nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒02‒26
twenty-one papers chosen by
Eugene Beaulieu
University of Calgary

  1. Satisfaction with Democracy in Latin America: Do the Characteristics of the Political System Matter? By Selim Jürgen Ergun; M. Fernanda Rivas; Máximo Rossi
  2. Distributive Politics Inside the City? The Political Economy of Spain's Plan E By Felipe Carozzi; Luca Repetto
  3. Political Cycles and Stock Returns By Lubos Pastor; Pietro Veronesi
  4. Does electoral competition curb party favoritism? By Marta Curto‐Grau; Albert Solé‐Ollé; Pilar Sorribas‐Navarro
  5. The political economy of interregional competition for firms By Hopp, Daniel; Kriebel, Michael
  6. Do democratic transitions attract foreign investors and how fast? By Jean Lacroix; Pierre-Guillaume Méon; Khalid Sekkat
  7. Media and Political Participation in North Africa By Mathilde MAUREL; Charlemagne NIKIEMA
  8. Increasing Women's Parliamentary Representation in Asia and the Pacific: The Indonesian Experience By Ben Hillman
  9. Does democracy reduce the HIV epidemic? Evidence from Kenya By Antoine MARSAUDON; Josselin THUILLIEZ
  10. Complex ballot propositions, individual voting behavior, and status quo bias By Hessami, Zohal; Resnjanskij, Sven
  11. Voters’ Private Valuation of Candidates’ Quality By Enriqueta Aragonès; Dimitros Xefteris
  12. Money and Votes. Incumbents in Mayoral Elections in Chile By Renato Aguilar; Claudio Parés
  13. A Model of Protests, Revolution, and Information By Salvador Barbera; Matthew O. Jackson
  14. Taxation, Non-Tax Revenue and Democracy: New Evidence Using New Cross-Country Data By Prichard, Wilson; Salardi, Paola; Segal,Paul
  15. Cooperation in WTO’s Tariff Waters? By Marcelo OLARREAGA; Alessandro NICITA; Peri SILVA
  16. Media content's role in the making of a democrat: Evidence from East Germany By Tim Friehe; Helge Muller; Florian Neumeier
  17. The Trade-Off between Reforms and Checks and Balances By Alvaro Forteza; Juan S. Pereyra
  18. Taxpayer’s dilemma: how can ‘fiscal contracts’ work in developing countries? By Pamela Lenton; Mike Masiye; Paul Mosley
  19. Government size, intelligence and life satisfaction By Salahodjaev, Raufhon
  20. Building Support for Taxation in Developing Countries: Experimental Evidence from Mexico By Flores-Macías, Gustavo A.
  21. Taking Aversion By Korenok Oleg; Edward L. Millner; Laura Razzolini

  1. By: Selim Jürgen Ergun (Middle East Technical University, Northern Cyprus Campus); M. Fernanda Rivas (Middle East Technical University, Northern Cyprus Campus); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: This paper analyzes the impact that the rules and characteristics of the political system have on satisfaction with democracy in Latin America. Using individual level survey data provided by Latinobarometer and controlling for both personal characteristics and macroeconomic variables, we find that the rules and characteristics of the political system do matter: Satisfaction with democracy is higher in countries that use a proportional electoral rule for choosing the legislature, where voting is not enforced, and in countries with a federal system. The age of democracy has a negative impact on satisfaction with democracy while the electoral rule used to choose the president does not matter. On the economic side, we find that personal assessments of the economy impact more on satisfaction with democracy than actual macroeconomic data.
    Keywords: satisfaction with democracy, Latin America, electoral system
    JEL: D70 D72
    Date: 2016–10
  2. By: Felipe Carozzi; Luca Repetto
    Abstract: We study the allocation of investment projects by municipal governments across groups of voters using data from a fiscal stimulus program carried out in Spain between 2009 and 2011. This program provided municipalities with a large endowment to spend in public investments and required the geocoding of each individual project. Combining these data with disaggregated election information at the census area level, we study whether politicians use expenditures to target their supporters or to raise turnout. Estimates from regression, matching and RDD methods show no evidence of local governments targeting areas of core support. Instead, investment goes disproportionately to low turnout areas, suggesting that politicians use funds to increase participation. We confirm this hypothesis by showing that, in the following elections, turnout is increased in areas that received more investment. Our results suggest that mobilization can be a force in shaping the allocation of resources across voter groups within cities.
