nep-pol New Economics Papers
on Positive Political Economics
Issue of 2014‒12‒08
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Ideology and Economic Growth: Evidence from the French Democracy By François Facchini; Mickaël Melki
  2. Political alignment and intergovernmental transfers in parliamentary systems: Evidence from Germany By Thushyanthan Baskaran; Zohal Hessami
  3. Policy experimentation, political competition, and heterogeneous beliefs By Antony Millner; Hélène Ollivier; Leo Simon
  4. Forms of Democracies and Financial Development By Clément MATHONNAT; Pierre MANDON
  5. "Measuring the Extent and Implications of Corporate Political Connections in Prewar Japan" By Tetsuji Okazaki; Michiru Sawada
  6. Do Criminal Representatives Hinder or Improve Constituency Outcomes? Evidence from India By Prakash, Nishith; Rockmore, Marc; Uppal, Yogesh
  7. Public Preferences for Government Spending Priorities: Survey Evidence from Germany By Bernd Hayo; Florian Neumeier
  8. Political Polarization, Anticipated Health Insurance Uptake and Individual Mandate: A view from the Washington State By Anirban Basu; Norma B. Coe; David E. Grembowski; Larry Kessler
  9. A Political-Economy Analysis of a GMO Trade Agreement By Shao, Qianqian; Punt, Maarten; Wesseler, Justus
  10. A Foundation for Dominant Strategy Voting Mechanisms By Debasis Mishra
  11. The Political-Economy of Biofuel and Cheap Oil Policies in Brazil By Khanna, Madhu; Hector, Nunez; David, Zilberman

  1. By: François Facchini (Université Paris-Sud - Faculté Jean Monnet, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Mickaël Melki (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: We provide a test of the impact of voters' political ideology on economic growth and of the role of preferences for government size as a transmission channel. We focus on France from the beginning of its stable democratic experience in 1871. A move of voters' ideology to the right increases economic growth over total observation period. However, the growth effect of ideology is mediated by voters' preferences for government size only during the post-World War II period. For reverse causality concerns, we use the political ideology of other historical democracies as an instrument variable for France's ideology.
    Keywords: Political ideology; economic growth; public spending
    Date: 2013–11
  2. By: Thushyanthan Baskaran (Department of Economics, University of Göttingen, Germany); Zohal Hessami (Department of Economics, University of Konstanz, Germany)
    Abstract: We study partisan favoritism in the allocation of intergovernmental transfers. Our dataset combines local council election data with fiscal data on grant allocations in the German state of Hesse. Our identification strategy is a regression discontinuity design that relies on a perturbation procedure to classify close elections. We find that left-wing state governments favored aligned municipalities while right-wing state governments favored unaligned ones. One plausible explanation for this difference in the behavior of left- and right-wing governments is that only few local councils had absolute right-wing majorities during the tenure of the right-wing state governments. Therefore, right-wing state governments had to use transfers to “buy off” unaligned municipalities, while left-wing state governments could use transfers to enhance their electoral prospects.
    Keywords: Intergovernmental transfers, political alignment, partisan behavior, state and local governments
    JEL: D72 H72 H77
    Date: 2014–09–02
  3. By: Antony Millner (London School of Economics and Political Science - LSE); Hélène Ollivier (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Leo Simon (University of California - Berkeley - Department of Agricultural and Resource Economics)
    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
    Date: 2014–05
  4. By: Clément MATHONNAT; Pierre MANDON
    Abstract: The empirical literature on the political economy of finance emphasizes the importance of political institutions as crucial determinants of financial development and shows that democratic regimes are positively and robustly correlated with financial development. By using a three years periodic panel of 140 countries over 1984-2007, we show that democratic regimes appear to be significantly and positively correlated with financial development, but the opposition between democracies and dictatorships is not sufficient to account for differentials in financial development between countries. Indeed, our results highlight a significant and highly heterogeneous relationship between democratic regimes and financial development since the positive effect induced by democracies on financial development is explained by the presence of specific democratic political institutions, namely: parliamentary form of government and to a lesser extent federal state form. Thus, democracies seem to better foster financial development if its constitutional arrangement allows horizontal flexibility and vertical stability in the political decision-making process.
    Keywords: Financial Development, political institutions, positive constitutional economics, comparative politics.
    JEL: P48 H00 G28 D72
    Date: 2014–10
  5. By: Tetsuji Okazaki (Faculty of Economics, The University of Tokyo); Michiru Sawada (College of Economics, Nihon University)
    Abstract: This paper investigates the extent, determinants, and implications of the political connections of firms at the peak of democracy in prewar Japan, identifying a firm as politically connected if one of its directors was simultaneously a member of the House of Representatives. We analyze the data of publicly traded companies in the periods before and after the 1928 and 1930 general elections. It is found that almost 20 % of publicly traded companies had political connections through politician directors. Regressions analyses reveal that smaller or badly performing firms and firms in the electric utilities and railroad industries, where government licenses were important, were more likely to have political connections. Furthermore, we find that the stock returns of firms that had new political connections improved from the pre-election period to the post-election period.
