nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒05‒21
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Compulsory Voting, Turnout, and Government Spending: Evidence from Austria By Mitchell Hoffman; Gianmarco León; María Lombardi
  2. Extreme Idealism and Equilibrium in the Hotelling-Downs Model of Political Competition By Ronayne, David
  3. Family Networks and Distributive Politics By Fafchamps, Marcel
  4. Does Trade Liberalization with China Influence U.S. Elections? By Yi Che; Yi Lu; Justin R. Pierce; Peter K. Schott; Zhigang Tao
  5. Public Sector Corruption and Trust in the Private Sector By Gillanders, Robert; Neselevska, Olga
  6. National or European Politicians? Gauging MEPs Polarity When Russia is Concerned By Anna A. Dekalchuk; Aleksandra Khokhlova; Dmitriy Skougarevskiy
  7. Access to Power, Political Institutions and Ethnic Favoritism By Hannes Mueller; Agustin Tapsoba
  8. Mind what your voters read: Media exposure and international economic policy making By Facchini, Giovanni; Frattini, Tommaso; Signorotto, Cora
  9. The political economy of the vote with the wallet By Becchetti, Leonardo; Salustri, Francesco
  10. Rent-seeking, Government Size and Economic Growth By Wadho, Waqar Ahmed; Ayaz, Umair
  11. Political Conflict and Foreign Portfolio Investment : Evidence from North Korean Attacks By Yook, Youngsuk; Gerlach, Jeffrey R.
  12. Shades of red and blue: Political ideology and sustainable development By Vitor Castro
  13. The Ballot Order Effect is Huge: Evidence from Texas By Darren Grant
  14. The "Sugar Rush" from Innovation Subsidies. A Robust Political Economy Perspective By Gustafsson, Anders; Stephan, Andreas; karlson, Nils; Hallman, Alice
  15. Political support for trade policy in the European Union By Daniel Rais
  16. Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance By Fischer, Carolyn

  1. By: Mitchell Hoffman; Gianmarco León; María Lombardi
    Abstract: We study a unique quasi-experiment in Austria, where compulsory voting laws are changed across Austria's nine states at different times. Analyzing state and national elections from 1949-2010, we show that compulsory voting laws with weakly enforced fines increase turnout by roughly 10 percentage points. However, we find no evidence that this change in turnout affected government spending patterns (in levels or composition) or electoral outcomes. Individual-level data on turnout and political preferences suggest these results occur because individuals swayed to vote due to compulsory voting are more likely to be non-partisan, have low interest in politics, and be uninformed.
    JEL: D72 H10 P16
    Date: 2016–05
  2. By: Ronayne, David (University of Warwick)
    Abstract: In the classic Hotelling-Downs model of political competition there is (almost always) no pure strategy equilibrium with three or more strategic candidates where the distribution of voters’ preferred policies are single-peaked. I study the effect of introducing two idealist candidates who are non-strategic (i.e., fixed to their policy platform), to an unlimited number of potential strategic entrants. I present three results that hold for a non-degenerate class of cases: (i) In any equilibrium the idealists are the left-most and right-most candidates i.e., extremists; (ii) Hotelling’s Law fails: in any equilibrium, candidates do not share their policy platforms, which instead are spread across the policy space; (iii) A characterization for symmetric and asymmetric single-peaked distributions of voters’ ideal policy preferences. Equilibria where many strategic candidates enter exist only if the distribution of voter preferences is asymmetric.
    Keywords: Hotelling ; political competition ; equilibrium existence ; idealism JEL classification numbers: C72; D72
    Date: 2016
  3. By: Fafchamps, Marcel
    Abstract: We argue that incumbents share rents with central players to build and sustain coalitions. Using an unusually rich dataset, we show that households with high betweenness centrality - a measure of brokerage potential - receive more public services from their local government. This result is robust to the inclusion of controls for program eligibility, family ties with politicians, and other measures of centrality - which are not significant once betweenness is included. We provide further corroboration from indirect evidence from variation in size and electoral competition across municipalities. Finally, we show that in municipalities where politicians provide more goods and services to their relatives they target fewer goods to households with high betweenness centrality. The evidence supports the hypothesis that incumbent municipal politicians offer favorable access to public services to households most able to play a brokerage role in the formation of coalitions of families for electoral support.
