nep-pol New Economics Papers
on Positive Political Economics
Issue of 2016‒12‒18
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Ethnic Diversity, Public Spending and Political Regimes By Ghosh, Sugata; Mitra, Anirban
  2. Trump, Condorcet and Borda: Voting paradoxes in the 2016 Republican presidential primaries By Kurrild-Klitgaard, Peter
  3. Citizens or lobbies: who controls policy? By P. Roberti
  4. Social Interactions in Voting Behavior: Evidence from India By Umair Khalil; Sulagna Mookerjee; Ryan Tierney
  5. Politicians' coherence and government debt By G. Bellettini; P. Roberti
  6. Populism and Institutional Capture By N. Chesterley; P. Roberti
  7. Redistribution, inequality and political participation: Evidence from Mexico during the 2008 financial crisis By Patricia Justino; Bruno Martorano
  8. How Do Firms Respond to Political Tensions? The Heterogeneity of the Dalai Lama Effect on Trade By Lin, Faqin; Hu, Cui; Fuchs, Andreas
  9. Labor Market Participation, Political Ideology and Distributive Preferences By Simona Demel; Abigail Barr; Luis Miller; Paloma Ubeda
  10. Dominant or Backward? Political Economy of the Demand for Quotas by Jats, Patels and Marathas By Ashwini Deshpande; Rajesh Ramachandran
  11. Redistribution of Economic Resources due to Conflict: The Maoist Uprising in Nepal By Mitra, Anirban; Mitra, Shabana
  12. Set them (almost) free. Discretion in electoral campaigns under asymmetric information By Vardan, Baghdasaryan; Elena, Manzoni;
  13. The Demand for Bad Policy when Voters Underappreciate Equilibrium Effects By Ernesto Dal Bó; Pedro Dal Bó; Erik Eyster
  14. The political consequences of ethnic tension: Theory and evidence By Kemal Kivanc Akoz; K Peren Arin; Christina Zenker
  15. Reflections on the concept of representation and its application to China By Heberer, Thomas
  16. Elections, Ideology, and Turnover in the U.S. Federal Government By Alexander Bolton; John M. de Figueiredo; David E. Lewis
  17. The political economy of ‘linked’ progressive taxation in Africa and Latin America By Paul Mosley; Abdul-Gafaru Abdulai

  1. By: Ghosh, Sugata; Mitra, Anirban
    Abstract: We study the relationship between ethnic diversity and public spending under two different political regimes, namely, democracy and dictatorship. We build a theory where political leaders (democratically elected or not) decide on the allocation of spending on different types of public goods: a general public good and an ethnically-targetable public good. We show that the relationship between public spending and ethnic diversity is qualitatively different under the two regimes. In particular, higher ethnic diversity leads to greater investment in general rather than group-specific public goods under democracy; the opposite relation obtains under dictatorship. We also discuss some implications of our results for economic performance and citizen's welfare.
    Keywords: Ethnic diversity, Public goods, Democracy, Dictatorship, Economic performance.
    JEL: D72 D74 H40
    Date: 2016
  2. By: Kurrild-Klitgaard, Peter
    Abstract: The organization of US presidential elections make them potentially vulnerable to so-called “voting paradoxes”, identified by social choice theorists but rarely documented empirically. The presence of a record high number of candidates in the 2016 Republican Party presidential primaries may have made this possibility particularly latent. Using polling data from the primaries we identify two possible cases: Early in the pre-primary (2015) a cyclical majority may have existed in Republican voters’ preferences between Bush, Cruz and Walker—thereby giving a rare example of the Condorcet Paradox. Furthermore, later polling data (March 2016) suggests that while Trump (who achieved less than 50% of the total Republican primary vote) was the Plurality Winner, he could have been beaten in pairwise contests by at least one other candidate—thereby exhibiting a case of the Borda Paradox. The cases confirm the empirical relevance of the theoretical voting paradoxes and the importance of voting procedures.
    Keywords: Social choice; Condorcet Paradox; Borda Paradox; US presidential election 2016; Jeb Bush; Chris Christie; Ted Cruz; John Kasich; Marco Rubio; Donald Trump; Scot Walker; voting system.
    JEL: D7 D71 D72
    Date: 2016–12–15
  3. By: P. Roberti
    Abstract: This paper analyses a model of electoral competition with lobbying, where candidates hold private information about their willingness to pander to lobbies, if elected. I show that this uncertainty induces risk-averse voters to choose candidates who implement policies biased in favor of the lobby. Increasing the prior probability of non-pandering candidates can increase the effect of lobbying. If, however, the cost of running for office is sufficiently large, there is no effect of lobbying on policy. The model thus demonstrates that uncertainty on the influence of special interests can lead to large effects of lobbying on policy.