    Date: 2014–11
  6. By: Prakash, Nishith (University of Connecticut); Rockmore, Marc (Clark University); Uppal, Yogesh (Youngstown State University)
    Abstract: The recent increase in the number of criminally accused politicians elected to state assemblies has caused much furor in India. Despite the potentially important consequences and the widely divergent views, the implications of their elections to state legislative assemblies on constituency-level economic performance are unknown. Using a regression discontinuity design and data on the intensity of night lights in satellite imagery at the constituency level, our results suggest that the cost of electing criminally accused politicians on measures of economic activity is quite large. Using estimates of the elasticity of GDP to light, we find that the election of criminally accused candidates lead to roughly 5 percent lower GDP growth per year on average. These estimated costs increase for candidates with serious accusations, multiple accusations, and accusations regarding financial crimes. Our result survives variety of robustness checks.
    Keywords: growth, Indian politicians, information disclosure, regression discontinuity, India
    JEL: D72 D73 O40 O12
    Date: 2014–08
  7. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg)
    Abstract: Employing data from a representative survey conducted in Germany, this paper examines public preferences for the size and composition of government expenditure. We focus on public attitudes toward taxes, public debt incurrence, and public spending in six different policy areas. Our findings suggest, first, that the current scope of government is supported by a majority of the German population. Second, we find that individual preferences for the composition of government spending differ along various dimensions. Specifically, personal economic well-being, economic literacy, confidence in politicians, political ideology, and time preference are significantly related to individual attitudes toward public spending, taxes, and debt. The magnitude of the effects is particularly large for time preference, economic knowledge, and party preference. Third, public preferences for public spending priorities are only marginally affected when considering a public budget constraint.
    Keywords: Public spending, public preferences, public debt, taxes, survey, Germany.
    JEL: E62 H11 H50 H63
    Date: 2014
  8. By: Anirban Basu; Norma B. Coe; David E. Grembowski; Larry Kessler
    Abstract: The politicization of the Affordable Care Act (ACA) was extreme, with the popular moniker of "Obamacare" and 54 House attempts to repeal the law in the four years after passage. Our study set out to understand Washington state public's preferences about enrolling into ACA driven health insurance programs, the role that political polarization may play on the chances that the uninsured would enroll and the extent to which individual mandate may influence these choices. A representative mail survey among the registered voters of Washington State. We find that 27% have not ruled out purchasing insurance through the Exchange, but their ambiguity is most likely driven by conflicts between health care needs and financial worries on one hand and their political views on the other. Overall, compared to the insured population in 2013, uninsured are significantly more likely (OR = 2.0, 95%CI: 1.1, 3.4) to enroll through the Exchange even after all adjustments including medical needs and financial worries. This highlights that the individual mandate may have an independent effect on enrollment for the uninsured. However, the individual mandate effect is found to be negligible (OR: 1.1, 95%CI: 0.50, 2.8) for the uninsured who blamed the Democrats and/or President Obama for the 2013 governmental shutdown. Political polarization appears to have a trickle down affect at the individual choices even beyond medical needs and financial worries. Alternative strategies, for example bipartisan outreach, may be necessary to convince certain groups of eligible beneficiaries to consider enrollment through the Exchange.
    JEL: H51 I1 I13
    Date: 2014–11
  9. By: Shao, Qianqian; Punt, Maarten; Wesseler, Justus
    Abstract: The EU and the US launched negotiations on a Transatlantic Trade and Investment Partnership (TTIP) in July 2013. Among the TTIP aims, there are negotiable terms under which the EU would import more genetically modified (GM) products and change its labeling regulations on GM Organisms (GMOs). This paper discusses a trade agreement of agricultural products between two countries, with different GM regulatory regimes from a political economy perspective. We find the negotiation equilibrium of the GMO Trade Agreement and compare it with a stricter trade policy. We find that if the trade agreement leads to a lenient GM regulation, lobbying intensifies. However, this effect is moderated if there are exports of non-GM products.
    Keywords: Political Economy, GMOs, international trade, Agricultural and Food Policy, International Relations/Trade, Political Economy,
    Date: 2014
  10. By: Debasis Mishra
    Abstract: We study deterministic voting mechanisms by considering an ordinal notion of Bayesian incentive compatibility (OBIC). If the beliefs of agents are independent and generic, we show that any OBIC mechanism is dominant strategy incentive compatible under an additional mild requirement. Our result works in a large class of preference domains (that include the unrestricted domain, the single peaked domain, a specific class of single crossing domains) and under a weaker notion of OBIC that we call locally OBIC. We also discuss the implications of assuming unanimity on our results.
    Date: 2014–11
  11. By: Khanna, Madhu; Hector, Nunez; David, Zilberman
    Abstract: Brazil has pursued a mix of policy interventions in the fuel sector to achieve multiple objectives of economic and social development, promoting biofuels and reducing dependence on oil. We develop a welfare economic framework to analyze the rationale the fuel policy choices in Brazil and to analyze the trade-offs they have engendered in the fuel and sugar sectors. We also examine their distributional impacts on producers and consumers in the sugar, oil and biofuel sectors and on government revenues. Additionally, we undertake a normative analysis for the purpose of comparing the welfare and environmental impacts of existing policies with those justified by the goal of maximizing social welfare and addressing market failure. The ex-post analysis of the outcomes for different stakeholders in the fuel and sugar sectors provides insights on the likely political-economic factors guiding policy choices. We find that the status quo policies are likely to have been motivated by the objectives of exporting oil, raising government revenue and promoting rural development through the sugarcane sector and have had a significant adverse effect on fuel and sugar consumers and aggregate social welfare in Brazil.
    Keywords: Political Economy,
    Date: 2014

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