nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒03‒12
thirty-two papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Cycles and Stock Returns By Pástor, Luboš; Veronesi, Pietro
  2. Media Capture through Favor Exchange By Szeidl, Adam; Szucs, Ferenc
  3. Financial Literacy and Political Orientation in Great Britain By Alberto Montagnoli; Mirko Moro; Georgios A. Panos; Robert E. Wright
  4. Worker retraining and transfer payments: The political economy of social protection By Sanjay Jain
  5. Historical Roots of Political Extremism: The Effects of Nazi Occupation of Italy By Fontana, Nicola; Nannicini, Tommaso; Tabellini, Guido
  6. Endogenous Sanctioning Institutions and Migration Patterns: Experimental Evidence By Ramon Cobo-Reyes; Gabriel Katz; Simone Meraglia?
  7. Race, resources, and representation: Evidence from Brazilian politicians By Natália S. Bueno; Michael Noble; Thad Dunning
  8. Notes to Understand Migration Policy with International Trade Theoretical Tools By Cebreros Zurita Carlos Alfonso;Chiquiar Daniel;Roa Mónica;Tobal Martín
  9. Demand and Supply of Populism By Guiso, Luigi; Herrera, Helios; Morelli, Massimo; Sonno, Tommaso
  10. The political economy of transportation investment By Giacomo A. M. Ponzetto
  11. Lobbying over Exhaustible-Resource Extraction By Achim Voss; Mark Schopf
  12. A primary definer online: the construction and propagation of a think tank’s authority on social media By Nick Anstead; Andrew Chadwick
  13. Politics and Entrepreneurship in the U.S. By Louis-Philippe Beland; Bulent Unel
  14. Democratic Involvement and Immigrants' Compliance with the Law By Slotwinski, Michaela; Stutzer, Alois; Gorinas, Cédric
  15. Do Political Connections Reduce Job Creation? Evidence from Lebanon By Ishac Diwan; Jamal Ibrahim Haidar
  16. Special Interest Politics: Contribution Schedules versus Nash Bargaining By Achim Voss; Mark Schopf
  17. Politics of Global Value Chains By Julian Hinz; Elsa Leromain
  18. Regional Banking Instability and FOMC Voting By Eichler, Stefan; Lähner, Tom; Noth, Felix
  19. Flip a coin or vote: An Experiment on Choosing Group Decision Rules By Hoffmann, Timo; Renes, Sander
  20. Sovereign wealth funds and ethical investment guidelines: the role of regime type By Jürgen Braunstein
  21. Policy diffusion, domestic politics and social assistance in Lesotho, 1998–2012 By Maria Granvik
  22. The Political Economy of Teacher Management in Decentralized Indonesia By Andrew Rosser; Mohamad Fahmi
  23. A composition-consistency characterization of the plurality rule By Z. Emel Ozturk
  24. The accidental Trojan horse: Plea bargaining as an anticorruption tool in Brazil By Fausto de Assis Ribeiro
  25. Cooperation, Framing and Political Attitudes By Fosgaard, Toke R.; Hansen, Lars G.; Wengström, Erik
  26. Democracy and Credit “Democracy Doesn`t Come Cheap” But At Least Credit to Its Corporations Will Be By Delis, Manthos; Hasan, Iftekhar; Ongena, Steven
  27. Financial Literacy and Attitudes to Redistribution By Alberto Montagnoli; Mirko Moro; Georgios A. Panos; Robert E. Wright
  28. The Political Economy of Macroeconomic Policy in Arab Resource-Rich Economies By Adeel Malik
  29. Granger Causality and the Factors underlying the Role of Younger Generations in Economic, Social and Political Changes in Arab Countries By Driouchi, Ahmed; Harkat, Tahar
  30. Private Banking and Crony Capitalism in Egypt By Ishac Diwan; Marc Schiffbauer
  31. Strikes, Employee Workplace Representation, Unionism, and Trust: Evidence from Cross-Country Data By Addison, John T.; Teixeira, Paulino
  32. I’ve Got the Power: Mapping Connections between Lebanon’s Banking Sector and the Ruling Class By Jad Chaaban

  1. By: Pástor, Luboš; Veronesi, Pietro
    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.
