nep-pol New Economics Papers
on Positive Political Economics
Issue of 2018‒02‒26
twenty-two papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Right Type of Legislator: A Theory of Taxation and Representation By Andrea Mattozzi; Erik Snowberg
  2. The Price of a Vote: Evidence from France, 1993-2014 By Bekkouche, Yasmine; Cagé, Julia
  3. Informative Cheap Talk in Elections By Richard van Weelden
  4. Can Quotas Increase the Supply of Candidates for Higher-Level Positions? Evidence from Local Government in India By O'Connell, Stephen D.
  5. Political viability of intergenerational transfers. An empirical application By Gianko Michailidis; Concepció Patxot
  6. The Reform Dilemma in Polarized Democracies By Gersbach, Hans; Tejada, Oriol
  7. Crashing the Party? Elites, Outsiders, and Elections By Richard van Weelden
  8. Political Activism as a Determinant of Clientelistic Transfers: Evidence from an Indian Public Works Program By Chau, Nancy; Liu, Yanyan; Soundararajan, Vidhya
  9. Social media, sentiment and public opinions: Evidence from #Brexit and #USElection By Yuriy Gorodnichenko; Tho Pham; Oleksandr Talavera
  10. The Social and Economic Determinants of Voting ‘Yes’ in South Australia’s Federation Referenda By William Coleman
  11. The Effect of Initial Inequality on Meritocracy. A Voting Experiment on Tax Redistribution. By Natalia Jiménez Jiménez; Elena Molis; Ángel Solano García
  12. Does connection with @realDonaldTrump affect stock prices? By Rui Fan; Oleksandr Talavera; Vu Tran
  13. Policy Choices in Assembly versus Representative Democracy : Evidence from Swiss Communes By Patricia Funk; Stephan Litschig
  14. The Value of Political Capital: Dictatorship Collaborators as Business Elites By Felipe González; Mounu Prem
  15. Electoral spillovers in an intertwined world: Brexit effects on the 2016 Spanish vote By Agelos Delis; Konstantinos Matakos; Dimitrios Xefteris
  16. Democratization, post-industrialization, and East Asian welfare capitalism: the politics of welfare state reform in Japan, South Korea, and Taiwan By Fleckenstein, Timo; Lee, Soohyun Christine
  17. Political Change and Informality: Evidence from the Arab Spring By Elsayed, Ahmed; Wahba, Jackline
  18. Media, fake news, and debunking By Ngo Van Long; Martin Richardson; Frank Stahler
  19. Voting patterns in 2016: Exploration using multilevel regression and poststratification (MRP) on pre-election polls By Rob Trangucci; Imad Ali; Andrew Gelman; Doug Rivers
  20. Balanced Voting By Gersbach, Hans; Wickramage, Kamali
  21. Religion and Abortion: The Role of Politician Identity By Bhalotra, Sonia R.; Clots-Figueras, Irma; Iyer, Lakshmi
  22. Measures of policy distance and inequality / disproportionality of votes and seats By Colignatus, Thomas

  1. By: Andrea Mattozzi; Erik Snowberg
    Abstract: We develop a theory of taxation and the distribution of government spending in a citizen-candidate model of legislatures. Individuals are heterogeneous in two dimensions: productive ability in the private sector and negotiating ability in politics. When these are positively correlated, rich voters always prefer a rich legislator, but poor voters face a trade-off. A rich legislator will secure more pork for the district, but will also prefer lower taxation than the poor voter. Our theory organizes a number of stylized facts across countries about taxation and redistribution, parties, and class representation in legislatures. We demonstrate that spending does not necessarily increase when the number of legislators increases, as the standard common-pool intuition suggests, and that many policies aimed at increasing descriptive representation may have the opposite effect.
    JEL: D72 D78 H10 H23
    Date: 2018–02
  2. By: Bekkouche, Yasmine; Cagé, Julia
    Abstract: What is the price of a vote? This paper investigates this consequential controversy by analyzing a new comprehensive dataset of all French municipal and legislative elections over the 1993-2014 period. We begin by documenting the evolution of campaign finance in France, and show that both the amount and sources of campaign contributions vary widely from one candidate to another, in particular depending on their political party. We then turn to the empirical analysis and tackle a number of empirical challenges. First, we rely on recent methodological innovations to handle the special characteristics of multiparty data. Second, to overcome the endogenous nature of campaign spending, we propose a new instrument based on a change in legislation. We find that an increase in spending per voter consistently increases a candidate's vote share both for municipal and legislative elections, and that the effect is heterogeneous depending on the parties and on the sources of campaign funding. According to our estimations, the price of a vote is about 6 euros for the legislative elections, and 32 euros for the municipal ones. Simulations show that small changes in spending patterns and caps can have a large impact on electoral outcomes and seats. Our results suggest that political finance needs to be tightly regulated.
