nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒05‒30
twenty-two papers chosen by
Eugene Beaulieu
University of Calgary

  1. Budget, expenditures composition and political manipulation: Evidence from Portugal By Vítor Castro; Rodrigo Martins
  2. Polluting Politics By Louis-Philippe Beland; Vincent Boucher
  3. On the Positive Role of Negative Political Campaigning By Maarten C. W. Janssen; Mariya Teteryatnikova
  4. The Indigenous Roots of Representative Democracy By Jeanet Bentzen; Jacob Gerner Hariri; James A. Robinson
  5. Political Bonds: Political Hazards and the Choice of Municipal Financial Instruments By Abhay Aneja; Marian Moszoro; Pablo T. Spiller
  6. The Political Economy of Inclusive Rural Growth By Michael Carter; John Morrow
  7. The Political Economy of Public Income Volatility: With an Application to the Resource Curse By James A. Robinson; Ragnar Torvik; Thierry Verdier
  8. Ghost-House Busters: The Electoral Response to a Large Anti Tax Evasion Program By Lorenzo Casaburi; Ugo Troiano
  9. Is the left-right alignment of parties outdated? By Tangian, Andranik S.
  10. Rigidity of Public Contracts By Marian Moszoro; Pablo T. Spiller; Sebastian Stolorz
  11. How to model the impact of political risk By Suarez, Ronny
  12. Choix social et préférence collective : analyse a posteriori de l’élection présidentielle de 2011 en République Démocratique du Congo By Ngoie, Ruffin-Benoît M.; Ulungu, Berthold E.-L.
  13. Politics and Entrepreneurial Activity in the U.S. By Louis-Philippe Beland; Ozkan Eren; Bulent Unel
  14. Democracy and growth: Evidence from SVMDI indices By Gründler, Klaus; Krieger, Tommy
  15. Federalism and innovation support for small and medium-sized enterprises: Empirical evidence in Europe By Becker, Lasse; Bizer, Kilian
  16. The bankers’ paradox: the political economy of macroprudential regulation By Andrew Baker
  17. The Political Economy of State and Local Investment in Pre-K Programs By Matthew E. Kahn; Kyle Barron
  18. Natural Rerources and public Sector Wages By Pernille Parmer
  19. Using support vector machines for measuring democracy By Gründler, Klaus; Krieger, Tommy
  20. Politicians' promotion incentives and bank risk exposure in China By Wang, Li; Menkhoff, Lukas; Schröder, Michael; Xu, Xian

  1. By: Vítor Castro (Faculty of Economics, University of Coimbra, and Economic Policies Research Unit (NIPE)); Rodrigo Martins (Faculty of Economics, University of Coimbra and Group for Monetary and Fiscal Studies (GEMF))
    Abstract: This paper examines the presence of political cycles in Portuguese governments’ expenditures. The empirical analysis is done using monthly data for the main categories of government expenditures. The results indicate that Portuguese governments act opportunistically regarding the budget surplus and that they also favour capital instead of current spending near elections. Furthermore, right-wing governments tend to be more prone to expenditures’ reduction and deficits after the elections. A disaggregated analysis for the main components of government expenditures corroborates the previous findings and shows other relevant patterns of political manipulations.
    Keywords: Political budget cycles; Expenditure composition; Portugal; Elections; Fiscal policy
    JEL: H72 D72 D78
    Date: 2015
  2. By: Louis-Philippe Beland; Vincent Boucher
    Abstract: This paper estimates the causal impact of party affiliation (Republican or Democrat) of U.S. governors on pollution. Using a regression discontinuity design, gubernatorial election data, and air quality data from U.S. Environmental Protection Agency (EPA), we find that pollution is lower under Democratic governors. We identify that this is mostly due to environmental policies enacted by Democratic governors.
    Keywords: Political Parties, Pollution, Air Quality, Regression Discontinuity
    JEL: Q53 Q58 D72
    Date: 2015
  3. By: Maarten C. W. Janssen; Mariya Teteryatnikova
    Abstract: This paper studies the incentives of parties in political campaigns to disclose their true, intended policies to voters in a setting where these policies are exogenously given and where they are chosen strategically. Parties compete for the vote share that determines their political power or percentage of seats won in the election. We consider two cases: one in which parties can only disclose their own policy (no negative political campaigning) and the other, in which they can also disclose the policy of their adversary (negative political campaigning). In both cases and irrespective of whether policies are exogenous or strategic, full revelation is one of the equilibrium outcomes. More importantly, in case of negative campaigning, all equilibrium outcomes, with full and partial disclosure, are such that all voters make choices that they would have also made under full disclosure. If parties do not or are not allowed to engage in negative campaigning, a large variety of nondisclosure equilibria exist where voters' choices are dierent from those under full disclosure.