    Keywords: political cycles; presidential puzzle; risk aversion
    JEL: D72 G12 G18 P16
    Date: 2017–02
  2. By: Szeidl, Adam; Szucs, Ferenc
    Abstract: We uncover the full circle of favors leading to media capture in Hungary. We first document favors from politicians to the media. Exploiting changes in government and media ownership, we show that under right-wing---but not left-wing---governments, state-owned firms heavily tilted advertising to connected newspapers and billboards, relative to the advertising composition of private firms or circulation shares. We then document two forms of media bias as return favors. We show that the connected newspaper had lower corruption coverage than the opposition newspaper before, but not after, a public breakdown in its relationship to the politician which also lead to the termination of advertising favors. And we show that billboard companies, after they became right-connected, selectively hosted the political campaigns of the right-wing party. Using a structural model we infer the welfare cost of advertising misallocation to be a third of the advertising budget, and estimate that each dollar spent on media capture cost 1.9 dollars to taxpayers. Our results suggest that the mechanism underlying media capture was a misallocation-inducing relational contract.
    Keywords: advertising; favor exchange; media bias; media capture; Misallocation; relational contract
    JEL: D61 D72 D73 L82 P16
    Date: 2017–02
  3. By: Alberto Montagnoli; Mirko Moro; Georgios A. Panos; Robert E. Wright
    Abstract: This study examines the relationship between financial literacy and political orientation in Great Britain. Using novel data from the British Election Survey in 2014, we employ two distinct measures of political orientation, capturing individual self-assessment on a left-right axis and party preferences. We find that financially-literate individuals are some 11-19 percent more likely to orientate at the centre-left or the centre-right. Moreover, they are some 30 percent less likely not to know their political orientation. The results are robust when rich sets of public-attitude and public-value variables are accounted for. Financially-literate individuals are also more likely to have a stable political orientation over time and they are some 15-23 percent less likely to change attitudes radically towards the left or the right across different waves of the study. We interpret our findings as indicative that greater financial literacy is conducive to greater stability of moderate political views and orientation.
    Keywords: Financial literacy, political orientation, attitudes, polarization, Great Britain
    JEL: D14 D63 D72 I24
    Date: 2016–09
  4. By: Sanjay Jain
    Abstract: We conduct an incentive-theoretical analysis of political economy considerations in the design of social protection programmes in developing countries to accompany economic reforms. We focus on two aspects of social protection—the provision of redistribution and retraining—that arguably characterize many reform packages. We analyse the interaction of compensatory redistribution and retraining programmes, and demonstrate that the provision of redistributive programmes might distort incentives for individuals to undertake worker retraining. This disincentive effect can be large enough to politically derail the passage of even those reform policies that are expected to increase output and to benefit a majority of the population. Conversely, it may be possible for an economic reform to win political support in the absence of compensatory redistribution. Thus we suggest that a ‘political failure’ may occur due to the complex interaction between the political and economic incentives created by these programmes.
    Date: 2017
  5. By: Fontana, Nicola (London School of Economics); Nannicini, Tommaso (Bocconi University); Tabellini, Guido (Bocconi University)
    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: political extremism, path dependence, regression discontinuity design
    JEL: D72 C21
    Date: 2017–02
  6. By: Ramon Cobo-Reyes (Department of Economics, University of Exeter); Gabriel Katz (Department of Politics, University of Exeter); Simone Meraglia? (Department of Economics, University of Exeter)
    Abstract: We experimentally analyze the effect of the endogenous choice of sanctioning institutions on cooperation and migration patterns across societies. In our experiment, subjects are allocated to one of two groups, are endowed with group-specific preferences, and play a public goods game for 30 periods. Each period, subjects can move between groups and, at fixed intervals, can vote on whether to implement formal (centralized) sanctioning institutions in their group. We compare this environment to one in which only one group is exogenously endowed with sanctioning institutions. We find that subjects' ability to vote on institutions leads to (i) a more efficient partition of subjects between groups, (ii) a lower migration rate, (iii) an increase in overall payoffs, and (iv) a decrease in both inter- and intra-groups (payoff) inequality. Over time, subjects tend to vote for sanctioning institutions and contribute to the public good.
