nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒05‒17
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Electoral Rules and the Quality of Politicians: Theory and Evidence from a Field Experiment in Afghanistan By Andrew Beath; Fotini Christia; Georgy Egorov; Ruben Enikolopov
  2. Fairness in Tax compliance: A Political Competition Model By Ángel Solano García
  3. Elections and de facto Expenditure Decentralization in Canada By Mario Jametti; Marcelin Joanis
  4. More than Words and Good Intentions: The Political Agenda-Setting Power By Juan Felipe Riaño-Rodríguez
  5. The Effect of Elections on Economic Growth: Results from a Natural Experiment in Indonesia By Moricz, Sara; Sjöholm, Fredrik
  6. The Effect of Governance and Political Instability Determinants on Inflation in Iran By Khani Hoolari, Seyed Morteza; Abounoori, Abbas Ali; Mohammadi, Teymour
  7. The labor market effects of trade unions Layard meets Melitz By Marco de Pinto; Jochen Michaelis
  8. Gender difference in support for democracy in sub-Saharan Africa: Do social institutions matter? By Konte, Maty
  9. Overcoming reform resistance and political implementation of large-scale welfare state reforms By Hans Pitlik; Friedrich Heinemann; Rainer Schweickert
  10. Weathering the Global Financial Crisis - Is Direct Democracy of any Help? By Mario Jametti
  11. Curriculum and Ideology By Davide Cantoni; Yuyu Chen; David Y. Yang; Noam Yuchtman; Y. Jane Zhang
  12. Nationalism and Economic Exchange: Evidence from Shocks to Sino-Japanese Relations By Raymond Fisman; Yasushi Hamao; Yongxiang Wang
  13. Habemus Papam ?Polarization and Conflict in the Papal States By Francisco Pino; Jordi Vidal-Robert
  14. Trade unions in an emerging economy: The case of South Africa By Bhorat, Haroon; Naidoo, Karmen; Yu, Derek
  15. Economic Well-being and Anti-Semitic, Xenophobic, and Racist Attitudes in Germany By Naci H. Mocan; Christian Raschke
  16. Corruption in Chinese Privatizations By Raymond Fisman; Yongxiang Wang
  17. The Hidden Curriculum and Social Preferences By ITO Takahiro; KUBOTA Kohei; OHTAKE Fumio

  1. By: Andrew Beath; Fotini Christia; Georgy Egorov; Ruben Enikolopov
    Abstract: We examine the effect of electoral rules on the quality of elected officials using a unique field experiment which induced randomized variation in the method of council elections in 250 villages in Afghanistan. In particular, we compare at-large elections, with a single multi-member district, to district elections, with multiple single member districts. We propose a theoretical model where the difference in the quality of elected officials between the two electoral systems occurs because elected legislators have to bargain over policy, which induces citizens in district elections to vote strategically for candidates with more polarized policy positions even at the expense of candidates' competence. Consistent with the predictions of the model, we find that elected officials in at-large elections are more educated than those in district elections and that this effect is stronger in more heterogeneous villages. We also find evidence that elected officials in district elections have more biased preferences.
    JEL: D72 D78
    Date: 2014–05
  2. By: Ángel Solano García (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: This paper analyzes the political economy of income redistribution when voters are concerned about fairness in tax compliance. We consider a two stage-model where there is a two-party competition over the tax rate and over the intensity of the tax enforcement policy in the first stage, and voters decide about their level of tax compliance in the second stage. We find that if the concern about fairness in tax compliance is high enough, a liberal middle-income majority of voters may block any income redistribution policy. Alternatively, we find an equilibrium in which the preferences of the median voter are ignored in favor of a coalition formed by a group of relatively poor voters and the richest voters. In this equilibrium income redistribution prevails with no tax enforcement.
    Keywords: tax evasion, political parties, income redistribution, fairness.
