nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒11‒07
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. An empirical study on Party Switching in Turkey By Bilge Öztürk Göktuna; Gülen Derya Zayim
  2. The effects of elections on monetary policy in Turkey: An evaluation in terms of Political Business Cycle Theory By Filiz Eryılmaz
  3. Vote buying or (political) business (cycles) as usual? By Toke Aidt; Zareh Asatryan; Lusine Badalyan; Friedrich Heinemann
  4. Deciding over controversial issues: Voting behavior in the Council and the European Parliament on genetically modified organisms By Muhlbock, Monika; Tosun, Jale
  5. The Political Economy of Pension Reform: Public Opinion in Latin America and the Caribbean By Fabiana Machado; Giselle Vesga
  6. What drives public health care expenditure growth? Evidence from Swiss cantons, 1970-2012 By Brändle, Thomas; Colombier, Carsten
  7. Trade Liberalization on the EU-US GMO Agreement: A Political Economy Approach By Shao, Qianqian; Punt, Maarten; Wesseler, Justus
  8. A Positive Theory of Tax Reform By Ilzetzki, Ethan
  9. Political Economy of Debt and Growth By Marco Battaglini; Levon Barseghyan
  10. On Determinants of Political Polarization By Grechyna, Daryna
  11. Expert Information and Majority Decisions By Kohei Kawamura; Vasileios Vlaseros
  12. Voting and contributing when the group is watching By Henry, Emeric; Louis-Sidois, Charles
  13. Explaining Changes in Tax Burdens in Latin America: Does Politics Trump Economics? By Mark Hallerberg; Carlos Scartascini
  14. To whom it may concern: International human rights law and global public goods By Augenstein, Daniel
  15. Political Economy of Middle-Income Trap Concept By Semih Gökatalay
  16. Non-Tariff Measures: Not All that Bad By OLIVIER CADOT; Lili Yan Ing
  17. Petty corruption and citizen feedback By Charles Angelucci; Antonio Russo

  1. By: Bilge Öztürk Göktuna (Galatasaray University, Department of Economics); Gülen Derya Zayim (Galatasaray University, Institute of Social Sciences, Graduate Student)
    Abstract: Party switching is a frequently observed political behaviour in Turkish political life. In the literature, switching is defined as party mobility of a currently selected deputy or a group of deputies to a new party during a legislative session. In this paper, however, switching will be identified as all the party interchange both throughout and between the legislative sessions. Party switching does not only shed light on the individual decision making of the politicians but also explains the evolution of political parties, democratic representation and the electoral competition. Our study will focus on the behaviour of party switchers, the causes behind this political choice in Turkey. Data will contain the politicians who have participated in the general elections held between 1983-2015 period. It does not matter whether the politician is elected or not. Our main concern is under which banner politicians have participated in the elections. Literature review reveals that there exists two main factors behind the switching: First, individual motivations like having a seat in the parliament and being closer to state resources have great importance for the decision of the switchers. On the other hand, primary motivation of the politicians to get a seat in the parliament might be concerns for policy. They search for the party in which they might have a strong position to implement policy; thus represent his/her electorate effectively. By following this theoretical framework, we construct our main hypotheses to understand the reasons of Turkish politicians’ switching behaviour. In this empirical study our aim is to test these hypotheses using the data set containing all the candidates (selected or not) participated in the general elections held in Turkey between the 1983-2015 period by following their party affiliations and switching decisions. In conclusion, we intend to have some implications for the political decision making of the politicians in Turkey.
    Keywords: Party Switching, Party Affiliation, Political Decision Making, Democratic Representation
    JEL: E24 O40 C23
    Date: 2015
  2. By: Filiz Eryılmaz (Uludag University)
    Abstract: The Political Business Cycle Theory which emerged as one of the basic areas of discussion of Positive Public Choice Theory, were based on the studies of Kalecki (1943) and Akerman (1947) in the 1940s. Political Business Cycle Theory are examined under two main branches of Traditional Political Business Cycle Theory and Rational Political Business Cycle Theory. While Traditional Political Business Cycle Theory are classified in two groups as Traditional Opportunistic Political Business Cycle Theory and Traditional Partisan Political Business Cycle Theory, the Rational Political Business Cycle Theory are separated as Rational Opportunistic Political Business Cycle Theory and Rational Partisan Political Business Cycle Theory. While voters are assumed to have adaptive expectations in Traditional Political Business Cycle Theory, they are accepted as being rational in Rational Political Business Cycle Theory. Another model of differentiation of the relationship of Political Business Cycle Theory is the Opportunistic or Partisan relationship. In the Opportunistic model, it is assumed that the single aim of the governing parties, which are accepted as equally formed, is to apply policies which will maximise their chances of winning elections. In partisan models, the governing parties are not similar, and are in fact at different ends of the ideological spectrum as right and left-wing (Alesina and Roubini, 1990; Alesina, Roubini and Cohen, 1991). In this study, the Traditional Opportunistic Business Cycle Theory of Nordhaus (1975) was tested for the series of M0, M1, M2, M2Y, the interbank rate, the three-month Turkish lira (TL) time deposit rate, the three-month United States (US) dollar time deposit rate, nominal and real treasury auction rates for the Turkish economy. In the determination of whether or not political opportunistic policies were observed in general elections held in the period 1985M12- 2012M4, the autoregressive model used in studies by Alesina, Cohen ve Roubini (1991, 1992, 1997) of OECD countries and industrial countries, was used in this study.
