nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒11‒06
eighteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Sovereign Debt - Election Concerns and the Democratic Disadvantage By Amrita Dhillon; Andrew Pickering; Tomas Sjöström
  2. Financial Literacy and Political Orientation in Great Britain By Montagnoli, Alberto; Moro, Mirko; Panos, Georgios A.; Wright, Robert E.
  3. Elite Identity and Political Accountability: A Tale of Ten Islands By Jean-Paul Carvalho; Christian Dippel
  4. Electoral competition with primaries and quality asymmetries By Orestis Troumpounis; Dimitrios Xefteris; Bernard Grofman
  5. The illicit beneficts of local party alignment in national elections By Oana Borcan
  6. Forecasting daily political opinion polls using the fractionally cointegrated VAR model By Morten Ørregaard Nielsen; Sergei S. Shibaev
  7. Beyond equal rights: Equality of opportunity in political participation By Hufe, Paul; Peichl, Andreas
  8. Did Johnson affect Trump or Clinton? A note on the Libertarian vote in the 2016 presidential election By Kurrild-Klitgaard, Peter
  9. A Representative Committee by Approval Balloting By Subiza, Begoña; Peris, Josep E.
  10. Factions in Nondemocracies: Theory and Evidence from the Chinese Communist Party By Patrick Francois; Francesco Trebbi; Kairong Xiao
  11. The Industrial Organization of Corruption: Monopoly, Competition and Collusion By Dmitry Ryvkin; Danila Serra
  13. Political Regime and Social Spending in Spain: A Serial Temporal Analysis(1850-2000) By Sergio Espuelas
  15. Voting and Popularity By Gebhard Kirchgässner
  16. Attitudes toward Asylum Seekers in Small Local Communities By Aslan Zorlu
  17. Is Good News for Donald Trump Bad News for the Peso? By T. Randolph Beard; Hyeongwoo Kim; Michael Stern
  18. Determinants of Chinese Government Size: An Extreme Bounds Analysis By Philip Gunby; Yinghua Jin

  1. By: Amrita Dhillon; Andrew Pickering; Tomas Sjöström
    Abstract: We examine default decisions under different political systems. If democratically elected politicians are unable to make credible commitments to repay externally held debt, default rates are inefficiently high because politicians internalize voter utility loss from repayment. Politicians who are motivated by electoral concerns are more likely to default in order to avoid voter utility losses, and, since lenders recognize this, interest rates and risk premiarise. Therefore, democracy potentially confers a credit market disadvantage. However, farsighted institutions that take into account how interest rates respond to default risk can ameliorate the disadvantage. Using a numerical measure of institutional farsightedness obtained from the Government Insight Business Risk and Conditions database, we …find that the observed relationship between credit-ratings and democratic status is indeed strongly conditional on farsightedness. With myopic institutions, democracy is estimated to cost on average about 2.5 investment grades. With farsighte institutions there is, if anything, a democratic advantage.
    Keywords: Sovereign debt, Default, Risk premia, Autocracy, Democracy, Institutions
    JEL: H63 F55 D72 D82 H75 O43 C72
    Date: 2016–11
  2. By: Montagnoli, Alberto (University of Sheffield); Moro, Mirko (University of Stirling); Panos, Georgios A. (University of Glasgow); Wright, Robert E. (University of Strathclyde)
    Abstract: This study examines the relationship between financial literacy and political orientation in Great Britain. Using novel data from the British Election Survey in 2014, we employ two distinct measures of political orientation, capturing individual self-assessment on a left-right axis and party preferences. We find that financially-literate individuals are some 11-19 percent more likely to orientate at the centre-left or the centre-right. Moreover, they are some 30 percent less likely not to know their political orientation. The results are robust when rich sets of public-attitude and public-value variables are accounted for. Financially-literate individuals are also more likely to have a stable political orientation over time and they are some 15-23 percent less likely to change attitudes radically towards the left or the right across different waves of the study. We interpret our findings as indicative that greater financial literacy is conducive to greater stability of moderate political views and orientation.
