nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒09‒18
thirteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Coalition Preclusion Contracts and Moderate Policies By Gersbach, Hans; Schneider, Maik; Tejada, Oriol
  2. Expenditure Visibility and Voter Memory: A Compositional Approach to the Political Budget Cycle in Indian States, 1959 – 2012 By J. Stephen Ferris; Bharatee B. Dash
  3. Failure of rebel movement-to-political party transformation of the CNDD-FDD in Burundi: an issue of balance between change and continuity By Rufyikiri, Gervais
  4. The Phenomenon of Global Migration: Political and Economic Aspect By Zharkov, Vasiliy Petrovich; Malakhov, Vladimir Sergeevich; Simon, Mark Evgenievich; Letnyakov, Denis Eduardovich
  5. Electoral reciprocity in programmatic redistribution: Experimental Evidence By Sebastian Galiani; Nadya Hajj; Pablo Ibarraran; Nandita Krishnaswamy; Patrick J. McEwan
  6. How Money Drives US Congressional Elections By Thomas Ferguson; Paul Jorgensen; Jie Chen
  7. Political Business Cycles 40 Years after Nordhaus By Eric Dubois
  8. Rentseeking Behavior in Systems with a Complex Structure By Levin, Mark; Shilova, Nadezhda V.
  9. Political Lending By Ahmed Tahoun; Florin P. Vasvari
  10. Political Regimes and Stock Market Performance in Africa By Asongu, Simplice; Nwachukwu, Jacinta C.
  11. Democracy and social capital in Greece By Daskalopoulou, Irene
  12. You Reap What You Know: Observability of Soil Quality, and Political Fragmentation By Thilo R. Huning; Fabian Wahl
  13. Market and Political Power Interactions in Greece:An Empirical Investigation By Tryphon Kollintzas; Dimitris Papageorgiou; Efthymios Tsionas; Vanghelis Vassilatos

  1. By: Gersbach, Hans; Schneider, Maik; Tejada, Oriol
    Abstract: We examine the effects of a novel political institution called Coalition Preclusion Contracts (CPCs) on the functioning of democracies with proportional representation. CPCs enable political parties to credibly exclude one or several parties from the range of coalitions they are prepared to envisage after elections. We consider a simple political game with a two-dimensional policy space in which three parties compete to form the government. We find that CPCs with a one-party exclusion rule defend the interests of the majority by precluding coalition governments that would include so-called extreme parties. This translates into moderation of the policies implemented and yields welfare gains for a large set of parameter values. We discuss the robustness of the results in more general settings and study how party-exclusion rules have to be adjusted when more than three parties compete in an election.
    Keywords: coalition formation; elections; government formation.; political contracts
    JEL: D72 D82 H55
    Date: 2016–09
  2. By: J. Stephen Ferris (Department of Economics, Carleton University); Bharatee B. Dash (National Institute of Public Finance and Policy)
    Abstract: In this paper we argue that the search for opportunism in government budgets is weakened by the absence of a strong reason for why such expenditures should be restricted solely to the period leading into the next election. Here we argue that the need to fulfill a set of election platform promises in combination with the characteristic that some budget items better attract the attention of voters (with deteriorating memories) will lead to a predictable reallocation of budgetary spending across the life of a government. Our test for a predictable pattern rather than a specific period of election motivated spending uses capital expenditures as our example of more politically visible budgetary items and a data set of 14 Indian states over 54 years (1959/60 – 2012/13). The results of the hypotheses that capital expenditures as a ratio of both total government expenditure and government consumption alone should rise across the entire governing interval are found to be consistent with this hypothesis and provide a fit with the data that is marginally better than more traditional models that use either all pre-election periods or only the pre-election year of scheduled elections to test for opportunism. The absence of a similar interval effect on aggregate state expenditures and on the net budgetary position suggests that evidence of political interaction with the budget is more likely to be found in its composition rather than in its overall level or in the size of its surplus or deficit.