    JEL: D72 D74 D78
    Date: 2016–11
  4. By: Umair Khalil (West Virginia University, Department of Economics); Sulagna Mookerjee (Georgetown University School of Foreign Service Qatar); Ryan Tierney (Université de Montréal)
    Abstract: Using the unique staggered nature of the Indian General Elections, where voting takes place in several different phases spanning several weeks, we investigate how spatial variation in electoral dynamics affects subsequent voter turnout. Exploiting quasirandom assignment of constituencies to electoral phases each election, we assess the impact of average voter turnout in a given phase, on turnout in the subsequent phase. Standard endogeneity concerns in the estimation of social interactions are dealt by employing two distinct instrumental variables: 1) constituency specific average historical turnout in elections from the pre-staggered era, 2) voter density as measured by number of voters per polling location in a given constituency. Our estimates from both IVs, show that a 1 percentage point (pp) increase in turnout in a given phase depresses turnout in the subsequent phase by 0.3-0.5 pp. Crucially, falsification tests examining the effect on turnout in the current phase, of constituencies in the same phase or in future phases in the same election, produce no such effect. We find the data broadly support an ethical voter model, in which each agent acts as if setting an example for all and seek to maximize social welfare.
    Keywords: Voting Behavior, Staggered Elections, Election Spillovers
    Date: 2016–12
  5. By: G. Bellettini; P. Roberti
    Abstract: We model a society that values the coherence between past policy platforms and current implemented policy, and where policy platforms partially commit candidates to their future actions. If an incumbent politician seeks to be reelected, she has to use her platforms to commit to moderate policies that can be distant from her most preferred one. Commitment is related to the incoherence cost that politicians pay when they renege on promised platforms. In this context, we suggest a novel mechanism through which issuing government debt can affect electoral results. Debt is exploited by an incumbent politician, who is in favor of low spending, to damage the credibility of her opponent's policy platforms, and be reelected. A higher level of debt decreases voters' most preferred level of spending, and makes the opponent's past platform a losing policy. Even if the latter chose to update her proposal, she would not be able to credibly commit to it, given the incoherence cost associated to changing proposals.
    JEL: D72 H63 D78
    Date: 2016–11
  6. By: N. Chesterley; P. Roberti
    Abstract: This paper considers electoral behavior and institutional capture when voters choose between a populist and non-populist politician. Populist politicians provide voters with a utility boom followed by a subsequent bust, as in Dornbusch and Edwards (The Macroeconomics of Populism in Latin America, University of Chicago Press, 1991). Non-populists provide a constant level of utility. Once in power, however, politicians of both types are able to seize control of institutions to ensure their re-election. We show that in equilibrium, populist politicians may capture institutions to avoid being replaced during the bust: non-populists do not. Voters rationally elect a populist if voters discount the future sufficiently or if it is too costly for the populist to seize control of institutions. Unfortunately, both types of politician may prefer weakened institutions, either to allow their capture or to discourage the election of the populist.
    JEL: D72 D73 D74
    Date: 2016–11
  7. By: Patricia Justino; Bruno Martorano
    Abstract: This paper explores the relationship between a large government cash transfer programme, changes in inequality, and political participation in Mexico. The results show that increases in the coverage of the programme during the 2008 financial crisis resulted in greater individual participation in the last presidential elections and in higher individual propensity to vote, particularly for the incumbent party. The programme was particularly effective in increasing political participation among rural and indigenous groups, and had a mitigating effect on participation in presidential elections and the propensity to vote among the urban unskilled. The programme resulted also in reductions in individual participation in protests. Further analysis suggests that these changes were driven by redistributive gains following the changes to the cash transfer programme.
    Keywords: conditional cash transfers, inequality, Mexico, protests, voting behaviour
  8. By: Lin, Faqin; Hu, Cui; Fuchs, Andreas
    Abstract: Little is known about the firm-level dynamics behind trade responses to political tensions. This article reinvestigates variation in the travel pattern of the 14th Dalai Lama to study how political tensions affect trading decisions of Chinese importers. Using monthly trade data from China Customs covering imports of machinery and transport equipment from 173 countries over the 2000-2006 period, our empirical results show a significant reduction of imports in response to foreign government members’ meetings with the Dalai Lama. In line with the idea that Chinese importers face a trade-off between bearing costs from suboptimal trade transactions and costs from not accommodating the government, this ‘Dalai Lama Effect’ operates at the intensive margin, i.e., via a decrease in the import volume per importer. Examining differential effects across types of firm ownership, we find that the observed effect is driven by state-owned enterprises (and foreign-invested firms) and not by private companies. Moreover, while direct importers temporarily reduce their trade with Dalai Lama-receiving countries, there is some evidence that trade intermediaries even benefit. Overall, we find the effects to be much more short-lived than previously thought.