    Keywords: financial literacy, political orientation, attitudes, polarization, Great Britain
    JEL: D14 D63 D72 I24
    Date: 2016–10
  3. By: Jean-Paul Carvalho; Christian Dippel
    Abstract: This paper examines the relationship between elite identity and political outcomes from a theoretical and empirical perspective. Elite members with distinct economic and social identities vote for or against an extractive policy, which benefits them at the expense of the citizenry. Voting is disciplined by the threat of citizen revolt, with some elite members being more accountable than others. The relationship between elite identity and political accountability is complex and non-monotonic. As their share in the elite grows, accountable elite members are more likely to vote for extractive policies. When the elite becomes too accountable as a whole, elite members may pursue extractive policies by altering the institutional framework. The model is grounded in an empirical exploration of ten British Caribbean sugar colonies where the emancipation of slaves in 1838 created a mixed local and British elite and for which we have unique data on elite composition and voting. Voting behavior depends on an individual's identity and the overall composition of the elite in a manner predicted by the theory. In all but one of the islands elites eventually dissolved their legislative assemblies, ceding their formal powers to the British Crown. Consistent with the theory, we find evidence linking this to rising accountability of the islands' elites.
    JEL: D71 N66 O43
    Date: 2016–10
  4. By: Orestis Troumpounis; Dimitrios Xefteris; Bernard Grofman
    Abstract: In two-dimensional two-party electoral competition under plurality rule, there are typically no equilibria, even when one of the dimensions refers to valence. The good news is that the introduction of either closed or open primaries acts as a stabilizing force since equilibria exist quite generally, serves as an arena for policy debates since all candidates propose differentiated platforms, and guarantees that each party's nominee is of higher quality than its primary opponent. Moreover, primaries tend to benefit the party whose median voter is closer to the overall median. The bad news is that the winner of the general election need not be the candidate with the highest overall quality since too competitive primaries can prove harmful. Given the differences between open and closed primaries, we show that the choice of primary type is particularly important and may determine the winner of the general election.
    Keywords: Downsian model, primaries, valence
    JEL: C62 C72 D72
    Date: 2016
  5. By: Oana Borcan (University of East Anglia)
    Abstract: How do central politicians in young democracies secure electoral support at grass-roots level? I show that alignment with local governments is instrumental in swaying national elections via electoral fraud. Using a regression discontinuity design with Romanian local elections and a president impeachment referendum in 2012, I find higher referendum turnouts in localities aligned with the government coalition - the impeachment initiators. A variety of electoral forensics tests uncover abnormal vote count distributions across polling stations, consistent with null ballot stuffing and possibly vote buying. The alignment effect is driven by rural localities, those with weaker opposition party presence, and higher vote buying incidence in past elections. This illicit transfer from local to national government may explain the reverse clientelistic grants found in the intergovernmental transfers literature.
    Keywords: political economy, elections, electoral fraud, partisan alignment
    JEL: D72 D73 H7 K42
    Date: 2016–10–18
  6. By: Morten Ørregaard Nielsen (Queen?s University and CREATES); Sergei S. Shibaev (Queen?s University)
    Abstract: We examine forecasting performance of the recent fractionally cointegrated vector autoregressive (FCVAR) model. We use daily polling data of political support in the United Kingdom for 2010-2015 and compare with popular competing models at several forecast horizons. Our findings show that the four variants of the FCVAR model considered are generally ranked as the top four models in terms of forecast accuracy, and the FCVAR model significantly outperforms both univariate fractional models and the standard cointegrated VAR (CVAR) model at all forecast horizons. The relative forecast improvement is higher at longer forecast horizons, where the root mean squared forecast error of the FCVAR model is up to 15% lower than that of the univariate fractional models and up to 20% lower than that of the CVAR model. In an empirical application to the 2015 UK general election, the estimated common stochastic trend from the model follows the vote share of the UKIP very closely, and we thus interpret it as a measure of Euro-skepticism in public opinion rather than an indicator of the more traditional left-right political spectrum. In terms of prediction of vote shares in the election, forecasts generated by the FCVAR model leading into the election appear to provide a more informative assessment of the current state of public opinion on electoral support than the hung parliament prediction of the opinion poll.
    Keywords: forecasting, fractional cointegration, opinion poll data, vector autoregressive model
    JEL: C32
    Date: 2016–09–22
  7. By: Hufe, Paul; Peichl, Andreas
    Abstract: It is well understood that political participation is stratified by socio-economic characteristics. Yet it is an open question how this finding bears on the normative evaluation of the democratic process. In this paper we argue that the equality of opportunity (EOp) concept furnishes an attractive framework to answer this question. Drawing on the analytical tools developed by an expanding empirical literature on EOp we investigate to what extent political participation is determined by factors that lie beyond individual control (circumstances) and thus is unfairly distributed. Using rich panel data from the US, we find that a lack of political opportunity is particularly pronounced for contacts with officials, participation in rallies and marches, and membership in political organizations. These opportunity shortages tend to complement each other across activities and persist over time. While family characteristics and psychological dispositions during childhood emanate as the strongest determinants, genetic variation is a small yet significant contributor to unequal political opportunities in the US.
