nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒11‒17
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Bargaining in a Changing World By Juan Ortner
  2. A Theory of Political Entrenchment By Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni
  3. Assessing the Political Impacts of a Conditional Cash Transfer: Evidence from a Randomized Policy Experiment in Indonesia. By Julia, Tobias; Sumarto, Sudarno; Moody, Habib
  4. A Theory of Political Accountability and Journalism By Bruns, Christian; Himmler, Oliver
  5. Essays on Growth and Political Transition By Hakobyan, Lilit
  6. Corruption, Tax Evasion and Social Values By Litina, Anastasia; Palivos, Theodore
  7. Geopolitics, Aid and Growth By Dreher, Axel; Eichenauer, Vera; Gehring, Kai
  8. Political Campaigns and Big Data By Nickerson, David W.; Rogers, Todd
  9. Coercive Trade Policy By Vincent Anesi; Giovanni Facchini
  10. Governing by Panic: The Politics of the Eurozone Crisis By David M. Woodruff
  11. The Rentier State/Resource Curse narrative and the state of the Arabian Gulf By Rutledge, Emilie
  12. Identifying latent interest-groups: An analysis of heterogeneous preferences for income-redistribution By Pfarr, Christian; Schmid, Andreas; Mørkbak, Morten Raun
  13. Ethnicity and politics in the Romanian space. The case of northwestern Transylvania By Brie, Mircea
  14. Groups and trust: Experimental evidence on the Olson and Putnam hypotheses By Giacomo Degli Antoni; Gianluca Grimalda

  1. By: Juan Ortner (Boston University)
    Abstract: This paper studies negotiations between two parties whose political power changes over time. The model has a unique subgame perfect equilibrium, which becomes very tractable when parties can make offers frequently. This tractability facilitates studying how changes in political power affect implemented policies. An extension of the model analyses how elections influence inter-party negotiations when implemented policies affect the parties’ political power. Long periods of gridlock may arise when the time left until the election is short and parties have similar levels of political power.
    Date: 2014
  2. By: Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni
    Abstract: We develop a theory of endogenous political entrenchment in a simple two-party dy- namic model of income redistribution with probabilistic voting. A partially self-interested left-wing party may implement (entrenchment) policies reducing the income of its own constituency, the lower class, in order to consolidate its future political power. Such poli- cies increase the net gain that low-skill agents obtain from income redistribution, which only the Left (but not the Right) can credibly commit to provide, and therefore may help offsetting a potential future aggregate ideological shock averse to the left-wing party. We demonstrate that political entrenchment by the Left occurs only if incumbency rents are sufficiently high and that low-skill citizens may vote for this party even though they ratio- nally expect the adoption of these policies. We also discuss the case where the left-wing party may have the incentive to ex-ante commit to not pursue entrenchment policies once in power. Finally, we show that, in a more general framework, the entrenchment policies can be implemented also by the right-wing party. The comparative statics analyzes the effects of state capacity, a positive bias of voters for one party and income inequality on the incentives of the incumbent party to pursue entrenchment policies. The importance of our theory for constitutionally legislated term limits is also discussed. The theory sheds light on why left-wing parties or politicians often support liberal immigration policies of unskilled workers, are sometime in favor of free trade with less developed economies and of globalization more generally, or fail to reform plainly "dysfunctional" public educational systems damaging the lower classes.
    Keywords: Political entrenchment; constituencies; inequality; inefficient redistribu- tion; checks and balances; political rents; state fiscal capacity
    JEL: D72 P16
    Date: 2014
  3. By: Julia, Tobias; Sumarto, Sudarno; Moody, Habib
    Abstract: Several developing nations, including Indonesia, have experimented with conditional cash transfers (CCTs) to poor households during recent years. Since 2007, Indonesia has been carrying out a randomized CCT pilot program (PNPM Generasi) in 1,625 villages where funds are disbursed to communities rather than households, and local councils allocate the funds to public projects following community input. In this paper, we explore political outcomes associated with the program, including electoral rewards for incumbents, and political participation. By comparing regions receiving the program with a control group, we estimate the CCT’s effects on political behavior in the 2009 elections for President and the national legislative assembly, and we also explore its effects on local politics. We find that the CCT program increases vote shares for legislative candidates from the incumbent president’s party, improves households’ satisfaction with district-level government administrative services, and decreases competition among presidential candidates as measured by the Herfindahl- Hirschman Index (HHI). We do not find conclusive evidence to support the hypothesis that the program increases votes for the incumbent President, and we find no evidence that the program significantly increases voter turnout or affects village-level politics.
