nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒10‒22
nineteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Targeted Campaign Competition, Loyal Voters, and Supermajorities By Pierre C. Boyer; Kai A. Konrad; Brian Roberson
  2. Ethical Voting in Multicandidate Elections By Laurent Bouton; Benjamin G. Ogden
  3. What Are You Voting For? Proximity to Refugee Reception Centres and Voting in the 2016 Italian Constitutional Referendum By Bratti, Massimiliano; Deiana, Claudio; Havari, Enkelejda; Mazzarella, Gianluca; Meroni, Elena Claudia
  4. Electoral cycles, partisan effects and U.S. immigration policies By Drometer, Marcus; Méango, Romuald
  5. The Democratic-Republican Presidential Growth Gap and the Partisan Balance of the State Governments By Dodge Cahan; Niklas Potrafke
  6. Internet and Politics: Evidence from U.K. Local Elections and Local Government Policies By Alessandro Gavazza; Mattia Nardotto; Tommaso Valletti
  7. Compulsory Voting, Voter Turnout and Asymmetrical Habit-formation By Gäbler, Stefanie; Potrafke, Niklas; Rösel, Felix
  8. Public Finance and Right-Wing Populism By Aggeborn, Linuz; Persson, Lovisa
  9. Engineering Crises: Favoritism and Strategic Fiscal Indiscipline By Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni
  10. Politics, Hospital Behavior, and Health Care Spending Effect Methods to Examine Treatment Effect Heterogeneity in Experiments for the Young and Privately Insured? By Zack Cooper; Amanda E. Kowalski; Eleanor Neff Powell; Jennifer Wu
  11. Reluctant to Reform? A Note on Risk-Loving Politicians and Bureaucrats By Tobias Thomas; Moritz Heß; Gert G. Wagner
  12. The value of political connections in the first German democracy: Evidence from the Berlin stock exchange By Lehmann-Hasemeyer, Sibylle; Opitz, Alexander
  13. Lobbying over Exhaustible-Resource Extraction By Achim Voss; Mark Schopf
  14. Democracy and compliance in public goods games By Gallier, Carlo
  15. No Kin In The Game: Moral Hazard and War in the U.S. Congress By Eoin McGuirk; Nathaniel Hilger; Nicholas Miller
  16. Short Selling and Politically Motivated Negative Information Hoarding By Deng, Xiaohu; Jiang, Christine; Young, Danqing
  17. Welfare Chauvinism? Refugee Flows and Electoral Support for Populist-right Parties in Industrial Democracies By Vadlamannati, Krishna Chaitanya; Kelly, Grace
  18. Explaining Inequality Between Countries: The Declining Role of Political Institutions By Andrew J. Hussey; Michael Jetter; Dianne McWilliam
  19. Signal and Political Accountability: Environmental Petitions in China By Jiankun LU; Pi-Han Tsai

  1. By: Pierre C. Boyer; Kai A. Konrad; Brian Roberson
    Abstract: We consider campaign competition in which candidates compete for votes among a continuum of voters by engaging in persuasive efforts that are targetable. Each individual voter is persuaded by campaign effort and votes for the candidate who targets more persuasive effort to this voter. Each candidate chooses a level of total campaign effort and allocates their effort among the set of voters. We completely characterize equilibrium for the majoritarian objective game and compare that to the vote-share maximizing game. If the candidates are symmetric ex ante, both types of electoral competition dissipate the rents from office in expectation. However, the equilibria arising under the two electoral objectives qualitatively differ. In majoritarian elections, candidates randomize over their level of total campaign effort, which provides support for the puzzling phenomenon of the emergence of supermajorities in majoritarian systems. Vote-share maximization leads to an equilibrium in which both candidates make deterministic budget choices and reach a precise fifty-fifty split of vote shares. We also study how asymmetry between the candidates affects the equilibrium. If some share of the voters is loyal to one of the candidates, then both candidates expend the same expected efforts in equilibrium, but the advantaged candidate wins with higher probability for majoritarian voting or a higher share of voters for vote-share maximization.