    Keywords: Political Business Cycle Theory, Traditional Opportunistic Political Business Cycle Theory, Monetary Policy, Box-Jenkins Models, Turkey
    JEL: D72 E62 H62
    Date: 2015
  3. By: Toke Aidt (University of Cambridge and CESifo); Zareh Asatryan (ZEW Mannheim and University of Freiburg); Lusine Badalyan (University of Bremen and Jacobs University); Friedrich Heinemann (ZEW Mannheim and University of Heidelberg)
    Abstract: We study the short-run effect of elections on monetary aggregates in a sample of 85 low and middle income democracies (1975-2009). We find an increase in the growth rate of M1 during election months of about one tenth of a standard deviation. A similar effect can neither be detected in established OECD democracies nor in other months. The effect is larger in democracies with many poor and uneducated voters, and in Sub-Saharan Africa, Latin America, and in East-Asia and the Pacific. We argue that the election month monetary expansion is related to systemic vote buying which requires significant amounts of cash to be disbursed right before elections. The finely timed increase in M1 is consistent with this; is inconsistent with a monetary cycle aimed at creating an election time boom; and it cannot be, fully, accounted for by alternative explanations.
    Keywords: Political business cycles, vote buying, monetary economics
    JEL: D72 E51 O10
    Date: 2015
  4. By: Muhlbock, Monika; Tosun, Jale
    Abstract: The renewal of existing authorizations for genetically modified organisms (GMOs) and the approval of new products is a controversial issue among the European Union (EU) member states as well as within EU institutions such as the European Parliament (EP). We argue that decision making on GMOs is characterized by distinctive voting behavior. We test this expectation by analyzing the member states’ voting behavior on a number of authorization requests brought in by the European Commission between 2004 and 2014 and on a recent vote in the EP on the authorization of GM maize Pioneer 1507. Indeed, we see signs of party politics in Council voting. However, Members of the European Parliament (MEPs) display signs of country-oriented voting. Both the manifest signs of party politics in the Council voting and countryoriented voting of the MEPs are in contrast to previous findings in the literature. Most interestingly, the MEPs display a voting a voting behavior that concurs with how the ministers from their home countries vote in the Council. We interpret these findings as signs that the specificity of biotechnology as a controversial and value-loaded issue leads to the unconventional voting patterns in the Council and the EP.
    Keywords: cabinet governance, party families, biotechnology regulation, issue saliency, policy positions, Crop Production/Industries, International Development, Political Economy,
    Date: 2015–11
  5. By: Fabiana Machado; Giselle Vesga
    Abstract: Countries around the world are facing important challenges to the sustainability of their pension systems. Changing policies, especially those of large scope and financial magnitude, is a political challenge. It takes a combination of willingness, capacity and enough political support to change the status quo and avoid costly subsequent reversals. Taking advantage of several waves of public opinion data in Latin America and the Caribbean, this paper aims to identify and analyze individual-level factors that are relevant to gauging political support for pension reform.
    Keywords: Social Policy & Protection, Social Security, Pension funds, Political economy of reform, Pension reform, Public opinion
    Date: 2015–09
  6. By: Brändle, Thomas; Colombier, Carsten
    Abstract: A better understanding of the determinants of public health care expenditures is key to designing effective health policies. We integrate supply and demand-side determinants, factors from political economy and health policy reforms into an empirical analysis of the highly decentralized Swiss health care system. We compile a novel data set of the cantonal health care expenditure in Switzerland spanning the period 1970 - 2012. Using dynamic panel estimation methods, we find that per capita income, the unemployment rate and the share of foreigners are positively related to public health care expenditure growth. With regard to political economy aspects, public health care expenditures increase with the share of women elected to parliament. However, institutional restrictions for politicians, such as fiscal rules and mandatory fiscal referenda, do not appear to limit public health care expenditure growth.
