nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒01‒10
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. The political roots of intermediated lobbying: evidence from Russian firms and business associations By Andrei Govorun; Israel Marques; William Pyle
  2. Do bailouts buy votes? Evidence from a panel of Hessian municipalities By Baskaran, Thushyanthan
  3. The Democracy abridged: Factors in Restricting Political Competition By Konstantin Yanovskiy; Sergey Zhavoronkov; Ilia Zatcovecky; Ekaterina Kudryavceva
  4. Market-based Lobbying: Evidence from Advertising Spending in Italy By Stefano DellaVigna; Ruben Durante; Brian Knight; Eliana La Ferrara
  5. Political Risk Spreads By Geert Bekaert; Campbell R. Harvey; Christian T. Lundblad; Stephan Siegel
  6. Democracy of "Taxation-Redistribution" and Peacetime Budget Deficit By Konstantin Yanovskiy; Sergey Zhavoronkov; Dmitry Shestakov
  7. Bargaining Power and Majoritarian Allocations By McCain , Roger
  8. Corruption, Inequality of Income and economic Growth in Nigeria By Muhammad, Yusuf

  1. By: Andrei Govorun (National Research University Higher School of Economics); Israel Marques (National Research University Higher School of Economics); William Pyle (Economics Department, Middlebury College)
    Abstract: How does political competition shape the way that firms pursue legislative change? A rich political economy literature describes various ways in which firms influence the design and enforcement of laws, rules and regulations germane to their business activities. Although helpful, this literature is disconnected from work on legislative accountability and political concentration. Making a distinction poorly developed in prior research, we contrast firms that choose to influence policy directly, through un-mediated contacts with executive and legislative branch personnel, and those that do so indirectly, through lobby groups acting as intermediaries. We propose a simple theory that relates the relative costs of lobbying and the strategies firms select to the extent of political competition and concentration. As competition increases and concentration decreases in a region, the use of indirect channels of lobbying becomes more attractive (and vice versa). We test our theory using a survey of 1013 firms across 61 Russian regions. Exploiting substantial variation in political competition and concentration across Russia’s regions, we find that firms in politically competitive environments, where there is less concentration, are more likely to use business associations to influence their institutional environment. Using a survey of 315 business associations, we show that these effects may be explained by the variation of the willingness of regional decision-making officials to support more or less encompassing policies depending on local political environment
    Keywords: lobbying, democratic institutions, business associations, Russia
    JEL: D71 D72
    Date: 2013
  2. By: Baskaran, Thushyanthan
    Abstract: I study whether bailouts of local governments carry electoral benefits for state governments with a dataset covering 421 municipalities in the German state of Hesse over the period 1999-2011. I find that past bailouts have no economically significant effect on the municipality-level vote share of the parties that formed the state government in subsequent state elections. On the other hand, bailouts lead to vote increases for the ruling parties in subsequent local elections. On balance, these results suggest that electoral concerns are not the reason why central governments find it difficult to commit to a no-bailout policy.
    Keywords: Subnational bailouts, state-level elections, local fiscal policy
    JEL: D72 H30 H74 H77
    Date: 2013
  3. By: Konstantin Yanovskiy (Gaidar Institute for Economic Policy); Sergey Zhavoronkov (Gaidar Institute for Economic Policy); Ilia Zatcovecky (Samuel Neaman Institute for Advanced Studies in Science and Technology); Ekaterina Kudryavceva (Samuel Neaman Institute for Advanced Studies in Science and Technology)
    Abstract: “Improvements” in the mechanisms of democracy for making decisions about providing taxpayer-financed public goods can lead the economy in the same direction as authoritarianism. Such a by-product may be insignificant, but, even if so, a tradition of abridging democracy, similarly to an authoritarian tradition of long standing, can lend itself to correction only with great difficulty. There is a series of countries in which the dominance of one party during certain historical periods seemed quite obvious: Japan (1955-1993, but in fact, after a brief break, until 2009), Mexico (1929-2000), Italy (1947-1993), Sweden (1932-1976, as well as 20 out of the 23 years between 1982-2005), Israel (1948-1977), India (until 1977, 1980-1989, 1991-1998, i.e., for practically 46 out of 50 years the country was ruled by a single group), Botswana, and others. Tendencies of placing constraints on competition in the mass media by means of taxpayer financing of propaganda in favor of the position of very certain groups and coalitions are international. Today they have spread throughout most democratic countries of the world. This is a situation in which words about “protecting” the competition may imply eliminating it (as, for example, in Israel). Weakening of political and media competition causes weakening of guarantees for property rights; lowering of the transparency of the state, its responsibility and accountability to the electorate and to the taxpayers; Increase in opportunities for deriving revenues for interests groups, and limiting of opportunities (increase in costs) for coordination of steps to be taken by the population so as to protect their own rights and legal interests..
