nep-pol New Economics Papers
on Positive Political Economics
Issue of 2017‒11‒19
twelve papers chosen by
Eugene Beaulieu
University of Calgary

  1. Biased Policy and Political Behavior By Avi Ben-Bassat; Momi Dahan
  2. One woman, one vote. Though not in the USA, UK and France By Colignatus, Thomas
  3. Stabilized Branch-and-Price Algorithms for Vector Packing Problems By Philipp Harms; Claudia Landwehr
  4. Internet and Politics: Evidence from U.K. Local Elections and Local Government Policies By Alessandro Gavazza; Mattia Nardotto; Tommaso M. Valletti
  5. Globalization, Political Orientation and Wage Inequality: From Donald Trump’s Election to Angela Merkal’s Re-Election By Mamoon, Dawood
  6. The Delegate Paradox: Why Polarized Politicians Can Represent Citizens Best By Ahler, Douglas J.; Broockman, David E.
  7. Ideology or Voters? A Quasi-Experimental Test of Why Left-Wing Governments Spend More By Benoît Le Maux; Kristýna Dostálová; Fabio Padovano
  8. Tailored Bayesian Mechanisms: Experimental Evidence from Two-Stage Voting Games By Dirk Engelmann; Hans Peter Grüner
  9. Democracy and taxation By Balamatsias, Pavlos
  10. Can Credit Rating Agencies Affect Election Outcomes? By Cunha, Igor; Ferreira, Miguel; Silva, Rui C
  11. Firm-level political risk: Measurement and effects By Hassan, Tarek; Hollander, Stephan; Tahoun, Ahmed; van Lent, Laurence
  12. Do gender preference gaps impact policy outcomes? By Eva Ranehill; Roberto A. Weber

  1. By: Avi Ben-Bassat; Momi Dahan
    Abstract: Unlike the previous literature on mass policy feedback, the present paper argues that a negative message embodied in public policy may foster or dampen political participation depending on social group affiliation. The policy change we use to examine the effect of biased policy (a negative message) on political behavior is the removal of elected mayors that were replaced by an appointed committee in a large number of Arab and Jewish municipalities in Israel which was skewed significantly towards Arab municipalities. We show that Arab voters in intervened municipalities are more likely to show up in the ballot boxes in national elections and they tend to vote more for Arab parties. In contrast, the political participation of Jewish citizens is lower in municipalities with an appointed council without noticeable effect on vote choice.
    Keywords: policy feedback, political participation, vote choice
    JEL: D70 D72 D74
    Date: 2016
  2. By: Colignatus, Thomas
    Abstract: This paper gives an economic analysis of the design of electoral systems. It particular it evaluates how political science has been dealing with this issue. The main choice is between either district representation (DR) or equal or proportional representation (EPR). It appears that DR obliterates votes so that the principle of One Woman, One Vote and also article 21 in the Universal Declaration of Human Rights are violated. Holland in 1917 switched from DR to EPR but countries like the USA, UK and France still adopt DR. Brexit can be diagnosed as a result of the UK system of DR and the build-up of frustration on democracy within the UK itself. It appears that the advisory role of political scientists cannot be overlooked. Political science started in the humanities and only gradually adopted the methods of science, e.g. with the foundation of APSA in 1903. However, political science on the particular topic of electoral systems apparently still remains with its tradition in the humanities, in which assumptions are more important than analysis and hard data. Political science on electoral systems is no experimental science, since one cannot experiment with nations and their elections. The situation is similar as for macro-economics or astronomy that also are observational sciences, yet the latter fields have managed better in adopting the methods of science. A new development uses laboratory experiments, but these obviously cannot replace actual elections for the US House of Representatives or the UK House of Commons. This paper focuses on a deconstruction of a study by Carey & Hix (2011) (C&H) on an “electoral sweet spot”, that favours DR and that would mean the end of EPR. Other evidence on other studies is given in appendices. The deconstruction of the C&H study is sufficient evidence though, since it constitutes the culmination of a particular branch in political science. This branch appears to contain fundamental confusion and bias. Political science might regard this deconstruction as mere opinion but for science an empirical observation constitutes a fact. C&H also take ‘the most frequent of good outcomes’ as ‘thus the best overall’, which confuses frequency with optimality. This is more particular to their study though other political scientists are already copying this confusion instead of criticising it. Proper science should step in and assist political science to become a real science.