    Keywords: international trade; political tensions; extensive margin; intensive margin; state-owned enterprises; firm ownership; trade intermediation; China; Tibet; Dalai Lama
    Date: 2016–12–14
  9. By: Simona Demel (School of Economics and Business, University of the Basque Country (UPV/EHU)); Abigail Barr (Department of Economics, University of Nottingham); Luis Miller (School of Economics and Business, University of the Basque Country (UPV/EHU)); Paloma Ubeda (School of Economics and Business, University of the Basque Country (UPV/EHU))
    Abstract: Using a political-frame-free, lab-in-the-field experiment, we investigate the effects of employment status and political ideology on preferences for redistribution. The experiment consists of a real-effort task, followed by a four-player dictator game. In one treatment, initial endowments depend on participants’ performance in the real-effort task, i.e., they are earned, in the other, they are randomly determined.We find that being employed or unemployed affects revealed redistributive preferences, while the political ideology of the employed and unemployed does not. In contrast, the revealed redistributive preferences of students are strongly related to their political ideologies. The employed and right-leaning students redistribute earnings less than windfalls, the unemployed and left-leaning students make no such distinction. We conclude that, when people are not exposed to the sometimes harsh realities of the labor market, their redistributive preferences depend on their political ideology but, when they are exposed, the effect of those realities overrules their ideology.
    Keywords: economic status, lab-in-the-field experiments,left-right scale, redistribution
    Date: 2016
  10. By: Ashwini Deshpande (Department of Economics, Delhi School of Economics); Rajesh Ramachandran (Faculty of Economics and Business Administration, Goethe University, Frankfurt)
    Abstract: Using data from the India Human Development Survey (IHDS), this paper examines the claims of three communities, viz., Jats in Haryana, Patels in Gujarat and Marathas in Maharashtra, to be classified as Other Backward Classes (OBC) in order to gain access to affirmative action. Comparing these three groups to the other major caste groups - Brahmins, Other Forward Castes, existing OBCs and Scheduled Castes and Tribes (SC and STs) in their respective states – on socio-economic indicators such as household consumption expenditure, poverty, access to infrastructure, self-declared practice of untouchability, education and occupational status, we find that that these three communities are closer to the dominant groups – Brahmins and Other Forward Castes - than to the existing disadvantaged groups - OBCs and SC-STs. Thus, their claim to backwardness is not justified by empirical data. We then examine the material basis of their anxieties in the context of structural changes in the Indian economy, particularly agriculture. We also investigate their networks and political connections that explain their success in mobilizing large numbers in support of their demands.
    Keywords: Affirmative Action, Caste, Quotas, Education, India,
    JEL: I24 O15 J45 J78
    Date: 2016–12
  11. By: Mitra, Anirban; Mitra, Shabana
    Abstract: Nepal has seen a significant reduction in poverty over the period 1995{2010 which encompasses the decade-long Maoist-led civil war. So was the post-conflict provision of economic resources to districts related to their involvement in promoting the Maoist cause? We tackle this question combining theory and empirics. Our model predicts that poorer districts are more likely to support the Maoists and in return they get promised economic gains conditional on the Maoists prevailing post-conflict. Combining data on conflict with consumption expenditure data from the Nepal Living Standards Survey and data on foreign aid, we test these predictions. Our panel data estimates and our cross-sectional analysis consistently find strong support for our hypotheses. These are confirmed by the IV analysis that we perform at the panel level.
    Keywords: Conflict, foreign aid, political economy, targeting.
    JEL: D72 D78 O20
    Date: 2016
  12. By: Vardan, Baghdasaryan; Elena, Manzoni;
    Abstract: The paper analyses a model of electoral campaigning as a problem of competitive delegation. We model a situation in which there is uncertainty about what the optimal policy should be and about the extent of candidates' bias. While voters know whether the candidate is left or right wing, the bias measures the extremity of the candidate. In this environment discretion may benefit voters as it allows the elected politician to adjust his policies to the state of the world. The paper shows that the optimal set of promises must be a closed interval, whose size is decreasing in the expected bias of the candidate. An example where the set of types is finite shows that an increase in the variability of candidates' types may either increase or decrease the level of discretion granted to politicians.
