nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒01‒15
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Do anti-poverty programs sway voters? Experimental evidence from Uganda By Blattman, Christopher; Emeriau, Mathilde; Fiala, Nathan
  2. Political elections and uncertainty -Are BRICS markets equally exposed to Trump's agenda? By Jamal Bouoiyour; Refk Selmi
  3. Sending the pork home: birth town bias in transfers to Italian municipalities By Felipe Carozzi; Luca Repetto
  4. The Political Economy of Weak Treaties By Battaglini, Marco; Harstad, Bard
  5. Incumbency Disadvantage in U.S. National Politics By Chatterjee, Satyajit; Eyigungor, Burcu
  6. Intergenerational Mobility and Preferences for Redistribution By Alesina, Alberto; Stantcheva, Stefanie; Teso, Edoardo
  7. On the Political Economy of Financial Deregulation By Korkut Erturk
  8. State-controlled companies and political risk: Evidence from the 2014 Brazilian election By Augusto Carvalho; Bernardo Guimaraes
  9. Political-Economic Models of Misinformation: An Application to the Transparency of the TTIP Negotiations By Bullock, David S.
  10. Suspiciously timed trade disputes By Paola Conconi; David De Remer; Georg Kirchsteiger; Lorenzo Trimarchi; Maurizio Zanardi
  11. Political Economy Approach of Institutional Research By liu, michelle yan

  1. By: Blattman, Christopher; Emeriau, Mathilde; Fiala, Nathan
    Abstract: A Ugandan government program allowed groups of young people to submit proposals to start skilled enterprises. Among 535 eligible proposals, the government randomly selected 265 to receive grants of nearly $400 per person. Blattman et al. (2014) showed that, after four years, the program raised employment by 17% and earnings 38%. This paper shows that, rather than rewarding the government in elections, beneficiaries increased opposition party membership, campaigning, and voting. Higher incomes are associated with opposition support, and we hypothesize that financial independence frees the poor to express political preferences publicly, being less reliant on patronage and other political transfers.
    Keywords: cash transfers; employment; field experiment; labor market programs; partisanship; Political behavior; poverty; Uganda; voting
    Date: 2016–12
  2. By: Jamal Bouoiyour (CATT); Refk Selmi (CATT)
    Abstract: There certainly is little or no doubt that politicians, sometimes consciously and sometimes not, exert a significant impact on stock markets. The evolving volatility over the Republican Donald Trump's surprise victory in the US presidential election is a perfect example when politicians, through announced policies, send signals to financial markets. The present paper seeks to address whether BRICS (Brazil, Russia, India, China and South Africa) stock markets equally vulnerable to Trump's plans. For this purpose, two methods were adopted. The first presents an event-study methodology based on regression estimation of abnormal returns. The second is based on vote intentions by integrating data from social media (Twitter), search queries (Google Trends) and public opinion polls. Our results robustly reveal that although some markets emerged losers, others took the opposite route. China took the biggest hit with Brazil, while the damage was much more limited for India and South Africa. These adverse responses can be explained by the Trump's neo-mercantilist attitude revolving around tearing up trade deals, instituting tariffs, and labeling China a "currency manipulator". However, Russia looks to be benefiting due to Trump's sympathetic attitude towards Vladimir Putin and expectations about the scaling down of sanctions imposed on Russia over its role in the conflict in Ukraine.
    Date: 2017–01
  3. By: Felipe Carozzi; Luca Repetto
    Abstract: We ask whether the birthplaces of Italian members of Parliament are favoured in the allocation of central government transfers. Using a panel of municipalities for the years between 1994 and 2006, we find that municipal governments of legislators' birth towns receive larger transfers per capita. Exploiting variation in birthplaces induced by parliamentary turnover for estimation, we find that this effect is driven by legislators who were born in a town outside their district of election. As a result, we argue that our findings cannot be a consequence of re-election incentives, the usual motivation for pork-barrel policies in the literature. Rather, politicians may be pursuing other personal motives. In line with this hypothesis, we find that the birth town bias essentially disappears when legislative elections are near. We explore several possible mechanisms behind our results by matching parliamentarians to a detailed dataset on local level administrators.
