nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒01‒24
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. The indirect effects of direct democracy: Local government size and non-budgetary voter initiatives By Asatryan, Zareh
  2. The Price of Political Uncertainty: Theory and Evidence from the Option Market By Bryan Kelly; Lubos Pastor; Pietro Veronesi
  3. Decentralization and the Welfare State: What Do Citizens Perceive? By Díaz Serrano, Lluís; Rodríguez Pose, Andrés
  4. The effect of direct democracy on the level and structure of local taxes By Asatryan, Zareh; Baskaran, Thushyanthan; Heinemann, Friedrich
  5. Mind What Your Voters Read: Media Exposure and International Economic Policy Making By Giovanni Facchini; Tommaso Frattini; Cora Signorotto
  6. A Carrot and Stick Approach to Agenda-Setting By Dahm, Matthias; Glazer, Amihai,
  7. The impact of fiscal and political decentralization on local public investments in Indonesia By Krisztina Kis-Katos; Bambang Suharnoko Sjahrir
  8. The Conservativeness of the Central Bank when Institutional Quality is Poor By Ferré Carracedo, Montserrat; García Fortuny, Judit; Manzano, Carolina
  9. Special Interests and the Media: Theory and an Application to Climate Change By Jesse M. Shapiro
  10. Tax policy and income inequality in the US, 1979-2007 By Bargain, Olivier; Dolls, Mathias; Immervoll, Herwig; Neumann, Dirk; Peichl, Andreas; Pestel, Nico; Siegloch, Sebastian

  1. By: Asatryan, Zareh
    Abstract: Recently a wide and empirically-backed consensus has emerged arguing that direct democratic control over government's spending decisions through initiatives and referenda constrains government size. But what happens if budgetary matters are excluded from the voters' right of the initiative? I study this question by extending the analysis to German direct democracy reforms of the mid-1990s, which granted voters wide opportunities to initiate referenda on local issues, but neither the right, nor the responsibility of voting on the implied costs of these initiatives. By exploiting a novel dataset containing detailed information on close to 2,300 voter initiatives in the population of around 13,000 German municipalities from 2002 to 2009, I show that in this sample and in contrast to the Swiss and US evidence direct democracy causes an expansion of local government size by up to 8% in annual per capita expenditure and revenue per observed initiative (on economic projects). The main empirical challenge is the endogeneity of voters' unobserved preferences which simultaneously determine both their propensity towards exploiting their direct democracy rights and their preferences for local public policies. To address this issue I use state- and municipality-varying legislative thresholds on the minimum number of signatures required to initiate referenda and the time to collect these signatures as strong and exogenous instruments for observed initiatives. --
    Keywords: direct democracy,local public finances,Germany
    JEL: D72 D78 H70
    Date: 2014
  2. By: Bryan Kelly; Lubos Pastor; Pietro Veronesi
    Abstract: We empirically analyze the pricing of political uncertainty, guided by a theoretical model of government policy choice. After deriving the model's predictions for option prices, we test those predictions in an international sample of national elections and global summits. We find that political uncertainty is priced in the option market in ways predicted by the theory. Options whose lives span political events tend to be more expensive. Such options provide valuable protection against the risk associated with political events, including not only price risk but also variance and tail risks. This protection is more valuable in a weaker economy as well as amid higher political uncertainty.
    JEL: G12 G15 G18
    Date: 2014–01
  3. By: Díaz Serrano, Lluís; Rodríguez Pose, Andrés
    Abstract: Trust in public institutions and public policies are generally perceived as a precondition for economic recovery in times of recession. Recent empirical evidence tends to find a positive link between decentralization and trust. But our knowledge about whether decentralization – through increased trust – improves the perception of the delivery and effectiveness of public policies is still limited. In this paper we estimate the impact of fiscal and political decentralization on the perception of the state of the education system and of health services, by using the 2002, 2004, 2006 and 2008 waves of the European social survey. The analysis of the views of 160,000 individuals in 31 European countries indicates that while the effect of fiscal decentralization on the perception of the state of the health and education system is limited, political decentralization clearly affects citizen’s satisfaction with education and health delivery. The influence of political decentralization, however, is highly contingent on whether we consider the capacity of the local or regional government to exercise authority over its citizens (self-rule) or to influence policy at the national level (shared-rule). Keywords: Education, health, satisfaction, fiscal and political decentralization, Europe. JEL codes: H11, H77
    Keywords: Descentralització administrativa, Finances autonòmiques, Ensenyament públic, Salut pública, Satisfacció, Relacions intergovernamentals, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus,
    Date: 2013
  4. By: Asatryan, Zareh; Baskaran, Thushyanthan; Heinemann, Friedrich
    Abstract: We study the effect of direct democracy on local taxation. Our setting is the German federal state of Bavaria, where in 1995 a state-wide referendum introduced the possibility to initiate direct democratic legislation into the local government code. Relying on a sample of all Bavarian municipalities over the period 1980-2011, we hypothesize that complementing a representative form of government with direct democratic elements leads to (i) higher local tax rates and (ii) a shift of the local tax mix from taxes with broader (property taxes) to taxes with narrower bases (business taxes). For identification, we implement selection on observables and difference-in-discontinuity designs. Our results show that both actual direct democratic activity measured by the number of initiatives and the ease with which direct democratic legislation can be implemented measured by signature and quorum requirements increase local tax rates and shift the tax mix toward taxes with narrower bases. --
    Keywords: direct democracy,taxation,regression discontinuity,Bavaria
    JEL: D72 D78 H71
    Date: 2014
  5. By: Giovanni Facchini (University of Nottingham, University of Milan, CEPR, CES-Ifo, CrEAM, IZA and); Tommaso Frattini (University of Milan, CrEAM, IZA and Centro Studi Luca d’Agliano); Cora Signorotto (University of Milan and Centro Studi Luca d’Agliano)
    Abstract: e investigate the role of constituents’ preferences in shaping the voting behavior of elected representatives on immigration and trade policy. Using a novel dataset spanning the period 1986-2004, in which we match individual opinion surveys with congressmen roll call votes, we find that greater exposure to media coverage tends to increase a politician’s accountability when it comes to migration policy making, while we find no effect for trade policy. Our results thus suggest that more information on the behavior of elected officials affects decisions only when the policy issue is perceived to be salient by the electorate.
