nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒04‒25
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. A Simultaneous Analysis of Turnout and Voting under Proportional Representation: Theory and Experiments By Aaron Kamm; Arthur Schram
  2. Do Polls create Momentum in Political Competition? By Philipp Denter; Dana Sisak
  3. Resource Extraction in a Political Economy Framework By Karolina Ryszka
  4. Solving the Inverse Power Problem in Two-Tier Voting Settings By Matthias Weber
  5. Citizen Candidates and Voting Over Incentive-Compatible Nonlinear Income Tax Schedules By Craig Brett; John A Weymark
  6. Central bank independence and political pressure in the Greenspan era By Kuper, Gerard; Veurink, Jan Hessel
  7. Choosing Voting Systems behind the Veil of Ignorance: A Two-Tier Voting Experiment By Matthias Weber
  8. Other-regarding Preferences, Group Identity and Political Participation: An Experiment By Pedro Robalo; Arthur Schram; Joep Sonnemans
  9. The political economy of (in)formal long term care transfers By De Donder, Philippe; Leroux, Marie-Louise
  10. Lobbying and Tax Competition in an Agglomeration Economy: A Reverse Home Market Effect By Kato, Hayato
  11. Forbidden Fruits: The Political Economy of Science, Religion, and Growth By Bénabou, Roland; Ticchi, Davide; Vindigni, Andrea

  1. By: Aaron Kamm (University of Amsterdam); Arthur Schram (University of Amsterdam)
    Abstract: In a system of proportional representation, we study the interaction between a voter’s turnout decision and her party choice, and how these relate to party polarization. Quantal response equilibria predict such interaction effects. In particular they predict (i) a Polarization Effect: reduced strategic party choice when voting is voluntary makes voters more likely to vote for extreme parties (conditional on voting at all); (ii) an Extremist Effect: voters supporting extreme parties are most likely to vote; (iii) a Turnout Effect: party polarization increases voter turnout. We provide data from a laboratory experiment that support these theoretical predictions. In addition, we provide supporting empirical evidence from real world elections. Hence, the interaction between turnout and strategic voting that has been neglected in most of the previous literature is shown to be important.
    Keywords: Voting behavior, Proportional representation, Political participation, Strategic voting, Experimental Economics
    JEL: C92 D72
    Date: 2013–12–05
  2. By: Philipp Denter (University of St. Gallen, Switzerland); Dana Sisak (Erasmus University Rotterdam, The Netherlands)
    Abstract: We explore how public opinion polls affect candidates' campaign spending in political competition. Generally, polls lead to (more) asymmetric behavior. Under a majority rule there always exists an equilibrium in which the initially more popular candidate invests more in the campaign and thereby increases her lead in expectation: polls create momentum. When campaigning is very effective and the race is very close, a second type of equilibrium may exist: the trailing candidate outspends and overtakes his opponent. Regardless of the type of equilibrium, polls have a tendency to decrease expected total campaigning expenditures by amplifying ex-ante asymmetries between candidates and thus defusing competition. When candidates care also for their vote share in addition to having the majority, candidates' incentives crucially depend on the distribution of voters' candidate preferences.
    Keywords: polls, political campaigns, feedback, momentum
    JEL: D02 D72 D74 D83
    Date: 2013–10–15
  3. By: Karolina Ryszka (VU University Amsterdam)
    Abstract: We analyze resource extraction in a political economy setting by introducing a political leader who optimizes both his own and the society's welfare function. We find that accounting for the private utility of a political elite, its higher discount rate and a different time horizon generally speeds up extraction. The higher than optimal resource extraction is not only relevant in welfare terms, but also regarding possible consequences with respect to climate change. The effect of higher extraction caused by a political leader directly accroaching resources does not hold in a decentralized private ownership economy where the government strives to raise revenues through taxation. We endogenize the political economy framework and show that the politician's discount factor is higher than the social discount factor due to the probability of losing power. The weight that the political leader attaches to social welfare is determined by the way the probability of staying in power depends on the welfare of the society.
