nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒02‒22
nineteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Selection and the Concentration of Political Power By Pönitzsch, Gert; Grunewald, Andreas; Hansen, Emanuel
  2. Local Political Budget Cycles in a Federation: Evidence from West German Cities By Furdas, Marina; Homolkova, Katerina; Kis-Katos, Krisztina
  3. Ideology, Nationalism, and Identity in Basque Regional Elections By Stephen Ansolabehere; M. Socorro Puy
  4. Does polarization of opinions lead to polarization of platforms? the case of correlation neglect By Levy, Gilat; Razin, Ronny
  5. Intergovernmental Grants as Signals and the Alignment Effect: Theory and Evidence By Bracco, Emanuele; Lockwood, Ben; Porcelli, Francesco; Redoano, Michela
  6. Distributional Consequences of Political Representation By Maaser, Nicola; Stratmann, Thomas
  7. Networked default: public debt, trade embeddedness, and partisan survival in democracies since 1870 By Jeffrey Chwieroth; Cohen Simpson; Andrew Walter
  8. Do Politicians' Relatives Get Better Jobs? Evidence from Municipal Elections By Julien Labonne; Marcel Fafchamps
  9. Proportional influence? Electoral rules and special interest spending By Köthenbürger, Marko; Egger, Peter; Smart, Michael
  10. Geopolitics, Aid and Growth By Dreher, Axel; Eichenauer, Vera; Gehring, Kai
  11. The Political Economy of Renewable Energies By Isabelle CADORET; Fabio PADOVANO
  12. The political economy of industrial development in Vietnam: Impact of state-business relationship on industrial performance, 1986-2012 By Vu-Thanh, Tu-Anh
  13. The Role of Lawyer-Legislators in Shaping the Law: Evidence from Voting Behavior on Tort Reforms By Matter, Ulrich; Stutzer, Alois
  14. Political Dimensions of Investment Arbitration: ISDS and the TTIP Negotiations By Thomas Dietz; Marius Dotzauer
  15. State Capacity and Public Debt: A political economy analysis By Esslinger, Christoph; Mueller, Cornelius
  16. Assessing the Political Economy of the 2014 U.S. Farm Bill By Zulauf, Carl; Orden, David
  17. It worked in China, so why not in Africa? The political economy challenge of Special Economic Zones By Farole, Thomas; Moberg, Lotta
  18. Collective Action: Experimental Evidence By María Victoria Anauati; Brian Feld; Sebastian Galiani; Gustavo Torrens
  19. The Economic Effect of Corruption in Italy: A Regional Panel Analysis By Lisciandra, Maurizio; Millemaci, Emanuele

  1. By: Pönitzsch, Gert; Grunewald, Andreas; Hansen, Emanuel
    Abstract: This paper studies the effects of power-concentrating institutions on the quality of political selection, i.e., the voters' capacity to identify and empower competent politicians. In our model, candidates are privately informed about their abilities and are driven by office rents as well as welfare considerations. We show that variations in power concentration involve a trade-off. On the one hand, higher concentration of power enables the voters' preferred politician to enforce larger parts of his agenda. On the other hand, higher power concentration increases electoral stakes and thereby induces stronger policy distortions. We identify a negative relation between the optimal level of power concentration and the extent of office motivation. In particular, full concentration of power is desirable if and only if politicians are mostly welfare-oriented. The results of an empirical analysis are in line with this prediction.
    JEL: D72 D82 H11
    Date: 2014
  2. By: Furdas, Marina (University of Freiburg); Homolkova, Katerina (University of Kiel); Kis-Katos, Krisztina (University of Freiburg)
    Abstract: This paper analyzes the occurrence of political budget cycles in 604 West German cities between 1975 and 2007. Due to the idiosyncratic timing of state and local elections, the budgetary changes before elections at two tiers of the federalist government can be separately estimated and can also be distinguished from common time effects. Both local and state elections result in pre-election manipulation of the local finances of moderate size. Before both types of elections, we observe an increase in building investments, accompanied by increasing intergovernmental grants for investment purposes but also a halt in the increase of local tax rates. By contrast, elections at the two tiers of the government affect the size of the current budget differently: current revenues and expenditures decrease before local but increase before state elections, suggesting a difference in the tightness of the local budget constraint. The extent of these political budget cycles is more pronounced in municipalities that are politically aligned with the state governments and are politically more contested.