    Keywords: political economy, distributive politics, core voters, turnout, partisan alignment
    JEL: R53 H76 D72
    Date: 2017–02
  3. By: Lubos Pastor; Pietro Veronesi
    Abstract: We develop a model of political cycles driven by time-varying risk aversion. Heterogeneous agents make two choices: whether to work in the public or private sector and which of two political parties to vote for. The model implies that when risk aversion is high, agents are more likely to elect the party promising more fiscal redistribution. The model predicts higher average stock market returns under Democratic than Republican presidencies, explaining the well-known “presidential puzzle.” Under sufficient complementarity between the public and private sectors, the model also predicts faster economic growth under Democratic presidencies, which is observed in the data.
    JEL: D72 G12 G18 P16
    Date: 2017–02
  4. By: Marta Curto‐Grau (University of Heidelberg & IEB); Albert Solé‐Ollé (Universitat de Barcelona & IEB); Pilar Sorribas‐Navarro (Universitat de Barcelona & IEB)
    Abstract: We study whether incumbents facing uncontested elections channel public spending towards co‐partisan officials more than is the case of incumbents that are worried about their chances of re‐election. To do so, we draw on data detailing capital transfers allocated by Spanish regions to local governments during the period 1995‐2007. Using a regression discontinuity design, we document strong and robust effects. We find that, on average, a mayor belonging to the same party as that of the regional president obtains nearly twice the amount in grants as is received by a mayor belonging to an opposition party. This effect is much greater for regional incumbents that won the previous election by a large margin, but it disappears in the case of highly competitive elections. The effects estimated by difference‐in‐differences are not so great but they point in the same direction. Overall, the results are consistent with predictions that regional incumbents focus on obtaining the most votes possible when elections are strongly contested, while they seek to increase the number of aligned mayors when their position at the ballot box is not vulnerable.
    Keywords: Political parties, intergovernmental transfers, distributive politics, regression discontinuity
    JEL: C2 D72
    Date: 2017
  5. By: Hopp, Daniel; Kriebel, Michael
    Abstract: This paper studies the impact of majority voting on interregional competition for firms. We model the competition as a first-price sealed bid auction under full information between two regions inhabited by low- and high-skilled individuals. The firm's location causes an increase in wages for the high-skilled. A region's bid is determined by the median voter's preference. We derive two results. First, the location decision may be inefficient because the firm may not locate in the region that benefits most. Second, if regional differences are sufficiently small and the median voter of the successful region is high-skilled, the winning region suffers a loss of aggregated income as subsidies exceed the surplus created by a firm's location. This implies that restricting inter-regional competition for firms, e.g. banning subsidies, may prevent inefficient location decisions.
    JEL: H23 H25 H31 P16
    Date: 2016
  6. By: Jean Lacroix; Pierre-Guillaume Méon; Khalid Sekkat
    Abstract: This paper investigates the evolution of foreign direct investment net inflows (FDI) around democratic transitions, in a panel of 115 developing countries from 1970 to 2014, using an event-study method. We find no effect of democratic transitions on FDI net inflows on average. We then distinguish the effect of democratic transitions per se and the effect of its consolidation. To do so, we specifically focus on consolidated democratic transitions, defined as transitions that did not reverse during five years at least. We find that consolidated democratic transitions do increase FDI net inflows. The bulk of the improvement appears ten years after the transition. Furthermore, the effect of consolidated democratic transitions on FDI is not limited to their impact on political risk. When controlling for the political risk index of the International Country Risk Guide, the intrinsic effect of consolidated democratic transitions appears immediately after the transition, suggesting that higher political risk accompanying the early years of democratic transitions offsets the positive intrinsic effect of democratictransition on FDI. The results are robust to controlling for GDP per capita and schooling, to alternative codings of the variables capturing the transition, disaggregating the political risk measure into several sub-components and the exclusion of outliers. Moreover local projections, propensity score matching, and IV estimates lend credence to a causal interpretation of our results. Furthermore the longer the democratic history of a country is, the fewer FDI this country may expect to attract thanks to a new democratic transition.