    Keywords: exhaustible resources, oil, dictatorship, political economy, taxation, climate change
    JEL: Q31 Q38 Q54
    Date: 2013–07–18
  4. By: Matthias Weber (CREED, University of Amsterdam)
    Abstract: There are many situations in which different groups make collective decisions by committee voting, where each group is represented by a single person. Theoretical concepts suggest how the voting systems in such committees should be designed, but these abstract rules can usually not be implemented perfectly. To find voting systems that approximate these rules the so called inverse power problem needs to be solved. I introduce a new method to address this problem in two-tier voting settings using the coefficient of variation. This method can easily be applied to a wide variety of settings and rules. After deriving the new method, I illustrate why it is to be preferred over more traditional methods.
    Keywords: inverse power problem, indirect voting power, two-tier voting, Penrose’s Square Root Rule
    JEL: D71 D72
    Date: 2014–02–10
  5. By: Craig Brett (Mount Allison University); John A Weymark (Vanderbilt University)
    Abstract: Majority voting over the nonlinear tax schedules proposed by a continuum of citizen candidates is considered. The analysis extends the finite-individual model of Röell (unpublished manuscript, 2012). Each candidate proposes the tax schedule that is utility maximal for him subject to budget and incentive constraints. Each of these schedules is a combination of the maxi-min and maxi-max schedules along with a region of bunching in a neighborhood of the proposer's type. Techniques introduced by Vincent and Mason (1967, NASA Contractor Report CR-744) are used to identify the bunching region. As in Röell's model, it is shown that individual preferences over these schedules are single-peaked, so the median voter theorem applies. In the majority rule equilibrium, marginal tax rates are negative for low-skilled individuals and positive for high-skilled individuals except at the endpoints of the skill distribution where they are typically zero.
    Keywords: bunching, citizen candidates, ironing, majority voting, nonlinear income taxation
    JEL: H2 D7
    Date: 2014–09–26
  6. By: Kuper, Gerard; Veurink, Jan Hessel (Groningen University)
    Abstract: This paper investigates whether political pressure from incumbent<br/>presidents influences the Fed?s monetary policy during the period that Alan Greenspan was the chairman of the United States Federal Reserve Board. A modified Taylor rule - featuring the inflation rate and the unemployment<br/>gap rather than the output gap - with time-varying coefficients will be used to test well-known political-economic theories of Nordhaus (1975) and Hibbs (1987). This novel approach addresses some of the disadvantages of Ordinary Least Squares, and has the additional benefit of allowing the use of mixed frequency data. Our findings suggest that the Fed under Greenspan did not create election driven monetary cycles, but was less inflation avers<br/>with a Democratic president.
    Date: 2014
  7. By: Matthias Weber (CREED, University of Amsterdam)
    Abstract: There are many situations in which different groups make collective decisions by committee voting, with each group represented by a single person. A natural question is what voting system such a committee should use. Concepts based on voting power provide guidelines for this choice. The two most prominent concepts require the Banzhaf power index to be proportional to the square root of group size or the Shapley-Shubik power index to be proportional to group size. Instead of studying the choice of voting systems based on such theoretical concepts, in this paper, I ask which systems individuals actually prefer. To answer this question, I design a laboratory experiment in which participants choose voting systems. I find that people behind the veil of ignorance prefer voting systems following the rule of proportional Shapley-Shubik power; in front of the veil subjects pr efer voting systems benefiting their own group. Participants' choices can only partially be explained by utility maximization or other outcome based concepts.
    Keywords: assembly voting, EU council, Penrose's Square Root Rule, optimal voting rule
    JEL: D71 D72 C91
    Date: 2014–04–01
  8. By: Pedro Robalo (CREED, University of Amsterdam); Arthur Schram (CREED, University of Amsterdam); Joep Sonnemans (CREED, University of Amsterdam)
    Abstract: We experimentally study the relationship between other-regarding preferences, group identity and political participation. In doing so, we propose a novel group identity induction procedure that succeeds in creating environments where in-group bias is either high or low. At the individual level, we find that both altruistic subjects and group identifiers participate above average. The most competitive subjects participate much less often than other types, while the most altruistic subjects manage to sustain high participation levels. At the aggregate level, we observe only few statistically significant differences between environments where group identity is high and low. This suggests that the higher participation observed in field settings for close-knit (political) groups might be due to underlying mobilization processes rather than a heightened sense of group-belonging.
