nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒10‒03
nine papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Selection with Pessimistic Voters By Alvaro Forteza
  2. Isolated Capital Cities, Accountability, and Corruption: Evidence from US States By Filipe R. Campante; Quoc-Anh Do
  3. Partisanship, Ideology, and Representation in Latin America By Sebastián Saiegh
  4. Public Education and Social Security: A Political Economy Approach By Tetsuo Ono
  5. Financial Crises, Political Constraints, and Policy Responses By Zorobabel Bicabay; Daniel Kapp; Francesco Molteni
  6. ‘The Economic Impact of Prolonged Political Instability: A Case Study of Fiji’ By Xiaodong Gong; Maheshwar Rao
  7. Exchange Rate Populism By Sainan Huang; Cristina Terra;
  8. Sociology and political science in the patrimonial society: implications of Piketty's Capital By Francois Bonnet; Clément Théry
  9. Public spending and growth: the role of institutions By Atsuyoshi Morozumi; Francisco José Veiga

  1. By: Alvaro Forteza (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República.)
    Abstract: I analyze political agency models with potentially two equilibria, one in which elections are e¤ective selection mechanisms and only "good" individuals participate in politics and another one in which elections are not e¤ective and "bad" individuals participate in politics. These equilibria are self-ful.lling prophecies: if citizens expect a low-quality political class, bad individuals will participate and the political class will have low quality. If citizens expect a high-quality political class, only good individuals will have incentives to participate and the political class will be of high quality. The model exhibits only the good equilibrium if the proportion of good individuals in the society is su¢ ciently high. I analyze the impact of popularity shocks and redistribution on the set of equilibria.
    Keywords: Agencia polÌtica, selecciÛn polÌtica, equilibrios m?ltiples
    JEL: E69 P16
    Date: 2013–10
  2. By: Filipe R. Campante (Harvard University); Quoc-Anh Do (Département d'économie)
    Abstract: We show that isolated capital cities are robustly associated with greater levels of corruption across US states, in line with the view that this isolation reduces accountability. We then provide direct evidence that the spatial distribution of population relative to the capital affects different accountability mechanisms: newspapers cover state politics more when readers are closer to the capital, voters who live far from the capital are less knowledgeable and interested in state politics, and they turn out less in state elections. We also find that isolated capitals are associated with more money in state-level campaigns, and worse public good provision.
    JEL: D72 D73 H41 H83 K42 R23
    Date: 2014–08
  3. By: Sebastián Saiegh
    Abstract: This paper uses joint scaling methods and similar items from three large-scale surveys to place voters, parties and politicians from different Latin American countries on a common ideological space. Contrary to the conventional wisdom, the findings reveal that the "median" voter in Latin America is located to the left of the ideological spectrum, and that voter's ideological locations are highly correlated with their partisan attachments. The location of parties and leaders suggests that three distinctive clusters exist: one located at the left of the political spectrum, another at the center, and a third to the right. The results also indicate that legislators in Brazil, Chile, Mexico and Peru tend to be more "leftist" than their voters. The ideological drift, however, is not large enough to substantiate the claim that a representation gap exists in those countries.
    Keywords: Civil Society, Public Administration & Policy Making, Representation gap, Ideological drift, Ideology, Partisanship
    Date: 2014–08
  4. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This study presents an overlapping-generations model with altruism towards children. We characterize a Markov-perfect political equilibrium of voting over two policy issues, public education for the young and social security for the old. The model potentially generates two types of political equilibria, one favoring public education and the other favoring social security. One equilibrium is selected by the government to maximize its objective. It is shown that (i) longevity affects equilibrium selection and relevant policy choices; and (ii) private education as an alternative to public education and a Markov-perfect political equilibrium can gen- erate the two types of equilibria.
    Keywords: Public education; Social security; Intergenerational conflict
    JEL: H52 H55 I22
    Date: 2013–09
  5. By: Zorobabel Bicabay (African Development Bank); Daniel Kapp (European Central Bank); Francesco Molteni (Université Paris 1 and LabEx ReFi)
    Abstract: We analyze the political environment in the wake of financial crises and try to infer its implications on decision making and economic policies. Concretely, we investigate if a shift in the ideology of the government or changes of political constraints drive the implementation of economic policies around periods of financial stress. To this end, we apply a simultaneous equations approach to evaluate governments' responses to financial crises, given the impact of crises on the political and social environment. This method allows us to disentangle the direct effects from financial crises on public policy from the indirect effects induced by political and social changes. The proposed policy response model is able to take into account the possibility of a selection bias. The direct and indirect effects from financial crises on the political process are shown, where the indirect effect is defined as the impact of financial crises on the political orientation and political constraints. Furthermore, results suggest that changes in the political environment during financial crises do affect policy responses, although the effect is highly heterogeneous across different types of crises.