    Keywords: FDI; Democratic transitions; Institutions; Development
    JEL: E20 F21 O11
    Date: 2017–02–20
  7. By: Mathilde MAUREL (Centre d'Economie de la Sorbonne CNRS - Université Paris 1); Charlemagne NIKIEMA (Centre d'Economie de la Sorbonne - Université de Paris I)
    Abstract: We examine the role of new decentralized media (the internet) vs old media (television) on individuals’ political engagement in North Africa. Drawing our data from the Afrobarometer round 5 survey, we tackle issues of endogeneity by resorting first to a propensity score matching method to identify the effect of media on political participation. We then address endogeneity by relying to a bivariate probit model while using lightening activity as an instrument for media. The analysis evidences the political power of the internet and TV. Getting news from internet reduces voting but increases protests, while TV watching induces more vote and less protest. This effect is channeled through the impact of media on the perception about political institutions, which differs across the different media.
    Keywords: media, political participation, North Africa
    JEL: D74 F50 O55 L96
    Date: 2016–10
  8. By: Ben Hillman
    Abstract: In recent years, governments across Asia and the Pacific have adopted gender quotas to increase women's representation in parliament. In 2003, Indonesia introduced a 30% gender quota that, over two election cycles, contributed to an increase in women's share of seats in the national parliament from 9 per cent to 18 per cent. In the most recent (2014) elections, despite stronger enforcement of the quota provisions, expansive civil society-led efforts to support women candidates and favourable press coverage, the percentage of women elected to the national parliament declined. This article examines the evolving political context in which the gender quota operates to argue that common support programs designed to maximize the gender quota's impact on women's representation are insufficiently targeted at major obstacles. Findings will be of interest to lawmakers and public sector professionals working to advance gender equity and to students of democratization, representation and gender politics.
    Keywords: women, democracy, parliament, Asia Pacific, gender quota, Indonesia
    Date: 2017–02–16
  9. By: Antoine MARSAUDON (Université Paris I Panthéon-Sorbonne); Josselin THUILLIEZ (CNRS-Sorbonne)
    Abstract: Does democracy help Kenyan citizens to struggle against the HIV epidemic? Yet, very little attention has been devoted to establish whether political regimes react differently to the HIV infection. Using an electoral definition of democracy makes a contribution in understanding which aspects of political rules matter to manage the disease. Using a difference-in-difference design that draws upon pre-existing variations in HIV intensity and cohort’s exposure to democracy, we find that a person living under democracy is less likely to have a HIV infection. Further, we present some evidence of ethnic favoritism and gender disparities during periods of non-democracy.
    Keywords: institution, democracy, HIV, Health, Kenya
    JEL: I15 I18 O15 O38 P51
    Date: 2016–10
  10. By: Hessami, Zohal; Resnjanskij, Sven
    Abstract: This paper analyzes how the complexity of ballot propositions influences individual voting behavior in direct-democratic elections. We combine micro-data from representative post-referendum surveys in Switzerland with unique data on a novel measure of proposition complexity which relies on a word count of information provided in official booklets. Using Heckman estimations to correct for participation bias, we provide evidence that proposition complexity leads to rejection-biased voting (status quo bias). An increase of one standard deviation in our complexity measure is associated with an average increase in the rejection rate by 5.3 percentage points. However, correcting for the participation bias reduces the effect by 2.3 percentage points highlighting the importance of selection effects in determining vote outcomes. Further evidence suggests cognitive overburdening as the transmission channel and excludes alternative explanations.
    JEL: D71 D72 D81
    Date: 2016
  11. By: Enriqueta Aragonès; Dimitros Xefteris
    Abstract: We study a Downsian model of electoral competition, allowing different voters to have different and private valuations of candidates?quality. Unlike models in which the voters?valuations of candidates? quality are common and common knowledge and which never admit pure strategy equilibria, in our setup we show existence of both converging and mildly diverging pure strategy equilibria. Perhaps more importantly, we uncover a non-monotonic (U-shaped) relationship between the extent of heterogeneity in voters?valuations and the maximum degree of equilibrium platform differentiation. In particular, we demonstrate that: a) a disagreement among voters on which candidate is better leads to a depoliticized vote, while an agreement on this issue leads to a politicized one; and b) as voters become more heterogeneous in how they evaluate candidates?quality, existence of pure strategy equilibria becomes more likely.
