nep-pol New Economics Papers
on Positive Political Economics
Issue of 2019‒08‒26
seventeen papers chosen by
Eugene Beaulieu
University of Calgary

  1. A Positive Effect of Political Dynasties: the Case of France's 1940 Enabling Act By Lacroix, Jean; Méon, Pierre-Guillaume; Oosterlinck, Kim
  2. Ties By Federico Revelli; Tsung-Sheng Tsai
  3. The Death of Conservative Ireland? The 2018 Abortion Referendum By Johan A. Elkink; David M. Farrell; Sofie Marien; Theresa Reidy; Jane Suiter
  4. Expert Captured Democracies By Archishman Chakraborty; Parikshit Ghosh; Jaideep Roy
  5. The media coverage of wealth and inheritance taxation in Germany By Hendrik Theine
  6. Social Media and Polarization By Campbell, Arthur; Leister, Matthew; Zenou, Yves
  7. Do presidential elections affect stock market returns in Nigeria? By Shehu Usman Rano, Aliyu
  8. Did Austerity Cause Brexit? By Fetzer, Thiemo
  9. Voter behavior and government performance: Empirical application in Ghana By Henning, Christian H. C. A.; Diaz, Daniel; Lendewig, Andrea
  10. Noncooperative dynamics in election interference By David Rushing Dewhurst; Christopher M. Danforth; Peter Sheridan Dodds
  11. Who Becomes a Member of Congress? Evidence From De-Anonymized Census Data By Daniel M. Thompson; James J. Feigenbaum; Andrew B. Hall; Jesse Yoder
  12. Sharing a Government By Ventura, Jaume
  13. Doing More for Less? New Evidence on Lobbying and Government Contracts By Senay Agca; Deniz O Igan; Fuhong Li; Prachi Mishra
  14. Taxation, foreign aid and political governance in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  15. British Stock Market, BREXIT and Media Sentiments - A Big Data Analysis By Gopal K. Basak; Pranab Kumar Das; Sugata Marjit; Debashis Mukherjee; Lei Yang
  16. Bank Lobbying: Regulatory Capture and Beyond By Deniz O Igan; Thomas Lambert
  17. Voting with their Money: Brexit and Outward Investment by UK Firms By Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas

  1. By: Lacroix, Jean; Méon, Pierre-Guillaume; Oosterlinck, Kim
    Abstract: The literature on political dynasties in democracies usually considers them as a homogenous group and points out their negative effects. By contrast, we argue that they may differ according to their origin and that democratic dynasties â??â?? those whose founder was a defender of democratic ideals â??â?? show stronger support for democracy. This claim is backed by an analysis of the vote by the French parliament on July 10, 1940, of an enabling act granting full power to Marshal Philippe Pétain, thereby ending the Third Republic. Using newly collected data from the biographies of the members of the then parliament, we observe that members of a democratic dynasty were more likely, by a margin of between 7.6 and 9.0 percentage points, to oppose the act than were members of other political dynasties or elected representatives belonging to no political dynasty. We report suggestive evidence showing that the effect of democratic dynasties was possibly driven by internalized democratic norms and beliefs.
    Keywords: Autocratic reversals; democratic dynasties; voting behavior; World War II
    JEL: D72 H89 N44
    Date: 2019–07
  2. By: Federico Revelli; Tsung-Sheng Tsai
    Abstract: This paper investigates whether the rare occurrence of a local election ending in a tie or being decided by a single vote generates informational spill-overs on nearby localities’ subsequent elections. First, based on the pivotal-voter theory, we develop a model of costly instrumental voting in sequential elections with private information, where voters update their beliefs regarding the distribution of political preferences and the probability of their vote being decisive upon observing the outcomes in earlier elections, and decide whether to turn out to vote accordingly. Next, by exploiting over a hundred exact ties or one-vote-difference results in Italian mayoral elections during the past two decades and the quasi-experimental conditions created by the staggered municipal electoral calendar, we test the model’s empirical predictions and find a substantial impact on voter turnout rates of exposure for geographical reasons to spill-overs from the localities experiencing those bizarre electoral outcomes.
    Keywords: tied elections, voter turnout, information spill-over, salience
    JEL: D72 H71
    Date: 2019
  3. By: Johan A. Elkink (School of Politics & International Relations, University College Dublin); David M. Farrell (School of Politics & International Relations, University College Dublin); Sofie Marien (Center for Political Research, KU Leuven); Theresa Reidy (Department of Government, University College Cork); Jane Suiter (School of Communications, Dublin City University)
    Abstract: The outcomes of two recent Irish referendums - on marriage equality in 2015 and abortion in 2018 - have placed contemporary Irish voters in sharp contrast with their long-standing conservative Catholic reputation. These referendums also stand out internationally because of the associated deliberative innovation. This paper aims to explain the watershed abortion vote drawing on theories of generational change, issue-voting, cue-taking and deliberative democracy, using data from an exit poll at the 2018 abortion referendum. We show that age and cleavage effects are key to understanding the referendum outcome. These results offer insight into how societal processes such as rapid secularisation, generational replacement and democratic innovations shape politics. Moreover, voters who were aware of the deliberative innovation were more likely to support the liberal referendum option. To increase willingness to deviate from the status quo, engaging citizens actively in the debate is a fruitful approach.