    JEL: D43 D82 D83 M37
    Date: 2015–05
  4. By: Jeanet Bentzen; Jacob Gerner Hariri; James A. Robinson
    Abstract: We document that rules for leadership succession in ethnic societies that antedate the modern state predict contemporary political regimes; leadership selection by election in indigenous societies is associated with contemporary representative democracy. The basic association, however, is conditioned on the relative strength of the indigenous groups within a country; stronger groups seem to have been able to shape national regime trajectories, weaker groups do not. This finding extends and qualifies a substantive qualitative literature, which has found in local democratic institutions of medieval Europe a positive impulse towards the development of representative democracy. It shows that contemporary regimes are shaped not only by colonial history and European influence; indigenous history also matters. For practitioners, our findings suggest that external reformers' capacity for regime-building should not be exaggerated.
    JEL: D72 N4 P16
    Date: 2015–05
  5. By: Abhay Aneja; Marian Moszoro; Pablo T. Spiller
    Abstract: We study the link between the choice of rule-based public contracts and political hazards using the municipal bond market. While general obligation bonds are serviced from all municipal revenue streams and offer elected officials financial flexibility, revenue bonds limit the discretion that political agents have in repaying debt as well as the use of revenues from the projects financed by the debt. We predict that public officials choose revenue bonds when elections are very contested to signal trustworthiness and transparency in contracting to the voter. We test this hypothesis on municipal finance data that includes 6,500 bond issuances nationwide as well as election data on over 400 cities over 20 years. We provide evidence that in politically contested cities, mayors are more likely to issue revenue bonds. The correlation is economically significant: a close victory margin of winning candidates and more partisan swings increases the probability of debt being issued as a revenue bond by 3–15% and the probability of issuing bonds through competitive bids by 7%. We test a few additional hypotheses that strengthen the argument that the choice of revenue bonds is a political risk adaptation of public agents so as to signal commitment and lower the likelihood of successful political challenges of misuse of funds.
    JEL: D23 D73 D78 H57 K23
    Date: 2015–05
  6. By: Michael Carter; John Morrow
    Abstract: Commentators on the ‘East Asian Miracle’ of inclusive rural growth have often pointed toward shared growth policies. But why were these policies not chosen elsewhere? This paper shows that economies with a stronger middle class may sustain higher productivity through public good provision. We model voters who invest in either subsistence or technologies in which public goods complement private capital. Investment and technology choices vary with wealth and the level of public goods enforced by political lobbies. We show that increased productive possibilities, such as those of an emerging middle class, can further power reforms when money matters in politics.
    Date: 2015–04–14
  7. By: James A. Robinson; Ragnar Torvik; Thierry Verdier
    Abstract: We develop a model of the political consequences of public income volatility. As is standard, political incentives create inefficient policies, but we show that making income uncertain creates specific new effects. Future volatility reduces the benefit of being in power, making policy more efficient. Yet at the same time it also reduces the re-election probability of an incumbent and since some of the policy inefficiencies are concentrated in the future, this makes inefficient policy less costly. We show how this model can help think about the connection between volatility and economic growth and in the case where volatility comes from volatile natural resource prices, a characteristic of many developing countries, we show that volatility in itself is a source of inefficient resource extraction.
    JEL: D72 D78 Q2
    Date: 2015–05
  8. By: Lorenzo Casaburi; Ugo Troiano
    Abstract: The incentives of political agents to enforce tax collection are key determinants of the levels of compliance. We study the electoral response to the Ghost Buildings program, a nationwide anti-tax evasion policy in Italy that used innovative monitoring technologies to target buildings hidden from tax authorities. The program induced monetary and non-monetary benefits for non-evaders. A one standard deviation increase in town-level program intensity leads to a 4.8 percent increase in local incumbent reelection rates. In addition, these political returns are higher in areas with lower tax evasion tolerance and with higher efficiency of public good provision, implying complementarity among enforcement policies, the underlying tax culture, and the quality of the government.
    JEL: D72 H26
    Date: 2015–05
  9. By: Tangian, Andranik S.
    Abstract: The advocates of modern western democracy promote the viewpoint that the class division of the society is becoming outdated. We attempt to disprove this state ment with an example of 28 German parties who participated in the 2013 federal election. The official party positions on 38 policy issues are considered and the parties are identified with vectors of this 38-dimensional policy space. The statement in question, that there is no predominant political axis, would imply that the party vectors are scattered homogeneously, making a ballshaped cloud of `observations'. However, the Prime Component Analysis (PCA) shows that the party vectors constitute a thin ellipsoid whose two longest diameters cover 83.4% of the total variance. The consequent party ordering is the left-right axis rolled in a circumference, making the far-left and far-right ends meet. Basing on this empirical evidence, we conclude that neither the left-right characterization of parties nor the class opposition is outdated.