    Keywords: campaign competition, continuous general lotto game, vote buying, flexible budgets, supermajorities, loyal voters
    JEL: D72 D78 D82
    Date: 2017
  2. By: Laurent Bouton; Benjamin G. Ogden
    Abstract: We study the behavior of ethical voters in multicandidate elections. We consider two of the most-widely used electoral rules around the world: the plurality rule and the majority runoff rule. Our model delivers crisper predictions than those of the pivotal voter model. There are two types of equilibria: (i) the sincere voting equilibrium (in which voters vote for their most-preferred candidate), and (ii) Duverger's Law equilibria (in which two candidates attract all the votes). We prove that an equilibrium always exists, and that it is unique for a broad range of parameter values. Moreover, the sincere voting equilibrium never coexists with a Duverger's law equilibrium. We also identify the features of an election that favor sincere voting. Comparing plurality and majority runoff, we find that the incentives to vote sincerely are stronger under the latter. Our results are consistent with the findings of the empirical literature studying strategic voting under plurality and runoff rules.
    JEL: C72 D72
    Date: 2017–10
  3. By: Bratti, Massimiliano (University of Milan); Deiana, Claudio (University of Essex); Havari, Enkelejda (European Commission, Joint Research Centre); Mazzarella, Gianluca (University of Padova); Meroni, Elena Claudia (European Commission, Joint Research Centre)
    Abstract: In December 2016, in the middle of the "European refugee crisis", the Italian electorate voted for a referendum on crucial constitutional reform promoted by the governing party. The official aims of the reform were both to improve the country's governability and stability and to simplify the institutional setup. Despite not strictly being a political vote, as in the case of Brexit, the referendum was largely perceived as an assessment of the Prime Minister's work and the activity of his government. Using Italian municipality data, we provide novel empirical evidence on the impact of geographical proximity to refugee reception centres on voting behaviour. Our analysis demonstrates that being closer to refugee centres increased (1) the referendum turnout and (2) the proportion of anti-government votes. This evidence is consistent with the fact that the main opposition parties exploited the anti-immigration sentiments that were mounting in the population to influence people's voting. It also casts doubts on the political choice to put key decisions, such as changes in the Constitution of the Italian Republic (or leaving the European Union, as in the case of Brexit), to the popular vote at times when there are significant political emergencies to be faced.
    Keywords: proximity, voting, refugee reception centres, referendum, Constitution, Italy
    JEL: P16 R23 D72
    Date: 2017–09
  4. By: Drometer, Marcus; Méango, Romuald
    Abstract: Using a panel of naturalizations in U.S. states from 1965 to 2012, we empirically analyze the impact of elections on immigration policy. Our results indicate that immigration policy is (partly) driven by national elections: there are more naturalizations in presidential election years and during the terms of Democratic incumbents. Further, the partisan effects are more pronounced in politically contested states, in states with higher levels of immigration and driven by immigrants from Latin America.
    JEL: H11 D72 F22
    Date: 2017
  5. By: Dodge Cahan; Niklas Potrafke
    Abstract: Higher economic growth was generated during Democratic presidencies compared to Republican presidencies in the United States. The question is why. Blinder and Watson (2016) explain that the Democratic-Republican presidential growth gap (D-R growth gap) can hardly be attributed to the policies under Democratic presidents, but Democratic presidents – at least partly – just had good luck, although a substantial gap remains unexplained. A natural place to look for an explanation is the partisan balance at the state level. We show that pronounced national GDP growth was generated when a larger share of US states had Democratic governors and unified Democratic state governments. However, this fact does not explain the D-R growth gap. To the contrary, given the tendency of electoral support at the state level to swing away from the party of the incumbent president, this works against the D-R growth gap. In fact, the D-R presidential growth gap at the national level might have been even larger were it not for the mitigating dynamics of state politics (by about 0.3-0.6 percentage points). These results suggest that the D-R growth gap is an even bigger puzzle than Blinder and Watson’s findings would suggest.
