nep-pol New Economics Papers
on Positive Political Economics
Issue of 2018‒08‒13
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Spillovers from regulating corporate campaign contributions By Fremeth, Adam; Richter, Brian; Schaufele, Brandon
  2. Did Austerity Cause Brexit? By Fetzer, Thiemo
  3. Trade Exposure and Electoral Protectionism: Evidence from Japanese politician-level data By ITO Banri
  4. Contesting an international trade agreement By Matthew T. Cole; James Lake; Ben Zissimos
  5. Political Colleagues Matter: The Impact of Multiple Office-Holding on Intergovernmental Grants By Brice Fabre
  6. Farmer Campaign Finance: Determinants of Contributions to Political Action Committees By Scott Callahan
  7. Campaign Contributions Made by Farmers: Does Geography Affect Behavior? By Scott Callahan
  8. Engineering Crises: Favoritism and Strategic Fiscal Indiscipline By Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni
  9. An Experimental Test of the Validity of Survey-Measured Political Ideology By Maite D. Laméris; Richard Jong-A-Pin; Rasmus Wiese
  10. Fiscal Rules as Bargaining Chips By Facundo Piguillem; Alessandro Riboni
  11. Immigration and Redistribution By Alesina, Alberto F; Miano, Armando; Stantcheva, Stefanie
  12. Rhetoric matters: A social norms explanation for the anomaly of framing By Chang, Daphne; Chen, Roy; Krupka, Erin
  13. The Emergence of Weak, Despotic and Inclusive States By Robinson, James A
  14. Political Participation and the Welfare State By Rainald Borck
  15. Who Voted for Brexit? Individual and Regional Data Combined By Alabrese, Eleonora; Becker, Sascha O.; Fetzer, Thiemo; Novy, Dennis
  16. Voting rules in multilateral bargaining: using an experiment to relax procedural assumptions By Tremewan, James; Vanberg, Christoph

  1. By: Fremeth, Adam; Richter, Brian; Schaufele, Brandon
    Abstract: Populist clamor and recent Supreme Court decisions have renewed calls for increased regulation of corporate money in politics. Few empirical estimates exist, however, on the implications of existing rules on firms' political spending. Exploiting within firm-cycle cross-candidate variation and across firm-cycle variation, we demonstrate that the regulation of PAC campaign contributions generates large spillovers into other corporate political expenditures such as lobbying. Using both high dimensional fixed effects and regression discontinuity designs, we demonstrate that firms constrained by campaign contribution limits spend between $549,000 and $1.6M more on lobbying per election cycle, an amount that is more than 100 times the campaign contribution limit. This empirical results demonstrate that, similar to regulations in other domains of the economy, constraining specific corporate political activities often yields unintended effects.
    Keywords: Campaign finance regulation; corporate political activity; election law
    JEL: D72 D73 K39
    Date: 2018–06
  2. By: Fetzer, Thiemo (Department of Economics, University of Warwick)
    Abstract: Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. Further, auxiliary results suggest that the welfare reforms activated existing underlying economic grievances that have broader origins than what the current literature on Brexit sug gests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.
    Keywords: Political Economy ; Austerity ; Globalization ; Voting ; EU
    JEL: H2 H3 H5 P16 D72
    Date: 2018
  3. By: ITO Banri
    Abstract: This study empirically examines the effect of economic shocks of trade on trade policy preferences of candidates who run for national elections, using politician-level data of Japan during the period 2009-2014. The focus of this research is the examination of how the influence of trade shocks measured by import competition with China on politicians' trade policy preferences is related to election pressure. The results reveal that an increase in import exposure of goods for production use deters candidates from supporting trade liberalization even after considering offset by export exposure. Among other points, this protectionist effect is more pronounced for challengers than for incumbents, for candidates who run for the Lower House election and are exposed to stronger pressures of elections than those who run for the Upper House election, and for candidates with weak voter support than for those who are supported by a substantial majority. Taking these findings into account, politicians who face trade shocks tend to appeal to protectionist trade policies as the pressures of elections become stronger.
    Date: 2018–05
  4. By: Matthew T. Cole (California Polytechnic State University); James Lake (Southern Methodist University); Ben Zissimos (University of Exeter Business School)
    Abstract: We develop a new theoretical political economy framework, called a "parallel contest", that emphasizes the political fight over trade agreement (TA) ratification within countries. TA ratification is inherently uncertain in each country, where anti- and pro-trade interest groups contest each other to influence their own governments' ratification decision. Unlike prior literature, the protection embodied in negotiated TA tariffs reflects a balance between the liberalizing force of lobbying and inherently protectionist government preferences. Moreover, new international political externalities emerge that are not internalized by governments that just internalize terms of trade externalities.
