nep-pol New Economics Papers
on Positive Political Economics
Issue of 2018‒01‒15
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Resource Transfers to Local Governments: Political Manipulation and Voting Patterns in West Bengal By Anusha Nath; Dilip Mookherjee
  2. Politics Gets Personal: Effects of Political Partisanship and Advertising on Family Ties By M. Keith Chen; Ryne Rohla
  3. Greed as a Source of Polarization By Livshits, Igor; Wright, Mark L. J.
  4. The European Trust Crisis and the Rise of Populism By Algan, Yann; Guriev, Sergei; Papaioannou, Elias; Passari, Evgenia
  5. Ignorance isn’t bliss: Uninformed voters drive budget cycles By Jan Janku; Jan Libich
  6. Public finances under plurality and proportional electoral systems. Evidence from Hungarian municipalities By GREGOR Andras
  7. The Arsenal of Democracy: Production and Politics During WWII By Paul W. Rhode; James M. Snyder, Jr.; Koleman Strumpf
  8. Linear voting rules By Grüner, Hans Peter; Tröger, Thomas
  9. Paying Politicians: Not Too Little, Not Too Much By Alessandro Fedele; Pierpaolo Giannoccolo
  10. Ethnic Diversity and Political Participation: The Role of Individual Income By Giorgio Bellettini; Carlotta Berti Ceroni; Chiara Monfardini
  11. The Rise and Fall of Local Elections in China: Theory and Empirical Evidence on the Autocrat's Trade-off By Martinez-Bravo, Monica; Padró i Miquel, Gerard; Qian, Nancy; Yao, Yan
  12. What Political Liberalism and the Welfare State Left Behind: -- Democracy and Death -- By Gotoh, Reiko
  13. Are Democratic Regimes Antithetical to Globalization? By Mishra, SK
  14. Political Distribution Risk and Business Cycles By Pablo Guerron-Quintana; Jesus Fernandez-Villaverde; Thorsten Drautzburg

  1. By: Anusha Nath (Federal Reserve Bank of Minneapolis and University of Minnesota); Dilip Mookherjee (Boston University)
    Abstract: This paper examines how electoral competition in parliamentary constituencies aects allocation of resources to local governments and subsequent impacts on voter behavior. We examine the consequences of treating the 2007 redistricting of electoral boundaries in rural West Bengal as a shock to political competition between the Left Front (LF) and Trinamool Congress (TMC) in the parliamentary constituency that a village is located in. 21 villages out of a sample of 89 villages were redistricted by a non-partisan Election Commission to a dierent constituency. Using electoral victory margins in the previous 2004 election as a measure of political competition, we find that resources transferred by LF-controlled district governments to LF-dominated village governments for citizen benefit programs increased significantly if moved to an electoral constituency where the LF was in a weaker competitive position. These changes in benefit flows help predict corresponding changes in vote shares, consistent with the view that resource transfers to GPs were motivated by electoral considerations. Stronger changes were exhibited for recurring private benefits (mainly employment program (NREGA) funds) compared to one-time private benefits and local public goods (water, housing, roads, BPL cards). The evidence is consistent with models of electoral opportunism based on pork-barrel politics and/or clientelistic relational contracts between parties and voters, particularly the latter.
    Date: 2017
  2. By: M. Keith Chen; Ryne Rohla
    Abstract: Research on growing American political polarization and antipathy primarily studies effects on public institutions and political processes, ignoring private effects such as damaged family ties. Using smartphone-tracking data and precinct-level voting, we show that politically-divided families shortened Thanksgiving dinners by 20-30 minutes following the divisive 2016 election. This decline survives comparisons with 2015 and extensive demographic and spatial controls, and more than doubles in media markets with heavy political advertising. These effects appear asymmetric: while Democratic voters traveled less in 2016, political differences shortened Thanksgiving dinners more among Republican voters, especially where political advertising was heaviest. Partisan polarization may degrade close family ties with large aggregate implications; we estimate 27 million person-hours of cross-partisan Thanksgiving discourse were lost in 2016 to ad-fueled partisan effects.
