nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒10‒01
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. What Determines Preferences for an Electoral System? Evidence from a Binding Referendum By Riambau, Guillem; Stillman, Steven; Boe-Gibson, Geua
  2. The Political Impact of the Internet on US Presidential Elections By Valentino Larcinese; Luke Miner
  3. Youth Enfranchisement, Political Responsiveness, and Education Expenditure: Evidence from the U.S. By Bertocchi, Graziella; Dimico, Arcangelo; Lancia, Francesco; Russo, Alessia
  4. Engineering Crises: Favoritism and Strategic Fiscal Indiscipline By Saint-Paul, Gilles; Ticchi, Davide; Vindigni, Andrea
  5. Politicizing Consumer Credit By Heimer, Rawley; Akey, Pat; Lewellen, Stefan
  6. Political Alignment in the Time of Weak Parties: Electoral Advantages and Subnational Transfers in Colombia By Leonardo Bonilla-Mejía; Iván Higuera-Mendieta
  7. Policy Choices in Assembly versus Representative Democracy : Evidence from Swiss Communes By Patricia Funk; Stephan Litschig
  8. Policies in Hard Times: Assessing the Impact of Financial Crises on Structural Reforms. By Gunes Gokmen; Tommaso Nannicini; Massimiliano Gaetano Onorato; Chris Papageorgiou
  9. Does the election of a female leader clear the way for more women in politics? By Zohal Hessami; Thushyanthan Baskaran
  10. Women’s Political Reservation, Early Childhood Development, and Learning in India By Yuvraj Pathak; Karen Macours
  11. Political Risk and Stock Returns in Indonesia By Paulina Yuritha Amtiran

  1. By: Riambau, Guillem (Yale-NUS College); Stillman, Steven (Free University of Bozen/Bolzano); Boe-Gibson, Geua (University of Waikato)
    Abstract: Much has been written about politicians' preferences for electoral systems, yet little is known about the preferences of voters. In 1993, New Zealand had a binding electoral referendum on the same day as the general election where voters chose between keeping a single plurality system (First Past the Post) or introducing a pure proportional one (Mixed Member Proportional). This paper merges data from all nationwide polling stations to Census data on local voters to examine what drives citizens' preferences for an electoral system. We find that strategic partisan interest was a key driver; voters overwhelmingly preferred the system that most benefited their favorite party. However, socioeconomic characteristics and social values also mattered; people who held more progressive values, were outside the dominant religion and lived in urban areas were much more likely to vote to change to a proportional system. Survey data show that these findings hold at the individual level and further that individuals who were angry with the economy were much more likely to vote against the status quo, regardless of their background, party preferences or social values. This behavior is likely to have ultimately balanced the result in favor of Mixed Member Proportional.
    Keywords: elections, electoral systems, voting behavior, referendum, New Zealand
    JEL: D72 D73 H11
    Date: 2017–09
  2. By: Valentino Larcinese; Luke Miner
    Abstract: What are the political consequences of the diffusion of broadband internet? We address this question by studying the 2008 US presidential election, the first political campaign where the internet played a key role. Drawing on data from the FEC and the FCC, we provide robust evidence that internet penetration in US counties is associated with an increase in turnout, an increase in campaign contributions to the Democrats and an increase in the share of Democratic vote. We then propose an IV strategy to deal with potential endogeneity concerns: we exploit geographic discontinuities along state borders with different right-of-way laws, which constitute the main determinant of the cost of building new infrastructure. IV estimates confirm a positive impact of broadband diffusion on turnout, while the pro-Democratic Party effect of the internet appears to be less robust.
    Keywords: internet diffusion, political economy of the media, United States elections, turnout, campaign contributions
    JEL: D72 L86
    Date: 2017–06
  3. By: Bertocchi, Graziella; Dimico, Arcangelo; Lancia, Francesco; Russo, Alessia
    Abstract: This paper studies the effect of preregistration laws on government spending in the U.S. Preregistration allows young citizens to register before being eligible to vote and has been introduced in different states in different years. Employing a difference-in-differences regression design, we first establish that preregistration shifts state-level government spending toward expenditure on higher education. The magnitude of the increase is larger when political competition is weaker and inequality is higher. Second, we document a positive effect of preregistration on state-provided student aid and its number of recipients by comparing higher education institutions within border-county pairs. Lastly, using individual-level data on voting records, we show that preregistration promotes a de facto youth enfranchisement episode. Consistent with a political economy model of distributive politics, the results collectively suggest strong political responsiveness to the needs of the newly-enfranchised constituent group.
