nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒09‒24
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries By Degryse, Hans; Lambert, Thomas; Schwienbacher, Armin
  2. Emotions and Political Unrest By Passarelli, Francesco; Tabellini, Guido
  3. What Happens When a Woman Wins an Election? Evidence from Close Races in Brazil By Brollo, Fernanda; Troiano, Ugo
  4. The Political Economy of Migration Policies in Oil-rich Gulf Countries By Mehlum, Halvor; Østenstad, Gry
  5. Autocracy, Democracy and Trade Policy By Sebastian Galiani; Gustavo Torrens
  6. From Green Users to Green Voters By Comin, Diego; Rode, Johannes
  7. Optimal Primaries By Patrick Hummel; Richard Holden
  8. A Political Economy of the Separation of Electoral Origin By Buisseret, Peter
  9. Bowling for Fascism: Social Capital and the Rise of the Nazi Party in Weimar Germany: 1919-33 By Satyanath, Shanker; Voigtländer, Nico; Voth, Hans-Joachim
  10. Dynamics of the Corruption Eradication in Indonesia By Situngkir, Hokky; Maulana, Ardian
  11. Do Social Rights Affect Social Outcomes? By Christian Bjørnskov; Jacob Mchangama
  12. The political economy of pricing and capacity decisions for congestible local public goods in a federal state By Bruno DE BORGER; Stefan PROOST
  13. Has the attitude of US citizens towards redistribution changed over time? By M. Grazia Pittau; Roberto Zelli
  14. The Effect of Corruption on Migration, 1985-2000 By Eugen Dimant; Tim Krieger; Daniel Meierriecks
  15. How Do Politicians Save? Buffer Stock Management of Unemployment Insurance Finance By Craig, Steven G.; Hemissi, Wided; Mukherjee, Satadru; Sørensen, Bent E
  16. Why do governments default, and why don't they default more often? By Buiter, Willem H.; Rahbari, Ebrahim

  1. By: Degryse, Hans; Lambert, Thomas; Schwienbacher, Armin
    Abstract: Initially, voting rights were limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development as this new electorate has lower financial holdings and benefits less from the uncertainty and financial returns from stock markets. Our panel data evidence covering 1830-1999 shows that tighter restrictions on the voting franchise induce a greater stock market development, whereas a broader voting franchise is more conducive towards the banking sector, consistent with Perotti and von Thadden (2006). Our results are robust to controlling for other political determinants and endogeneity.
    Keywords: banking sector; financial development; financial structure; political economy; stock markets; voting franchise
    JEL: D72 G10 O16 P16
    Date: 2013–09
  2. By: Passarelli, Francesco; Tabellini, Guido
    Abstract: This paper formulates a 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 consistent 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.
    Keywords: emotions; fairness; political economics; procrastrination; public debt; riots; unrest
    JEL: H0
    Date: 2013–05
  3. By: Brollo, Fernanda (University of Warwick); Troiano, Ugo (University of Michigan)
    Abstract: This paper analyzes the eect of the gender of local policymakers on policy outcomes. Analyzing a rich dataset from Brazilian municipalities and using a regression discon- tinuity design, we nd that municipalities ruled by female mayors have better health outcomes, receive more federal discretionary transfers, and have lower corruption. Addi- tionally, male mayors hire more temporary public employees than their female counter- parts when they are allowed to run for re-election, and when municipal elections are approaching. These ndings suggest that male mayors may promote more political pa- tronage than female mayors and that men and women may respond dierently to local election incentives.
