nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒07‒04
eighteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Multi-Office Incumbency Advantage: Political Careers in Brazil By Leandro De Magalhães; Salomo Hirvonen
  2. Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections By Quoc-Anh Do; Yen-Teik Lee; Bang Dang Nguyen
  3. Quantifying the Impact of Political Frictions on Public Policy By Grechyna, Daryna
  4. The Business Cycle and the Entry of Third-Party Candidates in the US State-Level Elections By Yasushi Asako; Tetsuya Matsubayashi
  5. David and Goliath in the Poll Booth: Group Size, Voting Power and Voter Turnout By Peter Bönisch; Benny Geys; Claus Michelsen
  6. Isolated Capital Cities, Accountability and Corruption: Evidence from US States By Filipe R. Campante; Quoc-Anh Do
  7. Should Different People Have Different Governments? By Federico Boffa; Amedeo Piolatto; Giacomo Ponzetto
  8. On the Political Economy of University Admission Standards By Philippe De Donder; Francisco Martinez-Mora
  9. Media Competition, Information Provision and Political Participation By Julia Cage
  10. Migration-induced Transfers of Norms. Political Empowerment?The case of Female Political Empowerment By Elisabetta Lodigiani; Sara Salomone
  11. Is Happiness Really a Warm Gun? The Consequences of U.S. Weapons Sales for Political Violence By Arvind Magesan; Eik Leong Swee
  12. How Social Networks Shape Our Beliefs: A Natural Experiment among Future French Politicians By Yann Algan; Quoc-Anh Do; Nicolò Dalvit; Alexis Le Chapelain; Yves Zenou
  13. Dynastic Politicians: Theory and Evidence from Japan By Yasushi Asako; Takeshi Iida; Tetsuya Matsubayashi; Michiko Ueda
  14. Capital Tax as a Consequence of Bargaining By Saito, Yuta
  15. Capital Cities, Conflict, and Misgovernance: Theory and Evidence By Filipe R. Campante; Quoc-Anh Do; Bernardo Guimaraes
  16. Political economy of the Indonesian mass killing of 1965-1966 By Mushed, Syed Mansoob; Tadjoeddin, Mohammad Zulfan
  17. Do Businessmen Make Good Governors? By Florian Neumeier
  18. The Two Revolutions, Landed Elites and Education during the Industrial Revolution By Duarte Nuno Leite; Óscar Afonso; Sandra Tavares Silva

  1. By: Leandro De Magalhães; Salomo Hirvonen
    Abstract: Incumbency may have effects on a political career that go beyond increasing the probability of reelection. In particular, incumbency may affect the probability of winning different political offices. So far, the literature has not looked at these multi-office incumbency effects. In contexts where politicians move frequently to other offices, ignoring multi-office advantages may generate biased estimates of the true effect of holding a political office on the success of one's career. We define Multi-Office Incumbency Advantage and study it using a novel data set that tracks all Brazilian politicians, from local councillor to federal legislator, from 1994 to 2010. Furthermore, we use our results to evaluate two standing hypothesis regarding Brazilian politics. The first is that there is an incumbency disadvantage in Brazil. The second is the hypothesis that holding a federal legislative office is a spring board to becoming a Mayor. We find no support for either.
    Keywords: Incumbency Advantage, Political Careers, Regression Discontinuity Design, Brazil.
    JEL: D70 D72 J00
    Date: 2015–06–22
  2. By: Quoc-Anh Do (Département d'économie); Yen-Teik Lee (Singapore Management University); Bang Dang Nguyen (University of Cambridge)
    Abstract: Using the regression discontinuity design of close gubernatorial elections in the U.S., we identify a significant and positive impact of the social networks of corporate directors and politicians on firm value. Firms connected to elected governors increase their value by 3.89%. Political connections are more valuable for firms connected to winning challengers, for smaller and financially dependent firms, in more corrupt states, in states of connected firms’ headquarters and operations, and in closer, smaller, and active networks. Post-election, firms connected to the winner receive significantly more state procurement contracts and invest more than do firms connected to the loser.
    Keywords: Close Gubernatorial Election; Corruption; Firm Value; Political Connection; Procurement; Regression Discontinuity Design; Social Nteworks
    JEL: D72 D73 G28 G30 G34 G38 H57
    Date: 2015–04
  3. By: Grechyna, Daryna
    Abstract: This paper evaluates the impact of political frictions on fiscal policy in a sample of developed countries. We use a model of fiscal policy that features a lack of commitment by the government, political turnover, and another political friction which can be interpreted either as political polarization or as public rent-seeking. Political turnover increases public debt levels, while political polarization or public rent-seeking lead to higher public spending. We find that political frictions account for 67% of variation in government debt, 36% of variation in government spending, and 24% of variation in taxes in twenty two developed countries.