    Keywords: political budget cycles, German cities, municipal finances, local and state elections
    JEL: D72 H71 H72
    Date: 2015–01
  3. By: Stephen Ansolabehere (Government Department, Harvard University); M. Socorro Puy (Department of Economic Theory, Universidad de Málaga)
    Abstract: Parliamentary elections to the Basque Autonomous Community have a stable multi-party system that regularly produces long-lived minority and coalition governments. More amazing still, this stable party system arises in the context of a complex social and political setting in which the society cleaves along at least two lines -- left-right ideology and nationalism – and in which people have strong identities tied to the Basque language and culture. This paper analyzes voting behavior in parliamentary elections in this region to understand how the left-right ideology, nationalism, and identity sustain this party system. We extend the conventional spatial voting model to incorporate identity issues. Our empirical analysis shows that left-right ideology, nationalism (or regional autonomy) and identity strongly predict vote choice. Interestingly, the analysis suggests that identity politics both polarizes voting and sustains a stable multi-party system.
    Keywords: Basque-Elections; Multi-Party Elections; Coalition Governments; Positional Issues; Valence Issues; Identity groups
    Date: 2015–02
  4. By: Levy, Gilat; Razin, Ronny
    Abstract: In this paper we question the common wisdom that more polarized voters’ opinions imply larger policy polarization. We analyze a voting model in which the source of the polarization in voters’ opinions is “correlation neglect”, that is, voters neglect the correlation in their information sources. Our main result shows that such polarization in opinions does not necessarily translate to policy polarization; when the electoral system is not too competitive (that is, when there is some aggregate noise in the election’s outcome), then voters with correlation neglect may induce lower levels of policy polarization compared with rational electorates.
    Keywords: correlation neglect; polarization; policy polarization; public opinion
    JEL: D72
    Date: 2015–02
  5. By: Bracco, Emanuele; Lockwood, Ben; Porcelli, Francesco; Redoano, Michela
    Abstract: This paper provides a simple political agency model to explain the effect of political alignment between different tiers of government on intergovernmental grants and election outcomes. Key features of the model are: (i) rational voters interpret public good provision as a signal of incumbent competence, and (ii) realistically, grants are unobservable to voters. In this setting, the national government will use the grant as an instrument to manipulate the public good signal for the benefit of aligned local incumbents and challengers. Then, aligned municipalities receive more grants, with this effect being stronger before elections, and the probability that the aligned local incumbent is re-elected is higher. These predictions are tested using a regression discontinuity design on a new data-set on Italian municipalities. At a second empirical stage, the national grant to municipalities is instrumented with an alignment indicator, allowing estimation of a flypaper effect for Italian municipalities.
    Keywords: accountability; fiscal federalism; flypaper effect; political competition
    JEL: D7 H2 H77 H87
    Date: 2015–02
  6. By: Maaser, Nicola; Stratmann, Thomas
    Abstract: We investigate the geographical concentration of representatives and the distribution of fiscal transfers both theoretically and empirically. We develop a model which predicts that funds to an area are positively correlated with the number of representatives residing in that area. Our empirical analysis uses the fact that due to the electoral rules for German state elections the number of representatives varies quasi-randomly across electoral districts. Controlling for various socio-economic and demographic variables and using a variety of estimation techniques, we find that areas with greater number of representatives receive more government funds.
    JEL: D72 H72 R10
    Date: 2014
  7. By: Jeffrey Chwieroth; Cohen Simpson; Andrew Walter
    Abstract: Sovereign default is often associated with the downfall of incumbent governments in democratic polities. Existing scholarship directs attention to the relationship between default and domestic politics and institutions rather than the broader international environment wherein repayment and default take place. We explore the possibility that the impact of a country’s decision to default on partisan survival will also be shaped by the prevalence of default amongst its peers in its local network. Illustrating this line of reasoning with international trade, our results support the argument that given networked default, voters see national default as a lost strategic opportunity to elevate a country’s reputation and are more inclined to punish incumbent regimes who fail to repay. These results are inconsistent with an alternative possibility — that networked default might contribute to the decay of a repayment norm and thus provide a justifiable “excuse” for default at home. Furthermore, our results are robust to alternative measures of regime governance and entropy balancing in light of systematic differences between defaulting and non-defaulting regimes. Overall, our findings point to the political interdependence of default and repayment and the need for political scientists to take greater account of network effects in analyzing the consequences of economic misbehavior.
    Keywords: Sovereign Default; Debt Crises; Political Survival; Networks; Voter Behavior.