    Keywords: Political business or budget cycle, the spending composition of Indian States, visibility of capital expenditures, panel data, ARDL modeling
    JEL: H5 H72 O53 C23
    Date: 2016–09–07
  3. By: Rufyikiri, Gervais
    Abstract: Since its accession to power following the 2005 elections, the CNDD-FDD has been continuously criticized for Burundi governance setbacks while its leaders’ behavior suggested a maquis practice continuity. This study contributes to understand the relationship between the inability of this former rebel party to succeed the democratic transition process and some key elements of its history which played against a real rebel movement-to-political party transformation. Rivalries with pre-war existing political formations, leadership discontinuity, political origin-based identity and exclusion politics, intellectual marginalization and the conditioning of fighters to commit cruelty acts were the main historical factors that have marked the evolution of CNDD-FDD movement and thus shaping its current stature. There are several evidences showing that the CNDD-FDD leadership has transferred armed movement practices from the maquis era to a post-conflict political party, leading to the conclusion that the CNDD-FDD rebel movement-to-political party transformation has completely failed.
    Keywords: Burundi; politics
    Date: 2016–08
  4. By: Zharkov, Vasiliy Petrovich (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Malakhov, Vladimir Sergeevich (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Simon, Mark Evgenievich (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Letnyakov, Denis Eduardovich (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This paper is devoted to the international political and economic aspects of global migration. Contemporary international migration seems as a natural effect of the free trade policy. Being under the influence of the macroeconomic foundations, international migration couldn’t be explained only in terms of economic reasons. The regulation of the global migration is the question of both economic and politics at the same time. Obstacles to the formation of an international regime on migration looks in a clash of international actors interests, security problems, human rights, collective identity, based values of democracy and nation-state, which actually do political issues. The research presents a critical review of the main approaches existing in modern theories of international relations and international political economy in their relation to international migration.
    Keywords: global migration, free trade police, macroeconomy
    Date: 2016–06–16
  5. By: Sebastian Galiani; Nadya Hajj; Pablo Ibarraran; Nandita Krishnaswamy; Patrick J. McEwan
    Abstract: We analyzed two conditional cash transfers experiments that preceded Honduran presidential elections in 2001 and 2013. In the first, smaller transfers had no effects on voter turnout or incumbent vote share. In the second, larger transfers increased turnout and incumbent share in similar magnitudes, consistent with the mobilization of the incumbent party base rather than vote switching. Moreover, we found that turnout and incumbent share increased when cumulative payments were similar, but larger payments were made closer to the elections. As in prior lab experiments, individuals seem to overweight “peak” and “end” payments in their retrospective estimation of net benefits. We further argue that a model of intrinsically-reciprocal voters is most consistent with the findings.
    JEL: H3 I38
    Date: 2016–09
  6. By: Thomas Ferguson (University of Massachusetts, Boston); Paul Jorgensen (University of Texas Rio Grande Valley); Jie Chen (University of Massachusetts, Boston)
    Abstract: This paper analyzes whether money influences election outcomes. Using a new and more comprehensive dataset built from government sources, the paper begins by showing that the relations between money and major party votes in all elections for the U.S. Senate and House of Representatives from 1980 to 2014 are well approximated by straight lines. It then considers possible challenges to this “linear model†of money and elections on statistical grounds, resting on possible endogeneity arising from reciprocal causation between, for example, popularity and votes. Extending the analysis of latent instrumental variables pioneered by Peter Ebbes and recently analyzed by Irene Hueter, the paper tackles this much discussed problem by developing a spatial Bayesian latent instrumental variable model. Taking a leaf from discussions of event analysis in economics and finance, the paper also examines the light thrown on the model’s usefulness by studying changes in the gambling odds on a Republican takeover of the House in 1994. Both approaches suggest that reciprocal causation may happen to some degree, but that money’s independent influence on elections remains powerful. A concluding section of the paper considers the alleged “centerist†leanings of American large corporations by comparison with members of the Forbes 400 and evidence that the effect of money in House elections has dropped slightly over time, though it remains extremely strong.
