nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒07‒13
fifteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Reaction of Elites in a Democratization Process: Evidence from Brazil By Raphael Bruce; Rudi Rocha
  2. Policy experimentation, political competition, and heterogeneous beliefs. By Antony Millner; Helene Ollivier; Leo Simon
  3. Superstars in politics: the role of the media in the rise and success of Junichiro Koizumi By Yamamura, Eiji; Sabatini, Fabio
  4. Ready to Reform: How Popular Initiatives Can Be Successful By Jaronicki, Katharina Eva; Marti, Christian; Bütler, Monika
  5. Bowling for fascism: social capital and the rise of the Nazi Party By Shanker Satyanath; Nico Voigtländer; Hans-Joachim Voth
  6. The effects of international politics on oil-exporting developing countries By Kashcheeva, Mila; Tsui, Kevin K.
  7. Corruption, Tax Evasion and Social Values By Anastasia Litinia; Theodore Palivos
  8. Optimal Prudential Regulation of Banks and the Political Economy of Supervision By Thierry Tressel; Thierry Verdier
  9. Why do oil importers diversify their import sources politically? : evidence from U.S. firm-level data By Kashcheeva, Mila; Tsui, Kevin K.
  10. Capitalism in Green Disguise: The Political Economy of Organic Farming in the European Union By Charalampos Konstantinidis
  11. The political economy of special needs transfers: Evidence from Bavarian municipalities, 1993-2011 By Baskaran, Thushyanthan
  12. Social norms on rent seeking and preferences for redistribution By Sabatini, Fabio; Sarracino, Francesco; Yamamura, Eiji
  13. Politik er (næsten) ligegyldigt for demonstrationer By Kurrild-Klitgaard, Peter
  14. How Individual Preferences are Aggregated in Groups: An Experimental Study By Attila Ambrus; Ben Greiner; Parag A. Pathak
  15. Política tributaria y economía fiscal en los enfoques de Hayek y Brenann/Buchanan By Estrada, Fernando; González, Jorge Iván

  1. By: Raphael Bruce; Rudi Rocha
    Abstract: This paper examines one of the possible channels through which incumbent elites aligned with the Brazilian dictatorship were able to withhold their political power during the democratization in the 1980s. Based on national household survey data and results from legislative elections, we first find that recently franchised illiterate voters who lived in states that were dominated by the elite party during the dictatorship had a higher probability to register to vote than those who lived in other states.We then investigate whether this positive correlation represents a reaction from the incumbent elites in order to keep their political power through voter manipulation or a reaction from these voters in order to remove the power from the oligarchies. We find that, in states dominated by the elite party, illiterates had higher probability of being politically uninterested and uninformed. Our results suggest that a politically motivated reaction from this population is implausible.
    Keywords: Democratization; Elites; Rural Oligarchy
    JEL: D72 D78 I25
    Date: 2014–06–26
  2. By: Antony Millner (London School of Economics and Political Science); Helene Ollivier (Paris School of Economics); Leo Simon (University of California, Berkeley)
    Abstract: We consider a two period model in which an incumbent political party chooses the level of a current policy variable unilaterally, but faces competition from a political opponent in the future. Both parties care about voters' payoffs, but they have different beliefs about how policy choices will map into future economic outcomes. We show that when the incumbent party can endogenously influence whether learning occurs through its policy choices (policy experimentation), future political competition gives it a new incentive to distort its policies – it manipulates them so as to reduce uncertainty and disagreement in the future, thus avoiding the costs of competitive elections with an opponent very different from itself. The model thus demonstrates that all incumbents can find it optimal to ‘over experiment’, relative to a counterfactual in which they are sure to be in power in both periods. We thus identify an incentive for strategic policy manipulation that does not depend on self-serving behavior by political parties, but rather stems from their differing beliefs about the consequences of their actions.
    Keywords: Beliefs, Learning, Political Economy.
