nep-pol New Economics Papers
on Positive Political Economics
Issue of 2013‒10‒05
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Voting for income-immiserizing redistribution in the Meltzer-Richard model By Barnett, Richard C.; Bhattacharya, Joydeep; Bunzel, Helle
  2. Proactive Management, Reactive Management, and Perceived Political Support By Young-Joo Lee; Sangyub Ryu
  3. Theocracy By Metin M. Cosgel; Thomas J. Miceli
  4. Political Inequality and the Origins of Distrust: Evidence for Colombia By Alvarez Villa, Daphne
  5. Less Is More? Implications of Regulatory Capture for Natural Resource Depletion By Sheetal Sekhri; Sriniketh Nagavarapu
  6. The Fiscal Regime of an Expanding State: Political Economy of Ottoman Taxation By Metin M. Cosgel
  7. Segregation and Social Conict: An Empirical Analysis By Miguel Vargas; Alejandro Corvarlan
  8. Corruption, Networking and Foreign Ownership: Recent Evidence from CEE Countries By Pal, Sarmistha

  1. By: Barnett, Richard C.; Bhattacharya, Joydeep; Bunzel, Helle
    Abstract: This paper argues that income received via redistributive transfers, unlike labor income, requires no direct sacrifice of leisure; this makes it attractive to many voters even if it leaves them poorer. This point is made within the classic Meltzer and Richard (1981) model wherein heterogeneous voters evaluate an income-redistribution program that finances a lump-sum transfer to all via a distorting income tax. The political-equilibrium policy under majority rule is the tax most preferred, utility-wise, by the median voter. She, and many poorer voters, may support income redistribution that, ironically, leaves them poorer in income terms but with higher utility.
    Keywords: income redistribution; voting; Meltzer-Richard
    JEL: D72 E6 H2
    Date: 2013–09–30
  2. By: Young-Joo Lee (The University of Texas at Dallas); Sangyub Ryu (International University of University)
    Abstract: Starting from the assumption that political support is essential for public managers to manage their organizations, this study investigates factors that enhance political leaders' support toward top executives in public organizations. Based on the literature of proactive behaviors, this study tests hypothesis that proactive managers are more likely to acquire political support. Analyses on more than 500 cases in Texas school districts find that superintendents perceive more support from their school board members as they proactively interact with their board members, proactively express their opinions to the board, protect their organizations from external events, and exercise strong discretion in decision making within their organization. However, too much proactiveness threatening discretion of school board members does not help obtaining political support. This study suggests that top managers need to take strategic approach to enhance political support. Lastly, this study preliminarily finds that political support is significantly and positively associated with organizational performance.
    Keywords: Inequality, proactive management, reactive management, political support, performance
    Date: 2013–09
  3. By: Metin M. Cosgel (University of Connecticut); Thomas J. Miceli (University of Connecticut)
    Abstract: Throughout history, religious and political authorities have had a mysterious attraction to each other. Rulers have established state religions and adopted laws with religious origins, sometimes even claiming to have divine powers. We propose a political economy approach to theocracy, centered on the legitimizing relationship between religious and political authorities. Making standard assumptions about the motivations of these authorities, we identify the factors favoring the emergence of theocracy, such as the organization of the religion market, monotheism vs. polytheism, and strength of the ruler. We use two sets of data to test the implications of the model. We first use a unique data set that includes information on over three hundred polities that have been observed throughout history. The results provide strong empirical support for our arguments about why in some states religious and political authorities have maintained independence, while in others they have integrated into a single entity. To examine these issues in current societies, we use recently available cross-country data on the relationship between religious and political authorities.
    Keywords: theocracy, state, politics, religion, church, legitimacy, loyalty, monotheism, polytheism, democracy, power
    JEL: H10 P5 N4 Z12
    Date: 2013–10
  4. By: Alvarez Villa, Daphne
    Abstract: This paper aims to identify the effect of political exclusion on social capital in Colombia, suggesting social capital as an important channel through which political inequality has been central for Colombian economic development. I use the Colombian National Front agreement during 1958-1974 to test my hypothesis, as it institutionalized the political exclusion of non-traditional parties in that country. Whereas it affected all regions at the same time, it implied differential effects according to the municipalities’ initial political diversity. The empirical strategy deals with the potential endogeneity in the variation of the treatment by using region fixed effects and relevant control variables in a cross-section model, as well as performing robustness checks. I further use panel fixed effects models with electoral turnout as a measure of social capital. I find that political exclusion imposed by the National Front may have led to less trusting individuals today, to a higher perception of free riding behaviors and to lower levels of electoral turnout. I also find that a possible channel through which political exclusion in the past may be able to explain social capital in the present is distrust towards the state.