    Keywords: Equality of Opportunity,Political Participation,Genes
    JEL: D39 D63 D72
    Date: 2016
  8. By: Kurrild-Klitgaard, Peter
    Abstract: It is widely suspected that the candidates of the US Libertarian Party usually take votes almost exclusively or at least predominantly from Republican Party candidates. A look at almost 200 published 3- and 4-way polls (March-October) in the 2016 US presidential election indicates that Gary Johnson’s candidacy affected both Hillary Clinton and Donald Trump, did so moderately, and none in particular. When controlling for other factors Clinton’s lead seems to have been negatively affected. This suggests that Libertarian support in 2016 to a large degree has come from voters who otherwise would have split more or less equally between Democrats and Republicans or not have voted at all.
    Keywords: Donald Trump; Gary Johnson; Hillary Clinton; Jill Stein; 2016 US presidential election; polls; USA
    JEL: D72
    Date: 2016–10–30
  9. By: Subiza, Begoña (University of Alicante, D. Quantitative Methods and Economic Theory); Peris, Josep E. (University of Alicante, D. Quantitative Methods and Economic Theory)
    Abstract: A new voting rule for electing committees is described. Specifically, we use approval balloting and propose a new voting procedure that guarantees that if there is a committee that represents (with a given proportion of representatives) all of the existing voters, then the selected committee has to represent all of voters in at least the same proportion. This property is a way of selecting a committee that represents completely all of voters when such a committee exists. The usual voting rules in this context do not satisfy this condition.
    Keywords: Approval balloting; committee election; unanimity; justified representation; representativeness
    JEL: D71 D72
    Date: 2016–10–25
  10. By: Patrick Francois; Francesco Trebbi; Kairong Xiao
    Abstract: This paper investigates theoretically and empirically the factional arrangements and dynamics within the Chinese Communist Party (CCP), the governing political party of the People's Republic of China. Our empirical analysis ranges from the end of the Deng Xiaoping era to the current Xi Jinping presidency and covers the appointments of both national and provincial officials. We present a set of new empirical regularities within the CCP and a theoretical framework suited to model factional politics within single-party regimes.
    JEL: P3 P48
    Date: 2016–10
  11. By: Dmitry Ryvkin (Department of Economics, Florida State University); Danila Serra (Department of Economics, Southern Methodist University)
    Abstract: We study how the introduction of competition between public officials for the provision of a given license affects extortionary corruption, i.e., the demands of harassment bribes. We conduct a laboratory experiment where citizens need to obtain licenses from public officials, and officials can demand a bribe on top of the license official fee. We first provide officials with monopoly power by giving citizens no choice but to pay the bribe to their assigned official. We then introduce competition among officials by allowing citizens to engage in costly search and get the license from any of the available offices. We examine transactions that are likely to be one-shot, such as the delivery of a drivers' license, and transactions that require frequent interactions between the parties and therefore allow for reputation building, such as yearly renewals of building permits. Finally, we examine officials' ability to collude by communicating before setting their bribe demands. We find that introducing competition significantly reduces corruption both in settings characterized by one-shot and by repeated interactions between citizens and officials. While the possibility to collusion lowers the effectiveness of competition, officials are unable to sustain collusion in the long run.
    Keywords: Extortionary Corruption, Monopoly, Competition, Collusion
    JEL: D73 D49 C92
    Date: 2016–10
  12. By: YARON AZRIELI (The Ohio State University); SEMIN KIM (Yonsei University)
    Abstract: A voting rule f is self-stable (Barber`a and Jackson [4]) if any alternative rule g does not have sufficient support in the society to replace f, where the decision between f and g is based on the rule f itself. While Barber`a and Jackson focused on anonymous rules in which all agents have the same voting power, we consider here the larger class of weighted majority rules. Our main result is a characterization of self-stability in this setup, which shows that only few rules of a very particular form satisfy this criterion. This result provides a possible explanation for the tendency of societies to use more conservative rules when it comes to changing the voting rule. We discuss self-stability in this latter case, where a different rule F may be used to decide between f and g.
    Keywords: Voting rules, weighted majority rules, self-stability.
