nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒03‒29
fifteen papers chosen by
Eugene Beaulieu
University of Calgary

  2. Organized Crime, Violence, and Politics By Alberto Alesina; Salvatore Piccolo; Paolo Pinotti
  3. Horizontal and Vertical Conflict: Experimental Evidence By Sebastian Galiani; Cheryl Long; Camila Navajas; Gustavo Torrens
  4. Immigration to the U.S.: A problem for the Republicans or the Democrats? By Anna Maria Mayda; Giovanni Peri; Walter Steingress
  5. Electoral Incentives and the Allocation of Public Funds By Frederico Finan; Maurizio Mazzocco
  6. Winners and Losers in International Trade: The Effects on U.S. Presidential Voting By J. Bradford Jensen; Dennis P. Quinn; Stephen Weymouth
  7. Conformity, information and truthful voting By Bernado Moreno; María del Pino Ramos-Sosa; Ismael Rodríguez-Lara
  8. The Political Determinants of Government Bond Holdings By Eichler, Stefan; Plaga, Timo
  9. A Better Life for All? Democratization and Electrification in Post-Apartheid South Africa By Verena Kroth; Valentino Larcinese; Joachim Wehner
  10. Unanimous Rules in the Laboratory By Laurent Bouton; Aniol Llorente-Saguer; Frédéric Malherbe
  11. Determinants of local public expenditures on education: empirical evidence for Indonesian districts between 2005 and 2012 By Ivo Bischoff; Ferry Prasetyia
  12. A time to throw stones, a time to reap: How long does it take for democratic transitions to improve institutional outcomes? By Pierre-Guillaume Méon; Khalid Sekkat
  13. Guns, Latrines, and Land Reform: Private Expectations and Public Policy By Michael Kremer; Jack Willis
  14. Popular Attitudes towards Markets and Democracy: Russia and United States Compared 25 Years Later By Maxim Boycko; Robert J. Shiller
  15. Proportional payoffs in legislative bargaining with weighted voting: a characterization By Maria Montero

  1. By: Monica Martinez-Bravo (CEMFI, Centro de Estudios Monetarios y Financieros); Priya Mukherjee (College of William and Mary); Andreas Stegmann (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: A large theoretical literature argues that legacies of non-democratic regimes can affect the quality of governance in new democracies. However, the empirical evidence is scarce. This paper exploits a natural experiment that took place in the Indonesian democratic transition: the Soeharto-regime mayors were allowed to finish their five year terms before being replaced by new leaders. Since mayors' political cycles were not synchronized, this event generated exogenous variation in how long the agents of the old regime remained in their position during the democratic transition. The results suggest that districts which had an old-regime mayor for longer exhibit worse governance outcomes, lower public good provision, and greater electoral support for Soeharto's party. These effects persist several years after the oldregime mayors are no longer in office. The results are consistent with the hypothesis that slower transitions towards democracy allow the old-regime elites to find ways of capturing democracy in the medium and long run.
    Keywords: Institutions, elections, elite capture.
    JEL: D72 H75 O12 P16
    Date: 2016–01
  2. By: Alberto Alesina (Harvard University, IGIER, CEPR, and NBER); Salvatore Piccolo (Università Cattolica del Sacro Cuore di Milano and CSEF); Paolo Pinotti (Bocconi University, fRDB, and BAFFI-CAREFIN Center)
    Abstract: We investigate how criminal organizations strategically use violence to influence elections in order to get captured politicians elected. The model offers novel testable implications about the use of pre-electoral violence under different types of electoral systems and different degrees of electoral competition. We test these implications by exploiting data on homicide rates in Italy since 1887, comparing the extent of “electoral-violence cycles” between areas with a higher and lower presence of organized crime, under democratic and non-democratic regimes, proportional and majoritarian elections, and between contested and non-contested districts. We provide additional evidence on the influence of organized crime on politics using parliamentary speeches of politicians elected in Sicily during the period 1945-2013.
    Keywords: organized crime, electoral violence, voting, political discourse
    JEL: K42 D72
    Date: 2016–03–11
  3. By: Sebastian Galiani; Cheryl Long; Camila Navajas; Gustavo Torrens
    Abstract: Two types of political conflicts of interest pervade many of the world’s societies. A horizontal conflict of interest arises when different constituencies support different policies, while a vertical conflict of interest emerges when those in charge of running the government acquire and retain rents in the process of doing so. We experimentally explore the connections between the two. We identify two sets of models that incorporate both types of conflicts: electoral models with endogenous rents, and common-agency models. We adapt these models to a laboratory setting and test their main theoretical predictions using two experiments. In both cases we find support for the proposition that more intense horizontal conflict leads to higher rents, which is one of the theoretical predictions of the parametrized electoral and common-agency models that we have used.
