nep-pol New Economics Papers
on Positive Political Economics
Issue of 2018‒11‒12
twenty papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Excess Method: A Multiwinner Approval Voting Procedure to Allocate Wasted Votes By Steven, Brams; Markus, Brill
  2. Term Limit Extension and Electoral Participation: Evidence from a Diff-in-Discontinuities Design at the Local Level in Italy By De Benedetto, Marco Alberto; De Paola, Maria
  3. Politics in the Facebook Era Evidence from the 2016 US Presidential Elections By Liberini, Federica; Redoano, Michela; Russo, Antonio; Cuevas, Angel; Cuevas, Ruben
  4. Overstrained Citizens? By Stutzer, Alois; Baltensperger, Michael; Meier, Armando N.
  5. A Situational Theory of Pork-Barrel Politics: The Shifting Logic of Discretionary Allocations in India By Sharma, Chanchal Kumar
  6. Minority Representation in Local Government By Brian Beach; Daniel B. Jones; Tate Twinam; Randall Walsh
  7. The Institutional Foundations of Religious Politics: Evidence from Indonesia By Samuel Bazzi; Gabriel Koehler-Derrick; Benjamin Marx
  8. Optimal Collateralized Contracts By Garance Genicot; Laurent Bouton; Michael Castanheira
  9. Pivotal Persuasion By Jimmy Chan; Seher Gupta; Fei Li; Yun Wang
  10. The Anxious and the Climbers: Ambivalent Attitudes towards Democracy among South Africa's Middle Class By Schotte, Simone
  11. Connecting to Power: Political Connections, Innovation, and Firm Dynamics By Akcigit, Ufuk; Baslandze, Salomé; Lotti, Francesca
  12. Financial Crisis, Creditor-Debtor Conflict, and Political Extremism By Gyongyosi, Gyozo; Verner, Emil
  13. Appointed public officials and local favoritism: Evidence from the German states By Baskaran, Thushyanthan; Lopes da Fonseca, Mariana
  14. A Theory of Autocratic Transition. Prerequisites to Self-Enforcing Democracy By Apolte, Thomas
  15. Why political risk matters for banking flows? By Ana Mafalda Vasconcelos
  16. Information Aggregation and Turnout in Proportional Representation: A Laboratory Experiment By Herrera, Helios; Llorente-Saguer, Aniol; McMurray, Joseph C.
  17. The Political Economy of Multilateral Aid Funds By Dreher, Axel; Simon, Jenny; Valasek, Justin
  18. Ousted from the Bench? Judicial Departures in Consolidating Democracies By Llanos, Mariana; Heyl, Charlotte; Lucas, Viola; Stroh, Alexander; Tibi Weber, Cordula
  19. Federalism and Foreign Direct Investment: How Political Affiliation Determines the Spatial Distribution of FDI – Evidence from India By Sharma, Chanchal Kumar
  20. A Fresh Look at Fiscal Redistribution and Inequality in the US across Electoral Cycles By Sala, Hector

  1. By: Steven, Brams; Markus, Brill
    Abstract: In using approval voting to elect multiple winners to a committee or council, it is desirable that excess votes—approvals beyond those that a candidate needs to win a seat—not be wasted. The excess method does this by sequentially allocating excess votes to a voter’s as-yet-unelected approved candidates, based on the Jefferson method of apportionment. It is monotonic—approving of a candidate never hurts and may help him or her get elected—computationally easy, and less manipulable than related methods. In parliamentary systems with party lists, the excess method is equivalent to the Jefferson method and thus ensures the approximate proportional representation of political parties. As a method for achieving proportional representation (PR) on a committee or council, we compare it to other PR methods proposed by Hare, Andrae, and Droop for preferential voting systems, and by Phragmén for approval voting. Because voters can vote for multiple candidates or parties, the excess method is likely to abet coalitions that cross ideological and party lines and to foster greater consensus in voting bodies.
    Keywords: Approval voting; multiple winners; apportionment method; proportional representation; wasted votes
    JEL: C72 D71 D72
    Date: 2018–10–27
  2. By: De Benedetto, Marco Alberto (Birkbeck, University of London); De Paola, Maria (University of Calabria)
    Abstract: We study the effect of term limits on voter turnout in local Italian elections. Since 2014 the Italian law allows mayors in municipalities with a population size lower than 3,000 inhabitants to re-run for a third term, whereas mayors in cities with a number of residents above the cutoff still face a two-term limit. The introduction of the reform permits us to implement a difference-in-discontinuities design exploiting the before/after with the discontinuous policy change. We find that voters negatively react to the introduction of the reform and in particular electoral participation decreases by about 5 percentage points in municipalities eligible to the treatment compared to municipalities in the control group. This negative effect is essentially driven by a decrease in the political competition. We also find that relaxing term limits does not improve the quality of politicians running for election.