    Keywords: Formal Sanctions, Cooperation, Migration, Voting, Experiment.
    JEL: C73 C91 C92 D72 H41 H73
    Date: 2017
  7. By: Natália S. Bueno; Michael Noble; Thad Dunning
    Abstract: What explains the persistence of racial or ethnic inequalities in political representation, in the absence of strongly politicized racial or ethnic cleavages? This paper uses new data to demonstrate a substantial racial gap between voters and politicians in Brazil. We show that this disparity is not plausibly due to racial preferences in the electorate—for instance, deference towards white candidates, or discrimination against non-whites. Nor do barriers to candidate entry or discrimination by party leaders likely explain the gap. Instead, we document the importance of persistent resource disparities between whites and non-whites—especially, differences in personal assets and in campaign contributions. Our findings show how the power of numerical racial minorities may persist in democracies, even in the absence of racialized politics, and highlight the role of investments by economic elites in a setting in which race and class substantially overlap.
    Keywords: descriptive representation, racial democracy, Brazil, experiments
    Date: 2016
  8. By: Cebreros Zurita Carlos Alfonso;Chiquiar Daniel;Roa Mónica;Tobal Martín
    Abstract: This paper develops a standard model of international trade and makes three contributions. First, it shows that when the welfare function of the recipient country reflects the utility of natives, free-trade and free-migration generate isomorphic results, that is, they increase overall welfare but redistribute income by reducing the returns of the scarce factor. Although this result is frequently evoked in academic circles, this document shows that the equivalence holds for the most relevant measure of welfare from a political economy perspective. Second, this equivalence is extended to the public policy domain: for each level of trade restrictions mutually imposed, it is found an immigration tax that generates the same redistribution and welfare impacts. Third, in the light of these results, the model is enlarged to illustrate a channel through which political economy concerns may influence immigration policy.
    Keywords: International Migration, Political Economy, International Trade
    JEL: F22 F13 D72 D78
    Date: 2017–02
  9. By: Guiso, Luigi; Herrera, Helios; Morelli, Massimo; Sonno, Tommaso
    Abstract: We defi ne as populist a party that champions short-term protection policies without regard for their long-term costs. First, we study the demand for populism: we analyse the drivers of the populist vote using individual level data from multiple waves of surveys in Europe. Individual voting preferences are influenced directly by different measures of economic insecurity and by the decline in trust in traditional parties. However, economic shocks that undermine voters' security and trust in parties also discourage voter turnout, thus mitigating the estimated demand of populism when ignoring this turnout selection. Economic insecurity affects intentions to vote for populist parties and turnout incentives also indirectly because it causes trust in parties to fall. Second, we study the supply side: we find that populist parties are more likely to appear when the drivers of demand for populism accumulate, and more so in countries with weak checks and balances and with higher political fragmentation. The non-populist parties' policy response is to reduce the distance of their platform from that of new populist entrants, thereby magnifying the aggregate supply of populist policies.
    Keywords: anti-elite rhetoric; short term protection; Voter participation
    Date: 2017–02
  10. By: Giacomo A. M. Ponzetto
    Abstract: Will politics lead to over-building or under-building of transportation projects? In this paper, we develop a model of infrastructure policy in which politicians overdo things that have hidden costs and underperform tasks whose costs voters readily perceive. Consequently, national funding of transportation leads to overspending, since voters more readily perceive the upside of new projects than the future taxes that will be paid for distant highways. Yet when local voters are well-informed, the highly salient nuisances of local construction, including land taking and noise, lead to under-building. This framework explains the decline of urban mega-projects in the US (Altshuler and Luberoff 2003) as the result of increasingly educated and organized urban voters. Our framework also predicts more per capita transportation spending in low-density and less educated areas, which seems to be empirically correct.
