nep-pol New Economics Papers
on Positive Political Economics
Issue of 2018‒10‒08
eleven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Political Competitiveness and Fiscal Structure: A Time Series Analysis. Canada, 1870 - 2015 By J Stephen Ferris; Stanley L. Winer
  2. Politicians’ Payments in a Proportional Party System By Berg, Helene
  3. Institutional flexibility, political alternation and middle-of-the-road policies By Ascensión Andina Díaz; Francesco Feri; Miguel A. Meléndez-Jiménez
  4. Voter Turnout and Intergenerational Redistribution By Michael Klien; Mickael Melki; Andrew Pickering
  5. Not Welcome Anymore: The Effect of Electoral Incentives on the Reception of Refugees By Matteo Gamalerio
  6. Strategic Voting when Participation is Costly By Dimitrios Xefteris
  7. Beyond Equal Rights: Equality of Opportunity in Political Participation By Paul Hufe; Andreas Peichl
  8. Patronage and Selection in Public Sector Organizations By Colonnelli, E; Prem Mounu; Teso, E
  9. Firm-Level Political Risk and Asymmetric Volatility By Goodness C. Aye; Mehmet Balcilar; Riza Demirer; Rangan Gupta
  10. Money is where the fun ends: material interests and individuals preference for direct democracy By Philipp Harms; Claudi Landwehr
  11. Measuring Electoral Competitiveness: With Application to the Indian States By Bharatee Bhusana, Ferris, J Stephen Dash; Stanley L. Winer

  1. By: J Stephen Ferris; Stanley L. Winer
    Abstract: We investigate the extent to which the intensity of political competition moderates the governance issues that arise in relation to Canada’s fiscal structure. By fiscal structure we mean three distinct but interrelated fiscal dimensions of the state: financial stability, long run size and short run interventions into the private economy with respect to the business cycle. The paper is distinctive in focusing on four measures of political competitiveness that reflect the degree of competition in and between national parliamentary elections: the size of the majority of the governing party in the House; the distribution of the volatility adjusted winning margins of the governing party; the proportion of electorally marginal constituencies adjusted for asymmetry between parties; and a multiparty measure of the competitiveness of elections at the constituency level. The analysis accounts for the differing time series properties of the political and economic variables and the comingling of long and short term fiscal policies in the time series data. Estimation using a sequence of ARDL models indicates that greater political competition enhances fiscal stability, speeds up convergence of government size from above on fundamentals, and helps to align fiscal deficits better with the business cycle. The potential quantitative impact of more intense electoral competition is analyzed by applying the deficit model to the period of fiscal instability that arose in the 1980’s and early 1990’s.
    Keywords: political competition, electoral competition, fiscal stability, budget composition, expenditure and tax size, debt and deficits, countercyclical policy, ARDL modeling
    JEL: D72 D78 H30 H50
    Date: 2018
  2. By: Berg, Helene (Dept. of Economics, Stockholm University)
    Abstract: Is politics a lucrative business? The question is approached in this paper, as one of few to quantify the monetary returns to holding political office in a typical developed democracy where parties are the main political actors. By applying a difference-in-difference setting with a carefully chosen control group to rich data on candidates to the Swedish national parliament, both short and long-run effects of being elected on different types of income are estimated. Results show that, yes, mostly thanks to relatively high remuneration while still in office, politics can be a lucrative business. In the long-run however, the effect is instead compositional in the sense that ex-politicians receive more pension income and work less.
    Keywords: Returns to politics; difference-in-difference
    JEL: C23 D72 J44
    Date: 2018–09–24
  3. By: Ascensión Andina Díaz (Department of Economics, University of Málaga); Francesco Feri (Department of Economics, Royal Holloway, University of London); Miguel A. Meléndez-Jiménez (Department of Economics, University of Málaga)
    Abstract: Empirical observation shows that policies are usually gradually introduced in a society. This paper presents a model of repeated elections that captures this phenomenon, and that allows countries to differ in their institutional flexibility, thus in the speed of implementation of new policies. We show that with gradual implementation of policies there is an incentive for the voters to vote, each election, to a different party. Hence, our model produces equilibria with alternation. We further show that there is a tradeoff between efficiency and stability, with efficiency requiring moderate policies and stability pushing towards polarization. Last, we show that except for the partisan equilibria, the most stable ones convey policies that are bounded away from both the median and the extremes, with policies polarizing more when institutions are either too flexible or sufficiently rigid.
    Keywords: gradual implementation of policies; political alternation; polarization and moderation; efficiency; robustness
    JEL: D02 D72
    Date: 2018–09
  4. By: Michael Klien; Mickael Melki; Andrew Pickering
    Abstract: Electoral reforms that lead to reduced turnout modify the composition of the electorate, potentially overrepresenting specific interests in policy implementation. Intergenerational redistribution tilts in favor of the elderly when they are sufficiently numerous, but in favor of the young rich otherwise. We exploit a natural experiment provided by the repeal of compulsory voting in Austrian parliamentary elections to study how exogenous turnout decline affects intergenerational redistribution through pro-young public education spending in Austrian municipalities. Empirically, education spending falls when the proportion of elderly voters exceeds 21% of the electorate, but rises when the proportion of elderly voters is below this threshold.
    Keywords: Voter turnout, Education spending, Compulsory voting, Intergenerational conflict.
    JEL: I2 J1 D72
    Date: 2018–10
  5. By: Matteo Gamalerio
    Abstract: Do electoral incentives affect immigration policies? I study this question in the setting of Italian municipalities making decisions about the reception of refugees. The localized control of the reception policy (SPRAR), combined with the exogenous timing of policy decisions and staggered elections, enables me to study the effect of electoral incentives on the reception of refugees. Although municipalities receive fiscal grants for hosting refugees, electoral incentives reduce the probability of opening a refugee centre by 24 per cent. The effect is driven by voters' misperception of immigrants and by extreme-right political preferences. The results explain why is difficult to reach an equal redistribution of refugees across and within countries.