    Keywords: diff-in-discontinuities, voter turnout, political competition
    JEL: C21 D72 H70 J78
    Date: 2018–09
  3. By: Liberini, Federica (ETH Zurich, Department of Economics); Redoano, Michela (University of Warwick, Department of Economics); Russo, Antonio (ETH Zurich,Department of Economics); Cuevas, Angel (University Carlos III, Department of Telematic Engeneering); Cuevas, Ruben (University Carlos III, Department of Telematic Engeneering)
    Abstract: Social media enable politicians to personalize their campaigns and target voters who may be decisive for the outcome of elections. We assess the effects of such political "micro-targeting" by exploiting variation in daily advertising prices on Facebook, collected during the course of the 2016 U.S. presidential campaign. We analyze the variation of prices across political ideologies and propose a measure for the intensity of online political campaigns. Combining this measure with information from the ANES electoral survey, we address two fundamental questions: (i) To what extent did political campaigns use social media to micro-target voters? (ii) How large was the effect, if any, on voters who were heavily exposed to campaigning on social media? We find that online political campaigns targeted on users' gender, geographic location, and political ideology had a signi cant e ect in persuading undecided voters to support Mr Trump, and in persuading Republican supporters to turn out on polling day. Moreover the effect of micro-targeting on Facebook was strongest among users without university or college-level education.
    Date: 2018
  4. By: Stutzer, Alois (University of Basel); Baltensperger, Michael (University of Basel); Meier, Armando N.
    Abstract: We study how the number of ballot propositions affects the quality of decision making in direct democracy, as reflected in citizens’ knowledge, voting behavior, and attitudes toward democracy. Using three comprehensive data sets from Switzerland with over 3,500 propositions, we exploit variation in the number of federal propositions and plausibly exogenous variation in the number of cantonal propositions. Only with a relatively high number of propositions on the ballot do voters have less knowledge about federal propositions. Otherwise, we find no indication that the number of ballot propositions impedes the quality of decision making in direct democracy. For instance, a higher number of propositions does not lead more voters to support proposals endorsed by pole parties. If anything, having more federal propositions on the ballot relates to higher perceived political influence and satisfaction with democracy.
    Keywords: ballot length, direct democracy, pole-party endorsements, political knowledge, satisfaction with democracy, turnout, voter behavior
    JEL: D03 D72 D78 H00
    Date: 2018–10–04
  5. By: Sharma, Chanchal Kumar
    Abstract: Despite the extensive literature on distributive politics, we still lack a theory of how political and fiscal institutions interact to shape the pork-barrelling ability of national leaders in a federal parliamentary democracy. Focusing on party system attributes and governmental incentives attached to different types of discretionary grants, this article examines the extent to which a shift in the priorities and interests of the prime minister's party - effected by the change from a dominant-party system to a multiparty-coalition system - is responsible for the change in the dynamics of distributive policies. I use a rich panel dataset on Indian states to propose a situational theory of distributive politics which states that incentives for exclusive targeting of affiliated states in dominant-party systems drive national ruling parties towards particularism, while the shrinking opportunity to indulge in such a policy in multiparty-coalition systems creates a universalisation effect. Additionally, the disaggregated analysis of discretionary grants brings to the fore the fact that the shift from particularism to universalism occurs for schematic grants, which provide an opportunity for credit-claiming. The ad hoc grants, which are like side payments, remain subject to particularism.
    Keywords: distributive politics,pork-barrel politics,particularism,universalism,oneparty majority government,multiparty coalition government,India
    JEL: D72 D78 H70 H72 H73 H77
    Date: 2017
  6. By: Brian Beach; Daniel B. Jones; Tate Twinam; Randall Walsh
    Abstract: Does minority representation in a legislative body differentially impact outcomes for minorities? To examine this question, we assemble a novel dataset identifying the ethnicity of over 3,500 California city council candidates and study close elections between white and nonwhite candidates. We find that narrowly elected nonwhite candidates generate differential gains in housing prices in majority nonwhite neighborhoods. This result, which is not explained by correlations between candidate race and political affiliation or neighborhood racial composition and income, suggests that increased representation may help reduce racial disparities. Consistent with a causal interpretation, results strengthen with increased city-level segregation and council-member pivotality. Observed changes in business patterns and policing underpin our results.