    Keywords: fiscal policy; political turnover; political polarization; public rent-seeking.
    JEL: E61 E62 H21 H63
    Date: 2015–06
  4. By: Yasushi Asako (Waseda University); Tetsuya Matsubayashi (Osaka University)
    Abstract: This study offers a new explanation for the entry of third-party and independent candidates into the US state-level elections. We argue that the economic benefits of holding an office is what motivates amateur politicians to run, predicting that amateur politicians find holding an elected office particularly attractive when the private sector is struggling. This is because, during the recession, amateur politicians view that an elected office is a more attractive source of income as compared to private jobs, while pursuing political power to change the economic prospect by adopting a new policy. Building on this argument, we hypothesize that as the unemployment rate increases, the number of third-party and independent candidates increases. Our analysis with panel data of state house, state senate, and gubernatorial elections in 48 US states between 1980 and 2010 reveals that the hypothesized relationship existed only for state legislative elections. To explain why these candidates run, despite their very small probability of winning, we extend the prospect theory to suggest that these candidates may overestimate their probability of winning.
    Date: 2014–12
  5. By: Peter Bönisch; Benny Geys; Claus Michelsen
    Abstract: This article analyses how the presence of a dominant group of voters within the electorate affects voter turnout. Theoretically, we argue that both the absolute size and the relative power of a dominant group influence voters' decision-making process. The former effect derives from increased free-riding incentives and reduced social pressure to vote within a larger dominant group, while the latter effect is driven by instrumental and expressive responses-in both the dominant and dominated groups-to electoral competition between groups. Our empirical analysis of a large cross-section of German municipalities confirms this joint importance of a dominant group's absolute and relative size for voter turnout. Such effects should thus be taken into account when redesigning electoral jurisdictions through, for instance, municipal mergers or gerrymandering.
    Keywords: Voter turnout, power, group size, merger, gerrymandering
    JEL: D70 D72 H11 H40
    Date: 2015
  6. By: Filipe R. Campante (Harvard University); Quoc-Anh Do (Département d'économie)
    Abstract: We show that isolated capital cities are robustly associated with greater levels of corruption across US states, in line with the view that this isolation reduces accountability. We then provide direct evidence that the spatial distribution of population relative to the capital affects different accountability mechanisms: newspapers cover state politics more when readers are closer to the capital, voters who live far from the capital are less knowledgeable and interested in state politics, and they turn out less in state elections. We also find that isolated capitals are associated with more money in state-level campaigns, and worse public good provision.
    Keywords: Isolated Capital Cities; Corruption; Accountability; US states
    JEL: D72 D73 H41 H83 K42
    Date: 2014–08
  7. By: Federico Boffa (Free University of Bolzano‐Bozen, Faculty of Economics and Management); Amedeo Piolatto (Universitat de Barcelona); Giacomo Ponzetto (CREI, Universitat Pompeu Fabra, and Barcelona GSE)
    Abstract: The classic theory of …scal federalism suggests that different people should have different governments. Yet, separate local governments with homogeneous constituents often end up doing poorly. This paper explains why and answers three questions: when regions are heterogeneous, what determines if power should be centralized or decentralized? How many levels of government should there be? How should state borders be drawn? We develop a model of political agency in which voters differ in their ability to monitor rent-seeking politicians. We …find that rent extraction is a decreasing but convex function of the share of informed voters, because voter information improves monitoring but also reduces the appeal of holding office. As a consequence, information heterogeneity makes centralization appealing as a way of reducing rent extraction. Conversely, taste heterogeneity prompts decentralization as a way of matching local preferences. We also explain why the proliferation of government tiers harms efficiency. We …find economies of scope in accountability: a single government in charge of many policies has better incentives than many special-purpose governments splitting its budget. Thus, a federal system is desirable only if information varies enough across regions. Our model implies that optimal borders should cluster by tastes but also ensure diversity of information. Quantitatively, our fi…ndings suggest excessive government fragmentation in the United States.