    JEL: H63
    Date: 2014–09
  8. By: Julien Labonne; Marcel Fafchamps
    Abstract: We estimate the impacts of being connected to politicians on occupational choice.  We use an administrative dataset collected in 2008-2010 on 20 million individuals and rely on naming conventions to assess family links to candidates in elections held in 2007 and 2010.  We first estimate the value of political connections by applying a regression discontinuity design to close elections in 2007.  Those estimates likely combined the benefits from connections to current office-holders and the cost associated with being related to a losing candidate.  We use individuals connected to successful candidates in the 2010 elections as control group and find that relatives of current office-holders are more likely to be employed in better paying occupations.  Relatives of candidates who narrowly lost in 2007 have lower occupations.  A third-party randomly split our dataset in two and gave us sample 1.  Once the review is completed, we will apply the approved methodoloy to sample 2.
    Date: 2014–12–25
  9. By: Köthenbürger, Marko; Egger, Peter; Smart, Michael
    Abstract: Conventional wisdom has it that proportional representation leads to more coalition governments and so to greater government spending, especially in redistributive categories favoured by special-interest groups. In contrast, we show in a theoretical model that first-past-the-post systems of government may give special interests greater influence in the winning electoral coalition than they would have in the corresponding legislative coalition under proportional representation. Evidence from a quasi-experimental reform in German local government supports this view. Introduction of a mayor directly elected under first-past-the-post rules caused a significant increase in local government expenditure, particularly in redistributive spending categories.
    JEL: H20 D72 H11
    Date: 2014
  10. By: Dreher, Axel; Eichenauer, Vera; Gehring, Kai
    Abstract: We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Donor countries political motives might reduce the effectiveness of conditionality, channel aid to inferior projects, reduce the aid bureaucracy s effort, and change the power structure in the recipient country. We investigate whether geopolitical motives matter by testing 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 commitments. Our results show that the effect of aid on growth is significantly lower when aid has been granted for political reasons. We derive two conclusions from this. First, short-term political favoritism reduces growth. Second, political interest variables are invalid instruments for aid, raising doubts about a large number of results in the aid effectiveness literature.
    JEL: O19 O11 F35
    Date: 2014
  11. By: Isabelle CADORET (CREM-CNRS and Condorcet Center, University of Rennes 1, France); Fabio PADOVANO (CREM-CNRS and Condorcet Center, University of Rennes 1, France, Department of Political Sciences, University Roma Tre, Italy)
    Abstract: This paper empirically analyzes how political factors affect the deployment of renewable energy (RE) sources and compares it to other economic, energy and environmental drivers that have received greater attention in the literature so far. The sample encompasses the EU countries bound to attain the target of 20% share of gross final energy consumption by 2020. The panel data analysis shows that lobbying by the agricultural industry negatively affect RE deployment, whereas standard measures of government quality show a positive effect; furthermore left-wing parties promote the deployment of RE more than right wing ones, but this effect is reduced when the governing coalition is highly concentrated. Among the control variables, economic growth shows a positive impact on RE deployment.
    Keywords: renewable energy sources, energy policy, quality of government, lobbying, political ideology
    JEL: Q28 H54 H87 D72 D73 D78
    Date: 2015–01
  12. By: Vu-Thanh, Tu-Anh
    Abstract: Vietnam.s industrial development since doi moi is a success, but only a partial one. This paper provides a political economy account of Vietnam.s industrial growth since 1986. It shows that the key determinant of Vietnam.s industrial growth lies in the re
    Keywords: state-business relationship, political economy, industrial development, Vietnam
    Date: 2014
  13. By: Matter, Ulrich; Stutzer, Alois
    Abstract: Attorneys elected to the US House of Representatives and to US state legislatures are systematically less likely to vote in favor of tort reforms that restrict tort litigation, but more likely to support bills that extend tort law. This finding is based on the analysis of 54 votes at the federal and state level between 1995 and 2012. It holds when controlling for legislators ideology and is particularly strong for term-limited lawyer-legislators. The empirical regularity is consistent with the hypothesis that lawyer- legislators, at least in part, pursue their private interests when voting on tort issues. Our results highlight the relevance of legislators identities and individual professional interests for economic policy making.
