nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒02‒17
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Income and policy choices: Evidence from parliamentary decisions and referenda By Portmann, Marco; Stadelmann, David; Eichenberger, Reiner
  2. The Political Economy of Mitigation and Adaptation By Habla, Wolfgang; Roeder, Kerstin
  3. Electoral cycles, partisan effects and U.S. immigration policies By Drometer, Marcus; Méango, Romuald
  4. Electoral Incentives and the Allocation of Public Funds By Finan, Frederico S.; Mazzocco, Maurizio
  5. Trial and Error? Reelection Concerns and Policy Experimentation during the US Welfare Reform By Gathmann, Christina; Boyer, Pierre
  6. Do OECD countries cheat with their national tax revenue forecasts? By Jochimsen, Beate Regina; Lehmann, Robert
  7. Ready to Reform: How Popular Initiatives Can Be Successful By Hofer, Katharina Eva; Marti, Christian; Bütler, Monika
  8. The Electoral Advantage of the Left in Times of Fiscal Adjustment By Abel Bojar
  9. Lobbying over Exhaustible-Resource Extraction By Schopf, Mark; Voß, Achim
  10. The Political Economy of Bank Bailouts By Haselmann, Rainer; Kick, Thomas; Behn, Markus; Vig, Vikrant
  11. Public debt and the political economy of reforms By Esslinger, Christoph; Boyer, Pierre
  12. How do voters react to complex choices in a direct democracy? Evidence from Switzerland By Zohal Hessami
  13. Pocketbook voting and social preferences in referenda By Meya, Johannes; Poutvaara, Panu; Schwager, Robert
  14. Transparency in Parliamentary Voting By Bütler, Monika; Benesch, Christine; Hofer, Katharina
  15. Environmental policy diffusion and lobbying By Gerigk, Joschka; MacKenzie, Ian; Ohndorf, Markus
  16. Bitterness in life and attitudes towards immigration By Steinhardt, Max Friedrich; Poutvaara, Panu
  17. On Two-Period Committee Voting: Why Straw Polls Should Have Consequences By Frommeyer, Tim

  1. By: Portmann, Marco; Stadelmann, David; Eichenberger, Reiner
    Abstract: We analyze political representation of preferences of different income groups by matching referendum outcomes for low, middle, and high-income voters with individual legislators decisions on identical policy proposals. Results indicate that legislators more closely represent preferences of rich voters than preferences of middle-income and poor voters, and legislators are more responsive towards the rich. Preferences of low, middle, and high-income voters are, however, correlated. Representation of income groups varies according to legislators party affiliations.
    JEL: D72 H30 D63
    Date: 2015
  2. By: Habla, Wolfgang (Department of Economics, School of Business, Economics and Law, Göteborg University); Roeder, Kerstin (University of Augsburg)
    Abstract: In this paper, we acknowledge that the mitigation of and adaptation to climate change have differential fiscal impacts. Whereas mitigation typically raises fiscal revenues, adaptation is costly to the taxpayer and to a greater extent the more distortionary the tax system is. In an OLG model with majority voting, we analyze how the choices of mitigation and adaptation are distorted under a lump-sum and a distortionary income tax regime. We find that whenever emissions and adaptation exhibit stock characteristics, the levels of mitigation and adaptation are chosen inefficiently low in the political equilibrium under lump-sum taxation. By contrast, the political equilibrium may entail inefficiently high mitigation or inefficiently high adaptation (but not both simultaneously) if the tax system is distortionary. A calibration of our model to the German economy shows that both mitigation and adaptation can be expected to be inefficiently low in the political equilibrium. Furthermore, the standard assumption of a lump-sum tax system when analyzing mitigation and adaptation is found to underestimate the loss in utilitarian welfare relative to a distortionary tax system, although mitigation levels are generally higher under the latter regime.
