nep-pol New Economics Papers
on Positive Political Economics
Issue of 2019‒05‒06
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The political economy of immigrant legalisation: evidence from the 1986 IRCA By Navid Sabet; Christoph Winter
  2. Vote Influence in Group Decision-Making: The Changing Role of Justices' Peers on the Supreme Court By Mindock, Maxwell R.; Waddell, Glen R.
  3. What Do Donors Want? Heterogeneity by Party and Policy Domain (Research Note) By Broockman, David; Malhotra, Neil
  4. Does progressivity always lead to progress? The impact of local redistribution on tax manipulation By Tommaso Giommoni
  5. Patronage and Selection in Public Sector Organizations By Colonnelli, Emanuele; Prem, Mounu; Teso, Edoardo
  6. Did the 2017 Tax Reform Discriminate against Blue State Voters? By Altig, David E.; Auerbach, Alan J.; Higgins, Patrick C.; Koehler, Darryl; Kotlikoff, Laurence J.; Leiseca, Michael; Terry, Ellie; Ye, Victor
  7. Do Direct Elections Matter? Quasi-experimental Evidence from Germany By Stefanie Gäbler; Felix Rösel
  8. Distributive justice and social conflict in an AK model By Chris Tsoukis; Jun-ichi Itaya
  9. Political donations, public procurement and government efficiency By Vitezslav Titl; Kristof De Witte; Benny Geys
  10. Winners and Losers in Industrial Policy 2.0: An evaluation of the impacts of the Tunisian Industrial Upgrading Program By Mohamed Ali Marouani; Michelle Marshalian
  11. Are politically connected firms turtles or gazelles? Evidence from the Egyptian uprising By Hany Abdel-Latif; Hassan Aly
  12. Divided we stand? Professional consensus and political conflict in academic economics By Karl Beyer; Stephan Puehringer
  13. Ostracism in alliances of teams and individuals: Voting,exclusion, contribution, and earnings By Stephan Huber; Jochen Model; Silvio Städter
  14. "The Limitations of the "Populism" Explanation" By Joel Perlmann

  1. By: Navid Sabet; Christoph Winter
    Abstract: What happens to the distribution of public resources when undocumented migrants obtain legal status through nation-wide amnesty? In this paper, we exploit variation in legal status from the 1986 Immigration Reform and Control Act (IRCA) to answer this question and find that state governors, of whatever party affiliation, allocate more per capita aid to those counties affected by the IRCA. We posit that this is borne out of rational, forward-looking governors who allocate resources strategically in pursuit of the votes of the newly legalised who were eligible to vote five years after legalisation. To support this view, we find that the distribution of state aid differs significantly according to political context. Counties affected by the IRCA receive more resources from the state when their governor is eligible for re-election, faces political competition or enjoys line-item veto power. Our results also indicate that the transfers were targeted to the newly legalised, who by and large were of Hispanic origin, and not other constituents. We find no evidence of anti-migrant sentiment confounding our results. Counties that received more transfers from the governor also experienced improvements in Hispanic high school completion rates.
    Keywords: immigrant legalisation, distributive politics, state and local government
    JEL: J15 H72 P16
    Date: 2019
  2. By: Mindock, Maxwell R. (University of Oregon); Waddell, Glen R. (University of Oregon)
    Abstract: We consider the voting behavior of Supreme Court Justices, finding evidence of co-dependencies in their votes. Coincident with changes in the party imbalance of the Court over time, sharp discontinuities in these dependencies are evident. Overall, the patterns suggest a tradeoff between co-dependencies around political affiliations and individual ideologies, with more-equal party representation on the Court encouraging greater party awareness in Justice voting, and less-equal party representation allowing Justices across party lines but with similar ideologies to inform each other's votes.
    Keywords: Supreme Court, voting, judicial behavior, spatial econometrics
    JEL: D7 K41 C21
    Date: 2019–04
  3. By: Broockman, David (Stanford Graduate School of Business); Malhotra, Neil (Stanford Graduate School of Business)
    Abstract: Influential theories indicate concern that campaign donors exert outsized political influence. However, little data documents what donors actually want from government; and existing research largely neglects donors’ views on individual issues. We argue there should be significant heterogeneity by party and policy domain in how donors’ views diverge from citizens. We support this argument with the largest survey of U.S. partisan donors to date, including an oversample of the largest donors. We find that Republican donors are much more conservative than Republican citizens on economic issues, whereas their views are similar on social issues. By contrast, Democratic donors are much more liberal than Democratic citizens on social issues, whereas their views are more similar on economic issues. Both parties’ donors are more pro-globalism than their citizen counterparts. We replicate these patterns in an independent dataset. These patterns can help inform significant debates about representation, inequality, and populism in American politics.
