nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒08‒13
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. The political economy of fiscal transparency and independent fiscal councils By Beetsma, Roel; Debrun, Xavier; Sloof, Randolph
  2. Public funding of parties and political polarization By Köppl-Turyna, Monika
  3. Government Size, Political Institutions and Output Growth in Nigeria By Fasoranti, Modupe Mary; Alimi, Rasaq Santos
  4. Media Competition, Information Provision and Political Participation: Evidence from French Local Newspapers and Elections, 1944-2014 By Cagé, Julia
  5. Who's Getting the Office? Autocracy And Elected Politicians’ Career Path: Evidence from the Mexican States By Julio Alberto Ramos-Pastrana
  6. The Emergence of Weak, Despotic and Inclusive States By Daron Acemoglu; James A. Robinson
  7. “Taking Occam’s Razor to the Endogeneity Problem in Economic Voting” By Davis, Brent
  8. Tax competition and the political economy of public employment: a model for Austria By Christl, Michael; Köppl-Turyna, Monika
  9. Disentangling fiscal effects of local constitutions By Kantorowicz, Jarosław; Köppl-Turyna, Monika
  10. Does Soft Corruption Make Grease or Sand for Development? Evidence from Road's Special Allocation Fund for Indonesian Districts By Nasrudin, Rus'an
  11. Does It Matter How and How Much Politicians Are Paid? By Altindag, Duha T.; Filiz, S. Elif; Tekin, Erdal
  12. Electoral Systems, Taxation and Immigration Policies: Which System Builds a Wall first? By Massimo Morelli; Margherita Negri

  1. By: Beetsma, Roel; Debrun, Xavier; Sloof, Randolph
    Abstract: The global surge in independent fiscal councils (IFCs) raises three related questions: How can IFCs improve the conduct of fiscal policy? Are they simultaneously desirable for voters and elected policymakers? And are they resilient to changes in political conditions? We build a model in which voters cannot observe the true competence of elected policymakers. IFCs’ role is to mitigate this imperfection. Equilibrium public debt is excessive because policymakers are “partisan” and “opportunistic.” If voters only care about policymakers’ competence, both the incumbent and the voters would be better off with an IFC as the debt bias would fall. However, when other considerations eclipse competence and give the incumbent a strong electoral advantage or disadvantage, setting up an IFC may be counterproductive as the debt bias would increase. If the incumbent holds a moderate electoral advantage or disadvantage, voters would prefer an IFC, but an incumbent with a large advantage may prefer not to have an IFC. The main policy implications are that (i) establishing an IFC can only lower the debt bias if voters care sufficiently about policymakers’ competence; (ii) not all political environments are conducive to the emergence of IFCs; and (iii) IFCs are vulnerable to shifts in political conditions. JEL Classification: E62, H6
    Keywords: competence, congruence, fiscal transparency, independent fiscal councils, opportunistic bias, partisan bias, public debt
    Date: 2017–08
  2. By: Köppl-Turyna, Monika
    Abstract: This work analyzes the impact of asymmetric financial constraints on the platforms of parties, using a formal model of elections. The main results show that when a party faces a tight financial constraint, the platform chosen in equilibrium is further away from its ideal point compared with the case when campaign expenses are unlimited. Moreover, we show that in the presence of asymmetric budget constraints, a financially advantaged party converges to the median voter and a disadvantaged one diverges away. The strength of the latter effect depends on the salience of the policy issue in question. The results are tested by using a dataset of party positions and salience and confirm the theoretical predictions.
    Keywords: campaign finance,polarization,endogenous valence,public funding,salience
    JEL: D72 D78
    Date: 2017
  3. By: Fasoranti, Modupe Mary; Alimi, Rasaq Santos
    Abstract: Nigeria has had an uninterrupted democratisation wave since 1999 and the country has had its share of macroeconomic instability in terms of high rates of inflation and huge debt profile due to high cost of governance. Against this background, this study test the hypothesis that government in young democracies tend to generates large government size and test also the hypothesis that the outgoing dictatorships of the day engaged in activities which would bequest the young democracies big bills to be repaid at the initial stages of those new democratic regimes. Applying time series analysis on Nigeria data for the period of 1960 to 2015, the study found that (i) democracy in Nigeria is associated with bigger government and huge public debts (ii) the hypothesis that outgoing dictatorship bequest the young democracies with big bills is not confirmed for Nigeria. Moreover, the study found evidence that as democracy mature over the long run, the size of government tends to decrease, this is suggestive that democracy needs time to adapt and evolve over time. This study has provided deeper understanding of the recent history of Nigeria in terms of its dynamics during political transitions.
