nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒06‒09
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Redistribution and the political support of free entry policy in the Schumpeterian model with heterogenous agents. By Dmitry A. Veselov
  2. The effect of remittances prior to an election By Jean-Louis Combes; Christian Ebeke; Mathilde Maurel
  3. Bi-communalism and the economic origins of democracy: a case study By Khemraj, Tarron
  4. Government Constraints and Economic Voting in Greece By Spyros Kosmidis
  5. Macroeconomics and Politics in the Accumulation of Greece’s Debt: An econometric investigation, 1975-2009 By George Alogoskoufis
  6. War, Resilience and Political Engagement in Africa By James Fenske; Achyuta Adhvaryu
  7. Fiscal transfers and gerrymandering under decentralization in the Philippines By Joseph J. Capuno
  8. Social Democracy and Distributive Conflict in the UK, 1950-2010 By Carlo V. Fiorio; Simon Mohun; Roberto Veneziani
  9. The Impact of Political Risk on Foreign Direct Investment By Khan, Mashrur Mustaque; Akbar, Mashfique Ibne
  10. On the measurement of sociopolitical consensus in direct democracies: Proposal of indexes By Alcantud, José Carlos R.; Muñoz-Torrecillas, María José
  11. The emergence and the development of the federations: The Achaean federation, the United Provinces and the EU. By Economou, Emmanouel/Marios/Lazaros; Kyriazis, Nicholas
  12. Partisan Bias in Factual Beliefs about Politics By John G. Bullock; Alan S. Gerber; Seth J. Hill; Gregory A. Huber
  13. Wealth Distribution Dynamics with Status Preference: asymmetric motivations for status By Yutaro Hatta
  14. Social Identity and Punishment By Jeffrey V. Butler; Pierluigi Conzo; Martin A. Leroch

  1. By: Dmitry A. Veselov (Centre d'Economie de la Sorbonne and National Research University Higher School of Economics)
    Abstract: We consider the problem of finding sufficient conditions for political support of liberal, growth-enhancing policy in a quality-ladders model with heterogeneous agents differing in their endowment of wealth and skills. The policy set is two-dimensional: Agents vote for the level of redistribution as well as for the level of entry barriers preventing the creation of more efficient firms. We show that under the majority voting rule there are three possible stable political outcomes: full redistribution and low barriers to entry (“liberal” order), high redistribution and high barriers to entry (“corporatism”). We show that key variables determining the political outcome are the expected gain from technological adoption, the ratio of total profits to total wages, and the skewness of human capital distribution.
    Keywords: Barriers to entry, majority voting, quality-ladders model, wealth inequality, talent inequality, economic growth.
    JEL: O33 P16 P48
    Date: 2013–05
  2. By: Jean-Louis Combes (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Christian Ebeke (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Mathilde Maurel (Centre d'Economie de la Sorbonne - Centre d'Economie de la Sorbonne - Centre d'Economie de la Sorbonne)
    Abstract: This paper focuses on the relationships between remittances, elections, and government consumption as a percentage of GDP. We combine data from the National Elections across Democracy and Autocracy (NELDA) dataset compiled and discussed in Hyde and Marinov (2012) and the World Development Indicators dataset. We focus on 70 young democracies in the developing world. The period under investigation is 1990-2010. The main objective of the paper is to assess whether remittances have an influence on the political manipulation, which may occur prior to an election, through in increase in the government consumption-to-GDP-ratio. It appears that remittances dampen the political business cycle (PBC). Furthermore, the PBC is reduced up to the point where it is fully cancelled out at a remittance threshold of 10.7 percent of GDP. Those findings are robust to different econometric strategies and robustness checks.
    Keywords: Political Business Cycles;Remittances
    Date: 2013–05–28
  3. By: Khemraj, Tarron
    Abstract: The paper shows how democratic elections in a bi-communal society with entrenched ethnic voting results in an elected oligarchy in which elites of one ethnic group control the allocation of scarce economic resources. Using a simple strategic game, the paper shows that the control of resources results in the Nash equilibrium of uneven development. Heterogeneous agents are included in the model, which is solved for the conditions under which democratic consolidation might occur. Token resource transfers from elites to other groups will tend not to guarantee consolidation. Remittances to the masses tend to prevent democratic consolidation, while bi-lateral grants to an elite dominated government prevent consolidation under some restricted conditions. Constitutional institutions might be necessary to incentivize explicit cooperation – the anti-Nash equilibrium.