    Keywords: General Economics, Social Choice, Social Welfare, Election, Majority Rule, Parliament, Legislative, Party System, Representation, Proportion, District, Voting, Seat, Equity, Inequality, Lorenz, Gini coefficient, Voting Paradox, Arrow's Impossibility Theorem, Accountability, Interest congruence, Brexit, Disproportionality, SDID
    JEL: A10 D63 D71 D72
    Date: 2017–11–08
  3. By: Philipp Harms (Johannes Gutenberg-University Mainz, Germany); Claudia Landwehr (Johannes Gutenberg-University Mainz, Germany)
    Abstract: The call for more direct democracy is often and loudly heard and met with support from large numbers of citizens in many countries. This paper explores the motives for supporting direct democracy, and more specifically, referenda: Do citizens support them for intrinsic reasons, because referenda allow them exercise their democratic rights more directly? Or are preferences for referenda based on the assumption that they are likely to produce desired policy-outcomes, and thus instrumentally motivated? Our survey experiment explores how substantial policy preferences affect the preference for referenda over alternative decisionmaking procedures. Controlling for abstract support for referenda, we can show that congruence between a respondent’s own opinion and the expected majority opinion is associated with support for a referendum on a given matter. Moreover, we find evidence for systematic misperceptions of the majority opinion leading to support for a referendum. We thus arrive at the conclusion that calls for direct democracy should be reassessed in light of instrumental, but misinformed preferences.
    Keywords: democratic innovations, process preferences, direct democracy
    Date: 2017–10–27
  4. By: Alessandro Gavazza; Mattia Nardotto; Tommaso M. 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.
    JEL: D72
    Date: 2017
  5. By: Mamoon, Dawood
    Abstract: The recent election results in US, Germany, Japan and China and vote for BRIXIT in Britian suggest that political outcomes increasingly relate to the economic, political and social orientation in both developed and developing countries. Countries that have not promoted social and economic harmony in the country - democracy eventually puts the pressure through the discontent local polity resulting in election outcomes similar to US presidential elections in 2016. To avoid anti-globalization feelings among local population and its negative outcomes, improving political orientation towards greater participation of local polity and investments in education in developing countries would result in more equality. The research is applicable to countries like India, China, Pakistan, Argentina, Sub-Saharan Africa who have all liberalised but still need to draw lessons from East Asia for their Industrialisation and Growth Promotion with early emphasis on Social and Institutional Development.
    Keywords: Democracy, Autocracy, Wage Inequality, International Trade
    JEL: F1 F12 F14 F15 F16 P1 P11 P16
    Date: 2017–11–08
  6. By: Ahler, Douglas J. (FL State University); Broockman, David E. (Stanford University)
    Abstract: Many argue for political reforms intended to resolve apparent disjunctures between politicians' ideologically polarized policy positions and citizens less-polarized policy preferences. Here we show such apparent disjunctures can arise even when politicians represent their constituencies well, and that resolving them would likely degrade political representation. These counterintuitive results arise from a paradox whereby polarized politicians can best represent constituencies comprised of citizens with idiosyncratic preferences. We document this paradox among U.S. House Members, often criticized for excessive polarization. We show that if House Members represented their constituencies' preferences as closely as possible, they would still be polarized. Moreover, current Members nearly always represent their constituencies better than counterfactual less-polarized Members. A series of experiments confirms that even 'moderate' citizens often prefer polarized representatives to less-polarized alternatives.
    Date: 2017–04
  7. By: Benoît Le Maux (CREM CNRS UMR6211, University Rennes 1 & Condorcet Center for Political Economy, France); Kristýna Dostálová (CREM CNRS UMR6211, University Rennes 1 & Condorcet Center for Political Economy, France); Fabio Padovano (CREM CNRS UMR6211, University Rennes 1 & Condorcet Center for Political Economy, France)
    Abstract: In the literature, there is a widespread consensus that left-wing governments raise taxes and public spending more than their right-wing counterparts. We demonstrate that this result must be interpreted with caution. What might seem a partisan effect, due to the direct impact of parties’ ideology on public spending, might actually be a selection bias, because changes in the distribution of voters’ preferences determine changes of the ideology of the government in office. We overcome this problem of observational equivalence by applying two identification strategies, regression discontinuity design and propensity score matching. Using data from the French local public sector, we show that left-wing governments facing the same economic situation as rightwing ones do not spend more, particularly in the case of social expenditures. This result rules out the partisan-politicians hypothesis and lends support to demand driven policy selection processes.
    Keywords: Public services, Party ideology, Redistribution, Partisan effects, Selection bias
    JEL: H72 H40 D72
    Date: 2017–10
  8. By: Dirk Engelmann; Hans Peter Grüner
    Abstract: Optimal voting rules have to be tailored to the underlying distribution of preferences. This paper shows that the introduction of a stage at which agents may themselves choose voting rules according to which they decide in a second stage may increase the sum of individuals’ payoffs if players are not all completely selfish. Our experiments aim to understand how privately informed individuals choose voting rules and vote given these rules. In a setting with an asymmetric distribution of valuations groups that can choose a voting rule do better than those who decide with a given simple majority voting rule.
