nep-pol New Economics Papers
on Positive Political Economics
Issue of 2018‒01‒22
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Distrust and Political Turnover By Nathan Nunn; Nancy Qian; Jaya Wen
  2. Papa Does Preach: Daughters and Polarisation of Attitudes toward Abortion By Van Effenterre, Clémentine
  3. State-controlled companies and political risk: evidence from the 2014 Brazilian election By Carvalho, Augusto; Guimaraes, Bernardo
  4. Firm-Level Political Risk: Measurement and Effects By Tarek A. Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
  5. Do Black Politicians Matter? By Trevon D. Logan
  6. The political economy of preferential trade agreements: An empirical investigation By Facchini, Giovanni; Silva, Peri; Willmann, Gerald
  7. Immobility and the Brexit vote By Lee, Neil; Morris, Katy; Kemeny, Thomas
  8. Divide and Rule: An Origin of Polarization and Ethnic Conflict By Yikai Wang; Simon Alder

  1. By: Nathan Nunn; Nancy Qian; Jaya Wen
    Abstract: We present findings that document one way in which a society's culture can affect political outcomes. Examining an annual panel of democratic countries over six decades, we show that severe economic downturns are more likely to cause political turnover in countries that have lower levels of generalized trust. The relationship is only found among democracies and for regular leader turnover, which suggests that the underlying mechanism works through leader accountability and the electoral process. Moreover, we find that the effects of trust on turnover are greatest during years with regularly-scheduled elections, and within democracies with a parliamentary system, a fully free media, and greater stability. The estimates suggest that generalized trust affects political institutions by influencing the extent to which citizens attribute economic downturns to the mistakes of politicians.
    JEL: D72 P16 P51
    Date: 2018–01
  2. By: Van Effenterre, Clémentine (Harvard Kennedy School)
    Abstract: This article examines the hypothesis that having daughters polarises male politicians' attitudes toward abortion rights. Using French and U.S voting records, I estimate that having daughters decreases support for abortion law by 25% for right-wing congressmen in France, and increases support for Democrats by 12%. I find similar behavioural patterns for voters using electoral surveys. Robustness checks confirm that this result is not an artefact of family stopping rules. I rationalise these findings in a model predicting that fathers with paternalistic preferences adopt a more polarised political position on abortion when they have a daughter rather than a son.
    Keywords: voting, polarisation, gender, political behaviour, attitudes, abortion
    JEL: D72 D83 J16
    Date: 2017–11
  3. By: Carvalho, Augusto; Guimaraes, Bernardo
    Abstract: This paper examines the vulnerability of state-controlled companies to political risk using the 2014 Brazilian election and data on stock options. In her first term as Brazilian president, Ms. Dilma Rousseff took measures that were not aligned with the objective of maximizing profits of Petrobras, the Brazilian state-controlled oil company. She was reelected president in 2014. Results show that Petrobras would be worth around 62% (USD 45 billion) more if the opposition candidate had won the election. Using our estimated reelection probabilities and stock price data, we also find that the election of Ms. Rousseff had a negative impact on the value of several companies, but the effects on Petrobras and Banco do Brasil, the state-controlled bank, were particularly strong.
    Keywords: IMF; conditionalities; fiscal adjustment; political proximity; fiscal deficit
    JEL: G13 P16
    Date: 2016–12
  4. By: Tarek A. Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
    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.
    JEL: D8 E22 E24 E32 E6 G18 G32 G38 H32
    Date: 2017–11
  5. By: Trevon D. Logan
    Abstract: This paper exploits the history of Reconstruction after the American Civil War to estimate the causal effect of politician race on public finance. I overcome the endogeneity between electoral preferences and black representation using the number of free blacks in the antebellum era (1860) as an instrument for black political leaders during Reconstruction. IV estimates show that an additional black official increased per capita county tax revenue by $0.20, more than an hour's wage at the time. The effect was not persistent, however, disappearing entirely at Reconstruction's end. Consistent with the stated policy objectives of black officials, I find positive effects of black politicians on land tenancy and show that exposure to black politicians decreased the black-white literacy gap by more than 7%. These results suggest that politician race has large effects on public finance and individual outcomes over and above electoral preferences for redistribution.
    JEL: H2 H7 J1 N3 R5
    Date: 2018–01
  6. By: Facchini, Giovanni; Silva, Peri; Willmann, Gerald
    Abstract: In this paper, we develop a political economy model to study the decision of representative democracies to join a preferential trading agreement (PTA), distinguishing between free trade areas (FTA) and customs unions (CU). Our theoretical analysis suggests that income inequality and bilateral trade imbalances are important factors in determining the formation of PTAs, while differences in production structure among prospective member countries determine whether a CU or an FTA will emerge in equilibrium. Using a sample of 136 countries over the period 1960-2005, our empirical analysis lends strong support to these predictions: Income inequality and trade imbalances both reduce the likelihood of PTA formation, while geographical specialization increases the conditional probability of an FTA (over a CU).
    Keywords: Free Trade Areas,Customs Unions,Trade Imbalances,Income Inequality
    JEL: F13
    Date: 2017
  7. By: Lee, Neil; Morris, Katy; Kemeny, Thomas
    Abstract: Popular explanations of the Brexit vote have centred on the division between cosmopolitan internationalists who voted Remain, and geographically rooted individuals who voted Leave. In this paper, we conduct the first empirical test of whether residential immobility – the concept underpinning this distinction – was an important variable in the Brexit vote. We find that locally rooted individuals – defined as those living in their county of birth – were 7 percent more likely to vote Leave. However, the impact of immobility was filtered by local circumstances: immobility only mattered for respondents in areas experiencing relative economic decline or increases in migrant populations
    Keywords: Brexit; globalisation; mobility; populism
    JEL: D72 J61 R23
    Date: 2018–01–04
  8. By: Yikai Wang (University of Oslo); Simon Alder (University of North Carolina at Chapel H)
    Abstract: We propose a theory of ethnic conflict where political elites strategically initiate conflicts in order to polarize society and thus sustain their own power. We provide a micro-foundation for this divide-and-rule strategy by modelling polarization as a lack of trust. Trust is shaped by economic interactions between different groups as in Rohner, Thoenig, and Zilibotti (2013a). Low trust reduces the expected gains from trade. By starting a conflict and thus interrupting trade, the elite can prevent trust from emerging. The elite will follow this strategy whenever it faces a large threat of revolution which originates in the common interest of people to reap gains from trade without being taxed by the elite. This is likely to be the case if current trust levels are high and if the cost of revolution is low.
    Date: 2017

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