    JEL: D72 K13 C81
    Date: 2014
  14. By: Thomas Dietz (University of Muenster - Institute of Political Science & ZenTra); Marius Dotzauer (University of Muenster - Institute of Political Science)
    Abstract: The aim of this paper is to explore the political dimensions of investment arbitration. What drives the structures and rules of this institution of private-transnational dispute settlement? To define political dimensions and develop the basis of a political explanation of investment arbitration, we reconstruct the conflict about investor-state dispute settlement (ISDS) in the negotiations on the Transatlantic Trade and Investment Partnership (TTIP). We argue that the competing interests of different actors shape the design of the institution. Investment arbitration has become politicized. On a horizontal dimension, interest groups argue about the risks and benefits of arbitration. On a vertical dimension, government authorities struggle to balance national sovereignty and global interests. We indicate a political process, defined by the configuration of the horizontal and the vertical dimension, which drives the emergence and development of investment arbitration.
    Keywords: Arbitration, investor-state dispute settlement, TTIP, politicization, distributional conflicts
    JEL: F13 F15 F21 K33 P16
    Date: 2015–02
  15. By: Esslinger, Christoph; Mueller, Cornelius
    Abstract: High public debt combined with low capacities of the state to raise taxes and to support markets can put even developed countries into turmoil. However, the existing political economy literature of state capacity, pioneered by Besley and Persson (2009), does not investigate the interaction of these capacities with public debt. This paper studies the incentives behind raising debt and building state capacity in an integrated analytical framework. We examine the impact of political stability, cohesiveness of institutions, and income fluctuations on the political outcome, while allowing for sovereign default. We investigate when public debt and state capacity investments move in the same or opposite directions in response to exogenous parameter changes. This allows us to show when a state will simultaneously accumulate high public debt and invest only little in its capacities to raise taxes and to support markets, leading to a positive probability of sovereign default.
    JEL: H20 H60 H11
    Date: 2014
  16. By: Zulauf, Carl; Orden, David
    Abstract: This chapter assesses the political economy of the 2014 farm bill, which eliminated annual fixed direct payments but offers enhanced downside risk protection against low prices or declining revenue. The farm bill secured substantial bipartisan majorities in a politically contentious Congress. The countercyclical structure of U.S. support is reaffirmed and crop insurance is enhanced as a safety net pillar. Open policy issues include the distribution of benefits among crops, the design of multiple year support around moving-average revenue benchmarks versus fixed references prices, and questions related to crop insurance, including the overall level of premium subsidies. In an international context, we conclude the 2014 farm safety net likely would not have been enacted had multilateral agreement been reached on the 2008 Doha Round negotiating documents; conversely, the 2014 safety net makes achieving those limits more difficult.
    Keywords: Agricultural policy, 2014 farm bill, farm subsidies, commodity programs, crop insurance, conservation, WTO, Agricultural and Food Policy, Q17, Q18, Q28, K33, N52,
    Date: 2014–12
  17. By: Farole, Thomas; Moberg, Lotta
    Abstract: African countries have sought to replicate the success of East Asia by implementing special economic zones. Despite decades of international experience, there remains no blueprint for successful special economic zone policies, and the majority of special
    Keywords: decomposition, Gini coefficient, inequality, Shapley.s value, Togo
    Date: 2014
  18. By: María Victoria Anauati; Brian Feld; Sebastian Galiani; Gustavo Torrens
    Abstract: We conducted a laboratory experiment to test the comparative statics predictions of a new approach to collective action games based on the method of stability sets. We find robust support for the main theoretical predictions. As we increase the payoff of a successful collective action (accruing to all players and only to those who contribute), the share of cooperators increases. The experiment also points to new avenues for refining the theory. We find that, as the payoff of a successful collective action increases, subjects tend to upgrade their prior beliefs as to the expected share of cooperators. Although this does not have a qualitative effect on comparative static predictions, using the reported distribution of beliefs rather than an ad hoc uniform distribution reduces the gap between theoretical predictions and observed outcomes. This finding also allows to decompose the mechanism that leads to more cooperation into a ”belief effect” and a ”range of cooperation effect”.
    JEL: C92 D72 H0 O0
    Date: 2015–02
  19. By: Lisciandra, Maurizio; Millemaci, Emanuele
    Abstract: This paper provides a within-country analysis of the impact of corruption on economic growth using a panel of Italian regions from 1968 to 2011 through a robust measure of corruption. This measure is averaged over 5-year periods to reduce short-run fluctuations and to reduce probable delayed effects, which are typical for latent phenomena such as corruption. The results show a significant negative impact of corruption on long-term growth in all specifications, both on average and for each Italian region. As a consequence, a zero-level of corruption is growth maximizing. This effect is non-linear such that the negative impact of corruption on growth becomes less intense as corruption increases.
    Keywords: corruption; economic growth; cross-regional analysis; dynamic panel data
    JEL: D73 K4 O10 R11
    Date: 2015–02

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