nep-pol New Economics Papers
on Positive Political Economics
Issue of 2019‒04‒15
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Securing Personal Freedom through Institutions – the Role of Electoral Democracy and Judicial Independence By Berggren, Niclas; Gutmann, Jerg
  2. Political Budget Cycles: Conditioning Factors and New Evidence By Linda G. Veiga; Georgios Efthyvoulou; Atsuyoshi Morozumi
  3. The Logic of Fear: Populism and Media Coverage of Immigrant Crimes By Mathieu Couttenier; Sophie Hatte; Mathias Thoenig; Stephanos Vlachos
  4. Do Party Positions Affect the Public's Policy Preferences? By Grewenig, Elisabeth; Lergetporer, Philipp; Werner, Katharina; Woessmann, Ludger
  5. A Note on the Behavioral Political Economy of Innovation Policy By Jan Schnellenbach; Christian Schubert
  6. Foreign influence and domestic policy: a survey By Toke Aidt; Facundo Albornoz; Esther Hauk
  7. Quadratic voting with multiple alternatives By Eguia, Jon; Immorlica, Nicole; Ligett, Katrina; Weyl, Glen; Xefteris, Dimitrios
  8. To Europe or Not to Europe? Migration and Public Support for Joining the European Union in the Western Balkans By Ivlevs, Artjoms; King, Roswitha M.
  9. The Political Economy of Foreign Aid and Growth:Theory and Evidence By Sultan Mehmood; Avner Seror
  10. How Common are Electoral Cycles in Criminal Sentencing? By Christian Dippel; Michael Poyker
  11. Biased Forecasts to Affect Voting Decisions? The Brexit Case By Cipullo, Davide; Reslow, André
  12. Individual and social preferences under risk: laboratory evidence on the group size effect By Morone, Andrea; Caferra, Rocco
  13. Social Confusion and Corruption: Investigating the Causes and Effects of a Breakdown of Ethics By Suzuki, Taku; Mizobata, Satoshi
  14. The potential impact of oil sanctions on military spending and democracy in the Middle East By Dizaji, S.F.
  15. The Democracy Effect: a Weights-Based Identification Strategy By Pedro Dal Bó; Andrew Foster; Kenju Kamei
  16. Economic and political drivers of the duration of credit booms By Vítor Castro; Rodrigo Martins
  17. On the political feasibility of increasing the legal retirement age By Benjamin Bittschi; Berthold U. Wigger

  1. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Gutmann, Jerg (Institute of Law & Economics)
    Abstract: Personal freedom is highly valued by many and a central element of liberal political philosophy. Although personal freedom is frequently associated with electoral democracy, developments in countries such as Hungary, Poland, Turkey and Russia, where elected populist leaders with authoritarian tendencies rule, suggest that electoral democracy may not be the envisaged unequivocal guarantor of freedom. Instead, an independent judicial system, insulated from everyday politics, might provide a firmer foundation. We investigate empirically how electoral democracy and judicial independence relate to personal freedom, as quantified by the new Human Freedom Index. Our findings reveal that while judicial independence is positively and robustly related to personal freedom in all its forms, electoral democracy displays a robust relationship with two out of seven types of personal freedom only (freedom of association, assembly and civil society as well as freedom of expression and information). These are types of freedom associated with democracy itself, but democracy seems unable to protect freedom in other dimensions. When we study interaction effects and make use of more refined indicators of the political system in place, we find that countries without elections or with only one political party benefit more from judicial independence than both democracies and multi-party systems without free elections. A number of robustness checks confirm these findings. Hence, it seems as if personal freedom has institutional correlates in the form of both democracy and judicial independence, with the latter safeguarding freedom more consistently and more strongly.
    Keywords: Freedom; Democracy; Judicial independence; Political economy; Institutions
    JEL: D63 D72 D78 K36 P48
    Date: 2019–04–03
  2. By: Linda G. Veiga (University of Minho, Department of Economics/NIPE); Georgios Efthyvoulou (University of Sheffield); Atsuyoshi Morozumi (University of Nottingham)
    Abstract: This chapter reviews the literature on political budget cycles (PBCs), focusing on studies that analyze the conditionality of opportunistic effects. First, factors that affect incentives of politicians to embark on pre-electoral policy manipulations are highlighted, and then factors that influence the capability of those manipulations to generate additional votes are discussed. Finally, the effects of personal characteristics of leaders on PBCs are explored. To complement the review, an empirical investigation of electoral effects on central governments’ deficit, expenditure and revenue series, under various political arrangements, is implemented on a large panel covering 78 countries and 42 years of data (1975 to 2016). Empirical results confirm that PBCs are more likely to occur under certain politico-institutional circumstances, including predetermined elections, disputed elections, majoritarian electoral rules, larger private benefits from holding office, weak constraints on executives, a high proportion of uninformed voters, and new democracies.