    Keywords: Political Institutions; Social Capital; Democracy; Colombia
    JEL: N46 O12 O17 Z13
    Date: 2013–08
  5. By: Sheetal Sekhri; Sriniketh Nagavarapu
    Abstract: Well-designed regulation can check politically driven ineciencies, but it can also ex- acerbate distortions if politicians capture the regulators. We examine the consequences of strengthening India's electricity transmission regulatory structure for groundwater ex- traction, where electricity is the key input, and we nd evidence of regulatory capture by politicians. Guided by our model, in which politicians of national and regional parties compete for parliamentary seats, we show that empowering regulators amplied distortions in groundwater extraction in favor of national candidates, who have greater incentives and abilities to co-opt the regulators. Using nationally representative groundwater data from India for 1996-2006, we estimate that regulatory capture led to a 2.75 meter additional de- cline in water tables in closely-contested constituencies won by national parties' candidates. The short-term cost in closely-contested regional constituencies is around an 18 percent re- duction in agricultural production.
    Keywords: Regulatory Capture; Groundwater Depletion; Political Capture
    JEL: O10 O13 Q54
    Date: 2013–10
  6. By: Metin M. Cosgel (University of Connecticut)
    Abstract: An expanding state has to decide how to tax the newly conquered lands, most likely taxed under a different regime. It can either preserve the prevailing system of taxation or change it to conform to its own system. The choice depends on the relative efficiency of the two systems, political constraints, and the political legitimacy of the ruler (formulated here as his ability to collect the tax revenue). This paper examines the problem of how an expanding state would establish a fiscal regime by focusing on the tax system of the Ottoman Empire during its expansion between the fourteenth and sixteenth centuries. After outlining the general structure of the Ottoman system of taxation, it develops a simple theoretical framework to analyze the political economy of an expanding state's choice of a fiscal regime, applies this framework to the Ottoman Empire, and analyzes the interaction between tax rates and bases in a more specific context, namely the system of discriminatory taxation that the Ottomans inherited in the Fertile Crescent.
    Keywords: fiscal regime, taxation, conquest, state, political economy, religion, legitimacy, loyalty, constraints, power
    JEL: D8 H2 J4 L3 M5 N4
    Date: 2013–09
  7. By: Miguel Vargas (Facultad de Economía y Empresa, Universidad Diego Portales); Alejandro Corvarlan (Facultad de Economía y Empresa, Universidad Diego Portales)
    Abstract: In this paper, we empirically investigate the relationship between ethnic segregation and social conflict. We argue that segregation can increase the collective articulation within groups and the difference between preferences, which can increase conflict intensity. Our focus is on ethnic segregation because we follow the idea that although conflicts can be economically motivated, they need other aspects to find their expression, such as religion, language or ethnicity. Using a panel data model, we find robust evidence on the relationship between segregation and social conflict even after controlling for polarization and fractionalization.
    Date: 2013–08
  8. By: Pal, Sarmistha (University of Surrey)
    Abstract: The present paper argues that the effect of corruption on foreign ownership is not necessarily linear and depends on the level of host corruption. So long as the expected returns from foreign investments exceed its expected costs, higher host corruption will be associated with higher foreign ownership. However, costs may exceed or exactly compensate the returns to foreign investment at very high level of corruption, giving rise to negative or even an insignificant relationship when positive and negative effects outweigh each other. Further, we argue that this non-linear corruption effects may arise from multinational firms' attempts to investing in countries with similar environment and/or ensuring some formal networking with host countries in a bid to limit the damages caused by high level of host corruption. Panel fixed effects estimates (after correcting for foreign entry selection) using a recent large home-host matched panel data from central and eastern European host countries provide some support to these hypotheses: (i) higher corruption is associated with significantly higher foreign ownership unless corruption is at its fourth quartile value. (ii) There is also some confirmation that this non-linear corruption effects is linked to parent firms' attempts to ensure institutional similarity while investing in corrupt host countries: in particular, foreign multinationals from EU/OECD home countries tend to hold higher ownership in EU/OECD host countries and also when the home-host relative corruption distance is small.
    Keywords: corruption, relative corruption, EU/OECD home-host link, foreign ownership, joint venture vs sole subsidiaries, Central and Eastern Europe
    JEL: F23 G32 L24 O17 P33
    Date: 2013–09

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