    Keywords: Infrastructure, Political economy, Transportation investment, Nuisance mitigation, Elections, Imperfect information
    JEL: D72 D82 H54 H76 R42 R53
    Date: 2017–01
  11. By: Achim Voss (University of Hamburg); Mark Schopf (University of Paderborn)
    Abstract: Consider a lobby group of exhaustible-resource suppliers, which bargains with the government over the extraction of an exhaustible resource and over contribution payments. We characterize the equilibrium extraction path and the development of contribution payments in time. The latter relates to the development of the conflict of interest between profit-maximization and welfare-maximization. Due to stock pollution damages, the government prefers a lower level of cumulative extraction than the lobby group in the long run. In the meantime, the resource suppliers’ aim to maximize profits implies that equilibrium extraction may be too slow to maximize welfare, while flow-pollution damages imply that it may be too fast.
    Keywords: Environmental Policy; Exhaustible Resources; Political Economy; Lobbying; Nash Bargaining; Dynamic Programming
    JEL: D72 Q31 Q38 Q58
    Date: 2016–05
  12. By: Nick Anstead; Andrew Chadwick
    Abstract: Who has power in the construction of economic news in the UK? Are social media reshaping how this power is enabled? We examine the public Twitter interactions between journalists, political elites, and what is arguably the UK’s most important think tank, the Institute for Fiscal Studies (IFS), during the 2015 UK general election campaign. Combining human-coded content analysis and network analysis of Twitter discourse about the IFS during a 38-day period, we explain how and why the authority of this think tank is being translated to social media. We develop a new, social media theory of ‘primary definers’ and show how the political authority on which such roles rest is co-constructed and propagated by professional journalists and political elites. Central to this process is a behaviour we conceptualize and measure: authority signalling. Our findings call into question some of the more sanguine generalizations about social media’s contribution to pluralist democracy. Given the dominance of public service broadcasters in the processes we identify, we argue that, despite the growth of social media, there can be surprising limits on the extent to which contemporary media systems help citizens gain information about the assumptions underlying economic policy.
    Keywords: social media; news; journalism; authority signalling; power; economic policy; austerity
    JEL: N0
    Date: 2017
  13. By: Louis-Philippe Beland; Bulent Unel
    Abstract: There is a strong belief that Republicans are more pro-business than Democrats. In this paper, we investigate the causal impact of partisan allegiance of governors (Republican or Democratic) on entrepreneurial activity by exploiting random variation in close gubernatorial elections in 50 states over the last three decades in a Regression Discontinuity design. We ?nd that Republican governors are not di?erent than Democratic governors in either business creation or destruction. Our ?ndings are robust to several sensitivity checks.
  14. By: Slotwinski, Michaela (University of Basel); Stutzer, Alois (University of Basel); Gorinas, Cédric (Danish National Centre for Social Research (SFI))
    Abstract: Many people are concerned about societal cohesion in the face of higher numbers of foreigners migrating to Western democracies. The challenge for the future is to find and adopt institutions that foster integration. We investigate how the right to vote in local elections affects immigrants' compliance with the law. In our study for Denmark, we exploit an institutional regulation that grants foreigners local voting rights after three years of stay. Relying on register data, we find causal evidence that the first possibility to vote considerably reduces the number of legal offenses of non-Western male immigrants in the time after elections.
    Keywords: migration, voting rights, immigrant integration, crime, RDD
    JEL: D02 K42 J15
    Date: 2017–02
  15. By: Ishac Diwan; Jamal Ibrahim Haidar (Harvard University)
    Abstract: Using firm-level census data, we determine how politically-connected firms (PCFs) reduce job creation in Lebanon. After observing that large firms account for the bulk of net job creation, we find that PCFs are larger and create more jobs, but are also less productive, than non-PCFs in their sectors. On a net basis, at the sector-level, each additional PCF reduces jobs created by 7.2% and jobs created by non-PCFs by 11.3%. These findings support the notion that politically-connected firms are used for clientelistic purposes in Lebanon, exchanging privileges for jobs that benefit their patrons’ supporters.