    JEL: D72 D83 H40 P48
    Date: 2014–05
  3. By: Yamamura, Eiji; Sabatini, Fabio
    Abstract: This paper explores the role of mass media in people’s perceptions of charismatic leaders, focusing on the case of Junichiro Koizumi, Prime Minister of Japan from 2001 to 2006. Using survey data collected immediately after Koizumi’s 2005 landslide electoral victory, this study empirically assesses the influence of television (TV) and newspapers on individuals’ support for Koizumi and for the most distinctive policy action he announced during his campaign—the privatization of the postal service. The major findings are: (1) the frequency of exposure to mass media is positively related to the support for Koizumi but not for his principal policy and (2) a significant impact of TV is only observed among women. The habit of reading newspapers only slightly correlates with men’s support for Koizumi.. Our study’s results suggest that compared to a political platform, charisma and attractiveness wield a greater influence on TV watchers of the opposite sex. Television apparently works as a powerful amplifier of leaders’ appealing attributes. The resulting superstar effect may allow a charismatic candidate to win an election, even though his main agenda item (i.e., postal privatization) is strongly opposed by special interest groups and members of the ruling party. --
    Keywords: mass media,television,newspapers,election,Koizumi,Japan,voting behavior,social norms,social capital,superstar effect
    JEL: D72 L88 L82 Z13
    Date: 2014
  4. By: Jaronicki, Katharina Eva; Marti, Christian; Bütler, Monika
    Abstract: We study how direct democratic popular initiatives can break the politicians' agenda setting monopoly and allow for more reforms. The initiative process is modelled as a sequential game under uncertainty: petitioners collect signatures to qualify the initiative, politicians decide about a political compromise - a counter proposal - then petitioners have the option to withdraw the initiative before the popular vote. In the model counter proposals are key to amending the status quo. We explore the likelihood of changing the status quo based on the data set of all Swiss constitutional initiatives at federal level between 1891 and 2010. We test our model by using major institutional changes to the initiative process and comparing empirical outcomes to model predictions. We find that reforms are most likely once a far-reaching counter proposal is issued such that the initiative is withdrawn. Moreover, we find a significant but quantitatively modest effect of collecting more signatures than required to qualify the initiative on the probability of achieving a compromise. So while political compromises indeed facilitate reform, they also prevent strong initiatives from being implemented in their original form.
    Keywords: Direct Democracy; Popular Initiative; Status Quo Bias; Voting
    JEL: D72 P16
    Date: 2014–07
  5. By: Shanker Satyanath; Nico Voigtländer; Hans-Joachim Voth
    Abstract: Social capital is often associated with desirable political and economic outcomes. This paper connects a growing literature on the “dark side” of social capital with institutional change. We examine the downfall of democracy in interwar Germany. Using new data on Nazi Party entry in a cross-section of cities, we show that dense networks of civic associations such as bowling clubs, choirs, and animal breeders went hand-in-hand with a more rapid rise of the Nazi Party. Towns with one standard deviation higher association density saw at least one-third faster entry. All types of associations – veteran associations and non-military clubs, “bridging” and “bonding” associations – positively predict NS Party entry. Party membership, in turn, predicts electoral success. These results suggest that social capital aided the rise of the Nazi movement that ultimately destroyed Germany’s first democracy. We also show that the effects of social capital were more important in the starting phase of the Nazi movement, and in towns less sympathetic to its message.
    Keywords: Social capital, democracy, institutions, associations, networks
    JEL: N44 P16 Z10
    Date: 2014–06
  6. By: Kashcheeva, Mila; Tsui, Kevin K.
    Abstract: International politics affects oil trade. But does it affect the oil-exporting developing countries more? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine how these firms respond to changes in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To the extent that developing countries have higher hold-up risks because of their weaker institutions, the political effect on oil trade should be more significant in the developing world. We find that oil import decisions are indeed more elastic when firms import from developing countries, although the reverse is true in the short run. Our results suggest that international politics can affect oil revenue and hence long-term development in the developing world.
    Keywords: Developing countries, United States, International trade, Exports, Petroleum industry, International relations, Foreign investments, Energy resources, International politics, FDI-based imports, Hold-up risk, Energy security
    JEL: F13 F51 F59 Q34
    Date: 2014–03
  7. By: Anastasia Litinia (CREA, Université de Luxembourg); Theodore Palivos (Athens University of Economics and Business)
    Abstract: We provide empirical support and a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into. We address this issue in the context of a model with two distinct groups of agents: citizens and politicians. Citizens decide the fraction of their income for which they evade taxes. Politicians decide the fraction of the public budget that they speculate. We show that multiple self-fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities, indicating that corruption may corrupt. Furthermore, we find that standard deterrence policies cannot elimi- nate multiplicity. Instead, we find that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibirum.
    Keywords: Corruption, Tax Evasion, Mutiple Equilibria, Stigma
    JEL: D73 E62 H26
    Date: 2014
  8. By: Thierry Tressel; Thierry Verdier
    Abstract: We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show that the optimal capital ratio depends on the macro-financial cycle, and that, in presence of production externalities, it should be complemented by a constraint on asset allocation. We show that the political process tends to exacerbate excessive risk taking and credit cycles.
    Keywords: Bank supervision;Bank capital;Regulatory forbearance;Prudential bank regulations;Political economy;Moral hazard;Banking Regulation, Regulatory Forbearance, Political Economy.