    Date: 2016–04
  4. By: Yi Che; Yi Lu; Justin R. Pierce; Peter K. Schott; Zhigang Tao
    Abstract: This paper examines the impact of trade liberalization on U.S. Congressional elections. We find that U.S. counties subject to greater competition from China via a change in U.S. trade policy exhibit relative increases in turnout, the share of votes cast for Democrats and the probability that the county is represented by a Democrat. We find that these changes are consistent with Democrats in office during the period examined being more likely than Republicans to support legislation limiting import competition or favoring economic assistance.
    JEL: D72 F13 F16
    Date: 2016–04
  5. By: Gillanders, Robert; Neselevska, Olga
    Abstract: In this paper we use data from the Afrobarometer surveys to demonstrate that there is an undesirable spill-over from petty corruption in the public sector to trust in private sector institutions. Our results show that experiencing bribery in the course of one’s interactions with the public sector lowers one’s trust in big private corporations, small businesses, and local traders. This finding holds even when we allow for perceptions of political corruption to enter the specification. We do not find any significant association between a measure of interpersonal trust and bribery experience which suggests that our findings with regards to market institutions are not driven by corruption lowering trust in general. Having to pay a bribe for household services, which is perhaps the setting most like a private sector transaction, is the corrupt interaction most strongly associated with the decline in private sector trust. We find some evidence that the spill-over is larger in democracies than in non-democratic regimes. Given the importance of trust in market institutions for the efficient functioning of an economy, our findings thus point to a previously unknown and potentially substantial cost of corruption and add to the case for anti-corruption efforts.
    Keywords: bribery, corruption, corruption experiences, corruption perceptions, private sector trust, sub-Saharan Africa, trust
    JEL: D73 K4 O10 O55
    Date: 2016–04
  6. By: Anna A. Dekalchuk (National Research University Higher School of Economics); Aleksandra Khokhlova (University of Tartu); Dmitriy Skougarevskiy (European University at St. Petersburg)
    Abstract: The European Parliament (EP) is viewed as a normal parliament. Voting patterns of its members (MEPs) are mainly aligned with transnational political groups, not national cleavages. Yet, it has been proven by many that MEP voting patterns are an outcome of conflicting pressures and a distorted indicator of their individual political orientations. In this study we rely on MEP written questions to the European Commission to measure the policy positions and their determinants. Using the universe of 100,000 such questions in 2002–2015 linked with MEP country and European Political Group affiliation data, we test whether one issue of high sensitivity to their domestic audiences — Russia — makes the MEPs take their nationality seriously and pay more attention to it regardless of their transnational partisan affiliations. We rely on supervised machine learning to uncover sentiment of every question asked on a negative-positive scale. Then we contrast the sentiment of questions related to Russia with the rest of questions conditional on party and national affiliation of the MEP asking the question. We find that (i) MEP question involving Russia is twice as negative in tonality as an average question, (ii) more variation in modality of Russia-related questions is explained by MEP national affiliation than her EPG. Our findings are robust to alternative methods of sentiment extraction and to controlling for time-invariant unobserved heterogeneity of MEPs.
    Keywords: European politics, EU–Russia relations, European Parliament, written questions, text-as-data, sentiment mining.
    JEL: F55
    Date: 2016
  7. By: Hannes Mueller; Agustin Tapsoba
    Abstract: We use a dataset which codes executive power for 564 ethnic groups in 130 countries on a seven-point scale to show that ethnic groups that gain political power benefit economically. This effect holds for groups that enter government, the extensive margin, and for groups that concentrate more power onto themselves, the intensive margin. Both these effects disappear in the presence of strong political constraints on executive power. Institutional constraints are even effective in preventing favoritism when groups concentrate all power in the executive onto themselves.