    Keywords: media market, public TV, political competition, property rights
    JEL: D72 D73 D78
    Date: 2013
  4. By: Stefano DellaVigna; Ruben Durante; Brian Knight; Eliana La Ferrara
    Abstract: An extensive literature has studied lobbying by special interest groups. We analyze a novel lobbying channel: lobbying businessmen-politicians through business proxies. When a politician controls a business, firms attempting to curry favors shift their spending towards the politician’s business. The politician benefits from increased revenues, and the firms hope for favorable regulation in return. We investigate this channel in Italy where government members, including the prime minister, are not required to divest business holdings. We examine the evolution of advertising spending by firms over the period 1994 to 2009, during which Silvio Berlusconi was prime minister on and off three times, while maintaining control of Italy’s major private television network, Mediaset. We predict that firms attempting to curry favor with the government shift their advertising budget towards Berlusconi’s channels when Berlusconi is in power. Indeed, we document a significant pro-Mediaset bias in the allocation of advertising spending during Berlusconi’s political tenure. This pattern is especially pronounced for companies operating in more regulated sectors, as predicted. Using a model of supply and demand in the advertising market, we estimate one billion euros of extra revenue to Berlusconi’s group. We also estimate the expected returns in regulation to politically motivated spenders of similar magnitude, stressing the economic importance of this lobbying channel. These findings provide an additional rationale for rules on conflict of interest.
    Date: 2013
  5. By: Geert Bekaert; Campbell R. Harvey; Christian T. Lundblad; Stephan Siegel
    Abstract: We introduce a new, market-based and forward looking measure of political risk derived from the yield spread between a country’s U.S. dollar debt and an equivalent U.S. Treasury bond. We explain the variation in these sovereign spreads with four factors: global economic conditions, country-specific economic factors, liquidity of the country’s bond, and political risk. We then extract the part of the sovereign spread that is due to political risk, making use of political risk ratings. In addition, we provide new evidence that these political risk ratings are predictive, on average, of future risk realizations using data on political risk claims as well as a novel textual-based database of risk realizations. Our political risk spread measure does not make the mistake of double counting systematic risk in the evaluation of international investments as some conventional measures do. Furthermore, we show how to construct political risk spreads for countries that do not have sovereign bond data. Finally, we link our political risk spreads to foreign direct investment. We show that a one percent point reduction in the political risk spread is associated with a 12 percent increase in net-inflows of foreign direct investment.
    JEL: F21 F23 F36 G15 G31 H25 K33 M21 O16 O19
    Date: 2014–01
  6. By: Konstantin Yanovskiy (Gaidar Institute for Economic Policy); Sergey Zhavoronkov (Gaidar Institute for Economic Policy); Dmitry Shestakov (Gaidar Institute for Economic Policy)
    Abstract: The link between an introduction of the universal suffrage and the growth of government spending has been established in some literature (Meltzer, Richard, 1981, Aidt et al., 2006, Funk and Guthmann, 2006). In this article we try to identify a more detailed mechanism behind that link. So, we addressed to the conflict of interest of bureaucrats, and of the state subsidy beneficiaries. Historically the growth of government spending might be traced to the emergence of mainstream left parties, which openly stood in favor of the nanny state and government help from the cradle to the grave[1] as a priority over the provision of pure public goods. Finally we check the hypothesis that the growth of government care correlates with the chronic illnesses of the modern state finance like budget deficit, state debt and inflation.
    Keywords: Universal Suffrage; Left parties; Budget Deficit; Conflict of Interest.
    JEL: D72 D73 H62 N40
    Date: 2013
  7. By: McCain , Roger (School of Economics LeBow College of Business Drexel University)
    Abstract: It seems that decisions in many voting bodies might be described by a two-stage decision in which the first stage is a bargaining process and the second is a vote that is often a formality. This does not mean that the voting is irrelevant, but, rather, that it limits the threats that may be made and so influences bargaining power at the first stage. We will explore a two-stage game in which the first stage is a bargaining process and the game terminates if there is an agreement, while at the second stage, if there is no agreement at the first stage, a contested election is held to determine the joint strategy of the body. Bargaining power at the first stage is attributed to minimum winning coalitions in the possible second stage election. In an idealization of such a two-stage game, majority groups have equal bargaining power, and nonmajority groups have none. This paper uses a recent extension of bargaining theory that attributes bargaining power to groups as well as individuals and assumes that a minimum winning voting bloc has bargaining power one and other groups and individuals have bargaining power zero. For TU games, this yields a striking rule for the bargaining solution: the surplus generated by the coalition is either distributed as equal payouts, or distributed among the members with lesser individual rationality constraints, so that their payouts are equal, while others get their individual rationality constraints. In the tradition of cooperative game theory, we assume that the bargaining is successful and explicitly consider only the bargaining stage. In a digression, a model of a business enterprise as a TU game is developed, and the voting model is applied to contrast decisions in a worker cooperative (which makes decisions on the basis of majority rule among the employee members) with for-profit corporations and other organizational forms.
    Keywords: voting; cooperative games; bargaining
    JEL: C71 C78 D72
    Date: 2013–12–01
  8. By: Muhammad, Yusuf
    Abstract: The paper examines empirically, the effects of corruption on inequality of income and economic growth. Firstly, the long run structural relationship is examined through the technique of Autoregressive distributed lag model (ARDL). Secondly, the causality relationship is measured empirical results suggest a long run relationship between corruption, inequality of income and economic growth in the Nigeria. Emphasizing on the channels of influence of growth, the finding, in the dynamic corruption equation indicates that the coefficient of the economic growth is significantly negative. This implies that despite much rhetoric to the contrary fighting corruption in Nigeria requires resources. More so, the finding suggests inequality of income directly impact on economic growth. This implies that economic growth rises with inequality of income. The policy implication is that Nigeria economic growth problems are structural as such fighting corruption require huge economic resources.
    Keywords: Co-integration, Inequality of income, per -capita income, Poverty
    JEL: O10
    Date: 2013–11

This nep-pol issue is ©2014 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.