    Keywords: pork-barrel politics; distributive policies; careers in politics; political economy
    JEL: H5 H72 H77
    Date: 2016–01–08
  4. By: Battaglini, Marco; Harstad, Bard
    Abstract: In recent decades, democratic countries have signed hundreds of international environmental agreements (IEAs). Most of these agreements, however, are weak: they generally do not include effective enforcement or monitoring mechanisms. This is a puzzle in standard economic models. To study this phenomenon, we propose a positive theory of IEAs in which the political incumbents negotiate them in the shadow of reelection concerns. We show that, in these environments, incumbents are prone to negotiate treaties that are simultaneously overambitious (larger than what they would be without electoral concerns) and weak (might not be implemented in full). The theory also provides a new perspective for understanding investments in green technologies, highlighting a channel through which countries are tempted to rely too much on technology instead of sanctions to make compliance credible. We present preliminary evidence consistent with these predictions.
    Keywords: elections; environmental agreements; international agreements; political economy; sanctions; technology.
    JEL: D72 F55 Q58
    Date: 2016–12
  5. By: Chatterjee, Satyajit (Federal Reserve Bank of Philadelphia); Eyigungor, Burcu (Federal Reserve Bank of Philadelphia)
    Abstract: We document that postwar U.S. national elections show a strong pattern of “incumbency disadvantage”: If the presidency has been held by a party for some time, that party tends to lose seats in Congress. A model of partisan politics with policy inertia and elections is presented to explain this finding. We also find that the incumbency disadvantage comes sooner for Democrats than Republicans. Based on the observed Democratic bias in Congress (Democrats, on average, hold more seats in the House and Senate than Republicans), the model also offers an explanation for the second finding.
    Keywords: rational partisan model; incumbency disadvantage; policy inertia; political disagreement model; partisan politics
    Date: 2017–01–05
  6. By: Alesina, Alberto; Stantcheva, Stefanie; Teso, Edoardo
    Abstract: Using newly collected cross-country survey and experimental data, we investigate how beliefs about intergenerational mobility affect preferences for redistribution in five countries: France, Italy, Sweden, U.K., and U.S.. Americans are more optimistic than Europeans about intergenerational mobility, and too optimistic relative to actual mobility. Our randomized treatment that shows respondents pessimistic information about mobility increases support for redistribution, mostly for equality of opportunity policies. A strong political polarization exists: Left-wing respondents are more pessimistic about intergenerational mobility, their preferences for redistribution are correlated with their mobility perceptions, and they respond to pessimistic information by increasing support for redistribution. None of these apply to right-wing respondents, possibly because of their extremely negative views of government.
    Keywords: Fairness; intergenerational mobility; Online Experiment; redistribution; taxation
    JEL: D31 D72 H21 H23 H24
    Date: 2017–01
  7. By: Korkut Erturk
    Abstract: Drawing broadly on the literature on the political economy of the financial crisis, the paper looks at deregulation as a market driven process that culminated in a collective action failure. In the run up to the 2008 Financial Crisis strong competition and moral hazard went hand in hand and that raises a flag that needs explanation. The paper argues that opportunistic profit (rent) seeking was more the cause rather than the effect of moral hazard and regulation failure. Deregulation promised higher profitability partly because of better risk management made possible by advances in information technology and partly because financial institutions could take “tail-risks” the full cost of which they did not have to bear. The profits deregulation promised in turn incentivized financial firms to invest in tilting the political process to shape government policy. Because systemic risk cannot be fully privatized social insurance against it is inevitably a common pool (or open) resource, which means that there is an incentive for financial units to over-extract in the form of excessive risk taking in the absence of effective regulation. That explains why with deregulation market competition could culminate in excessive risk taking with mounting social costs. Using simple game theory the paper gives a stylized account of what sustained the deregulatory trend. In the course of deregulation, the regulator’s implicit threat of imposing discipline on financial institutions lost much of its credibility. That, combined with growing plutocracy go a long way in explaining why deregulation became a run-away market driven process that worsened the problem of moral hazard over time.