    Keywords: Conditional Cash Transfer, Political behavior, Indonesia
    JEL: H3 H42 I3
    Date: 2014–02–03
  4. By: Bruns, Christian; Himmler, Oliver
    Abstract: Journalism is widely believed to be crucial for holding elected officials accountable. At the same time economic theory has a hard time providing a straightforward explanation for the phenomenon of "accountability journalism". According to the common Downsian reasoning, rational voters should not be willing to pay for information out of purely instrumental motives because the individual probabilities of casting the decisive vote are typically very low. We show that this rationale does not apply when a group of voters shares a common goal such as accountability and information is delivered via mass media. In contrast to the pessimistic Downsian view, rational voters can have a considerable willingness to pay journalists for the provision of instrumental information in these scenarios. Our model thus reconciles the rational voter approach with the common perception of journalism as a watchdog that holds elected officials accountable. We also show that competition does not lead to more information and accountability, and that entertainment can crowd out informative media content.
    Keywords: accountability, elections, information, media
    JEL: D72 D83 H41 L86
    Date: 2014–09
  5. By: Hakobyan, Lilit (Department of Economics, Umeå School of Business and Economics)
    Abstract: The thesis consists of a summary and three self-contained papers related to political transition and economic growth with parallel study of countries with and without Military Dictatorship (MD) history. Paper [1]: studies the experience of 83 countries in 1950-2004 and addresses the question: when do democratic transitions produce bad economic outcomes. Following the theoretical papers of Acemoglu et al. (2004, 2008), an attempt is made to control for both de jure and de facto sides of political power. The data seem to indicate that democratization induces additional socially wasteful investments into de facto power. The results also suggest that, under military governments countries with low concentration of economic power show better economic performance. In terms of Acemoglu et al. (2007), this may suggest that the institutional environment switches from a “weak” to a “strong” one. The potential tradeoff between democratization and political stability is mainly relevant to the degree of severity of reoccurring economic crises in countries with MD history. Paper [2]: investigates whether democracy renders economic performance more efficient. Efficiency, measured by (mean)/ (standard deviation) of output growth, becomes an important indicator of economic performance, if countries face a tradeoff between scenarios with high-mean and low-volatility of growth. This seems to hold when economies approach the efficient frontier. The study: (i) employs asymmetric (G)ARCH models; (ii) analyses variations in within-country effects of democratization on the growth efficiency conditional on cross-country variations in income inequality; (iii) studies the asymmetry of deviations from the mean. The results suggest (do not suggest) that in countries with no (with) MD history democratization moves economies towards the efficient frontier. Democratizations has stronger impact on the efficiency of growth in countries with higher (lower) income inequality if countries have (have not) MD history. Paper [3]: studies the survival of four different growth regimes conditional on political regime transitions that occurred during the first or prior year of the economic regime. The results suggest that in countries with no MD history, the fast-growing episodes initiated by democratization have about 40% lower hazard of termination than the episodes with no political transitions. This finding does not hold in countries with MD history. The effects of political transitions on the duration of ongoing economic regimes are additionally studied. Data suggest that transitions of both directions under economic crisis render the ongoing economic regime more durable.
    Keywords: de facto and de jure political power; economic crisis; economic growth; efficient frontier of economic growth; military dictatorship; political regimes; weak institutions
    JEL: D72 E02 O43 P16
    Date: 2014–09–09
  6. By: Litina, Anastasia; Palivos, Theodore
    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 peculate. 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 eliminate multiplicity. Instead, policies that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibrium.
    Keywords: Corruption, Tax Evasion, Multiple Equilibria, Stigma
    JEL: D73 E62 H26
    Date: 2014–09–09
  7. By: Dreher, Axel; Eichenauer, Vera; Gehring, Kai
    Abstract: We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Specifically, we test whether the effect of aid on economic growth is reduced by the share of years a country has served on the United Nations Security Council (UNSC) in the period the aid has been committed, which provides quasi-random variation in aid. Our results show that the relationship of aid with growth is significantly lower when aid has been committed during a country’s tenure on the UNSC. We derive two conclusions from this. First, short-term political favoritism reduces growth. Second, political interest variables are inadequate as instruments for overall aid, raising doubts about a large number of results in the aid effectiveness literature.
