nep-pol New Economics Papers
on Positive Political Economics
Issue of 2019‒09‒30
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Presidential party affiliation and electoral cycles in the U.S.economy: evidence from party changes in adjacent terms. By Stone, Joe A.; Jacobs, David
  2. Vote Buying in the U.S. Congress By Matter, Ulrich; Roberti, Paolo; Slotwinski, Michaela
  3. Lost in Transition? The Persistence of Dictatorship Mayors By González, F; Muñoz, P; Prem, M
  4. Political Budget Forecast Cycles By Frank Bohn; Francisco José Veiga
  5. Political Economy of Third Party Interventions By Sabyasachi Das; Souvik Dutta; Abhirup Sarkar
  6. Corruption and firms By Colonnelli, E; Prem, M
  7. Generational political dynamics of retirement pensions systems: An agent based model By S\'ergio Bacelar; Luis Antunes
  8. Developing countries' political cycles and the resource curse: Venezuela's case By Márquez-Velázquez, Alejandro

  1. By: Stone, Joe A.; Jacobs, David
    Abstract: Unique evidence presented in this study challenges previous findings about presidential politics and business cycles. Prior studies find strong evidence for a Democratic economic growth advantage of about 1.8 percent per year over the course of a term but only weak evidence for a pre- election surge in growth for incumbent Presidents of either party. This study finds a much smaller Democratic advantage and strong evidence for a pre-election growth surge for Republican Presidents relative to Democratic Presidents. The novelty of these results is attributable to the use of repeated party-change reversals in adjacent terms for identification in place of binary changes in isolated terms separated by as much as a half-century in prior studies. We find a strongly partisan Federal Reserve effect on growth as well. Results are insensitive to an extensive battery of robustness checks including a placebo test.
    Keywords: political business cycles; Presidents; Economic Growth
    JEL: E6 E60 H5
    Date: 2019–09–07
  2. By: Matter, Ulrich; Roberti, Paolo; Slotwinski, Michaela
    Abstract: We assess the influence of moneyed interests on legislative decisions. Our theory predicts that the vote outcome distribution and donation flows in a legislature feature a discontinuity at the approval threshold of bills if special interest groups are involved in vote buying. Testing the theoretical predictions based on two decades of roll-call voting in the U.S. House, we identify the link between narrowly passed bills and well-timed campaign contributions. Several pieces of evidence substantiate our main finding, suggesting that moneyed interests exert remarkably effective control over the passage of contested bills.
    Keywords: Legislative voting, campaign finance, special interest groups, lobbying, forensic economics
    JEL: D72 D78
    Date: 2019–09
  3. By: González, F; Muñoz, P; Prem, M
    Abstract: Dictatorships can affect the functioning of new democracies but the mechanisms are poorly understood. We study the Pinochet dictatorship in Chile using new data and provide two findings. First, mayors appointed by Pinochet obtained a nine percentage point vote premium in the first local election in democracy. This premium is explained by an incumbency advantage and by an increase in local spending during the transition. Second, dictatorship mayors increased the vote share of right-wing political parties in democracy. We conclude that the dictatorship won “hearts and minds” before the transition and successfully maintained part of their political power.
    Keywords: politicians, dictatorship, democracy
    JEL: D2 G2 G3 M2
    Date: 2019–09–19
  4. By: Frank Bohn (Radboud University, Institute for Management Research, Department of Economics); Francisco José Veiga (NIPE and Economics Department, University of Minho.)
    Abstract: By forecasting overly optimistic revenues opportunistic governments can increase spending in order to appear more competent prior to elections. Ex post deficits emerge in election years, thereby producing political forecast cycles - as also found for US states in the empirical literature. In our theoretical moral hazard model we obtain three additional results which are tested with panel data for Portuguese municipalities. The extent of manipulations is reduced when (i) the winning margin is expected to widen; (ii) the incumbent is not re-running; and/or (iii) the share of informed voters (proxied by education) goes up.
