nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒03‒10
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. One Mandarin Benefits the Whole Clan: Hometown Favoritism in an Authoritarian Regime By Do, Quoc-Anh; Nguyen, Kieu-Trang; Tran, Anh
  2. The political economy of direct dividend transfers in resource-rich countries : a theoretical consideration By McGuirk,Eoin; Rajaram,Anand; Giugale,Marcelo
  3. The Market Value of Political Partisanship. Quasi-experimental Evidence from Municipal Elections By Roberto Basile; Valerio Filoso
  4. Scoring rules and implementation in iteratively unmoderated strategies By Christian Basteck
  5. An evolutionary approach to social choice problems with q-quota rules By Akira Okada; Ryoji Sawa
  6. Democracy Promotion: The Role and Strategy of European Union By Duygu Ozluk
  7. The political choice of social long-term care transfers when family gives time and money By De Donder, P.; Leroux, M.-L.
  8. Are Stock Prices Related to Political Uncertainty Index in OECD Countries? Evidence from Bootstrap Panel Causality Test By Tsangyao Chang; Wen Yi Chen; Rangan Gupta; Duc Khuong Nguyen
  9. Agendas in Legislative Decision-Making By Sean HORAN
  10. The political economy of bank lending : evidence from an emerging market By Agarwal,Sumit; Morais,Bernardo; Ruiz Ortega,Claudia; Zhang,Jian

  1. By: Do, Quoc-Anh; Nguyen, Kieu-Trang; Tran, Anh
    Abstract: We study patronage politics in authoritarian Vietnam, using an exhaustive panel of 603 ranking officials from 2000 to 2010 to estimate their promotions' impact on infrastructure in their hometowns of patrilineal ancestry. Native officials' promotions lead to a broad range of hometown infrastructure improvement. Hometown favoritism is pervasive across all ranks, even among officials without budget authority, except among elected legislators. Favors are narrowly targeted towards small communes that have no political power, and are strengthened with bad local governance and strong local family values. The evidence suggests a likely motive of social preferences for hometown.
    Keywords: authoritarian regime; distributive politics; favoritism; hometown; infrastructure; patronage; political connection
    JEL: D72 H72 O12
    Date: 2016–02
  2. By: McGuirk,Eoin; Rajaram,Anand; Giugale,Marcelo
    Abstract: The acceleration of natural resource discoveries across many parts of the developing world has highlighted the urgent need for solutions to the mismanagement of windfalls that has blighted many countries over the past half-century. One proposal involves distributing annually a share of resource rents to citizens in the form of direct dividend transfers. Although many scholars and policy makers have discussed the potential economic and political ramifications of the proposal from a normative perspective, few have analyzed positively the conditions under which such a policy may emerge as a politically rational choice. This policy research paper fills that gap by modeling the decision of political leaders to allocate resource revenues between cash transfers, public goods, power-preserving activities, and personal consumption. The analysis finds first that propitious political conditions, including competitive elections, undeveloped patronage networks, and a high degree of budgetary accountability, increase the share of resource revenues to be spent on citizens'welfare. The paper then shows that a high poverty headcount and inefficient public institutions will each strengthen the political incentive to provide direct dividend transfers relative to public goods. This combination of conditions is rare, which may explain why relatively few countries have implemented or plan to implement direct dividend transfers.
    Keywords: Debt Markets,Public Sector Development,Economic Theory&Research,Political Economy
    Date: 2016–02–23
  3. By: Roberto Basile (Facoltà di Economia (Faculty of Economics), Seconda Università degli Studi di Napoli (Naples Second University)); Valerio Filoso (Department of Law University of Naples)
    Abstract: Do different political parties implement divergent policies which impact the citizens’ welfare? The overheated debate notwithstanding, it is far from clear if this is really the case. Whereas current literature focuses on specific policy outcomes, we use real estate prices to evaluate the economic impact of municipal policies. Using a new dataset on Italian municipal elections and real estate prices, we employ a regression discontinuity approach to detect the causal effect of a change in municipal majorities. We find no difference between the effects of the policies enacted by left and right-wing parties. Further evidence confirms that the observed differences in fiscal behavior are hardly relevant for real estate capitalized values.
    Keywords: Political partisanship; Municipal politics;Real estate prices;Capitalization;Regression discontinuity.
    JEL: H11 H7
    Date: 2016–03
  4. By: Christian Basteck (Technische Universitaet Berlin)
    Abstract: We characterize voting procedures according to the solution that they implement when voters cast ballots strategically, applying iteratively undominated strategies. In elections with three candidates, the Borda Rule is the unique positional scoring rule that satisfies unanimity (U) (i.e., elects a candidate whenever it is unanimously preferred) and is majoritarian after eliminating a worst candidate (MEW)(i.e., if there is a unanimously disliked candidate, the majority-preferred among the other two is elected). In the larger class of direct mechanism scoring rules, Approval Voting is characterized by a single axiom – it is majoritarian after eliminating a Pareto dominated candidate (MEPD)(i.e., if there is a Pareto-dominated candidate, the majority-preferred among the other two is elected). However, it fails a desirable monotonicity property: a candidate that is elected for some preference profile, may lose the election once she gains further in popularity. In contrast, the Borda Rule is the unique direct mechanism scoring rule that satisfies U, MEW and monotonicity (MON). Finally, there exists no direct mechanism scoring rule that satisfies both MEPD and MON or Condorcet consistency (CON).
