nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒01‒29
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Do Anti-Poverty Programs Sway Voters? Experimental Evidence from Uganda By Christopher Blattman; Mathilde Emeriau; Nathan Fiala
  2. Political Determinants of Competition in the Mobile Telecommunication Industry By Mara Faccio; Luigi Zingales
  3. The political economy of fiscal supervision and budget deficits: Evidence from Germany By Roesel, Felix
  4. Confirmation Bias and Electoral Accountability By Lockwood, Ben
  5. Middle income trap and income inequality: Empirical evidence on the distributional effect of economic liberalization and political regime By Ahmad, Mahyudin
  6. Tenure in Office and Public Procurement By Decio Coviello; Stefano Gagliarducci
  7. Does NOTA Affect Voter Turnout? Evidence from State Legislative Elections in India By Mandal, Arindam; Mandal, Biswajit; Bhattacharjee, Prasun
  8. Developing an Institutional Political Economy Framework Integrating Firms, Markets, and States By Moon, Wanki
  9. Selection of questions for VAAs and the VAA-based elections By Tangian, Andranik S.
  10. The Likelihood of a Condorcet Winner in the Logrolling Setting By Gehrlein, William; Le Breton, Michel; Lepelley, Dominique
  11. Economics cannot isolate itself from political theory: a mathematical demonstration By Brendan Markey-Towler
  12. A Model of Protests, Revolution, and Information By Salvador Barberà; Matthew O. Jackson
  13. Do Democracies Have Higher Current Account Deficits? By Adam, Antonis; Tsarsitalidou, Sofia
  14. Measurement of Validity of Corruption Indices By Anastasiia Shukhova; Yulii Nisnevich
  15. Ideology and Public Policies: A Quasi-Experimental Test of the Hypothesis that Left-Wing Governments Spend More By Benoît LE MAUX; Kristýna DOSTÁLOVÁ; Fabio PADOVANO
  16. Foreign direct investment, corruption and the OECD Anti-Bribery Convention By Adrian Blundell-Wignall; Caroline Roulet

  1. By: Christopher Blattman; Mathilde Emeriau; Nathan Fiala
    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.
    JEL: C93 D72 F35 O12
    Date: 2017–01
  2. By: Mara Faccio; Luigi Zingales
    Abstract: We study how political factors shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition regulation reduces prices, but does not hurt quality of services or investments. More democratic governments tend to design more competitive rules, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain $65bn a year if U.S. mobile service prices were in line with German ones and $44bn if they were in line with Danish ones.
    JEL: D72 L11 P16
    Date: 2017–01
  3. By: Roesel, Felix
    Abstract: In many federal countries, local governments run large deficits, even when fiscal supervision by state authorities is tight. I investigate to which extent party alignment of governments and fiscal supervisors influences budget deficits. The dataset includes 427 German local governments for the period 2000-2004. I exploit a period after a far-reaching institutional reform that entirely re-distributed political powers on both the government level and the fiscal supervisor level. Results do not show that party alignments of governments and supervisors (co-partisanship) drive short-term deficits. Instead, I find that the ideology of partisan governments and supervisors matters: left-wing local governments run higher deficits than their right-wing counterparts; left-wing supervisors tolerate higher deficits than right-wing supervisors. These findings imply that political independence for fiscal supervisors is recommended.
    Keywords: Local government,Budget deficits,Fiscal supervision,Partisan cycle
    JEL: H62 H74 H77
    Date: 2017
  4. By: Lockwood, Ben
    Abstract: This paper considers the implications of an important cognitive bias in information processing, confirmation bias, in a political agency setting. When voters have this bias and when only the politician's actions are observable before the election, it decreases pandering by the incumbent, and can raise voter welfare as a consequence. This result is driven by the fact that the noise aspect of confirmation bias, which decreases pandering, dominates the bounded rationality aspect, which increases it. The results generalize in several directions, including to the case where the voter can also observe payoffs with some probability before the election. We identify conditions when confirmation bias strengthens the case for decision-making by an elected rather than an appointed official.
    Keywords: accountability; confirmation bias; elections
    Date: 2017–01
  5. By: Ahmad, Mahyudin
    Abstract: In this paper I empirically examine the income-equalizing role of economic liberalization policies and political regime in a sample of 117 countries over the period of 1970-2014. With a specific focus on the middle income countries (MICs) shown to have been “trapped” at that level long after their transition from low income status, I propose that income inequality could be the underlying factor exacerbating growth slowdowns and suppressing development strategies aiming to escape from the trap and graduate to high income level. Using the Standardized World Income Inequality dataset, and via panel fixed effects and system GMM estimations that are able to handle unobserved heterogeneity, omitted variable bias and potential endogeneity, I examine the interrelationship between income inequality, five dimensions of Economic Freedom in the World, and democracy measures. The findings yield robust empirical evidence that freedom to trade internationally, unpredictable inflation and money supply, and small government size have significant relationship with inequality. Nevertheless, the impact of these variables on income inequality depends on the types of political regime in the country under study. The results suggest that these liberalization policies may yield the intended positive effect on income distribution in the presence of sufficiently democratic political regime.