    Keywords: Downsian model, private information, advantaged candidate, platform differentiation
    JEL: D72
    Date: 2015–12
  12. By: Renato Aguilar (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Claudio Parés (Departamento de Economía, Universidad de Concepción (Chile))
    Abstract: Being an incumbent is an important advantage in an election. This issue has been discussed in numerous studies and has been formalized into the so called permanent campaign hypothesis. This means that the incumbents, during all the duration of their tenure, should be running a more or less intensive campaign. The tenure of the office, eventually disputed in the election, allows an elected officer to use some resources and opportunities that are no available for the other candidates. This study empirically explores this hypothesis for the mayoral election of 2012 in Chile, using a database covering all the Chilean municipalities. A central point is the money spent in the campaign by the incumbents in the mayoral election. We empirically study these issues with the help of a regression model for the campaign expenditures and the vote obtained by the incumbents. The estimation of this model is not trivial because we have two equations determining simultaneously the expenditures and the vote. Additionally, we had to consider that both variables are bounded and that we have a latent variable: the expected vote for 2012. We solved these problems using maximum likelihood truncated estimations and instrumental variables. Our results suggest that incumbent candidates plan their campaign expenditures based mostly in their expected vote. We also found empirical evidence suggesting that winners behave differently than losers.
    Keywords: Incumbents, Mayoral Elections, Campaign Expenditures, Simultaneous Equations, Truncated Regressions
    JEL: D70 D72 C34
    Date: 2016–12
  13. By: Salvador Barbera (MOVE, Universitat Autònoma de Barcelona and Barcelona GSE); Matthew O. Jackson (Stanford University)
    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 distinguish 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: Revolution, demonstration, protests, strikes, Arab Spring JEL Classification Codes: D74, D72, D71, D83, C72
    Date: 2017–02
  14. By: Prichard, Wilson; Salardi, Paola; Segal,Paul
    Abstract: This ICTD Research in Brief is a two-page summary of ICTD Working Paper 23 by Wilson Prichard, Paola Salardi and Paul Segal. This series is aimed at policy makers, tax administrators, fellow researchers and anyone else who is big on interest and short on time. This paper finds support for the existence of a political resource curse It draws on improved quality data from the International Centre for Tax and Development’s Government Revenue Dataset (ICTD GRD) to re-examine existing econometric tests and significantly improve their robustness.
    Keywords: Development Policy, Economic Development, Governance,
    Date: 2016
  15. By: Marcelo OLARREAGA (FERDI); Alessandro NICITA (FERDI); Peri SILVA (FERDI)
    Abstract: This paper examines the extent to which tariff cooperation is observed among World Trade Organization (WTO) members. With the help of a simple political economy model, we show that tariffs are positively correlated with the importer’s market power when they are set non-cooperatively, but negatively correlated when set cooperatively. We use this prediction to empirically identify the extent of cooperation in the WTO, and find that more than three quarters of WTO members’ tariffs are set non-cooperatively. Keywords: Export supply elasticities, WTO cooperation, tariff water
    JEL: F13
    Date: 2016–12
  16. By: Tim Friehe (University of Marburg); Helge Muller (University of Marburg); Florian Neumeier (CESifo)
    Abstract: This paper explores the causal infl uence of access to Western television programming on voting behavior. We exploit a natural experiment involving access to West German TV within the German Democratic Republic in which only geography and topography determined the allocation of individuals to treatment and control groups. Focusing on both the shares of extremist parties and voter turnout, we find that in the post-reuni cation decade in which TV content was harmonized, regions that already had access to Western TV broadcasts before reunification experience lower vote shares of extremist parties and higher voter turnout.
    Keywords: Voting; Television; Media; Natural experiment; Germany.
    JEL: J22 K42 P37 P39
    Date: 2017
  17. By: Alvaro Forteza (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Juan S. Pereyra (ECARES-Université libre de Bruxelles y F.R.S.-FNRS.)
    Abstract: Strong checks and balances are key features of well performing democracies aimed at protecting citizens from government abuse of power. Nevertheless, some presidents have enjoyed strong and often explicit popular support when they undermined these controls. We present a formal model of the tradeo between control on the executive and delegation geared to enhancing our understanding of this phenomenon. We argue that voters may support the loosening of checks and balances, even when this allows rent extraction, if they are convinced that checks on the executive are blocking necessary reforms. We discuss several cases of strong presidents in Latin America who, alleging that radical reforms were necessary, obtained popular support that allowed them to loosen checks on the executive. Some of these presidents had a pro- and some an anti-market reform agenda so, as our model suggests, voters' willingness to remove checks and balances can emerge under both right- and left-wing executives.
    Keywords: Political agency, Separation of powers, checks and balances.