    Date: 2014–05–28
  9. By: Kashcheeva, Mila; Tsui, Kevin K.
    Abstract: International politics affects oil trade. But why? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine what kinds of firms are more responsive to change in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To test this hold-up risk hypothesis, we investigate heterogeneity in responses by matching transaction-level import data with firm-level worldwide reserves. Our results show that long-run oil import decisions are indeed more elastic for firms with oil reserves overseas than those without, although the reverse is true in the short run. We interpret this empirical regularity as that while firms trade in the spot market can adjust their imports immediately, vertically-integrated firms with investment overseas tend to commit to term contracts in the short run even though they are more responsive to changes in international politics in the long run.
    Keywords: United States, International trade, International relatiolns, Petroleum industry, Imports, Foreign investments, Energy resources, International politics, FDI-based imports, Hold-up risk, Energy security
    JEL: F13 F51 F59 Q34
    Date: 2014–02
  10. 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
  11. By: Baskaran, Thushyanthan
    Abstract: This paper studies whether higher level governments treat politically aligned municipalities differently than unaligned ones when they provide special discretionary transfers to resolve acute fiscal problems (special needs transfers). By implementing a regression discontinuity design with a sample of municipalities in the German federal state of Bavaria over the period 1993-2011, I show that among the group of municipalities that receive special needs transfers of more than 10,000 Euros, those that are barely aligned with the state government have discontinuously higher debt, higher revenues from user fees and contributions, and higher local tax rates. Before the state government grants special needs transfers to aligned municipalities, they must evidently raise more own source revenues and experience worse fiscal difficulties than unaligned municipalities. Hence, aligned municipalities are treated less leniently. --
    Keywords: special needs transfers,political alignment,state and local governments
    JEL: H30 H71 H77
    Date: 2014
  12. By: Sabatini, Fabio; Sarracino, Francesco; Yamamura, Eiji
    Abstract: Empirical studies have shown that preferences for redistribution are significantly correlated with expectations of future mobility and the belief that society offers equal opportunities. We add to previous research by investigating the role of individual and social norms on rent seeking. We find that the individual propensity for stigmatizing rent seeking significantly and positively affects preferences for redistribution. On the other hand, living in an area where most citizens do not stigmatize rent seeking, makes men more favourable to redistribution, which may be seen as a social equalizer in an unfair society that does not offer equal opportunities to all. This effect does not hold for women, whose preference for redistribution is negatively associated to the regional tolerance of rent seeking. --
    Keywords: redistribution,welfare state,civic values,social norms,rent seeking,social capital
    JEL: D31 D63 D64 D72 H26 Z13
    Date: 2014
  13. By: Kurrild-Klitgaard, Peter
    Abstract: The paper communicates the essence of the findings of a study influencing participation in May Day demonstrations in Copenhagen 1980-2013. Political factors seem irrelevant for predicting the level of turn-out at May Day demonstrations. The most important factors are the weather conditions.
    Keywords: collective action; public choice; demonstrations
    JEL: H4 Z1
    Date: 2014
  14. By: Attila Ambrus (Department of Economics, Duke University); Ben Greiner (School of Economics, Australian School of Business, the University of New South Wales); Parag A. Pathak (Department of Economics, MIT)
    Abstract: This paper experimentally investigates how individual preferences, through unrestricted deliberation, are aggregated into a group decision in two contexts: reciprocating gifts and choosing between lotteries. In both contexts, we find that median group members have a significant impact on the group decision, but the median is not the only influential group member. Non-median members closer to the median tend to have more influence than other members. By investigating the same individual’s influence in different groups, we find evidence for relative position in the group having a direct effect on influence. These results are consistent with predictions from a spatial model of dynamic bargaining determining group choices. We also find that group deliberation involves bargaining and compromise as well as persuasion: preferences tend to shift towards the choice of the individual’s previous group, especially for those with extreme individual preferences.
    Keywords: group decision-making, role of deliberation, social influence
    JEL: C72 C92 H41
    Date: 2014–06
  15. By: Estrada, Fernando; González, Jorge Iván
    Abstract: We describe Hayek's position on taxation and its subsequent developments. Hayek defends the proportional tax system. If a majority rule corrects deviations from political power must also restrict the conditions of progressive taxation. According to Hayek the progressive tax system (SFP) violates a principle of constitutional law obligations to generate more work for those looking for the growth of the economy. In this sense, the progressive tax system operates counter to principles of democratic justice.
    Keywords: Tax power, Hayek, Buchanan, Tributación, Regla fiscal, Impuestos
    JEL: A10 A12 B22 B31 E01 E4 H2 H21 H23 H3 H32 H42 H43 K2 N0 N2
    Date: 2014–07

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