    Keywords: political money, regulation, elections, political economy, United States government, campaign finance
    JEL: D71 D72 G38 P16 N22
    Date: 2016–08
  7. By: Eric Dubois (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The aim of this article is to survey the huge literature that has emerged in the last four decades following Nordhaus's (1975) publication on political business cycles (PBCs). I first propose some developments in history of thought to examine the context in which this groundbreaking contribution saw the light of the day. I also present a simplified version of Nordhaus's model to highlight his key results. I detail some early critiques of this model and the fields of investigations to which they gave birth. I then focus on the institutional context and examine its influence on political business cycles, the actual research agenda. Finally, I derive some paths for future research.
    Keywords: political business cycles,politico-economic cycles,electoral cycles,opportunistic cycles,conditional political business cycles
    Date: 2016–02–01
  8. By: Levin, Mark (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Shilova, Nadezhda V. (Russian Presidential Academy of National Economy and Public Administration (RANEPA); National Research University Higher School of Economics)
    Abstract: The paper contains a review of works on rentseeking with special attention paid to political corruption and corruptive networks. We also present here a theoretical model of rentseeking behavior in complex systems. The results of the model are tested not as it is usually done by speculative data about volumes of corruption, but on mass media reports about anticorruption measures in Russia. We used this data because Russian mass media is dependent on the few powerful interest groups, so through analyzing the texts we can derive which interest groups these are. As it was predicted for the developing countries in Africa, we fund out that these groups are Army and Police. This proves that in developing countries political stability is supported not by economic development, but by status-quo between well-organized militarized rent-seeking groups.
    Keywords: rentseeking behavior, corruption, graph method
    Date: 2016–07–22
  9. By: Ahmed Tahoun (London Business School); Florin P. Vasvari (London Business School,)
    Abstract: Using a unique dataset provided by the Center for Responsive Politics (CRP), we document a direct channel through which financial institutions contribute to the net worth of members of the U.S. Congress, particularly those sitting on the finance committees in the Senate and the House of Representatives. These individuals report greater levels of leverage and new liabilities as a proportion of their total net worth, relative to when they are not part of the finance committee or relative to other congressional members. Politicians increase new liabilities by over 30% of their net worth in the first year of their finance committee membership. We do not find similar patterns for members of non-finance powerful committees. We find no evidence that finance committee members arrange new personal liabilities ahead of their appointments to the committees. Finance committee members also report liabilities with lower interest rates and longer maturities. Finally, focusing on banks that lend to U.S. Congress members, we find that the weaker performing financial institutions lend to more finance committee members and provide more new debt to these politicians. Our findings suggest that lenders may create political connections with finance committee members in an attempt to obtain regulatory benefits.
    Keywords: U.S. Congress members, Finance Committee, Personal Debt, Information disclosure
    JEL: D71 D72 G11 G21 G38 P16 N30 I31 I32 C81 C83 D60 D63 O12 O15
    Date: 2016–08
  10. By: Asongu, Simplice; Nwachukwu, Jacinta C.
    Abstract: This paper assesses the effect of political institutions on stock market performance in 14 African countries for which stock market data is available for the period 1990-2010. The estimation technique used is a Two-Stage-Least Squares Instrumental Variable methodology. Political regime channels of democracy, polity and autocracy are instrumented with legal-origins, religious-legacies, income-levels and press-freedom qualities to account for stock market performance dynamics of capitalization, value traded, turnover and number of listed companies. The findings show that countries with democratic regimes enjoy higher levels of financial market development compared to their counterparts with autocratic inclinations. As a policy implication, the role of sound political institutions has important effects on both the degree of competition for public office and the quality of public offices that favour stock market development on the African continent.