    Date: 2017–11
  3. By: Livshits, Igor (Federal Reserve Bank of Philadelphia); Wright, Mark L. J. (Federal Reserve Bank of Minneapolis)
    Abstract: The political process in the United States appears to be highly polarized: evidence from voting patterns finds that the political positions of legislators have diverged substantially, while the largest campaign contributions come from the most extreme lobby groups and are directed to the most extreme candidates. Is the rise in campaign contributions the cause of the growing polarity of political views? In this paper, we show that, in standard models of lobbying and electoral competition, a free-rider problem amongst potential contributors leads naturally to a divergence in campaign contributors without any divergence in candidates' policy positions. However, we go on to show that a modest departure from standard assumptions | allowing candidates to directly value campaign contributions (because of \ego rents" or because lax auditing allows them to misappropriate some of these funds) | delivers the ability of campaign contributions to cause policy divergence.
    Keywords: Polarization; Campaign Contributions; Agendas
    JEL: D72 H41
    Date: 2017–12–28
  4. By: Algan, Yann; Guriev, Sergei; Papaioannou, Elias; Passari, Evgenia
    Abstract: We study the implications of the Great Recession for voting for anti-establishment parties, as well as for general trust and political attitudes, using regional data across Europe. We find a strong relationship between increases in unemployment and voting for non-mainstream, especially populist parties. Moreover, increases in unemployment go in tandem with a decline in trust in national and European political institutions, while we find much attenuated effects of unemployment on interpersonal trust. The correlation between unemployment and attitudes towards immigrants is muted, especially for their cultural impact. To advance on causality, we extract the component of increases in unemployment explained by the pre-crisis structure of the economy, in particular the share of construction in regional value added, which is strongly related both to build-up and the burst of the crisis. Our results imply that crisis-driven economic insecurity is a substantial driver of populism and political distrust.
    Keywords: crisis; Europe; Immigration; industrial structure; populism; Trust; voting
    JEL: A13 E02 F02 F22 F33 J15 O43
    Date: 2017–11
  5. By: Jan Janku; Jan Libich
    Abstract: The paper shows that blissful ignorance does not apply to fiscal policy. In countries with insufficiently informed voters, politicians attempt to ‘buy’ votes by substantially increasing government expenditures in election years and tightening the belt post election. This generates costly budget cycles and unnecessary macroeconomic fluctuations. Unlike much of the earlier literature that found this effect only in low income countries or new democracies, we demonstrate that it has occurred in many prosperous countries with an established political system. In particular, constructing an Informed-voter (INFOVOT) index, we show that only the top third of OECD countries with well-informed voters does not experience political budget cycles. In contrast, the bottom third of OECD countries with poorly-informed voters see a deterioration of the budget balance by 1% of GDP on average in election years, which represents an increase of more than 25% relative to their usual budget deficits. Interestingly, for the intermediate group of countries with moderately-informed voters, for example Austria, France, Germany, Japan, Luxembourg, the U.K. and the U.S., election deficit hikes (of 0.75% of GDP) are observed during the 1995-2008 period only, but not since. We discuss why their budget cycles may have disappeared after the Global financial crisis, unlike in countries with poorly-informed voters, drawing on the ‘rational inattention’ literature. We also offer some policy recommendations that could improve the voters’ incentives to acquire and process fiscal policy information, and thus avoid an ‘ignorance trap’.
