nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒11‒28
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Turnout Across Democracies By Helios Herrera; Massimo Morelli; Salvatore Nunnari
  2. Why Do Members of Congress Support Agricultural Protection? By Bellemare, Marc F.; Carnes, Nicholas
  3. Happy Voters By Liberini, Federica; Redoano, Michela; Proto, Eugenio
  4. The Rhetoric of Closed Borders: Quotas, Lax Enforcement and Illegal Migration By Facchini, Giovanni; Testa, Cecilia
  5. Diversification and democracy By Ivar Kolstad; Arne Wiig
  6. Richer (and Holier) Than Thou? The Effect of Relative Income Improvements on Demand for Redistribution By Karadja, Mounir; Möllerström, Johanna; Seim, David
  7. Who honor the rules of federalism? Party system nationalization and fiscal performance. By Santiago Lago-Peñas; Agnese Sacchi; Pablo Simon-Cosano
  8. What shapes the generosity of short- and long-term benefits? A political economy approach By Baptiste Françon; Michaël Zemmour
  9. Energy Subsidies and Policy Commitment in Political Equilibrium By Pani, Marco; Perroni, Carlo
  10. Voting on contributions to a threshold public goods game: An experimental investigation By Feige, Christian; Ehrhart, Karl-Martin; Krämer, Jan
  11. Access fees for competing lobbies By Martin Gregor
  12. War of the Words: How Elites' Communication Changes the Economy By Baerg, Nicole Rae
  13. Voting for burden sharing rules in public goods games By Gallier, Carlo; Kesternich, Martin; Sturm, Bodo

  1. By: Helios Herrera; Massimo Morelli; Salvatore Nunnari
    Abstract: World democracies widely differ in electoral rules, as well as in legislative, executive or legal institutions. Different institutional environments induce different mappings from electoral outcomes to the distribution of power. We explore how these mappings affect voters' participation to an election. We show that the effect of such institutional differences on turnout depends on the distribution of voters' preferences for the competing parties. In particular, we uncover a novel contest effect: given the distribution of preferences, turnout increases and then decreases when we move from a more proportional to a less proportional system; turnout is maximized for an intermediate degree of proportionality. Moreover, we generalize the competition effect, common to models of endogenous turnout: given the institutional environment, turnout increases in the ex-ante closeness of the election and peaks when the population is evenly split between the two parties. These results are robust to a wide range of modeling approaches, including ethical voter models, voter mobilization models, and rational voter models.
    JEL: D02 D72
    Date: 2014–09
  2. By: Bellemare, Marc F.; Carnes, Nicholas
    Abstract: It seems paradoxical that until recently, developed countries have continued subsidizing agriculture even though their agricultural sectors had been declining in relative importance since the middle of the 20th century. What drives support for agricultural protection—the broad array of subsidies to farmers and taxes and quotas imposed on agricultural imports—in developed countries? We answer this question by testing three competing hypotheses about what drives support for agricultural protection in the US: (i) legislator preferences, (ii) electoral incentives, or (iii) lobbying. Using data on the roll call votes of the members of the 106th through the 110th Congresses (1999-2009) and the scores given to each legislator by the Farm Bureau, our findings suggest electoral incentives explain a great deal of the variation in support for agricultural protection, but that legislator preferences and lobbying might play a role, too. Moreover, legislator preferences and electoral incentives appear to be substitutes for one another. Why does Congress support agricultural protection? Because many members have electoral incentives to—and because many of those who do not still have other personal or strategic interests at stake.
    Keywords: Agricultural Policy, Agricultural Protection, Farm Bill, Congress, Voting, Lobbying, Agricultural and Food Policy, Political Economy, Q18, D72,
    Date: 2013–07–23
  3. By: Liberini, Federica (ETH Zurich); Redoano, Michela (University of Warwick); Proto, Eugenio (University of Warwick)
    Abstract: Motivated by recent interest and initiatives taken by several governments and international organizations to come up with indicators of well-being to inform policy makers, we test if subjective well-being measures (SWB) can be employed to study voting behaviour. Controlling for financial and economic circumstances, we find that when citizens are more satisfied with their life, they are also more likely to cast their vote in favor of the ruling party. We address the possible concern of reverse causality in the relationship between SWB and political support by (i) analysing the political behaviour of a sample of ideologically neutral voters, and (ii) by identifying the effect of SWB on voting intentions in individuals' response to an exogenous shock of (un)happiness (i.e. the death of husband or wife). We conclude that SWB explains voting decisions, even when the event affecting well-being is beyond government's control.