    Keywords: favoritism, political institutions, night light data, ethnic conflict, executive constraints
    JEL: O43 D72 R11
    Date: 2016–04
  8. By: Facchini, Giovanni; Frattini, Tommaso; Signorotto, Cora
    Abstract: We investigate how media exposure affects elected representatives' response to preferences on immigration and trade policy. Using a novel dataset spanning the period 1986-2004, in which we match individual opinion surveys with congressmen roll call votes, we find that greater exposure to media coverage tends to increase a politician's accountability when it comes to migration policy making, while we find no effect for trade policy. Our results thus suggest that more information on the behavior of elected officials affects decisions only when the policy issue is perceived to be salient by the electorate.
    Keywords: Media exposure; political economy; Public Opinion; Roll Call Votes
    JEL: F22 H89
    Date: 2016–05
  9. By: Becchetti, Leonardo (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Salustri, Francesco (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)
    Abstract: The willingness to pay of private consumers for socially and environmentally re- sponsible companies retailing public goods is an emerging though under-researched contemporary economic feature. We model the problem faced by responsible con- sumers as a typical multiplayer prisoner’s dilemma and analyse four redistribution mechanisms that can be implemented by regulators and institutions to enforce the cooperative equilibrium. The desirable property of three of these schemes is that of extending the parametric interval of cooperative equilibrium without additional government expenditure. We also discuss the implication of our results for already implemented policies such as feed-in tariffs (FITs).
    Keywords: Redistributionmechanism; Corporatesocialresponsibility; Multiplayer prisoner’s dilemma
    JEL: C72 D71 M14
    Date: 2016–04–06
  10. By: Wadho, Waqar Ahmed; Ayaz, Umair
    Abstract: We explore the relationship between government size and economic growth in an endogenous growth model with human capital and unproductive social capital. We show that with endogenous discounting, growth outcome is history dependent and is function of initial endowment of human capital. With low endowment, government intervention of any size is growth depressing. With high endowment, government intervention is not associated with any depressing effect. For intermediate levels, there are multiple equilibria. Furthermore, countries with identical endowment and government size can be in different equilibrium, and can have different growth rates within same equilibrium if they differ in institutional quality.
    Keywords: Government size, Rent-seeking, Economic Growth, Human capital, Discounting
    JEL: D72 D90 H11 J24 O41 O43
    Date: 2015–02–22
  11. By: Yook, Youngsuk; Gerlach, Jeffrey R.
    Abstract: We examine the response of foreign (i.e., non-South Korean) investors to escalating political conflict and its impact on the South Korean stock market surrounding 13 North Korean military attacks between 1999 and 2010. Using domestic (i.e., South Korean) institutions and individuals as benchmarks, we evaluate the trading behavior and performance of foreign investors. Following attacks, foreigners increase their holdings of Korean stocks and buy more shares of risky stocks. Performance results show foreigners maintain their pre-attack level of performance while domestic individuals, who make the overwhelming majority of domestic trades, perform worse. In addition, domestic institutions improve their performance. Overall, the results are consistent with the predictions based on the benefits of international diversification. Unlike domestic individuals, foreigners trade more shares than usual and deviate from their general strategy of positive feedback trading.
    Keywords: Political conflict ; Foreign portfolio investment ; North Korean attacks
    Date: 2016–04
  12. By: Vitor Castro (University of Coimbra and NIPE)
    Abstract: The purpose of this paper is to study the effect of political ideology on sustainable development. The value of doing this is two-fold. First, in the face of important social challenges, ranging from climate change to aging populations, the question of sustainable development has become a top priority for many observers and policy makers. Second, sustainability is intrinsically linked to issues of governance.Thus, we study the effect of political ideology on sustainable development, measured as investment in genuine wealth, in a dynamic panel of 79 countries between 1981 and 2013. We find that a switch from a left-wing or centrist government to a right-wing government has a robust positive and statistically significant effect on investment in genuine wealth. We find no evidence of opportunistic cycles in these investments.