    Keywords: Democracy, government size, external debt, public debt, Nigeria
    JEL: C52 E62 H11 O43
    Date: 2017
  4. By: Cagé, Julia
    Abstract: This paper investigates the impact of increased media competition on the quantity and quality of news provided and, ultimately, on political participation. Drawing upon existing literature on vertical product differentiation, I explore the conditions under which an increase in the number of newspapers can decrease both the quantity and quality of news provided. I build a new county-level panel dataset of local newspaper presence, newspapers' newsrooms, costs and revenues and political turnout in France, from 1944 to 2014. I estimate the effect of newspaper entry by comparing counties that experience entry to similar counties in the same years that do not. Both sets of counties exhibit similar trends prior to newspaper entry, but those with entry experience substantial declines in the average number of journalists (business-stealing effect). An increased number of newspapers is also associated with fewer articles and less hard news provision. These effects are stronger in counties with more homogeneous populations, as predicted by my simple theoretical framework, whereas there is little impact in counties with more heterogeneous populations. Newspaper entry, and the associated decline in information provision, is ultimately found to decrease voter turnout at local elections.
    Keywords: hard news; media competition; newspaper content; political participation; size of the newsroom; soft news
    JEL: D72 L11 L13 L82
    Date: 2017–08
  5. By: Julio Alberto Ramos-Pastrana (Indiana University)
    Abstract: WThe end of the Cold War marked the expansion of democracy throughout the world (Magaloni, 2010 and Blaydes, 2008). However, many countries are still organized as electoral autocracies (Magaloni, 2010). Electoral autocracies are dened as "[...] autocratic regimes that allow opposition parties to contest elections" (Magaloni, 2010). They are "[...] characterized by the use and abuse of incumbent authority in order to prevent the opposition from taking oce" (Giraudy, 2012). They are concentrated in Africa, Middle East, North Africa, the countries from the former Soviet Union and Asia (Magaloni, 2010) but there are also several examples from Latin American countries (Besley, et. al., 2010). Autocracy is not only concentrated at the federal level, it is possible to observe such regime at the subnational level as well, having Mexico and Argentina as two prime examples (Giraudy, 2012).Length: 46 pages
  6. By: Daron Acemoglu; James A. Robinson
    Abstract: Societies under similar geographic and economic conditions and subject to similar external influences nonetheless develop very different types of states. At one extreme are weak states with little capacity and ability to regulate economic or social relations. At the other are despotic states which dominate civil society. Yet there are others which are locked into an ongoing competition with civil society and it is these, not the despotic ones, that develop the greatest capacity. We develop a dynamic contest model of the potential competition between state (controlled by a ruler or a group of elites) and civil society (representing non-elite citizens), where both players can invest to increase their power. The model leads to different types of steady states depending on initial conditions. One type of steady state, corresponding to a weak state, emerges when civil society is strong relative to the state (e.g., having developed social norms limiting political hierarchy). Another type of steady state, corresponding to a despotic state, originates from initial conditions where the state is powerful and civil society is weak. A third type of steady state, which we refer to as an inclusive state, emerges when state and civil society are more evenly matched. In this case, each party has greater incentives to invest to keep up with the other, and this leads to the most powerful and capable type of state, while simultaneously incentivizing civil society to be equally powerful as well. Our framework highlights that comparative statics with respect to structural factors such as geography, economic conditions or external threats, are conditional — in the sense that depending on initial conditions they can shift a society into or out of the basin of attraction of the inclusive state.
    JEL: H4 H7 P16
    Date: 2017–08
  7. By: Davis, Brent
    Abstract: Conventional economic voting models are increasingly being challenged by the problem of endogeneity – that is, causality may not run, as they suggest, in one direction from economics to politics. Rather, causality may run in the other direction, from politics to economics, or be bi-directional. While a small, but growing, number of studies are highlighting the endogeneity problem in economic voting models, there is a tendency to identify and then attempt to manage, rather than eliminate, the distortions caused by endogeneity in economic voting models. At least worst, economic voting models which do not deal with endogeneity are vulnerable to producing biased results; at worst, the results may be spurious. Rather than just attempting to manage the endogeneity problem in, this study proposes a strategy to purge it from, economic voting models. However, in doing so, it further brings into question the fulcrum idea of economic voting models, finding instead ‘politics drives economics’ rather than the other way around.
