nep-pol New Economics Papers
on Positive Political Economics
Issue of 2020‒03‒16
fifteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Taxation with Representation: The Political Economy of Foreigners’ Voting Rights By Gonnot, Jérôme
  2. International Political Alignment during the Trump Presidency: Voting at the UN General Assembly By Martin Mosler; Niklas Potrafke
  3. Unintended Consequences: Can the Rise of the Educated Class Explain the Revival of Protectionism? By Giordani, Paolo E.; Mariani, Fabio
  4. Economic Insecurity and the Rise of the Right By Walter Bossert; Andrew E. Clark; Conchita D'Ambrosio; Anthony Lepinteur
  5. Governance and Group Conflict By Felix Koelle
  6. Refugee Migration and the Politics of Redistribution: Do Supply and Demand Meet? By Konstantinos Matakos; Riikka Savolainen; Janne Tukiainen
  7. Positive Spillovers from Negative Campaigning By Vincenzo Galasso; Tommaso Nannicini; Salvatore Nunnari
  8. Policies in Hard Times: Assessing the Impact of Financial Crises on Structural Reforms By Gokmen, Gunes; Nannicini, Tommaso; Onorato, Massimiliano Gaetano; Papageorgiou, Chris
  9. Presidential Approval in Peru: An Empirical Analysis Using a Fractionally Cointegrated VAR By Alexander Boca Saravia; Gabriel Rodríguez
  10. Abstention by Loss-Averse Voters By Kohei Daido; Tomoya Tajika
  11. How Mass Immigration Affects Countries with Weak Economic Institutions : A Natural Experiment in Jordan By Nowrasteh,Alex; Forrester,Andrew C.; Blondin,Cole
  12. Votes For Women: An Economic Perspective on Women’s Enfranchisement By Carolyn Moehling; Melissa A. Thomasson
  13. Do Corrupt Local Governments Inhibit Entrepreneurship? A Contextual Analysis of Start-Ups in Swedish Municipalities By Wittberg, Emanuel; Erlingsson, Gissur
  14. External Threat, Group Identity, and Support for Common Policies - The Effect of the Russian Invasion in Ukraine on European Union Identity By Kai Gehring
  15. Voting with their money: Brexit and outward investment by UK firms By Sampson, Thomas; Breinlich, Holger; Leromain, Elsa; Novy, Dennis

  1. By: Gonnot, Jérôme
    Abstract: This paper examines natives’ decision to grant political rights to foreign residents based on their contribution to a redistribution mechanism that finances a private and a public good. We propose a model where agents’ redistributive preferences are determined by their skill level and their cultural beliefs about public spending, which vary by skill and nationality. Contrary to a commonly held view in the political economy literature, we show that low-skill natives are willing to enfranchise relatively skilled foreigners as long as these foreigners have sufficiently liberal beliefs towards public spending. Moreover, we establish that the political rights that low-skill natives are prepared to grant to foreign residents is a nonmonotonic function of immigration’s skill level and cultural support for public expenditure. In particular, low-skill natives favor greater political integration for less-skilled or more liberal foreigners if and only if these foreigners’ average relative preferences for the private and the public good are sufficiently close to their own. We provide empirical support for some of the theoretical predictions of the model using an original municipality-level dataset of Swiss referenda about non-citizen voting rights. Our results indicate that municipalities where a higher share of natives received social transfers were more likely to support immigrant voting and that this effect was greater where foreigners were poorer and emigrated from less economically conservative countries.
    JEL: H41 H53 J68 D72
    Date: 2020–02
  2. By: Martin Mosler; Niklas Potrafke
    Abstract: We examine voting behavior of Western allied countries in line with the United States over the period 1949 until 2019. Descriptive statistics show that voting in line with the United States on resolutions in the United Nations General Assembly (UNGA) was on average 7.2 percentage points lower under Donald Trump than under the preceding United States presidents. The policy shift is especially pronounced for resolutions dealing with the Middle East. The decline in common UNGA voting behavior is significant for the resolution agreement rate and the absolute difference of ideal points. The results suggest that the alienation of Western allies is not driven by ideological distance based on a classical leftwing-rightwing government ideology scale.