    Keywords: Sustainable development, Political ideology; Genuine investment.
    JEL: C23 D72 I31
  13. By: Darren Grant (Department of Economics and International Business, Sam Houston State University)
    Abstract: Texas primary and runoff elections provide an ideal test of the ballot order hypothesis, because ballot order is randomized within each county and there are many counties and contests to analyze. Doing so for all statewide offices contested in the 2014 Democratic and Republican primaries and runoffs yields precise estimates of the ballot order effect across twenty-four different contests. Except for a few high-profile, high-information races, the ballot order effect is large, especially in down-ballot races and judicial positions. In these, going from last to first on the ballot raises a candidate’s vote share by nearly ten percentage points.
    Keywords: Voting; Ballot order; Behavioral economics
    JEL: D72
    Date: 2016–05
  14. By: Gustafsson, Anders (The Ratio institute and Jönköping School of Economics); Stephan, Andreas (The Ratio institute and Jönköping School of Economics); karlson, Nils (The Ratio institute); Hallman, Alice (The Ratio institute)
    Abstract: The governments of most advanced countries offer some type of financial subsidy to encourage firm innovation and productivity. This paper analyzes the effects of innovation subsidies using a unique Swedish database that contains firm level data for the period 1997-2011, specifically information on firm subsidies over a broad range of programs. Applying causal treatment effect analysis based on matching and a diff-in-diff approach combined with a qualitative case study of Swedish innovation subsidy programs, we test whether such subsidies have positive effects on firm performance. Our results indicate a lack of positive performance effects in the long run for the majority of firms, albeit there are positive short-run effects on human capital investments and also positive short-term productivity effects for the smallest firms. These findings are interpreted from a robust political economy perspective that reveals that the problems of acquiring correct information and designing appropriate incentives are so complex that the absence of significant positive long-run effects on firm performance for the majority of firms is not surprising.
    Keywords: Innovation subsidies; market failures; causal treatment effect evaluation; firm performance; CEM; robust political economy
    JEL: H25 O38 P16
    Date: 2016–04–25
  15. By: Daniel Rais
    Abstract: Abstract We adopt the Stigler–Peltzman model of policy-making as developed by Hillman for application to the politics of international trade, in which the government is represented by a political support function trading-off the industry rents stemming from protection against the losses accruing to the general population. As a starting point, we examine the economic impact of actual government action as revealed by the structure of protection, backing out the weights implied by the marginal welfare effects of the set of EU import tariffs across sectors. We build on Tyers' application of methods to international trade employing a numerical general equilibrium model of the EU. This captures direct marginal effects of sector-level protection on protected industries, indirect effects on upstream and downstream industries, and the effect on overall welfare. We then deconstruct the revealed weighting pattern along the lines of industry nationality and related industry characteristics.
    Date: 2014–12–01
  16. By: Fischer, Carolyn
    Abstract: Industrial policy has long been criticized as subject to protectionist interests; accordingly, subsidies to domestic producers face disciplines under World Trade Organization agreements, without exceptions for environmental purposes. Now green industrial policy is gaining popularity as governments search for low-carbon solutions that also provide jobs at home. The strategic trade literature has largely ignored the issue of market failures related to green goods. I consider the market for a new environmental good (like low-carbon technology) whose downstream consumption provides external benefits (like reduced emissions). Governments may have some preference for supporting domestic production, such as by interest-group lobbying, introducing a political distortion in their objective function. I examine the national incentives and global rationales for offering production (upstream) and deployment (downstream) subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Restraints on upstream subsidies erode global welfare when environmental externalities are large enough relative to political distortions. Climate finance is an effective alternative if political distortions are large and governments do not undervalue carbon costs. Numerical simulations of the case of renewable energy indicate that a modest social cost of carbon can imply benefits from allowing upstream subsidies.
    Keywords: Green Industrial Policy, Emissions Leakage, Externalities, International Trade, Renewable Energy, Subsidies, Environmental Economics and Policy, F13, F18, H21, Q5,
    Date: 2016–04–30

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