    Keywords: Trade Agreement, ratification, tariff, contest, lobbying, contribution, externalities
    JEL: C72 F02 F13
    Date: 2018–07
  5. By: Brice Fabre (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper brings new evidence on the politics of intergovernmental grants. I focus on multiple office-holding (i.e. whether a local incumbent who has concurrently a seat at an upper layer of government gets more funds from this layer). By using a new panel database on French local governments' accounts, I focus on grants counties allocate to municipalities. For identification, I rely on close electoral races. I find that aligned multiple office-holders (mayors who also have a seat in the majority group of the county council) get on average 28% more grants for their municipality than other municipal incumbents. Evidence on the heterogeneity of this effect suggests that grantors' information on potential recipients, as well as local incumbents' access to upper layers politicians, are key determinants in the allocation of intergovernmental transfers.
    Keywords: Intergovernmental transfers,Multiple Office-Holding,Regression Discontinuity Design,Political Parties
    Date: 2017–09
  6. By: Scott Callahan
    Abstract: Over the years, farmers have effectively lobbied for advantageous farm policy through organizing effective political action. An extensive literature studies the activities of farming political action committees (PACs), and the effects these activities have on farm programs. This literature treats farming PACs as exogenous entities. However, the origins of their funding support remains unexplored. This research empirically assesses possible determinants of political contributions from farmers to farming PACs, using a correlated random effects Tobit model to assess the impact of farm production characteristics and policy regimes on contributions to farming PACs and political parties. Key Words: Agricultural Policy, Lobbying, Rent Seeking, Campaign Finance
    JEL: Q18 D72
    Date: 2018
  7. By: Scott Callahan
    Abstract: This essay contains a reduced form analysis of campaign contributions made by subsidy receiving farmers, in order to better understand if contribution strategies for campaigns in the House of Representatives by individual farmers differ based on whether or not the candidate represents their local congressional district, a non-local congressional district within the donor?s state, or an out of state congressional district. This is accomplished by applying a Tobit model to a panel of contributions, recording zero values of farmers in a given congressional district contribute nothing to a given legislator. Results indicate that farmers appear to contribute heavily to local campaigns regardless of the power of the legislator to influence agricultural legislation, while the ability of legislators to influence agricultural legislation becomes a more important driver of campaign contributions in more distant elections. Key Words: Agricultural Policy, Lobbying, Rent Seeking, Campaign Finance
    JEL: Q18 D72
    Date: 2018
  8. By: Gilles Saint-Paul (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, New York University Abu Dhabi); Davide Ticchi (Marche Polytechnic University); Andrea Vindigni (University of Genova)
    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: Public Debt,In- equality,Political Economy,Fiscal Crises,Favoritism,Entitlements,State Capacity
    Date: 2017–09
  9. By: Maite D. Laméris; Richard Jong-A-Pin; Rasmus Wiese
    Abstract: We examine the predictive validity of survey-measured left-right political ideology by testing whether this measure is able to explain observed choices regarding equality versus efficiency. We study this in a real-effort distribution experiment, in which decision-makers allocate money equally or efficiently. We distinguish between decision-makers that receive ‘manna-from-heaven’ and decision-makers that have earned the money to be distributed in a real effort task. We find that, conditional on entitlement concerns, self-reported right-wing ideology significantly predicts preferences for efficiency. Reported left-wing ideology does not have predictive value in explaining preferences for equality.
    Keywords: political ideology, survey measurement, predictive validity, distribution experiment, real effort
    JEL: C91 D31
    Date: 2018
  10. By: Facundo Piguillem (Einaudi Institute for Economics and Finance (EIEF)); Alessandro Riboni (CREST)
    Abstract: Most fiscal rules can be overridden by consensus. We show that this does not make them ine ectual. Since fiscal rules determine the outside option in case of disagreement, the opposition uses them as "bargaining chips" to obtain spending concessions. This political bargain reduces the debt accumulation problem. We analyze various rules and show that when political polarization is high, a government shutdown maximizes the opposition's bargaining power and leads to a sizeable debt reduction. When polarization is low, a balanced budget is preferable. Mandatory spending eliminates debt accumulation by removing political risk. However, it generates persistent static ineffciencies.
    Keywords: fiscal rules, government debt, legislative bargaining, political polarization, government shutdown, mandatory spending
    JEL: H2 H6 D72
    Date: 2018–03–08
  11. By: Alesina, Alberto F; Miano, Armando; Stantcheva, Stefanie
    Abstract: We design and conduct large-scale surveys and experiments in six countries to investigate how natives' perceptions of immigrants influence their preferences for redistribution. We find strikingly large biases in natives' perceptions of the number and characteristics of immigrants: in all countries, respondents greatly overestimate the total number of immigrants, think immigrants are culturally and religiously more distant from them, and are economically weaker -- less educated, more unemployed, poorer, and more reliant on government transfers -- than is the case. While all respondents have misperceptions, those with the largest ones are systematically the right-wing, the non-college educated, and the low-skilled working in immigration-intensive sectors.Support for redistribution is strongly correlated with the perceived composition of immigrants -- their origin and economic contribution -- rather than with the perceived share of immigrants per se. Given the very negative baseline views that respondents have of immigrants, simply making them think about immigration in a randomized manner makes them support less redistribution, including actual donations to charities. We also experimentally show respondents information about the true i) number, ii) origin, and iii) ``hard work'' of immigrants in their country. On its own, information on the ``hard work'' of immigrants generates more support for redistribution. However, if people are also prompted to think in detail about immigrants' characteristics, then none of these favorable information treatments manages to counteract their negative priors that generate lower support for redistribution.