    Date: 2018–11
  4. By: Tommaso Giommoni
    Abstract: The goal of this paper is to study the effects of introducing income redistribution at the municipal level, with the adoption of local tax progressivity. In particular, we analyse whether this complex fiscal tool modifies the incentives of local politicians to be strategic leading to higher tax manipulation, in the form of political budget cycle. We exploit an Italian reform of the local personal income tax (PIT), which was flat before the intervention, that allows mayors to introduce progressive schemes. First, we make use of the staggered timing of local elections to estimate a Difference-in-Differences model and we find that the reform consistently amplifies political budget cycle of local PIT. In terms of mechanism, progressivity allows mayors to target diverse income groups and to play different strategies: high income rates, indeed, are subject to larger manipulation than the moderate ones. Second, we exploit the fact that income concentration level is a valid predictor for the introduction of progressivity. The main results are confirmed in a Triple-Differences analysis. And finally, we show that manipulation is rewarding from an electoral point of view. These results reveal a negative side of decentralizing income redistribution as it may lead to consistent tax manipulation and large distortions in fiscal policy.
    Keywords: tax progressivity, personal income tax, political budget cycle, tax manipulation, fiscal federalism
    JEL: D72 E62 H71 P16
    Date: 2019
  5. By: Colonnelli, Emanuele; Prem, Mounu; Teso, Edoardo
    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.
    JEL: D72 J45 O10
    Date: 2019–04
  6. By: Altig, David E. (Federal Reserve Bank of Atlanta); Auerbach, Alan J. (University of California at Berkeley); Higgins, Patrick C. (Federal Reserve Bank of Atlanta); Koehler, Darryl (Economic Security Planning Inc.); Kotlikoff, Laurence J. (Boston University); Leiseca, Michael (Economic Security Planning Inc.); Terry, Ellie (Federal Reserve Bank of Atlanta); Ye, Victor (Boston University)
    Abstract: The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating all major federal and state fiscal policies. We find that the average percentage increase in remaining lifetime spending under the TCJA is 1.6 percent in red states versus 1.3 percent in blue states. Among the richest 10 percent of households, this differential is larger. Rich households in red states enjoyed a 2.0 percent increase compared to a 1.2 percent increase among the rich in blue-state households. This gap is driven almost entirely by the limitation on the SALT deduction. Excluding the SALT limitation from the TCJA results in a spending gain of 2.6 percent for rich red-state households compared to 2.7 percent for rich blue-state households.
    Keywords: fiscal policy; elections; Tax Cuts and Jobs Act; resource distribution; federal tax reform; state and local taxes; life cycle model
    JEL: D31 D72 E62 H20 H22 H71
    Date: 2019–04–01
  7. By: Stefanie Gäbler; Felix Rösel
    Abstract: We estimate the causal effect of direct elections on the economic performance of politicians. Candidates running in direct elections to head local governments in the German state of Brandenburg need an absolute majority, and votes for the winner must represent at least 15% of eligible voters. If the quorum is not reached, direct elections are suspended, and local councils appoint the head of government. We examine election outcomes around the quorum, where the form of government is arguably exogenous. Event study results show that the public employment service becomes somewhat more effective under directly elected politicians. However, directly elected politicians do not seem to attract more businesses or expedite administrative acts.
    Keywords: Direct elections, constitutions, government form, local government, economic performance, public services, Germany
    JEL: D72 H40 H75 R50
    Date: 2019
  8. By: Chris Tsoukis; Jun-ichi Itaya
    Abstract: We introduce distributive justice into a simple model of growth and distribution. Two groups (‘classes’) of otherwise identical, capital-rich and capital-poor individuals (‘capitalists’) and (‘workers’) are in conflict over factor (labour-capital) shares. Capitalists’ (workers’) ideal labour share is low (high) – but always tempered by the recognition that everyone supplies one unit of labour inelastically and desires a wage; and that the labour share impacts growth negatively in our ‘AK’ production economy. Social conflict is defined as the difference between the ideal labour shares of the two classes. This conflict is resolved by the two positive and three normative criteria we consider. Thus, the macroeconomy (growth, factor shares, distribution), social conflict and the methods of its resolution are jointly determined in a complete socio-economic equilibrium. We believe both this approach and our rich set of results are novel. We consider two positive (probabilistic voting and Nash bargaining, encapsulating electoral politics and socio-political bargaining) and two normative (justice) criteria (utilitarian and Rawlsian) of conflict resolution. Greater impatience, intensified status comparisons and negative consumption externalities, greater wealth inequality and a decline in productivity exacerbate social conflict. Status comparisons and wealth inequality tend to raise the labour share under all positive and normative criteria. Finally, we propose and analyse a criterion of ‘justice as minimal social friction’. Under the plausible assumption that the capitalists’ overall socio-political influence (numerical strength aside) is at least as high as that of workers, all positive methods imply a smaller labour share and more inequality than all our three criteria of distributive justice. We offer a numerical illustration of the key points.