    Keywords: Campaign expenditures; Campaign finance reform; Campaign financing; elections; Multiparty electoral data
    JEL: D72 H72 P48
    Date: 2018–01
  3. By: Richard van Weelden
    Abstract: Why do office-motivated politicians sometimes espouse views that are non-congruentwith their electorate’s? Can non-congruent statements convey any information about whata politician will do if elected, and if so, why would voters elect a politician who makessuch statements? Furthermore, can electoral campaigns also directly affect an elected official’sbehavior? We develop a model of credible “cheap talk†—costless and non-bindingcommunication—in elections. The foundation is an endogenous voter preference for apolitician who is known to be non-congruent over one whose congruence is sufficientlyuncertain. This preference arises because uncertainty about an elected official’s policypreferences generates policymaking distortions due to reputation/career concerns. Weshow that cheap talk can alter the electorate’s beliefs about a politician’s policy preferencesand thereby affect the elected official’s behavior. Informative cheap talk can increaseor decrease voter welfare, with a greater scope for welfare benefits when reputation concernsare more important.
    Date: 2017–01
  4. By: O'Connell, Stephen D. (Massachusetts Institute of Technology)
    Abstract: A common argument for quota policies is that they can increase the participation of targeted groups in positions that are not directly subjected to quotas or after quotas are no longer in place. I investigate this hypothesis empirically in the context of India, where one third of local political leadership seats are randomly assigned to be held by a woman in each election cycle. Quotas increase the number of female candidates who later contest seats in state and national legislatures, where such policies do not exist. This effect arises from the candidacy of beneficiaries who gained experience in local government due to the quotas and career politicians who continue contesting in longer-exposed areas. Effect magnitudes imply that the policy accounts for a substantial portion of the increase in female candidates for these bodies since the start of the policy. The new candidates have a higher probability of a top finish when they run on major party tickets or contest in areas where the local constituency overlaps closely with that of the contested seat.
    Keywords: quotas, affirmative action, political candidacy, India
    JEL: J15 J45
    Date: 2018–01
  5. By: Gianko Michailidis (Universitat de Barcelona); Concepció Patxot (Universitat de Barcelona)
    Abstract: Public intergenerational transfers (IGTs) may arise because of the failure of private arrangements to provide optimal economic resources for the young and the old. We examine the political sustainability of the system of public IGTs by asking what the outcome would be if the decision per se to reallocate economic resources between generations was put to the vote. By exploiting the particular nature of National Transfer Accounts data – transfers for pensions and education and total public transfers – and the political economy application proposed by Rangel (2003) we show that most developed countries would vote in favor of a joint public education and pension system. Moreover, our results indicate that a system of total public IGTs to the young and elderly would attract substantial political support and, hence, would be politically viable for most countries in the sample.
    Keywords: Intergenerational Transfers, Population Ageing, Pay-As-You-Go Financing, National Transfer Accounts, Political Economy.
    JEL: D70 H50 J10 P16
    Date: 2018
  6. By: Gersbach, Hans; Tejada, Oriol
    Abstract: We study the feasibility and efficiency of policy reforms in democracies. We develop a simple election model where (i) reforms are costly for voters and politicians and these costs increase with the extent of policy change, and (ii) politicians differ in their ability to carry out reforms efficiently. We identify a so-called Reform Dilemma, which manifests itself in two variants. From a static perspective, low-reform-ability politicians are elected when political parties are polarized, who then impose high costs on citizens for each reform step. This property of elections arises as low reform ability is a substitute for policy commitment. From a dynamic perspective, incumbents may choose socially undesirable policies to align the social need for reform with their own reform ability and are thus re-elected regardless of their reform ability.
    Keywords: costs of reform; democracy; elections; political polarization.
    JEL: D72 D82
    Date: 2018–02
  7. By: Richard van Weelden
    Abstract: We study an elections model in which political parties are internally divided betweenan “elite†and a “base†whose preferences are imperfectly aligned. Elites are better informedabout the quality of potential nominees, and their endorsements can identify andpromote high quality candidates. However, elites may also choose to restrict their endorsementsto candidates who adopt their preferred policies. We introduce a threat ofentry from outsider candidates, who have the prominence and resources to bypass partyelites. We consider when voters will turn to an outsider candidate, and identify the conditionsunder which an outsider challenge will come in the primary as opposed to as athird-party candidacy. We further explore when this threat disciplines elite endorsementsand the conditions under which outsider challenges are most likely to succeed.