    Date: 2016–10–17
  16. By: Achim Voss (University of Hamburg); Mark Schopf (University of Paderborn)
    Abstract: The article compares two models of lobby influence on policy choice: The Grossman & Helpman (1994) contribution-schedule model and a negotiation between the lobbies and the government summarized by a Nash-bargaining function. The literature uses the models interchangeably because they imply the same equilibrium policy. We derive under which conditions they lead to the same payments, equilibrium utilities, and total efficiency. They coincide under particular assumptions about bargaining power and disagreement utility.
    Keywords: Nash Bargaining; Common-Agency Model; Lobbying
    JEL: C71 C78 D72
    Date: 2016–05
  17. By: Julian Hinz; Elsa Leromain (Paris School of Economics and University of Paris 1-Sorbonne.)
    Abstract: The proliferation of global value chains makes the domestic production of goods increasingly dependent on inputs from foreign sources. Political tensions between countries have an impact on trade costs as they affect the international enforceability of contracts or result in impediments from authorities in the shipment or production process. By expanding their portfolio of foreign suppliers, firms and by extension entire economies are thus increasingly prone to the trade effects of adverse bilateral political shocks. In this paper, we aim to reassess the role of political relations on trade flows in light of these new developments and propose a new channel. We hypothesize that political relations matter more for imports of strategic inputs. Strategic inputs refer to inputs that a country uses intensively in its production process. We construct a simple model exhibiting input-output linkages to clarify the mechanisms at play. Using a new measure for countries’ dependence on these strategic inputs, we then test the proposed mechanism empirically by interacting the measure with an indicator of political relations in a structural gravity model. To address potential endogeneity issues we then perform an event study, in which the treatment is an exogenous adverse political shock. Using a new dataset on the status of diplomatic representation and monthly trade data, we exploit the recalling or summoning of the ambassador of a country as a shock to bilateral political relations. Results from both analyses confirm an economically and statistically significant effect that varies conditionaly on the dependence of the country on the imported input.
    Date: 2016–07
  18. By: Eichler, Stefan; Lähner, Tom; Noth, Felix
    Abstract: This study analyzes if regionally affiliated Federal Open Market Committee (FOMC) members take their districts’ regional banking sector instability into account when they vote. Considering the period 1978–2010, we find that a deterioration in a district’s bank health increases the probability that this district’s representative in the FOMC votes to ease interest rates. According to member-specific characteristics, the effect of regional banking sector instability on FOMC voting behavior is most pronounced for Bank presidents (as opposed to Governors) and FOMC members who have career backgrounds in the financial industry or who represent a district with a large banking sector.
    JEL: E43 E52 E58
    Date: 2016
  19. By: Hoffmann, Timo; Renes, Sander
    Abstract: Before a group can take a decision, its members must agree on a mechanism to aggregate individual preferences. In this paper we present the results of an experiment on the influence of private payoff information and the role of the available alternatives on individuals’ mechanism choices in such group choice situations. While efficient mechanisms are desirable, we experimentally show that participation constraints can prevent their implementation. We find strong indications that individual preferences for choice rules are sensitive to individual expected payoffs. Our results highlight the importance of considering participation constraints when designing choice institutions.
    JEL: C91 D70 D82
    Date: 2016
  20. By: Jürgen Braunstein
    Abstract: In the popular discourse it has often been implied that SWF investments from non-Western economies with low democracy levels are driven by political imperatives. If that is true then how can we explain that SWFs from Western democratic countries adopt ethical investment guidelines, which are often linked to politics? In order to explain that the present article takes a comparative approach by looking at regime types, domestic debates and the sequences in which ethical investment guidelines were adopted across SWFs. Therefore it looks at 10 of the most transparent SWFs. High levels of transparency allows for close scrutiny and monitoring of the SWFs investment practices, specifically by a country’s population. However, the rule set governing the interactions between the government and population can vary significantly across countries. Based on the case study findings this article is able to formulate an initial hypothesis: SWFs of countries with parliamentary systems and high levels of political freedom are more likely to adopt ethical investment guidelines.