    Keywords: politimetric modelling; economic voting; voter behaviour; endogeneity; structural equation modelling
    JEL: C51 C54 D72
    Date: 2017–08–08
  8. By: Christl, Michael; Köppl-Turyna, Monika
    Abstract: In this work we simulate the effects of tax autonomy of the Austrian states on the levels of public employment in each state. We show that depending on the strength of the public sector lobby, tax autonomy would require reduction of employment in the public sector between 25% and 35% of the current level. We also show that tax autonomy increases welfare levels by 1% to 1.5%, that is that the positive change in the disposable income of the workers more than offsets the welfare loss resulting from lower public goods‘ provision. Finally, we show that reduction of public employment is welfare-superior to an alternative scenario, in which employment levels are held constant but the wage levels in the public sector need to be adjusted.
    Keywords: Tax competition,Lobbying,Probabilistic voting,Austria
    JEL: D72 H71 H77
    Date: 2017
  9. By: Kantorowicz, Jarosław; Köppl-Turyna, Monika
    Abstract: We apply the difference-in-discontinuities design to disentangle the fiscal effects of the governance system conditional on electoral systems. We take advantage of a natural experiment, which involves two institutional reforms at the local level in Poland. The first reform introduced two electoral rules, which change along an exogenous population threshold: smaller municipalities use majoritarian elections, larger municipalities use proportional elections. The second reform changed the governance system in Polish municipalities from “parliamentary” to “presidential”. Our results indicate that a change from parliamentary to presidential form led to lower vertical fiscal imbalance predominantly in the jurisdictions with majoritarian elections and to a lesser extent in municipalities governed by proportional elections. This therefore confirms an interaction effect between the forms of government and electoral rules.
    Keywords: electoral rules,vertical fiscal imbalance,constitutions
    JEL: D72 D78 H72
    Date: 2017
  10. By: Nasrudin, Rus'an
    Abstract: Under a question whether corruption acts as grease or sand for development, this paper estimates the effect of special allocation fund (SAF) or DAK in road sector to infrastructure provision (road) at the district level in Indonesia. The political fragmentation and its political earmarking, defined as the effective number of central parliamentary members from a district are used as an instrumental variable (IV) for the amount of SAF in each district combined with a difference-in-difference measure for the rural road. Such empirical strategy is adopted to tackle three endogeneity problems: selection bias, measurement error and reverse causality between SAF allocation and rural road. First I find that the influence of political earmark is statistically significant than the formula-based approach. Second, under the influence of political earmarking, the IV result shows that the SAF allocation does not affect a rural-road provision in Indonesia in the early implementation of fiscal decentralisation. It seems that allocation based on the block grant or general allocation fund is having more clear effect in the presence of earmarking of special allocation fund. %A billion IDR the allocation is associated with 7 pp. increase in rural with asphalt road. The result challenges the sand hypothesis in the context of decentralising public fund in road sector in Indonesia in the early implementation of decentralisation period.
    Keywords: pork-barrel; road; special allocation fund; Indonesia
    JEL: H30 H60 O12
    Date: 2015–12–10
  11. By: Altindag, Duha T. (Auburn University); Filiz, S. Elif (University of Southern Mississippi); Tekin, Erdal (American University)
    Abstract: An important question in representative democracies is how to ensure that politicians behave in the best interest of citizens rather than their own private interests. Aside from elections, one of the few institutional devices available to regulate the actions of politicians is their pay structure. In this paper, we provide fresh insights into the impact of politician salaries on their performance using a unique law change implemented in 2012 in Turkey. Specifically, the members of the parliament (MPs) in Turkey who are retired from their pre-political career jobs earn a pension bonus on top of their MP salaries. The law change in 2012 significantly increased the pension bonus by pegging it to 18 percent of the salary of the President of Turkey, while keeping the salaries of non-retired MPs unchanged. By exploiting the variation in total salaries caused by the new law in a difference-in-differences framework, we find that the salary increase had a negative impact on the performance of the retired MPs. In particular, the overall performance of these MPs was lowered by 12.3 percent of a standard deviation as a result of the increase in salary caused by the new law. This finding is robust to numerous specification tests. Furthermore, the results obtained from an auxiliary analysis suggest that one of the mechanisms through which MPs reduce their performance is through absenteeism.
    Keywords: politician, MP, members of the parliament, performance, salary, bonus, Turkey, election
    JEL: J22 J26 J33 J45
    Date: 2017–07
  12. By: Massimo Morelli (Bocconi University, CEPR, Dondena and IGIER); Margherita Negri (University of St Andrews)
    Abstract: When exposed to similar migration flows, countries with different institutional systems may respond with different levels of openness. We study in particular the different responses determined by different electoral systems. We find that Winner Take All countries would tend to be more open than countries with PR when all other policies are kept constant, but, crucially, if we consider the endogenous differences in redistribution levels across systems, then the openness ranking may switch.
    Keywords: Proportional representation, Median voter, Taxation, Occupational Choice, Migration, Walls.
    JEL: D72 F22
    Date: 2017–08–07

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