    Date: 2015
  10. By: Marian Moszoro; Pablo T. Spiller; Sebastian Stolorz
    Abstract: We apply algorithmic data reading and textual analysis to compare the features of contracts in regulated industries subject to public scrutiny (which we call "public contracts") with relational private contracts. We show that public contracts are lengthier and have more rule-based rigid clauses; in addition, their renegotiation is formalized in amendments. We also find that contract length and the frequency of rigidity clauses increases in political contestability and closer to upcoming elections. We maintain that the higher rigidity of public contracts is a political risk adaptation strategy carried out by public agents attempting to lower third-party opportunistic challenges.
    JEL: D23 D73 D78 H57 K23
    Date: 2015–05
  11. By: Suarez, Ronny
    Abstract: In this paper the impact of political risk is model through the quantification of the decline in the (net) present value of cash flows due to the occurrence of a political event.
    Keywords: Political Risk
    JEL: C00 G3
    Date: 2015–05–25
  12. By: Ngoie, Ruffin-Benoît M.; Ulungu, Berthold E.-L.
    Abstract: The official results analysis of the Congolese presidential elections in 2011 aims at studying behavior displayed by voters towards the selected mode of poll. This reveals that most of them carry out a strategic vote because feeling, in an intuitive way, weaknesses of a single member voting system. This paper characterizes congolese voters’ behavior by province and reveals, in addition, that there would be a mechanism making it possible to pass from a preferences profile to another which would facilitate inductions. New concepts were brought there, in particular the preferences transformation function (PTF) and the Pseudo-Condorcet Winner of (PCW).
    Keywords: Elections, Game of vote, Mode of poll, several-member voting system, single-member voting system, Strategic vote
    JEL: C78 D70 D71 D72 I31
    Date: 2013–11–28
  13. By: Louis-Philippe Beland; Ozkan Eren; Bulent Unel
    Abstract: There is a strong belief that Republicans are more pro-business than Democrats. In this paper, we investigate the causal impact of partisan allegiance of governors (Republican or Democratic) on business creation using entrepreneurship data constructed from the Census Population Surveys and establishment creation data from the Business Dynamics Statistics. By exploiting random variation in close gubernatorial elections in 50 states over the last three decades in a Regression Discontinuity design, we find, surprisingly, that Republicans are not different than Democrats in business creation. Our findings are robust to a number of different specifications, samples, and controls.
  14. By: Gründler, Klaus; Krieger, Tommy
    Abstract: Evidence from a novel measure of democracy (SVMDI) based on Support Vector Machines highlights a robust positive relationship between democracy and economic growth. We argue that the ambiguity in recent studies can be traced back to the neglect of the information in the equation in levels and the lack of sufficient sensitivity of traditional democracy indicators. We further analyze the transmission channels through which democracy exerts its influence on growth, concluding that democratic countries have better educated populations, higher investment shares, lower fertility rates, but not necessarily higher levels of redistribution. The latter explains why we find only little indication of a nonlinear effect of democracy on growth.
    Keywords: Democracy,Economic Growth,Support Vector Machines
    JEL: O11 O47 P16 H11 C43
    Date: 2015
  15. By: Becker, Lasse; Bizer, Kilian
    Abstract: Private innovative activities receive public innovation support from different political levels. Few studies have empirically evaluated the influence of political systems on the reception of public innovation support and no other studies have evaluated innovation support across Europe with CIS data. This paper analyses the differences between federal, semi-federal and centralist political systems with CIS data from sixteen European countries. The results show that regional programmes in federal and semi-federal countries reach firms with barriers to innovate, such as small and medium-sized enterprises, while other programmes only claim to reach them. Federal and semi-federal countries therefore support a broader variety of firms compared with centralist countries. European support reaches SMEs better in centralist countries compared with federal and semi-federal countries. Regular and higher expenditure on innovative activities shows a positive influence on the reception of support in all countries, while indicators such as market focus vary between countries and political levels. Regional programmes focus more strongly on companies with a regional market focus, which can be seen as another barrier to innovation. As a policy implication, the paper implies that barriers to innovation can be reduced by a decentralized innovation framework with stronger regional programmes.
    Keywords: innovation,innovation support,SME,Europe,federalism,decentralization
    JEL: O31 O38 H77 H71
    Date: 2015
  16. By: Andrew Baker
    Abstract: Macroprudential regulation, which has emerged as a new departure in financial regulation (albeit with a longer heritage), since the financial crash, is in a fluid, evolving and highly experimental phase. Understanding its future political economy requires engaging with macroprudential's constituent concepts and how they interrelate to one another. This paper argues that the emerging political economy of macroprudential regulation revolves around five paradoxes. The first three of these are paradoxes that characterise the financial system and are identified by the macroprudential perspective. In seeking to respond to these paradoxes, macroprudential policy, generates a further two distinctly institutional and political paradoxes. The last of these is a central bankers' paradox which relates to the source of independent central bank authority and the difficulty of building legitimacy and public support for macroprudential regulation. Functioning macroprudential regulation is about executing a technocratic control project that rests on a depoliticisation strategy, that in turn risks politicising central banks, exposing their claims to technical authority to critical scrutiny and potential political backlash. This is the ultimate central bankers’ paradox in the era of post-crash political economy. Central banks conducting macroprudential regulation need to be aware of this paradox and handle it with great care.