    Keywords: sovereign wealth funds; political freedom; transparency; parliamentary system; presidential system; ethical investment guidelines.
    JEL: F3 G3
    Date: 2017
  21. By: Maria Granvik
    Abstract: Lesotho is a small Southern African country that has introduced two national cash transfer programmes, the Old Age Pension and the Child Grant Programme. Although Lesotho has followed what has been called the ‘Southern African model’, the introduction of the Old Age Pension was not the result of an explicit process of cross-national policy diffusion. The Child Grant Programme was initially driven by international organizations, but the dynamics were not Southern African, and the Lesotho Government quickly took ownership of the initiative. Unlike in many other parts of Africa, these reforms were not resisted by domestic political elites. The Old Age Pension was championed by the Prime Minister, with support from the Minister of Finance. The reforms were rooted in both socioeconomic changes, with the AIDS pandemic highlighting the inadequacy of extended familial responsibility for the poor, and political change, with the (possibly short-lived) restoration of stable democratic competition in the early 2000s opening the political space for programmatic reform.
    Keywords: Lesotho, policy diffusion, cash transfers, social pensions, HIV/AIDS, orphaned and vulnerable children
    Date: 2016
  22. By: Andrew Rosser (University of Adelaide); Mohamad Fahmi (Department of Economics, Padjadjaran University)
    Abstract: Indonesia faces serious challenges in the number, cost, quality, and distribution of teachers. This paper examines the role of political economy factors in producing these challenges and shaping eforts to resolve them. It argues that the challenges have their origins in the way in which political and bureaucratic elites have for decades used the school system to accumulate resources, distribute patronage, mobilize political support, and exercise political control. This orientation has meant that teacher numbers, quality, and distribution have been managed to maximize fows of rents and votes from schools to the elite, lubricate patronage and political networks, and ensure that elites maintain politi- cal control rather than maximize educational performance and equity. The fall of the New Order, the authoritarian and centralized regime that ruled Indonesia from 1965 to 1998, led to eforts to change this situation, but these have had little impact so far. The paper concludes by assessing what can be done by proponents of teacher management reform in this context to promote better outcomes.
    Keywords: political economy, education, teachers, teacher management, Indonesia
    JEL: D73 H75 I28 P16
    Date: 2016–12
  23. By: Z. Emel Ozturk
    Abstract: We consider a collective choice problem in which the number of alternatives and the number of voters may vary. The two fundamental axioms in such a setting are reinforcement and composition-consistency. The former guarantees that the social choice rule cannot be manipulated by partitioning the electorate into sub-electorates. The latter guarantees that the rule cannot be manipulated by altering the set of alternatives entering an election via a procedure called cloning. Brandl et al. (2016) show that reinforcement and composition-consistency are incompatible. We propose a plausible weakening of composition-consistency called composition-consistency for dominated clones. We show that there is only one social choice rule that satisfies reinforcement, unanimity and composition- consistency for dominated clones. The rule is the well-known plurality rule which selects the alternatives top-ranked by the largest number of voters.
    Keywords: Plurality rule, cloning-consistency, composition-consistency, reinforcement
    JEL: D70 D71 D72
    Date: 2017–03
  24. By: Fausto de Assis Ribeiro
    Abstract: This paper employs the Advocacy Coalition Framework (ACF) as a model to understand the legislative process that led to the implementation of plea bargaining as an anticorruption tool in Brazil. Through the analysis of primary qualitative data, it assesses the political and social forces that formed a coalition and propelled this legislative process forward, thus allowing the posterior emergence of the largest anticorruption judicial action in the history of Brazil. In doing so, it elucidates the reasons that led a systemically corrupt legislative to enact a remarkably effective anticorruption policy, often to the detriment of lawmakers themselves. This paper’s contribution to the literature about the anticorruption framework in Brazil lies in its critical interpretation of the interplay of political forces involved in the early stages of policy formulation. It adds empirical elements to a modern institutional approach to the study of corruption, which derives from classical theories about the formation of Brazilian society. Finally, the paper serves as an illustration of the difficulties inherent to applying the ACF in dysfunctional contexts, such as those marked by systemic corruption.