    Keywords: financial deregulation, collective action failure, excessive risk taking, moral hazard JEL Classification: D72, C70, G20, G18
    Date: 2016
  8. By: Augusto Carvalho (Escola de Economia de São Paulo (EESP)); Bernardo Guimaraes (Escola de Economia de São Paulo (EESP); Centre for Macroeconomics (CFM))
    Abstract: This paper examines the vulnerability of state-controlled companies to political risk using the 2014 Brazilian election and data on stock options. In her first term as Brazilian president, Ms. Dilma Rousseff took measures that were not aligned with the objective of maximizing profits of Petrobras, the Brazilian state-controlled oil company. She was reelected president in 2014. Results show that Petrobras would be worth around 62% (USD 45 billion) more if the opposition candidate had won the election. Using our estimated reelection probabilities and stock price data, we also find that the election of Ms. Rousseff had a negative impact on the value of several companies, but the effects on Petrobras and Banco do Brasil, the state-controlled bank, were particularly strong.
    Keywords: Political Risk, Election, State Intervention, Expropriation, Options
    JEL: H13 P16 G13
    Date: 2016–12
  9. By: Bullock, David S.
    Abstract: The International Agricultural Trade Research Consortium is an informal association of University and Government economists interested in agricultural trade. Its purpose is to foster interaction, improve research capacity and to focus on relevant trade policy issues. It is supported by United States Department of Agriculture (ERS, FAS, and OCE), Agriculture and Agri-Food Canada, and the participating institutions. The IATRC Working Paper series provides members an opportunity to circulate their work at the advanced draft stage through limited distribution within the research and analysis community. The IATRC takes no political positions or responsibility for the accuracy of the data or validity of the conclusions presented by working paper authors. Further, policy recommendations and opinions expressed by the authors do not necessarily reflect those of the IATRC or its funding agencies. For a copy of this paper and a complete list of IATRC Working Papers, books, and other publications, see the IATRC Web Site
    Keywords: Agricultural and Food Policy, International Relations/Trade,
    Date: 2017–01
  10. By: Paola Conconi; David De Remer; Georg Kirchsteiger; Lorenzo Trimarchi; Maurizio Zanardi
    Abstract: This paper shows that electoral incentives crucially affect the initiation of trade disputes. Focusing on WTO disputes filed by the United States during the 1995–2014 period, we find that U.S. presidents are more likely to initiate a dispute in the year preceding their re-election. Moreover, U.S. trade disputes are more likely to involve industries that are important in swing states. To explain these regularities, we develop a theoreticalmodel in which re-election motives can lead an incumbent politician to file trade disputes to appeal to voters motivated by reciprocity.
    Keywords: Trade disputes, Elections, Reciprocity.
  11. By: liu, michelle yan
    Abstract: Abstract Institutional research should be ready to move to the next stage, a stage that is, as argued by this paper, characterized by a more comprehensive approach integrating economics, politics, and social culture. The theoretical foundation for such a move exists, as the interconnection between political institutions and economic institutions has been addressed by North, Fukuyama, and Acemoglu, and the influences of cultural heritage on institutional choices have further been mentioned by North and Huntington. Another shift in institutional research proposed by this paper is a change from general to specific solutions because the institutional characteristics become individualized after considering the impacts of culture heritage. This paper presents the correlations between political and economic institutions and the unique characteristics of political orders taking different developmental paths using a data analysis based on the World Governance Index (WGI) and other development indicators. The paper also discusses the influences of cultural heritage on institution’s choice of transformation path and proposes a institutional research framework.
    Keywords: Institutional Economics, Political Economy, Comparative Economic System, Comparative Political System, World Governance Index (WGI)
    JEL: P16 P26
    Date: 2016–10

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