    Keywords: Political Budget Cycle, Uninformed Voters, Elections, Rational Inattention, Generalized Method of Moments
    JEL: D72 E62 H62
    Date: 2018–01
  6. By: GREGOR Andras (CORE, Université catholique de Louvain)
    Abstract: In this paper I provide evidence on e ects of plurality and proportional electoral systems on fiscal outcomes. In Hungary di erent voting regimes are applied to elect the members of local councils: in places where more than 10,000 people live a variant of
    Keywords: public finances, plurality vs. proportional system
    JEL: H72 H77 D72 D78
    Date: 2017–11–06
  7. By: Paul W. Rhode; James M. Snyder, Jr.; Koleman Strumpf
    Abstract: We study the geographic distribution of military supply contracts during World War II. This is a unique case, since over $3 trillion current day dollars was spent, and there were concerns that the country's future hinged on the war outcome. We find robust evidence consistent with the hypothesis that economic factors dominated the allocation of supply contracts, and that political factors---or at least winning the 1944 presidential election---were at best of secondary importance. General industrial capacity in 1939, as well as specialized industrial capacity for aircraft production, are strong predictors of contract spending across states. On the other hand, electoral college pivot probabilities are at best weak predictors of contract spending, and under the most plausible assumptions they are essentially unrelated to spending. This is true not only for total contract spending over the entire period 1940-1944, but also for shorter periods leading up to the election in November 1944, as well as for new facilities spending. That is, we find no evidence of an electoral cycle in the distribution of funds.
    JEL: D72 H41 H56 N42
    Date: 2017–12
  8. By: Grüner, Hans Peter; Tröger, Thomas
    Abstract: How should a society choose between two social alternatives if participation in the decision process is voluntary and costly and monetary transfers are not feasible? Considering symmetric voters with private valuations, we show that it is utilitarian-optimal to use a linear voting rule: votes get alternativedependent weights, and a default obtains if the weighted sum of votes stays below some threshold. Standard quorum rules are not optimal. We develop a perturbation method to characterize equilibria in the case of small participation costs and show that leaving participation voluntary increases welfare for linear rules that are optimal under compulsory participation.
    Keywords: Mechanisms design , optimal voting rules , costly voting , compulsory voting , quorum rules
    JEL: D71 D72 D82
    Date: 2018
  9. By: Alessandro Fedele (Free University of Bolzano‐Bozen, Faculty of Economics and Management); Pierpaolo Giannoccolo (University of Bologna, Department of Economics)
    Abstract: How does pay affect the quality of politicians? This paper tackles the question by considering a three-period citizen candidate model where potential candidates vary in skills and in public service motivation. First, potential candidates observe the level of pay in politics and then simultaneously decide whether or not to run for office. Second, an election takes place and only one candidate is elected. Finally, the successful candidate provides a public good, while all the others work in the market sector. In a benchmark model where potential candidates differ only in skills, the quality of the elected politician is shown to increase with pay. If public service motivation is also considered, an inverted U-shaped relationship is found. The latter result is compatible with empirical evidence.
    Keywords: Pay; Selection and Quality of Politicians; Skills; Public Service Motivation
    JEL: D72 P16 J24 J3
    Date: 2018–01
  10. By: Giorgio Bellettini; Carlotta Berti Ceroni; Chiara Monfardini
    Abstract: We exploit a unique dataset merging data on individual socio-economic characteristics and political participation in an Italian municipality to investigate the relationship between ethnic diversity in residential neighborhoods and individuals’ propensity to vote. We document a sizable negative impact of diversity on overall electoral turnout which reflects differential effects at the individual level, depending on household equivalent income. Specifically, we show that ethnic heterogeneity in the neighborhood reduces the political participation of the poor, while it fosters that of the more affluent. These results highlight a potential democratic deficit stemming from reduced and unequal electoral turnout in increasingly ethnically heterogeneous neighborhoods.
