nep-pol New Economics Papers
on Positive Political Economics
Issue of 2021‒10‒18
seven papers chosen by
Eugene Beaulieu
University of Calgary

  1. Populists in Power By Luisa Doerr; Niklas Potrafke; Felix Roesel
  2. Political Reservations as Term-Limits By Garance Genicot; Cait Brown; Nishtha Kochhar
  3. Effects of political institutions on the external debt-economic growth nexus in Africa By Nounamo, Yann; Asongu, Simplice; Njangang, Henri; Tadadjeu, Sosson
  4. Voting like your betters: the bandwagon effect in the diet of the Holy Roman Empire By Volckart, Oliver
  5. Golfing with Trump: social capital, decline, inequality, and the rise of populism in the US By Rodríguez-Pose, Andrés; Lee, Neil; Lipp, Cornelius
  6. Political Uncertainty: A High Frequency Approach By Makram El-Shagi
  7. The Political Economy of the Covid-19 Fiscal Stimulus Packages of 2020 By Joshua Aizenman; Yothin Jinjarak; Hien Nguyen; Ilan Noy

  1. By: Luisa Doerr; Niklas Potrafke; Felix Roesel
    Abstract: We examine how populist governments influence political culture and economic outcomes. Some Austrian communities are governed by far-right populist mayors, directly elected by a majority of voters. We exploit close elections and find that the electorate becomes more polarized under populist mayors. However, polarization is not limited to politics. A major innovation of our study is using data on team members of local football teams. Our results show that diversity in local football teams decreases when populists are in power, indicating that populists infiltrate the civic society. When it comes to economic outcomes, migration and budget transparency decrease under populist governments.
    Keywords: populism, far-right politics, partisan politics, polarization, immigration, economic policy, local government, budget transparency
    JEL: D72 P16 H72 Z18
    Date: 2021
  2. By: Garance Genicot (Department of Economics, Georgetown University); Cait Brown (Department of Economics, University of Manchester); Nishtha Kochhar (Department of Economics, Georgetown University)
    Abstract: While political reservations aim to ensure a more equal representation for women and disadvantaged groups, they also impose effective term limits on many incumbent politicians who would otherwise have had a chance to contest elections again. By decreasing the future electoral prospects of politicians, next-period reservations may affect politicians’ present resource allocations and worsen elite capture. We first illustrate this issue using a theoretical model in which the allocation of public resources is a trade-off between the incentive of the incumbent to increase their future electoral prospects and their incentive to cater to elites. Using detailed data from India, we then estimate the differences in public resource allocations between term- and non-term-limited village presidents. We find that term-limited presidents provide relatively fewer public goods to heavily populated streets (with many potential votes), and instead allocate more public goods to the streets of the landed elite. We also find that term-limited presidents provide more private benefits to landed households. These findings appear to be driven predominately by term-limited lower-caste presidents. Our findings have important implications for the interpretation of the effects of political reservations and understanding elite capture in rural India.
    Keywords: Term-limits, political reservations, elite capture, public goods, India
    JEL: D72 H41 I38 J18 O18 P16
    Date: 2021–07–15
  3. By: Nounamo, Yann; Asongu, Simplice; Njangang, Henri; Tadadjeu, Sosson
    Abstract: The main contribution of this study is the determination of an endogenous threshold of institutional quality, beyond which external debt would affect economic growth differently. The focus is on 14 countries of the African Franc zone over the period 1985-2015. Based on the panel Smooth Threshold Regression model, the results reveal that the relationship between external debt and economic growth is based on institutional quality. It is found that the level of indebtedness at which the effect of external debt on economic growth becomes negative is higher in countries with lower levels of corruption and high levels of democracy. This means that poor institutional quality prevents a country from taking full advantage of its credit opportunities. Thus, the more countries become democratic, the more debt helps finance economic growth. These results are robust to sensitivity analysis and Generalized Method of Moments estimation.
    Keywords: external debt, political institutions, economic growth
    JEL: E00 O10
    Date: 2021–01
  4. By: Volckart, Oliver