    Keywords: Donald Trump, voting alignment, UNGA, political alliances
    JEL: F51 F53 D72 D78 C23
    Date: 2020
  3. By: Giordani, Paolo E. (LUISS Guido Carli University); Mariani, Fabio (Université catholique de Louvain)
    Abstract: This paper provides a rationale for the revival of protectionism, based on the rise of the educated class. In a trade model with heterogeneous workers and entrepreneurs, globalization generates aggregate gains but has distributional effects, which can be attenuated through taxation. By playing a two-stage political game, citizens decide on trade openness and the extent of redistribution. In this setting, trade liberalization is politically viable as long as the losers from trade are compensated through the redistributive mechanism. When skilled workers account for a large share of the population, however, there may be limited political support for redistribution, and those who are left behind by globalization – namely unskilled workers and importing-sector entrepreneurs – can form a coalition to impose protectionist measures. We then build a dynamic version of the model, where human capital accumulation is driven by public education. Our analysis suggests that globalization – by favoring the ascent of the educated class and thus eroding the political support for redistribution – may ultimately breed its own decline.
    Keywords: trade, redistribution, political economy, human capital accumulation
    JEL: D72 F68 I24 J24 O40
    Date: 2020–01
  4. By: Walter Bossert (Department of Economics and CIREQ, University of Montreal); Andrew E. Clark (Paris School of Economics); Conchita D'Ambrosio (INSIDE, University of Luxembourg); Anthony Lepinteur (INSIDE, University of Luxembourg)
    Abstract: Economic insecurity has attracted growing attention in social, academic and policy circles. However, there is no consensus as to its precise definition. Intuitively, economic insecurity is multi-faceted, making any comprehensive formal definition that subsumes all possible aspects extremely challenging. We propose a simplified approach, and characterize a class of individual economic-insecurity measures that are based on the time profile of economic resources. We then apply our economic-insecurity measure to data on political preferences. In US, UK and German panel data, and conditional on current economic resources, economic insecurity is associated with both greater political participation (support for a party or the intention to vote) and notably more support for parties on the right of the political spectrum. We in particular find that economic insecurity predicts greater support for both Donald Trump before the 2016 US Presidential election and the UK leaving the European Union in the 2016 Brexit referendum.
    Keywords: Economic index numbers; Insecurity; Political participation; Conservatism; Right-leaning political parties; Trump; Brexit.
    JEL: D63 D72 I32
    Date: 2020–01
  5. By: Felix Koelle (University of Cologne)
    Abstract: Many situations in the social and economic life are characterized by rivalry and conflict between two or more competing groups. Warfare, socio-political conflicts, political elections, lobbying, and R&D competitions are all examples of inter-group conflicts in which groups spend scarce and costly resources to gain an advantage over other groups. Here, we report on an experiment that investigates the impact of political institutions within groups on the development of conflict between groups. We find that relative to the case in which group members can decide individually on their level of conflict engagement, conflict significantly intensifies when investments are determined democratically by voting or when a single group member (the dictator) can decide on behalf of the group. These results hold for both symmetric and asymmetric contests, as well as for situations in which institutions are adopted exogenously or endogenously. Our findings thus suggest that giving people the possibility to vote is not the main reason for why democracies seem to engage in less wars than autocracies. Nevertheless, when giving participants the possibility to choose which institution to adopt, we find that the voting institution is the by far most popular one as it combines the desirable features of autonomy and equality
    Keywords: : Conflict, competition, institutions, democracy, groups, experiment
    Date: 2020–04
  6. By: Konstantinos Matakos (King’s College London); Riikka Savolainen (Newcastle University Business School); Janne Tukiainen (University of Turku)
    Abstract: We study whether establishing new asylum-seeker centres influences the redistribution related policy positions of candidates in local elections in Finland - a country where municipalities have significant control over fiscal policies. The sudden and unprecedentedly large inflow of the asylum seekers in autumn 2015 and the resulting establishment of asylum centres facilitates a difference-in-differences research design. We focus on the supply side of redistributive politics and find that on average candidates do not respond to the presence of the centres by proposing less (or more) redistribution in a voting aid application survey. Our estimates are precise enough to rule out even fairly small effects both for all the candidates and the elected ones. In contrast, on the demand side, there is evidence of various voter responses on average suggesting that electoral politics may limit to some extent the impact of voter preferences on such policies. However, in the very smallest municipalities where there are many refugees per capita we find that also the candidates become less favourable towards redistribution. In other words, intensity of exposure to refugee migration seems to be behind any observed supply-side response regarding redistribution.