    Keywords: growth, factor shares, status, distributive justice, social conflict, social contract
    JEL: O41 O43 E25 P16 Z13
    Date: 2019
  9. By: Vitezslav Titl; Kristof De Witte; Benny Geys
    Abstract: Firms’ political donations can induce distortions in the allocation of public procurement contracts. In this article, we employ an advanced non-parametric efficiency model to study the public sector (cost) efficiency implications of such distortions. Using a unique dataset covering the Czech regions over the 2007-2014 period, we find that the efficiency of public good provision is lower when a larger share of public procurement contracts is awarded to firms donating to the party in power (‘party donors’). We link this efficiency difference to two underlying mechanisms: i.e. shifts in procurement contract allocations from firms with previous procurement experience to party donors, and the use of less restrictive allocation procedures that benefit party donors.
    Keywords: political connections, non-parametric efficiency analysis, benefit-of-the-doubt
    JEL: H57 D72 C23
    Date: 2019
  10. By: Mohamed Ali Marouani (Université Paris 1 Panthéon-Sorbonne); Michelle Marshalian
    Abstract: Large scale business subsidies tied to national industrial development promotion pro-grams are notoriously difficult to study and inseparable from the political economy aspect of large government programs. The Tunisian Industrial Upgrading Program, initiated in the late 80’s, to improve the competitiveness of Tunisian firms increasingly exposed to international competition through firm subsidies, is such an example. The continuation and resurgence of industrial devlopment programs, such as the Tunisian IUP, makes the rigorous evaluation of this type of program within the political economy framework, increasingly important. We use the Tunisian national firm registry database and a perceptions’ survey administered by the national research institute to measure the impact of the IUP and its beneficiaries. Using inverse propensity score re-weighted differences-in-differences regressions, we find that when program recipients are large firms, gains of the program are mostly retained by capital-owners, while when subsidies are distributed to small-sized firms, more gains go to labor.
    Date: 2019
  11. By: Hany Abdel-Latif (Swansea University); Hassan Aly
    Abstract: Using an original firm-level database and utilizing the incidence of the Egyptian uprising of 2011, this paper provides an empirical investigation of the effects of firms political connections on employment growth in Egypt. Our unique dataset covers 4008 firms between 2004-2016, of which we were able to identify 735 politically connected firms. We set-up a quasi-natural experiment environment to explore how job creation responds to negative shocks to political connections. We use the differences in differences (DiD) framework to compare employment growth in both politically connected firms (PCFs) and their unconnected counterparts before and after the Egyptian uprising. To minimize possible bias in the DiD estimation due to dealing with a heterogeneous group of firms, we apply the propensity score matching (PSM). In addition, we estimate the quantile DiD at different points in the distribution. We find that connected firms before the shock decreased their job creation after the uprising. This implies that employment growth in PCFs has declined after receiving a negative political shock.
    Date: 2019
  12. By: Karl Beyer (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Stephan Puehringer (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: In this paper we address the issue of the role of ideology and political preferences of publically engaged economists and contribute to the debate on consensus in economics. To do so, we conduct a social network analysis on the signatories of economist petitions, which we identify as one channel for economists to exert public influence. We base our analysis on a sample of 77 public policy petitions and presidential anti-/endorsement letters from 2008-2017 in the United States with more than 6,400 signatories and check the robustness of our results with six sub-networks. Our contribution is twofold: On the one hand we provide an extended empirical basis for the debate on consensus in economics and the role of politics and ideology in economics. On the other hand we provide a viable tool to trace the ideological leaning of (prospective) economist petitions and economists based on the social structure of petition networks.
    Date: 2019–04
  13. By: Stephan Huber (University of Regensburg and UAS Augsburg); Jochen Model (UAS Augsburg); Silvio Städter (UAS Augsburg)
    Abstract: Alliances often provide a collective good among their allies. This article offers laboratory experimental evidence that the possibility to vote for the exclusion of non-cooperating allies, i.e. ostracism, can be a powerful negative referendum to increase allies’ contributions to the collective good. However, it is found that ostracism does not necessarily increase earnings in a public goods game. In particular, it is shown that the ostracism mechanism is used differently by individuals. While ostracism increases contributions irrespective of the game is played with a alliances of individuals or teams as the decision makers, the earnings do not statistically significant increase in alliances of individuals. This result can be explained with different voting patterns. Compared to individuals, teams vote and in turn exclude significantly less in early periods but more in later periods of the game. Thus, negative earnings effects of ostracism, i.e., excluded players can neither contribute to the collective good nor receive from the collective good, are found to be less severe in alliances of teams.
    Date: 2019–02
  14. By: Joel Perlmann
    Abstract: Some common accounts of "populism" and its causes risk leading us away from understanding what is happening today in parts of the democratic West, according to Senior Scholar Joel Perlmann. He cautions that economic insecurity may well be a common source of populism, but such insecurity is too prevalent and too diverse to be tied primarily to massive international economic shifts. Cross-national explanations are of limited utility; we need to look more closely at the intermingling of political, ethnic, and cultural themes operating in national contexts in order to better understand particular outbursts of popular discontent.
    Date: 2019–04

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