nep-pol New Economics Papers
on Positive Political Economics
Issue of 2020‒07‒27
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Ethnic Conflicts and the Informational Dividend of Democracy By Laurent-Lucchetti, Jérémy; Rohner, Dominic; Thoenig, Mathias
  2. Decision-making Institutions and Voters’ Preferences for Fiscal Policies By Sergio Galletta
  3. The Institutional Foundations of Religious Politics: Evidence from Indonesia By Samuel Bazzi; Gabriel Koehler-Derrick; Benjamin Marx
  4. The Employment Effects of Ethnic Politics By Amodio, Francesco; Chiovelli, Giorgio; Hohmann, Sebastian
  5. Media, Secret Ballot and Democratization in the US By Leopoldo Fergusson; Juan Felipe Riaño; B.K. Song
  6. Political connections and the super-rich in Poland By Sałach, Katarzyna; Brzezinski, Michal
  7. Growing Cleavages in India? Evidence from the Changing Structure of Party Electorates, 1962-2014 By Abhijit Banerjee; Amory Gethin; Thomas Piketty
  8. Economic Integration and Democracy: An Empirical Investigation By Magistretti, Giacomo; Tabellini, Marco
  9. The Polarization of Reality By Alesina, Alberto F; Miano, Armando; Stantcheva, Stefanie
  10. Housing insecurity, homelessness and populism: Evidence from the UK By Fetzer, Thiemo; Sen, Srinjoy; Souza, Pedro CL
  11. Do Politicians Shape the Electorate ? Evidence from French Municipalities By Benoît SCHMUTZ; Grégory VERDUGO
  12. Electoral Turnout and Social Capital By Jeremy Clark; Abel François; Olivier Gergaud
  13. Negative Voters? Electoral Competition with Loss-Aversion By Lockwood, Ben; Rockey, James
  14. Populism and Social Polarization in European Democracies By Victor Ginsburgh; Sergio Perelman; Pierre Pestieau
  15. The Impact of Conflict and Political Instability on Banking Crises in Developing Countries By Ali Compaoré; Montfort Mlachila; Rasmané Ouedraogo; Sandrine Sourouema
  16. Political Stability and Economic Prosperity: Are Coups Bad for Growth? By Johannes Blum; Klaus Gründler

  1. By: Laurent-Lucchetti, Jérémy; Rohner, Dominic; Thoenig, Mathias
    Abstract: Prevailing explanations view democracy as an institutional arrangement that solves a class conflict between a rich elite and the rest of population. We study the logic of democratic transition when ethnic tensions are more salient than the poor/rich divide. We build a simple theory where (i) ethnic groups negotiate over allocating the economic surplus and (ii) both military and political mobilizations rest on the unobserved strength of ethnic identity. By eliciting information on mobilization, free and fair elections restore inter-ethnic bargaining efficiency and prevent conflict outbreak. We show that democratic transition can be rationally chosen by autocrats, even if it involves a risk of losing power, as elections reduce the informational rent of the opposition, allowing the legitimately elected ruler to grab more economic surplus. Our setup generates new predictions on the nature of political regime, government tenure, ethnic favoritism and social unrest for ethnically divided countries - all consistent with novel country-level and ethnic group-level panel evidence on democratization in the post-decolonization period.
    JEL: C72 D02 D72 D74 D82 P16
    Date: 2019–12
  2. By: Sergio Galletta (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper examines the effect of local political decision-making institutions (i.e., direct democracy vs. representative democracy) on citizens’ preferences toward public spending. Exogenous variation in institutions comes from a regression discontinuity design, which exploits a discrete change in the probability that a municipality has representative democracy based on a legally stipulated population threshold in the Swiss canton (state) of Vaud. Fiscal policy preferences by municipality are measured by vote shares on Swiss national referendums and initiatives that, if approved, would have increased public spending. Relative to direct democracy, representative democracy reduces vote shares in favor of spending by around 5 percentage points. The effect is not due to sorting on other observables or to feedback from changes in local policies. These findings demonstrate the importance of preferences as a channel through which political decision-making institutions can affect public policies.
