nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒06‒13
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. Voting for direct democratic participation: Evidence from an initiative election By Felix Arnold; Ronny Freier; Magdalena Pallauf; David Stadelmann
  2. Intergenerational Politics, Government Debt, and Economic Growth By Tetsuo Ono
  3. Bargaining in the Presence of Condorcet Cycles: The Role of Asymmetries By Aaron Kamm; Harold Houba
  4. Economic beliefs and party preference By Roos, Michael W. M.; Orland, Andreas
  5. Political Risk as a Hold-Up Problem: Implications for Integrated Strategy By Shotts, Kenneth W.
  6. Majority Choice of Tax Systems in Single- and Multi-Jurisdictional Economies By Stephen Calabrese; Dennis Epple; Richard Romano
  7. Good Governance Facades By Kalle Moene; Tina Søreide
  8. The most unkindest cuts: speaker selection and expressed government dissent during economic crisis By Alexander Herzog; Kenneth Benoit
  9. Judge: Don't Vote! By Balinski, Michel; Laraki, Rida
  10. The political economy of public investment when population is aging: A panel cointegration analysis By Jäger, Philipp; Schmidt, Torsten

  1. By: Felix Arnold; Ronny Freier; Magdalena Pallauf; David Stadelmann
    Abstract: We study a constitutional change in the German State of Bavaria where citizens, not politicians, granted themselves more say in politics at the local level through a state initiative election. This institutional setting allows us to observe revealed preferences for direct democracy and to identify factors which explain these preferences. Empirical evidence suggests that support for direct democracy is related to dissatisfaction with representative democracy in general rather than with an elected governing party.
    Keywords: Direct Democracy; Voting; Initiative; Parties
    JEL: D72 H70
    Date: 2015–06
  2. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This study presents a two-period overlapping-generations model featuring in- tergenerational conflict over fiscal policy. In particular, we characterize a Markov- perfect political equilibrium of the voting game between generations and show the following three main results. First, population aging incentivizes the government to invest more in capital for future public spending, positively affecting economic growth. Second, when the government finances its spending by issuing bonds, the introduction of the balanced budget rule results in a higher public spending-to-GDP ratio and a higher growth rate. Third, to obtain a normative implication of the po- litical equilibrium, we compare it with an allocation chosen by a benevolent planner who takes care of all future generations. The planner's allocation might feature less growth and more borrowing than the political equilibrium if the planner attaches low weights to future generations.
    Keywords: Economic Growth; Government Debt; Overlapping Generations; Pop- ulation Aging; Voting
    JEL: D72 D91 H63
    Date: 2014–06
  3. By: Aaron Kamm (Faculty of Economics and Business, University of Amsterdam, the Netherlands); Harold Houba (Faculty of Economics and Business Administration, VU University Amsterdam, the Netherlands)
    Abstract: This paper reports results from a laboratory experiment studying the role of asymmetries, both in payoffs and recognition probabilities, in a model of strategic bargaining with Condorcet cycles. Overall, we find only limited support for the equilibrium predictions. The main deviations from theory are: a) Subjects under-exploit their bargaining power by being more accommodating in their acceptance decision than predicted; b) subjects’ change in behavior in reaction to asymmetric recognition probabilities exhibits systematic deviations from theory. This suggests that subjects do not fully grasp the subtle effects asymmetries have on bargaining power, especially when the asymmetries relate to recognition probabilities.
    Keywords: Bargaining; Condorcet Paradox; Experiments; Voting; Committees
    JEL: C73 C78 C91 C92 D72
    Date: 2015–06–01
  4. By: Roos, Michael W. M.; Orland, Andreas
    Abstract: This paper reports the results of a questionnaire study used to explore the economic understanding, normative positions along the egalitarian-libertarian spectrum, and the party preferences of a large student sample. The aim of the study is both to find socio-economic determinants of normative and positive beliefs and to explore how beliefs about the economy influence party support. We find that positive beliefs of lay people differ systematically from those of economic experts. Positive beliefs can be explained by high school grades, field of study, reasons for the choice of subject, personality traits, and - in part - by gender. Normative beliefs are self-serving in the sense that students whose father have high-status jobs and who seek high incomes are more libertarian than others. Party preferences are explained by the professional status of the father, religion, gender, and economic beliefs. Normative beliefs are more important for party support than positive beliefs. While there is a clear positive relation between libertarianism and support for right-leaning parties, positive beliefs only matter for some parties. A parochialism bias in positive beliefs seems to reinforce libertarian views favoring the most conservative party.