    Keywords: referendums, voting behaviour, abortion, generational effects, deliberative democracy, Ireland
    Date: 2019–08–09
  4. By: Archishman Chakraborty (Syms School of Business, Yeshiva University); Parikshit Ghosh (Department of Economics, Delhi School of Economics); Jaideep Roy (Department of Economics, University of Bath)
    Abstract: Does public cheap talk by a biased expert benefitt voters? The answer depends on the nature of democratic institutions and the extent of communication possibilities. Expert endorsements induce office-seeking parties to serve the expert’s interests, hurting voters. Expert advocacy makes policies respond to information, helping voters. Together, policy advocacy and partisan endorsements are often better than either alone. Their interaction creates a delegation benefit of indirect democracy. Voters may prefer this institution to one where policymaking is geared to serving the public interest. Direct expert capture of one party is another form of delegation and the best institution for voters.
    Keywords: experts, endorsements, advocacy, electoral competition, indirect democracy, cheap talk, intermediation, delegation.
    JEL: C72 D72 D82
    Date: 2019–08
  5. By: Hendrik Theine (Vienna University of Economics and Business)
    Abstract: Based on the political economy of the media perspective, this paper explores the media coverage of wealth and inheritance taxation over the early 21st century (2000 to 2018) based on a large-scale corpus of seven German daily and weekly newspapers. Germany is a useful case study, being one of the most unequal countries in the Eurozone area in terms of wealth inequality. Drawing on text mining methods and corpus linguistics, it shows that wealth and inheritance taxation is a relatively infrequent topic over the entire period, with the exception of a few intense months of increased reporting. On the occasions that the media do report on the topic of wealth and inheritance taxation, it is mainly covered in terms of a political debate. This debate centres on the politics of a possible reform process and the connected difficulties of finding compromise between different actors, rather than focussing on the potential economic impact. Furthermore, this paper explores the power of agents (both on the organisational and individual level) as the primary definers of social reality. It shows that market-liberal and conservative organisations and economists dominate the news over social-democratic and left-wing ones. Overall, the findings indicate a hostile news coverage concerning the introduction of wealth taxation and the increase of inheritance tax.
    Keywords: wealth taxation, economic inequality, media coverage of redistribution policies, critical discourse analysis, political economy of the media
    JEL: D63 E62 H29 L82
    Date: 2019–08
  6. By: Campbell, Arthur; Leister, Matthew; Zenou, Yves
    Abstract: Because of its impacts on democracy, there is an important debate on whether the recent trends towards greater use of social media increases or decreases (political) polarization. One challenge for understanding this issue is how social media affects the equilibrium prevalence of different types of media content. We address this issue by developing a model of a social media network where there are two types of news content: mass-market (mainstream news) and niche-market (biased or more "extreme" news) and two different types of individuals who have a preference for recommending one or other type of content. We find that social media will amplify the prevalence of mass-market content and may result in it being the only type of content consumed. Further, we find that greater connectivity and homophily in the social media network will concurrently increase the prevalence of the niche market content and polarization. We then study an extension where there are two lobbying agents that can and wish to influence the prevalence of each type of content. We find that the lobbying agent in favor of the niche content will invest more in lobbying activities. We also show that lobbying activity will tend to increase polarization, and that this effect is greatest in settings where polarization would be small absent of lobbying activity. Finally, we allow individuals to choose the degree of homophily amongst their connections and demonstrate that niche-market individuals exhibit greater homophily than the mass-market ones, and contribute more to polarization.
    Date: 2019–07
  7. By: Shehu Usman Rano, Aliyu
    Abstract: Evidences thrive globally on the effects of political regimes, presidential elections, on stock market returns. In the same vein, this paper analyses the effects of general elections on stock returns and volatility around the election periods at the Nigerian Stock Exchange (NSE) market. The paper applies an event study approach to delineate event windows, a 5-month event window for each election was adopted comprising of an election month, and 2 months before and after each election. Returns were calculated using daily closing prices of NSE’s All Share Index (ASI) for a total of 6 elections held between 1999 and 2019. Asymmetric GARCH – EGARCH and TARCH and the Markov Switching autoregressive methodologies were applied. ASI exhibits nonlinearity and structural breaks across all the presidential elections which makes single regime model ill appropriate for modelling stock runs volatility. Evidence of an unstable and explosive conditional variance is noticeable in the 2015 presidential election market returns while leverage effect was found in the 1999 and 2007 elections, that is, bad news produces more volatility on stock returns than good news. The MS-AR (3) model neatly characterizes the NSE’s daily stock returns into bearish and bullish regime, i.e., high (low) volatility low (high) returns as regime 1 and 2, respectively. The time varying transition volatility and regime durations corroborate, in different magnitude, the regime characterization across the 6 time horizons. The paper pioneer’s an analysis of effects of elections on stock returns in Nigeria and a useful information to investors.