    Keywords: candidates, immigration, local elections, redistribution, refugee crisis
    JEL: D72 H71 H72 J15
    Date: 2020–02
  7. By: Vincenzo Galasso; Tommaso Nannicini; Salvatore Nunnari
    Abstract: Negative advertising is frequent in electoral campaigns, despite its ambiguous effectiveness: negativity may reduce voters’ evaluation of the targeted politician but have a backlash effect for the attacker. We study the effect of negative advertising in electoral races with more than two candidates with a large scale field experiment during an electoral campaign for mayor in Italy and a survey experiment in a fictitious mayoral campaign. In our field experiment, we find a strong, positive spillover effect on the third main candidate (neither the target nor the attacker). This effect is confirmed in our survey experiment, which creates a controlled environment with no ideological components nor strategic voting. The negative ad has no impact on the targeted incumbent, has a sizable backlash effect on the attacker, and largely benefits the idle candidate. The attacker is perceived as less cooperative, less likely to lead a successful government, and more ideologically extreme.
    Keywords: electoral campaign, political advertisement, randomized controlled trial, field experiment, survey experiment
    JEL: D72 C90 M37
    Date: 2020
  8. By: Gokmen, Gunes (Lund University); Nannicini, Tommaso (Bocconi University); Onorato, Massimiliano Gaetano (University of Bologna); Papageorgiou, Chris (International Monetary Fund)
    Abstract: It is commonly argued that crises open up a window of opportunity to implement policies that otherwise would not have the necessary political backing. The argument goes that the political cost of deep reforms declines as crises unravel structural problems that need to be urgently rectified and the public is more willing to bear the pains associated with such reforms. This paper casts doubt on this prevalent view by showing that not only the crises-reforms nexus is unfounded in the data, but rather crises are associated with slowing structural reforms depending on the institutional environment. In particular, we look at measures of reforms in international trade, agriculture, network industries, and financial markets. We find that, after a financial crisis, democracies neither open nor close their economy. On the contrary, autocracies reduce reforms in multiple economic sectors, as the fear of regime change lead non-democratic rulers to please vested economic interests.
    Keywords: financial crises, structural reforms, institutional systems, IMF programs, government crises, public opinion
    JEL: E44 G01 L51 P16
    Date: 2020–01
  9. By: Alexander Boca Saravia (Departamento de Economía de la Pontificia Universidad Católica del Perú); Gabriel Rodríguez (Departamento de Economía de la Pontificia Universidad Católica del Perú)
    Abstract: Presidential approval in Peru depends on economic outcomes. However, voters are unable to distinguish between outcomes resulting from economic policies and those caused by exogenous shocks. Estimation results from seven Fractional Cointegrated VAR (FCVAR) models suggest that presidential approval increases with the monetary policy interest rate, the terms of trade, and manufacturing employment; and decreases with the nominal PEN/USD exchange rate and ináation volatility. Additionally, a Principal Components Analysis (PCA) conducted over a large set of macroeconomic indicators points to a greater ináuence of external over domestic factors in explaining presidential approval; i.e., economic outcomes that determine the dynamics of presidential approval are not under presidential control in Peru. It can be argued that these Öndings identify a signiÖcant source of political instability and a considerable challenge to democratic governance. To the authorsíbest knowledge, this is the Örst application of fractional cointegration analysis to political economy in Latin America. JEL Classification-JEL: C32, D72
    Keywords: Economic Voting, Fractional Cointegration, Political Economy, Macroeconomics, Latin America, Peru
    Date: 2019
  10. By: Kohei Daido (School of Economics, Kwansei Gakuin University); Tomoya Tajika (Department of Law and Economics, Hokusei Gakuen University)
    Abstract: This paper builds a two-candidate election model, in which voters are loss averse and face uncertainty about whether their preferred candidate is supported by a majority. Even without costs for voting, abstention may occur when voters have expectations-based reference-dependent preferences, as in KÅ‘szegi and Rabin (2006, 2007). The model shows that loss aversion leads to the equilibrium in which abstention is more likely as an election becomes more competitive and the abstention rate of voters who prefer a minority candidate is higher than for those who prefer a majority candidate.