    Keywords: political budget cycles; political business cycles; fiscal policy; conditionality; rhythms
    Date: 2018
  3. By: Mathieu Couttenier (University of Lyon, ENS de Lyon, Gate UMR 5824, F-69342 Lyon, France and CEPR); Sophie Hatte (University of Lyon, ENS de Lyon, Gate UMR 5824, F-69342 Lyon, France); Mathias Thoenig (Department of Economics, University of Lausanne and CEPR); Stephanos Vlachos (Department of Economics, University of Vienna)
    Abstract: We study how news coverage of immigrant criminality impacted municipality-level votes in the November 2009 “minaret ban” referendum in Switzerland. The campaign, successfully led by the populist Swiss People’s Party, played aggressively on fears of Muslim immigration and linked Islam with terrorism and violence. We combine an exhaustive violent crime detection dataset with detailed information on crime coverage from 12 newspapers. The data allow us to quantify the extent of pre-vote media bias in the coverage of migrant criminality. We then estimate a theory-based voting equation in the cross-section of municipalities. Exploiting random variations in crime occurrences, we find a first-order, positive effect of news coverage on political support for the minaret ban. Counterfactual simulations show that, under a law forbidding newspapers to disclose a perpetrator’s nationality, the vote in favor of the ban would have decreased by 5 percentage points (from 57.6% to 52.6%).
    Keywords: Media, Violent crime, Immigration, Vote, Populism
    JEL: D72 L82 Z12 K42
    Date: 2019
  4. By: Grewenig, Elisabeth (Ifo Institute for Economic Research); Lergetporer, Philipp (Ifo Institute for Economic Research); Werner, Katharina (Ifo Institute for Economic Research); Woessmann, Ludger (Ifo Institute for Economic Research)
    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
  5. By: Jan Schnellenbach (Brandenburg University of Technology); Christian Schubert (Faculty of Management Technology, German University in Cairo)
    Abstract: We propose that policy-making in the realm of innovation policy can be fruitfully analyzed from the perspective of Behavioral Political Economy. Citizens, policy-makers and also bureaucrats are prone to biases that have been empirically identified in behavioral economic and psychological research. When applied to innovation policy, it can be shown that under certain conditions, policy-makers are willing to support riskier innovative projects and that this tendency is amplified by public sector incentives, such as soft budget constraints. The same holds for a tendency to support ongoing innovative projects even if their profitability becomes increasingly doubtful. Finally, we also highlight how special-interest policies aimed at distorting risk perceptions can slow down the innovation process.
    Keywords: Biases, Heuristics, Sunk Cost Fallacy, Availability Bias, Overconfidence, Loss Aversion
    JEL: O38 D72 D78 H11
    Date: 2019–02
  6. By: Toke Aidt; Facundo Albornoz; Esther Hauk
    Abstract: In an interconnected world, economic and political interests inevitably reach beyond national borders. Since policy choices generate external economic and political costs, foreign state and non-state actors have an interest in inflencing policy actions in other sovereign countries to their advantage. Foreign influence is a strategic choice aimed at internalizing these externalities and takes many forms. We distinguish three broad types of intervention strategies, (i) voluntary agreement interventions between the intervening foreign power and the target country, (ii) policy interventions based on rewarding or sanctioning the target country to obtain a specific change in policy and (iii) institution interventions aimed at influencing the policy choice by changing the political institutions in the target country (with or without a civil war). We propose a unifying theoretical framework to understand when and which form of foreign influence is chosen and use it to organize and evaluate the new political economics literature on foreign influence along with work in cognate disciplines. Foreign intervention plays a more important role for a proper understanding of domestic policy choices, for institutional dynamics and for internal conflict than is commonly acknowledged in both empirical and theoretical research.
    Keywords: foreign influence, international agreements, institutions, aid, sanctions, conflict
    JEL: D70 D72 D74 F13 F23 F51 F53
    Date: 2019
  7. By: Eguia, Jon (Michigan State University, Department of Economics); Immorlica, Nicole (Microsoft); Ligett, Katrina (Hebrew University); Weyl, Glen (Microsoft and Princeton); Xefteris, Dimitrios (University Cyprus)
    Abstract: Consider the following collective choice problem: a society of budget-constrained agents faces multiple alternatives and wants to reach an e¢ cient decision (i.e. to Nash implement the utilitarian maximum). In this paper, we propose a budget-balanced vote-buying mechanism for this setting: for each alternative, every voter can cast any number of votes, x, in support or against it, by transferring an amount x2 to the rest of the voters; and the outcome is determined by the net vote totals. We prove that as the society grows large, in every equilibrium of the mechanism, each agent's transfer converges to zero, and the probability that the mechanism chooses the socially efficient outcome converges to one.
