nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒04‒29
six papers chosen by
Eugene Beaulieu
University of Calgary

  1. Participation in Fraudulent Elections By Dmitriy Vorobyev
  2. Candidates' Quality and Electoral Participation: Evidence from Italian Municipal Elections By De Benedetto, Marco Alberto; De Paola, Maria
  3. The Cost of Political Tension: An Anatomy By He, Yinghua; Nielsson, Ulf; Wang, Yonglei
  4. Political knowledge and attitudes toward (de)centralization in Europe By Floriana Cerniglia; Laura Pagani
  5. The Differential Effects of Law, Culture and Political Risk on Fees, Performance and Risk-Taking Behavior of Islamic and Conventional Funds By Mehri, Meryem
  6. The Political Economy of Property Tax Reform By Enid Slack; Richard M Bird

  1. By: Dmitriy Vorobyev
    Abstract: I analyze a costly voting model of elections, in which the incumbent can stuff the ballot box, to investigate how electoral fraud affects the participation decisions of voters. I find that two stable equilibria may exist: first, a full abstention equilibrium, where the incumbent wins with certainty, which exists only if the incumbent's capability to stuff a ballot box is suffciently strong. Second, a more efficient coordination equilibrium, where a substantial share of a challenger's supporters vote and the probability of the incumbent being defeated is large. Since voters do not take into account positive externality they produce on other voters when deciding to cast their votes, participation in coordination equilibrium is still inefficiently low. Thus, subsidization as well as introducing compulsory voting may improve efficiency. Because the higher capability of the incumbent to stuff a ballot box discourages the participation of his own supporters and creates coordination incentives for the challenger's supporters, higher fraud does not always benefit the incumbent, even when costless. Additionally, the model simultaneously explains two empirical observations about fraudulent elections: a positive relationship between fraud and victory margin and a negative effect of fraud on turnout.
    Keywords: voting; fraud; participation;
    JEL: D72 D73
    Date: 2014–02
  2. By: De Benedetto, Marco Alberto (Birkbeck, University of London); De Paola, Maria (University of Calabria)
    Abstract: We analyze the impact of the quality of candidates running for a mayor position on turnout using a large data set on Italian municipal elections held from 1993 to 2011. We firstly estimate a municipal fixed effects model and show that an increase in the average quality of candidates competing at the electoral race produces a positive impact on turnout. To handle endogeneity issues arising from time variant unobservable features of electoral races, we build on the literature showing that politicians' quality is positively affected by their wage and apply a Fuzzy Regression Discontinuity Design relying on the fact that in Italy the wage of the mayor increases non-monotonically at different thresholds. Results show that an exogenous increase in the average quality of candidates, induced by a higher wage, leads to an increase in turnout by about 2 percentage points.
    Keywords: politicians' quality, turnout, fuzzy regression discontinuity design, instrumental variables
    JEL: D72 D78 J45
    Date: 2014–04
  3. By: He, Yinghua; Nielsson, Ulf; Wang, Yonglei
    Abstract: The paper examines how increased political tension affects stock returns and identifies the channels through which this occurs. Focusing on Taiwan's sovereign debate, we find that non-violent events harming the political relationship with mainland China are associated with an average daily drop of 200 basis points in Taiwanese stock returns. Expectations of mild tension also adversely affect stock returns. The impact is stronger on firms located close to potential conflict zones and on Taiwanese firms openly supporting the pro-independence party. The adverse effect on political opponents concentrates on those firms economically exposed to mainland China through either investments or exports.
    Keywords: political tension, political connections, China, Taiwan
    JEL: F51 G14 G15
    Date: 2014–04
  4. By: Floriana Cerniglia; Laura Pagani
    Abstract: The allocation of competences between the EU and Member States is one of most burning issues in the history of the European integration. From a theoretical economic perspective, this ongoing process calls into question the theory of fiscal federalism. In this paper, we study empirically the impact of European citizens’ knowledge about the EU on their attitudes toward the allocation of competences. We use micro-data from the Eurobarometer survey. We find that more knowledgeable citizens are more willing to favour centralization of competences to the EU in areas where public intervention by individual Member States causes externalities, where scale economies in the provision of public goods are important and where redistributive and stabilization functions have to be pursued.
    Keywords: European Union, Information, Policy opinions, Political Economy
    JEL: H7 D8
    Date: 2014–04
  5. By: Mehri, Meryem
    Abstract: This paper considers an international sample of conventional and Islamic mutual funds to assess whether law, culture, and political risk affect the performance, risk-taking behavior and compensation fees of mutual funds. Overall, the results show strongly that legal conditions, culture, and political risk have robust differential effects on fees, performance and risk-taking behavior of Islamic funds and conventional funds. We find that Islamic mutual funds in countries with higher legal conditions receive lower fees, whereas conventional funds receive higher carried interest, lower fixed management fees and weaker expense ratio. In such conditions, conventional and Islamic fund managers have lower performance and take higher specific and systematic risk. Overall, Hoefsted culture’s measures affect significantly the fees structure, performance and risk-taking behavior with robust differential effects on Islamic and conventional funds. Focusing on political risk effects, we show that, in countries with higher political risk, carried interest and performance will be higher, whereas the specific and systematic risk will be stronger for Islamic and conventional funds. The components of country legality and political risk Index have significant differential effects on Islamic and conventional funds’ characteristics.
    Keywords: Performance; Risk; Managerial Compensation; Incentive Contracts; Mutual funds; Law and finance; Political risk;
    JEL: K29 G23 G24
    Date: 2014–03
  6. By: Enid Slack; Richard M Bird
    Abstract: Property taxes are generally considered by economists to be good taxes, and many countries are being advised to increase and improve their property taxes. In practice, however, property tax reforms have often proved to be difficult to carry out successfully. This paper discusses why property taxes are particularly challenging to reform and suggests several ways in which efforts to reform this tax may become more successful in the future. After a brief introductory section on the ‘disconnect’ between the economics and the politics of property tax reform, Section 2 summarizes recent experiences in five OECD countries with property tax reform. Against this background, Section 3 sets out the key elements of a good property tax reform and Section 4 discusses several aspects of property tax reform that seem to have derailed or distorted reforms in practice. Unfortunately, some of the solutions countries have adopted to deal with such problems are themselves problematic, either because they do not really solve the problem or because they hamper rather than work towards the establishment of a good property tax. Fortunately, as Section 5 outlines, it is possible to devise strategies for property tax reform that incorporate more acceptable solutions to most problems. As Section 6 concludes, good property tax reform is not easy. But it can definitely be achieved if an appropriately designed reform package is properly introduced and implemented.
    Keywords: tax reform, political economy, property tax
    JEL: D78 H24 H25 H71
    Date: 2014–04–09

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