    Keywords: Public health care expenditure,Panel data,Fiscal rules,Political selection
    JEL: H75 D72 C23 I18
    Date: 2015
  7. By: Shao, Qianqian; Punt, Maarten; Wesseler, Justus
    Abstract: The EU and the US launched negotiations on a Transatlantic Trade and Investment Partnership (TTIP) in July 2013. Among the TTIP aims, there are negotiable terms under which the EU would import more genetically modified (GM) products and change its labeling regulations on GM Organisms (GMOs). This paper discusses a trade agreement of agricultural products between two countries, with different GM regulatory regimes from a political economy perspective. We identify the negotiation equilibrium of the GMO Trade Agreement and compare it with a stricter trade policy. We find that if the trade agreement leads to a lenient GM regulation, lobbying intensifies. However, this effect is moderated if there are exports of non-GM products.
    Keywords: Political Economy, GMOs, international trade, Crop Production/Industries, International Development, International Relations/Trade, F42, Q18, P16,
    Date: 2015–11
  8. By: Ilzetzki, Ethan
    Abstract: The political impediments to reform and the forces allowing its success are studied in a model where the tax base and statutory rate are separate instruments of tax policy. The model predicts that big bang reforms—large changes in the tax code—may be easier to enact than marginal reforms. Preferences over the tax base face a tipping point where even the beneficiaries from tax exemptions support reform. At such a \reform moment", tax reform is Pareto improving. Politically feasible tax reform occurs when fiscal needs are large, but may nonetheless involve reductions in marginal tax rates. There is strategic complementary in lobbying for tax exemptions, resulting in multiple equilibria. Evidence from tax-base changes in a panel of OECD countries supports a number of the main predictions.
    JEL: D72 D78 H26
    Date: 2015–11
  9. By: Marco Battaglini; Levon Barseghyan
    Abstract: We present a theory of endogenous fiscal policy and growth. Fiscal policy — debt, income tax, spending on local public goods and public investment — is determined through legislative bargaining. Economic growth depends directly on public investment, private investment in human capital and, via learning-by-doing, labor supply. The model predicts that the economy converges to a balanced growth path in which consumption, private investment, public investment, public goods provision, public debt and productivity grow at the same constant rate. The transition to the balanced growth path is characterized by what we call the shrinking government effect: public debt grows faster than GDP, provisions of public goods and infrastructure grow slower than GDP and the tax rate declines. We use the model to study the impact of austerity programs which impose a ceiling on the amount of public debt a country can issue.
    JEL: D72 E6 E62 H6 H72
    Date: 2015–10
  10. By: Grechyna, Daryna
    Abstract: Political polarization has been shown to significantly influence a country's economic performance. However, little is known about the drivers of political polarization. In this article, we aim to identify the main determinants of political polarization using Bayesian Model Averaging to overcome the problem of model uncertainty. We find that the level of trust within a country and the degree of income inequality are the most robust determinants of political polarization.
    Keywords: political polarization determinants, Bayesian model averaging.
    JEL: D63 D72 P5 Z13
    Date: 2015–11
  11. By: Kohei Kawamura; Vasileios Vlaseros
    Abstract: This paper shows theoretically and experimentally that hearing expert opinions can be a double-edged sword for collective decision making. We present a majoritarian voting game of common interest where committee members receive not only private information, but also expert information that is more accurate than private information and observed by all members. In theory, there are Bayesian Nash equilibria where the committee members’ voting strategy incorporates both types of information and access to expert information enhances the efficiency of the majority decision. However, there is also a class of potentially inefficient equilibria where a supermajority always follow expert information and the majority decision does not aggregate private information. In the laboratory, the majority decisions and the subjects’ voting behaviour were largely consistent with those in the class of inefficient equilibria. We found a large efficiency loss due to the presence of expert information especially when the committee size was large. We suggest that it may be desirable for expert information to be revealed only to a subset of committee members.
    Keywords: committee decision making, voting experiment, expert information, strategic voting
    JEL: C92 D72 D82
    Date: 2015–09–23
  12. By: Henry, Emeric; Louis-Sidois, Charles
    Abstract: Members of groups and organizations often have to decide on rules that regulate their contributions to common tasks. They typically differ in their propensity to contribute and often care about the image they project, in particular want to be perceived by other group members as being high contributors. In such environments we study the interaction between the way members vote on rules and their subsequent contribution decisions. We show that multiple norms can emerge. We draw surprising policy implications, on the effect of group size, of supermajority rules and of the observability of actions.
    Keywords: image concern; information aggregation; public good; voting
    JEL: D71 D72 H41
    Date: 2015–11
  13. By: Mark Hallerberg; Carlos Scartascini
    Abstract: This paper examines whether elections, which are generally held on fixed dates, and banking crises explain the timing of tax reforms and the allocation of the additional tax burden. Using an original fine-grained dataset of tax reforms, the paper finds support for the role of these two sources of variation. In particular, the probability of reform is higher during banking crises. During electoral periods, increasing taxes becomes highly unlikely, even if the government is facing financing problems. Interestingly, politics seem to trump economics: banking crises do not affect the probability of having a reform during electoral times. Moreover, the presence of an IMF program affects the tax instruments chosen: countries with a program increase the value-added tax, while those without raise the personal income tax. Finally, the ideology of the president does not explain who bears the additional tax burden.