    Keywords: voter preferences, decision-making institutions, Switzerland, direct democracy
    JEL: D7 H7
    Date: 2018–12
  3. By: Samuel Bazzi (Boston University); Gabriel Koehler-Derrick (Harvard University); Benjamin Marx (Département d'économie)
    Abstract: Why do religious politics thrive in some societies but not others? This paper explores the institutional foundations of this process in Indonesia, the world’s largest Muslim democracy. We show that a major Islamic institution, the waqf, fostered the entrenchment of political Islam at a critical historical juncture. In the early 1960s, rural elites transferred large amounts of land into waqf —a type of inalienable charitable trust—to avoid expropriation by the government as part of a major land reform effort. Although the land reform was later undone, the waqf properties remained. We show that greater intensity of the planned reform led to more prevalent waqf land and Islamic institutions endowed as such, including religious schools, which are strongholds of the Islamist movement. We identify lasting effects of the reform on electoral support for Islamist parties, preferences for religious candidates, and the adoption of Islamic legal regulations (sharia). Overall, the land reform contributed to the resilience and eventual rise of political Islam by helping to spread religious institutions, thereby solidifying the alliance between local elites and Islamist groups. These findings shed new light on how religious institutions may shape politics in modern democracies.
    Keywords: Religion; Institutions; Land reform; Islam; Sharia Law
    JEL: D72 D74 P16 P26 Z12
    Date: 2020–05
  4. By: Amodio, Francesco; Chiovelli, Giorgio; Hohmann, Sebastian
    Abstract: This paper studies the labor market consequences of ethnic politics in African democracies. We combine geo-referenced data from 15 countries, 32 parliamentary elections, 62 political parties, 243 ethnic groups, 2,200 electoral constituencies, and 400,000 individuals. We implement a regression discontinuity design that compares individuals from ethnicities connected to parties at the margin of electing a local representative in the national parliament. We find that having a local ethnic politician in parliament increases the likelihood of being employed by 2-3 percentage points. We hypothesize that this effect originates from strategic interactions between ethnic politicians and traditional leaders, the latter retaining the power to allocate land and agricultural jobs in exchange for votes. The available evidence supports this hypothesis. First, the employment effect is concentrated in the historical homelands of ethnicities with strong pre-colonial institutions. Second, individuals from connected ethnicities are more likely to be employed in agriculture, and in those countries where customary land tenure is officially recognized by national legislation. Third, they are also more likely to identify traditional leaders as partisan, and as being mainly responsible for the allocation of land. Evidence shows that ethnic politics shapes the distribution of productive resources across sectors and ethnic groups.
    Keywords: Africa; democracy; employment; ethnic politics; traditional leaders
    JEL: J15 J70 O10 P26 Q15
    Date: 2019–12
  5. By: Leopoldo Fergusson; Juan Felipe Riaño; B.K. Song
    Abstract: Can the media determine the success or failure of institutional reforms? We study the adoption of secret voting in the US and the role of media in this arguably crucial step to improve democracy. Using a difference-in-difference identification strategy and a rich dataset on local newspapers, we find that in areas with high levels of media penetration democratization outcomes improved following the adoption of the secret ballot. Specifically, the press contributed to the decrease in partisan attachment and support for dominant parties. The press also undermined the manipulation of electoral boundaries and the unintentional decline in turnout incentivized with the introduction of the secret ballot. We consider multiple concerns about our identification strategy and address the potential endogeneity of newspapers using an instrumental variable approach that exploits the introduction of wood-pulp paper technology in 1880 combined with counties’ woodland coverage during the same period. Exploring the heterogeneous effects of our results, we argue that the media mattered through the distribution of information to voters and the increase of public awareness about political misconduct.
    Keywords: Media, Secret Ballot, Democratization, Electoral Reforms, Gerrymandering
    JEL: D72 D73 D80 L82
    Date: 2020–07–16
  6. By: Sałach, Katarzyna; Brzezinski, Michal
    Abstract: We use newly collected original panel data on the super-wealthy individuals in Poland (observed over 2002-2018) to study the impact of the rich’s political connections on their wealth level, mobility among the rich and the risk of dropping off the rich list. The multimillionaires are classified as politically connected if we find reliable news stories linking their wealth to political contacts or questionable licenses, or if a person was formerly an informant of communist Security Service or member of the communist party, or when the origins of wealth are connected to the privatization process. We find that political connections are not associated with the wealth level of Polish multimillionaires, but that they are linked to the 20-30% lower probability of upward mobility in the ranking of the rich. Moreover, being a former member of the communist party or secret police informant increases the risk of dropping off the Polish rich list by 79%. Taken together, our results show that, contrary to some other post-socialist countries such as Russia or Ukraine, there is little evidence that the Polish economy suffers from crony capitalism.