    Keywords: election incentives, Brazil
    Date: 2013
  4. By: Mehlum, Halvor (Dept. of Economics, University of Oslo); Østenstad, Gry (Dept. of Economics, University of Oslo)
    Abstract: We study the political economy of migration policies in oil-rich Gulf countries focusing on two policy dimensions: a) the number of migrants allowed into the country and b) the assimilation of migrants, where less assimilated migrants on short-term contracts remit more. We develop a two goods macro model with traded and non-traded goods. The migration of guest workers leads to a wage drop hurting citizen workers, while capitalists and oil rent earners benefit. When foreign exchange is remitted out of the economy, the real exchange rate depreciates. The remittance outflow benefits oil rent earners while capitalists and workers lose. Hence the three classes of domestic agents have diverging interests with regard to their preferred policy mix. The results are important for understanding the changes in migration policy in the Gulf, in particular in relation to the sharing of oil rents and on the political influence of the working class and the capitalists.
    Keywords: Migration; Natural Resources; Gulf countries
    JEL: F22 O15 P16
    Date: 2013–05–31
  5. By: Sebastian Galiani; Gustavo Torrens
    Abstract: This paper develops a politico-economic model for use in studying the role of intra-elite conflict in the simultaneous determination of a country’s political regime, trade policy and income-tax-based redistribution scheme. Three socioeconomic groups are involved: two elite groups and workers, whose preferences regarding trade policy and income taxation are derived from a simple open-economy model. The critical point is that income taxation induces a rich-poor/elite-workers political cleavage, while trade policy opens the door to intra-elite conflict. In this model, when there is no intra-elite conflict, changes in trade policy are associated with political transitions. Coups (democratizations) open up the economy if and only if both elite factions are pro-free-trade (protectionist). However, in the presence of intra-elite conflict, autocracies respond to popular revolts by changing trade their policy and reallocating political power within the elite (to the elite group with the same trade policy preference as the workers) rather than offering to democratize the country. The change in trade policy is credible because the elite group with the same trade policy preference as the workers controls the autocracy. Moreover, in the presence of intra-elite conflict, coups tend to result in the maintenance of the existing trade policy unless popular demands are extremely radical and/or the elite group with the same trade policy preference as the workers is exceptionally weak.
    JEL: D72 D78
    Date: 2013–08
  6. By: Comin, Diego; Rode, Johannes
    Abstract: We estimate the effect of the diffusion of photovoltaic (PV) systems on the fraction of votes obtained by the German Green Party. The logistic diffusion of PV systems offers a new identification strategy. We take first differences and instrument adoption rates (i.e. the first difference in the diffusion level) by lagged diffusion levels. The existing rationales for non-linearities in diffusion, and ubiquity of logistic curves ensure that our instrument is orthogonal to variables that directly affect voting patterns. We find that the diffusion of domestic PV systems caused 25 percent of the increment in green votes between 1998 and 2009.
    Keywords: feed-in tariff; PV systems; technology diffusion; voting
    JEL: E13 O14 O33 O41
    Date: 2013–07
  7. By: Patrick Hummel; Richard Holden
    Abstract: We analyze a model of US presidential primary elections for a given party. There are two candidates, one of whom is a higher quality candidate. Voters reside in m different states and receive noisy private information about the identity of the superior candidate. States vote in some order, and this order is chosen by a social planner. We provide conditions under which the ordering of the states that maximizes the probability that the higher quality candidate is elected is for states to vote in order from smallest to largest populations and most accurate private information to least accurate private information.