    Keywords: fractionalization, political economy, prisoner’s dilemma, bi-communalism, institutions
    JEL: O10 O54 O57 P0
    Date: 2013–03–01
  4. By: Spyros Kosmidis
    Abstract: Incumbent parties in Southern Europe experienced losses in their electoral support that came along with a series of economic reforms imposed by the EU and the IMF. However, recent theories of accountability would predict lower levels of economic voting given the limited room left for national governments to manoeuvre the economy. To resolve this puzzle, the paper presents and models quarterly vote intention time series data from Greece (2000–2012) and links it with the state of the economy. The empirical results show that after the bailout loan agreement the Greek voters significantly shifted their assignment of responsibility for (economic) policy outcomes from the EU to the national government, which in turn heightened the impact of objective economic conditions on governing party support. The findings have implications for theories linking international structures, government constraints and democratic accountability.
    Keywords: Economic Voting; Greek Crisis; EU; Government Constraints; Accountability
    Date: 2013–05
  5. By: George Alogoskoufis
    Abstract: This paper focuses on an econometric investigation of the macroeconomic and political factors that contributed to Greece’s excessive debt accumulation and its failure to adequately address its fiscal imbalances, from the restoration of democracy in 1974 till the crisis of 2009. The econometric investigation is based on a model in which two political parties alternate in power, and in which governments choose primary expenditure and taxes to minimize deviations from politically determined expenditure and tax targets, subject to a debt accumulation equation. The model predicts a political equilibrium in which primary expenditure and taxes follow feedback rules which go in the direction of stabilizing the debt to GDP ratio. However, this stabilization incentive is weaker in election years. The model also predicts potential partisan differences in the evolution of primary expenditure and taxes, due to the different preferences of political parties. Estimates of government reaction functions to public debt for the period 1975-2009 suggest a rather weak stabilizing reaction of primary deficits to public debt. This stabilizing reaction disappears in election years, which are characterized by strong fiscal expansions. We find no evidence of partisan differences in the reaction of primary deficits to inherited debt, but we do find evidence of lower primary deficits in the post-1992 Maastricht treaty period. Overall the model accounts for the accumulation of Greece’s government debt in terms of the trend increase in primary expenditure, the positive shocks to primary expenditure in election years and the weak stabilizing reaction of government revenue, due to tax smoothing.
    Keywords: macroeconomics and politics, government debt, primary deficit, stabilization, elections, political parties, Greece
    JEL: E6 H6 C5
    Date: 2013–03
  6. By: James Fenske; Achyuta Adhvaryu
    Abstract: We test whether early-life war exposure influences later-life political engagement in Africa.  We combine data on the location and intensity of conflicts since 1954 with nationally representative data on political attitudes and behaviors from 17 sub-Saharan African countries.  Exposure from ages 0 to 14 has a very small (standardized) impact on later attitudes and behaviors.  Our results are robust to migration, and hold across several definitions, specifications, and sources of data.  Our results are consistent with recent studies demonstrating that, on average, individuals and localities recover quickly from the destructive effects of conflict, though those most exposed experience large and prolonged effects.
    Date: 2013–05–22
  7. By: Joseph J. Capuno (School of Economics, University of the Philippines Diliman)
    Abstract: While gerrymandering in developing countries is often pushed by local authorities to secure political advantages, fiscal grants systems under decentralization may also have result in the same. We investigate this issue to identify the correlates of the growth in the number of cities in the Philippines in 2001-2010. Using a panel of municipal-level data, incremental fiscal transfers are found to drive cityhood. Also, political payoffs -- like the incumbent mayor's re-election or having another member of the same political clan elected to the same position -- motivate the creation of new cities. Reforms in the country's fiscal transfer program are suggested.
    Keywords: Gerrymandering, fiscal grants, decentralization
    JEL: H11 H73 H77
    Date: 2013–06
  8. By: Carlo V. Fiorio (University of Milan); Simon Mohun (Queen Mary, University of London); Roberto Veneziani (Queen Mary, University of London)
    Abstract: In the last three decades, two questions have been central for the Left. Is there a future for electoral socialism and social democracy? And, is it any longer possible to promote a significant redistribution of income in favour of labour? Political and economic events seem to suggest negative answers. In his influential work, Adam Przeworski suggests that this is an irreversible trend that makes it impossible in the long-run to promote genuinely socialist objectives in capitalist democracies. In particular, the structural dependence of labour on capital severely constrains feasible income distributions. In this paper, a detailed quantitative and qualitative analysis of the post-war UK economy is provided which casts doubts on the structural dependence thesis. A short run profit-squeeze mechanism seems to exist, but income shares are more variable than the structural dependence argument suggests, and the power resources available to the two main classes in the economy are among the key determinants of distributive outcomes, different political-economic equilibria corresponding to different configurations of the balance of power between the two classes.
    Keywords: Social democracy, Income distribution, Structural dependence thesis
    JEL: D33 E32 J5
    Date: 2013–06
  9. By: Khan, Mashrur Mustaque; Akbar, Mashfique Ibne
    Abstract: Political risk, like all other risks, has an adverse effect on any economy. Even though other forms of risk, such as economic risk and financial risk have been studied quite extensively, political risk has not received much attention owing primarily to lack of data. The current paper attempts to study a negative and significant relationship between political risk and Foreign Direct Investment (FDI), accounting for 94 countries over a span of 24 years from 1986-2009. It was found that most of the political risk indicators have a negative relationship with FDI for the world as a whole and also, the high-income countries but the relationship was the strongest for the upper middle-income countries.