    JEL: E69 P16
    Date: 2016–11
  18. By: Pamela Lenton (Department of Economics, University of Sheffield); Mike Masiye (Department of Economics, University of Sheffield); Paul Mosley (Department of Economics, University of Sheffield)
    Abstract: The theoretical literature around effective tax systems, which are a preconditionof an effective state and therefore of development, has coalesced around the idea of a‘fiscal social contract’, in which beneficial expenditures are delivered to taxpayers in returnfor their tax payments, rather than a coercive relationship existing between them and thegovernment. However, these ideas about governance have with few exceptions not beenincorporated into empirical analyses of tax yield and how to increase it. In this paper, weattempt to fill this gap. Our starting-point is the model of the (fundamentally) democratic social contract proposedby Rousseau 250 years ago, which suggests that increased democracy will be good for manystate-building functions including fiscal mobilisation. We develop this idea by means of aprisoner’s dilemma model, which shows that a ‘fiscal contract’ between taxpayers and thegovernment (in the sense of a top left-hand corner, ‘win-win’ solution of the prisoner’sdilemma) will be most likely to emerge not only as a result of greater democraticaccountability, but also if taxpayers feel that they are getting good value from, and are wellinformed about, government expenditures in exchange for their tax payments. This modelis then estimated empirically against a sample of 62 developing countries between 1980-2008 (with the share of human capital expenditures in public expenditure used as anindicator of the value which taxpayers derive from that expenditure), backed by two casestudies of Ghana and Zambia. Our results, both from econometric analysis and the casestudies, suggest that increasing levels of democratic accountability and the quality of publicexpenditure are correlated, and causally connected, with increasing tax/GDP ratios, and thatin countries where competitiveness is blunted by high levels of rent-seeking, the tax ratiowill be less buoyant. Also, the process by which fiscal contracts are constructed isimportant. The government needs to send the taxpayer an effective signal, or bona-fide,illustrating the benefits to be derived from paying their tax bills. Illustrations of effectivebona-fides are provided.
    Keywords: fiscal policy, tax ratios, fiscal contracts, bona-fides, democracy
    JEL: D72 D78 E62 O23
    Date: 2017–01
  19. By: Salahodjaev, Raufhon
    Abstract: Recent studies show that psychological factors such as cognitive ability play an important role in the empirical modeling of life satisfaction and suggest that intelligence is an important proxy for political and intellectual capital. These articles, however, only explore the direct effect of intelligence on subjective wellbeing. In this study, we conjecture that intellectual capital is a mechanism through which the size of bureaucracy impacts life satisfaction. Using data from 147 countries, we find that the interaction term between nation-IQ and government size is positive and significant, suggesting that government size increases life satisfaction most in high-IQ countries and least in countries with lower levels of cognitive abilities.
    Keywords: intelligence, government size, life satisfaction
    JEL: F0
    Date: 2017
  20. By: Flores-Macías, Gustavo A.
    Abstract: In spite of the importance of taxation for political and economic development, we know relatively little about the conditions under which citizens might not exact a political cost on leaders for adopting a particular tax. Drawing on insights from the literature on institutional design, this article examines how certain features of taxes – such as allowing for civil society oversight, sunset provisions that make the duration of taxes finite, and earmark mechanisms that direct tax revenue for a specific purpose – affect political support behind them. It also evaluates the role of three important aspects of the fiscal exchange, namely trust in government, perceptions of the public good, and level of income. Based on an original survey experiment focusing on the provision of public safety in Mexico, I find that these design features increase political support for taxation, especially among those with low trust in government, perceptions of high quality of the public good, and low income. These findings have important implications for Mexico, as well as a number of other countries that have both low levels of extraction and increased public spending imperatives.
    Keywords: Development Policy, Economic Development, Governance,
    Date: 2016
  21. By: Korenok Oleg (Department of Economics, VCU School of Business); Edward L. Millner (Department of Economics, VCU School of Business); Laura Razzolini (Department of Economics, VCU School of Business)
    Abstract: We determine whether the moral cost of taking exceeds the moral cost of not giving. We design and conduct an experiment to determine whether a dictator prefers a giving game over a taking game when the payoff possibilities are identical and to measure the strength of the preference. We find that aversion to taking is prevalent and strong. Over 85% of the dictators in our experiment choose to play a giving game over a taking game when the payoff possibilities are identical and, on average, dictators are willing to sacrifice over 31% of their endowment to avoid taking.
    Keywords: Taking; Dictator Game; Impure Altruism; Equivalent Variation
    JEL: C91 D01 D64 H30 H41
    Date: 2017–01

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