    Keywords: Political event, stock market returns, volatility, Markov regime switching model
    JEL: C13 C22 G15 P16
    Date: 2019–05–10
  8. By: Fetzer, Thiemo
    Abstract: This paper documents a significant association between the exposure of an individual or area to the UK government's austerity-induced welfare reforms begun in 2010, and the following: the subsequent rise in support for the UK Independence Party, an important correlate of Leave support in the 2016 UK referendum on European Union membership; broader individual-level measures of political dissatisfaction; and direct measures of support for Leave. Leveraging data from all UK electoral contests since 2000, along with detailed, individual-level panel data, the findings suggest that the EU referendum could have resulted in a Remain victory had it not been for austerity.
    Keywords: austerity; EU; Globalization; political economy; voting
    JEL: D72 H2 H3 H5 P16
    Date: 2019–07
  9. By: Henning, Christian H. C. A.; Diaz, Daniel; Lendewig, Andrea
    Abstract: Electoral competition is a democratic mechanism to guarantee high governmental performance. In reality, however, it often leads to policy failure due to Government Capture and Government Accountability. An understanding of both phenomena has to be based on voter theory and nowadays the probabilistic voter model is the workhorse model applied in voter studies. In this paper we first proceeded to derive a theoretical model to estimate voter behavior including three voting motives: non-policy oriented, policy oriented and retrospective oriented. Then, we derived government performance indicators to estimate Capture and Accountability based on marginal effects and relative importance of the three components. Subsequently, we tested our theory estimating a probabilistic voter model for Ghana using own election survey data. In particular, we calculated different mixed logit model specifications and, to allow heterogeneity, we followed the latent class approach. Using the results of the estimations, we were able to calculate marginal effects and relative importance of each voting motive and we found that the non-policy component is the most important whereas the retrospective component is the less relevant. Finally, the government performance indicators were estimated and they suggest that, although the political weights are unequally distributed in Ghana, the government is partially accountable towards the voter and elections provide an effective mechanism to promote democracy.
    Keywords: probabilistic voter model,capture,accountability,agricultural policy,Ghana,Africa
    JEL: Q18 C31 C35 C38
    Date: 2018
  10. By: David Rushing Dewhurst; Christopher M. Danforth; Peter Sheridan Dodds
    Abstract: Foreign power interference in domestic elections is an age-old, existential threat to societies. Manifested through myriad methods from war to words, such interference is a timely example of strategic interaction between economic and political agents. We model this interaction between rational game players as a continuous-time differential game, constructing an analytical model of this competition with a variety of payoff structures. Structures corresponding to all-or-nothing attitudes regarding the effect of the interference operations by only one player lead to an arms race in which both countries spend increasing amounts on interference and counter-interference operations. We then confront our model with data pertaining to the Russian interference in the 2016 United States presidential election contest, introducing and estimating a Bayesian structural time series model of election polls and social media posts by Russian internet trolls. We show that our analytical model, while purposefully abstract and simple, adequately captures many temporal characteristics of the election and social media activity.
    Date: 2019–08
  11. By: Daniel M. Thompson; James J. Feigenbaum; Andrew B. Hall; Jesse Yoder
    Abstract: We link future members of Congress to the de-anonymized 1940 census to offer a uniquely detailed analysis of how economically unrepresentative American politicians were in the 20th century, and why. Future members under the age of 18 in 1940 grew up in households with parents who earned more than twice as much as the population average and who were more than 6 times as likely as the general population to hold college degrees. However, compared to siblings who did not become politicians, future members of Congress between the ages of 18 and 40 in 1940 were higher-earners and more educated, indicating that socioeconomic background alone does not explain the differences between politicians and non-politicians. Examining a smaller sample of candidates that includes non-winners, we find that the candidate pool is much higher-earning and more educated than the general population. At the same time, among the candidate pool, elections advantage candidates with higher earnings ability and education. We conclude that barriers to entry likely deter a more economically representative candidate pool, but that electoral advantages for more-educated individuals with more private-sector success also play an important role.
