nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒01‒22
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. Historical Roots of Political Extremism: The E ffects of Nazi Occupation of Italy By Fontana, Nicola; Nannicini, Tommaso; Tabellini, Guido
  2. The Effect of Labor Migration on the Diffusion of Democracy: Evidence from a Former Soviet Republic By Toman Barsbai; Hillel Rapoport; Andreas Steinmayr; Christoph Trebesch
  3. Assessing the unidimensionality of political opinions. An indirect test of the persuasion bias By Lionel Page
  4. Political influence, firm performance and survival By Sokolov, Vladimir; Solanko, Laura
  5. State-controlled companies and political risk: evidence from the 2014 Brazilian election By Carvalho, Augusto; Guimarães, Bernardo
  6. What shapes social attitudes toward corruption in China? Micro-level evidence By Fungáčová, Zuzana; Määttä, Ilari; Weill, Laurent
  7. Political Institutions, State Building, and Tax Capacity; Crossing the Tipping Point By Vitor Gaspar; Laura Jaramillo; Philippe Wingender
  8. Fiscal Discipline and Exchange Rates; Does Politics Matter? By João Tovar Jalles; Carlos Mulas-Granados; José Tavares
  9. Why Does China Allow Freer Social Media? Protests versus Surveillance and Propaganda By Qin, Bei; Strömberg, David; Wu, Yanhui
  10. Political Instability and Lessons for Pakistan: Case Study of 2014 PTI Sit in Protests By Javed, Rabbia; Mamoon, Dawood
  11. The Structure of the Climate Debate By Richard S.J. Tol
  12. The Logic of Hereditary Rule: Theory and Evidence By Besley, Timothy J.; Raynal-Querol, Marta

  1. By: Fontana, Nicola; Nannicini, Tommaso; Tabellini, Guido
    Abstract: The Italian civil war and the Nazi occupation of Italy occurred at a critical juncture, just before the birth of a new democracy and when, for the first time in a generation, Italians were choosing political affiliations and forming political identities. In this paper we study how these traumatic events shaped the new political system. We exploit geographic heterogeneity in the intensity and duration of the civil war, and the persistence of the battlefront along the "Gothic line" cutting through Northern-Central Italy. We find that the Communist Party gained votes in the post-war elections where the Nazi occupation and the civil war lasted longer, mainly at the expense of the centrist and catholic parties. This effect persists until the early 1990s. Evidence also suggests that this is due to an effect on political attitudes. Thus, the foreign occupation and the civil war left a lasting legacy of political extremism and polarization on the newborn Italian democracy.
    Keywords: Civil War; political extremism; World War II
    Date: 2017–01
  2. By: Toman Barsbai; Hillel Rapoport; Andreas Steinmayr; Christoph Trebesch
    Abstract: Migration contributes to the circulation of goods, knowledge, and ideas. Using community and individual-level data from Moldova, we show that the emigration wave that started in the aftermath of the Russian crisis of 1998 strongly affected electoral outcomes and political preferences in Moldova during the following decade, eventually contributing to the fall of the last Communist government in Europe. Our results are suggestive of information transmission and cultural diffusion channels. Identification relies on the quasi-experimental context and on the differential effects arising from the fact that emigration was directed both to more democratic Western Europe and to less democratic Russia.
    Keywords: Emigration;Political institutions;Elections;Social networks;Information transmission;Cultural diffusion
    JEL: F22 D72 O1
    Date: 2016–09
  3. By: Lionel Page
    Abstract: In an influential paper, DeMarzo, Vayanos, and Zwiebel propose a model of persuasion bias whereby people are overly influenced by repetitive information. Such a persuasion bias leads political opinions to be unidimensional with individuals converging to a single "left-right" dimension on every issues. Using a large dataset on political opinions on a wide range of issues just before a presidential election in France, I test whether political opinions are indeed unidimensional. I find that political opinions are far from being unidimensional and I discuss what it means for the persuasion model.
    Keywords: social preferences, voting behavior, online survey
    JEL: A13 D72
    Date: 2017–01–12
  4. By: Sokolov, Vladimir; Solanko, Laura
    Abstract: We examine how regional-level political influence affects firm financial performance and survival. Combining representative survey data on mid-sized manufacturing firms in Russia with official registry data, we find that politically influential firms exhibit higher profitability and retain larger financial investments than non-influential firms. At the same time, we find no association between regional political influence and access to bank lending. Most importantly, our empirical analysis suggests that the benefits of influence may be transient. Influential firms experienced significantly lower growth during our 2004–2010 sample period than non-influential firms. Moreover, influential firms had a significantly higher probability of going bankrupt after the 2008 global financial crisis than non-influential firms.
    JEL: D22 D72 G38
    Date: 2016–12–22
  5. By: Carvalho, Augusto; Guimarães, Bernardo
    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.
    Date: 2016–11–22
  6. By: Fungáčová, Zuzana; Määttä, Ilari; Weill, Laurent
    Abstract: ​This research investigates the determinants of corruption in China using micro-level data. We use survey data on 6,000 households from 28 provinces to estimate logit models that show how corruption perceptions and attitudes to corruption are shaped by individual and provincial determinants. Respondents who see themselves as lower class, as well as members of the Communist Party of China, are more likely to perceive and reject corruption than other respondents. People in rural areas perceive less corruption, but do not differ in their attitudes toward corruption.