    Keywords: subjective well-being, happiness, retrospective voting
    JEL: H11 H2 H77 H87 D7 N12
    Date: 2014–09
  4. By: Facchini, Giovanni (University of Nottingham); Testa, Cecilia (Royal Holloway, University of London)
    Abstract: This paper studies why illegal immigration is widespread. We develop a political agency model in which a politician decides on an immigration target and its enforcement, facing uncertainty on the supply of migrants. Illegal immigration can arise for two reasons: the policy maker may be unable to enforce the target because supply is higher than expected; alternatively, he may underinvest in enforcement because of electoral concerns, and this occurs only when the incumbent and the majority of voters have different preferences over immigration. Empirical evidence provides strong support for our predictions, highlighting how electoral concerns shape illegal immigration flows.
    Keywords: illegal immigration, immigration policy, political economy
    JEL: F22 J61
    Date: 2014–09
  5. By: Ivar Kolstad; Arne Wiig
    Abstract: Does diversification of an economy improve the chances of democracy? This paper estimates the effect of export diversification on democracy levels, using data from 143 countries. The endogeneity of diversification is addressed by using variability within countries in fertile soil as an instrumental variable, controlling for country size. The results show that diversification has a significant, positive effect on levels of democracy. This suggests that less concentrated economic power in a society leads to more widely distributed political power. The results are robust to alternative measures of diversification and democracy, and to additional covariates. Results are also similar for diversification indices excluding oil, suggesting that the uncovered relationship is not entirely about oil.
    Keywords: Diversification, concentration, democracy, political economy
    Date: 2014
  6. By: Karadja, Mounir (IIES); Möllerström, Johanna (George Mason University); Seim, David (University of Toronto)
    Abstract: We study the extent to which people are misinformed about their relative position in the income distribution and the effects on preferences for redistribution of correcting faulty beliefs. We implement a tailor-made survey in Sweden and document that a vast majority of Swedes believe that they are poorer, relative to others, than they actually are. This is true across groups, but younger, poorer, less cognitively able and less educated individuals have perceptions that are further from reality. Using a second survey, we conduct an experiment by randomly informing a subsample about their true relative income position. Respondents who learn that they are richer than they thought demand less redistribution and increase their support for the Conservative party. This result is entirely driven by prior right-of-center political preferences and not by altruism or moral values about redistribution. Moreover, the effect can be reconciled by people with political preferences to the right-of-center being more likely to view taxes as distortive and to believe that it is personal effort rather than luck that is most influential for individual economic success.
    Keywords: Redistribution; Political preferences; Inequality
    JEL: D72 H23
    Date: 2014–09–26
  7. By: Santiago Lago-Peñas; Agnese Sacchi; Pablo Simon-Cosano
    Abstract: This paper explores the impact of decentralization on countries’ fiscal outcomes paying attention to one aspect usually neglected in the literature: the relevance of self-interested local politics. Relevance that can be proxied by the nationalization of political party systems, namely the extent to which parties compete nationally oriented. Based on a sample of developed and developing countries over the period 1970-2011, our findings are twofold. First, fiscal decentralization has a positive effect on general governments' primary balance. Second, primary balance is negatively affected by the nationalization of party systems only when the latter is extremely weak.
    Keywords: Government primary balance, fiscal decentralization, regional authority, party system nationalization.
    JEL: H62 H74 H77
    Date: 2014–11
  8. By: Baptiste Françon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Michaël Zemmour (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: Degressivity of unemployment benefits is a major feature of social protection in most industrialised countries: the replacement rate (the ratio between the level of welfare benefits and the previous income) typically declines with the length of the unemployment spell. Moreover degressivity of unemployment benefits has significant distributive effects as the risk of long-term unemployment varies from one individual to another. This paper proposes a formal model of political support for unemployment insurance that takes into account the decrease in the level of benefits over time. A discount factor is introduced that diminishes the level of benefits for long-term unemployed. The main predictions of our model are the following: i) Unemployment insurance size negatively depends on both the average level and the heterogeneity of unemployment risk ii) The degressivity increases with the average level and the heterogeneity in the individual level of employability defined as the probability of finding a job when unemployed. These predictions are then tested using a dataset of 24 OECD countries. Empirical results are consistent with the model.