    JEL: C15 G01 G17 G22 G32
    Date: 2014–09–15
  6. By: Xiaodong Gong; Maheshwar Rao (The National Centre for Social and Economic Modelling, Institute of Governance and Policy Analysis (NATSEM-IGPA), University of Canberra)
    Abstract: It has been long believed that prolonged political instability harms economic growth and development. This paper contributes to this growing empirical literature by studying the case in Fiji, which has faced a long period of political instability underpinned by a series of coups, military administrations and frequent changes in government since 1987. The impact of political instability on growth is hard to identify empirically because the counterfactual is unobserved and it is difficult to find valid comparisons. To solve this problem, we use the recently developed Synthetic Control Method to construct a counterfactual (or synthetic Fiji) that predicts the growth of a politically stable Fiji. The difference in per capita growth trajectories of the synthetic and the actual Fiji can thus be attributed as the impacts of political instability. Our findings show that the political instability caused by a series of coups since 1987 has indeed led Fiji onto a lower growth path, and that the accumulated effect is getting larger.
    Keywords: political instability, economic growth, Synthetic Control Method, Fiji
    Date: 2014–09
  7. By: Sainan Huang; Cristina Terra; (Université de Cergy-Pontoise, THEMA and ESSEC School Business; Université de Cergy-Pontoise, THEMA; )
    Abstract: East Asian and Latin American economies present opposite exchange rate electoral cycles: exchange rates tend to be more depreciated before and appreciated after elections among East Asian economies, while the opposite is true in Latin America. We propose a explanation for these empirical findings where the driving force of the opposite exchange rate populism in these two regions is their difference in the relative size of tradable and non-tradable sectors, coupled with the distributive effect of exchange rates. In a setup where policy-makers differ in their preference bias towards non-tradable and tradable sectors, the exchange rate is used a noisy signal of the incumbent's type in an uncertain economic environment. The mechanism behind the cycle is engendered by the incumbent trying to signal he is median voter's type, biasing his policy in favor of the majority of the population before elections.
    Date: 2014
  8. By: Francois Bonnet (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre-Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I); Clément Théry (Columbia University - Columbia University)
    Abstract: What are the implications of Piketty's Capital for sociology and political science? Capital's argument focuses on the evolution of the r/g ratio (capital returns over growth rate) and outlines two modes of economic inequalities. One is characteristic of affluent (g > r) societies and the other is characteristic of patrimonial (r > g) societies. With the current return to a patrimonial society, corporations become political actors; occupational status and education's relevance are declining; the meaning of poverty is transformed, and welfare and punishment become interdependent means to social order; in politics, elitist theories gain traction; immigration is less about assimilation, and more about transnationalism and nationalist politics. We show that some theories are more relevant in an affluent society, and others are more adequate to a patrimonial society.
    Keywords: inequality; capitalism; corporate governance; education; social structure; power
    Date: 2014–08–11
  9. By: Atsuyoshi Morozumi (School of Economics & CFCM, University of Nottingham); Francisco José Veiga (Universidade do Minho - NIPE)
    Abstract: This paper examines the role of institutions in the nexus between public spending and economic growth. Using a newly assembled dataset of 80 countries over the 1970-2010 period with disaggregated public spending, we show that only when institutions prompt governments to be accountable to the general public, does the capital component of public spending significantly promote growth, especially when financed by a fall in current spending or by increased revenues. Meanwhile, a rise in current spending does not show robust growth-promoting potential, regardless of the level of government accountability. Our interpretation of these findings is that, while capital spending innately has a larger growth-fostering effect than current spending, inefficiencies inherent in the former type of spending, caused by officeholders’ rent-seeking behavior under unaccountable governments, mitigate its fostering effect.
    Keywords: Public spending, Economic growth, Institutions
    JEL: O43 H50 O11
    Date: 2014

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