    JEL: D71 D72 K19
    Date: 2013–08
  8. By: Buisseret, Peter (Department of Economics, University of Warwick)
    Abstract: Political constitutions frequently separate the roles of proposer and veto player in policy-making processes. A fundamental distinction lies in whether both offices are subject to direct and separate election, or whether the voter instead may directly elect the holder of only one office. In the latter case, the voter constitutionally forfeits a degree of ex-post electoral control. Why should she benefit from such a relatively coarse electoral instrument? When politicians' abilities are private information, actions taken by one agent provide information to the voter about both agents' types. A system in which the electoral fate of these agents is institutionally fused reduces the incentives of the veto player to build reputation through the specious rejection of the proposer's policy initiatives. This can improve the voter's inference about the types of politicians and her welfare, relative to a system in which the survival of the veto player is institutionally separated from that of the proposer. JEL classification: JEL codes:
    Date: 2013
  9. By: Satyanath, Shanker; Voigtländer, Nico; Voth, Hans-Joachim
    Abstract: Social capital – a dense network of associations facilitating cooperation within a community – typically leads to positive political and economic outcomes, as demonstrated by a large literature following Putnam. A growing literature emphasizes the potentially “dark side” of social capital. This paper examines the role of social capital in the downfall of democracy in interwar Germany by analyzing Nazi party entry rates in a cross-section of towns and cities. Before the Nazi Party’s triumphs at the ballot box, it built an extensive organizational structure, becoming a mass movement with nearly a million members by early 1933. We show that dense networks of civic associations such as bowling clubs, animal breeder associations, or choirs facilitated the rise of the Nazi Party. The effects are large: Towns with one standard deviation higher association density saw at least one-third faster growth in the strength of the Nazi Party. IV results based on 19th century measures of social capital reinforce our conclusions. In addition, all types of associations – veteran associations and non-military clubs, “bridging” and “bonding” associations – positively predict NS party entry. These results suggest that social capital in Weimar Germany aided the rise of the Nazi movement that ultimately destroyed Germany’s first democracy.
    Keywords: democracy; extremism; social capital
    JEL: N44 P16
    Date: 2013–08
  10. By: Situngkir, Hokky; Maulana, Ardian
    Abstract: The paper discusses an important aspect of the complexity of corruption eradication in Indonesia. Corruption eradication is practically not merely about law enforcement, but also related to social, economic, and political aspects of the nation. By extracting the data from national news media and implement models describing the sentiment relations among political actors, the connection between balance of the sentiment among political elites and the critical levels of the investigation and law enforcement is apparently demonstrated. The focus group discussions among experts, practitioners, and social activists confirm the model.
    Keywords: corruption eradication, Indonesia, KPK RI, political actor, sentiment relations
    JEL: C54 C60 C83 H0 K42 O10 Y1 Z13
    Date: 2013–09–12
  11. By: Christian Bjørnskov (Department of Economics and Business, Aarhus University); Jacob Mchangama (Center for Political Studies, Copenhagen, Denmark)
    Abstract: While the United Nations and NGOs are pushing for global judicialization of economic, social and cultural rights (ESCRs), little is known of their consequences. We provide evidence of the effects of introducing three types of ESCRs into the constitution: the rights to education, health and social security. Employing a large panel covering annual data from 160 countries in the period 1960-2010, we find no robust evidence of positive effects of ESCRs. We do, however, document adverse medium-term effects on education and inflation.
    Keywords: Human rights, human development, constitutional political economy
    JEL: K19 H11 O11
    Date: 2013–09–10
  12. By: Bruno DE BORGER; Stefan PROOST
    Abstract: This paper studies the political economy of pricing and investment for excludable and congestible public goods in a federal state. Currently, we observe a wide variety of practices, ranging from federal gasoline taxes and road investment to the local supply of -- and sometimes free access to -- libraries, parking spaces and public swimming pools. The two-region model we develop allows for spill-overs between regions, it takes into account congestion, and it captures both heterogeneity between and within regions. Regional decisions are taken by majority voting; decisions at the federal level are taken either according to the principle of a minimum winning coalition or through cooperative bargaining. We have the following results. First, when users form the majority in at least one region, decentralized decision making performs certainly better than centralized decision making if spill-overs are not too large. Centralized decisions may yield higher welfare than decentralization only if users have a large majority and the infrastructure in a given region is intensively used by both local and outside users. Second, if non-users form a majority in both regions, centralized and decentralized decision making yield the same socially undesirable outcome, with prices that are much too high. Third, both bargaining and imposing uniform price restrictions across regions improve the performance of centralized decisions. Fourth, the performance of decentralized supply is strongly enhanced by local self-financing rules; it prevents potential exploitation of users within regions. Self-financing rules at the central level are not necessarily welfare-improving. Finally, the results of this paper contribute to a better understanding of actual policy-making.