    Keywords: two-stage voting, Bayesian voting, experiments
    JEL: C91 D70 D82
    Date: 2017
  9. By: Balamatsias, Pavlos
    Abstract: In this paper we argue that democracies tend to positively affect the size and composition of tax revenues. Our argument is based on the hypothesis that democracies can increase direct taxation, such as income taxes and capital taxes, due to increased compliance of taxpayers and also because there is a diffusion of tax measures between neighboring democratic/autocratic countries. The main theoretical hypothesis is then tested on a dataset that consists of 74 countries over the period 1993-2012.Our main explanatory variable will be a dichotomous measure of democracy; but we alter our analysis from previous research by assuming that democracy or autocracy is not an exogenous variable. Instead we follow the theory of Huntington (1991) and the methodology of Acemoglu, Naidu, Restpero and Robinson (2014) about regional democratization waves. According to this theory, democratizations occur in regional waves; consequently diffusion of demand or discontent for a political system is easier to happen in neighboring countries due to socio-political and historical similarities. This measure shows us that demand or discontent for a given political system in a geographical area, can in turn influences the power of a country’s political regime and subsequently that regime’s effect on taxation. We then use a two stage least square (2SLS) fixed effects to test our hypothesis. The empirical findings suggest that regional waves of democratization have a positive and statistically significant correlation with democracy, and in turn democracy also has a positive effect on direct taxation as well as the ratio of direct to indirect taxation in the countries of our sample. This result remains the same when several robustness tests are used. Finally when examining the long-run effect of regional waves, we do not find any evidence of a significant relationship between regional waves of democratization and a country’s own regime; however democracy still has a positive effect on direct taxes and tax ratio.
    Keywords: Democracy, Political development, Regional democratization waves, Taxation
    JEL: H2 P16
    Date: 2016–02
  10. By: Cunha, Igor; Ferreira, Miguel; Silva, Rui C
    Abstract: We show that credit rating agency actions can have a significant effect on elections. We identify these effects by exploiting exogenous variation in municipal bond ratings due to Moody's recalibration of its scale in 2010. We find that incumbent politicians in upgraded municipalities experienced an increased likelihood of reelection and higher vote shares. Rating upgrades affect elections by improving voter perceptions of the quality of incumbents, and by producing wealth effects through voters' holdings of municipal bonds. We also establish a link between incumbents' reelection prospects and the improvements in economic conditions that are due to a debt-financed increase in government spending following rating upgrades.
    Keywords: Credit ratings; Economic Conditions; elections; Financial constraints; government spending; Municipal Bonds
    JEL: D72 G24 H74
    Date: 2017–11
  11. By: Hassan, Tarek; Hollander, Stephan; Tahoun, Ahmed; van Lent, Laurence
    Abstract: We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing that it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm's actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. Interestingly, we find that the incidence of political risk across firms is far more heterogeneous and volatile than previously thought. The vast majority of the variation in our measure is at the firm-level rather than at the aggregate or sector-level, in the sense that it is neither captured by time fixed effects and the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm-level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter.
    Keywords: firm-level; Lobbying; Political uncertainty; quantification
    JEL: D80 E22 G18 G38 H32
    Date: 2017–11
  12. By: Eva Ranehill; Roberto A. Weber
    Abstract: Many studies document systematic gender differences in a variety of important economic preferences, such as risk-taking, competition and pro-sociality. One potential implication of this literature is that increased female representation in decision-making bodies may significantly alter organizational and policy outcomes. However, research has yet to establish a direct connection from gender differences in simple economic choice tasks, to voting over policy and to the resulting outcomes. We conduct a laboratory experiment to provide a test of such a connection. In small laboratory “societies,” people repeatedly vote for a redistribution policy and engage in a real-effort production task. Women persistently vote for more egalitarian redistribution. This gender difference is large relative to other voting differences based on observable characteristics and is partly explained by gender gaps in preferences and beliefs. Gender voting gaps persist with experience and in environments with varying degrees of risk. We also observe policy differences between male- and female-controlled groups, though these are considerably smaller than the mean individual differences—a natural consequence of the aggregation of individual preferences into collective outcomes. Thus, we provide evidence for why substantial and robust gender differences in preferences may often fail to translate into differential policy outcomes with increased female representation in policymaking.
    Keywords: Gender differences, risk, altruism, redistributive preferences, experiment
    JEL: C91 C92 J16 H23
    Date: 2017–11

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