    Keywords: Trade Reforms, Immigration Reforms, Individual preferences, Media exposure
    JEL: F22 J61
    Date: 2013–10–13
  6. By: Dahm, Matthias; Glazer, Amihai,
    Abstract: This paper models a legislature in which the same agenda setter serves for two periods, showing how he can exploit a legislature (completely) in the first period by promising future benefits to legislators who support him. In equilibrium, a large majority of legislators vote for the first-period proposal because they thereby maintain the chance of belonging to the minimum winning coalition in the future. Legislators may therefore approve policies by large majorities, or even unanimously, that benefit few, or even none, of them. The results are robust; but institutional arrangements (such as entitlements) can reduce the agenda setter's power by reducing his discretion to reward and punish legislators, and rules (such as sequential voting) can increase a legislator's ability to resist exploitation. Keywords: Legislative bargaining, distributive politics, agenda-setting, proposal power. JEL C72, D72, D78.
    Keywords: Jocs no-cooperatius (Matemàtica), 32 - Política,
    Date: 2013
  7. By: Krisztina Kis-Katos; Bambang Suharnoko Sjahrir (Department of International Economic Policy, University of Freiburg)
    Abstract: We investigate the effects of the Indonesian decentralization and democratization process on budget allocation at the sub-national level. Based on panel data for 271 Indonesian districts for the years of 1994 to 2009, we address the determinants of local investment expenditures in public infrastructure in the sectors of education, health, and physical infrastructure. We find that after the dramatic expenditure decentralization of 2001, districts with relatively lower levels of public infrastructure started to invest more in these sectors. In contrast to the marked budgeting changes following the fiscal and administrative decentralization, we find no consistent effects of the democratization process on local public investments. Our results reflect initial improvements in local targeting but show no evidence of increasing electoral accountability.
    Keywords: Decentralization, democratic elections, budget allocation, Indonesia
    JEL: H72 H75
    Date: 2014–01
  8. By: Ferré Carracedo, Montserrat; García Fortuny, Judit; Manzano, Carolina
    Abstract: We propose an extension of Alesina and Tabellini 's model (1987) to include corruption, which is understood as the presence of weak institutions collecting revenue through formal tax channels. This paper analyses how conservative should an independent central bank be when the institutional quality is poor. When there are no political distortions, we show that the central bank has to be more conservative than the government, except with complete corruption. In this particular case, the central bank should be as conservative as the government. Further, we obtain that the relationship between the optimal relative degree of conservativeness of the central bank and the degree of corruption is affected by supply shocks. Concretely, when these shocks are not important, the central bank should be less conservative if the degree of corruption increases. However, this result may not hold when the shocks are relevant. JEL classi fication: D6, D73, E52, E58, E62, E63. Keywords: Central Bank Conservativeness; Corruption; Fiscal Policy; Monetary Policy; Seigniorage.
    Keywords: Economia del benestar, Corrupció, Bancs centrals, Política monetària, Política fiscal, 336 - Finances. Banca. Moneda. Borsa,
    Date: 2013
  9. By: Jesse M. Shapiro
    Abstract: I present a model in which competing special interests seek policy influence through the news media. In the model a journalist reports on expert opinion to a voter. Two competing interested parties can invest to acquire credentialed advocates to represent their positions in the press. Because advocates are easier to obtain when expert opinion is divided, the activities of special interests can reveal useful information to the voter. However, competition among special interests can also reduce the amount of information communicated to the voter, especially on issues with large economic stakes and a high likelihood of a scientific consensus. The model provides an account of persistent voter ignorance on climate change and other high-stakes scientific topics.
    JEL: D72 D83 Q54
    Date: 2014–01
  10. By: Bargain, Olivier; Dolls, Mathias; Immervoll, Herwig; Neumann, Dirk; Peichl, Andreas; Pestel, Nico; Siegloch, Sebastian
    Abstract: We assess the effects of U.S. tax policy reforms on inequality by applying a new decomposition method allowing us to disentangle the policy effect from changing market incomes. Over the period 1979-2007, the cumulative policy effect aggravated inequality by increasing the income share of the top 20% in contrast to the middle class' share. The tax policy effect accounts for up to 29% of the total change in inequality; its contribution increases up to 41% if we take into account behavioral responses. While Republican policymakers increased inequality especially at the top, Democrats increased the income share of the bottom 80%. --
    Keywords: Tax policy,Inequality,Redistribution,Partisan Politics,Political Economy
    JEL: H23 H31 H53 P16
    Date: 2014

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