nep-pol New Economics Papers
on Positive Political Economics
Issue of 2019‒03‒25
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. Tariffs and Politics: Evidence from Trump's Trade Wars By Fetzer, Thiemo; Schwarz, Carlo
  2. On war and political radicalization By Stephanos Vlachos
  3. Do Party Positions Affect the Public\'s Policy Preferences? By Grewenig, Elisabeth; Lergetporer, Philipp; Werner, Katharina; Woessmann, Ludger
  4. Democracy and the Labor Share of Income: A Cross-Country Analysis By Guerriero, Marta
  5. Voting on the Threat of Exclusion in a Public Goods Experiment By Astrid Dannenberg; Corina Haita-Falah; Sonja Zitzelsberger
  6. The Political Economy of Higher Education Finance: How Information and Design Affect Public Preferences for Tuition By Lergetporer, Philipp; Woessmann, Ludger
  7. Job losses and political acceptability of climate policies: why the ‘job-killing’ argument is so persistent and how to overturn it By Francesco Vona
  8. Preferences over public good, political delegation and leadership in tax competition By Pal, Rupayan; Sharma, Ajay
  9. Corporate lobbying for environmental protection By Felix Grey
  10. Pass-through, profits and the political economy of regulation By Felix Grey; Robert A. Ritz

  1. By: Fetzer, Thiemo; Schwarz, Carlo
    Abstract: Are retaliatiory tariffs politically targeted and, if so, are they effective? Do countries designing a retaliation response face a trade-off between maximizing political targeting and mitigating domestic economic harm? We use the recent trade escalation between the US, China, the European Union (EU) and the North American Free Trade Agreement (NAFTA) countries to answer these questions. We find substantial evidence that retaliation was directly targeted to areas that swung to Donald Trump in 2016 (but not to other Republican candidates running for office in the same year). We further assess whether retaliation was optimally chosen using a novel simulation approach constructing counterfactual retaliation responses. For China and particularly, for Mexico and Canada, the chosen retaliation appears suboptimal: there exist alternative retaliation bundles that would have produced a higher degree of political targeting, while posing a lower risk to damage the own economy. We further present evidence that retaliation produces economic shocks: US exports on goods subject to retaliation declined by up to USD 15.28 billion in 2018 and export prices have dropped significantly. Lastly, we find some evidence suggesting that retaliation is effective: in areas exposed to retaliation Republican candidates fared worse in the 2018 Midterm elections, and similarly Presidential approval ratings, especially among Democrats, have declined.
    Keywords: elections; political economy; populism; targeting; Tariff; Trade War
    JEL: D72 F13 F14 F16 F55
    Date: 2019–03
  2. By: Stephanos Vlachos
    Abstract: This paper illustrates how a historical shock to political preferences can translate into observable electoral support as the political landscape evolves. During World War II, the Third Reich annexed the French eastern borderlands and their inhabitants were forcibly con-scripted into the Wehrmacht. In the first stage, survey data is used to show how this forced conscription reduced political trust. Municipality-level data and political discourse data are then combined to estimate the impact of conscription on support for radical candidates and on abstention in elections during the 1965-2017 period. Identification exploits the fact that different birth cohorts were affected in each annexed region by using eligible births as an instrument for conscription. In earlier elections in which platforms were more similar, both radical and moderate candidates were penalized in municipalities where more men were conscripted, resulting in higher abstention. In more recent elections, which were more polarized, conscription increased support for radical candidates.
    JEL: D72 N44 Z13
    Date: 2019–03
  3. By: Grewenig, Elisabeth (ifo Institute); Lergetporer, Philipp (ifo Institute); Werner, Katharina (ifo Institute); Woessmann, Ludger (ifo Institute and LMU Munich)
    Abstract: The standard assumption of exogenous policy preferences implies that parties set their positions according to their voters\' preferences. We investigate the reverse effect: Are the electorates\' policy preferences responsive to party positions? In a representative German survey, we inform randomized treatment groups about the positions of political parties on two family policies, child care subsidy and universal student aid. In both experiments, results show that the treatment aligns the preferences of specific partisan groups with their preferred party\'s position on the policy under consideration, implying endogeneity of policy preferences. The information treatment also affects non-partisan swing voters.
    Keywords: political parties; partisanship; survey experiment; information; endogenous preferences; voters; family policy;
    JEL: D72 D83 H52 J13 I28 P16
    Date: 2019–03–20
  4. By: Guerriero, Marta (Asian Development Bank Institute)
    Abstract: Summary statistics on the labor share of income show that between-country variation is much greater than within-country variation: functional income distribution is determined by factors which change substantially across countries but are persistent over time. We attempt to shed some light on the long-run and political economy determinants of the labor income share. We revisit and extend previous empirical research on democratic political institutions and the labor share using a dataset of 112 countries over 1970–2015. Our empirical analysis shows that democracy allows workers to appropriate a higher share of national income. The evidence is robust to different indices of democracy and different periods of time, and after performing instrumental variable estimation. These results are particularly relevant today, in light of the recent global decline in the labor income share and current crisis of democracy.
