nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒02‒16
nineteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Electoral competition and endogenous political institutions: quasi-experimental evidence from Germany By Baskaran, Thushyanthan; Lopes da Fonseca, Mariana
  2. The Impact of Within-Party and Between-Party Ideological Dispersion on Fiscal Outcomes : Evidence from Swiss Cantonal Parliaments By Tjasa Bjedov; Simon Lapointe; Thierry Madiès
  3. From Rebellion to Electoral Violence Evidence from Burundi By Olivier Sterck; Andrea Colombo; Olivia D'Aoust
  4. CASTE, CORRUPTION AND POLITICAL COMPETITION IN INDIA By Avidit Acharya; John E. Roemer; Rohini Somanathan
  5. Balanced Voting By Hans Gersbach; Kamali Wickramage
  6. Free and Fair Elections - A New Database By Anke Hoeffler; Sylvia Bishop
  7. Key-drivers of EU budget allocation: Does power matter? By García-Valiñas, Maria A.; Zaporozhets, Vera
  8. Precarious Democracies, Political Negotiation and Selective Predation By Andrés Cendales; Jhon James Mora
  9. The Power of Religious Organizations in Human Decision Processes: Analyzing Voting Behavior By Stadelmann, David; Portmann, Marco; Torgler, Benno
  10. Electoral Rules for Mayors and Incentives to Pork-Barrel: Quasi-Experimental Evidence from German Municipalities By Hessami, Zohal
  11. The Political Economy of Sovereign Borrowing Explaining the Policy Choices of Highly Indebted Governments By Stephen B. Kaplan; Kaj Thomsson
  12. No news is costly news: the link between the diffusion of the press and public spending By Ilaria Petrarca
  13. Biased Perceptions of Income Inequality and Redistribution By Engelhardt, Carina; Wagener, Andreas
  14. Elite Influence? Religion, Economics, and the Rise of the Nazis By Spenkuch, Jörg; Tillmann, Philipp
  15. Assessing the extent of democratic failures. A 99%-Condorcet’s Jury Theorem By Matteo Triossi
  16. Tailored Bayesian Mechanisms: Experimental Evidence from Two-Stage Voting Games By Dirk Engelmann, Dirk; Grüner, Hans Peter
  17. The Value of the Revolving Door: Political Appointees and the Stock Market By Moser, Christoph; Lüchinger, Simon
  18. Analysing Party Preferences Using Google Trends By Calahorrano, Lena; Seithe, Mirko
  19. Do Wages Affect Politicians' Performance? A regression discontinuity approach for Dutch municipalities By Daan van der Linde; Swantje Falcke; Ian Koetsier; Brigitte Unger

  1. By: Baskaran, Thushyanthan; Lopes da Fonseca, Mariana
    Abstract: Do established parties change political institutions to disadvantage smaller, non-mainstream parties if the latters' electoral prospects improve? We study this question with a natural experiment from the German federal State of Hesse. The experiment is the abolishment of an explicit electoral threshold (the so called "five percent hurdle") for local elections in 2001 by the Hessian state parliament. The abolishment improved the electoral prospects of smaller parties at local elections, but local politicians from mainstream parties had the ability to adjust municipal political institutions in such as way as to counteract the increased competitiveness of smaller parties. One such institutional adjustment is to reduce the size of the local council and thereby raise implicit electoral thresholds. Using a dataset that covers all 426 Hessian municipalities over the period 1989-2011, we document with a difference-in-discontinuity design that municipalities where the electoral competitiveness of smaller parties improved more because of the abolishment of the explicit threshold, reduced their council size more. Hence, established parties appear to erect barriers to entry by adjusting political institutions once new political formations become viable electoral alternatives.
    JEL: D70 D72 D78
    Date: 2014
  2. By: Tjasa Bjedov (University of Fribourg, Switzerland); Simon Lapointe (University of Fribourg, Switzerland); Thierry Madiès (University of Fribourg, Switzerland)
    Abstract: The impact of the fragmentation of executive and legislative bodies on the level and composition of government expenditure is a political feature that attracted considerable attention from economists. However, previous authors have abstracted from two important concepts : ideology and intra-party politics. In this paper, we explicitly account for these two phenomenons, and make two main contributions. First, we show that both intra-party and interparty ideological dispersion matters in the level of public spending. Therefore, it is incorrect to consider parties as monolithic entities. We also show that ideological dispersion matters especially for current expenditures, and not so much for investment expenditures. To do so, we construct a panel database (2003 to 2011) including data from a survey that quantifies the policy preferences of individual party members that were candidates to federal elections in Switzerland.
