nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒08‒10
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Isolated capital cities and misgovernance: Theory and evidence By Guimaraes, Bernardo; CAMPANTE, FILIPE R.; DO, Quoc-Anh
  2. Are Elections Debt Brakes? Evidence from French Municipalities By Caseette, Aurélie; Farvaque, Etienne
  3. Social Democracy and Distributive Conflict in the UK, 1950-2010 By Carlo V. Fiorio; Simon Mohun; Roberto Veneziani
  4. Optimal Voting Rules By Alex Gershkov; Benny Moldovanu; Xianwen Shi
  5. Are All Dictators Equal? The Selective Targeting of Democratic Sanctions against Authoritarian Regimes By Christian von Soest; Michael Wahman
  6. Does a work effort norm lead to more efficient taxation in majority voting? By Weinreich, Daniel
  7. The Power of Coalitions: Participation and Governance in California’s Public-Private Welfare State By Eaton, Charlie; Weir, Margaret
  8. Fair tax evasion and majority voting over redistributive taxation By Weinreich, Daniel
  9. Migration And The Welfare State: Political-Economy Perspective On Tax Competition By Assaf Razin

  1. By: Guimaraes, Bernardo; CAMPANTE, FILIPE R.; DO, Quoc-Anh
    Abstract: Motivated by a novel stylized fact { countries with isolated capital cities display worse quality of governance { we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less e ective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.
    Date: 2013–08–02
  2. By: Caseette, Aurélie; Farvaque, Etienne
    Abstract: We show that voters are fiscal conservatives, although in the long run only: while the average (over the mandate) level of debt has a negative impact on the probability of reelection, pre-election debt accumulation by incumbents increases their probability of reelection. As the negative impact is larger the higher the debt level, it compensates the short run effect. Elections thus appear as a disciplining device, even if a weak one.
    Keywords: Debt, Elections, Municipalities, Political Business Cycle
    JEL: D72 H72 H74
    Date: 2013
  3. By: Carlo V. Fiorio (University of Milan); Simon Mohun (Queen Mary University of London); Roberto Veneziani (University of Massachusetts, Amherst)
    Abstract: ln the last three decades, two questions have been central for the Left. ls 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. ln 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. ln particular, the structural dependence of labour on capital severely constrains feasible income distributions. ln 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. JEL Categories:
    Date: 2013–05
  4. By: Alex Gershkov; Benny Moldovanu; Xianwen Shi
    Abstract: We study dominant strategy incentive compatible (DIC) and deterministic mechanisms in a social choice setting with several alternatives. The agents are privately informed about their preferences, and have single-crossing utility functions. Monetary transfers are not feasible. We use an equivalence between deterministic, DIC mechanisms and generalized median voter schemes to construct the constrained-efficient, optimal mechanism for an utilitarian planner. Optimal schemes for other welfare criteria such as, say, a Rawlsian maximin can be analogously obtained.
    Keywords: Mechanism Design, Voting, Dominant Strategy, Utilitarian
    JEL: D82 D72 D71
    Date: 2013–08–07
  5. By: Christian von Soest (GIGA German Institute of Global and Area Studies); Michael Wahman (London School of Economics)
    Abstract: Since the end of the Cold War, Western powers have frequently used sanctions as a reaction to declining levels of democracy and human rights violations in authoritarian regimes. However, some of the world’s most repressive authoritarian regimes have never been subjected to sanctions, while other more competitive autocracies have been exposed to repeated sanction episodes instigated by Western democracies as an attempt to enhance democracy and human rights. In this paper, we investigate how the United States and the European Union have selectively used sanctions as a tool to improve the level of democracy in targeted authoritarian states. Using a new dataset on democratic sanctions between 1990 and 2010, time - series–cross-sectional logistic regression and a number of strategically selected case studies, we find strong support for the suggestion that senders select economically and politically vulnerable targets where the expected probability of sanction success is high.
    Keywords: democratic sanctions, authoritarian regimes, democratization, imposition, threats.
    Date: 2013–07
  6. By: Weinreich, Daniel
    Abstract: This paper introduces a work effort norm into a three-type ability approach to optimal linear income taxation. According to this social norm type, individuals experience stigma when working more or less than the average. This leads to a smaller dispersion in labor supply. The individual work incentives then induce post-tax income inequality to rise. Based on this, it can be shown that the socially optimal tax rate is unambiguously increasing with the strength of the work effort norm. Turning to majority voting the tax rate preferred by the median voter could decrease when the work effort norm is introduced. We can show that the majority tax rate turns out to be inefficiently low or high. Beyond, for large preference parameters the difference between the first-best tax rate and the majority tax rate seems to diminish. Further, for specific wage distributions there seem to exist a preference strength which ensures efficient taxation. Subsequently, the work effort norm can reduce the inefficiency implemented by majority voting.
    Keywords: optimal income taxation, majority voting work effort norm, labor supply, redistribution
    JEL: D70 H21 H30
    Date: 2013–08
  7. By: Eaton, Charlie; Weir, Margaret
    Abstract: Between 1980 and 2010 California’s health care policy field shifted from a business-dominated, closed-door pattern of decision making to an open political arena in which a wide-ranging and diversely resourced coalition advocating on behalf of beneficiaries had become an accepted partner in policymaking. This article examines this transformation, considering its broader implications for the political dynamics of the public-private welfare state and the role of advocacy groups in defending beneficiary interests. Our argument emphasizes coalition-building, probing not just which interests combine forces, but also showing how coalitions can expand over time and build their range of capabilities. We focus on three processes that build effective coalitions to influence public private policymaking: 1) an initial link that joins previously unconnected groups in umbrella organizations; 2) resource expansion that enlarges the engaged base by funding more diverse groups and expanding alliances with those organizations; 3) institutionalization of coalitional engagement by changing the rules of the game using such policy levers as regular hearings, provisions for participation, and transparency. We conclude by showing how these capabilities have positioned California to implement the Affordable Care Act and consider the implications for other states.
    Keywords: Social and Behavioral Sciences
    Date: 2013–08–05
  8. By: Weinreich, Daniel
    Abstract: We shed some light on fairness preferences regarding tax evasion. Individuals perceive income inequality which they are responsible for as fair (e.g. work effort) while inequality resulting from factors outside their reach is regarded as unfair (e.g. productivity or wage rate). This affects the incentives to hide income from tax authorities and supply labor. We set up a model where individuals simultaneously choose unreported income and work effort given a linear taxation scheme. We show the conditions for which individuals respond with lower or higher unreported income and work effort when fair tax evasion is introduced. Beyond, it can be shown that unreported income increases while work effort decreases when the tax rate is raised. Finally, we consider a majority voting over redistributive taxation. Thereby, it is shown that the median voter prefers lower (higher) taxation if she evades less (more) taxes than would be fair since raising the tax rate would enlarge (reduce) the deviation from fair tax evasion. This affects the moral cost as peceived by the individuals.
    Keywords: redistributive taxation, majority voting fairness, tax evasion, labor supply
    JEL: D31 D78 H26 H30
    Date: 2013–08
  9. By: Assaf Razin (Department of Economics)
    Abstract: The paper revisit the issue of whether tax competition is a race to the bottom. I analyze tax competion among a continuum of competing host countries facing an upward†sloping supply of would be igrants. Capital move freely across the host country economies. I show how the fiscal burden of migration brings out a tax competition equilibrium whereby taxes on labor and capital income are higher than under a coordination equilibrium.I then introduce foreign direct investment and show how it counteract the forces for high taxation.
    Date: 2013

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