nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒01‒17
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Voter suffrage and the political budget cycle: evidence from the London Metropolitan Boroughs 1902-1937 By Toke Aidt; Graham Mooney
  2. Margin of victory vs. opportunity-cost of time as voting motivators in the Biobio Region By Acuña, Andrés
  3. The Political Influence of Peer Groups: Experimental Evidence from the Classroom By Camila Campos; Sean Hargreaves Heap; Fernanda L L de Leon
  4. What's left of the left? Partisanship and the political economy of labour market reform: why has the social democratic party in Germany liberalised labour markets? By Patrick Lunz
  5. Political Institutions and Government Spending Behavior in Iran By Mohammad Reza Farzanegan; Sajjad Faraji Dizaji
  6. A Politico-Economic Model of Public Expenditure and Income Taxation By Joan Esteban; Laura Mayoral
  8. Deliberation, leadership and information aggregation By Javier Rivas; Carmelo Rodríguez-Álvarez
  9. Referenda outcomes and the influence of polls: a social network feedback process By Ariel Guerreiro; Joao Amaro de Matos
  10. Stock ownership and political behavior: Evidence from demutualization By Kaustia, Markku; Knüpfer, Samuli; Torstila, Sami
  11. Credit Constraints, Political Instability, and Capital Accumulation By Risto Herrala; Rima Turk Ariss
  12. Hooray for Global Justice? Emerging Democracies in a Multipolar World By Julian Culp; Johannes Plagemann
  13. To Ban or Not to Ban: Foreign Lobbying and Cross National Externalities By Toke Aidt; Uk Hwang
  14. Capitalism in Green Disguise: The Political Economy of Organic Farming in the European Union By Charalampos Konstantinidis

  1. By: Toke Aidt; Graham Mooney
    Abstract: We study the opportunistic political budget cycle in the London Metropolitan Boroughs between 1902 and 1937 under two different suffrage regimes: taxpayer suffrage (1902-1914) and universal suffrage (1921-1937). We argue and find supporting evidence that the political budget cycle operates differently under the two types of suffrage. Taxpayer suffrage, where the right to vote and the obligation to pay local taxes are linked, encourages demands for retrenchment and the political budget cycle manifests itself in election year tax cuts and savings on administration costs. Universal suffrage, where all adult residents can vote irrespective of their taxpayer status, creates demands for productive public services and the political budget cycle manifests itself in election year hikes in capital spending and a reduction in current spending.
    Keywords: Local public finance, voting franchise, suffrage, opportunistic political budget cycles, London
    JEL: D7 H1 H7
    Date: 2014–08–01
  2. By: Acuña, Andrés
    Abstract: The apathy for electoral and political participation in Latin America shows an increasing trend that deserves the scholar community's attention. In this sense, this paper models the voter registration decision in a mandatory voting system that includes the margin of victory as a potential motivator of voter enrollment. The empirical test is focused on the Biobio region, Chile, during the period 2003-2011. The results indicate that voter enrollment is negatively influenced by the margin of victory only if the model is separately regressed for presidential and mayoral elections. Marginal effects from W2LT regressions are lower in mayoral than in presidential elections, which indicates that the electorate participates depending on what is the political office in question. The citizen participation and racial effects are larger for men than women, which could reorient the design of public policy aimed to encourage the civic involvement of male indigenous population. Finally, the discrepancy between the W2LT results from two distant periods suggests a structural change in the Biobio's electorate during the last decade.
    Keywords: electoral participation; margin of victory; random effects Tobit model; voting behavior; Latin America; Chile
    JEL: C24 D72 O10
    Date: 2014–01
  3. By: Camila Campos (Insper); Sean Hargreaves Heap (King's College London); Fernanda L L de Leon (University of East Anglia)
    Abstract: People who belong to the same group often behave alike. Is this because people with similar preferences naturally associate with each other or because group dynamics cause individual preferences and/or the information that they have to converge? This is the question that we address with a natural experiment. We focus on the possible influence of peers on two types of individual political behaviour: political identification on a left-right spectrum and political engagement. We find no evidence that peer political identification affects individual identification. But we do find that peer engagement affects individual engagement, individual political knowledge and political identification among those who are initially least engaged. We argue this (and other evidence) is most likely to arise from peer effects on the information that individuals have and not their preferences.