    Keywords: Political Fragmentation, Public Spending, Political Parties, Ideology
    JEL: D72 H72 D78
    Date: 2014
  3. By: Olivier Sterck; Andrea Colombo; Olivia D'Aoust
    Abstract: We aim at understanding the triggers of electoral violence, which spoiled 80% of elections in Africa during the last decades.  We focus on Burundi, a country which experienced polls in 2010, only a few months after the end of a long-lasting civil war.  Our results suggest that higher polarization between ex-rebels' groups increases the risk of electoral violence at the municipal level.  However, neither ethnic or political cleavages significantly determine such electoral malpractices.  These results are robust to numerous specifications.  We threfore argue that policies supporting the transition of ex-rebel groups from warfare to the political arena should be reinforced.
    Keywords: Civil war, Electoral violence, Polarization, Demobilization, Burundi
    Date: 2014–05–02
  4. By: Avidit Acharya (Departments of Political Science and Economics,University of Rochester, Harkness 327, Rochester NY 14627-0146); John E. Roemer (Departments of Political Science and Economics,Yale University, PO Box 208301, New Haven CT 06520-8301); Rohini Somanathan (Delhi School of Economics, University of Delhi, India)
    Abstract: Voters in India are often perceived as being biased in favor of parties that claim to represent their caste. We incorporate this caste bias into voter preferences and examine its influence on the distributive policies and corruption practices of the two major political parties in the North Indian state of Uttar Pradesh (U.P.). We begin with a simple two-party, two-caste model to show that caste bias causes political parties to diverge in their policy platforms and has ambiguous e ects on corruption. We then develop the model to make it correspond more closely to political reality by incorporating class-based redis- tributive policies. We use survey data from U.P. that we collected in 2008-2009 to calibrate voter preferences and other model parameters. We then numerically solve for the model's equilibria, and conduct a counterfactual analysis to esti- mate policies in the absence of caste bias. Our model predicts that the Bahujan Samaj Party (BSP), which was in power at the time of our survey, would be signicantly less corrupt in a world without caste-based preferences.
    Date: 2015–01
  5. By: Hans Gersbach (ETH Zurich, Switzerland); Kamali Wickramage (ETH Zurich, Switzerland)
    Abstract: We introduce `Balanced Voting', a new voting scheme that is particularly suitable for making fundamental societal decisions. Such decisions typically involve subgroups that are strongly in favor of, or against, a new fundamental direction, and others that care much less. In a two-stage procedure, Balanced Voting works as follows: Citizens may abstain from voting on a fundamental direction in a first stage. In a second voting stage, this guarantees them a voting right on the variations of the fundamental direction chosen in the first. All ‘losers’ from the first stage also obtain voting rights in the second stage, while ‘winners’ do not. We develop a model with two fundamental directions for which stakes are high for some individuals and with private information about preferences among voters. We demonstrate that Balanced Voting is superior to simple majority voting, Storable Votes and Minority Voting with regard to utilitarian welfare if the voting body is sufficiently large. Moreover, the outcome under Balanced Voting is Pareto-dominant to the outcome under simple majority voting and Minority Voting. We discuss several aspects that need to be considered when Balanced Voting is applied in practice. We also suggest how Balanced Voting could be applied to elections.
    Keywords: Balanced Voting; fundamental decision; tyranny of majority; minority protection
    JEL: D7
    Date: 2015–01
  6. By: Anke Hoeffler; Sylvia Bishop
    Abstract: The holding of elections has become universal but only about half of all elections have been free and fair.  Electoral malpractice not only distorts the quality of representation but has implications for political, social and economic outcomes.  Existing datasets either provide broad information on election quality for large panels or they provide very detailed information on electoral processes and event for a small number of elections.  Our data collection effort closes this gap.  We provide an assessment of elections that is closely tied to the commonly used term 'free and fair' and base this proxy on ten variables for a global panel.  Our preliminary results suggest that there are a number of elections that are unfree but fair.  Most observer organisations concentrate on the election as an event, i.e. whether the election was fair.  We therefore recommend that international organisations should put more emphasis on monitoring the run up to the elections, i.e. whether the elections were free.
    Date: 2014–03–20
  7. By: García-Valiñas, Maria A.; Zaporozhets, Vera
    Abstract: We examine the determinants of the EU budget expenditures allocation among different countries. Following previous literature, we consider two alternative explanations for the EU budget distribution: political power vs. 'needs view'. Taking the original data set (1976-2001) from Kauppi and Widgren (2004) we analyze whether their predictions stay robust while applying a different measure of power. We find that the nucleolus is a good alternative to the Shapley-Shubik index in the distributive situations such as the EU budget allocation. Our results also show that the relative weight of political power when explaining budget shares is lower than previous models' predictions.
    Keywords: EU policies, budget allocation, political power, nucleolus,Shapley-Shubik index.
