nep-pol New Economics Papers
on Positive Political Economics
Issue of 2019‒04‒01
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Minority Salience and Political Extremism. By Tommaso Colussi; Ingo Isphording; Nico Pestel
  2. Tariffs and politics: evidence from Trump's trade wars By Thiemo René Fetzer; Carlo Schwarz
  3. Immigration and Right-Wing Populism: Evidence from a Natural Experiment By Mehic, Adrian
  4. Rent Seeking for Export Licenses: Application to the Vietnam Rice Market By Vu, T.N.; Vo, D.H.; McAleer, M.J.
  5. Assessment Voting in Large Electorates By Hans Gersbach; Akaki Mamageishvili; Oriol Tejada
  6. On Banking Regulation and Lobbying By Hans Gersbach; Stylianos Papageorgiou
  7. Presidential Elections, Divided Politics, and Happiness in the U.S. By Sergio Pinto; Panka Bencsik; Tuugi Chuluun; Carol Graham

  1. By: Tommaso Colussi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Ingo Isphording; Nico Pestel
    Abstract: We investigate how changes in the salience of a minority group affect the majority group’s voting behavior. Specifically, we focus on Muslim communities and their increased salience in daily life during Ramadan. To estimate a causal effect, we exploit exogenous variation in the distance of German federal and state elections to the month of Ramadan over the 1980–2013 period. Our findings reveal an increased polarization of the electorate: vote shares for both right- and left-wing extremist parties increase in municipalities where mosques are located when the election date is closer to Ramadan. We use individual-level survey data to provide evidence on potential mechanisms. During Ramadan respondents perceive the share of foreign-born people living in their country as larger and reveal more negative attitudes towards Muslims. We complement these findings with evidence on increased numbers of violent attacks against Muslim communities shortly after Ramadan.
    Keywords: Salience, Muslims, Behavioral Political Economy, Right-Wing Extremism.
    JEL: D72 D74 J15 D91
    Date: 2019–03
  2. By: Thiemo René Fetzer; Carlo Schwarz
    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: trade war, tariff, targeting, political economy, elections, populism
    JEL: F13 F14 F16 F55 D72
    Date: 2019
  3. By: Mehic, Adrian (Department of Economics, Lund University)
    Abstract: Between the 2014 and 2018 Swedish parliamentary elections, the vote share of the anti-immigration Sweden Democrats increased significantly. To evaluate the possibility of a causal link between immigration and the right-wing populist vote, this paper uses data from a nationwide policy experiment, under which refugees are allocated randomly to every municipality in the country, creating exogenous variation in the number of refugees between municipalities. Overall, I find a positive and significant impact of immigration on the anti-immigration vote. In areas with strong anti-immigration sentiments during the 1990s refugee wave, the effect is magnified significantly. However, when considering immigration of a particular refugee group dominated by young men, the relationship is considerably weaker. I show that this is because immigration of young men has a balancing effect on the right-wing populist vote among immigration-friendly voter groups.
    Keywords: immigration; right-wing populism; natural experiment
    JEL: D72 J15 P16
    Date: 2019–03–19
  4. By: Vu, T.N.; Vo, D.H.; McAleer, M.J.
    Abstract: The paper develops a model to examine rent seeking in innovation and export licenses, with an application to Vietnam rice exports. Firms can lobby for export restrictions or for free trade. Innovation is introduced as a cost-reducing technology. The analysis focuses on the innovation incentives of the firm lobbying for export restrictions, and the determinants of lobbying incentives. The analysis shows that firms lobbying for export restrictions may have lower incentives to adopt technological innovations under export restrictions than under free trade. The findings can help to identify economic inefficiency when the political elites use export restrictions to seek rents.
    Keywords: Trade restrictions, export licenses, innovation, monopoly, rent seeking, free trade, economic development
    JEL: D72 G1 L12 O13 Q55
    Date: 2019–03–01
  5. By: Hans Gersbach (ETH Zurich, Switzerland); Akaki Mamageishvili (ETH Zurich, Switzerland); Oriol Tejada (ETH Zurich, Switzerland)
    Abstract: We analyze Assessment Voting, a new two-round voting procedure that can be applied to binary decisions in democratic societies. In the first round, a randomly-selected number of citizens cast their vote on one of the two alternatives at hand, thereby irrevocably exercising their right to vote. In the second round, after the results of the first round have been published, the remaining citizens decide whether to vote for one alternative or to abstain. The votes from both rounds are aggregated, and the final outcome is obtained by applying the majority rule, with ties being broken by fair randomization. Within a costly voting framework, we show that large electorates will choose the preferred alternative of the majority with high probability, and that average costs will be low. This result is in contrast with the literature on one-round voting, which predicts either higher voting costs (when voting is compulsory) or decisions that often do not represent the preferences of the majority (when voting is voluntary).
    Keywords: voting; referenda; rational behavior
    JEL: C72 D70 D72
    Date: 2017–12
  6. By: Hans Gersbach (ETH Zurich, Switzerland); Stylianos Papageorgiou (University of Cyprus, Cyprus)
    Abstract: We study the political economy of bank capital regulation from a positive and normative perspective. In a general equilibrium setting, capital requirements and lobbying contributions are determined as the outcome of bargaining between banks and politicians. We show that bankers and politicians agree on lobbying contributions and capital regulation that renders banks fragile, reducing efficiency and fairness. Consideration of all general equilibrium effects, or a bail-in provision and high capital regulation standards from international agreements eliminate lobbying incentives, yielding an efficient and fair allocation.
    Keywords: Banking regulation, lobbying, regulatory capture, capital requirements, bank resolution, risk-taking.
    JEL: D53 D72 G21 G28
    Date: 2019–01
  7. By: Sergio Pinto (University of Maryland); Panka Bencsik (University of Sussex); Tuugi Chuluun (Loyola University Maryland); Carol Graham (The Brookings Institution)
    Abstract: We examine the effects of the 2016 and 2012 U.S. presidential election outcomes on the subjective well-being of Democrats and Republicans using large-scale Gallup survey data and a regression discontinuity approach. We use metrics that capture two dimensions of well-being – evaluative (life satisfaction) and hedonic (positive and negative affect) – and document a significant negative impact on both dimensions of well-being for Democrats immediately following the 2016 election and a negative but much smaller impact for Republicans following the 2012 election. However, we found no equivalent positive effect for those identifying with the winning party following either election. The results also vary across gender and income groups, especially in 2016, with the negative well-being effects more prevalent among women and middle-income households. In addition, in 2016 the votes of others living in the respondent’s county did not have a large impact on individual well-being, although there is some suggestive evidence that Democrats in more pro-Trump counties suffered a less negative effect, while Republicans in less pro-Trump and more typically urban counties were actually negatively impacted by the election outcome. We also find evidence that being on the losing side of the election had negative effects on perceptions about the economy, financial well-being, and the community of residence. Lastly, the evaluative well-being gaps between the different party affiliations tend to persist longer, with those in expected life satisfaction lasting until at least the end of 2016, while the hedonic well-being gaps typically dissipate within the two weeks following the election.
    Keywords: Elections, political parties, subjective well-being, life satisfaction, emotions
    JEL: D72 I31
    Date: 2019–03

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