    JEL: D72 H7 J15 R3
    Date: 2018–10
  7. By: Samuel Bazzi; Gabriel Koehler-Derrick; Benjamin Marx
    Abstract: Why do religious politics thrive in some societies but not others? This paper explores the institutional foundations of this process in Indonesia, the world’s largest Muslim democracy. We show that a major Islamic institution, the waqf, fostered the entrenchment of political Islam at a critical historical juncture. In the early 1960s, rural elites transferred large amounts of land into waqf—a type of inalienable charitable trust—to avoid expropriation by the government as part of a major land reform effort. Although the land reform was later undone, the waqf properties remained. We show that greater intensity of the planned reform led to more prevalent waqf land and Islamic institutions endowed as such, including religious schools, which are strongholds of the Islamist movement. We identify lasting effects of the reform on electoral support for Islamist parties, preferences for religious candidates, and the adoption of Islamic legal regulations (sharia). Overall, the land reform contributed to the resilience and eventual rise of political Islam by helping to spread religious institutions, thereby solidifying the alliance between local elites and Islamist groups. These findings shed new light on how religious institutions may shape politics in modern democracies.
    JEL: D72 D74 P16 P26 Z12
    Date: 2018–10
  8. By: Garance Genicot (Department of Economics, Georgetown University); Laurent Bouton (Department of Economics, Georgetown University); Michael Castanheira (Ecares, ULB, Belgium)
    Abstract: This paper studies the political determinants of inequality in government interventions under the majoritarian and proportional representation systems. Using a model of electoral competition with targetable government intervention and heterogeneous localities, we uncover a novel relative electoral sensitivity effect in majoritarian systems. This effect, which depends on the geographic distribution of voters, can incentivize parties to allocate resources more equally under majoritarian systems than proportional representation systems. This contrasts with the conventional wisdom that government interventions are more unequal in majoritarian systems.
    Keywords: Distributive Politics, Electoral Systems, Public Good, Inequality
    JEL: D72 H00
    Date: 2018–10–24
  9. By: Jimmy Chan (Department of Economics, Chinese University of Hong Kong); Seher Gupta (Department of Economics, New York University); Fei Li (Department of Eco- nomics, University of North Carolina Chapel Hill); Yun Wang (Wang Yanan Institute for Stud- ies in Economics, Xiamen University)
    Abstract: A sender seeks to persuade a group of heterogeneous voters to adopt an action. We analyze the sender’s information-design problem when the collective decision is made through a majority vote and voting for the action is personally costly. We show that the sender can exploit the heterogeneity in voting costs by privately communicating with the voters. Under the optimal information structure, voters with lower costs are more likely to vote for the sender’s preferred action when it is the wrong choice than those with higher costs. The sender’s preferred action is, therefore, adopted with a higher probability when private communication is allowed than when it is not. Nevertheless, the sender’s preferred action cannot be adopted with probability one if no voter, as a dictator, is willing to vote for it without being persuaded.
    Keywords: Bayesian Persuasion, Information Design, Private Persuasion, Strategic Voting
    JEL: D72 D83
    Date: 2018–11–03
  10. By: Schotte, Simone
    Abstract: Beyond the hopes placed in Africa's emergent middle class as an engine of economic growth, some analysts see this group as a bastion of political stability and enduring democratisation across the continent. This paper's approach differs from that of most studies, which treat the middle class as a homogeneous group, through two key contributions. First, using cluster analysis, I propose a novel way of conceptualising social class that broadly draws on the Weberian idea of shared life chances. I apply this method to South Africa and identify five social classes characterised by their members' living standards, overall life satisfaction, and self-perceived upward mobility. Second, the empirical analysis reveals significant discrepancies in attitudes towards democracy between the downwardly and upwardly mobile strata of the middle class, which I term the "anxious" and the "climbers", respectively. On the one hand, the "climbers" show the highest generic support for democracy as a form of government, whereas the "anxious" middle class displays feelings of resignation. On the other hand, I find indicative evidence of a status-quo bias among the "climbers". Rather than assuming a more demanding or critical stance in politics, they allow their political priorities to be at least partly shaped by an interest in securing and expanding attained living standards; being upwardly mobile is even associated with a higher tolerance for government attempts to constrain freedom of information, opinion, or expression.
    Keywords: South Africa,middle class,democratic consolidation,political attitudes
    Date: 2017
  11. By: Akcigit, Ufuk; Baslandze, Salomé; Lotti, Francesca
    Abstract: Do political connections affect firm dynamics, innovation, and creative destruction? We study Italian firms and their workers to answer this question. Our analysis uses a brand-new dataset, spanning the period from 1993 to 2014, where we merge: (i) firm-level balance sheet data; (ii) social security data on the universe of workers; (iii) patent data from the European Patent Office; (iv) the national registry of local politicians; and (v) detailed data on local elections in Italy. We find that firm-level political connections are widespread, especially among large firms, and that industries with a larger share of politically connected firms feature worse firm dynamics. We identify a leadership paradox: When compared to their competitors, market leaders are much more likely to be politically connected, but much less likely to innovate. In addition, political connections relate to a higher rate of survival, as well as growth in employment and revenue, but not in productivity - a result that we also confirm using a regression discontinuity design. We build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity.