    Keywords: Abstention, Expectations-Based Reference-Dependent Preferences, Loss Aversion, Voting
    JEL: D72 D91
    Date: 2020–03
  11. By: Nowrasteh,Alex; Forrester,Andrew C.; Blondin,Cole
    Abstract: To what extent does immigration affect the economic institutions in destination countries? While there is much evidence that economic institutions in developed nations are either unaffected or improved after immigration, there is little evidence of how immigration affects the economic institutions of developing countries that typically have weaker institutions. Using the Synthetic Control Method, this study estimates a significant and long-lasting positive effect on Jordanian economic institutions from the surge of refugees from the First Gulf War. The surge of refugees to Jordan in 1990?1991 was massive and equal to 10 percent of Jordan's population in 1990. Importantly, these refugees were able to have a large and direct impact on Jordanian economic institutions because they could work, live, and vote immediately upon entry due to a quirk in Jordanian law. The refugee surge was the main mechanism by which Jordan's economic institutions improved in the decades that followed.
    Keywords: International Migration,Migration and Development,Human Migrations&Resettlements,Armed Conflict,International Trade and Trade Rules,Youth and Governance,National Governance,Social Analysis,Quality of Life&Leisure,Government Policies,Public Sector Administrative and Civil Service Reform,Democratic Government,Public Sector Administrative&Civil Service Reform,State Owned Enterprise Reform,Energy Privatization,De Facto Governments,Privatization,Economics and Finance of Public Institution Development
    Date: 2019–04–11
  12. By: Carolyn Moehling; Melissa A. Thomasson
    Abstract: The ratification of the Nineteenth Amendment in 1920 officially granted voting rights to women across the United States. However, many states extended full or partial suffrage to women before the federal amendment. In this paper, we discuss the history of women's enfranchisement using an economic lens. We examine the demand-side, discussing the rise of the women's movement and its alliances with other social movements, and describe how suffragists put pressure on legislators. On the supply side, we draw from theoretical models of suffrage extension to explain why men shared the right to vote with women. Finally, we review empirical studies that attempt to distinguish between competing explanations. We find that no single theory can explain women's suffrage in the US, and note that while the Nineteenth Amendment extended the franchise to women, state-level barriers to voting limited the ability of black women to exercise that right until the Voting Rights Act of 1965.
    JEL: N11 N12
    Date: 2020–02
  13. By: Wittberg, Emanuel (Institute for Analytical Sociology); Erlingsson, Gissur (Centre for Local Government Studies)
    Abstract: Does corruption affect the incentives for potential entrepreneurs to start businesses? The traditional view holds that entrepreneurship is inhibited. However, a few recent studies indicate the contrary, supporting a ‘grease the wheels’ perspective. In a novel approach to this question, we combine a local government corruption index and individual-level register data on start-ups in a low-corruption setting: Sweden. We disaggregate the analysis to individual entrepreneurs, focus on corruption in local institutions and hypothesize that local corruption deters potential entrepreneurs. Our findings are twofold. First, rejecting the ‘grease the wheels’ hypothesis, local corruption has a strong local deterring effect on potential entrepreneurs. Second, a minority of entrepreneurs relocate their start-ups from home unicipalities to elsewhere. However, contrary to expectations, relocaters could embody ‘non-productive’ or ‘destructive’ entrepreneurship: they migrate from relatively low-corrupt to relatively high-corrupt municipalities. While migrating is uncommon, and the effect is weak, it nonetheless indicates that relocaters are attracted to conditions where rent-seeking opportunities are present.
    Keywords: Entrepreneurship; Start-ups; Corruption; Local government; Destructive entrepreneurship
    JEL: D73 L26
    Date: 2020–03–09
  14. By: Kai Gehring
    Abstract: A major theory from social psychology claims that external threats can strengthen group identities and cooperation. This paper exploits the Russian invasion in Ukraine 2014 as a sudden increase in the perceived military threat for eastern European Union member states, in particular for the Baltic countries bordering Russia directly. Comparing low versus high-threat member states in a difference-in-differences design, I find a sizeable positive effect on EU identity. It is associated with higher trust in EU institutions and support for common EU policies. Different perceptions of the invasion cause a polarization of preferences between the majority and ethnic Russian minorities.
    Keywords: external threats, group identity, nation-building, trust, fiscal federalism, European Union, EU identity, Russia, Ukraine, Baltic
    JEL: D70 F50 H70 N44 Z10
    Date: 2020
  15. By: Sampson, Thomas; Breinlich, Holger; Leromain, Elsa; Novy, Dennis
    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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