nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒06‒09
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Zoon politikon or homo oeconomicus ? How do people vote? By Lionel Page; Paul Antoine-Chevalier
  2. The Political Economy of (De)centralization with Complementary Public Goods By Cheikbossian, Guillaume
  3. CEO political preference and corporate tax sheltering By Francis, Bill B.; Hasan, Iftekhar; Sun, Xian; Wu, Qiang
  4. The Electoral Consequences of Offshoring By Rommel, Tobias; Walter, Stefanie
  5. Durability, Deadline, and Election Effects in Bargaining By Alp Simsek; Muhamet Yildiz
  6. Government Corruption and Foreign Direct Investment Under the Threat of Expropriation By Christopher Hajzler; Jonathan Rosborough
  7. Political Budget Cycles: Manipulation from Leaders or Manipulation from Researchers? Evidence from a Meta-Regression Analysis By Antoine CAZALS; Pierre MANDON
  8. A New Political Perspective: Simulative Democracy By ÖZLEM BECERIK YOLDAS; YUNUS YOLDAS
  9. Who bears the burden of bribery? Evidence from Public Service Delivery in Kenya By Mbate, Michael
  10. Financial literacy and attitudes to redistribution By Alberto Montagnoli; Mirko Moro; Robert Wright
  11. Corruption and Agricultural Trade By Biswas, Trina; Kennedy, P. Lynn

  1. By: Lionel Page; Paul Antoine-Chevalier
    Abstract: Why people vote and how they decide to allocate their vote is still a challenging question for economic analysis. We investigate the extent to which voting decisions are determined by political values, economic interest or even simply candidates' individual characteristics. To do so, we use a large scale online survey recording social preferences and political choices of voters for candidates in the 2007 French Presidential election. We find that political values matter but that the effect of differences in political position is much smaller than the effect of the voters' perceived economic interest. We also find that the individual characteristics of the candidates play a significant role.
    Keywords: social preferences, voting behavior, online experiment
    JEL: A13 D72
    Date: 2016–05–30
  2. By: Cheikbossian, Guillaume
    Abstract: This paper provides a political economy analysis of (de)centralization when local public goods -- with spillovers effects -- can be substitutes or complements. Depending on the degree of complementarity between local public goods, median voters strategically delegate policy to either `conservative' or to `liberal' representatives under decentralized decision-making. In the first case, it accentuates the free-rider problem in public good provision, while it mitigates it in the second case. Under centralized decision-making, the process of strategic delegation results in either too low or too much public spending, with the outcome crucially depending on the sharing of the costs of local public spending relative to the size of the spillover effects. Hence, with a common financing rule, centralization is welfare improving if and only if both public good externalities and the degree of complementarity between local public goods are both relatively large.
    Keywords: (De)centralization; Local Public Goods; Complements; Strategic Delegation; Spillovers
    JEL: D72 H41 H77
    Date: 2016–05
  3. By: Francis, Bill B.; Hasan, Iftekhar; Sun, Xian; Wu, Qiang
    Abstract: ​We show that firms led by politically partisan CEOs are associated with a higher level of corporate tax sheltering than firms led by nonpartisan CEOs. Specifically, Republican CEOs are associated with more corporate tax sheltering even when their wealth is not tied with that of shareholders and when corporate governance is weak, suggesting that their tax sheltering decisions could be driven by idiosyncratic factors such as their political ideology. We also show that Democratic CEOs are associated with more corporate tax sheltering only when their stock-based incentives are high, suggesting that their tax sheltering decisions are more likely to be driven by economic incentives. In sum, our results support the political connection hypothesis in general but highlight that the specific factors driving partisan CEOs’ tax sheltering behaviors differ. Our results imply that it may cost firms more to motivate Democratic CEOs to engage in more tax sheltering activities because such decisions go against their political beliefs regarding tax policies.
    Keywords: political preference, tax sheltering, CEO, Democrats, Republicans, incentives
    JEL: G21 H26 G32 P16
    Date: 2016–04–08
  4. By: Rommel, Tobias (University of Zurich); Walter, Stefanie (University of Zurich)
    Abstract: How does offshoring affect individual party preferences in multi-party systems? We argue that exposure to offshoring influences individual preferences for those political parties with clear policy positions on issues relevant for individuals with offshorable jobs (left, liberal and center-right parties), but does not affect voting decisions for parties concentrating on other issues (green parties or populist right parties). Examining individual-level data from five waves of the European Social Survey for 18 advanced democracies, we find that these effects vary by skill and exposure. Offshoring increases the preference for parties advocating economic openness among the highly skilled. In contrast, among the low-skilled, those exposed to offshoring are more likely to prefer leftist political parties that champion social protection and redistribution.
    Keywords: JEL Classification:
    Date: 2016
  5. By: Alp Simsek; Muhamet Yildiz
    Abstract: We propose a tractable model of bargaining with optimism. The distinguishing feature of our model is that the bargaining power is durable and changes only due to important events such as elections. Players know their current bargaining powers, but they can be optimistic that events will shift the bargaining power in their favor. We define congruence (in political negotiations, political capital) as the extent to which a party's current bargaining power translates into its expected payoff from bargaining. We show that durability increases congruence and plays a central role in understanding bargaining delays, as well as the finer bargaining details in political negotiations. Optimistic players delay the agreement if durability is expected to increase in the future. The applications of this durability effect include deadline and election effects, by which upcoming deadlines or elections lead to ex-ante gridlock. In political negotiations, political capital is highest in the immediate aftermath of the election, but it decreases as the next election approaches.