    Keywords: creative destruction; Firm Dynamics; Innovation; Political Connections; productivity
    JEL: D7 O3 O4
    Date: 2018–10
  12. By: Gyongyosi, Gyozo; Verner, Emil
    Abstract: This paper studies the effect of the 2008 financial crisis on the vote share of the populist far right. We use the foreign currency borrowing of households in Hungary as a natural experiment. During the crisis the unexpected and large depreciation of the domestic currency increased the debt burden of households borrowing in foreign currencies but not of households borrowing in the local currency. We use zip code level variation in the prevalence of foreign currency borrowing of households, and show that the exposure to the depreciation significantly affected political preferences. A 10 percent unanticipated rise in indebtedness increased the vote share of the far right by 2.2 percentage points. This effect explains one third of the increase of their popularity by the 2010 election. Foreign currency debtors' naїveté, persistent extremist attitudes, local labor market shocks, and immigration do not account for this increase. We present evidence that the conflict between creditors and debtors about the resolution of the crisis is an important mechanism in the electoral success of the far right. The far right sided with debtors against creditors by advocating policies to help households with foreign currency loans.
    Date: 2018
  13. By: Baskaran, Thushyanthan; Lopes da Fonseca, Mariana
    Abstract: We study the local favoritism of appointed German state ministers. Matching hand-collected data on ministers’ place of residence to a sample of more than 8,000 west German municipalities during the period 1994–2013, we find that the home municipality of a state minister experiences higher employment growth than control municipalities. Given the institutional context, this effect is ostensibly due to apolitical favoritism (home bias) rather than electoral considerations. We conclude that favoritism may lead to a distortion in the allocation of public resources even in contexts with strong political institutions.
    Keywords: Distributive politics,Favoritism,Employment growth
    JEL: D73 H70
    Date: 2018
  14. By: Apolte, Thomas
    Abstract: This paper aims at contributing to a better understanding of the conditions of self-enforcing democracy by analyzing the recent wave of autocratic transitions. Based on a game-theoretic framework, we work out the conditions under which governments may induce the diverse public authorities to coordinate on extra-constitutional activities, eventually transforming the politico-institutional setting into one of autocratic rule. We find three empirically testable characteristics that promote this coordination process, namely: populism and public support, corruption, and a lack in the separation of powers. By contrast, low degrees of corruption and strongly separated powers can be viewed as prerequisites to self-enforcing democracy.
    Keywords: self-enforcing democracy,political regimes,autocratic transition
    JEL: D02 D72 D74 P48
    Date: 2018
  15. By: Ana Mafalda Vasconcelos (Università degli Studi di Torino and Collegio Carlo Alberto)
    Abstract: In this paper we rely on an extensive dataset on cross-border banking flows to understand the effect of political risk on international lending. Moreover, our paper is the first that analyses the effect of several factors of political risk in cross-border banking flows using a sample that is larger than that of previous studies, i.e. covering the period 1984 ? 2013. Moreover - and given the importance of the 9/11 attacks as a turning point both in the political atmosphere and on the global economy ? our paper sets out to investigate how the September 11, 2001 attacks shaped the importance of political risk as a determinant of cross-border banking flows.We find that political risk is an important consideration for foreign investors and that it is perceived differently in developed and non-developed countries. Moreover, we find that the 9/11/2001 attacks change the perception of political risk, and the factors of the aforementioned risk that drive international lending - both in developed and non-developed countries - also changed with the September 11, 2001 attacks.
    Keywords: political risk, cross-border banking flows, international lending, 9/11/2001 attacks
    JEL: G15 E00
    Date: 2018–07
  16. By: Herrera, Helios; Llorente-Saguer, Aniol; McMurray, Joseph C.
    Abstract: This paper documents a laboratory experiment that analyses voter participation in common interest proportional representation (PR) elections, comparing this with majority rule. Consistent with theoretical predictions, poorly informed voters in either system abstain from voting, thereby shifting weight to those who are better informed. A dilution problem makes mistakes especially costly under PR, so abstention is higher in PR in contrast with private interest environments, and welfare is lower. Deviations from Nash equilibrium predictions can be accommodated by a logit version of quantal response equilibrium (QRE), which allows for voter mistakes.
