bank); Fotini Christia (Department of Political Science, Massachusetts Institute of Technology); Ruben Enikolopov (Institute for Advanced Study and New Economic School)
    Abstract: Direct democracy is designed to better align policy outcomes with citizen preferences. Using a randomized field experiment in 250 villages across Afghanistan, we compare outcomes of the selection of village-level development projects through secret-ballot referenda and through consultation meetings. We find that elites exert more influence over resource allocation decisions in consultation meetings as compared with referenda. Referenda also improve public satisfaction. The results indicate that the use of direct democracy in public resource allocation mitigates elite capture and results in more legitimate outcomes than those produced by less representative consultative processes.
    Date: 2013–01
  9. By: Enrico Perotti (University of Amsterdam)
    Abstract: This survey reviews how a recent political economy literature helps explaining variation in governance, competition, funding composition and access to credit. Evolution in political institutions can account for financial evolution, and appear critical to explain rapid changes in financial structure, such as the Great Reversal in the early XX century, unlike time-invariant legal institutions or cultural traits. Future research should model the sources and consequences of financial instability, and to predict how major redistributive shocks will shape regulatory choices and financial governance.
    Keywords: political institutions; property rights; investor protection; financial development; access to finance; entry; banking
    JEL: G21 G28 G32 P16
    Date: 2013–02–25
  10. By: Bjornskov, Christian; Dreher, Axel; Fischer, Justina A.V.; Schnellenbach, Jan; Gehring, Kai
    Abstract: We argue that perceived fairness of the income generation process affects the association between income inequality and subjective well-being, and that there are systematic differences in this regard between countries that are characterized by a high or, respectively, low level of actual fairness. Using a simple model of individual labor market participation under uncertainty, we predict that high levels of perceived fairness cause higher levels of individual welfare, and lower support for income redistribution. Income inequality is predicted to have a more favorable impact on subjective wellbeing for individuals with high fairness perceptions. This relationship is predicted to be stronger in societies that are characterized by low actual fairness. Using data on subjective well-being and a broad set of fairness measures from a pseudo micro-panel from the WVS over the 1990-2008 period, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the predicted differences in individual tolerance for income inequality, and the predicted influence of actual fairness.
    Keywords: Happiness, life satisfaction, subjective well-being, inequality, income distribution, redistribution, political ideology, justice, fairness, World Values Survey
    JEL: D31 H40 I31 J62 Z13
    Date: 2013–03–07
  11. By: Eiji Yamamura
    Abstract: A growing number of studies have explored the influence of institution on the outcomes of disasters and accidents from the viewpoint of political economy. This paper focuses on the probability of the occurrence of disasters rather than disaster outcomes. Using panel data from 98 countries, this paper examines how public sector corruption is associated with the probability of technological disasters. It was found that public sector corruption raises the probability of technological disasters. This result is robust when endogeneity bias is controlled.
    Keywords: Corruption, Institution, Disasters, Risk
    JEL: D73 D81 Q54
    Date: 2013–01–02
  12. By: Mare Sarr (School of Economics, University of Cape Town); Tim Swanson (Department of Economics, Graduate Institute of International and Development Studies)
    Abstract: We develop a dynamic discrete choice model of a self-interested and unchecked ruler making decisions regarding the exploitation of a resource-rich country. This dictator makes the recursive choice between either investing domestically to live off the productivity of the country while facing the risk of being ousted, or looting the country’s riches by liquefying the resources and departing. We demonstrate that important parameters determining this choice include the level of resources, liquidity and indebtedness. We find that the dictator’s choice regarding the timing of departure is significantly related to external lending, investment and debt. We then argue that this looting phenomenon provides an explanation for the generation of corrupt economies in resource-rich countries. An empirical analysis of available corruption indices suggests that instability-led looting provides a more fundamental explanation of perceived corruption than do various social and cultural indicators or the economic theory of internal political competition.
    Keywords: Corruption, Dictatorship, Lending and Indebtedness, Looting, Natural Resource Curse
    JEL: O11 O13 O16
    Date: 2013–01
  13. By: Pfarr, Christian; Schmid, Andreas
    Abstract: Social health insurance systems can be designed with different levels of state involvement and varying degrees of redistribution. In this article we focus on citizens’ preferences regarding the design of their health insurance coverage including the extent of redistribution. Using a microeconomic model we hypothesize that the individual’s preferred options are determined by the relative income position and the relative risk of falling ill. Only individuals who expect to realize a net profit through the implicit redistributive transfers will favour a public insurance coverage over a private one. We test this hypothesis empirically using three dis-tinct approaches. The first two are based on survey questions focusing on the type of coverage and the degree of redistribution respectively. The third is based on a discrete choice experiment thus accounting for trade-offs and budget constraints. The data is from a representative sample of 1.538 German individuals who were surveyed and participated in the DCE in early 2012. We find that the model has to be rejected. There is a wide consensus that redistributive elements should be an integral part of the social health insurance system and could even be extended. However, there are also preferences for health insurance coverage that can be individually optimized.
    Keywords: social health insurance; preferences; discrete choice experiment
    JEL: C93 H23 H51
    Date: 2013–02
  14. By: Baskaran, Thushyanthan
    Abstract: Is government ideology important for fiscal policy? I study this question with data from all German States over the period 1975-2005. To identify the effect of ideology, I rely on a fuzzy regression discontinuity design. I find that left-wing state governments spend more than state governments with right-wing and mixed ideology. Deficits of left-wing governments are larger than those of right-wing governments but smaller than those of governments with mixed ideology. These results are robust to sensitivity tests. --
    Keywords: government ideology,fiscal policy,fiscal federalism
    JEL: D72 D78 E62 H72
    Date: 2012
  15. By: Torija, P.
    Abstract: Present social movements, as "Occupy Wall Street" or the Spanish "Indignados", claim that politicians work for an economic elite, the 1%, that drives the world economic policies. In this paper we show through econometric analysis that these movements are accurate: politicians in OECD countries maximize the happiness of the economic elite. In 2009 center-right parties maximized the happiness of the 100th-98th richest percentile and center-left parties the 100th-95th richest percentile. The situation has evolved from the seventies when politicians represented, approximately, the median voter.
    Date: 2013

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