    Date: 2017–01
  8. By: Chau, Nancy (Cornell University); Liu, Yanyan (IFPRI, International Food Policy Research Institute); Soundararajan, Vidhya (Indian Institute of Management)
    Abstract: Are political activists preferentially targeted by politicians engaging in clientelistic transfers to bolster political support? We provide the first model to highlight two possible rationales for such transfers: to mobilize support from the activists themselves, or to mobilize support from electors these activists have influence over. Using novel household data on ex ante political affiliation and jobs received subsequent to large-scale decentralized workfare program in India, we find that activists are indeed preferentially targeted, and furthermore, such transfers are more pronounced in locations where citizen political involvement is less common, and in remote and less connected areas where activists' role in information transfers is most critical. We argue that the evidence is consistent with the use of transfers to leverage the influence of activists over the decision-making of other electors. Our results are not driven by self selection, reverse causality, and other program transfers, and are robust to alternate definitions of "activism".
    Keywords: political clientelism, political activism, NREGS, India
    JEL: D7 H5
    Date: 2018–01
  9. By: Yuriy Gorodnichenko; Tho Pham (School of Management, Swansea University); Oleksandr Talavera (School of Management, Swansea University)
    Abstract: This paper studies information diffusion in social media and the role of information dissemination in shaping public opinions. Using Twitter data on the 2016 EU Referendum and the 2016 US Presidential Election, we find that information about these two events is spread quickly on Twitter, most likely within 1-2 hours. There are also interactions among different types of Twitter agents in spreading information with a considerable spillover from bot to human tweeting activities. However, the degree of influence depends on whether bots provide consistent information with humans' priors. This finding lends support to the "echo chambers" effect on Twitter that Twitter users are more likely to expose to information supporting their own views while ignore the opposite information. Further examination shows that sentiment matters in information acquiring and sharing. Overall, our results suggest that the aggressive use of Twitter bots, coupled by the fragmentation of social media and the role of sentiment, increases the polarization of public opinions about the EU Referendum and the US Election.
    Keywords: Brexit, US Election, Information diffusion, Echo chambers, Political Bots, Twitter
    JEL: D70 D72 D86
    Date: 2018–01–25
  10. By: William Coleman
    Abstract: The paper uses data from South Australia’s census of 1901 to throw light of the attributes of electors and electorates that encouraged or discouraged voting Yes in the 1898 and 1899 South Australian federation referenda. It concludes that British-birth and an industrial occupation contributed powerfully to voting No. It additionally concludes that in the 1899 referendum industrial occupation disappeared as a discouragement to voting Yes.
    JEL: D72
    Date: 2017–12
  11. By: Natalia Jiménez Jiménez (Departamento de Economía, Métodos Cuantitativos e Historia Económica, University Pablo de Olavide.); Elena Molis (Department of Economic Theory and Economic History, University of Granada.); Ángel Solano García (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: According to Alesina and Angeletos (2005), societies are less redistributive but more efficient when the median voter believes that effort and talent are much more important than luck to determine income. We test these results through a lab experiment in which participants vote over the tax rate and their pre-tax income is determined according to their performance in a real effort task with leisure time. Subjects receive either a high or a low wage and this condition is either obtained through their talent in a tournament or randomly assigned. We compare subjects' decisions in these two different scenarios considering different levels of wage inequality. In our framework, this initial income inequality turns out to be crucial to support the theoretical hypothesis of Alesina and Angeletos (2005). Overall, we find that, only if the wage inequality is high, subjects choose a lower level of income redistribution and they provide a higher effort level in the scenario in which high-wage subjects are selected based on their talent through a tournament (than when it is randomly). Thus, we confirm almost all theoretical results in Alesina and Angeletos (2005) when the wage inequality is high enough. The big exception is for efficiency (measured as the sum of total payoffs), since theoretical results only hold for the scenario in which wage inequality is low.
    Keywords: income redistribution, voting, taxation, real-effort task, leisure.