    Abstract: Scholars agree that a core feature of the political style of the Holy Roman Empire was the focus on consensus, without which policies at the level of the Empire were impossible. The present article demonstrates that the consensus on which decisions of the imperial estates was based tended to be superficial and was often in danger of breaking down. This was because the diet’s open and sequential voting procedure allowed the bandwagon effect to distort outcomes. An analysis of the votes cast in the princes’ college of the diet of 1555 shows that low-status members of the college regularly imitated the decisions of high-status voters. Reforming the system would have required accepting that the members of the college were equals – an idea no one was prepared to countenance. Hence, superficial and transitory agreements remained a systematic feature of politics at the level of the Empire.
    Keywords: bandwagon effect; voting; early modern parliamentarism; Holy Roman Empire
    JEL: H11 N43
    Date: 2021–08
  5. By: Rodríguez-Pose, Andrés; Lee, Neil; Lipp, Cornelius
    Abstract: In 2000, Robert Putnam forecast that United States (US) democracy was at risk from the twin challenges of declining civic engagement and rising interpersonal inequality. Sixteen years later, his predictions were vindicated by the election of Donald Trump as president of the US. This paper analyses the extent to which the 2016 election of Donald Trump—and his failed re-election bid in 2020—have been related to levels of social capital and interpersonal inequalities. We posit an alternative: that the rise in votes for Trump has been the result of long-term economic and population decline in areas with strong social capital. This hypothesis is confirmed by the econometric analysis conducted for US counties. Long-term declines in employment and population—rather than in earnings, salaries, or wages—in places with relatively strong social capital propelled Donald Trump to the presidency and almost secured his re-election. By contrast, low social capital and high interpersonal inequality were not connected to a surge in support for Trump. These results are robust to the introduction of control variables and different inequality measures. The analysis also shows that the discontent at the base of the Trump margin is not just a consequence of the 2008 crisis but had been brewing for a long time. Places in the US that remained cohesive but witnessed an enduring decline are no longer bowling alone, they have golfed with Trump and will, in all likelihood, continue to golf with Trumpism or other forms of populism.
    Keywords: populism; social capital; inequality; economic and demographic decline; Donald Trump; USA; 724363; OUP deal
    JEL: D31 D72 O15 R11
    Date: 2021–09–25
  6. By: Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)
    Abstract: In this paper we assess the impact of election uncertainty on financial markets using the almost unique natural experiment provided by the 2020 US presidential election. Overshadowed by the COVID-19 crisis and the corresponding changes in election law and behavior – especially with respect to mail-in voting – the counting process generated huge swings in the expected election outcome. All those were purely driven by counting, i.e. after the voting process was finished, giving us the rare opportunity to observe truly exogenous swings in election risk. We show that election risk has a negative impact on economic expectations and that expectations in favor of Trump did not correlate with the positive economic implications that the literature has demonstrated for previous Republican candidates.
    Keywords: Election risk, high frequency data, COVID-19
    JEL: D72 G12 G41
    Date: 2021–10
  7. By: Joshua Aizenman; Yothin Jinjarak; Hien Nguyen; Ilan Noy
    Abstract: Almost all countries announced fiscal support programs once COVID-19 hit. However, there was significant diversity in the magnitude and composition of these fiscal stimulus programs. These differences were determined by myriad political, financial, social, and economic factors - these factors are our focus. We ask what were the factors that are associated with the structure of the fiscal programs that governments chose to adopt in the early stage of the pandemic in 2020. We answer this question using details about the fiscal programs that were announced by 98 governments in the first six months of the pandemic, together with a large set of explanatory variables. Maybe not surprisingly, we find that politics played a very significant part in determining the size and composition of these fiscal programs. Governments and societies that are less polarized and more capable were able to mobilise more fiscal resources. We also find that it was governments with bigger debt loads that announced bigger programs, but that sovereign spreads were not so clearly associated with the size of these program plans. There is a limit, however, to what we can glean from these cross-country comparisons. Ultimately, the understanding of the politics and political-economy considerations that led to the specific content of each fiscal program will have to rely on information about the actual deliberations in each government’s halls of power, should these ever become public.
    Keywords: Covid-19, fiscal, political economy of fiscal spending, fiscal space
    JEL: H12 H62 H63 H84
    Date: 2021

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