    Keywords: Financial Markets; Government Policy; Development
    JEL: G10 G18 G28 P16 P43
    Date: 2016–01
  11. By: Daskalopoulou, Irene
    Abstract: Democracy is the notion broadly used to denote a society’s commitment towards freedom and a better way of life. The minimum conditions that a country must adhere to in order to be acknowledged as democratic refer to arrangements between rulers and the ruled. In that sense, the key attributes of democracy are institutional guarantees referred to as either political rights and liberties or contestation for public office power and people’s participation. To the extent that these key attributes of democracy are shaped within a variety of different societal contexts, democracy is not a quality that either exists or not. Rather, different democracies exist depending largely on a wide set of societal characteristics. The research aim relates to the analysis of the relationship between democracy and social capital in Greece. In particular, we try to answer the question of whether we can speak of a “democracy – trust continuum” in Greece as suggested by the available literature, and if yes, where in this continuum could we possibly place Greece. An exploratory meta-analysis is used in order to sketch the country’s profile with respect to these phenomena and analyze the democracy – types of trust interrelationship as manifested in the case of Greece.
    Keywords: Democracy, social capital, social trust, Greece
    JEL: D71 D73 H3 O2
    Date: 2016–09–12
  12. By: Thilo R. Huning (Humboldt-Universität zu Berlin); Fabian Wahl (University of Hohenheim)
    Abstract: We provide a theoretical model linking limits to the observability of soil quality to state rulers’ ability to tax agricultural output, which leads to a higher political fragmentation. We introduce a spatial measure to quantify state planners’ observability in an agricultural society. The model is applied to spatial variation in the 1378 Holy Roman Empire, the area with the highest political fragmentation in European history. We find that differences in the observability of agricultural output explain the size and capacity of states as well as the emergence and longevity of city states. Grid cells with higher observability of agricultural output intersect with a significantly lower number of territories within them. Our results highlight the role of agriculture and geography, for size, political, and economic organization of states. This sheds light on early, though persistent, determinants of industrial development within Germany, and also within Central Europe.
    Keywords: Principal-agent problem, soil quality, urbanization, political fragmentation, Holy Roman Empire
    JEL: O42 D73 Q15 N93 D82
    Date: 2016–09
  13. By: Tryphon Kollintzas (Athens University of Economics and Business and CEPR); Dimitris Papageorgiou (Bank of Greece, Economic Analysis and Research Departme); Efthymios Tsionas (Athens University of Economics and Business); Vanghelis Vassilatos (Athens University of Economics and Business)
    Abstract: In this paper, using a dynamic panel of 21 OECD countries, we find that, unlike the other OECD countries in the sample, wage setting institutions, competition conditions, public finances and external imbalances can account for the behavior of the public sector wage premium (WPR) and the self employed taxation gap (TSL) in Greece and to a lesser extent in Spain and Portugal, in a manner that is consistent with an “insiders-outsider s society” (IOS). That is, a politicoeconomic system characterized by groups of selfish elites that enjoy market power, but at the same time cooperate in influencing government in protecting and promoting their collective self interests. Then, we find that for Greece as well as Spain and Portugal, WPR and TSL have an adverse effect on both TFP and output growth. Finally, the effect of WPR and TSL on the business cycle (shock propagation mechanism) is investigated via a panel VAR analysis. Again, impulse response function analysis suggests that the shock propagation mechanism of WPR and TSL for Greece and to a lesser extent for Spain and Portugal, are quite different from the rest of the OECD countries. For example, in Greece, unlike the other OECD countries in the sample, a positive temporary shock in WPR causes TFP and output to fall and the public and current account deficits to increase. We take the TFP/output growth and the shock propagation mechanism results to provide strong evidence that Greece and to a lesser extent Spain and Portugal behave like IOS. For that matter, these results are important in order to understand the Greek crisis.
    Keywords: Labor market institutions; Political Institutions; Public sector wage premium; Self employed taxation gap; Growth;Business cycles; Greek crisis
    JEL: J44 J45 O43 O47 O57 P16
    Date: 2016–06

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