    JEL: C92 D72 H30 J41
  12. By: Rui Fan (School of Management, Swansea University); Oleksandr Talavera (School of Management, Swansea University); Vu Tran (School of Management, Swansea University)
    Abstract: This study investigates whether investors react to signals of an association between a firm and Donald Trump indicated by tweets containing both words 'Trump' (or '@realDonaldTrump') and a S&P500 firm name. Our results reveal that a large number of such tweets ignite speculations about a political connection between a firm and the US's President, thus affecting investors' trading behaviors. In particular, a rise in these tweets induces significant increases in trading volatility and trading volume. However, we do not find such great impacts on stock returns, suggesting that the speculations are more likely to spread among small non-institutional investors. Further investigations show that sentiments embedded in these tweets have limited influence. There is evidence of a changing market behavior towards such tweets centered by the President's inauguration.
    Keywords: Twitter, US Election, stock market, investor sentiment, text classification, computational linguistics.
    JEL: D72 G12 G14 L86
    Date: 2018–02–19
  13. 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 use two research designs in distinct samples of Swiss communes. Our event study analysis focuses on medium-sized and mostly German-speaking communes that switched from assembly to parliament from 1945 to 2010. The regression discontinuity analysis is based on small communes from a French-speaking canton over the period 1986-2005 and exploits a cutoff in local population. Event study estimates suggest that parliament adoption increases total spending by about 6 percent and that this increase is driven mostly by general administration and education spending. In contrast, regression discontinuity estimates are too noisy to be informative. 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 assemblies compared to both the electorate and to voters. Switching from assembly democracy to parliament in our setting therefore seems to increase the representation of two demographics that are known for their relatively strong preferences for education spending.
    Date: 2018–02
  14. By: Felipe González; Mounu Prem
    Abstract: What is the value of political capital for individuals? Towards the end of the Pinochet dictatorship in Chile, military and civilian collaborators entered the business elite, controlling the largest and most important firms in the country. Using a novel panel dataset of board members in these firms, we document a work premium for those who had previously collaborated with Pinochet. After democratization, however, collaborators were removed from boards and their compensation premium disappeared, suggesting that the value of their networks depreciated.To shed light on these findings, we study military personnel before, during, and after Pinochet and find evidence of a wage premium only during the dictatorship. We interpret these results as Pinochet favoring his collaborators while he was in power.
    Date: 2018–01–30
  15. By: Agelos Delis; Konstantinos Matakos; Dimitrios Xefteris
    Abstract: The Brexit vote took place three days before the June 26, 2016, Spain’s parliamentary elections, in which anti-systemic parties performed worse compared to the previous elections (December 2015) despite the optimistic predictions of the pre-election polls and the surge in the support for anti-systemic parties that was taking place elsewhere (Hobolt and de Vries 2016). We split the Spanish votes in local ones (casted after Brexit) and postal ones (casted before Brexit) and –by employing a differences-in-differences model a la Montalvo (2011)—we provide causal evidence suggesting that the electoral performance of the anti-systemic parties deteriorated due to the uncertainty and fear of destabilization caused to the Spanish electorate by the Brexit vote.
    Keywords: Brexit; Spanish elections; electoral spillovers; natural experiment; uncertainty; anti-systemic parties
    Date: 2018–02
  16. By: Fleckenstein, Timo; Lee, Soohyun Christine
    Abstract: This review article provides an overview of the scholarship on the establishment and reform of East Asian welfare capitalism. The developmental welfare state theory and the related productivist welfare regime approach have dominated the study of welfare states in the region. This essay, however, shows that a growing body of research challenges the dominant literature. We identify two key driving factors of welfare reform in East Asia, namely democratization and post-industrialization; and discuss how these two drivers have undermined the political and functional underpinnings of the post-war equilibrium of the East Asian welfare/production regime. Its unfolding transformation and the new politics of social policy in the region challenge the notion of “East Asian exceptionalism”, and we suggest that recent welfare reforms call for a better integration of the region into the literature of advanced political economies to allow for cross-fertilization between Eastern and Western literatures.
    Keywords: Democratization; Post-Industrialization; Welfare Capitalism; Developmentalism; Japan; South Korea; Taiwan.
    JEL: N0
    Date: 2017–02–08
  17. By: Elsayed, Ahmed (IZA); Wahba, Jackline (University of Southampton)
    Abstract: This paper examines informality during the political and economic turmoil that accompanied the Arab Spring revolution in Egypt. The paper focuses on unprotected employment and the extent to which it changed by educational level right after the January Uprising of 2011. We find that over time and particularly after the revolution, informal employment has increased for both high- and low-educated workers however, through different paths: high educated were more likely to be stuck in informality, whilst low-educated formal workers were more likely to lose their contracts. The results suggest a high level of rigidity in the Egyptian labor market even in the wake of the Arab Spring.