    Keywords: Adaptation; Mitigation; Political Economy; Majority Voting; OLG; Environmental Taxes
    JEL: D72 D78 H21 H23 Q58
    Date: 2016–01
  3. By: Drometer, Marcus; Méango, Romuald
    Abstract: Using a panel of naturalizations in U.S. states from 1986 to 2012, we empirically analyze the impact of elections on immigration policy. Our results indicate that immigration policy is (partly) driven by national elections: there are more naturalizations in presidential election years and during the terms of Democratic incumbents. Further, the partisan effects are more pronounced in politically contested states.
    JEL: H11 D72 F22
    Date: 2015
  4. By: Finan, Frederico S. (University of California, Berkeley); Mazzocco, Maurizio (University of California, Los Angeles)
    Abstract: It is widely believed that politicians allocate public resources in ways to maximize political gains. But what is less clear is whether this comes at a cost to welfare; and if so, whether alternative electoral rules can help reduce these costs. In this paper, we address both of these questions by modeling and estimating politicians' decisions to allocate public funds. We use data from Brazil's federal legislature, which grants each federal legislator a budget to fund public projects in his state. We find that 26 percent of the public funds are distorted relative to a social planner's allocation. We then use the model to simulate several potential policies reforms to the electoral system, including adopting approval voting and implementing term limits. We find that an approval voting system reduces the distortions by 7.5 percent. Term limits also reduce distortions, but come at the cost of more corruption, which makes it a welfare-reducing policy.
    Keywords: distributive politics, public goods, corruption, electoral rules, term limits
    JEL: H40
    Date: 2016–01
  5. By: Gathmann, Christina; Boyer, Pierre
    Abstract: We study the political determinants of policy experimentation during the US welfare reform. Among other changes, this reform shifted the autonomy to implement welfare policies from the federal government to the individual states. In line the predictions from a political agency model, we find that (i) governors with high initial reputation among voters experiment less with welfare policies; (ii) governors with lower reelection concerns experiment more; (iii) governors with little experience are more likely to revert an experiment, but are also more likely to stick to a policy experiment with high potential gains. Overall our findings suggest that reelection concerns play an important role for policy experimentation and reversals.
    JEL: I38 H11 D78
    Date: 2015
  6. By: Jochimsen, Beate Regina; Lehmann, Robert
    Abstract: Nowadays, a solid budget serves as an important quality signal for the electorate. Therefore, politicians might face an incentive to influence tax revenue forecasts which are widely regarded as a key element for budget setups. Looking at the time period from 1996 to 2012, we systematically analyze whether national tax revenue forecasts in 18 OECD countries are biased through political distortions. Based on several theoretical approaches drawn from the theories of political economy, we test four hypotheses using panel estimation techniques. We find strong support for partisan politics. Left governments seem to overestimate tax revenues more than right ones to satisfy their electorate with additional expenditure plans. Contrary to the theoretical prediction based on the common pool problem, we find that more fragmented governments and parliaments tend to produce more pessimistic tax revenue forecasts. One reason might be that at least one of the incumbents will stay in office and will be part of the next government, too. We do not find empirical evidence for political business cycles or an influence of the reelection probability on tax revenue forecasts at all.
    JEL: H11 H68 P16
    Date: 2015
  7. By: Hofer, Katharina Eva; Marti, Christian; Bütler, Monika
    Abstract: We study whether the number of signatures collected to qualify a popular initiative affects the probability of reforming the status quo. The initiative process is modeled as a sequential game under uncertainty: petitioners make an entry decision and collect signatures to qualify the initiative. Politicians decide about a political compromise - a counter proposal - after which petitioners have the option to withdraw the initiative before the vote. In equilibrium, politicians infer the initiative's popularity from the number of signatures and collection time. They more likely grant counter proposals to initiatives perceived as a threat to the status quo. To prove their success probability, petitioners sometimes have the incentive to collect more signatures than required for qualification. We test model predictions based on the data set of all Swiss constitutional initiatives at federal level between 1891 and 2010. Overall, we find supporting evidence for the model mechanisms. Reforms are most likely once a far-reaching counter proposal is issued such that the initiative is withdrawn. We find a significant effect of collecting more signatures than required on the probability of provoking a compromise.