    Keywords: Sophisticated Voting; Iterated Weak Dominance; Implementation; Plurality Rule; Borda Rule; Approval Voting
    JEL: C72 D71 D72
    Date: 2016–02–01
  5. By: Akira Okada (Kyoto University); Ryoji Sawa (University of Aizu)
    Abstract: This paper considers a dynamic process of n-person social choice problems under q-majority where a status-quo policy is challenged by an opposing policy drawn randomly in each period. The opposing policy becomes the next status-quo if it receives at least q votes. We characterize stochastically stable policies under a boundedly rational choice rule of voters. Under the best response rule with mutations, a Condorcet winner is stochastically stable for all q-quota rules, and uniquely so if q is greater than the minmax quota. Under the logit choice rule, the Borda winner is stochastically stable under the unanimity rule. Our evolutionary approach provides a dynamic foundation of the mini-max policies in multidimensional choice problems with Euclidean preferences.
    Keywords: Stochastic stability; Social choice; Voting; Condorcet winner.
    JEL: C71 C73 D71
    Date: 2016–02
  6. By: Duygu Ozluk (Selcuk University)
    Abstract: The European Union (EU) is founded on the principles of liberty, democracy and respect for human rights and the EU’s enlargement policy has promoted democracy with the process of accession conditionality, which has made a great contribution towards global democratization. Since the end of the Cold War, the EU has evolved its democracy promotion strategies through aid related projects and political cooperation. The EU and the member states support democracy promotion by providing funding through the European Instrument for Democracy and Human Rights. However, while the EU engages in many democracy promotion initiatives, it has shown inconsistencies in terms of how is understood conceptually and how it is actually put into practice. This is largely in part because of the diversity amongst the member EU states and the complex structure of the organization. This study critically analyzes the EU’s democracy promotion agenda by looking at the key operational instruments and strategies of the organization. This study also deals with the EU’s understanding of democracy and the structural constraints of the organization within the framework of democracy promotion.
    Keywords: European Union, democratization,democracy promotion
    JEL: F50
  7. By: De Donder, P. (GREMAQ); Leroux, M.-L. (Université du Québec à Montréal)
    Abstract: We develop a model where families consist of one parent and one child, with children differing in income and all agents having the same probability of becoming dependent when old. Young and old individuals vote over the size of a social long-term care transfer program, which children complement with help in time or money to their dependent parent. Dependent parents have an intrinsic preference for help in time by family members. We first show that low (resp., high) income children provide help in time (resp. in money), whose amount is decreasing (resp. increasing) with the child's income. The middle income class may give no family help at all, and its elderly members would be the main beneficiaries of the introduction of social LTC transfers. We then provide several reasons for the stylized fact that there are little social LTC transfers in most countries. First, social transfers are dominated by help in time by the family when the intrinsic preference of dependent parents for the latter is large enough. Second, when the probability of becoming dependent is lower than one third, the children of autonomous parents are numerous enough to oppose democratically the introduction of social LTC transfers. Third, even when none of the first two conditions is satisfied, the majority voting equilibrium may entail no social transfers, especially if the probability of becoming dependent when old is not far above one third. This equilibrium may be local (meaning that it would be defeated by the introduction of a sufficiently large social program). This local majority equilibrium may be empirically relevant whenever new programs have to be introduced at a low scale before being eventually ramped up.
    Keywords: Majority Voting, local Condorcet winner, crowding out, intrinsic preference for informal help, tax reform
    JEL: H55 I13 D91
    Date: 2015–05–26
  8. By: Tsangyao Chang; Wen Yi Chen; Rangan Gupta; Duc Khuong Nguyen
    Date: 2016–02–18
  9. By: Sean HORAN
    Abstract: Despite the wide range of agendas used in legislative decision-making, the literature has focused almost exclusively on two stylized formats, the so-called Euro-Latin and Anglo-American agendas. As emphasized by Ordeshook and Schwartz [1987], this focus leaves a sizable gap in our understanding of the legislative process. To help address the deficiency, I first define a very broad class of agendas (called simple agendas) whose features are common among agendas used in legislative settings. I then characterize the sophisticated (Farquharson [1969]) voting outcomes implemented by agendas in this class. By establishing a clear connection between the structure of simple agendas and the outcomes associated with them, the characterization extends our understanding of legislative decision-making well beyond the very limited scope of Euro-Latin and Anglo-American agendas.
    Keywords: majority voting, sophisticated voting, agendas, committees, implementation
    JEL: C72 D02 D71 D72
    Date: 2016
  10. By: Agarwal,Sumit; Morais,Bernardo; Ruiz Ortega,Claudia; Zhang,Jian
    Abstract: This study investigates the existence of political rents in bank lending, using a comprehensive loan-level data set of the universe of commercial loans in Mexico from 2003 to 2012. Identification relies on changes in the state of origin of a senate committee chairman as a source of exogenous variation in firms'political relationship. The study finds that banks offer favorable loan terms to politically connected firms with larger loan quantities, lower loan spreads, longer maturities, and lower collateral requirements. Furthermore, political loans exhibit higher default rates. To isolate the bank supply channel, a rich set of fixed-effects is included with various specifications. The favorable lending increases with the strength of a firm's political connection, varies gradually along the political cycle, and is mainly offered by large and domestic banks. Consistent with the quid pro quo hypothesis, the study finds that banks that extend political loans receive significantly more government borrowings with better credit quality. The study also shows that the greater credit supply due to political connection leads to a large and significant increase in firm-level employment and assets. The study provides estimates of the total social cost of political lending and net revenue for banks that are engaged in rent provision activity. Finally, a series of robustness tests are performed to rule out alternative mechanisms and explanations.
    Keywords: Debt Markets,Banks&Banking Reform,Access to Finance,Microfinance,Bankruptcy and Resolution of Financial Distress
    Date: 2016–02–24

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