    Keywords: Education Expenditure; Political Responsiveness; Preregistration; Voter turnout; Youth Enfranchisement.
    JEL: D72 H52 P16
    Date: 2017–09
  4. By: Saint-Paul, Gilles; Ticchi, Davide; Vindigni, Andrea
    Abstract: If people understand that some macroeconomic policies are unsustainable, why would they vote for them in the first place? We develop a political economy theory of the endogenous emergence of fiscal crises, based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote in favor of policies that are more likely to lead to a crisis. People are entitled to a certain level of a publicly provided good, which may be rationed in times of crises. After voting on that level, society votes on the extend to which it will be financed by debt. Under bad enough macro shocks, a crisis arises: taxes are set at their maximum but despite that some agents do not get their entitlement. Some social groups do better in this rationing process than others. We show that public debt -- which makes crises more likely -- is higher, as is the probability of a crisis, the greater the level of favoritism. If the favored group is important enough to be pivotal when society votes on the entitlement level, favoritism also leads to greater public expenditure. We show that the favored group may strategically favor a weaker state in order to make crises more frequent. Finally, the decisive voter when choosing expenditure may be different from the one when voting on debt. In such a case, constitutional limits on debt may raise the utility of all the poor, relative to the equilibrium outcome absent such limits.
    Keywords: Entitlements; favoritism; Fiscal Crises; inequality; political economy; public debt; State Capacity.
    JEL: E62 F34 H12 H6 O11 P16
    Date: 2017–09
  5. By: Heimer, Rawley (Federal Reserve Bank of Cleveland); Akey, Pat (University of Toronto); Lewellen, Stefan (London Business School)
    Abstract: Using proprietary credit bureau data, we find that consumers’ access to credit decreases by 4.5 percent–8 percent when the borrower’s home-state U.S. senator becomes the chair of a powerful Senate committee. The reduction in credit access mostly affects historically credit-constrained consumers (low income and nonwhite and borrowers with poor credit scores), and is stronger in areas with less politically engaged constituents and more politically connected lenders. Additional evidence supports a “political protection” hypothesis—banks that are connected to powerful politicians consider fair-lending regulatory guidelines to be less binding. The results highlight the distinction between political power and legislative outcomes, and contrast recent findings that governments expand credit access to firms and consumers.
    Keywords: access to credit; political protection hypothesis;
    JEL: D72 G21
    Date: 2017–09–25
  6. By: Leonardo Bonilla-Mejía; Iván Higuera-Mendieta
    Abstract: Este documento explora el efecto de alineación entre políticos locales y nacionales en un contexto de partidos débiles. Utilizando métodos de regresión discontinua en elecciones reñidas, encontramos que en ausencia de partidos fuertes, las coaliciones presidenciales se convierten en los ejes de la alineación política en Colombia. De hecho, mientras que los partidos políticos proveen muy pocas ventajas electorales a sus miembros, los candidatos de la coalición a posiciones nacionales obtienen muchos más votos en municipios gobernados por alcaldes alineados. A su vez, los alcaldes alineados reciben más transferencias discrecionales para financiar carreteras por parte del gobierno nacional. Estas transferencias, sin embargo, no se traducen en mayor crecimiento económico en los municipios. ******ABSTRACT: This paper explores the effect of alignment between local and national politics in a context of weak parties. Based on a regression discontinuity design in close elections, we find that, in absence of strong parties, presidential coalitions become the focal point of political alignment in Colombia. In fact, while parties provide almost no electoral advantages to their members, candidates aspiring to national positions get significantly more votes in municipalities governed by mayors aligned with the incoming presidential coalitions. In turn, aligned mayors receive additional discretionary transfers from the National Government to finance road investments. These discretionary transfers, however, do not translate into local economic growth.