    JEL: D72 P16 C70
    Date: 2015
  8. By: Abel Bojar
    Abstract: Despite widely held views on fiscal adjustment as a political minefield for incumbents, the empirical literature on the issue has been surprisingly inconclusive. A crucial variable that has been often overlooked in the debate is partisan politics. Building on the micro-logic of Albert Hirschman’s “exit, voice and loyalty” framework, this article offers a novel theoretical perspective on the conditioning impact of partisanship in the electoral arena. Due to their more limited exit options at their disposal, left-wing voters are less likely to inflict electoral punishment on their parties, offering the latter an electoral advantage over their right-wing rivals. Relying on the largest cross-national dataset to date on the evolution of close to 100 parties’ popularity rating in 21 democracies, time-series-cross-section results confirm this electoral advantage.
    Keywords: fiscal adjustment, partisan politics, exit voice and loyalty, party competition, elections, popularity
    Date: 2016–01
  9. By: Schopf, Mark; Voß, Achim
    Abstract: Consider a lobby group of exhaustible-resource suppliers, which bargains with the government over the extraction of an exhaustible resource and over contribution payments. We characterize the path of contributions and the resulting extraction path, taking into account how the environmental damage of resource usage and the demand elasticity change optimal extraction. A high marginal environmental flow damage reduces the government s preferred speed of extraction, a low price elasticity of resource demand reduces that of the lobby. Moreover, the lobby s preferred total extraction exceeds that of the government whenever environmental stock damages exist. Contribution payments are usually positive and declining, along with the conflict of interest between the government and the lobby. In some cases, they may be increasing for while, possibly from a negative level, but they eventually decline and vanish in the long run.
    JEL: D72 Q38 Q58
    Date: 2015
  10. By: Haselmann, Rainer; Kick, Thomas; Behn, Markus; Vig, Vikrant
    Abstract: In this paper, we examine how the institutional design affects the outcome of bank bailout decisions. In the German savings bank sector, distress events can be resolved by local politicians or a state-level association. We show that decisions by local politicians with close links to the bank are distorted by personal considerations: While distress events per se are not related to the electoral cycle, the probability of local politicians injecting taxpayers' money into a bank in distress is 30~percent lower in the year directly preceding an election. Using the electoral cycle as an instrument, we show that banks that are bailed out by local politicians experience less restructuring and perform considerably worse than banks that are supported by the savings bank association. Our findings illustrate that larger distance between banks and decision makers reduces distortions in the decision making process, which has implications for the design of bank regulation and supervision.
    JEL: G21 G28 D72
    Date: 2015
  11. By: Esslinger, Christoph; Boyer, Pierre
    Abstract: We consider a model of redistributive politics in which politicians have the possibility to raise some debt and to implement a pie-increasing reform, i.e. a reform creating a net increase in the total taxable endowment. The reform benefits occur in the future and the reform costs have to be paid today, but both benefits and costs can be perfectly redistributed across voters in the period in which they occur. Voters are perfectly forward-looking and ex-ante homogeneous, and politicians are purely office-motivated. As main result, we show that a limit on debt that is sufficiently more restrictive than the natural debt limit will prevent the implementation of the reform. Such a debt limit forces the reforming candidate to pursue an overly egalitarian strategy of redistribution making it possible for a non-reforming candidate to use his better targeting capacity to win a majority of voters.
    JEL: C72 D72 D78 H63
    Date: 2015
  12. By: Zohal Hessami (Department of Economics, University of Konstanz, Germany)
    Abstract: Direct democracy may impose significant information demands on voters especially when individual propositions are highly complex. Yet, it remains theoretically ambiguous how proposition complexity affects referendum outcomes. To explore this question, I use a novel dataset on 153 Swiss federal referendums that took place between 1978 and 2010. The dataset includes hand collected data on the number of subjects per proposition based on official prereferendum information booklets as a measure of complexity. My estimation results suggest that the relationship between proposition complexity and the share of yes-votes follows an inverse U-shape. Using micro-data from representative post-referendum surveys, I provide evidence for two opposing channels. More complex propositions are supported by a more diverse group of voters. On the other hand, voters find it more difficult to estimate the personal consequences of complex propositions and are therefore more likely to reject them.