    Keywords: federalism, government accountability, imperfect information, interregional heterogeneity, elections
    JEL: D72 D82 H73 H77
    Date: 2015–06
  8. By: Philippe De Donder; Francisco Martinez-Mora
    Abstract: We study the political determination of the proportion of students attending university when access to higher education is rationed by admission tests. Parents differ in income and in the ability of their unique child. They vote over the minimum ability level required to attend public universities, which are tuition-free and financed by proportional income taxation. University graduates become high skilled, while the other children attend vocational school and become low skilled. Even though individual preferences are neither single-peaked nor single-crossing, we obtain a unique majority voting equilibrium, which can be either classical (with 50% of the population attending university) or ends-against-the-middle with less than 50% attending university (and parents of low and high ability children favoring a smaller university system). The majority chosen university size is smaller than the Pareto efficient level in an ends-against-the-middle equilibrium. Higher income inequality decreases the majority chosen size of the university. A larger positive correlation between parents’ income and child’s ability leads to a larger university populated by a larger fraction of rich students, in line with the so-called participation gap. Our results are robust to the introduction of private schooling alternatives, financed with fees.
    Keywords: majority voting; ends-against-the-middle; non single-peaked preferences; non single-crossing preferences; higher education participation gap; income ability correlation; size of university
    JEL: D72 I22
    Date: 2015–06
  9. By: Julia Cage
    Abstract: This paper investigates the impact of increased media competition on the quantity and quality of news provided and, ultimately, changes in political participation. Drawing from the literature on vertical product differentiation to model the production choices of newspapers, I show how an increase in the number of newspapers can decrease both the quantity and quality of news provided. I build a new county-level panel dataset of local newspaper presence, newspapers' costs and revenues and political turnout in France, from 1945 to 2012. I estimate the effect of newspaper entry by comparing counties that experience entry to similar counties in the same years that do not. These counties exhibit similar trends prior to newspaper entry, but newspaper entry then leads to substantial declines in the total number of journalists. More newspapers are also associated with fewer news articles and lower hard news provision. These effects are concentrated in counties with homogeneous populations, as predicted by the model, with little impact on counties with heterogeneous populations. Newspaper entry, and the associated decline in information provision, is ultimately found to decrease voter turnout.
    Keywords: Media Competition; Newspaper's Content; Hard News; Soft News; Product Differentiation; Political Participation
    JEL: D72 L11 L13 L82
    Date: 2014–01
  10. By: Elisabetta Lodigiani (Department of Economics, University Of Venice Cà Foscari); Sara Salomone (IRES, Université catholique de Louvain)
    Abstract: This paper empirically investigates the effect of transnational migrants on gender equality in the country of origin measured by the share of women enrolled in the lower chamber of National Parliaments. We test for a ‘migration-induced transfer of norm’ using panel data from 1960 to 2010 in ten-year intervals. Total international migration has a significant effect on female political empowerment in countries of origin conditional on the initial female parliamentary participation in both origin and destination countries. Reverse causality issues are taken into account and results are tested under specific geo-political and temporal subsamples.
    Keywords: International Migration, Gender Discrimination, Panel Data, Endogeneity
    JEL: F22 J16 D72 C33
    Date: 2015
  11. By: Arvind Magesan (University of Calgary); Eik Leong Swee
    Abstract: We exploit exogenous shifts in the cost of purchasing commercial weapons from the U.S. to uncover the causal effect of U.S. weapons purchases on political violence. We find that weapons purchases reduce the likelihood of political repression but increase the likelihood of onset of civil war in purchasing countries. The results suggest that state investment in military capability incites civil war in countries where state repression of an aggrieved opposition would have otherwise prevailed.
    Date: 2015–06–25
  12. By: Yann Algan (Département d'économie); Quoc-Anh Do (Département d'économie); Nicolò Dalvit (Departement d'Economie de Sciences Po, LIEPP); Alexis Le Chapelain (Département d'économie); Yves Zenou (Research Institute of Industrial Economics)
    Abstract: This paper shows how a public policy shapes convergence of beliefs through newly-formed social networks, with a focus on political opinion. We use a unique natural experiment that randomly assigns students into first-year groups at a French college that forms future top politicians. Pairs of students in the same group are much more likely to become friends. The randomized group membership serves as instrumental variable in a dyadic regression of differences in beliefs on friendship. We find that students’ political opinions converge particularly strongly between friends, reaching 11% of a standard deviation only after 6 months. Convergence is strongest among pairs least likely to become friends without the randomized exposure, or friends whose characteristics are the most different. While there is evidence of homophily in network formation, it does not seem to affect the estimates of convergence, except among very similar friends. The same strategy shows that a longer network distance implies slower convergence.