    Keywords: Alineación política, elecciones, transferencias subnacionales, regresión discontinua
    JEL: D72 H72 H77 R11
    Date: 2017–09–22
  7. By: Patricia Funk (Department of Economics, Universita della Svizzera italiana); Stephan Litschig (National Graduate Institute for Policy Studies, Tokyo, Japan)
    Abstract: This paper investigates whether the form of the legislative institution - assembly versus parliament - affects the level and composition of local public expenditure. We collect data at the commune level in Switzerland over the period 1945-2010 and use two research designs: fixed-effects and regression discontinuity (RD) based on local population. Analyzing communes that switched the form of their legislative institution over time, we find that introducing a parliament leads to a 12 percent increase in both general administration and education spending per capita and an increase in total spending and revenue of about 6 percent. In contrast, regression discontinuity estimates cannot be distinguished from zero for any spending category or overall. These contrasting results highlight the local nature of discontinuity estimates since population is an order of magnitude larger in our switcher sample compared to the RD sample. To understand the mechanism at play, we run a survey among assembly participants and document a sizeable under-representation of 20- to 40-year-olds as well as of women in town meetings compared to both the electorate and to voters in elections. Switching from assembly democracy to parliament thus increases the representation of two demographics that are known for their relatively high preference for education spending.
    Date: 2017–09
  8. By: Gunes Gokmen; Tommaso Nannicini; Massimiliano Gaetano Onorato (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Chris Papageorgiou
    Abstract: It is argued that crises open up a window of opportunity to implement policies that otherwise would not have the necessary political backing. The argument goes that the political cost of deep reforms declines as crises unravel structural problems that need to be urgently recti ed and the public is more willing to bear the pains associated with such reforms. This paper casts doubt on this prevalent view by showing that not only the crises-reforms hypothesis is unfounded in the data, but rather crises are associated with slowing structural reforms depending on the institutional environment. In particular, we look at measures of liberalization in international trade, agriculture, network industries, and nancial markets. We nd that, after a nancial crisis, democracies neither open nor close their economy. On the contrary, autocracies reduce liberalizations in multiple economic sectors, as the fear of regime change might lead non- democratic rulers to please vested economic interests.
    Keywords: Financial crises, structural reforms, institutional systems, IMF programs, govern- ment crises, public opinion.
    JEL: E44 G01 L51 P16
    Date: 2017–09
  9. By: Zohal Hessami (Department of Economics, University of Konstanz); Thushyanthan Baskaran (Department of Economics, University of Siegen)
    Abstract: Women remain underrepresented in politics and it remains unclear how this might change. In this paper, we investigate whether female council candidates receive more preferential votes when a female mayor has been recently elected into office. We hand-collect data for 109,017 candidates in four open-list local council elections (2001-2016) in all 426 municipalities of a German state. Based on RDD estimations for close mixed-gender races, we show that female council candidates advance more from their initial list rank when the mayor is female. This effect spreads to neighboring municipalities and leads to a rising share of female council members.
    Keywords: Female leaders, gender, political labor market, discrimination, preferential voting
    Date: 2017–09–27
  10. By: Yuvraj Pathak (University of Chicago); Karen Macours (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: This paper analyzes the long-term impacts of reservation of local political seats for women on children's learning and nutritional outcomes in rural Andhra Pradesh. Using the random rotation of seats reserved for women over different election cycles, and three rounds of a panel dataset, we analyze the impact of exposure to political reservation during critical periods in early childhood. The paper shows that the reservation policy for female leaders had the largest impact on learning outcomes in primary school when children were exposed to reservation in utero and very early in life.
    Keywords: Nutrition
    Date: 2017
  11. By: Paulina Yuritha Amtiran (Economic and Business Faculty, Universitas Nusa Cendana, Indonesia Author-2-Name: Rina Indiastuti Author-2-Workplace-Name: Universitas Padjadjaran, Bandung, Indonesia)
    Abstract: "Objective – The research aims to find the relationship between the political risk with stock returns. Methodology/Technique – Using the purposive sampling, secondary data on 30 companies listed in Indonesia Stock Exchange (BEI) of the year 2007-2015. Analysis technique used is weighted least square regression Findings – The results of study Political risks significantly positively associated with stock returns. These results imply a change from the shock of political risk will affect cost of capital of the company increased, causing the company's stock price will go up which in the end impact on improving the company's stock returns obtained. Novelty – The study implies Shock due to the change of political risk has a direct impact on the company's financial condition primarily of the cost of capital companies because it involves policy and investment decisions are made in Indonesia."
    Keywords: BEI; Market Capitalization; Market Returns; Political Risk; Stock Returns.
    JEL: G30 G32
    Date: 2017–06–21

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