    Keywords: Democratic-Republican GDP growth gap, federalism, partisan politics, government ideology, United States, Democrats, Republicans
    JEL: D72 E60 H00 N12 N42 P16
    Date: 2017
  6. By: Alessandro Gavazza; Mattia Nardotto; Tommaso Valletti
    Abstract: We empirically study the effects of broadband internet diffusion on local election outcomes and on local government policies using rich data from the U.K. Our analysis suggests that the internet has displaced other media with greater news content (i.e., radio and newspapers), thereby decreasing voter turnout, most notably among less-educated and younger individuals. In turn, we find suggestive evidence that local government expenditures and taxes are lower in areas with greater broadband diffusion, particularly expenditures targeted at less-educated voters. Our findings are consistent with the idea that voters' information plays a key role in determining electoral participation, government policies and government size.
    Keywords: Internet, newspaper, media, elections, policy
    JEL: D72 C50 L86
    Date: 2017
  7. By: Gäbler, Stefanie; Potrafke, Niklas; Rösel, Felix
    Abstract: We examine whether compulsory voting (CV) influences habit-formation in voting asymmetrically across parties. We use a Differences-in-Differences and a Differences-in-Discontinuity approach to investigate the long-term effects of CV on turnout and party vote shares in Austria. The results show that CV increased turnout. When CV was abolished, turnout returned to the pre-compulsory level. We conclude that CV was not habit-forming and may have crowded out intrinsic motivation.
    JEL: D72 P16
    Date: 2017
  8. By: Aggeborn, Linuz (Department of Government); Persson, Lovisa (Research Institute of Industrial Economics (IFN))
    Abstract: We build a public finance model that explains why voters vote for right-wing populists, and also under which conditions established politicians will adopt a right-wing populist policy platform. Voters with lower private income have a stronger demand for basic public services at the expense of spending on a global good; generosity of refugee support systems, foreign aid, and environmental protection. Low income voters are thus more prone to support right-wing populists who oppose spending on such global goods. We conclude that established politicians that are challenged by right-wing populists will implement a policy with no global good spending if the relative cost of the global good is high enough. Additionally, adoption of right-wing populist policy is more likely when the economy is in a recession.
    Keywords: Right-wing populism; Agency; Immigration
    JEL: D70 D72 H39
    Date: 2017–10–05
  9. By: Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni
    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: political economy, fiscal crises, favoritism, entitlements, public debt, inequality, state capacity
    JEL: E62 F34 H12 H60 O11 P16
    Date: 2017
  10. By: Zack Cooper (School of Public Health, Yale University); Amanda E. Kowalski (Cowles Foundation, Yale University); Eleanor Neff Powell (University of Wisconsin-Madison); Jennifer Wu (Department of Political Science, Yale University)
    Abstract: This paper examines the link between legislative politics, hospital behavior, and health care spending. When trying to pass sweeping legislation, congressional leaders can attract votes by adding targeted provisions that steer money toward the districts of reluctant legislators. This targeted spending provides tangible local benefits that legislators can highlight when fundraising or running for reelection. We study a provision - Section 508 – that was added to the 2003 Medicare Modernization Act (MMA). Section 508 created a pathway for hospitals to apply to get their Medicare payment rates increased. We find that hospitals represented by members of the House of Representatives who voted ‘Yea’ on the MMA were significantly more likely to receive a 508 waiver than hospitals represented by members who voted ‘Nay.’ Following the payment increase generated by the 508 program, recipient hospitals treated more patients, increased payroll, hired nurses, added new technology, raised CEO pay, and ultimately increased their spending by over $100 million annually. Section 508 recipient hospitals formed the Section 508 Hospital Coalition, which spent millions of dollars lobbying Congress to extend the program. After the vote on the MMA and before the vote to reauthorize the 508 program, members of Congress with a 508 hospital in their district received a 22% increase in total campaign contributions and a 65% increase in contributions from individuals working in the health care industry in the members’ home states. Our work demonstrates a pathway through which the link between politics and Medicare policy can dramatically affect US health spending.
    JEL: I10 I18 H51 D72 P16
    Date: 2017–08
  11. By: Tobias Thomas; Moritz Heß; Gert G. Wagner
    Abstract: As from a political economy perspective, politicians often fail to implement structural reforms, we investigate if the resistance to reform is based on the differences in the risk preferences of voters, politicians, and bureaucrats. Based on the empirical results of a survey of the population in Germany, 175 members of the Federal German Parliament (Bundestag), and 106 officials (“bureaucrats”) from German ministries, this is not the case. Since both politicians and bureaucrats have a higher risk appetite than the general population, their risk preferences cannot be seen as an explanation for the resistance to structural reform. Hence, it must be caused by other reasons. These can be for instance – as public choice scholars argue – interventions by veto players, wars of attrition by powerful interest groups, or reform logjams initiated. However, another point of view could be that modern democracies are doing better than many believe. During times of populist campaigns, the election process can put forth candidates with very high risk appetites, but the constitutions of democracies turn out to be rather smart if hazardous actions and measures by political rookies and gamblers are inhibited by checks and balances.
