nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒09‒05
five papers chosen by
Eugene Beaulieu
University of Calgary

  1. Elections and de facto Expenditure Decentralization in Canada By Mario Jametti; Marcelin Joanis
  2. A fractionally cointegrated VAR analysis of economic voting and political support By Maggie E. C. Jones; Morten Ørregaard Nielsen; Michael Ksawery Popiel
  3. Macroeconomic Performance, Individual Characteristics and Preference for Democracy By Maryia Akulava
  4. Income Inequality and Political Polarization: Time Series Evidence Over Nine Decades By Duca, John V.; Saving, Jason L.
  5. Piketty’s Elasticity of Substitution: A Critique By Gregor Semieniuk

  1. By: Mario Jametti; Marcelin Joanis
    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,
    Date: 2014–04–01
  2. By: Maggie E. C. Jones (Queen?s University); Morten Ørregaard Nielsen (Queen?s University and CREATES); Michael Ksawery Popiel (Queen?s University)
    Abstract: We use a fractionally cointegrated vector autoregressive model to examine the relationship between Canadian political support and macroeconomic conditions. This model is well suited for the analysis because it allows multiple fractional time series and admits simple asymptotic inference for the model parameters and tests of the hypotheses of interest. In the long-run equilibrium, we find that support for the Progressive Conservative Party was higher during periods of high interest rates and low unemployment, while support for the Liberal Party was higher during periods of low interest rates and high unemployment. We also test and reject the notion that party support is driven only by relative (to the United States) economic performance. Indeed, our findings suggest that US macroeconomic variables do not enter the long-run equilibrium of Canadian economic voting (political opinion poll support) at all.
    Keywords: Economic voting, fractional cointegration, political economy, vector autoregressive model
    JEL: C32 D72
    Date: 2014–08–07
  3. By: Maryia Akulava
    Abstract: What affects individual preference for different types of political regime? This paper investigates the determinants of individual preferences for democratic values and looks at differences in impact of influencing factors in transition and non-transition countries. It combines both individual and country level characteristics in order to see whether they impact personÕs attitude. I found that preferences for democracy are formed by impact of both individual and country-level factors. However, the direction of impact depends on the type of political regime and stage of economic development in the country. First, GDP per capita, growth of inequality and inflation are positively affecting personal preferences for democratic values in the democratic countries and negatively in the countries with autocratic regime. In turn, growth of unemployment in democratic countries decreases individual support of democracy and has a positive impact on support in the countries with autocratic regime. That agrees with the literature that beliefs and attitude towards political systems depend on countryÕs past experience. Age has different effect in transition and non-transition economies proving that being raised in different environments matters in terms of formation of political preferences.
    Keywords: Democracy, macroeconomic factors, individual characteristics, transition countries
    JEL: D7 J2 O1 P1 P2
    Date: 2014–08
  4. By: Duca, John V. (Federal Reserve Bank of Dallas); Saving, Jason L. (Federal Reserve Bank of Dallas)
    Abstract: Rising income inequality and political polarization have led some to hypothesize that the two are causally linked. Properly interpreting such correlations is complicated by the multiple factors that drive each of these phenomena, potential feedbacks between inequality and polarization, measurement issues, and statistical challenges for modeling non-stationary variables. We find that a more precise measure of inequality (the inverted Pareto-Lorenz coefficient) is statistically related to polarization while a less precise one (top 1% income share) is not, and that there are bi-directional feedbacks between polarization and inequality. Findings support a nuanced view of the links between polarization and inequality.
    Keywords: political polarization; inequality
    JEL: D31 D63 D72
    Date: 2014–01–01
  5. By: Gregor Semieniuk (New School for Social Research, New York, NY)
    Abstract: This note examines Thomas Piketty’s (2014) explanation and prediction of simultaneously rising capital income ratio and profit share by an elasticity of substitution, σ, greater than one between labor and capital in an aggregate production function. Semieniuk reviews Piketty’s elasticity argument, which relies on a non-standard capital definition. In light of the theory of land rent, he discusses why the non-standard capital definition is problematic for estimating elasticities. For lack of existing results, Semieniuk makes a simple estimate of σ in the class of constant elasticity of substitution functions for Piketty’s data as well as for a subset of his capital measure that comes closer to the standard capital definition. The estimation results cast doubt on Piketty’s hypothesis of a σ greater than one.
    Keywords: Piketty, elasticity of substitution, capital definition, theory of rent, classical political economy, wealth
    Date: 2014–08

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