    Date: 2013–12
  4. By: Patrick Lunz
    Abstract: The German social democratic party initiated in 2003 the greatest overhaul of labour market legislation in decades, severely cutting unemployment benefits and slashing employment protection legislation. How can we explain this radical policy shift? This paper will present a counter-intuitive answer, arguing that the SPD implemented the reforms because of electoral interests. The rationale is two-fold and relates to changes in labour market policy supply and policy demand. First, the German social democrats strategically adjusted their labour market policy supply, seeking to maximise their office pay-offs by appealing to the median voter in a competitive political space. Second, the shift in policy-supply is also a reaction to changes in labour market policy-demand, with crucial segments of the electorate turning more favourably to welfare state retrenchment. This shift disproportionally benefited the conservative CDU and liberal FDP and forced the SPD to reposition itself in the party landscape.
    Keywords: labour markets, partisanship, party competition
    JEL: J48 P16
    Date: 2013–07
  5. By: Mohammad Reza Farzanegan (University of Marburg); Sajjad Faraji Dizaji (University of Teheran)
    Abstract: This study examines how quality of political institutions affects the distribution of government budget and how development of government spending in major sections shapes the political institutions in Iran. This question has become especially important due to recent international sanctions, aiming to change the political behavior of Iran. We use the impulse response functions (IRF) and variance decomposition analysis (VDC) on the basis of Vector Autoregressive (VAR) model with annual data from 1960 to 2006. Our results show the importance of political institutions in patronage and public goods provision spending in Iran. The results imply that a shock in positive changes of democratic quality of institutions leads to negative and statistically significant response of military spending and positive and statistically significant response of education expenditures in short term. If sanctions are successful to change the political behavior of Iran in short run (Dizaji and Bergeijk, 2013), then one can also expect to see a reduction in llocated budget for military in Iran.
    Keywords: political institutions, government spending, Iran, VAR modelling, sanctions
    JEL: H11 H41 P16 O53 O43
    Date: 2014
  6. By: Joan Esteban; Laura Mayoral
    Abstract: We model the political process as consisting of voting on the issue considered salient, public expenditure, with a subsequent consensus over size of government and income taxation. We prove that for each majoritarian choice there is a unique consensus policy on progressivity and government size. We empirically validate the implication that the sign of the relationship between inequality and progressivity chosen by the median voter is conditional on the degree of substitutability between government and market supplied goods. We also obtain that this substitutability has a negative impact on the negative marginal effect of inequality on the size of government.
    Keywords: government policy, income taxation, public expenditure
    JEL: H23 H50 O50
    Date: 2013–11
  7. By: Jablanović, Vesna D.
    Abstract: This paper studies relation between government spending on agribusiness sector and the political business cycles. Governments try to improve their reelection prospects with the help of expansionary fiscal policies. Rising fiscal deficits before elections are followed by fiscal consolidation afterwards. Namely, this paper examines the relation between elections and government spending on agribusiness sector. It is supposed that government expenditure has been grouped into two categories: social protection and “economic affairs”. Further, it is supposed that the category 'economic affairs' covers support programmes, subsidies and public infrastructure spending in the agribusiness sector. Therefore, the structure of government expenditure is summarized by a downward-sloping curve, yielding a trade-off between government spending on social protection (as a short-run goal before election) and government spending on “agribusiness affairs” (as a long-run goal afterward). An opportunistic incumbent policy-maker has no preferences over government spending on social protection and government spending on “agribusiness affairs” per se and cares only about re-election. Government spending much more on social protection versus “agribusiness affairs” increases before elections. The basic aim of this paper is to set the model which describes the cyclical movement of the government spending on agribusiness sector. This model explains why government intervention causes cyclical movement of the government spending on agribusiness sector. The main source of conflict occurs between the short-run and long-run government goals.
    Keywords: Agriculture, Government expenditure, Fiscal policy, Agribusiness, Political Economy, Research Methods/ Statistical Methods, Q10, H50, H30,
    Date: 2013–09
  8. By: Javier Rivas (Department of Economics, University of Bath); Carmelo Rodríguez-Álvarez (Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa) (Department of Foundations of Economic Analysis II (Quantitative Economics)), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid))
    Abstract: We analyse committees of voters who take a decision between two options as a two- stage process. In a discussion stage, voters share non-verifiable information about a private signal concerning what is the best option. In a voting stage, votes are cast and one of the options is implemented. We introduce the possibility of leadership whereby a certain voter, the leader, is more influential than the rest at the discussion stage even though she is not better informed. We study information transmission and characterize the effects of the leader on the deliberation process. We find, amongst others, that both the quality of the decision taken by the committee and how truthful voters are at the discussion stage depends non-monotonically on how influential the leader is. In particular, although a leader whose influence is weak does not disrupt the decision process of the committee in any way, a very influential leader is less disruptive than a moderately influential leader.