    Keywords: Political reforms, political decision-making, principal agent-theory, risk aversion, German, SOEP
    JEL: D71 D78 H11 H70 P16 Z13
    Date: 2017
  12. By: Lehmann-Hasemeyer, Sibylle; Opitz, Alexander
    Abstract: In this paper, we provide the first overview over all political connections for all firms listed on the Berlin stock exchange in 1924 and for the same sample of firms four years later. In contrast to anecdotal evidence which suggest that these political connections had a positive effect on firms' performance, an event study based on the election in December 1924 and May 1928 shows only little evidence that political connections had a positive impact on firm value. These results complement previous research emphasizing that political connections might have mattered less in democracies. Indeed, this seems true for Germany's first democracy - even though it was a very unstable one.
    Keywords: Political Connections,Interwar Germany,Stock Market Performance
    Date: 2017
  13. By: Achim Voss (School of Economics and Social Sciences, University of Hamburg); Mark Schopf (University of Hagen)
    Abstract: We characterize the resource-extraction path that is chosen by a government which is influenced by a resource-supplier lobby group. The lobby group pays the government in exchange for a deviation from welfare-maximization. We show how the development of payments relates to the development of a conflict of interest between profit-maximization and welfare-maximization. Due to stock-pollution damages, the government prefers a lower long-run level of cumulative extraction than the lobby group. Moreover, the resource suppliers’ aim of maximizing profit implies that the distorted 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, Time Consistency, Dynamic Programming
    JEL: D72 Q31 Q38 Q58
    Date: 2017–10
  14. By: Gallier, Carlo
    Abstract: I investigate if, how, and why the effect of a contribution rule in a public goods game depends on how it is implemented: endogenously chosen or externally imposed. The rule prescribes full contributions to the public good backed by a nondeterrent sanction for those who do not comply. My experimental design allows me to disentangle to what extent the effect of the contribution rule under democracy is driven by self-selection of treatments, information transmitted via the outcome of the referendum, and democracy per se. In case treatments are endogenously chosen via a democratic decision-making process, the contribution rule significantly increases contributions to the public good. However, democratic participation does not affect participants' contribution behavior directly, after controlling for self-selection of treatments and the information transmitted by voting.
    Keywords: laboratory experiment,public good,democracy,endogenous institutions,voting,contribution rule,compliance
    JEL: C91 D02 D72 K42
    Date: 2017
  15. By: Eoin McGuirk; Nathaniel Hilger; Nicholas Miller
    Abstract: Why do wars occur? We exploit a natural experiment to test the longstanding hypothesis that leaders declare war because they fail to internalize the associated costs. We test this moral hazard theory of conflict by compiling data on the family composition of 3,693 US legislators who served in the U.S. Congress during the four conscription-era wars of the 20th century: World War I, World War II, the Korean War, and the Vietnam War. We test for agency problems by comparing the voting behavior of congressmen with draft-age sons versus draft-age daughters. We estimate that having a draft-age son reduces legislator support for pro-conscription bills by 10-17%. Legislators with draft-age sons are also more likely to win reelection, suggesting that support for conscription is punished by voters. Our results provide new evidence that agency problems contribute to political violence, and that elected officials can be influenced by changing private incentives.