    Keywords: migration, reception of refugees, electoral incentives, fiscal grants
    JEL: R23 J61 D72 C23
    Date: 2018
  6. By: Dimitrios Xefteris
    Abstract: We study a general multiparty model of plurality rule elections with costly participation, and prove that strategic voting -that is, situations in which some voters abandon their most preferred alternative and vote strategically for the serious contender they like most- may emerge in equilibrium; just like when participation is costless/compulsory (Palfrey, 1988). This is contrary to recent claims that strategic voting cannot occur when participation is costly (e.g. Arzumanyan and Polborn, 2017) and establishes that the Duverger’s psychological effect is present in a much larger set of cases than currently believed.
    Keywords: Multiparty elections; plurality rule; costly voting; Duverger’s law; strategic voting
    JEL: D71 D72
    Date: 2018–09
  7. By: Paul Hufe; Andreas Peichl
    Abstract: While it is well documented that political participation is stratified by socio-economic characteristics, it is an open question how this finding bears on the evaluation of the democratic process with respect to its fairness. In this paper we draw on the analytical tools developed in the equality of opportunity literature to answer this question. We investigate to what extent differential political participation is determined by factors that lie beyond individual control (circumstances) rather than being the result of individual effort. Using rich panel data from the US, we indeed find a lack of political opportunity for the most disadvantaged circumstance types. Opportunity shortages tend to complement each other across different forms of participation and persist over time. Family characteristics and psychological conditions during childhood emanate as the strongest determinants of political opportunities.
    Keywords: equality of opportunity, political participation
    JEL: D39 D63 D72
    Date: 2018
  8. By: Colonnelli, E; Prem Mounu; Teso, E
    Abstract: In all modern bureaucracies, politicians retain some discretion in public employment decisions, which may lead to frictions in the selection process if political connections substitute for individual competence. Relying on detailed matched employer-employee data on the universe of public employees in Brazil over 1997–2014, and on a regression discontinuity design in close electoral races, we establish three main findings. First, political connections are a key and quantitatively large determinant of employment in public organizations, for both bureaucrats and frontline providers. Second, patronage is an important mechanism behind this result. Third, political considerations lead to the selection of less competent individuals.
    Keywords: Patronage, Bureaucrats, Political connections, Public sector
    Date: 2018–09–26
  9. By: Goodness C. Aye (Department of Economics, University of Pretoria, Pretoria, South Africa); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus, Turkey; Department of Economics, University of Pretoria, Pretoria, South Africa and Montpellier Business School, Montpellier, France.); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, USA); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper examines whether proxies of political risk exposure at the firm-level can predict the aggregate stock market volatility. Utilizing a nonparametric causality-in-quantiles test which not only guards against misspecification due to nonlinearity, but also tests for causality over the entire conditional distribution of the realized volatilities, we show that political risk exposure can serve as a strong predictor of bad realized volatility, while the causal effects are non-existent in the case of overall and good realized volatilities. Our findings provide novel insight to the well documented asymmetric volatility puzzle and the effect of political uncertainty on stock market fluctuations via the investor attention channel. The results also suggest that political risk exposure could be a contributing factor to jump risk in the cross-section of returns.
    Keywords: Aggregate Realized Volatility; Firm-Level Political Risk, Quantile Causality, S&P 500.
    JEL: C22 G1
    Date: 2018–09
  10. By: Philipp Harms (Johannes Gutenberg-University); Claudi Landwehr (Johannes Gutenberg-University)
    Abstract: Are people’s attitudes towards referenda as a decision-making procedure driven by their material self-interest, or do individuals predominantly value direct democracy as such, regardless of the material payoffs associated with anticipated policy outcomes? To answer this question, we use a survey data set that offers information on respondents’ support for referenda as a procedure to decide on tax policy, their general views on direct democracy and redistribution, their income levels, socio-economic characteristics, and, most importantly, their expectation about the majority’s support for higher taxes. Allowing for alternative motives to welcome or oppose direct democracy, we find that income per se does not influence individuals’ procedural preferences. However, if respondents expect a clear population majority in favor of or against more redistribution their attitude towards referenda as a procedure to decide on taxation is clearly aligned with their income position.
    Keywords: constitutional choice, direct democracy, redistribution
    Date: 2018–09–27
  11. By: Bharatee Bhusana, Ferris, J Stephen Dash; Stanley L. Winer
    Abstract: We consider alternative methods of measuring the competitiveness of a majoritarian electoral system in the context of an analysis of Indian State elections. Our analysis highlights a number of weaknesses in the construction and interpretation of commonly used measures such as the effective number of parties, the first versus second place vote margin and safe seats, while presenting these and their proposed alternatives for 14 major Indian states from 1952 to 2009. The alternative indexes we present are based in part on ideas that are longstanding in the literature but have not been fully adopted within the Indian context. These indexes incorporate vote volatility, allow for multi-party competition at the constituency level, and adjust for asymmetry among parties of safe seats in the legislature. We argue that these newly computed indexes capture distinct but related dimensions of electoral competition better than do the extant commonly used measures. The analysis of these indexes is then extended to consider the role of caste, class, regionalism and level of development to reveal interesting patterns of commonality and difference in electoral competition across the states.
    Keywords: electoral competition, effective number of parties and Tpartyness, volatility adjusted vote margins, asymmetry adjusted safe seats, Indian states, caste and class
    JEL: A12 D02 D72 O10
    Date: 2018

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