    Keywords: Electoral campaigns, Ideological bias, Uncertainty
    JEL: D72 D82
    Date: 2016–12–13
  13. By: Ernesto Dal Bó; Pedro Dal Bó; Erik Eyster
    Abstract: Although most of the political-economy literature blames inefficient policies on institutions or politicians' motives to supply bad policy, voters may themselves be partially responsible by demanding bad policy. In this paper, we posit that voters may systematically err when assessing potential changes in policy by underappreciating how new policies lead to new equilibrium behavior. This biases voters towards policy changes that create direct benefits—welfare would rise if behavior were held constant—even if these policies lower welfare because people adjust behavior. Conversely, voters are biased against policies that impose direct costs even if they induce larger indirect benefits. Using a lab experiment, we find that a majority of subjects vote against policies that, while inflicting negative direct effects, would help them to overcome social dilemmas and thereby increase welfare; conversely, subjects support policies that, while producing direct benefits, create social dilemmas and ultimately hurt welfare; both mistakes arise because subjects fail to fully anticipate the equilibrium effects of new policies. More precisely, we establish that subjects systematically underappreciate the extent to which policy changes affect other people's behavior, and that these mistaken beliefs exert a causal effect on the demand for bad policy.
    JEL: D02 D7 H2
    Date: 2016–12
  14. By: Kemal Kivanc Akoz; K Peren Arin; Christina Zenker
    Abstract: By counting the number of articles published in major US newspapers containing carefully selected keywords, we construct a time varying measure of ethnic tension. Then, we empirically test the predictions of a theoretical model by using the aforementioned measure, and investigate how ethnic tension affects presidential approval ratings by different ethnic groups. Our results show that while ethnic tension decreases the approval by white voters, the opposite is true for the approval by African American voters. Further scrutiny reveals that this may be explained by the fact that government transfers to African Americans increase as a result of higher ethnic tension.
    Keywords: Ethnic Tension, Presidential Approval, Government Transfers
    JEL: J15 H11 H12 O15
    Date: 2016–12
  15. By: Heberer, Thomas
    Abstract: This paper presents both a literature review on the issue of political representation and the preliminary framework of a sub-project on new political claims of representation in China. It is primarily concerned with portraying and typing diverse schools of thought in both a "Western" and a Chinese context, while the sub-project is part of the French-German Joint Cooperation Project "New Political Representative Claims: A Global View: France, Germany, Brazil, China, India". The paper is organized as follows: (1) The concept of representation is examined by a brief review of the history of this concept, including the existence of two diverging strands of representation in "Western" discourses. (2) We then examine the meanings of representation, its definitions, and its peculiarities. Points (1) and (2) in particular are based on a literature review. (3) We discuss the issue of representation in a non-democratic, authoritarian setting in general and in China specifically in light of the fact that almost no literature on representation in authoritarian polities exists. (4) We outline the Chinese domestic discourse on political representation. (5) Finally, we clarify the distinction between political representation and participation on the one hand and elections as a specific feature of representation on the other. We then conclude with a summary of our preliminary findings.
    Keywords: representation,representation in an authoritarian context,representation in China,Chinese discourses on representation,participation,elections
    Date: 2016
  16. By: Alexander Bolton; John M. de Figueiredo; David E. Lewis
    Abstract: A defining feature of public sector employment is the regular change in elected leadership. Yet, we know little about how elections influence public sector careers. We describe how elections alter policy outputs and disrupt the influence of civil servants over agency decisions. These changes shape the career choices of employees motivated by policy, influence, and wages. Using new Office of Personnel Management data on the careers of millions of federal employees between 1988 and 2011, we evaluate how elections influence employee turnover decisions. We find that presidential elections increase departure rates of career senior employees, particularly in agencies with divergent views relative to the new president and at the start of presidential terms. We also find suggestive evidence that vacancies in high-level positions after elections may induce lower-level executives to stay longer in hopes of advancing. We conclude with implications of our findings for public policy, presidential politics, and public management.
    JEL: H11 H83 J45 J63 K29
    Date: 2016–12
  17. By: Paul Mosley; Abdul-Gafaru Abdulai
    Abstract: One key element in the reduction of poverty and (in Latin America) inequality has been the achievement of greater fiscal equity; we analyse one key part of this process, which is the earmarking of portions of tax revenue to be spent on progressive public expenditures such as social protection, health, and education. Such ‘linkage’ yields a political dividend, and may also help to strengthen the tax base, but at the same time constrains the flexibility with which public revenue can be switched between sectors. We examine, principally by regression methods, the impact of ‘linked taxation’ in five countries—Bolivia, Ecuador, Venezuela, Zambia, and Ghana—and find that it significantly reduces political instability and raises tax revenue in all those countries. ‘Linked progressive taxation’ has evolved over recent years to become more flexible, in particular through reforms in the sources and types of taxation which are used to finance priority expenditures, and we argue that these adaptations have helped to reduce the inefficiencies associated with linked taxation. Keywords: taxation, public expenditure, political economy, redistribution, Africa, Latin America

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