    JEL: D72 D78 H61 O52
    Date: 2015–01–16
  8. By: Andrés Cendales; Jhon James Mora
    Abstract: This article analyzes, at the subnational level, a political system in which there is a precarious democracy given that the mayor, as a member of a political organization constituting a political patron- age machine, not only co-opts civil society but also seeks to plunder municipal funds to reinforce his political hegemony, weakening and even destroying the existing institutional framework. In direct contradiction to the central theses of economic voting and orthodox political economy, the main ?nding of this article demonstrates that the executive, through his local power networks operating in the context of a deteriorated social structure, does not foster equitable wealth redistribution but instead promotes local empowerment processes through clientelist practices, creating a cartel government made up of the parties represented on the municipal council. The council, as a veto player, will strengthen and support the establishment of a predator state led by the executive.
    JEL: C72 D31 D33 D63
    Date: 2014–12–26
  9. By: Stadelmann, David; Portmann, Marco; Torgler, Benno
    Abstract: In Switzerland, two key church institutions the Conference of Swiss Bishops (CSB) and the Federation of Protestant Churches (FPC) make public recommendations on how to vote for certain referenda. We leverage this unique situation to directly measure religious organizations power to shape human decision making. We employ an objective measure of voters commitment to their religious organization to determine whether they are more likely to vote in line with this organization s recommendations. We find that voting recommendations do indeed matter, implying that even in a secularized world, religion plays a crucial role in voting decisions.
    JEL: Z12 D72 D03
    Date: 2014
  10. By: Hessami, Zohal
    Abstract: This paper exploits a natural experiment in Hesse where a reform of the electoral rule from mayor appointment by the local council towards direct mayor elections was introduced during a phase-in period from 1993 to 1998. The end of the term of the last appointed mayor varies across municipalities for exogenous historical reasons and determines the timing of the switch in a particular municipality. Di fference-in-di fference estimations for 421 municipalities over the period from 1981 to 2010 reveal that municipalities with a directly elected mayor attract 5% more investment transfers from the state tier. This e ffect only materializes in the election year which suggests that mayors under the new electoral rule put more e ffort into grant applications for highly visible infrastructure projects in order to increase their re-election probability.
    JEL: D72 H72 H77
    Date: 2014
  11. By: Stephen B. Kaplan (Department of Economics/Institute for International Economic Policy, George Washington University); Kaj Thomsson (Maastricht University)
    Abstract: Political economy theory expects politicians to use budget deficits to engineer an election-timed boom, known as the political business cycle. We challenge and contextualize this view by incorporating the financial constraints faced by governments into an electoral framework. Employing a formal model, we show theorectically that the extent of ownership dispersion among creditors has important effects for governments' policy autonomy. Based on our theoretical results, we argue when highly-indebted governments become more reliant on international bond markets -- as opposed to traditional bank lending -- politicians alter the way they respond to domestic constituents. In an econometric test of 16 Latin American countries from 1961 to 2011, we show that financial decentralization breeds austerity. More specifically, we find that polticians exhibit more fiscal discipline when they fund a greater share of their spending through decentralized bond markets. Furthermore, we find this discipling effect to be particularly strong during election periods.
    Keywords: Political Economy, Collective Action, Latin America, Global Economy, Developing Economies, Debt, Financial Markets, Fiscal Policy, Macroeconomic Policy
    JEL: E44 E62 G01 G10 H30 H60 N16 N26 O54
  12. By: Ilaria Petrarca (Department of Economics (University of Verona))
    Abstract: This paper studies the link between the diffusion of news and spending decisions. We develop a canonical model that illustrates how the spread of information affects expenditures close to elections, conditional on the electoral rules. With the indirect election of the incumbent, news limits total spending by reducing the most targetable expenditure item; with the direct election of the government, it leaves unaffected total spending and narrows the gap between the opposite variations of the most and the least targetable expenditure items. We test these hypotheses on a dataset of Italian Regions from 1984 to 2008, approximating the spread of information with the diffusion of newspapers. We estimate the effect of news conditional on the electoral rule, exploiting a reform that introduced the direct election of the governor in 1999. The empirical analysis confirms the expectations, and suggests that capital expenditure is the most targetable item. The results are robust to alternative categorizations of press and indicate a deeper effectiveness of the diffusion of local press.
    Keywords: Local diffusion of newspapers, expenditure composition, electoral expenditure cycles, dynamic panel estimation
    JEL: D72 H72 D83
    Date: 2013–09
  13. By: Engelhardt, Carina; Wagener, Andreas
    Abstract: When based on perceived rather than on objective income distributions, the Meltzer-Richards hypothesis and the POUM hypothesis work quite well empirically: there exists a positive link between perceived inequality or perceived upward mobility and the extent of redistribution in democratic regimes though such a link does not exist when objective measures of inequality and social mobility are used. These observations highlight that political preferences and choices might depend more on perceptions than on factual data.