    Keywords: plea bargaining, corruption, Lava Jato, Advocacy Coalition Framework
    Date: 2017–02–23
  25. By: Fosgaard, Toke R. (Department of Food and Resource Economics, University of Copenhagen); Hansen, Lars G. (Department of Food and Resource Economics, University of Copenhagen); Wengström, Erik (Department of Economics, Lund University)
    Abstract: This paper shows that political attitudes are linked to cooperative behavior in an incentivized experiment with a large sample randomly drawn from the Danish population. However, this relationship depends on the way the experiment is framed. In the standard game in which subjects give to a public good, contributions are the same regardless of political attitudes. In an economically equivalent version, in which subjects take from a public good, left-wingers cooperate significantly more than subjects in the middle or to the right of the political spectrum. Through simulation techniques we find that this difference in the framing effect across political point of views is to some extent explained by differences in beliefs and basic cooperation preferences.
    Keywords: Cooperation; Social Dilemma; Political Ideology; Experiment; Simulation
    JEL: C90 D03 H41
    Date: 2017–03–02
  26. By: Delis, Manthos; Hasan, Iftekhar; Ongena, Steven
    Abstract: Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we show that democratization has a sizeable negative effect on loan spreads: a one point increase in the zero-to-ten Polity IV index of democracy shaves on average 21 basis points off spreads. Reversals to autocracy hike spreads more strongly. Our results are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization may affect economic development.
    Keywords: Democratic Institutions; Loan pricing; Loan Spreads; Reversals
    JEL: G21 G30 P16 P26 P27 P47
    Date: 2017–02
  27. By: Alberto Montagnoli; Mirko Moro; Georgios A. Panos; Robert E. Wright
    Abstract: This study combines novel financial-literacy data with measures of attitudes to redistribution from the British Election Study. We find a significant negative relationship between financial literacy and attitudes in favour of government intervention for income redistribution. The effect is robust to several specifications, samples, longitudinal models and instrumental variable regressions. Falsification tests show that these results are independent of generic attitudes towards other types of inequality/discrimination, e.g. based on gender, race or sexual orientation. An inquiry into the mechanisms of the effect indicates that the homo oeconomicus effect does not exert an impact on attitudes to redistribution for the less financially literate.
    Keywords: Financial literacy, redistribution, inequality, attitudes, Great Britain
    JEL: D14 D31 I24
    Date: 2017–02
  28. By: Adeel Malik (Oxford Centre for Islamic Studies and Department of International Development, University of Oxford)
    Abstract: Revisiting macroeconomic policies and outcomes of Arab resource-rich economies (RREs), this paper synthesizes the political economy considerations that underpin policy choices. The paper argues that, in the context of Arab RREs, fiscal and financial sector policies play a particularly important role in absorbing natural resource rents. Fiscal policy is highly pro-cyclical and rooted in the underlying political settlement, which is based on extensive distributional commitments. Financial systems are deep but are known for restricted financial access to vast areas of economy. Given the excessive dependence on hydrocarbon rents and the prevalence of fixed exchange rate regimes, the external constraint remains more binding. Even where monetary policy has greater room to operate, existing policy frameworks are not geared towards domestic targets, such as inflation and unemployment, and are largely determined outside the purview of macroeconomic policy. I argue that the political objective function is essential for understanding these macroeconomic arrangements. With weak productive constituencies and few institutional constraints, macroeconomic policy involves limited feedback from the private sector and upholds the interest of the sovereign. In this milieu, institutional constraints on fiscal policy are more important than central bank independence. The paper also discusses the stability implications of current macroeconomic arrangements, arguing that stability in Arab RREs is almost entirely predicated on the uninterrupted flow of oil rents rather than resilient institutional structures.