    JEL: D72 H26
    Date: 2014–04–15
  3. By: Mario Jametti (University of Lugano); Marcelin Joanis (Université de Sherbrooke)
    Abstract: This paper empirically investigates the underlying determinants of expenditure decentralization, based on the predictions of a new political economy model of partial decentralization. The analysis is based on an agency model, in which two levels of government are involved in the provision of a public good and voters are imperfectly informed about each government's contribution to the good, creating a shared accountability problem. Under shared expenditure responsibility, the degree of decentralization is endogenous and depends on the relative political conditions prevailing at each level of government. Consistent with the model's predictions, empirical results from a panel of Canadian provinces show that decentralization in a province increases with the electoral strength of the provincial government and decreases with the electoral strength of the federal government, in addition to being affected significantly by the partisan affiliation of both levels of government. A series of alternative empirical specifications, including an IV regression exploiting campaign spending data, are presented to assess the robustness of these results.
    Keywords: Fiscal decentralization; Fiscal federalism; Vertical interactions; Partial Decentralization; Elections
    JEL: R50 H77 D72
    Date: 2014
  4. By: Juan Felipe Riaño-Rodríguez
    Abstract: Abstract In this paper, international aid is examined as a tool for political agenda-setting. A theoretical model is constructed for the analysis, incorporating the incentives created by foreign aid, on the political benefits of recipient governments. The model also incorporates the compensating benefits provided by these governments through the legitimization of the donor country's political agenda. The main results of this model indicate that governments which offer international assistance can in inffluence the political agenda of recipient countries through two channels: 1) By reducing the political costs of official intervention in issues that receive aid, and 2) By generating incentives for additional political rent-seeking. The results are studied in the case of aid provided by the USA to Colombia during the period 1998-2012, which shows the power of US presidents to establish part of the Colombian political agenda related to drugs and terrorism. The results are obtained through a novel content analysis of presidential speeches in both countries and from a set of estimates corrected by possible problems of endogeneity in foreign aid allocation.
    Keywords: Agenda-Setting, Foreign Aid, Content Analysis, International- Politics
    Date: 2014–04–14
  5. By: Moricz, Sara (Lund University); Sjöholm, Fredrik (Lund University)
    Abstract: Does democracy increase economic growth? Previous literature tends to find a positive effect but does also suffer from possible endogeneity problems: democratization is typically not random and might be affected by factors that also have an impact on economic growth. This paper narrows down the question to empirically estimating the causal effect of local elections on local economic growth in Indonesia by using a quasi-experimental research method. The first direct elections of district leaders in Indonesia were performed in a staggered manner, and decided such that the year of election is exogenous. Thus, growth in districts that have had their first elections of district heads can be compared with growth in districts that have not had a direct election, which more specifically is performed by using a difference-in-difference approach. Our estimations show no general effect of local elections on economic growth. The result is robust to various robustness tests and is supported by data that show small effects of elections on governance.
    Keywords: Democracy; Elections; Growth; Indonesia; Natural experiment
    JEL: H11 O10 O43
    Date: 2014–05–08
  6. By: Khani Hoolari, Seyed Morteza; Abounoori, Abbas Ali; Mohammadi, Teymour
    Abstract: Empirical literature that examines the determinants of inflation in Iran has suggested inflation as a monetary phenomenon. This study investigates the effect of political instability and governance parameters on inflation in Iran over 1959 to 2010. This research sought to identify the profound factors which determine inflation in Iran. Using a combination of the predictions of Fiscal Theory of Price Level (FTPL) determination and Political Economy of Macroeconomic Policy (PEMP) literature and applying the Generalized Method of Moments (GMM), we study this relationship through two different models. The results of monetary model indicate that the effects of monetary determinants depend on the political environment of Iran. The political model expresses a positive relationship between inflation and political instability and governance parameters.
    Keywords: Governance Political instability Major Cabinet Changes Government Crisis Inflation
    JEL: C52 O38 P48
    Date: 2014–01
  7. By: Marco de Pinto (IAAEU & University of Trier); Jochen Michaelis (University of Kassel)
    Abstract: Trade unions are typically able to convert their industrial power into political power. We show that, depending on the parameter constellation, stronger trade unions may be welfare-improving in terms of an increase in aggregate employment and output, if they successfully lobby for lower trade barriers set by the government.