    Keywords: Middle income trap, income inequality, liberalization, economic freedom, democracy
    JEL: C33 D30 O15 P48
    Date: 2016–11
  6. By: Decio Coviello; Stefano Gagliarducci
    Abstract: We study the impact of politicians' tenure in office on the outcomes of public procurement. To this purpose, we match a data set on the politics of Italian municipal governments to a data set on the procurement auctions they administered. In order to identify a causal relation, we apply two different identification strategies. First, we compare elections where the incumbent mayor barely won another term, with elections where the incumbent mayor barely lost and a new mayor took over. Second, we cross-validate these estimates using a unique quasi-experiment determined by the introduction of a two-term limit on the mayoral office in March 1993. This reform granted one potential extra term to mayors appointed before the reform. The main result is that an increase in the mayor's tenure is associated with ``worse' outcomes: fewer bidders per auction, a higher cost of procurement, a higher probability that the winner is local and that the same firm is awarded repeated auctions. Taken together, our estimates are informative of the possibility that time in office progressively leads to collusion between government officials and a few favored local bidders. Other interpretations receive less support in the data.
    Keywords: tenure in office, procurement auctions, public works, term limit
    JEL: D44 D72 D73 H57 H70
    Date: 2017–01
  7. By: Mandal, Arindam; Mandal, Biswajit; Bhattacharjee, Prasun
    Abstract: This paper explores the impact of introduction of the ‘None of the Above’ (NOTA) option in Indian legislative elections. NOTA was introduced as a ballot option following the Supreme Court ruling in 2013 based on the argument that more choices to voters will enhance voter participation. We take advantage of the state-time variation in introduction of NOTA option in state legislative assembly elections in 2013 to study its impact on voter turnout. Using election data from five major Indian states between 2008 and 2013, we find evidences suggesting that NOTA may not have led to increased voter participation. However, our results are not conclusive.
    Keywords: Voting, Election, NOTA, None of the Above, Reservation
    JEL: D72
    Date: 2016
  8. By: Moon, Wanki
    Abstract: Building on the long tradition of diverse schools of thought underlining the importance of institutions in determining economic outcomes, the paper develops an eclectic institutional political economy framework that views the economy as consisting of the four decision-making units including the firm, the market, the state, and foreign states. They represent major institutional arrangements accountable for resource allocation decisions at the firm, industry, national, and global levels. The paper restructures disciplinary and interdisciplinary schools/theories/approaches into a unified framework centered around the four principal decision-making units.
    Keywords: Institutional Economics, Political Economy, Institutional and Behavioral Economics, Political Economy,
    Date: 2017–01–12
  9. By: Tangian, Andranik S.
    Abstract: During the 2016 election to the Student Parliament of the Karlsruhe Institute of Technology (KIT), an experiment on 'The Third Vote' was conducted. The goal was to test an alternative election method based on the idea of internet voting advice applications (VAAs). Under the election method tested, the voters cast no direct votes for candidate parties; rather, they are asked about their preferences on the policy issues as declared in the party manifestos. These embedded referenda measure the degree to which the parties' positions match the policy preferences of the electorate. The parliament seats are then distributed among the parties in proportion to their indices of representativeness: popularity (the average percentage of the population represented on all the issues) and universality (frequency in representing a majority). The Third Vote Experiment reveals that the critical point is the selection of questions: unless they draw sufficient distinctions between the parties, it can cause a malfunction of both the VAA and the VAA-based election method. To solve this problem, this paper develops a model for contrasting as much as possible between the parties by maximizing the total distance between the party policy profiles while simultaneously reducing the number of questions. The guaranteed best solution is obtained by means of an exhaustive search on all the possible combinations of m out of n initial questions. However, since this search is cumbersome, a stepwise removal of questions is proposed. This alternative is shown to offer a good compromise between formal rigor and computational efficiency.
    Keywords: policy representation,elections,theory of voting,feature selection,variable selection
    JEL: D71
    Date: 2017
  10. By: Gehrlein, William; Le Breton, Michel; Lepelley, Dominique
    Abstract: The purpose of this note is to compute the probability of logrolling for three different probabilistic cultures. The primary finding is that the restriction of preferences to be in accord with the condition of separable preferences creates enough additional structure among voters' preference rankings to create an increase in the likelihood that a Condorcet winner will exist with both IC and IAC-based scenarios.
    Keywords: Condorcet, Separable preferences, Logrolling, Vote Trading.
    JEL: D71 D72
    Date: 2017–01
  11. By: Brendan Markey-Towler
    Abstract: The purpose of this paper is to provide a confession of sorts from an economist to political science and philosophy. A confession of the weaknesses of the political position of the economist. It is intended as a guide for political scientists and philosophers to the ostensible policy criteria of economics, and an illustration of an argument that demonstrates logico-mathematically, therefore incontrovertibly, that any policy statement by an economist contains, or is, a political statement. It develops an inescapable compulsion that the absolute primacy and priority of political theory and philosophy in the development of policy criteria must be recognised. Economic policy cannot be divorced from politics as a matter of mathematical fact, and rather, as Amartya Sen has done, it ought embrace political theory and philosophy.