    JEL: D72 D74
    Date: 2016–01
  4. By: Anna Maria Mayda; Giovanni Peri; Walter Steingress
    Abstract: We empirically analyze the impact of immigration to the U.S. on the share of votes to the Republicans and Democrats between 1994 and 2012. Our analysis is based on variation across states and years – using data from the Current Population Survey merged with election data – and addresses the endogeneity of immigrant flows using a novel set of instruments. On average across election types, immigration to the U.S. has a significant and negative impact on the Republican vote share, consistent with the typical view of political analysts in the U.S. This average effect – which is driven by elections in the House – works through two main channels. The impact of immigration on Republican votes in the House is negative when the share of naturalized migrants in the voting population increases. Yet, it can be positive when the share of non-citizen migrants out of the population goes up and the size of migration makes it a salient policy issue in voters' minds. These results are consistent with naturalized migrants being less likely to vote for the Republican party than native voters and with native voters' political preferences moving towards the Republican party because of high immigration of non-citizens. This second effect, however, is significant only for very high levels of immigrant presence.
    JEL: F22
    Date: 2016–01
  5. By: Frederico Finan; Maurizio Mazzocco
    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.
    JEL: H40 H41
    Date: 2016–01
  6. By: J. Bradford Jensen; Dennis P. Quinn; Stephen Weymouth
    Abstract: This paper studies how international trade influences U.S. presidential elections. We expect the positive employment effects of expanding exports to increase support for the incumbent’s party, and job insecurity from import competition to diminish such support. Our national-level models show for the first time that increasing imports are associated with decreasing incumbent vote shares, and increasing exports correlate with increasing vote shares for incumbents. These effects are large and politically consequential. We also construct U.S. county-level measures of employment in high- and low-skill tradable activities. We find increases in incumbent vote shares in counties with concentrations of employment in high-skilled tradable goods and services, and decreases in counties with concentrations of employment in low-skilled manufactured goods. Incumbent parties are particularly vulnerable to losing votes in swing states with high concentrations of low-skilled manufacturing workers with increasing trade exposure. Thus there is an Electoral College incentive to protect this sector.
    JEL: F0 F5
    Date: 2016–01
  7. By: Bernado Moreno (Department of Economic Theory, Universidad de Málaga); María del Pino Ramos-Sosa (Department of Economic Theory, Universidad de Málaga); Ismael Rodríguez-Lara (Department of Economics, Middlesex University London)
    Abstract: We induce conformity in a binary-decision voting game by assuming that agents may derive some utility by voting the same option that others. Theoretically, we show that truthful voting is the unique equilibrium without conformity. Introducing conformity enlarges the set of equilibria, which includes voting profiles in which agents do not necessarily vote for their preferred option. If agents are informed that others will vote truthfully, truthful voting is more pervasive in equilibrium. In our setting, the effects of conformity and information depend on the voting rule and the preferred option of each agent. We provide empirical support for our theoretical predictions by means of a laboratory experiment.
    Keywords: Issue-Silence; truthful voting, conformity, information, experimental evidence.
    JEL: C91 C92 D71 D72
    Date: 2016–01
  8. By: Eichler, Stefan; Plaga, Timo
    Abstract: This paper analyzes the link between political factors and sovereign bond holdings of US investors in 60 countries over the 2003-2013 period. We find that, in general, US investors hold more bonds in countries with few political constraints on the government. Moreover, US investors respond to increased uncertainty around major elections by reducing government bond holdings. These effects are particularly significant in democratic regimes and countries with sound institutions, which enable effective implementation of fiscal consolidation measures or economic reforms. In countries characterized by high current default risk or a sovereign default history, US investors show a tendency towards favoring higher political constraints as this makes sovereign default more difficult for the government. Political instability, characterized by the fluctuation in political veto players, reduces US investment in government bonds. This effect is more pronounced in countries with low sovereign solvency.
    Keywords: Government bond portfolio, Political factors, Treasury International Capital data, PPML
    JEL: G11 G15 G18 H63 H11
    Date: 2016–03
  9. By: Verena Kroth; Valentino Larcinese; Joachim Wehner
    Abstract: Does democracy affect basic service delivery? If yes, who benefits, and which elements of democracy matter - enfranchisement, the liberalization of political organization, or both? In 1994, 19 million South Africans gained the right to vote. The previously banned African National Congress was elected promising "a better life for all". Using a difference-in-differences approach, we exploit heterogeneity in the share of newly enfranchised voters across municipalities to evaluate how franchise extension affected household electrification. Our unique dataset combines nightlight satellite imagery, geo-referenced census data, and municipal election results from the 1990s. We include covariates, run placebo regressions, and examine contiguous census tracts. We find that enfranchisement increased electrification. In parts of the country where municipalities lacked distribution capacity, the national electricity company prioritized core constituencies of the ANC. The effect of democratization on basic services depends on the national government's ability to influence distribution at the local level.