    JEL: D72
    Date: 2016–11
  13. By: Sergio Espuelas (Universitat de Barcelona and Centre d’Estudis Antoni de Capmany, Spain)
    Abstract: In the last 150 years, Spain has had a turbulent political history. What has been the impact on social policy? Democracy had a positive effect on both the levels and the long-run trend of social spending. In fact, the transition from a traditional regime (with low social spending levels) to a modern regime (with high social spending levels) started with the advent of democracy in 1931. Franco’s dictatorship, however, reversed this trend change, leading to a delay in the definitive growth of social spending in Spain. At the same time, the effect of left-wing parties was statistical significant only in the 30s (before the Keynesian consensus) and during the Restoration period (when the preferences of the lower income groups were systematically ignored).
    Keywords: Welfare State, Dictatorship, Democracy, Redistribution, Spain, History of Social Policy
    JEL: I30 H53 N30
    Date: 2016–10
  14. By: SEMIN KIM (Yonsei University)
    Abstract: We consider the performance and incentive compatibility of voting rules in a Bayesian environment: agents have independent private values, there are at least three alternatives, and monetary transfers are prohibited. First, we show that in a neutral environment, meaning alternatives are symmetric ex-ante, essentially any ex-post Pareto efficient ordinal rule is incentive compatible. Importantly, however, we can improve upon ordinal rules. We show that we can design an incentive compatible cardinal rule which achieves higher utilitarian social welfare than any ordinal rule. Finally, we provide numerical findings about incentive compatible cardinal rules that maximize utilitarian social welfare.
    Keywords: Ordinal rule, Pareto efficiency, Incentive compatibility, Bayesian mechanism design.
    JEL: C72 D01 D02 D72 D82
    Date: 2016–11
  15. By: Gebhard Kirchgässner
    Abstract: For about 45 years, vote and popularity functions have been estimated for many countries indi- cating that voting intentions as well as actual votes are influenced by economic development. The economy is, of course, not the only and probably not always the most important factor, but there is no doubt anymore that it is an important factor. The most relevant variables are still unemployment, and/or real growth, and inflation. The estimated coefficients vary considerably between countries and time periods. In papers, retrospective sociotropic voting dominates. However, the evidence is not so univocal; it rath er tells that voting has egotropic as well as sociotropic aspects, and it is prospective as well as retrospective. It is still open what roles self- interest and altruism play in voting.
    Keywords: Vote; Popularity Function; Egotropic; Sociotropic Voting; Retrospective; Prospective Voting; Rational Voters Behavior
    JEL: H39
    Date: 2016–11
  16. By: Aslan Zorlu (University of Amsterdam, IZA, NIMA)
    Abstract: Admission and geographic distribution of asylum seekers has a central place in public discourse in Western countries, amid mounting asylum applications and dire humanitarian crises. Receiving countries usually distribute the newly arriving asylum seekers across the entire country, in particular in small remote communities. Incidental opposition actions by local residents against the siting of Asylum Seeker Centers (ASC) has created the perception of strong and widespread resistance in the public sphere. This paper aims to assess this alleged backlash by examining attitudes toward asylum seekers in small local communities. Using data from three representative surveys conducted among residents in the vicinity of four ASCs in the Netherlands, the regression analysis shows a strikingly high willingness to host an ASC, which stands in opposition to popularly assumed public opinion.
    Keywords: reception of asylum seekers, attitudes, immigrants, local communities
    Date: 2016–09
  17. By: T. Randolph Beard; Hyeongwoo Kim; Michael Stern
    Abstract: We study the dynamic relationship between Mr. Trump’s prospects and the US dollar-peso exchange rate, controlling for other factors that determine the overall US dollar exchange rates. Increases in Mr. Trump’s probability of winning generate short-run but statistically significant and economically meaningful disturbances in the US dollar-peso exchange rate.
    Keywords: Donald Trump; PredictIt; Peso; Vector Autoregression
    JEL: F31 G15
    Date: 2016–11
  18. By: Philip Gunby (University of Canterbury); Yinghua Jin
    Abstract: This paper studies the factors associated with the size of the public sector as measured by government spending at the level of Chinese provinces using the method of extreme bounds analysis to identify robust correlates with public sector size. We find that almost all traditional "economic" and "social stability" factors are insignificant and not robust to model specification changes. In contrast, "political" factors such as the degree of fiscal decentralization and national transfers to provincial governments tend to be significant and robust. Our findings suggest that repeated government attempts to reduce the relative size of the Chinese government sector have failed because the political factors determining government spending haven't changed.
    Keywords: Government Size; Fiscal Decentralization; Wagner's Law; Extreme Bounds Analysis
    JEL: C52 H70 P20
    Date: 2016–11–04

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