    Date: 2016–10
  12. By: Salvador Barberà; Matthew O. Jackson
    Abstract: A revolt or protest succeeds only if sufficient people participate. We study how potential participants’ ability to coordinate is affected by their information. We dis- tinguish four phenomena that affect whether information either encourages or inhibits protests and revolutions: (i) Unraveling: When agents learn about each others’ types, some are discouraged by meeting partisans of the status quo. This can unravel, as even confident agents realize that enough supporters will be discouraged to preclude a successful revolution. (ii) Homophily: Learning someone else’s type under homophily is less informative since that individual is more likely to be similar to the learner. This can lead people to be less confident of a revolution, but can also stop potential unraveling. (iii) Extremism: Meeting other protestors, and seeing pilot demonstrations or outcomes in similar countries, reveal not only how much support for change exists, but also from which constituencies it emerges. This can undercut a revolution if factions differ sufficiently in their preferred changes. (iv) Counter Demonstrations: partisans for the status quo can hold counter-demonstrations to signal their strength. We also discuss why holding mass demonstrations before a revolution may provide better signals of peoples willingness to actively participate than other less costly forms of communication (e.g., via social media), and how governments use redistribution and propaganda to avoid a revolution.
    Keywords: D74, D72, D71, D83, C72
    Date: 2017–01
  13. By: Adam, Antonis; Tsarsitalidou, Sofia
    Abstract: In this paper we argue that democracies tend to run (larger)current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis are tested on a dataset that consists of 121 countries over the period 1980-2012, using five year averages and a fixed effects panel data model. The empirical findings suggest that autocracies run lower current account deficits than democracies. Special focus is given in the issue of endogeneity by estimating an IV Fixed Effects model, using as instruments of Democracy the share of Christian adherents in each country and also the level of democracy in neighboring countries. These results are found to be robust across alternative empirical specifications.
    Keywords: Current Account; Democracy; Αutocracy
    JEL: F32 H11
    Date: 2017–01–25
  14. By: Anastasiia Shukhova (University of Mannheim); Yulii Nisnevich (National Research University Higher School of Economics)
    Abstract: Corruption is an intrinsically latent phenomenon, which makes it a challenging task to measure it and requires the use of indirect indicators. The academic community and non-government organizations have proposed various indices that differ in terms of their methodology, data and coverage. In this paper, we estimate construct validity of the most widely used indices of corruption: The Corruption Perceptions Index, The Control of Corruption Index, The Bribing and Corruption Index, The Corruption Index, and The Rule of Law: Absence of Corruption. In this paper we show that Corruption Index by the International Country Risk Guide and Absence of Corruption Index are not constructively valid and, therefore, are not suitable for the use in scholarly research. We also show that all indices provide poor estimates of a corruption level in the highly corrupted group of countries
    Keywords: corruption index, validity
    JEL: C01 C23 P50
    Date: 2017
  15. By: Benoît LE MAUX (University of Rennes 1, CREM-CNRS, Condorcet Center for Political Economy, France); Kristýna DOSTÁLOVÁ (University of Rennes 1, CREM-CNRS, France); Fabio PADOVANO (University of Rennes 1, CREM-CNRS, Condorcet Center for Political Economy, France)
    Abstract: In the literature it is often argued that governments on the left tend to raise tax rates and public spending more than their right-wing counterparts. We demonstrate that this result must be interpreted with caution. Not only it may reveal partisan effects, due to the direct impact of parties’ ideology on public spending, but also a selection bias, since the distribution of voters’ preferences determines the ideology of the government in office. The present research overcomes this problem of observational equivalence by applying two identification strategies, namely re-gression discontinuity design and propensity score matching. Using data from the French local public sector, we show that governments facing the same economic situation do not spend more when they are left-wing, particularly in the case of social expenditures. This result rules out the partisan-politicians hypothesis and lends support to demand driven policy selection processes.
    Keywords: Public services, Party ideology, Redistribution, Partisan effects, Selection bias
    JEL: H72 H40 D72
    Date: 2017–01
  16. By: Adrian Blundell-Wignall; Caroline Roulet
    Abstract: This paper estimates a dynamic foreign direct investment (FDI) gravity model to explore the impact of corruption in general and the OECD Anti-Bribery Convention in particular. The evidence from previous studies in both domains is mixed, probably due to econometric inconsistencies and misuse of data. The more robust findings are that corruption has an insignificant or even positive effect on FDI in the general population. However, adherence to the OECD Anti-Bribery Convention has a clear negative impact on FDI—countries that adhere reduce investments in corrupt destinations.
    Keywords: corrumption, foreign direct investment, institutions, law
    JEL: F21 F23
    Date: 2017–01–25

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