    Keywords: implementation; efficiency; mechanism design; quadratic voting; multiple alternatives
    JEL: D61 D71 D72
    Date: 2019–04–04
  8. By: Ivlevs, Artjoms (University of the West of England, Bristol); King, Roswitha M. (Østfold University College)
    Abstract: For decades, countries aspiring to join the European Union (EU) have been linked to it through migration. Yet little is known about how migration affects individual support for joining the EU in prospective member states. We explore the relationship between migration and support for EU accession in the Western Balkans. Using data from the Gallup Balkan Monitor survey, we find that prospective and return migrants, as well as people with relatives abroad, are more likely to vote favourably in a hypothetical EU referendum. At the same time, only people with relatives abroad are more likely to consider EU membership a good thing. Our results suggest that migration affects attitudes toward joining the EU principally through instrumental/utilitarian motives, with channels related to information and cosmopolitanism playing only a minor role. Overall, our study suggests that migration fosters support for joining a supranational organization in the migrants' countries of origin, which, in turn, is likely to affect political and institutional development of these countries.
    Keywords: migration, return migration, European Union, european integration, Western Balkans
    JEL: F22 F24 J61
    Date: 2019–03
  9. By: Sultan Mehmood (University of Paris - IX); Avner Seror (Chapman University)
    Abstract: In this paper, we demonstrate that even when foreign aid is used to fund patronage, it may still have a positive - and significant - effect on economic growth in developing countries. First, we present a theory that formalizes the effect of aid on economic growth and patronage. Next, we provide evidence from Pakistan consistent with the predictions of the model that foreign aid increases economic growth, despite being used for patronage. The identification strategy we propose allows us to provide causal evidence for the predictions of the model.
    Keywords: Foreign aid, Economic growth, Political Economy, Patronage
    JEL: F35 D72 O1
    Date: 2019
  10. By: Christian Dippel; Michael Poyker
    Abstract: Existing empirical evidence suggests a pervasive pattern of electoral cycles in criminal sentencing in the U.S.: judges appear to pass more punitive sentences when they are up for re-election, consistent with models of signaling where voters have more punitive preferences than judges. However, this pervasive evidence comes from only three states. Combining the existing evidence with data we collected from eight additional states, we are able to reproduce previous results, but find electoral cycles in only one of the eight additional states. Sentencing cycles appear to be the exception rather than the norm. We find that their existence hinges on the level of competition in judicial elections, which varies considerably across states.
    JEL: D72 H76 K41
    Date: 2019–03
  11. By: Cipullo, Davide (Department of Economics); Reslow, André (Department of Economics)
    Abstract: This paper introduces macroeconomic forecasters as political agents and suggests that they use their forecasts to infuence voting outcomes. We develop a probabilistic voting model in which voters do not have complete information about the future states of the economy and have to rely on macroeconomic forecasters. The model predicts that it is optimal for forecasters with economic interest (stakes) and influence to publish biased forecasts prior to a referendum. We test our theory using high-frequency data at the forecaster level surrounding the Brexit referendum. The results show that forecasters with stakes and influence released much more pessimistic estimates for GDP growth in the following year than other forecasters. Actual GDP growth rate in 2017 shows that forecasters with stakes and influence were also more incorrect than other institutions and the propaganda bias explains up to 50 percent of their forecast error.
    Keywords: Brexit; Interest Groups; Forecasters Behavior; Voting
    JEL: D72 D82 E27 H30
    Date: 2019–03–13
  12. By: Morone, Andrea; Caferra, Rocco
    Abstract: In this paper we investigated group size impact on social risk aversion when a majority rule is applied. We used the well-known Holt and Laury's (2002) mechanism to elicit individuals and social risk attitudes. We observed a risk shift in small group and a vanishing of such effect as group size increase.
    Keywords: Preferences; Group; Risk Attitude; Majority Rule; Laboratory
    JEL: C9
    Date: 2019–03–19
  13. By: Suzuki, Taku; Mizobata, Satoshi
    Abstract: While studies of transitions to market economies have long focused on the issue of corruption, the perspectives from which their analyses have been based have diverged. Accordingly, this paper employs a systematic review through testing 14 hypotheses from the perspectives of political and economic causes, as well as culture and values, based on 559 works from the literature on the subject. Its findings make it clear that the liberalization and privatization of ownership both expand and contract corruption; the effects of culture and values also should not be overlooked, while mostly rejecting the so-called “greasing-the-wheels” hypothesis.