    Keywords: Long-term unemployment; political economy; replacement rate; risk heterogeneity; unemployment insurance; voting behaviour
    Date: 2013–03
  9. By: Pani, Marco (International Monetary Fund); Perroni, Carlo (Warwick University and CESIfo)
    Abstract: Because energy subsidies affect incentives to invest in energy-saving equipment and technologies, they entail a classic investment hold-up problem: once investment has taken place, policymakers will tend to overuse them, which will in turn depress investment by forward-looking agents. Reforming energy subsidies thus requires overcoming a policy commitment problem. In this paper we show that, even when commitment is feasible in principle, it may fail to materialize in a political equilibrium due to politicians’ re-election incentives. In particular, it will be those politicians who are comparatively less favorable to energy subsidies who may fail to commit to phase them out.
    Keywords: Policy Commitment, Energy Subsidies
    Date: 2014
  10. By: Feige, Christian; Ehrhart, Karl-Martin; Krämer, Jan
    Abstract: We introduce a binding unanimous voting rule to a public goods game with an uncertain threshold for the total group contribution. In a laboratory experiment we find that voting generates significantly higher total contributions than making individual voluntary contributions to the public good. Heterogeneity with regard to marginal costs of contribution makes coordination on the threshold value somewhat more di cult when voting, but apparently facilitates coordination when not voting. Homogeneous non-voting groups instead exhibit a breakdown of contributions commonly observed in linear public goods games, but unusual for a threshold setting. We also notice a preference for payoff symmetry over maximization of expected welfare in heterogeneous voting groups, which to a lesser extent also appears in nonvoting groups. Using a top-down rule, i.e., splitting the voting process into two separate votes on 1) total contribution and 2) individual contributions does not affect these results.
    Keywords: public good,threshold uncertainty,experimental economics,unanimous voting,committee,heterogeneity
    JEL: C92 D71 H41
    Date: 2014
  11. By: Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic)
    Abstract: We model `money buys access' informational lobbying as a commitment from the policy-maker to observe a lobby's verifiable evidence only upon receiving an access fee. We specifically examine the policy-maker's optimal access fees in the presence of two strictly competing lobbies. Our novel method constructs bargaining surpluses in parallel bilateral bargaining problems in which a negative sign for the bilateral surplus implies a strategic access restriction. This approach easily identifies the equilibrium set of participating lobbies for any information structure and any timing for the lobbies' access. We explain the incomplete participation of lobbies and the resulting information and welfare distortion using the information and revenue complementarities of signals. We also show that a lower bias may be either a blessing or curse for a lobby depending on the information structure and timing. Finally, we demonstrate that promoting lobbying competition may be detrimental to welfare due to the policy-maker's revenue-information tradeoff.
    Keywords: informational lobbying, access fee, persuasion, verifiable evidence
    JEL: C72 C78 D72 D83
    Date: 2014–07
  12. By: Baerg, Nicole Rae
    Abstract: How does variation in the clarity of elites’ communication change the economy? Previous re- search shows that elites’ communication changes the economy, but not all messages are crafted equally. Models of strategic communication suggests that clearer and precise information can improve the economy more than ambiguous messages. In order to test this claim, I develop a new dataset of political elites’ inflation statements and measure each statements’ information precision. I then test whether or not economic performance depends on how precisely political elites communicate. I find evidence that an increase in information precision, through its attenuating effects on inflation expectations, lowers inflation. Furthermore, I find that this is true when examining a number of developing countries over a relatively volatile time period.
    Keywords: central bank communication, clarity, inflation, inflation expectations
    JEL: E31 E52 E58
    Date: 2014–04
  13. By: Gallier, Carlo; Kesternich, Martin; Sturm, Bodo
    Abstract: In this experiment, we endogenize the choice of which contribution scheme is implemented in a public goods game. We investigate three rule-based contribution schemes. In a first step, players agree on a common group provision level using the principle of the smallest common denominator. Subsequently, this group investment is allocated according to a specific rule to individual minimum contributions. The game is implemented either as a Single- or a Multi-Phase Game. In the Single-Phase Game, the contribution schemes are exogenously implemented. In the Multi-Phase Game, we let subjects vote on the rule-based contribution schemes. If a scheme obtains a sufficient majority it is implemented. In case no sufficient majority is reached, subjects have to make their contributions to the public good using the voluntary contribution mechanism (VCM). Our results suggest that the endogenous choice of a contribution scheme has an impact on the level of contributions. In case of a rule-based contribution scheme which equalizes payoffs, contributions are higher if subjects choose the scheme than in case the scheme is implemented exogenously. In contrast, contributions are higher if the VCM is implemented exogenously than in case a sufficient majority cannot be obtained and, therefore, subjects have to play the VCM.
    Keywords: public goods,endogenous institutions,minimum contribution rules,cooperation
    JEL: C72 C92 H41
    Date: 2014

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