    Keywords: Direct democracy, Complexity, Voting behavior, Random errors, Political economy of reforms
    JEL: D72 D78 D81
    Date: 2016–01–10
  13. By: Meya, Johannes; Poutvaara, Panu; Schwager, Robert
    Abstract: We study the role of self-interest and social preferences in referenda. Our analysis is based on collective purchasing decisions of university students on deep-discount flat-rate tickets for public transportation and culture. Individual usage data allows quantifying monetary benefits associated with each ticket. We find that turnout is much higher among students who benefit a lot from having a ticket, suggesting instrumental voting. In each referendum, a majority votes in line with self-interest, providing strong evidence for pocketbook voting. However, social preferences like altruism, public good considerations and paternalism shift the vote of a sizeable minority against their own financial interest.
    JEL: D72 H41 D64
    Date: 2015
  14. By: Bütler, Monika; Benesch, Christine; Hofer, Katharina
    Abstract: We exploit a recent change in voting procedures in one of the two chambers of the Swiss parliament to explore how transparency affects the votes of Members of Parliament (MPs). Until 2013, the Council of States (St nderat) decided by hand rising. While publicly observable at the time of the vote, MPs decisions could only be verified through time-consuming screening of online videos ex post. In 2014 - in the middle of the legislation period, the chamber switched to electronic voting. As MPs decisions are available online, transparency and observability of MP voting increased. Our analysis is based on individual voting behavior from all final passage votes in the 2011-2015 legislation period. In a difference-in-difference framework, the larger chamber, the National Council (Nationalrat), serves as control group. Voting procedures in the latter have not changed since 2007, the legislative text is identical in both chambers. After the reform, members of the Council of States are significantly less likely to deviate from their party line. We also observe a higher probability to abstain even though a strong party line exists. Our results are in line with increased observability of MP votes and higher conformity pressure from parties and party groups.
    JEL: D72 D71 H10
    Date: 2015
  15. By: Gerigk, Joschka; MacKenzie, Ian; Ohndorf, Markus
    Abstract: In this article, we examine the regulation of pollution in open economies when the regulator is influenced by special interest groups. In a setting with free trade, we identify conditions under which a country may unilaterally adopt the stricter regulatory standards of its competitors. In our model, two lobby groups - representing industrial and environmental special interests - influence their government's policy decision. Their lobbying efforts not only depend on the domestic policy, but also on environmental regulation abroad. We find that both market structure and the characteristics of the pollutant are crucial determinants of the political equilibrium: given a local pollutant, the probability of convergence of environmental policies is increasing in the stringency of regulation abroad when product supply is relatively inelastic. This effect is reversed in the case of transboundary pollution. We also extend our framework to cases of imperfect competition.
    JEL: Q50 H73 D72
    Date: 2015
  16. By: Steinhardt, Max Friedrich; Poutvaara, Panu
    Abstract: Immigration is a major challenge and opportunity for rich Western countries. Integration of immigrants is a two-way process, the success of which depends both on immigrants and on natives. We provide new evidence on the determinants of individual attitudes towards immigration, using data from the 2005 and 2010 waves of the German Socio-Economic Panel. In particular, we show that bitterness in life is strongly associated with worries about immigration. This effect cannot be explained just by concerns that immigrants are competing with oneself in the labor market. Instead, it appears that people who feel that they have not got what they deserve in life oppose immigration for spiteful reasons. As economic crises foster bitterness, they are likely to increase public opposition towards immigration, and by this harm integration of immigrants.
    JEL: F22 J61 D72
    Date: 2015
  17. By: Frommeyer, Tim
    Abstract: We consider a committee voting setup with two rounds of voting where committee members, who possess private information about the state of the world, have to make a binary decision. We investigate incentives for truthful revelation of their information in the first voting period. Coughlan (2000 shows that members reveal their information in a straw poll only if their preferences are homogeneous. By taking costs of time into account, we demonstrate that heterogeneous committees have strictly higher incentives to reveal information and can be strictly better off if the straw poll allows for an earlier decision for high level of consensus.
    JEL: D72 D82 D83
    Date: 2015

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