    Date: 2020–06–27
  7. By: Abhijit Banerjee (MIT - Massachusetts Institute of Technology); Amory Gethin (PSE - Paris School of Economics, WIL - World Inequality Lab); Thomas Piketty (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique, WIL - World Inequality Lab)
    Abstract: This paper combines surveys, election results and social spending data to document the long-run evolution of political cleavages in India. From a dominantparty system featuring the Indian National Congress as the main actor of the mediation of political conflicts, Indian politics have gradually come to include a number of smaller regionalist parties and, more recently, the Bharatiya Janata Party (BJP). These changes coincide with the rise of religious divisions and the persistence of strong caste-based cleavages, while education, income and occupation play little role (controlling for caste) in determining voters' choices. We find no evidence that India's new party system has been associated with changes in social policy. While BJP-led states are generally characterized by a smaller social sector, switching to a party representing upper castes or upper classes has no significant effect on social spending. We interpret this as evidence that voters seem to be less driven by straightforward economic interests than by sectarian interests and cultural priorities. In India, as in many Western democracies, political conflicts have become increasingly focused on identity and religious-ethnic conflicts rather than on tangible material benefits and class-based redistribution.
    Keywords: India,political cleavages,economic cleavage,social spending
    Date: 2019
  8. By: Magistretti, Giacomo; Tabellini, Marco
    Abstract: We study whether economic integration fosters the process of democratization and the channels through which this might happen. Our analysis is based on a large panel dataset of countries between 1950 and 2014. We instrument actual trade with predicted trade constructed by estimating a time-varying gravity equation similar to Feyrer (2009). We find that economic integration has a positive effect on democracy, driven by trade with democratic partners and stronger for countries with lower initial levels of economic and institutional development. These results are consistent with a learning/cultural exchange process whereby economic integration promotes the spread of democracy from more to less democratic countries. We corroborate this interpretation by providing evidence against alternative mechanisms, such as income effects, human capital accumulation, and trade-induced changes in inequality.
    Keywords: democracy; economic integration; Institutional development; international trade
    JEL: F14 F15 P16
    Date: 2020–01
  9. By: Alesina, Alberto F; Miano, Armando; Stantcheva, Stefanie
    Abstract: Americans are polarized not only in their views on policy issues and attitudes towards government and society, but also in their perceptions of the same factual reality. We conceptualize how to think about the ``polarization of reality'' and review recent papers that show that Republicans and Democrats view the same reality through a different lens. Perhaps as a result, they hold different views about policies and what should be done to address economic and social issues. We also show that providing information leads to different reassessments of reality and different responses along the policy support margin, depending on one's political leaning.
    Keywords: beliefs; Perceptions; Political Views; redistribution; Wealth Taxation
    Date: 2020–01
  10. By: Fetzer, Thiemo; Sen, Srinjoy; Souza, Pedro CL
    Abstract: Homelessness and precarious living conditions are on the rise across much of the Western world. This paper exploits exogenous variation in the affordability of rents due to a cut that substantially lowered housing benefit -- a welfare benefit aimed at helping low income households pay rent. Before April 2011, local housing allowance covered up to the median level of market rents; from April 2011 onwards, only rents lower than the 30th percentile were covered. We exploit that the extent of cuts significantly depend on statistical noise due to estimation of percentiles. We document that the affordability shock caused a significant increase in: evictions; individual bankruptcies; property crimes; share of households living in insecure temporary accommodation; statutory homelessness and actual rough sleeping. The fiscal savings of the cut are much smaller than anticipated. We estimate that for every pound saved by the central government, council spending to meet statutory obligations for homelessness prevention increases by 53 pence. We further document political effects: the housing benefit cut causes lower electoral registration rates and is associated with lower turnout and higher support for Leave in the 2016 EU referendum, most likely driven by its unequal impact on the composition of those that engage with democratic processes.
    Keywords: homelessness and populism: Evidence from the UK; Housing insecurity
    JEL: D72 H2 H3 H5 P16
    Date: 2019–12
  11. By: Benoît SCHMUTZ (Ecole Polytechnique and CREST); Grégory VERDUGO (Université Paris-Saclay)
    Abstract: When elections are local and voters are mobile, politicians may be tempted to implement policies that attract inhabitants more likely to vote for them while prompting their opponents to leave. We test this hypothesis using data from French municipalities that, in recent decades, received large in ows of immigrants, who tend to vote for the left once naturalized, while immigrant-hostile voters lean to the right. Based on quasi-experimental evidence from thirty years of close elections, we show that six years after close elections, municipalities where a left-wing mayor was elected are characterized by a 2.4 p.p. higher share of immigrants and a 1.4 p.p. lower share of retired natives than the corresponding shares in municipalities where a right-wing mayor was elected. These effects are driven by peripheral municipalities that make up a small share of the population in their metropolitan areas and can therefore benefit from substantial population reshuffling. The evidence suggests that mayors use the large stock of municipal public housing over which they have allocative authority to favor or discriminate against immigrants. These strategies are electorally rewarding as we find a higher probability of reelection for the same party in municipalities in which these demographic changes are the most pronounced. We also find evidence that these demographic changes are associated with the surge of the far-right in local elections in the 1980s.