    Keywords: Public Administration & Policy Making, Taxation, Financial Crises & Economic Stabilization, Fiscal Policy, Elections, Taxation, Banking crises, Elections, Political economy, Fiscal reform, Ideology, Policymaking
    Date: 2015–09
  14. By: Augenstein, Daniel
    Abstract: Public goods and human rights are sometimes treated as intimately related, if not interchangeable, strategies to address matters of common global concern. The aim of the present contribution is to disentangle the two notions to shed some critical light on their respective potential to attend to contemporary problems of globalization. I distinguish the standard economic approach to public goods as a supposedly value-neutral technique to coordinate economic activity between states and markets from a political conception of human rights law that empowers individuals to partake in the definition of the public good. On this basis, I contend that framing global public goods and universal human rights in terms of interests and values that 'we all' hold in common tends to conceal or evade conflicts about their proper interpretation and implementation. This raises important normative questions with regard to the political and legal accountability of global ordering in both domains. The public goods approach has responded to this problem through extending the scope of political jurisdiction over public goods to encompass all those 'affected' by their costs and benefits. This finds its counterpart in attempts in the human rights debate to legally account for the global human rights impacts of public goods through extending human rights jurisdiction beyond state territory. By way of conclusion I contend that both approaches are indicative of a 'horizontal' transformation of statehood under conditions of globalization aimed at recovering the public good beyond the international order of states.
    Keywords: human rights,public goods,globalization,jurisdiction,extraterritorial
    Date: 2015
  15. By: Semih Gökatalay (Middle East Tecnical University, Department of Economics)
    Abstract: Middle-income trap (MIT), being a popular concept in development economics, examines why and how middle income level countries fail to share high income level countries’ path in the long-run. Benefiting from income-based measurements and certain productive mechanisms of developing countries, this concept has been used by scholars to provide possible solutions for countries which are considered as being stuck in this trap. However, performance of institutions and, more importantly, political economy of the concept, to some degree, have been neglected by these studies. This paper, thus, argues that, in addition to macroeconomic conditions of MIT countries, political institutions of them, being inclusive or exclusive, might play a central role in determining one country’s position in the trap. In this study, first, a broad definition of MIT concept is provided. Then, institutional performances of upper-middle income countries are presented by giving weight to certain indices. In the final part, it is argued that inability of certain institutions might disable MIT countries to escape from this trap.
    Keywords: Middle Income Trap, Political Economy, Upper Middle Income Countries
    JEL: O10 O17 O57
    Date: 2015
  16. By: OLIVIER CADOT (University of Lausanne); Lili Yan Ing (Economic Research Institute for ASEAN and East Asia (ERIA), University of Indonesia)
    Abstract: While tariffs have been reduced, the number of non-tariff measures (NTMs) is increasing, and is often blamed to be one source of the lack of integration in ASEAN. Yet, the discovery of Volkswagen’s large-scale attempt to seemingly go around US emissions tests serves as a reminder of a stark truth. NTMs can play a role of check and balance for the quality of goods. To make NTMs work for the common good, ASEAN should break from the ‘trade negotiation’ approach and strive instead for three objectives: (1) a drive for transparency, (2) cooperation in conformity assessment procedures, and (3) dynamic disciplines. Such ‘dynamic deep integration’ would largely eliminate the high-visibility political friction, poorly designed—or those captured by special interests— NTMs.
    Date: 2015–10
  17. By: Charles Angelucci (Columbia Business School); Antonio Russo (ETH Zurich and CESifo)
    Abstract: Numerous countries are introducing citizen feedback schemes to tame corruption. We study how best to incorporate feedback in public officials’ incentives. The main novelty of our proposal is to allow citizens to directly influence officials’ pay. We consider a situation in which entrepreneurs must comply with regulation before undertaking a risky activity. Officials verify compliance to determine whether to grant permits, and may engage in either bribery or extortion. Without feedback, the government has no choice but to tolerate bribery, which leads to too many permits being granted and large negative externalities. By contrast, implementing a feedback scheme that (i) rewards entrepreneurs filing complaints and (ii) ties officials’ pay to these complaints makes deterring both bribery and extortion possible. Our proposed scheme does not require the government to be able to verify the accuracy of complaints. In an extension, we incorporate the role played by intermediaries, and show their involvement makes the feedback scheme even more valuable.
    Keywords: Corruption, extortion, bribery, citizen feedback, bureaucracy intermediaries
    JEL: H11 H83 O17 D73
    Date: 2015

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