    Keywords: Trade unions, lobbying, trade liberalization.
    JEL: F13 F16 J51
    Date: 2014
  8. By: Konte, Maty
    Abstract: Little investigation has been made to explain why women are less likely than are men to support democracy in sub-Saharan Africa. This gender difference in politics has been found in numerous studies and may hinder the much needed legitimation of democracy
    Keywords: support for democracy, gender difference, social institutions
    Date: 2014
  9. By: Hans Pitlik; Friedrich Heinemann; Rainer Schweickert
    Abstract: Long-term beneficial welfare state reforms not only face opposition from powerful insiders and beneficiaries of the system in place. While potential losers from a policy change are often relatively easy to spot, ewll-designed reforms generate mostly diffuse gains, and the potential winners are much more difficult to identify. Moreover, gains from reforms regularly do not accrue immediately but only after a costly adjustment or a frictional re-organisation process. Policy change on a large scale hence occasionally triggers political resistance from politically vocal losers, but sometimes also from prospective winners. Overcoming both the 'rational' and ostensibly 'irrational' obstacles to policy change is thus a core challenge of political reform management. A key message is that important factors for successful change have found too little attention in the literature, compared to technical aspects of reform implementation In that respect, policy bundling and developing economic compensation strategies are important devices to mitigate opposition to reform, However, communication of reform goals, credible political commitment, conformity with fairness norms and moral beliefs, trust formation and social learning play important roles for acceptability of reforms in society.
    Date: 2014–04
  10. By: Mario Jametti (University of Lugano)
    Abstract: The global financial crisis and the European debt crisis have loomed large over the globe, with severe consequences on government finances in many countries. Switzerland has fared relatively well throughout this crisis. In this paper, surveying a selection of empirical research on Switzerland, we argue that direct democracy might be one (but not the only) reason why Switzerland has weathered the storm exceptionally well.
    Keywords: Fiscal Direct democracy; Financial Crisis
    JEL: R50 H77 D72
    Date: 2014
  11. By: Davide Cantoni; Yuyu Chen; David Y. Yang; Noam Yuchtman; Y. Jane Zhang
    Abstract: We study the causal effect of school curricula on students’ stated beliefs and attitudes. We exploit a major textbook reform in China that was rolled out between 2004 and 2010 with the explicit intention of shaping youths’ ideology. To measure its effect, we present evidence from a novel survey we conducted among 2000 students at Peking University. The sharp, staggered introduction of the new curriculum across provinces allows us to identify the effects of the new educational content in a generalized difference in differences framework. We examine government documents articulating desired consequences of the reform, and identify changes in textbook content and college entrance exams that reflect the government’s aims. These changes were often effective: study under the new curriculum is robustly associated with changed views on political participation and democracy in China, increased trust in government officials, and a more skeptical view of free markets.
    JEL: I20 P00
    Date: 2014–05
  12. By: Raymond Fisman; Yasushi Hamao; Yongxiang Wang
    Abstract: We study the impact of nationalism and interstate frictions on international economic relations by analyzing market reaction to adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure suffer relative declines during each event window; a symmetric effect is observed for Chinese companies with high Japanese exposure. The effect on Japanese companies is more pronounced for those operating in industries dominated by Chinese state-owned enterprises, while firms with high Chinese employment experience lower declines. These results emphasize the role of countries’ economic and political institutions in mediating the impact of interstate frictions on firm-level outcomes.