    Abstract: Dieser Artikel berichtet die Resultate einer Umfrage, die genutzt wurde, um das ökonomische Verständnis, die normative Einstellung entlang des egalitär-libertären Spektrums und die Parteipräferenzen eines großen studentischen Samples zu untersuchen. Das Ziel der Studie ist es, sowohl die sozioökonomischen Determinanten der normativen und positiven Beliefs zu ermitteln, als auch zu untersuchen, wie diese Beliefs über die Wirtschaft die Parteipräferenz beeinflussen. Wir finden, dass die positiven Beliefs von Laien sich signifikant von denen der ökonomischen Experten unterscheiden. Die positiven Beliefs können durch Abiturnoten, Studienfachwahl, die Gründe für die Wahl des Studienfachs, Persönlichkeitsmerkmale und - zum Teil - durch das Geschlecht erklärt werden. Normative Beliefs sind einer selbstwertdienlichen Verzerrung in dem Sinne unterworfen, dass Studierende, deren Vater einer Beschäftigung mit hohem Status nachgeht und die ein hohes Einkommen anstreben, libertärer als andere sind. Parteipräferenzen werden durch den Beschäftigungsstatus des Vaters, die Religionszugehörigkeit, das Geschlecht und die ökonomischen Beliefs erklärt. Normative Beliefs sind für die Parteipräferenz wichtiger als positive Beliefs. Während es eine klare positive Beziehung zwischen Libertarismus und der Unterstützung nach rechts tendierender Parteien gibt, sind positive Beliefs nur für einige Parteien wichtig. Ein Parochialismus-Bias der positiven Beliefs scheint die libertären Ansichten zu verstärken und die konservativste Partei zu begünstigen.
    Keywords: economic beliefs,party preference,sociotropic voting,pocketbook voting,survey,personality traits
    JEL: D83 D72 Z13
    Date: 2014
  5. By: Shotts, Kenneth W. (Stanford University)
    Abstract: I develop a simple hold-up model of political risk, which can be used to explore firms' strategic options when their investments are subject to the threat of government expropriation. In the model, a firm decides whether to invest and then the government decides whether to expropriate the firm's investment or to simply collect normal taxes on its profits. The government is motivated by revenue and a wide range of non-pecuniary factors: its reputation, electoral pressures, patronage opportunities, and pressure from external actors. In the model, the likelihood of expropriation depends on the firm's profits and the amount of taxes it pays, as well as the government's political incentives. Effective management of political risk requires an integrated strategy, consisting not only of public and government relations efforts, but also financial, value chain, and human resources strategies designed to reduce the government's incentives for expropriation.
    Date: 2015–04
  6. By: Stephen Calabrese; Dennis Epple; Richard Romano
    Abstract: We examine majority choice of tax instruments in single- and multi-jurisdictional economies with heterogeneous households. In our framework majority voting equilibrium exists despite the multidimensional policy choice set. We identify five competing incentives that influence choice of tax instruments. Equilibria generally entail a mixture of tax types. With multiple jurisdictions, strong reliance on head taxation in rich communities arises to deter poorer households from immigrating. Mobility fundamentally affects the equilibrium tax system with redistribution incentives dominating choice of instruments when mobility is limited. Limiting or eliminating head taxation fundamentally alters stratification, public good provision levels, and tax systems.
    JEL: H2 H71
    Date: 2015–06
  7. By: Kalle Moene; Tina Søreide
    Abstract: Fashions come and go in the development community. When a policy idea becomes popular, some governments implement a cosmetic variant of the policy. What looks like development, are institutional façades; pretty from the outside, ugly from the inside. A good governance façade can be introduced deliberately to mislead observers and stakeholders to cover political theft. An example from the past is development planning, introduced with good intentions but sometimes exploited as a cover for corruption. In the 1960s donors rewarded developing countries that introduced five years plans by offering more aid. Recipient governments were therefore tempted to come up with cosmetic plans to satisfy foreign donors rather than the needs of their citizens. This paper argues that rents can be extracted under the cover of executing good policies; that nominally beneficial policies permit corrupt decision-makers to hide in plain sight.