    Date: 2013–09
  13. By: M. Grazia Pittau (Sapienza Universita' di Roma); Roberto Zelli (Sapienza Universita' di Roma)
    Abstract: Demand for redistribution has been traditionally investigated within a static scenario, giving the perception of a stationary association between individual determinants and preferences. Using repeated cross-sectional survey data from the General Social Survey over the period 1978{2010, we model individual preferences in the U.S. within a chronological perspective. We t a a logistic non-nested multilevel model with three dierent levels of variation: individuals, time and cohort. Despite an overall stable trend in demand for redistribution, we nd that driving factors in shaping redistributive preferences have changed rapidly. Personal income is always a strong predictor, with the poor-rich gap increasing over time. Large changes have characterized the eects of education, ethnic bonds and self-declared party identication. Over time, highly educated people have increased their probability to be in favor of redistribution while the less educated have become less prone. Ethnicity mattered more in the 1970s than in the 2000s. In the 2000s it is party aliation that shapes preferences rather than ethnic bonds: white and black democrats have similar feelings toward redistribution and so do white and black republicans.
    Keywords: Individual preferences, demand for redistribution, multilevel models, time-varying slopes models, weakly informative priors.
    JEL: C3 D31 D6 H23
    Date: 2013–09
  14. By: Eugen Dimant (University of Paderborn); Tim Krieger (University of Freiburg); Daniel Meierriecks (University Freiburg)
    Abstract: We examine the influence of corruption on migration for 111 countries between 1985 and 2000. Robust evidence indicates that corruption is among the push factors of migration, especially fueling skilled migration. We argue that corruption tends to diminish the returns to education, which is particularly relevant to the better educated.
    Keywords: Corruption, Migration, Skilled Migration, Push Factors of Migration
    JEL: D73 F22 O15
    Date: 2013–03
  15. By: Craig, Steven G.; Hemissi, Wided; Mukherjee, Satadru; Sørensen, Bent E
    Abstract: This paper successfully fits a model of forward looking government savings behavior to data from the U.S. state Unemployment Insurance (UI) programs 1976-2008. Specifically, we find states do not perfectly smooth tax rates in Barro's sense, but follow behavior consistent with a buffer stock model where politicians trade-off their desire to immediately expend all savings against the fear of running out of funds. We find that states increase benefits or lower taxes when savings balances are high. State UI budgets, as rationalized by the buffer stock model, display surpluses that are more pro-cyclical than Barro's model would imply but substantially less cyclical than contemporaneous budget balance.
    Keywords: forward looking politicians; impatience; precautionary saving
    JEL: E21 H11 H74
    Date: 2013–06
  16. By: Buiter, Willem H.; Rahbari, Ebrahim
    Abstract: This paper considers the economic and political drivers of sovereign default, focusing on countries rich enough to render sovereign default a ‘won’t pay’ rather than a ‘can’t pay’ phenomenon. Unlike many private contracts, sovereign debt contracts rely almost exclusively on self-enforcement rather than on third-party enforcement. Among the social costs of sovereign default are contagion and concentration risk, both within and outside the jurisdiction of the sovereign, and ‘rule of law externalities’. We consider illiquidity as a separate trigger for sovereign default and emphasize the role of lenders of last resort for the sovereign. Not only do political economy factors drive sovereign insolvency, they also influence the debt sustainability analyses performed by national and international agencies. We consider it likely that the absence of sovereign defaults in the advanced economies since the (West) German defaults of 1948 and 1953 until the Greek defaults of 2012 was a historical aberration that is unlikely to be a reliable guide to the future.
    Keywords: fiscal sustainability; intertemporal budget constraint; political economy.; solvency; sovereign default; strategic default
    JEL: E62 E63 F34 F41 G01 G18 H26 H63
    Date: 2013–05

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