    JEL: H53 D72 D31
    Date: 2014
  14. By: Spenkuch, Jörg; Tillmann, Philipp
    Abstract: Adolf Hitler's seizure of power was one of the most consequential events of the twentieth century. Yet, our understanding of which factors fueled the astonishing rise of the Nazis remains highly incomplete. This paper shows that religion played an important role in the Nazi party's electoral success---dwarfing all available socio-economic variables. To obtain the first causal estimates we exploit plausibly exogenous variation in the geographic distribution of Catholics and Protestants due to a peace treaty in the sixteenth century. Even after allowing for sizeable violations of the exclusion restriction, the evidence indicates that Catholics were significantly less likely to vote for the Nazi Party than Protestants. Consistent with the historical record, our results are most naturally rationalized by a model in which the Catholic Church leaned on believers to vote for the democratic Zentrum Party, whereas the Protestant Church remained politically neutral.
    JEL: Z12 N34 D72
    Date: 2014
  15. By: Matteo Triossi
    Abstract: This This paper determines the probability a large electorate will take take the correct decision under qualified majority rules. The model allows the competence of each elector to vary with the size of the electorate, thus the results represent a connection between "naive" and "strategic" Condorcet's Jury Theorems. JEL Classification: D72 · H11 · P16. Key words: Condorcet’s Jury theorem, probability of success, naive-strategic connection.
    Date: 2014
  16. By: Dirk Engelmann, Dirk; Grüner, Hans Peter
    Abstract: Optimal voting rules have to be adjusted to the underlying distribution of preferences. However, in practice there usually is no social planner who can perform this task. This paper shows that the introduction of a stage at which agents may themselves choose voting rules according to which they decide in a second stage may increase the sum of individuals' payoffs if players are not all completely selfish. We run three closely related experimental treatments (plus two control treatments) to understand how privately informed individuals decide when they choose voting rules and when they vote. Efficiency concerns play an important role on the rule choice stage whereas selfish behavior seems to dominate at the voting stage. Accordingly, in an asymmetric setting groups that can choose a voting rule do better than those who decide with a given simple majority voting rule.
    JEL: C91 D70 D82
    Date: 2014
  17. By: Moser, Christoph; Lüchinger, Simon
    Abstract: We analyze stock market reactions to announcements of political appointments from the private sector and corporate appointments of former government officials. Using unique data on corporate affiliations and announcements of all Senate-confirmed U.S. Defense Department appointees of six administrations, we find positive abnormal returns for political appointments. These estimates are not driven by important observations, volatile stocks, industry-wide developments or the omission of further commonly used return predictors. Placebo events for close competitors and alternative dates yield no effects. Effects are larger for top government positions and less anticipated announcements. We also find positive abnormal returns for corporate appointments and positive effects of political connections on procurement volume. Our results suggest that concerns over conflicts of interest created by the revolving door are not unfounded, even in a country with strong institutions.
    JEL: G14 D73 G30
    Date: 2014
  18. By: Calahorrano, Lena; Seithe, Mirko
    Abstract: The formation of party preferences is a complex and not yet fully understood process based on a number of factors. This process, which is of great interest for both social and political science, is usually studied using questionnaire data which has proven to be a very reliable yet often costly and limited approach. Advances in technology and the rise of the internet as a primary information source for many people have created a new approach to keep track of people s interests. The major gateways to the internet s information are the so-called search engines, and Google, arguably the most commonly used search engine, allows scientists to tap the vast source of information generated by its users search queries. In this paper we describe how this data source can be used to estimate the effect of different issues on party preferences using German voters and the German party system as an example. We find that using data provided by Google Trends can lead to a variety of interesting and occasionally counterintuitive insights into peoples party preferences.
    JEL: D72 H00 C80
    Date: 2014
  19. By: Daan van der Linde; Swantje Falcke; Ian Koetsier; Brigitte Unger
    Abstract: This paper examines the effects of local politician pay on performance for Dutch municipalities. Although literature has argued wages partly determine the value of holding political office and thereby higher wages may improve the quality of a candidate pool, no straightforward theoretical prediction exists relating politicians’ remuneration to performance. Data on municipal finances is used in a regression discontinuity design that exploits population thresholds which exogenously determine the wages of local politicians. We find higher wages significantly increase municipal net debt and local budgets, at the same time finding some evidence for increased satisfaction with public space. We contrast our findings to previous research on Italy which found similar effects concerning significance, albeit differences regarding the direction. We argue that even though the direction of the effect may differ, both findings could entail better performance given institutional differences between the two countries.
    Keywords: politicians' wages, local finance, regression discontinuity design
    Date: 2014–10

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