    Date: 2016–08
  29. By: Driouchi, Ahmed; Harkat, Tahar
    Abstract: Abstract This paper examines the causality between social, technological, and political variables with macroeconomic variables in 19 Arab countries: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates, Palestine, and Yemen. It uses the Granger causality test to determine causal relationships using data between years 1962 and 2015. Empirical findings reveal unique causality profile for each of the Arab countries. Results also suggest the most important variables in the determination of the economic growth in Arab economies, separately. Variables related to the demography of the new generation, ICTs and use of social media appear to be playing important causal roles, in the sense of Granger tests. This implies that economic, future social and political decisions need to account for these findings and that policies need to be geared towards for further inclusion of the aspirations and expectations of the youth.
    Keywords: Keywords: Granger Causality, Arab Countries, Macroeconomic Variables, Social Variables, Technological Variables, Political Variables.; Granger Causality, Arab Countries, Macroeconomic Variables, Social Variables, Technological Variables, Political Variables. Granger Causality, Arab Countries, Macroeconomic Variables, Social Variables, Technological Variables, Political Variables
    JEL: I25 J62
    Date: 2017–03–02
  30. By: Ishac Diwan (Harvard University); Marc Schiffbauer
    Abstract: In Egypt, the bulk of bank loans during 2003-2010 went to politically connected firms. At the same time, the banking sector was liberalized increasingly operated around competitive and profit-maximizing principles. A key puzzle that the paper tries to answer is why private banks may lend in preferential ways to politically connected firms (PCFs) in such an environment. Using a rich corporate dataset, we find that politically connected firms did not have higher profitability compared to non-politically connected firms. This suggests that PCFs were perceived to have lower risk. Indeed, we find evidence that this was the case, and that lower risk reflected higher access to bailout guarantees (implicit or explicit), as happened in earlier periods, and/or higher perceived growth opportunities.
    Date: 2016–12–13
  31. By: Addison, John T. (University of South Carolina); Teixeira, Paulino (University of Coimbra)
    Abstract: This paper investigates the determinants of industrial conflict in companies, using a multi-country workplace inquiry for 2009 and 2013 and various measures of strike activity. The principal goal is to address the effect of formal workplace representation on strikes, distinguishing in the first instance between works councils on the one hand and broadly equivalent trade union based entities on the other. The role of unionism is also central to this inquiry, not only with respect to the degree to which workplace representation is union dominated but also and more familiarly perhaps through workplace union density and the level at which collective bargaining is conducted. Attention is also paid to the quality of industrial relations, as reflected in dissonance, namely divergent assessments of managers and employee workplace representatives as to the state of industrial relations. Although country effects do matter, it is reported that works councils are associated with reduced strike activity. However, any such effect is sensitive in particular to the union status of work councilors and time. There is also some indication that collective bargaining at levels higher than the company can exacerbate strike activity but this effect does not persist, possibly because of decentralization and the development of hybrid bargaining structures. For its part, good industrial relations appears key to strike reduction, independent of workplace representation.
    Keywords: works councils, employee representation, union density, collective bargaining, industrial relations quality, strikes, trust
    JEL: J51 J52 J53 J83
    Date: 2017–02
  32. By: Jad Chaaban (American University of Beirut)
    Abstract: This paper explores the extent to which local commercial banks in Lebanon are linked to the country’s political class, and how this impacts their efficiency and sovereign risk exposure. By compiling detailed ownership and political affiliation data on the major 20 commercial banks in 2014, the paper shows that as much as 18 out of the 20 banks have major shareholders linked to political elites, and 43% of assets in the sector could be attributed to political control. “Crony capital” within the banking sector is also shown to impact the quality of banks’ loans, and their exposure to public debt.
    Date: 2016–10–26

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