    JEL: E5 E6
    Date: 2015–04–29
  17. By: Matthew E. Kahn; Kyle Barron
    Abstract: The expansion of access to publicly provided pre-kindergarten bundles together redistribution to the poor with an early human capital investment. Financing publicly provided pre-K investment is mainly a state and local issue. Which voters favor local pre-K expansion? This paper uses several new data sets to describe the circumstances such that local voters reveal a willingness to spend on an early intervention that may not yield direct benefits for them. Republican voters consistently oppose the expansion of publicly provided pre-K. Suburban voters also tend to oppose such investment. We explore several possible explanations for these facts.
    JEL: H41 H72 R2
    Date: 2015–05
  18. By: Pernille Parmer (Department of Economics, Norwegian University of Science and Technology)
    Abstract: This paper studies the effects of natural resource abundance on wages for local public sector leaders in Norway. Local governments with high public revenues from the hydropower sector have fewer economic constraints compared with other local governments. High revenues might make it easier for public sector leaders to use their political power to increase leader wages relative to the wages received by other working groups. Novel data on local public sector wages, in combination with an exogenous instrument for hydropower revenues, lead to a unique empirical framework for this analysis. The instrumental variable estimates exploit the variation in geographical and topological characteristics, such as the length of rivers, river slope, water ow volume, and precipitation. Although the results indicate that public sector wages are positively a ected by local government revenues, there is no evidence that the revenue effect is stronger for leader wages than for the wages of other working groups.
    Keywords: Public sector wages, resource curse, rent-seeking, identification, local governments, political economy
    JEL: D78 H27 H71 H75 Q2
    Date: 2014–12–10
  19. By: Gründler, Klaus; Krieger, Tommy
    Abstract: We present a novel approach for measuring democracy, which enables a very detailed and sensitive index. This method is based on Support Vector Machines, a mathematical algorithm for pattern recognition. Our implementation evaluates 188 countries in the period between 1981 and 2011. The Support Vector Machines Democracy Index (SVMDI) is continuously on the 0-1-Interval and robust to variations in the numerical process parameters. The algorithm introduced here can be used for every concept of democracy without additional adjustments, and due to its exibility it is also a valuable tool for comparison studies.
    Keywords: Democracy,Support Vector Machines,Democracy Index
    JEL: C43 C65 C82 H11 P16
    Date: 2015
  20. By: Wang, Li; Menkhoff, Lukas; Schröder, Michael; Xu, Xian
    Abstract: This paper shows that politicians' pressure to climb the career ladder increases bank risk exposure in their region. Chinese local politicians are set growth targets in their region that are relative to each other. Growth is stimulated by debt-financed programs which are mainly financed via bank loans. The stronger the performance incentive the riskier the respective local bank exposure becomes. This effect holds primarily for local banks which are under a certain degree of control of local politicians and it has increased with the release of recent stimulus packages requiring local co-financing.
    Keywords: Bank Lending,Bank Risk Exposure,Local Politicians,Promotion Incentives
    JEL: G21 G23 H74
    Date: 2015
  21. By: P. V. Krishna
    Abstract: The present research paper is aimed to deal the awareness and participation level of elected women representatives in the PRIs in East Godavari district, Andhra Pradesh. About 144 elected women representatives of various cadres are selected for the study and their views is presented in tabular manner. It is found that the woman representation is basically depends on reservations. Most women file their candidature for elections to PRIs not out of their own will, but due to the pressure of husbands, sons or other male member of the family or the village or due to the pressure of some political party; but those who contested as independents have had the credit of working for the people of their locality. The women elected representatives are aware of the objectives of the PRIs. Majority are involving in the Poverty Alleviation Programmes. It is suggested that the government should provide special grants and provisions as an encouragement to them towards under take welfare programmes effectively and to participate in local government activities. Key words: Directive Principles, Fundamental Rights, Women Status, grass root organizations, Panchayat Raj Institutions, poverty alleviation
    Date: 2014–03
  22. By: Arvinder Kaur
    Abstract: Several influential, but intellectual persons constituted the Liberal party during the period under review. They held any conferences under the auspices of the National Liberal Federation of India. The Liberals generally blamed the government for their unfortunate position. The paper presents the facts of liberals and their role in politics. Key words: liberals, politics, ineffectual role
    Date: 2015–03

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