    JEL: N42
    Date: 2017–10
  16. By: Deng, Xiaohu (Tasmanian School of Business & Economics, University of Tasmania); Jiang, Christine (University of Memphis); Young, Danqing (Chinese University of Hong Kong)
    Abstract: Extant literature documents that managers have an incentive to hoard bad news due to political concerns. In this paper, we test the proposition that short selling has an attenuating effect on the politically motivated suppression of bad news. We examine the stock price behavior of Chinese public firms around two highly visible political events - meetings of the National Congress of the Chinese Communist Party and Two Sessions (The National People’s Congress Conference and The Chinese People’s Political Consultative Conference) from 2002-2014, and find that political bad news hoarding has been reduced after short selling becomes available. We establish causality by relying on a difference-in-differences approach based on a controlled experiment of short selling regulation changes in China. We also find this reduction in bad news hoarding to be more pronounced in firms with stronger political connection (higher state ownership and larger size) and higher accounting opacity, which further confirms our finding. This study sheds new light on the real effects of short sellers on political impact on capital market.
    Keywords: Short selling; Political force; Negative news hoarding; Information environment
    Date: 2017
  17. By: Vadlamannati, Krishna Chaitanya; Kelly, Grace
    Abstract: In this paper we examine whether refugee flows are associated with an increase in electoral support for populist-right parties. The empirical evidence on this so far remains mixed. We argue that refugee inflows alone are an inaccurate predictor of the success of populist-right parties. Rather, refugee inflows can lead to a rise in electoral support for populist-right parties where traditional welfare states are expansive —the so called ‘welfare chauvinism’ argument, wherein natives already dependent on high levels of social welfare are likely to see refugees as interlopers who free-ride on welfare and thereby threaten the welfare of locals. Using panel data on 27 OECD countries during 1990–2014 period (25 years), we find no evidence to suggest that refugee inflows per se increase electoral support for populist-right parties. However, a positive effect of refugee inflows on electoral support for populist-right parties is conditional upon a higher degree of social welfare and unemployment benefit spending, which supports the propositions of 'welfare chauvinism.' Moreover, support for populist-right parties increase when the degree of labor market regulations and welfare spending is high. Our results are robust to alternative data, sample and estimation techniques.
    Keywords: Refugee flows, welfare state, and populist-right.
    JEL: F22 H24 H41
    Date: 2017–09–20
  18. By: Andrew J. Hussey; Michael Jetter; Dianne McWilliam
    Abstract: Within the fundamental determinants of cross-country income inequality, ‘humanly devised’ political institutions represent a hallmark factor that societies can influence, as opposed to, for example, geography. Focusing on the portion of inequality explainable by differences in political institutions, we decompose annual cross-country Gini coefficients for 95 countries (representing 85 percent of the world population) from 1960-2012. Since 1988, inequality has marginally decreased (from a Gini of 0.525 to 0.521) but the portion that cannot be explained by political institutions has increased substantially (from 0.411 to 0.459). Specifically, the explanatory power of institutions fell rapidly from the late 1980s to the early 1990s. This result prevails when using alternative variables, expanding the sample, weighting countries by population size, and controlling for the remaining fundamental determinants of income: culture and education. Over the same timeframe, the explanatory power of geographical conditions has been rising. This phenomenon appears to be global and is unlikely to be driven by contemporary regional events alone, such as the fall of the Soviet Union, Asian success stories (e.g., China), or institutional monocropping in Africa. A corollary of our finding implies that, if we hold societies responsible for their political institutions, inequality has become notably less fair since the late 1980s.
    Keywords: fairness of income inequality, fundamental determinants of development, international inequality, political institutions
    JEL: D63 D72 E02 O11 O43 O47
    Date: 2017
  19. By: Jiankun LU (Zhejiang University of Finance and Economics. Address: Xueyuan Street No. 18, Xiasha Higher Education Park, Hangzhou, China, 310018); Pi-Han Tsai (Zhejiang University. Address: 38 Zheda Rd, Xihu, Hangzhou, Zhejiang, China, 310027)
    Abstract: Vertical accountability in China has long been considered as essentially indirect or informal. This paper provides evidence that direct local accountability may exist to a greater or lesser degree in China under current political institutions. By using provincial environmental petition data, this paper finds that the number of environmental petitions is positively associated with provincial governments' investments in pollution mitigation. The increased petitions serve as a signal to provincial leaders of the possibility of potential social instability. However, since "local" provincial party secretaries are better informed, the signaling effect of the petitions is lessened in these cases.
    Keywords: political signal; political accountability; environmental expenditure
    JEL: H11 H70 P26 Q58
    Date: 2017–06

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