    Keywords: Political risk; Foreign Direct Investment; Panel Data Analysis
    JEL: C33 F21 P48
    Date: 2013–05–30
  10. By: Alcantud, José Carlos R.; Muñoz-Torrecillas, María José
    Abstract: We investigate the measurement of sociopolitical consensus in direct democracies by means of three novel Consensus Indexes. They are special cases of Approval Consensus Measures, a tool from social choice that evaluates the degree of cohesiveness in a fixed group of agents that vote on a list of issues. We perform a basic dynamic analysis of the Swiss votes in popular initiatives, in periods marked by the main reforms and political crisis along those years. We provide novel quantitative arguments to validate the hypotheses that those reorganizations had an impact in terms of sociopolitical consensus during the last decade in comparison with prior stages. In addition we study the cumulative consensus in Italian referendums since 1974. We also investigate to what extent our indexes reflect the existence of periods in the development of referendums as a constitutional praxis.
    Keywords: Consensus indexes; sociopolitical consensus; direct democracy.
    JEL: D79 H79
    Date: 2013–05–27
  11. By: Economou, Emmanouel/Marios/Lazaros; Kyriazis, Nicholas
    Abstract: In the present essay we analyse for the first time as far as we know the development of democracy, which emerged in Greece during the classical period, into the proto-federations of the democratic city-states. We examine their political institutions and policies, like common defense and external policy, military organization, representative federal bodies like popular assemblies, parliament, generals as military and political commanders, federal finance ministers etc., as well as their economic institutions and policies: Common currency, federal budget and federal revenues. We address in more detail as a case study the Achaean Federation. Then, we compare this particular proto-federation with the United Provinces (UP, the Dutch Republic) and show structural and organizational similarities. Lastly, we compare the Achaean federation with today’s European Union (EU) and conclude that in some respects the proto-federation was more advanced than the EU, and thus can serve as a benchmark in addressing current European issues.
    Keywords: Institutions, economic organization, Achaean federation, United Provinces,EU
    JEL: H5 H56 H7 N9
    Date: 2013–03–05
  12. By: John G. Bullock; Alan S. Gerber; Seth J. Hill; Gregory A. Huber
    Abstract: Partisanship seems to affect factual beliefs about politics. For example, Republicans are more likely than Democrats to say that the deficit rose during the Clinton administration; Democrats are more likely to say that inflation rose under Reagan. We investigate whether such patterns reflect differing beliefs among partisans or instead reflect a desire to praise one party or criticize another. We develop a model of partisan survey response and report two experiments that are based on the model. The experiments show that small payments for correct and “don't know” responses sharply diminish the gap between Democrats and Republicans in responses to “partisan” factual questions. The results suggest that the apparent differences in factual beliefs between members of different parties may be more illusory than real.
    JEL: H0 H1
    Date: 2013–05
  13. By: Yutaro Hatta (Graduate School of Economics, Osaka University)
    Abstract: This paper explores the implications of status-seeking behavior in wealth for economic dynamics. I move away from the conventional setup of status preference. That is, individuals with higher wealth behave differently as compared to those with lower wealth; agents with different wealth have asymmetric motivations for social status: mathematically, there is a kink in status utility, which is empirically suggested. The main results are as follows: the stability of the equal steady state in an economy is determined by which agents have higher motivations for status. Depending on parameter values, whether inequality may diminish or persist is determined. Inequality and output are intricately related, due to asymmetric motivations.
    Keywords: Status-seeking, Relative wealth, Wealth Distribution
    JEL: D91 D31 O40
    Date: 2013–05
  14. By: Jeffrey V. Butler (EIEF); Pierluigi Conzo (University of Turin); Martin A. Leroch (University of Mainz)
    Abstract: Third party punishment is crucial for sustaining cooperative behavior. Still, little is known about its determinants. In this paper we use laboratory experiments to investigate a long-conjectured interaction between group identification and bystanders' punishment preferences using a novel measure of these preferences. We induce minimal groups and give a bystander the opportunity to punish the perpetrator of an unfair act against a defenseless victim. We elicit the bystander's valuation for punishment in four cases - when the perpetrator, the victim, both or neither are members of the bystander's group. We generate testable predictions about the rank order of punishment valuations from a simple framework incorporating group-contingent preferences for justice which are largely confirmed. Finally, we conduct control sessions where groups are not induced. Comparing punishment across treatment and control suggests that third-party punishers tend to treat others as in-group members unless otherwise divided.
    Date: 2013

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