    Keywords: informal employment, job contracts, Arab Spring
    JEL: J21 J23 J24 J31 O17
    Date: 2017–12
  18. By: Ngo Van Long; Martin Richardson; Frank Stahler
    Abstract: We construct a Hotelling-type model of two media providers, each of whom can issue fake and/or real news and each of whom can invest in the debunking of their rival's fake news. The model assumes that consumers have an innate preference for one provider or the other and value real news. However, that valuation varies according to their bias favoring one provider or the other. We demonstrate a unique subgame perfect Nash equilibrium in which only one firm issues fake news and we show, in this setting, that increased polarization of consumers - represented by a wider distribution - increases the prevalence of both fake news and debunking expenditures and is welfare reducing. We also show, interalia, that a stronger preference by consumers for their preferred provider lowers both fake news and debunking. Finally, we compare monopoly and duopoly market structures in terms of "fake news" provision and show that a public news provider can be welfare improving.
    Keywords: fake news, media, debunking
    JEL: D21 L15 L82
    Date: 2018–02
  19. By: Rob Trangucci; Imad Ali; Andrew Gelman; Doug Rivers
    Abstract: We analyzed 2012 and 2016 YouGov pre-election polls in order to understand how different population groups voted in the 2012 and 2016 elections. We broke the data down by demographics and state. We display our findings with a series of graphs and maps. The R code associated with this project is available at lection/.
    Date: 2018–02
  20. By: Gersbach, Hans; Wickramage, Kamali
    Abstract: We introduce 'Balanced Voting', a voting scheme tailored to fundamental societal decisions. It works as follows: Citizens may abstain from voting on a fundamental direction in a first stage. This guarantees the voting right in a second voting stage on the variants of the fundamental direction chosen in the first. All losers from the first stage also obtain voting rights in the second stage, while winners do not. We develop a model with two fundamental directions and variants of these directions. Information about the preferences is private. We identify circumstances under which Balanced Voting performs well with regard to utilitarian welfare and Pareto dominance. We discuss the robustness of the results, procedural rules to implement the voting scheme, and extensions. Moreover, we provide several examples, such as the US presidential election, for which the scheme could be applied.
    Keywords: Balanced Voting; fundamental decision; minority protection; tyranny of majority
    JEL: D7
    Date: 2018–02
  21. By: Bhalotra, Sonia R. (University of Essex); Clots-Figueras, Irma (Universidad Carlos III de Madrid); Iyer, Lakshmi (University of Notre Dame)
    Abstract: Leveraging close elections to generate quasi-random variation in the religious identity of state legislators in India, we find lower rates of female foeticide in districts with Muslim legislators, which we argue reflects a greater (religious) aversion to abortion among Muslims. These districts exhibit increases in fertility that offset the decrease in girl abortion. We find no evidence of greater postnatal neglect of girls once more girls are born. Our findings show that politician preferences over abortion influence abortion-related outcomes, most likely through greater enforcement of laws against sex determination.
    Keywords: religion, politician identity, abortion, sex selection, fertility, infant mortality, India, Muslims
    JEL: I15 J13 O15 P16
    Date: 2018–01
  22. By: Colignatus, Thomas
    Abstract: Let v be a vector of votes for parties and s a vector of their seats gained in the House of Commons or the House of Representatives. We use a single zero for the lumped category of "Other", of the wasted vote, for parties that got votes but no seats. Let V = 1'v be total turnout and S = 1's the total number of seats, and let w = v / V and z = s / S be the perunages (or per ten or percentages). Let d[w, z] be the inequality / disproportionality of votes and seats. This can be the angle between the vectors (AID) and the sine-diagonal (SDID) measure based upon this. Parties can also be scored with policy vector p, using a "left-to-right" policy scale [0, 10]. A common voter-legislative distance is the weighted average a = p' (z - w). With AID d[w, z] the present paper looks into the properties of d[p w, p z]. The latter term for variable w and z given p works as a disproportionality measure, and for variable p given w and z works as policy congruence. We can define an angular policy distance (APD) pd[w, z, p] that employs this d[p w, p z] properly. The APD is much more sensitive than the weighted average, but Sqrt[Abs[a]] has remarkably similar behaviour.
    Keywords: Votes, Seats, Electoral System, Policy Distance, Disproportionality, Angular Distance, Sine-Diagonal Inequality / Disproportionality, Loosemore-Hanby, Gallagher, Descriptive Statistics, Education
    JEL: A10 D63 D71 D72
    Date: 2018–02–02

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