    Keywords: Committees, Information Aggregation, Leadership, Voting
    JEL: D71 D72 D82
    Date: 2013–11–19
  9. By: Ariel Guerreiro; Joao Amaro de Matos
    Abstract: This paper proposes a model to explain the differences between outcomes of referenda and the voting trends suggested by polls. Two main effects are at stake. First, the evolution of the voters' attitudes is conditional on the public information made available to them. Second, the predisposition toward abstention among individuals within each voting group may be different. Our model describes how these two aspects of decision making may interact, showing how publicly available information may amplify the distinct tendency toward abstention between both groups and thus affect the outcome of the referendum. JEL codes:
    Date: 2013
  10. By: Kaustia, Markku; Knüpfer, Samuli; Torstila, Sami
    Abstract: A setting in which customer-owned mutual companies converted to publicly listed firms created a plausibly exogenous shock to salience of stock ownership. We use this shock to identify the effect of stock ownership on political behavior. Using IV regressions, difference-in-differences analyses, and matching methods, we find the shock changed the way people vote in the affected areas, with the demutualizations being followed by a 1.7–2.7 percentage points increase in rightof- center vote share. Analyses of demutualizations that did not involve public listing of shares suggest that explanations based on wealth, liquidity, and tax-related incentives do not drive the results. --
    Keywords: Stock market participation,political behavior,salience,attention
    JEL: D72 G11 P16
    Date: 2013
  11. By: Risto Herrala; Rima Turk Ariss
    Abstract: We investigate the complex interactions between credit constraints, political instability, and capital accumulation using a novel approach based on Kiyotaki and Moore’s (1997) theoretical framework. Drawing on a unique firm-level data set from Middle-East and North Africa (MENA), empirical findings point to a large and significant effect of credit conditions on capital accumulation and suggest that continued political unrest worsens credit constraints. The results support the view that financial development measured by a relaxing of financial constraints is key to macroeconomic development.
    Keywords: Credit ceilings;Middle East;North Africa;Transition economies;Capital accumulation;Capital accumulation; credit constraints; political unrest; MENA countries
    Date: 2013–12–16
  12. By: Julian Culp (Goethe University of Frankfurt); Johannes Plagemann (GIGA German Institute of Global and Area Studies)
    Abstract: Rising powers are fundamentally shifting the relations of power in the global economic and political landscape. International political theory, however, has so far failed to evaluate this nascent multipolarity. This article fills this lacuna by synthesizing empirical and normative modes of inquiry. It examines the transformation of sovereignty exercised by emerging democracies and shows that – in stark contrast to emerging democracies' foreign policy rhetoric – the "softening" of sovereignty has become the norm. The present paper assesses this softening of sovereignty on the basis of a "democratic-internationalist" conception of global justice. This conception holds that global justice demands the establishment of reasonably democratic transnational relations that enable people themselves to determine what else justice requires. Because we find that the exercise of soft sovereignty by emerging democracies contributes to the realization of reasonably democratic transnational relations, we conclude that this nascent multipolarity ought to be welcomed from the democratic-internationalist view of global justice.
    Keywords: Brazil, rising powers, emerging democracies, multipolarity, sovereignty, global jus-tice, global democracy
    Date: 2013–12
  13. By: Toke Aidt; Uk Hwang
    Abstract: This paper studies the costs and benefits of foreign lobbying. We show how and when foreign lobbying can help internalize cross national externalities. We argue that this is an often overlooked benefit of foreign lobbying. We also study under what conditions a constitutional rule banning foreign lobbying is in the national interest of a country. A key factor in this calculus is whether the interests of foreign lobby groups and domestic unorganized groups coincide or not. We illustrate the logic with examples from trade policy and environmental regulation.
    JEL: D62 D72
    Date: 2014–08–01
  14. By: Charalampos Konstantinidis
    Abstract: Organic farming is often presented as the success story of Rural Development policies in the European Union, having grown from a marginal activity to one covering more than 5% of European agricultural land. Even though organic farming is often thought of as small-scale farming, I show that organic farms in Europe display characteristics associated with capitalist agriculture. Organic farms are larger and more mechanized than conventional farms. Furthermore, organic farms are associated with wage-labor and use less labor per hectare than their conventional counterparts, casting doubt on the efficacy of organic farming in increasing labor demand in marginalized communities and acting as an effective tool for keeping rural residents in the countryside. These results present us with evidence of the “conventionalization†of organic farming, and with a significant case of “green-washing†of capitalist structures of production.
    Keywords: political economy, organic farming, agriculture, European Union
    JEL: B5 O13 P16 Q18
    Date: 2014–01

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