    Keywords: information aggregation; laboratory experiment; Majority Rule; Proportional representation; Turnout
    JEL: C92 D70
    Date: 2018–10
  17. By: Dreher, Axel; Simon, Jenny; Valasek, Justin
    Abstract: When allocating foreign aid, donor countries face a problem of incentivizing recipient countries to invest in state capacity. Here, we show that donors can incentivize recipient countries by committing to collective decision-making: If aid allocation decisions are made ex post via bargaining between donors, then the negotiated outcome will be skewed towards aggregate efficiency, which induces the recipients to compete over ex ante investments. Our model links the fund's composition of membership and its decision rules to participation, investment and allocation decisions. We also find that majority rule induces stronger competition between recipients, resulting in higher investments in state capacity. The qualitative predictions of our model are broadly consistent with empirical findings on multilateral aid. In particular, the model rationalizes our novel empirical finding that, relative to organizations that use a consensus rule, organizations that use majority are more responsive to changes in recipient-country quality.
    Keywords: aid allocation; Aid effectiveness; Decision Rules; International Organizations
    JEL: F35 H87 O19
    Date: 2018–11
  18. By: Llanos, Mariana; Heyl, Charlotte; Lucas, Viola; Stroh, Alexander; Tibi Weber, Cordula
    Abstract: This paper deals with judicial departures in consolidating democracies. It investigates to what extent and under what conditions judges in those contexts are not able to decide on their departures themselves but are rather forced to leave due to pressure from the elected branches. We undertook a cross-regional study of individual judicial departures in six consolidating democracies with elected presidents, three of them located in Latin America (Argentina, Chile, and Paraguay) and three in sub-Saharan Africa (Benin, Madagascar, and Senegal). We developed a unique data set containing information on 143 high-court judges in office since democratisation. We classified judicial departures as due and undue, and using a survival model we estimated the impact of institutional, political, personal, and contextual factors. The results indicate that undue judicial departures occur regardless of the region, but are most probable under the rule of politically powerful executives, and where there are lower levels of democracy and development.
    Keywords: judicial politics,constitutional court,supreme court,judge,Latin America,Francophone Africa,democratisation,separation of powers
    Date: 2017
  19. By: Sharma, Chanchal Kumar
    Abstract: This paper links the foreign economic engagement of India's states with the literature on federalism, thereby contributing to an understanding of the political economy of FDI inflows in a parliamentary federal system. More specifically, it studies subnational governments' international engagements to attract foreign direct investment (FDI) and investigates whether the political affiliations of states' chief ministers and parliamentarians determine the spatial distribution of FDI across the Indian states, correcting for the influence of per capita income, population density, urbanisation, infrastructure, policy regime, and human development. Although the central government plays no direct role in determining the state to which FDI goes, the centre-state relations in a federal structure play a role in creating perceptions about the relative political risk involved in different investment destinations. Employing multiple linear regressions to analyse time-series (2000-2013) cross-sectional (12 states) data using the panel procedure, the study finds that affiliated states attract relatively more FDI per capita in comparison to states ruled by opposition parties or coalition partners. However, some exceptions do result, primarily due to two phenomena: first, the presence of a strong state leadership and, second, the presence of a significant share of members of parliament belonging to the prime minister's party in the non-affiliated states. Further, states ruled by outside supporters have been most successful in attracting FDI inflows during the coalition period.
    Keywords: foreign direct investment,foreign policy,India,intergovernmental relations,economic growth
    JEL: F21 E22 G11 G23 P33 P45 P48 H70 H72 H73 H77
    Date: 2017
  20. By: Sala, Hector (Universitat Autònoma de Barcelona)
    Abstract: The evolution of the ratio of direct taxation (characterized by progressive rates) over indirect and payroll taxation (characterized by flat rates) is examined together with its distributional consequences for the Bottom 50%, Middle 40% and Top 10% shares of income. Oscillations of this ratio coincide with the US electoral cycles since the 1960s. We show that periods in which this ratio increases coincide with those in which Democrats rule the government and there is more redistribution from the rich (the Top 10%) to the rest of the population. Conversely, periods in which this ratio falls and Republicans hold the power are characterized by a fall in the ratio and less redistribution from the rich to the rest of the population. Based on a set of counterfactual simulations, we hypothesize that the rich, as informed economic agents, are able to protect themselves against tighter fiscal conditions, thereby curtailing the redistributive effects of enhanced tax progressivity.
    Keywords: electoral cycles, tax composition, income distribution, tax progressivity
    JEL: H20 H31 E25
    Date: 2018–10

This nep-pol issue is ©2018 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.