    Keywords: Political Beliefs; Peers; Social Networks; Convergence; Homophily; Belief Transmission; Learning; Diffusion; Natural Experiment
    JEL: C93 D72 Z13
    Date: 2015–06
  13. By: Yasushi Asako (School of Political Science and Economics, Waseda University); Takeshi Iida (Faculty of Law, Doshisha University); Tetsuya Matsubayashi; Michiko Ueda (Department of Political Science, Syracuse University)
    Abstract: Dynastic politicians, defined as those whose family members have also served in the same position in the past, occupy a sizable portion of offices in many parts of the world. We develop a model of how dynastic politicians with inherited political advantages affect electoral outcomes and policy choices. Our model predicts that, as compared wit non-dynastic legislators, dynastic legislators bring more distributions to the district, enjoy higher electoral success, and harm the economic performance of the districts despite the larger amount of distributive benefits they bring. We test the implications of the model using data from Japan between 1997 and 2007.
    Date: 2014
  14. By: Saito, Yuta
    Abstract: We study an OLG model in which heterogenous agents bargain over capital taxation. In our model, both of the balance of bargaining power and threat point, that standard median voter models have not considered, are endogenized. We show that the two key features are crucial determinants for political as well as economic outcomes.
    Keywords: Legislative bargaining; wealth inequality; capital taxation
    JEL: E62 H20 H30 P48
    Date: 2015–06–30
  15. By: Filipe R. Campante (Harvard University); Quoc-Anh Do (Département d'économie); Bernardo Guimaraes (Sao Paulo School of Economics)
    Abstract: Motivated by a novel stylized fact - countries with isolated capital cities display worse quality of governance - we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less effective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.
    Keywords: Capital Cities; Governance; Institutions; Conflict; Civil War; Revolutions; Insurgencies; Population Concentration; Democracy; Power Sharing; Inefficient Institutions
    JEL: D02 D74 O18 R12
    Date: 2014–09
  16. By: Mushed, Syed Mansoob; Tadjoeddin, Mohammad Zulfan
    Abstract: This chapter sketches the build up to the mass killing (politicide) of communists and communist sympathisers in Indonesia, during 1965 to 1966. Our key contribution is to explain why ordinary individuals, not belonging to the elite, might wish to participate in the act of murder. The mass murder aided the consolidation of the new order autocratic regime of Suharto, but his ascension to power cannot be separated from the cold war politics of the time. Over three decades of authoritarian rule did bring about broad based economic progress. In time, the authoritarian contract sustaining the regime became untenable and the contract lacked credible commitment in the absence of the transfer of some political power to the new middle class. This mirrors the modernization theory of endogenous democracy, which states that at higher level of income, the pressure for democracy becomes inexorable.
    Keywords: Indonesia, mass killing, politicide, communists
    JEL: N45
    Date: 2015–03
  17. By: Florian Neumeier (University of Marburg)
    Abstract: This paper empirically evaluates the economic performance of U.S. state governors who came to the position from a business background (CEO governors), focusing on the growth rate of real personal income per capita, unemployment rate, and income inequality. Methodologically, we apply a matching method to account for the endogeneity of political selection. Using entropy balancing, we identify credible counterfactuals for CEO governors, that is, governors without a business background who took office under similar economic and fiscal situations. We find, first, that businesspeople tend to take office in times of economic and fiscal strain. Second, the tenures of CEO governors are associated with a 0.6 percentage points higher annual income growth rate and a 0.6 percentage points lower unemployment rate than are the tenures of non-CEO governors. Also, state-level income inequality decreases when CEO governors hold office, indicating that low-income households benefit from the economic upswing. Third, the positive effect of having a CEO governor increases with time in office. Fourth, Republican CEO governors perform slightly better than their Democratic colleagues.
    Keywords: U.S. Governors, U.S. politics, U.S. states, economic growth, unemployment, income inequality, businessmen, CEO, entropy balancing
    JEL: C21 E24 E60 O47
    Date: 2015
  18. By: Duarte Nuno Leite (Munich Cenyter for Economics of Aging); Óscar Afonso (University of Porto, Faculty of Economics); Sandra Tavares Silva (University of Porto, Faculty of Economics)
    Abstract: How we are to understand the Industrial Revolution, the process of transition from a Malthusian equilibrium to today’s Modern Economic Growth, has been the subject of passionate debate. This paper adds more insights to the process of industrialization and the demographic transition that followed this period. By applying the theory of interest groups to landownership and by analyzing landed elites incentives to allow education, it is shown that their political power is important for an understanding of the main events that marked the Industrial Revolution. Contributions are also made to the existence and role of the Agricultural Revolution. It is advanced that it played a significant role in hastening the process of industrialization. A model and numerical simulations are presented to demonstrate these results.
    Keywords: Industrial and Agricultural Revolution; Demographic Transition; Education; Interest Groups.
    JEL: N53 O13 O14 O43
    Date: 2015–06

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