    JEL: H11 K42 P16
    Date: 2016–12–05
  7. By: Vitor Gaspar; Laura Jaramillo; Philippe Wingender
    Abstract: An empirical finding by Gaspar, Jaramillo and Wingender (2016) shows that once countries cross a tax-to-GDP threshold of around 12¾ percent, real GDP per capita increases sharply and in a sustained manner over the following decade. In this paper, we attempt via four case studies—Spain, China, Colombia, and Nigeria—to illustrate that the improvements in tax capacity have been part of a deeper process of state capacity building. We discuss the political conditions that supported tax capacity building, highlighting three important political ingredients: constitutive institutions, inclusive politics and credible leadership.
    Keywords: Taxation;Spain;China;Colombia;Nigeria;Income taxes;Tax administration;Political economy;Cross country analysis;income per capita, taxation, development, institutions, political economy
    Date: 2016–12–02
  8. By: João Tovar Jalles; Carlos Mulas-Granados; José Tavares
    Abstract: We look at the effect of exchange rate regimes on fiscal discipline, taking into account the effect of underlying political conditions. We present a model where strong politics (defined as policymakers facing longer political horizon and higher cohesion) are associated with better fiscal performance, but fixed exchange rates may revert this result and lead to less fiscal discipline. We confirm these hypotheses through regression analysis performed on a panel sample covering 79 countries from 1975 to 2012. Our empirical results also show that the positive effect of strong politics on fiscal discipline is not enough to counter the negative impact of being at/moving to fixed exchange rates. Finally, we use the synthetic control method to illustrate how the transition from flexible to fully fixed exchange rate under the Euro impacted negatively fiscal discipline in European countries. Our results are robust to a number of important sensitivity checks, including different estimators, alternative proxies for fiscal discipline, and sub-sample analysis.
    Keywords: Fiscal policy;Exchange rate regimes;Flexible exchange rates;Fixed exchange rates;Political economy;Fiscal discipline; Deficit; Political Economy; Exchange Rates
    Date: 2016–11–17
  9. By: Qin, Bei; Strömberg, David; Wu, Yanhui
    Abstract: This paper documents basic facts regarding public debates about controversial political issues on Chinese social media. Our documentation is based on a dataset of 13.2 billion blog posts published on Sina Weibo - the most prominent Chinese microblogging platform- during the 2009-2013 period. Our primary finding is that a shockingly large number of posts on highly sensitive topics were published and circulated on social media. For instance, we find millions of posts discussing protests and an even larger number of posts with explicit corruption allegations. This content may spur and organize protests. However, it also makes social media effective tools for surveillance. We find that most protests can be predicted one day before their occurrence and that corruption charges of specific individuals can be predicted one year in advance. Finally, we estimate that our data contain 600,000 government-affiliated accounts which contribute 4% of all posts about political and economic issues on Sina Weibo. The share of government accounts is larger in areas with a higher level of internet censorship and where newspapers have a stronger pro-government bias. Overall, our findings suggest that the Chinese government regulates social media to balance threats to regime stability against the benefits of utilizing bottom-up information.
    Date: 2017–01
  10. By: Javed, Rabbia; Mamoon, Dawood
    Abstract: It’s a short allegory to present the case for the importance of Political stability in the economic progress of a country. The Arab spring protests were seen as strengthening democracy in the Arab world. Notwithstanding the surprise Arab spring brought in shape of further destabilizing Middle East, a similar environment of unrest and protests in a practicing democracy like Pakistan capture same dynamics of uncertainty that dampen economic destabilization. The paper briefly covers PTI’s sit in protests in year 2014 to make a case for how political instability stifled economic progress in Pakistan though momentarily.
    Keywords: Political Economy, Economic Development
    JEL: O1
    Date: 2017–01–07
  11. By: Richard S.J. Tol (UK Department of Economics, University of Sussex, UK; Institute for Environmental Studies and Department of Spatial Economics, Vrije Universiteit, Amsterdam, Netherlands; Tinbergen Institute, Amsterdam, Netherlands; CESifo, Munich, Germany)
    Abstract: First-best climate policy is a uniform carbon tax which gradually rises over time. Civil servants have complicated climate policy to expand bureaucracies, politicians to create rents. Environmentalists have exaggerated climate change to gain influence, other activists have joined the climate bandwagon. Opponents to climate policy have attacked the weaknesses in climate research. The climate debate is convoluted and polarized as a result, and climate policy complex. Climate policy should become easier and more rational as the Paris Agreement has shifted climate policy back towards national governments. Changing political priorities, austerity, and a maturing bureaucracy should lead to a more constructive climate debate.
    Keywords: Climate policy; political economy
    JEL: F53 P16 Q54
    Date: 2016–08
  12. By: Besley, Timothy J.; Raynal-Querol, Marta
    Abstract: Hereditary leadership has been an important feature of the political landscape throughout history. This paper argues that hereditary leadership is like a relational contract which improves policy incentives. We assemble a unique dataset on leaders between 1874 and 2004 in which we classify them as hereditary leaders based on their family history. The core empirical finding is that economic growth is higher in polities with hereditary leaders but only if executive constraints are weak. Moreover, this holds across of a range of specifications. The finding is also mirrored in policy outcomes which affect growth. In addition, we find that hereditary leadership is more likely to come to an end when the growth performance under the incumbent leader is poor.
    Keywords: growth; Hereditary Institutions; political agency
    JEL: H11 N40 O11
    Date: 2017–01

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