    Keywords: Immigration, Public Housing, Local Elections, Incumbent Effect.
    Date: 2020–07–02
  12. By: Jeremy Clark (University of Canterbury); Abel François; Olivier Gergaud
    Abstract: Although social capital is a useful and often used concept in political science to explain political behavior and electoral turnout, its effects are rarely tested because of scarcity of available data. It is hard to find a good measure of social capital not produced by a political process. Moreover, the concept suffers from an unstable definition that makes it difficult to operationalize. In line with a part of the previous literature, we propose a restricted definition of social capital based on its main origin, a person’s accumulated social interactions. This enables us to integrate social capital into the rational calculus of voting and state a clear prediction that higher social capital will raise electoral turnout. We test this prediction using data on New Zealand participation in the 2017 national election based on 2013 census characteristics at the finest aggregated level of “meshblock.” We measure social capital using a census measure of volunteering rates. Our results are clear and stable: there is a strong positive association between social capital and subsequent electoral turnout.
    Keywords: Electoral turnout, social capital, volunteering work, calculus of voting
    JEL: D42
    Date: 2020–07–01
  13. By: Lockwood, Ben; Rockey, James
    Abstract: This paper studies the effect of voter loss-aversion in preferences over both candidate policy platforms and candidate valence on electoral competition. Loss-aversion over platforms leads to both platform rigidity and reduced platform polarisation, whereas loss-aversion over valence results in increased polarization and also the possibility of asymmetric equilibria with a self-fulfilling (dis)-advantage for the incumbent. The results are robust to a stochastic link between platforms and outcomes; they hold approximately for a small amount of noise. A testable implication of loss-aversion over platforms is that incumbents adjust less than challengers to shifts in voter preferences. We find some empirical support for this using data for elections to the US House of Representatives.
    Keywords: Electoral Competition; Loss-aversion
    JEL: D72 D81
    Date: 2020–01
  14. By: Victor Ginsburgh; Sergio Perelman; Pierre Pestieau
    Abstract: The objective of this paper is to explain populist attitudes that are prevailing in a number of European democracies. Populist attitudes expectedly lead to social protests and populist votes. We capture the populist wave by relying not on voting behavior but rather on values that are traditionally viewed as populist values, such as distrust of institutions and neighbors, rejection of migrations and strong preferences for law and order. Our study covers the period 2004 to 2018 and 25 European countries for which we match aggregated indicators of populist values and social polarization computed from ESS and SILC survey micro-data, respectively. We find that social polarization, along with other factors, can explain populist attitudes. We also observe that both populist attitudes and polarization vary across countries much more than over time, with the exception of authoritarian values which appear positively correlated with social polarization, particularly among baby-boomers and younger cohorts.
    Keywords: populism; polarization; social divide
    JEL: D63 I30
    Date: 2020–07
  15. By: Ali Compaoré; Montfort Mlachila; Rasmané Ouedraogo; Sandrine Sourouema
    Abstract: While there is an extensive literature examining the economic impact of conflict and political instability, surprisingly there have been few studies on their impact on the probability of banking crises. This paper therefore investigates whether rising conflict and political instability globally over the past several decades led to increased occurrence of banking crises in developing countries. The paper provides strong evidence that conflicts and political instability are indeed associated with higher probability of systemic banking crises. Unsurprisingly, the duration of a conflict is positively associated with rising probability of a banking crisis. Interestingly, the paper also finds that conflicts and political instability in one country can have negative spillover effects on neighboring countries’ banking systems. The paper provides evidence that the primary channel of transmission is the occurrence of fiscal crises following a conflict or political instability.
    Keywords: Banking crisis;Balance sheets;Economic recession;Banking sector;Real effective exchange rates;conflict,political instability,banking crises,fiscal crises,WP,bank crisis,fiscal crisis,cabinet change,government crisis
    Date: 2020–02–28
  16. By: Johannes Blum; Klaus Gründler
    Abstract: We provide evidence that political instability deteriorates economic growth. We establish this result based on panel difference-in-differences strategies and dynamic panel data models using a large sample of 180 countries, a novel geocoded dataset for 2,660 regions, and micro data for about 250,000 households. We exploit coups d'état as a source of exogenous variation in political instability, as they are difficult to anticipate, mirror the political zeitgeist, and reduce measurement error. We use spatial variations and synthetic control methods for identification and find that periods of instability reduce growth by 2-3 percentage points, increase unemployment, and impair health and life satisfaction. The adverse effects are stronger for women than for men.
    Keywords: coups d’état, economic growth, political stability
    JEL: O11 O12 D74
    Date: 2020

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