nep-pol New Economics Papers
on Positive Political Economics
Issue of 2021‒12‒06
eight papers chosen by
Eugene Beaulieu
University of Calgary

  1. Air Pollution Affects Decision-Making: Evidence from the Ballot Box By Bellani, Luna; Ceolotto, Stefano; Elsner, Benjamin; Pestel, Nico
  2. The Rise and Fall of Social Democracy, 1918-2017 By Nicola Mastrorocco; Simon Hix; Giacomo Benedetto
  3. Austerity and Elections By Davide Furceri; Gabriele Ciminelli; Giorgio Saponaro; Mr. Alberto Alesina
  4. Read My Lips? Taxes and Elections By Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt
  5. The Political Economy of Agricultural Trade Policy in Northeast Asia: Comparisons with the West and between Japan and Korea By Moon, Wanki; Sakuyama, Takumi
  6. Democratic Political Economy of Financial Regulation By Igor Livshits; Youngmin Park
  7. Financial crises and political radicalization: How failing banks paved Hitler's path to power By Sebastian Doerr; Stefan Gissler; Jose-Luis Peydro; Hans-Joachim Voth
  8. Are Climate Change Policies Politically Costly? By Davide Furceri; Michael Ganslmeier; Mr. Jonathan David Ostry

  1. By: Bellani, Luna (University of Konstanz); Ceolotto, Stefano (Trinity College Dublin); Elsner, Benjamin (University College Dublin); Pestel, Nico (ROA, Maastricht University)
    Abstract: Does poor air quality affect decision-making? We study this question based on elections, in which millions of people decide on the same issue on the same day in different locations. We use county-level data from 64 federal and state elections in Germany over a nineteen-year period and exploit plausibly exogenous variation in ambient air pollution within counties across election dates. Our results show that a high concentration of particulate matter (PM10) on an election day significantly affects voting behavior. An increase in the concentration of PM10 by 10μg/m3 – around two within-county standard deviations – reduces the vote share of the incumbent by 2 percentage points and increases the vote share of the established opposition by 2.8 percentage points. These are strong effects, equivalent to 4% and 7% of the respective mean vote shares. We generalize these findings by documenting similar effects with data from a weekly opinion poll and a large-scale panel survey. We provide further evidence that emotions are a likely mechanism: the survey data show that poor air quality leads to greater anxiety and unhappiness, which may reduce the support for the political status quo.
    Keywords: pollution, decisions, voting
    JEL: D70 D72 D91 Q53
    Date: 2021–09
  2. By: Nicola Mastrorocco (Department of Economics, Trinity College Dublin); Simon Hix (London School of Economics); Giacomo Benedetto (Royal Holloway London)
    Abstract: We describe the electoral history of one of Europe's most successful party families over the past 100 years in 31 countries. With a unique and newly collected dataset of national election results, and a large number of economic and social variables measured for each country-election observation, we find that two main factors drive the electoral performance of social democratic parties: public sector spending, and the size of the manufacturing sector. We investigate these results further with an analysis of individual-level voting behaviour, using the European Social Surveys from 2002 to 2016. Together, our findings suggest that most of the fall in support for social democratic parties in recent years is correlated with a decline in the number of industrial workers as well as a reduction in the propensity of social democratic parties' core supporters (industrial workers and public sector employees) to vote for them.
    Keywords: Social Democracy, Elections, Political economy
    JEL: K42 H72
    Date: 2019–12
  3. By: Davide Furceri; Gabriele Ciminelli; Giorgio Saponaro; Mr. Alberto Alesina
    Abstract: Conventional wisdom holds that voters punish governments that implement fiscal austerity. Yet, most empirical studies, which rely on ex-post yearly austerity measures, do not find supportive evidence. This paper revisits the issue using action-based, real-time, ex-ante measures of fiscal austerity as well as a new database of changes in vote shares of incumbent parties. The analysis emphasizes the importance of the ‘how’—whether austerity is done via tax hikes or expenditure cuts—and the ‘who’—whether it is carried out by left- vs. right-leaning governments. Our main finding is that tax-based austerity carries large electoral costs, while the effect of expenditure-based consolidations depends on the political-leaning of the government. An austerity package worth 1% of GDP, carried out mostly through tax hikes, reduces the vote share of the leader’s party by about 7%. In contrast, expenditure-based austerity is detrimental for left- but beneficial for right-leaning governments. We also find that the electoral cost of austerity—especially tax hikes—can be contained if it is implemented during good economic times.