    Keywords: corruption, systems, economic growth, democracy, tradition, systematic review
    JEL: C00 O17 P24 P26
    Date: 2019–03
  14. By: Dizaji, S.F.
    Abstract: This study examines how negative oil shocks (due to the oil boycotts) could affect the military expenditure and the quality of democracy in the oil rentier states of Middle East by applying the annual date from 1990 to 2017. I use both economic and political variables in a panel vector autoregressive (PVAR) model of oil boycotts. The estimated PVAR models show significant impacts of oil boycotts both on key economic factors (government revenues, defence and non-defence expenditures) and on the different indicators of the political system. Using panel impulse response functions (PIRFs) and a panel variance decomposition analysis (PVDC) based on the estimated PVAR model, the findings indicate that the responses of political institutions and different indexes of democracy such as electoral, liberal, participatory, deliberative, and egalitarian democracy to decreases in oil rents are positive and statistically significant, whereas the response of military spending is negative and significant. Moreover according to the results of the variance decomposition analysis the variations in oil rents and political situation explain considerable parts of the variation of defence expenditures in the Middle Eastern countries implying that defence expenditures are considerably influenced by oil rents fluctuations and the quality of political system in the Middle East. These results are not sensitive to different proxies for oil abundance (such as fuel exports and amount of oil production) and different indicators of political institutions (V-DEM democracy indexes and polity2), as well as different orderings of variables in the panel VAR system.
    Keywords: Middle East, oil rents, democracy, sanctions, military expenditures, Panel-Vector Autoregressive model
    JEL: F51 F13 F14
    Date: 2019–04–05
  15. By: Pedro Dal Bó; Andrew Foster; Kenju Kamei
    Abstract: Dal Bó, Foster and Putterman (2010) show experimentally that the effect of a policy may be greater when it is democratically selected than when it is exogenously imposed. In this paper we propose a new and simpler identification strategy to measure this democracy effect. We derive the distribution of the statistic of the democracy effect, and apply the new strategy to the data from Dal Bó, Foster and Putterman (2010) and data from a new real-effort experiment in which subjects’ payoffs do not depend on the effort of others. The new identification strategy is based on calculating the average behavior under democracy by weighting the behavior of each type of voter by its prevalence in the whole population (and not conditional on the vote outcome). We show that use of these weights eliminates selection effects under certain conditions. Application of this method to the data in Dal Bó, Foster and Putterman (2010) confirms the presence of the democracy effect in that experiment, but no such effect is found for the real-effort experiment.
    JEL: C9 D02 D7
    Date: 2019–04
  16. By: Vítor Castro (School of Business and Economics, Loughborough University, NIPE); Rodrigo Martins (Faculty of Economics, University of Coimbra)
    Abstract: This paper presents a new perspective on the study of credit booms by examining what determines their duration and by testing for relevant political features. The results from the estimation of a discrete-time duration model show that not only economic factors but also political dynamics play an important role in explaining the duration of credit booms. These are found to last longer when the economy is both growing faster and exhibits lower levels of liquidity in the banking system; but credit booms tend to be shorter when countries improve their current account position. Furthermore, their duration is affected by the electoral cycle as well as when centre parties are in office. Credit expansions that end in a banking crisis are also found to be statistically longer and their duration more sensitive to economic and political factors. Finally, we find strong evidence that Central Bank independence and the length of credit booms are inversely related.
    Keywords: Credit Booms; Duration Analysis; Political Cycles; Ideology; Central Bank independence.
    JEL: C41 D72 E32 E51
    Date: 2018
  17. By: Benjamin Bittschi; Berthold U. Wigger
    Abstract: Within a politico-economic model we first establish three hypotheses: (i) Retirees generally prefer a higher retirement age than workers, whereby just retired individuals prefer the highest retirement age, (ii) in equilibrium the level of the legal retirement age is increasing in longevity and (iii) decreasing in the public pension replacement rate. We then test these hypotheses empirically. Employing micro data for Germany we corroborate the first hypothesis with descriptive regressions and a fuzzy regression discontinuity (FRD) design. We show that just retired individuals are indeed most in favor of an increase in the legal retirement age. On the basis of cross country panel IV regressions we provide evidence for the second and third hypothesis. We demonstrate that a one percentage point increase in the share of the elderly increases the legal retirement age by 0.3 to 0.5 years, and that a 10 percentage point increase in the replacement rate reduces the legal retirement age by 0.5 to 3 years. We conclude that if policy contains the generosity of public pensions, increasing the legal retirement age becomes politically more feasible.
    Date: 2019

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