    Keywords: aid effectiveness; economic growth; politics and aid; United Nations Security Council membership; political instruments
    Date: 2014–10–21
  8. By: Nickerson, David W. (University of Notre Dame); Rogers, Todd (Harvard University)
    Abstract: Modern campaigns develop databases of detailed information about citizens to inform electoral strategy and to guide tactical efforts. Despite sensational reports about the value of individual consumer data, the most valuable information campaigns acquire comes from the behaviors and direct responses provided by citizens themselves. Campaign data analysts develop models using this information to produce individual-level predictions about citizens' likelihoods of performing certain political behaviors, of supporting candidates and issues, and of changing their support conditional on being targeted with specific campaign interventions. The use of these predictive scores has increased dramatically since 2004, and their use could yield sizable gains to campaigns that harness them. At the same time, their widespread use effectively creates a coordination game with incomplete information between allied organizations. As such, organizations would benefit from partitioning the electorate to not duplicate efforts, but legal and political constraints preclude that possibility.
    Date: 2013–11
  9. By: Vincent Anesi; Giovanni Facchini
    Abstract: Empirical evidence suggests trade coercion exercised unilaterally is significantly less likely to induce concessions than coercion exercised through an international organization. In this paper we build a two-country model of coercion that can provide a rationale for this finding, and forhow “weak” international institutions might be effective, even if their rulings cannot be directly enforced. In particular we show that if coercion is unilateral, the country requesting the policychange will demand a concession so substantial to make it unacceptable to its partner, and a trade war will ensue. If the parties can instead commit to an international organization (IO), compliance is more likely, because the potential IO ruling places a cap on the Foreign government's incentives to signal its resolve.
    Keywords: GATT, WTO, Dispute Settlement, Political Economy. JEL classification: F12, F16, L11
    Date: 2014
  10. By: David M. Woodruff
    Abstract: The Eurozone’s reaction to the economic crisis beginning in late 2008 involved both efforts to mitigate the arbitrarily destructive effects of markets and vigorous pursuit of policies aimed at austerity and deflation. To explain this paradoxical outcome, this paper builds on Karl Polanyi’s account of how politics reached a similar deadlock in the 1930s. Polanyi argued that democratic impulses pushed for the protective response to malfunctioning markets. However, under the gold standard the prospect of currency panic afforded great political influence to bankers, who used it to push for austerity, deflationary policies, and the political marginalization of labor. Only with the achievement of this last would bankers and their political allies countenance surrendering the gold standard. The paper reconstructs Polanyi’s theory of “governing by panic” and uses it to explain the course of the Eurozone policy over three key episodes in the course of 2010-2012. The prospect of panic on sovereign debt markets served as a political weapon capable of limiting a protective response, wielded in this case by the European Central Bank (ECB). Committed to the neoliberal “Brussels-Frankfurt consensus,” the ECB used the threat of staying idle during panic episodes to push policies and institutional changes promoting austerity and deflation. Germany’s Ordoliberalism, and its weight in European affairs, contributed to the credibility of this threat. While in September 2012 the ECB did accept a lender-of-last-resort role for sovereign debt, it did so only after successfully promoting institutional changes that severely complicated any deviation from its preferred policies.
    Keywords: Euro, European Central Bank (ECB), austerity, lender of last resort, Ordoliberalism, gold standard
    Date: 2014–10
  11. By: Rutledge, Emilie
    Abstract: This paper proposes that the Rentier State and Resource Curse theories be considered as two elements of the same paradigm which, despite a growing body of contrary empirical evidence, retains a hegemonic influence in political economy discourse. It will be suggested that a number of reasons account for this, not least, the nature and subject of the “rent†itself. Contemporary notions of rent as essentially constituting unearned and thus unwarranted income, are divorced from a more contextually accurate ‘ground rent’ charge levied for extracting depletable sovereign resources is one. Another is the extent to which the political demonisation of OPEC, combined with the West’s concerted policy response of seeking to liberalise the world oil market in the 1980s and 1990s, is abstracted from the discourse. Moreover, by demonstrating that there is little evidence of the deterministic poverty inducing and deleterious socioeconomic outcomes in the ‘archetypal candidate’ countries of the Arabian Gulf, the utility per se of the RS/RC narrative as a conceptual and/or analytical framework is questioned.