    Keywords: Fairness; Immigration; Online Experiment; Perceptions; race; redistribution; survey; taxation
    JEL: D72 D91 H21 H23 H24 H41
    Date: 2018–07
  12. By: Chang, Daphne; Chen, Roy; Krupka, Erin
    Abstract: Ample evidence shows that certain words or ways of phrasing things can cause us to change our preferences. We demonstrate one mechanism for why this happens - "framing" evokes norms which then influence choice. We use a laboratory study to test the impact of describing a series of dictator games with either politically charged tax- or neutrallyframed language. Subjects' political identities interact with these frames, causing changes in both norms and choices. Framing makes Democrats prefer equalized outcomes, and Republicans reluctant to redistribute payments even when it leaves them disadvantaged.
    Keywords: framing,norms,social identity,altruism
    JEL: C93 D83
    Date: 2018
  13. By: Robinson, James A
    Abstract: Societies under similar geographic and economic conditions and subject to similar external influences nonetheless develop very different types of states. At one extreme are weak states with little capacity and ability to regulate economic or social relations. At the other are despotic states which dominate civil society. Yet there are others which are locked into an ongoing competition with civil society and it is these, not the despotic ones, that develop the greatest capacity. We develop a model of political competition between state (controlled by a ruler or a group of elites) and civil society (representing non-elite citizens), where both players can invest to increase their power. The model leads to different types of steady states depending on initial conditions. One type of steady state, corresponding to a weak state, emerges when civil society is strong relative to the state (e.g., having developed social norms limiting political hierarchy). Another type of steady state, corresponding to a despotic state, originates from initial conditions where the state is powerful and civil society is weak. A third type of steady state, which we refer to as an inclusive state, emerges when state and civil society are more evenly matched. In this last case, each party has greater incentives to invest to keep up with the other, which undergirds the rise of high-capacity states and societies. Our framework highlights that comparative statics with respect to structural factors such as geography, economic conditions or external threats, are conditional - in the sense that depending on initial conditions they can shift a society into or out of the basin of attraction of the inclusive state.
    Date: 2018–07
  14. By: Rainald Borck
    Abstract: A large literature has claimed that higher political participation increases welfare spending. In this paper, I review this literature. I study the theoretical link between participation and redistributive spending. Then, I survey the empirical literature on the link between education, income and political participation, as well as that between political participation and redistribution.
    Keywords: political participation, turnout, welfare spending
    JEL: D72 H53
    Date: 2018
  15. By: Alabrese, Eleonora (Department of Economics, University of Warwick); Becker, Sascha O. (Department of Economics,and CAGE (Competitive Advantage in the Global Economy), University of Warwick, CEPR,CESifo, ifo,IZA and ROA); Fetzer, Thiemo (Department of Economics, University of Warwick & SERC); Novy, Dennis (Department of Economics, University of Warwick, CEPR, CESifo and CEP/LSE)
    Abstract: Previous analyses of the 2016 Brexit referendum used region-level data or small samples based on polling data.The former might be subject to ecological fallacy and the latter might suffer from small-sample bias. We use individual-level data on thousands of respondents in Understanding Society, the UK’s largest household survey, which includes the EU referendum question. We find that voting Leave is associated with older age, white ethnicity,low educational attainment, infrequent use of smart phones and the internet,receiving benefits, adverse health and low lifesatisfaction. These results coincide with corresponding patterns at the aggregate level of voting areas.We therefore do not find evidence of ecological fallacy. In addition, we show that prediction accuracy is geographically heterogeneous across UK regions,with strongly pro-Leave and strongly pro-Remain areas easier to predict. We also show that among individuals with similar socioeconomic characteristics, Labour supporters are more likely to support remain while Conservative supporters are more likely to support Leave
    Keywords: Aggregation ; Ecological Fallacy ; European Union ; Populism ; Referendum ; UK JEL Classification: D72 ;I10 ;N44 ;R20 ;Z13
    Date: 2018
  16. By: Tremewan, James; Vanberg, Christoph
    Abstract: Experiments can be used to relax technical assumptions that are made by necessity in theoretical analysis, and further test the robustness of theoretical predictions. To illustrate this point we conduct a three-person bargaining experiment examining the effect of different decision rules (unanimity and majority rule). Our experiment implements the substantive assumptions of the Baron-Ferejohn model but imposes no structure on the timing of proposals and votes. We compare our results to those obtained from an earlier experiment which implemented the specific procedural assumptions of the model. Our results are in many ways very similar to those from the more structured experiment: we find that most games end with the formation of a minimum winning coalition, and unanimity rule is associated with greater delay. However, the earlier finding of "proposer power" is reversed. While some important patterns are robust to the less stringent implementation of procedural assumptions, our less structured experiment provides new insights into how multilateral bargaining may play out in real world environments with no strict procedural rules on timing of offers and agreements.
    Date: 2018–07–18

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