    Keywords: austerity package; expenditure cut; yearly austerity; construction of Austerity variable; economy to Austerity; Tax expenditures; Government debt management
    Date: 2021–04–30
  4. By: Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt
    Abstract: We introduce a new dataset that includes quantitative harmonized indices of tax reforms based on qualitative information of about 900 Economic Surveys from the OECD and 37,000 tax-related news from the IBFD archives. The data set provides indicators on tax reforms for tax rates and tax bases, along with detailed sub-indices for six types of taxes (23 countries, 1960–2014). Relating tax reforms to the timing of elections, we examine electoral cycles in tax reforms. Our results show that politicians postpone tax rate increases to after elections. A key innovation of our data set is the coverage of harmonized indices for six tax types. Examining heterogeneity across tax types, we find that electoral cycles are particularly pronounced for value added tax rates and personal income tax rates.
    Date: 2021
  5. By: Moon, Wanki; Sakuyama, Takumi
    Keywords: International Relations/Trade, Political Economy
    Date: 2021–08
  6. By: Igor Livshits; Youngmin Park
    Abstract: This paper offers a simple theory of inefficiently lax financial regulation arising as an outcome of a democratic political process. Lax financial regulation encourages some banks to issue risky residential mortgages. In the event of an adverse aggregate housing shock, these banks fail. When banks do not fully internalize the losses from such failure (due to limited liability), they offer mortgages at less than actuarially fair interest rates. This opens the door to home ownership for young, low net-worth individuals. In turn, the additional demand from these new home-buyers drives up house prices. This leads to a non-trivial distribution of gains and losses from lax regulation among households. On the one hand, renters and individuals with large non-housing wealth suffer from the fragility of the banking system. On the other hand, some young, low net-worth households are able to get a mortgage and buy a house, and current (old) home-owners benefit from the increase in the price of their houses. When these latter two groups, who benefit from the lax regulation, constitute a majority of the voting population, then regulatory failure can be an outcome of the democratic political process.
    Keywords: Financial stability; Financial system regulation and policies; Housing; Interest rates
    JEL: E44 E63 G12
    Date: 2021–11
  7. By: Sebastian Doerr; Stefan Gissler; Jose-Luis Peydro; Hans-Joachim Voth
    Abstract: Do financial crises radicalize voters? We study Germany's 1931 banking crisis, collecting new data on bank branches and firm-bank connections. Exploiting cross- sectional variation in pre-crisis exposure to the bank at the center of the crisis, we show that Nazi votes surged in locations more affected by its failure. Radicalization in response to the shock was exacerbated in cities with a history of anti- Semitism. After the Nazis seized power, both pogroms and deportations were more frequent in places affected by the banking crisis. Our results suggest an important synergy between financial distress and cultural predispositions, with far-reaching consequences.
    Keywords: financial crisis, political extremism, populism, anti-Semitism, culture, Great Depression
    JEL: E44 G01 G21 N20 P16
    Date: 2021–11
  8. By: Davide Furceri; Michael Ganslmeier; Mr. Jonathan David Ostry
    Abstract: Are policies designed to avert climate change (Climate Change Policies, or CCPs) politically costly? Using data on governmental popular support and the OECD’s Environmental Stringency Index, we find that CCPs are not necessarily politically costly: policy design matters. First, only market-based CCPs (such as emission taxes) generate negative effects on popular support. Second, the effects are muted in countries where non-green (dirty) energy is a relatively small input into production. Third, political costs are not significant when CCPs are implemented during periods of low oil prices, generous social insurance and low inequality.
    Keywords: EPS change; policy design; Policy implication; popular support; baseline model; Climate change; Climate policy; Fuel prices; Environmental policy; Natural disasters; Global
    Date: 2021–06–04

This nep-pol issue is ©2021 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.