    Keywords: Democracy, Distributive politics, Electricity, South Africa
    Date: 2016–03
  10. By: Laurent Bouton; Aniol Llorente-Saguer; Frédéric Malherbe
    Abstract: We study the information aggregation properties of unanimous voting rules in the laboratory. In line with theoretical predictions, we find that majority rule with veto power dominates unanimity rule. We also find that the strategic voting model is a fairly good predictor of observed subject behavior. There are, however, cases where organizing the data seems to require a mix of strategic and sincere voting. This pattern of behavior would imply that the way majority rule with veto power is framed may significantly affect the outcome of the vote. Our data strongly supports such an hypothesis.
    JEL: C92 D70
    Date: 2016–01
  11. By: Ivo Bischoff (University of Kassel); Ferry Prasetyia (Brawijaya University)
    Abstract: We provide an empirical analysis of the factors that drive expenditures on primary and secondary education in Indonesian districts. We use a panel-data set covering 398 districts between 2005 and 2012. We account for the impact of socio-economic, political and geographical factors on expenditures per pupil and on the share of the overall budget spent on education. Our results are in line studies from other countries showing that educational expenditures are rising in the municipalities’ fiscal capacity. Landlocked districts are found to spend less on education than non-landlocked ones. We find some support for the notion that the share of educational expenditures in total expenditures increases in the demand for education, though our indicators for demand are not associated with higher expenditures per pupil. Somewhat surprisingly, the characteristics of the local municipal council do not influence educational expenditures.
    Keywords: Indonesia, local government, educational expenditures, determinants
    JEL: H75 I25 N35
    Date: 2015
  12. By: Pierre-Guillaume Méon; Khalid Sekkat
    Abstract: This paper studies the impact of democratic transitions on institutional outcomes in a panel of 135 countries over the period 1984-2012, using an event study method. Our estimates suggest that the bulk of the improvement occurs during the three years following the transition. We can find no anticipation effect in average institutional outcomes. The results are robust to using alternative transition definitions and alternative codings of pre- and post-transition years, to changing the set of control variables, to excluding former socialist countries from the sample, and to dealing with endogeneity with IV regressions. When distinguishing full and partial democratic transitions, we find that both improve institutional outcomes. We find that the effect of democratic transitions is conditional on GDP per capita, education, and the regularity of the transition. When looking at specific components of institutional quality, we find that law and order, internal conflict, government stability, and ethnic tensions follow the general trend, while corruption, military in politics, bureaucratic quality, and investment profile indices are insensitive to democratic transitions.
    Keywords: Democratization; democratic transitions; institutions; governance; political risk
    JEL: H11
    Date: 2016–02–29
  13. By: Michael Kremer; Jack Willis
    Abstract: Dynamically and statically optimal Pigouvian subsidies on durables will differ in a growing economy. For durables with positive externalities, such as sanitation, statically optimal subsidies will typically grow. However, in a dynamic game, governments can most cheaply induce optimal purchasing time by committing to eventually reduce subsidies. If governments cannot commit, there may be multiple, Pareto-ranked equilibria. The presence of multiple subsidizing bodies, including foreign donors, makes commitment more difficult. As a result, consumers may actually delay purchase, rationally anticipating growing subsidies. In the extreme, the benefits of foreign subsidies for durables that create positive externalities may be more than fully offset by such delays in private investment. For durables with negative externalities, such as guns, delays between the announcement and implementation of taxes or regulation may bring forward purchase, potentially causing policymakers who would otherwise prefer such policies to abandon them. Political actors may also be able to shape others’ policy preferences by changing private expectations. For example, a political party that announces an intent to redistribute land may reduce current owners' investment incentives, thus reducing the benefits of maintaining existing property rights and making land reform more attractive to the median voter.
    JEL: H23 H42 O12 O18
    Date: 2016–01
  14. By: Maxim Boycko; Robert J. Shiller
    Abstract: We repeat a survey we did in the waning days of the Soviet Union (Shiller, Boycko and Korobov, AER 1991) comparing attitudes towards free markets between Moscow and New York. Additional survey questions, from Gibson Duch and Tedin (J. Politics 1992) are added to compare attitudes towards democracy. Two comparisons are made: between countries, and through time, to explore the existence of international differences in allegiance to democratic free-market institutions, and the stability of these differences. While we find some differences in attitudes towards markets across countries and through time, we do not find most of the differences large or significant. Our evidence does not support a common view that the Russian personality is fundamentally illiberal or non-democratic.
    JEL: O57 P10
    Date: 2016–02
  15. By: Maria Montero (School of Economics, University of Nottingham)
    Abstract: We examine the relationship between voting weights and expected equilibrium payoffs in legislative bargaining and provide a necessary and sufficient condition for payoffs to be proportional to weights. This condition has a natural interpretation in terms of the supply and demand for coalition partners. An implication of this condition is that Snyder et al.Â’s (2005) result, that payoffs are proportional to weights in large replicated games, does not necessarily extend to the smaller games that arise in applications. Departures from proportionality may be substantial and may arise even in well-behaved (homogeneous) games.
    Keywords: legislative bargaining, weighted voting, proportional payoffs
    Date: 2016–02

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