    Keywords: ethnic heterogeneity, electoral turnout, income
    JEL: D72
    Date: 2017
  11. By: Martinez-Bravo, Monica; Padró i Miquel, Gerard; Qian, Nancy; Yao, Yan
    Abstract: We propose a simple informational theory to explain why autocratic regimes introduce local elections. Because citizens have better information on local officials than the distant central government, delegation of authority via local elections improves selection and performance of local officials. However, local officials under elections have no incentive to implement unpopular centrally mandated policies. The model makes several predictions: i) elections pose a trade-off between performance and vertical control; ii) elections improve the selection of officials; and iii) an increase in bureaucratic capacity reduces the desirability of elections for the autocrat. To test (i) and (ii), we collect a large village-level panel dataset from rural China. Consistent with the model, we find that elections improve (weaken) the implementation of popular (unpopular) policies, and improve official selection. We provide a large body of qualitative and descriptive evidence to support (iii). In doing so, we shed light on why the Chinese government has systematically undermined village governments twenty years after they were introduced.
    Keywords: economic development; Loan pricing; Loan spreads; Democratic institutions; Reversals; political economy
    JEL: O2 P16 P3
    Date: 2017–11
  12. By: Gotoh, Reiko
    Abstract: This article is a revised version of the paper "From Liberal Paradox to Capability Approach: Amartya Sen's evolving concept of rights" presented at a special session 'Amartya Sen's Philosophy and its Policy Implications' in the 72nd conference of the Japan Economic Policy Association held at Kokushikan University in Tokyo on May 30-31, 2015. Hitotsubashi University Policy Forum and the 2nd Symposium on Normative Economics 'Illusion of the Self, Absence Others: Methodological Reflection on Economics' held at Hitotsubashi Hall on November 18th, 2015.) I sincerely thank its organizers and participants. I also benefited greatly from discussants at the research seminar
    Date: 2017–04
  13. By: Mishra, SK
    Abstract: In this study we have made an attempt to investigate into the relationship between political regime type (that ranges from authoritarian to democratic) and the extent of globalization, which of late has been considered as a path to development. We have made use of the Democracy index (and its constituent indicators) provided by the Economist Intelligence Unit and the globalization index (and its constituent indicators) of the KOF. Applying canonical correlation analysis on the data we have made an attempt to look into the response of globalization to the quantitative measures of democratic (versus authoritarian) practices of the governments in 116 countries distributed over Asia, Africa, Australia/Oceania, Europe and the Americas. We have also tested the Lee thesis in the context of globalization as a path to development. Our findings indicate that the empirical support to Lee’s thesis if extended to globalization as a path to development is superficial and does not withstand critical analysis. Contrary to Lee’s thesis, democracy promotes globalization. In African countries political discordance (at the national as well as international level) is not much favourable while in the Asian countries, political will, irrespective of regime type, is more or less in concordance with globalization. Therefore, rather illusively, it so appears that democracies thwart development as well as globalization as a means to development by implication, while the reality is very different.
    Keywords: Globalization; democracy; authoritarian regime; Lee thesis; canonical correlation; Asia; Africa; Australia; Europe; the Americas
    JEL: O51 O52 O53 O54 O55 O56 O57
    Date: 2017–12–17
  14. By: Pablo Guerron-Quintana (Boston College); Jesus Fernandez-Villaverde (University of Pennsylvania); Thorsten Drautzburg (Federal Reserve Bank of Philadelphia)
    Abstract: We argue that one important determinant of the variation in income shares is political risk. To that end, we document significant changes in the capital share after political events such as the introduction of right-to-work legislation in U.S. states and international events such as the Carnation Revolution in Portugal. These policy changes are often associated with significant fluctuations in output and asset prices. To quantify the importance of these political shocks for the U.S., we extend an otherwise standard neoclassical growth model. We model political shocks as exogenous changes in the bargaining power of workers in a labor market with search unemployment. We calibrate the model to the U.S. corporate non-financial business sector with a standard process for productivity. A one standard deviation redistribution shock reduces the capital share up 0.2 percentage point on impact and leads to a drop in output of 0.6 percent. Our calibration also implies that political distribution risk can explain 15 to 25% of the observed volatility of U.S. gross capital shares -- and 35 to 45 percent of output volatility, depending on the elasticity of substitution between capital and labor. Eliminating political redistribution risk in the U.S. would raise the welfare of the representative household by 1.6 percent of steady state consumption.
    Date: 2017

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