    JEL: H10 H70 N32
    Date: 2019–08
  12. By: Ventura, Jaume
    Abstract: This paper develops a simple theoretical framework to study a set of regions, each with its own regional government, who share a union or central government. These governments must decide whether to implement or discard a large number of projects that produce local benefits for the region that implements them, and externalities for the rest of the regions. Conflict or disagreement arises since different regions value projects differently. The classic assignment problem consists of deciding who decides these projects, either the union or the regional governments. It is well known that regional governments are insensitive to externalities. The key observation here is that the union government is insensitive to local beneÃ?ts. Thus, each government maximizes only a piece of the value of projects, and disregards the other one. This observations leads to simple and clear rules for solving the assignment problem.
    Keywords: centralization and decentralization; European integration; externalities; Fiscal Federalism; Public Goods
    JEL: D72 D79 F15 F55 H77
    Date: 2019–07
  13. By: Senay Agca; Deniz O Igan; Fuhong Li; Prachi Mishra
    Abstract: Why do firms lobby? This paper exploits the unanticipated sequestration of federal budget accounts in March 2013 that reduced the availability of government funds disbursed through procurement contracts to shed light on this question. Following this event, firms with little or no prior exposure to the federal accounts that experienced cuts reduced their lobbying spending. In contrast, firms with a high degree of exposure to the cuts maintained and even increased their lobbying spending. This suggests that, when the same number of contractors competed for a piece of a reduced pie, the more affected firms likely intensified their lobbying efforts to distinguish themselves from the others and improve their chances of procuring a larger share of the smaller overall. These findings are stronger in government-dependent sectors and when there is intense competition. The evidence is more consistent with a rent-seeking explanation for lobbying.
    Keywords: National income accounts;National income accounting;Government expenditures;Industry;Trade policy;Political connections,lobbying,rent seeking,government spending,procurement,sequestration,post-event,industry concentration,full sample,federal contract
    Date: 2019–08–09
  14. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study examines the hypothesis that foreign aid dilutes the positive role of taxation on political governance. The empirical evidence is based on the Generalised Method of Moments and 53 African countries for the period 1996-2010. For more policy options, the dataset is disaggregated into fundamental characteristics of African development based on income levels, legal origins, natural resources and landlockedness. While the hypothesis is invalid in baseline Africa, low income and English common law countries of the continent, the research cannot conclude on its validity for other fundamental characteristics of development. Policy implications, caveats and directions for future research are discussed.
    Keywords: Foreign Aid; Political Economy; Development; Africa
    JEL: B20 F35 F50 O10 O55
    Date: 2019–01
  15. By: Gopal K. Basak; Pranab Kumar Das; Sugata Marjit; Debashis Mukherjee; Lei Yang
    Abstract: In this paper we show, using a Machine Learning Framework and utilising a substantial corpus of media articles on Brexit, confirmed evidence of co-integration and causality between the ensuing media sentiments and British currency. The novel contribution of this paper is that along with sentiment analysis using commonly used lexicons, we devised a method using Bayesian learning to create a more context aware and more informative lexicon for Brexit. Moreover, leveraging and extending this we can unearth hidden relationship between originating media sentiments and related economic and financial variables. Our method is a distinct improvement over the existing ones and can predict out of sample outcomes better than conventional ones.
    Keywords: digitization, machine learning
    Date: 2019
  16. By: Deniz O Igan; Thomas Lambert
    Abstract: In this paper, we discuss whether and how bank lobbying can lead to regulatory capture and have real consequences through an overview of the motivations behind bank lobbying and of recent empirical evidence on the subject. Overall, the findings are consistent with regulatory capture, which lessens the support for tighter rules and enforcement. This in turn allows riskier practices and worse economic outcomes. The evidence provides insights into how the rising political power of banks in the early 2000s propelled the financial system and the economy into crisis. While these findings should not be interpreted as a call for an outright ban of lobbying, they point in the direction of a need for rethinking the framework governing interactions between regulators and banks. Enhanced transparency of regulatory decisions as well as strenghtened checks and balances within the decision-making process would go in this direction.
    Keywords: Financial regulation and supervision;Financial crises;Gross domestic product;Financial institutions;Financial services;banks,regulatory capture,lobbying,political economy,regulation,supervision,bank lobby,bank industry,lobbyist,regulator
    Date: 2019–08–09
  17. By: Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas
    Abstract: We study the impact of the 2016 Brexit referendum on UK foreign direct investment. Using the synthetic control method to construct appropriate counterfactuals, we show that by March 2019 the Leave vote had led to a 17% increase in the number of UK outward investment transactions in the remaining EU27 member states, whereas transactions in non-EU OECD countries were unaffected. These results support the hypothesis that UK companies have been setting up European subsidiaries to retain access to the EU market after Brexit. At the same time, we find that the number of EU27 investment projects in the UK has declined by around 9%, illustrating that being a smaller economy than the EU leaves the UK more exposed to the costs of economic disintegration.
    Keywords: Brexit; Foreign direct investment; synthetic control method
    JEL: F15 F21 F23
    Date: 2019–07

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