    JEL: F13 F51 G14 G15
    Date: 2014–05
  13. By: Francisco Pino; Jordi Vidal-Robert
    Abstract: We study the effect of divisions within the elite on the probability of internalconflict in the Papal States between 1295 and 1846. We assemble a new databaseusing information on cardinals that participated in conclaves during this period,and construct measures of polarization and fractionalization based on the cardinals’places of birth. The deaths of popes and cardinals provide plausible exogenousvariation in the timing of the conclave and the composition of the Collegeof Cardinals, which we exploit to analyze the causal effect of a divided conclaveon conflict. We find that an increase of one standard deviation in our measure ofpolarization raised the likelihood of internal conflict by between 2 and 3 percentin a given year and by up to 18 percent in a given papacy. The effect is largestin the initial years after the conclave, to gradually vanish over time. Our resultsconfirm that cardinals’ influence on the politics of the Papal States decreased afterreforms introduced between 1586 and 1588. Our measure of religious productivity,however, is negatively and significantly linked to polarization in the post-reformperiod. These reforms were successful in shifting the effect of divisions among theelite of one of the largest and oldest organizations from violent conflict to religiousmatters.
    JEL: D72 D74 N33 N43 Z12
    Date: 2014–05
  14. By: Bhorat, Haroon; Naidoo, Karmen; Yu, Derek
    Abstract: This paper provides a historical overview of the South African trade union movement, followed by a brief discussion of the labour market legislation and institutions formed since 1994. Thereafter, a detailed evaluation of the impact of trade unions, legis
    Keywords: trade unions, labour market efficiency, wage premium, strikes, political economy, South Africa
    Date: 2014
  15. By: Naci H. Mocan; Christian Raschke
    Abstract: The fear and hatred of others who are different has economic consequences because such feelings are likely to translate into discrimination in labor, credit, housing, and other markets. The implications range from earnings inequality to intergenerational mobility. Using German data from various years between 1996 and 2010, we analyze the determinants of racist and xenophobic feelings towards foreigners in general, and against specific groups such as Italians and Turks. We also analyze racist and anti-Semitic feelings towards German citizens who differ in ethnicity (Aussiedler from Eastern Europe) or in religion (German Jews). Individuals’ perceived (or actual) economic well-being is negatively related to the strength of these feelings. Education, and having contact with foreigners mitigate racist, anti-Semitic and xenophobic feelings. People who live in states which had provided above-median support of the Nazi party in the 1928 elections have stronger anti-Semitic feelings today. The results are not gender-driven. They are not an artifact of economic conditions triggering feelings about job priority for German males, and they are not fully driven by fears about foreigners taking away jobs. The results of the paper are consistent with the model of Glaeser (2005) on hate, and with that of Akerlof and Kranton (2000, 2005) on identity in the utility function.
    JEL: I30 J15 Z1
    Date: 2014–04
  16. By: Raymond Fisman; Yongxiang Wang
    Abstract: We document evidence of corruption in Chinese state asset sales. These sales involved stakes in partially privatized firms, providing a benchmark – the price of publicly traded shares – to measure underpricing. Underpricing is correlated with deal attributes associated with misgovernance and corruption. Sales by “disguised” owners that misrepresent their state ownership to elude regulatory scrutiny are discounted 5-7 percentage points more than sales by other owners; related party transactions are similarly discounted. Analysis of subsequent operating performance provides suggestive evidence that aggregate ownership transfers improve profitability, though not in cases where the transfers themselves were corrupted.
    JEL: D73 G30 L33
    Date: 2014–05
  17. By: ITO Takahiro; KUBOTA Kohei; OHTAKE Fumio
    Abstract: This paper investigates the effects of the informal school curriculum (hidden curriculum) on subsequent preference formation. The estimation results using Japanese data show that the hidden curriculum at public elementary schools varies widely from place to place, and is associated with preference formation. In particular, those who have experienced "participatory and cooperative learning" practices are more likely to be altruistic, cooperative, reciprocal, and have national pride. In contrast, the influence of educational practices emphasizing "anti-competition" is negatively associated with these attributes. Robustness checks also show that our estimates are less likely to be biased due to omitted variables or reverse causality. These findings imply that elementary school education, as a place for early socialization, plays a role in the formation of social preferences.
    Date: 2014–05

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