    Keywords: labor share; factor income distribution; democracy; political economy; institutions
    JEL: E25 O15 P16
    Date: 2019–01–25
  5. By: Astrid Dannenberg (University of Kassel); Corina Haita-Falah (University of Kassel); Sonja Zitzelsberger (University of Kassel)
    Abstract: Ostracism is practiced by virtually all societies around the world as a means of enforcing cooperation and excluding members who show anti-social behaviors or attitudes. In this paper, we use a public goods experiment to study whether groups choose to implement an institution that allows for the exclusion of members. We distinguish between a costless exclusion institution and a costly exclusion institution that, if chosen, reduces the endowment of all players. We also provide a comparison with an exclusion institution that is exogenously imposed upon groups. A significant share of the experimental groups choose the exclusion institution, even when it comes at a cost, and the support for the institution increases over time. Average contributions to the public good are significantly higher when the exclusion option is available, not only because low contributors are excluded but also because high contributors sustain a higher cooperation level under the exclusion institution. Subjects who vote in favor of the exclusion institution contribute more than those who vote against it, but only when the institution is implemented. These results are largely inconsistent with standard economic theory but can be better explained by assuming heterogeneous groups in which some players have selfish and others have social preferences.
    Keywords: public goods experiment; cooperation; ostracism; institutional choice; social preferences
    JEL: C72 C91 C92 D02 D71 H41
    Date: 2019
  6. By: Lergetporer, Philipp (Ifo Institute for Economic Research); Woessmann, Ludger (Ifo Institute for Economic Research)
    Abstract: Public preferences for charging tuition are important for determining higher education finance. To test whether public support for tuition depends on information and design, we devise several survey experiments in representative samples of the German electorate (N>19,500). The electorate is divided, with a slight plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. Designing tuition as deferred income-contingent payments raises support by 16 percentage points, creating a strong majority favoring tuition. The same effect emerges when framed as loan payments. Support decreases with higher tuition levels and increases when targeted at non-EU students.
    Keywords: tuition, higher education, political economy, survey experiments, information, earnings premium, income-contingent loans, voting
    JEL: I22 H52 D72 D83
    Date: 2019–02
  7. By: Francesco Vona (Observatoire français des conjonctures économiques)
    Abstract: Political acceptability is an essential issue in choosing appropriate climate policies. Sociologists and behavioural scientists recognize the importance of selecting environmental policies that have broad political support, while economists tend to compare different instruments first on the basis of their efficiency, and then by assessing their distributional impacts and thus their political acceptability. This paper examines case-study and empirical evidence that the job losses ascribed (correctly or incorrectly) to climate policies have substantial impacts on the willingness of affected workers to support these policies. In aggregate, the costs of these losses are significantly smaller than the benefits, both in terms of health and, probably, of labour market outcomes, but the losses are concentrated in specific areas, sectors and social groups that have been hit hard by the great recession and international competition. Localized contextual effects, such as peer group pressure, and politico-economic factors, such as weakened unions and tightened government budgets, amplify the strength and the persistence of the ‘job-killing’ argument. Compensating for the effects of climate policies on ‘left-behind’ workers appears to be the key priority to increase the political acceptability of such policies, but the design of compensatory policies poses serious challenges.
    Keywords: Climate policies; Employment impacts; Distributional impacts; Collective action problems; Amplification mechanisms; Political acceptability
    Date: 2019–02
  8. By: Pal, Rupayan; Sharma, Ajay
    Abstract: Leadership (sequential choice) and political delegation are two mechanisms suggested to restrict ‘race-to-the-bottom’ in tax competition. In this paper, we analyze whether these two mechanisms when combined together would lead to unilaterally higher taxation or not. We show that political delegation with leadership in tax competition not only restricts ‘race-to-the-bottom’ but also mitigates the possibility of over provision of public good. In sequential choice game, only the follower region delegates taxation power to the policy maker but not the leader region. This puts a check on intensity of tax competition and leads to optimal provision of public good.
    Keywords: Political delegation, Foreign-owned mobile capital, Sequential tax competition, Public good provision, Fiscal competition
    JEL: D7 F21 H25 H42 R5
    Date: 2018–12–18
  9. By: Felix Grey (Faculty of Economics, University of Cambridge)
    Keywords: lobbying, environmental policy, political economics
    JEL: D72 H23 Q58
    Date: 2017–08
  10. By: Felix Grey (Faculty of Economics & Energy Policy Research Group Cambridge University); Robert A. Ritz (Faculty of Economics & Energy Policy Research Group Cambridge University)
    Keywords: Cost pass-through, regulation, carbon pricing, airlines, political economy
    JEL: D43 H23 L51 L92 Q54
    Date: 2018–10

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