    Keywords: opportunistic political cycles; political budget cycles; revenue forecasts; deficit; transfers; asymmetric information; political economy.
    JEL: D72 H68 E32
    Date: 2019
  5. By: Sabyasachi Das (Department of Economics, Ashoka University); Souvik Dutta (Economics Department, Indian Institute of Management, Bangalore); Abhirup Sarkar (Economics Research Unit, Indian Statistical Institute, Kolkata)
    Abstract: The paper examines political economy consequences of a third party (World Bank) intervention in India. The intervention was a capacity building initiative that trained local politicians in various governance procedures in a sample of villages. We show that the state government reacted to the intervention by allocating additional resources to program villages with aligned incumbents while reducing allocation in program villages with rival incumbents. Consequently, party switching by opposition incumbents went up in program villages. Moreover, the reelection rate of incumbents went down due to the intervention, especially in GPs where no incumbents switched their party affiliations. The results highlight the importance of considering political economy consequences of such interventions, even in countries not heavily reliant on foreign assistance, to better understand its overall welfare effects.
    Keywords: Policy Evaluation, Party Switching, Reelection, Gram Panchayat
    Date: 2019–09
  6. By: Colonnelli, E; Prem, M
    Abstract: We estimate the causal real economic effects of a randomized anti- corruption crackdown on local governments in Brazil over the period 2003-2014. After anti-corruption audits, municipalities experience an increase in economic ac- tivity concentrated in sectors most dependent on government relationships. These effects spill over to nearby municipalities and are larger when the audits are covered by the media. Back-of-the-envelope estimates suggest that $1 away from corrup- tion generates more than $3 in local value added. Using administrative matched employer-employee and firm-level datasets and novel face-to-face firm surveys we argue that corruption mostly acts as a barrier to entry, and by introducing costs and distortions on local government-dependent firms. The political misallocation of resources across firms plays a seemingly secondary role, indicating that at the local level most rents are captured by politicians and public officials rather than firms.
    Keywords: Corruption, firms, audits
    JEL: D73 H83 D22
    Date: 2019–09–19
  7. By: S\'ergio Bacelar; Luis Antunes
    Abstract: The increasing difficulties in financing the welfare state and in particular public retirement pensions have been one of the outcomes both of the decrease of fertility and birth rates combined with the increase of life expectancy. The dynamics of retirement pensions are usually studied in Economics using overlapping generation models. These models are based on simplifying assumptions like the use of a representative agent to ease the problem of tractability. Alternatively, we propose to use agent-based modelling (ABM), relaxing the need for those assumptions and enabling the use of interacting and heterogeneous agents assigning special importance to the study of inter-generational relations. We treat pension dynamics both in economics and political perspectives. The model we build, following the ODD protocol, will try to understand the dynamics of choice of public versus private retirement pensions resulting from the conflicting preferences of different agents but also from the cooperation between them. The aggregation of these individual preferences is done by voting. We combine a microsimulation approach following the evolution of synthetic populations along time, with the ABM approach studying the interactions between the different agent types. Our objective is to depict the conditions for the survival of the public pensions system emerging from the relation between egoistic and altruistic individual and collective behaviours.
    Date: 2019–09
  8. By: Márquez-Velázquez, Alejandro
    Abstract: The resource curse literature's main lesson is that developing and natural resource-rich countries should save most of their oil windfalls in foreign currency. Moreover, the political cycle literature's recent contributions predict stronger cycles in these countries. This paper investigates how political cycles might explain low oil windfall savings. Using Venezuela's case, the paper argues that power concentration during periods of oil price explosiveness leads to increased public investment in prestige projects aimed at increasing the incumbent's − or his party's − re-election probabilities. The article backs the argument analyzing the Chavista democratic period of 1999-2016. It also identifies parallels with Venezuela's 1970-1988 period.
    Keywords: oil windfalls,political cycles,resource curse,Venezuela
    Date: 2019

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