    Keywords: Economic Development and Natural Resources; Middle East; Oil Rent; Rentier State; Resource Curse.
    JEL: N55 O13 O53 Q32 Q43 Q48
    Date: 2014–10–23
  12. By: Pfarr, Christian; Schmid, Andreas; Mørkbak, Morten Raun
    Abstract: The German government is strongly involved in redistributing income. For various reasons such as the capacity to govern and social stability this makes a good un-derstanding of the citizens’ respective preferences and their informal coalitions ex-tremely important. The identification of such interest groups is non-trivial as they may be determined by latent characteristics and preferences for redistribution are difficult to measure. The aim of this study is to identify latent interest-groups in the context of preferences for redistribution adopting an inductive approach. The data for the estimation of the WTP values is generated by a DCE, based on a rep-resentative sample of 1,538 German individuals. To identify the latent interest-groups we investigate to which extent respondents can be divided into groups us-ing Latent Class Models thereby accounting for both observable and unobservable heterogeneity within the society. Based on the econometric analysis we can identi-fy six social interest groups that differ regarding their preferences for redistribu-tion and their composition. Both, their preferences regarding the overall budget for redistribution and their preferences regarding the different recipient groups as well as the socio-demographic determinants for group membership are plausible and match well with the current political situation in Germany.
    Keywords: redistribution; interest groups; preferences; choice experiments; latent class models
    JEL: C93 D31 D72
    Date: 2014–09
  13. By: Brie, Mircea
    Abstract: The ethnic structure of this region has been heavily influenced by the evolution of the various historico-geographical factors and policies. Most of this structure, however, is linked to the evolution of the denominational structure. Ethnicity in this case is closely related to religion. The political reality, the events with political overtones that occurred during these centuries had a direct influence regarding the conduct of processes and phenomena related to the ethno-confessional evolution of the area subject to our research. In this period the region is part of the Austrian state (before 1867), Austro-Hungarian Empire (1867 to 1918), Hungary (1940-1944) and Romania (1918-1940, 1944 - present). This space is located in the western area and it is mainly inhabited by Romanians. The continuous presence of Romanians here is documented ever since its formation. The ethnic group of Romanians has been facing a considerable demographic pressure that came from the Hungarians (the neighbouring ethnic group) or from groups or immigrants settled in this space (we refer in this case mainly to the Germans, Slovaks, Gypsies and Jews). Major geopolitical changes of the twentieth century and political decisions, especially extremist dictatorial regimes (Horthyst-Hungarian and communist-Romanian) led to significant changes in the ethnic structure of the region northwest Transylvania. Policy decisions, especially those taken during the dictatorial political and extremist regimes during the twentieth century were able to seriously affect ethno-religious realities of the Romanian space, especially in Transylvania. Be it the Hungarian or Romanian authorities during the two world wars or the communist dictatorship, decisions were taken that changed the ethnic map of the Romanian space. Suffice it to recall the drama of the Jewish community of the Second World War or the „sale†of the Germans and the Jews by the Communists in the postwar period.
    Keywords: ethnicity; Transylvania; diversity; Romanians; Hungarians; political decisions
    JEL: F5
    Date: 2014
  14. By: Giacomo Degli Antoni (University of Parma, Department of Law); Gianluca Grimalda (University Jaume I of Castellón - Economics Department)
    Abstract: Mancur Olson and Robert Putnam provide two conflicting views on the effect of involvement with voluntary associations on their members. Putnam argues that associations instill in their members habits of cooperation, solidarity and public spiritedness. Olson emphasizes the tendency of groups to pursue private interests and lobby for preferential policies. We carry out the first field experiment involving a sample of members of different association types from different age groups and education levels, as well as a demographically comparable sample of non-members. This enables us to examine the differential patterns of behavior followed by members of Putnam-type and Olson- type associations. Coherently with both the Putnam's and Olson's view, we find that members of Putnam-type (Olson-type) associations display more (no more) generalized trust than non-members. However, when we examine trustworthy behavior we find the opposite pattern, with members of Olson-type (Putnam-type) associations more (no more) trustworthy than non-members. No relevant effect for the intensity of participation in associations 37
    Keywords: Trust; Voluntary associations; Putnam; Olson; Field experiment
    JEL: A13 D03 C93 Z13
    Date: 2014–10

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