    JEL: C73 C78 D74 D78
    Date: 2016–05
  6. By: Christopher Hajzler; Jonathan Rosborough
    Abstract: Foreign investment is often constrained by two forms of political risk: expropriation and corruption. We examine the role of government corruption in foreign direct investment (FDI) when contracts are not fully transparent and investors face the threat of expropriation. Using a novel dataset on worldwide expropriations of FDI over the 1990–2014 period, we find a positive relationship between the extent of foreign investor protections and the likelihood of expropriation when a country’s government is perceived to be highly corrupt, but not otherwise. We then develop a theory of dynamic FDI contracts under imperfect enforcement and contract opacity in which expropriation is a result of illicit deals made with previous governments. In the model, a host-country government manages the FDI contract on behalf of the public, which does not directly observe government type (honest or corrupt). A corrupt type is able to extract rents by encouraging hidden investments in return for bribes. Opportunities for corrupt deals arise from the distortions in the optimal contract when the threat of expropriation is binding. Moreover, a higher likelihood of the government being corrupt increases the public’s temptation to expropriate FDI, magnifying investor risk. The model predicts that expropriation is more likely to occur when the share of government take is low and following allegations of bribes to public officials, and it suggests an alternative channel through which corruption reduces optimal foreign capital flows.
    Keywords: Development economics, Economic models, International topics
    JEL: F23 F21 F34
    Date: 2016
  7. By: Antoine CAZALS; Pierre MANDON
    Abstract: Despite a long history of research on political budget cycles, their existence and magnitude are still in question. By conducting a systematic analysis of the existing literature we intend to clarify the debate. Based on data collected from over 1; 700 regressions and 57 studies, our meta-analysis suggests that leaders do manipulate fiscal tools in order to be re-elected but to an extent that is significantly exaggerated by scholars. However, we show the incumbents' strategy differs depending on which tools they leverage. Finally, we discuss in further details how authors' methodological choices and country institutions affect political budget cycles.
    Keywords: Political cycles ; Budget manipulation ; Meta-analysis
    JEL: H0 E62 D78 D72 C82
    Date: 2016–05
  8. By: ÖZLEM BECERIK YOLDAS (Canakkale Onsekiz Mart University); YUNUS YOLDAS (Canakkale Onsekiz Mart University)
    Abstract: When the idea of democracy first appeared and applied in the ancient Greece, many political thinkers have begun to discuss critically about its nature and justification. It seemed as a successful form of government in the 20th century, but due to globalization, modern societies have undergone a profound change and transformation and democracy experienced many setbacks in the 21st century. Even in well-established democracies political perception and social values changed. Global financial and political crisis that democracy faced, led to a weakness of the ideals of democracy and political alienation. As a result, today, theoretical discussions such as democracy without democracy, democracy without politics or post-democracy emerge to point the sign of the malaise of democracy. Against this background, this paper tries to illuminate, building on the work of Ingolfur Blühdorn’s ‘Simulative Democracy’ the future of democracy and the triggers for the crisis of democracy.
    Keywords: New Politics, Ingolfur Blühdorn, Simulative Democracy, Future of Democracy
  9. By: Mbate, Michael
    Abstract: This paper empirically examines how an individual’s economic, social and political capital affects the propensity to make bribe payments in exchange for public services. Using an individual-level survey on bribes, the econometric results suggest that the burden of bribery is borne by the poor, but substantially decreases when institutions that constrain bureaucratic corruption are strong and effective. The results also show that bribery incidences decrease when social capital is high but increase when political networks are prevalent. These findings support the need to combine anti-corruption reforms with poverty reduction strategies in order to foster equity in public services provision in Kenya.
    Keywords: Poverty, Bribery, Institutions
    JEL: H41 O55
    Date: 2015–08
  10. By: Alberto Montagnoli (University of Sheffield); Mirko Moro (University of Stirling); Robert Wright (University of Strathclyde)
    Abstract: This study proposes a conceptual framework on how financial literacy could play a key role in shaping individuals’ preference for government’s redistribution policies. Using novel data from the British Election Survey in 2014, we employ two distinct ordinal measures of attitudes to redistribution, capturing individual stated preferences on whether the government should redistribute incomes and whether the government should intervene in making incomes more equal. We find a significant negative relationship between financial literacy and attitudes in favour of government intervention for income redistribution. The effects are economically important, robust to several specifications, samples, in instrumental variable regressions and independent of generic attitudes towards other types of inequality/discrimination, e.g. towards females or homosexuals. An inquiry into the mechanisms of this significant negative relationship suggests that public value and social rivalry effects dominate homo-oeconomicus considerations in mediating the effect of financial literacy on attitudes to redistribution.
    Keywords: Financial literacy, redistribution, in equality, attitudes, Great Britain
    JEL: D14 D31 D53 D63 H23 I22 I24
    Date: 2016–03
  11. By: Biswas, Trina; Kennedy, P. Lynn
    Abstract: Using a gravity model framework this paper examines the effect of corruption on bi- lateral agricultural trade. This is the first cross-country study in the trade literature to examine the relationship between corruption and agricultural trade. The article uses five-year panel data from 2006 to 2010 and corrects for sample-selection bias. It also uses an instrumental variable approach for addressing endogeneity concerns. The study provides evidence that corruption can be trade-taxing when the protection level is low, but with the degree of protection higher than a threshold level, it becomes trade-enhancing. The results are robust for different measures of corruption.
    Keywords: Corruption, Agricultural Exports, Gravity Model, International Relations/Trade, Political Economy, Public Economics, F10, F13, F14,
    Date: 2016–05–17

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