    Keywords: Group identity, Other-regarding preferences, Political participation, Participation Game, Experiment
    JEL: A13 C91 C92 D72
    Date: 2013–06–11
  9. By: De Donder, Philippe; Leroux, Marie-Louise
    Abstract: We develop a model where families consist of one parent and one child, with children differing in income and all agents having the same probability of becoming dependent when old. Young and old individuals vote over the size of a social long term care transfer program, which children complement with informal (time) or formal (money) help to their dependent parent. Dependent parents have an intrinsic preference over informal to monetary help. We first show that low (resp., high) income children provide informal (resp. formal) help, whose amount is decreasing (resp. increasing) with the child's income. The middle income class may give no family help at all, and its elderly members would be the main beneficiaries of the introduction of social LTC transfers. We then provide several reasons for the stylized fact that there are little social LTC transfers in most countries. First, social transfers are dominated by informal help when the intrinsic preference of dependent parents for informal help is large enough. Second, when the probability of becoming dependent is lower than one third, the children of autonomous parents are numerous enough to oppose democratically the introduction of social LTC transfers. Third, even when none of the first two conditions is satisfied, the majority voting equilibrium may entail no social transfers, especially if the probability of becoming dependent when old is not far above one third. This equilibrium may be local (meaning that it would be defeated by the introduction of a sufficiently large social program). This local majority equilibrium may be empirically relevant whenever new programs have to be introduced at a low scale before being eventually ramped up.
    Keywords: Majority Voting, local Condorcet winner, crowding out, intrinsic preference for informal help, tax reform.
    JEL: D91 H55 I13
    Date: 2015–04–18
  10. By: Kato, Hayato
    Abstract: This paper analyzes tax competition between politically-motivated governments in a world economy with agglomeration forces. The well-known home-market effect, in which countries with a larger home market are attractive for firms, may be reversed as a result of tax competition played by politically-interested governments. The model economy includes trade costs, internationally mobile firms, and two countries of asymmetric size. Each national government sets its tax rate strategically to maximize the weighted sum of residents’ welfare and political contributions by owners of firms as special interest groups. It is shown that, if the governments heavily care about contributions and trade costs are low, the small country attracts a more than proportionate share of firms by setting a lower tax rate.
    Keywords: Tax/subsidy competition, Lobbying, Market size, Reverse home-market effect, International oligopoly
    JEL: F15 F22 H20 H30
    Date: 2015–04
  11. By: Bénabou, Roland; Ticchi, Davide; Vindigni, Andrea
    Abstract: We analyze the joint dynamics of religious beliefs, scientific progress and coalitional politics along both religious and economic lines. History offers many examples of the recurring tensions between science and organized religion, but as part of the paper’s motivating evidence we also uncover a new fact: in both international and cross-state U.S. data, there is a significant and robust negative relationship between religiosity and patents per capita. The political-economy model we develop has three main features: (i) the recurrent arrival of scientific discoveries that generate productivity gains but sometimes erode religious beliefs; (ii) a government, endogenously in power, that can allow such innovations to spread or instead censor them; (iii) a religious organization or sector that may invest in adapting the doctrine to new knowledge. Three long-term outcomes emerge. First, a "Secularization" or "Western-European" regime with declining religiosity, unimpeded science, a passive Church and high levels of taxes and transfers. Second, a "Theocratic" regime with knowledge stagnation, extreme religiosity with no modernization effort, and high public spending on religious public goods. In-between is a third, "American" regime that generally (not always) combines scientific progress and stable religiosity within a range where religious institutions engage in doctrinal adaptation. It features low overall taxes, together with fiscal advantages or societal laws benefiting religious citizens. Rising income inequality can, however, lead some of the rich to form a successful Religious-Right alliance with the religious poor and start blocking belief-eroding discoveries and ideas.
    Keywords: beliefs; blocking; censorship; Church; discovery; economic growth; inequality; innovation; knowledge; politics; redistribution; religion; religious right; science; secularization; state; technical progress; theocracy; tolerance
    JEL: E02 H11 H41 O3 O43 P16 Z12
    Date: 2015–04

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