    Date: 2015
  8. By: Alexander Herzog; Kenneth Benoit
    Abstract: Economic crisis and the resulting need for austerity budgets have divided many governing parties and coalitions in Europe, despite strong party discipline in the legislative voting on these harsh budgets. We measure these divisions using automated text analysis methods to scale the positions that legislators express in budget debates, in an effort to avoid punishment by voters for supporting austerity measures, while still adhering to strict party discipline by voting along party lines. Our test case is Ireland, a country that has experienced both periods of rapid economic growth as well as one deep financial and economic crisis. Tracking dissent from 1987 to 2013, we show that austerity measures undermine government cohesion, as verbal opposition markedly increases in direct response to the economic pain felt in a legislator’s constituency. The economic vulnerability of a legislator’s constituency also directly explains position taking on austerity budgets among both government and opposition.
    Keywords: Text analysis; intra-party politics; economic crisis; budget debates; parliamentary speeches
    JEL: E6
    Date: 2015
  9. By: Balinski, Michel; Laraki, Rida
    Abstract: This article argues that the traditional model of the theory of social choice is not a good model and does not lead to acceptable methods of ranking and electing. It presents a more meaningful and realistic model that leads naturally to a method of ranking and electing—majority judgment—that better meets the traditional criteria of what constitutes a good method. It gives descriptions of its successful use in several different practical situations and compares it with other methods including Condorcet's, Borda's, first-past-the-post, and approval voting.
    Keywords: methods of electing and ranking; Condorcet and Arrow paradoxes; strategic manipulation; faithful representation; meaningful measurement; figure skating; presidential elections; jury decision;
    JEL: C72 D71
    Date: 2014
  10. By: Jäger, Philipp; Schmidt, Torsten
    Abstract: Time preferences vary by age. Notably, according to experimental studies, senior citizens tend to discount future payoffs more heavily than working-age individuals. Based on these findings, we hypothesize that demographic change has contributed to the cut-back in government-financed investment that many advanced economies experienced over the last four decades. We demonstrate for a panel of 13 OECD countries between 1971 and 2007 that the share of elderly voters and public investment rates are cointegrated, indicating a long-run relationship between them. Estimating this cointegration relationship via pooled dynamic OLS (D-OLS) and fully modified OLS (FM-OLS) we find a negative and significant effect of population aging on public investment. Moreover, the estimation of an error correction model reveals long-run Granger causality running exclusively from aging to investment. Our results are robust to the inclusion of additional control variables typically considered in literature on the determinants of public investment.
    Abstract: Experimentelle Studien haben gezeigt, dass ältere Menschen dazu neigen, zukünftige Geldflüsse stärker als Personen im erwerbsfähigen Alter zu diskontieren. Darauf aufbauend stellen die Autoren in diesem Artikel die Hypothese auf, dass der Rückgang der öffentlichen Investitionen im Verhältnis zum Bruttoinlandsprodukt, welcher in den letzten vier Jahrzehnten in vielen entwickelten Volkswirtschaften zu beobachten war, zum Teil auf den demografischen Wandel zurückzuführen ist. Grundlage dieser Hypothese ist das 'Wähler-Gruppen Entscheidungsmodell' von Craig and Inman (1986) und die Annahme, dass ältere Wähler auf Grund ihrer Zeitpräferenzen weniger öffentliche Investitionen nachfragen als Personen im erwerbsfähigen Alter. Da der Anteil älterer Wähler im Zuge des demografischen Wandels zugenommen hat, könnte dies zum Rückgang der öffentlichen Investitionen beigetragen haben. Der Zusammenhang zwischen der öffentlichen Investitionsquote und dem Anteil älterer Wähler an der Gesamtwählerschaft wird im Artikel empirisch mit Hilfe eines Panel Kointegrationsansatzes für 13 OECD Staaten im Zeitraum zwischen 1971 und 2007 geschätzt. In Übereinstimmung mit dem theoretischen Modell finden die Autoren einen negativen sowie statistisch und ökonomisch signifikanten Zusammenhang zwischen den beiden Variablen.
    Keywords: public investment,population aging,panel cointegration
    JEL: H54 D72 J11 J14 D91
    Date: 2015

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