nep-pol New Economics Papers
on Positive Political Economics
Issue of 2021‒12‒20
ten papers chosen by
Eugene Beaulieu
University of Calgary

  1. Local Economic and Political Effects of Trade Deals: Evidence from NAFTA By Jiwon Choi; Ilyana Kuziemko; Ebonya L. Washington; Gavin Wright
  2. The Other Great Migration: Southern Whites and the New Right By Samuel Bazzi; Andreas Ferrara; Martin Fiszbein; Thomas P. Pearson; Patrick A. Testa
  3. Economic Interests, Worldviews, and Identities: Theory and Evidence on Ideational Politics By Elliott Ash; Sharun Mukand; Dani Rodrik
  4. Opening Heaven’s Door: Public Opinion and Congressional Votes on the 1965 Immigration Act By Giovanni Facchini; Timothy J. Hatton; Max F. Steinhardt
  5. COVID-19, Government Performance, and Democracy: Survey Experimental Evidence from 12 Countries By Michael Becher; Nicolas Longuet Marx; Vincent Pons; Sylvain Brouard; Martial Foucault; Vincenzo Galasso; Eric Kerrouche; Sandra León Alfonso; Daniel Stegmueller
  6. Rising Political Populism and Outmigration of Youth as International Students By Murat Demirci
  7. Politically Robust Financial Regulation By Mr. Itai Agur
  8. The Impact of Political Uncertainty on Asset Prices: The Case of the United Kingdom's EU Membership Referendum By Mr. Niels-Jakob H Hansen; Ms. Margaux MacDonald
  9. Inequality and the size of US state government By Weijie Luo
  10. Deindustrialization and Industry Polarization By Michael Sposi; Kei-Mu Yi; Jing Zhang

  1. By: Jiwon Choi; Ilyana Kuziemko; Ebonya L. Washington; Gavin Wright
    Abstract: Why have white, less educated voters left the Democratic Party over the past few decades? Scholars have proposed ethnocentrism, social issues and deindustrialization as potential answers. We highlight the role played by the 1994 North American Free Trade Agreement (NAFTA). In event-study analysis, we demonstrate that counties whose 1990 employment depended on industries vulnerable to NAFTA suffered large and persistent employment losses relative to other counties. These losses begin in the mid-1990s and are only modestly offset by transfer programs. While exposed counties historically voted Democratic, in the mid-1990s they turn away from the party of the president (Bill Clinton) who ushered in the agreement and by 2000 vote majority Republican in House elections. Employing a variety of micro-data sources, including 1992-1994 respondent-level panel data, we show that protectionist views predict movement toward the GOP in the years that NAFTA is debated and implemented. This shift among protectionist respondents is larger for whites (especially men and those without a college degree) and those with conservative social views, suggesting an interactive effect whereby racial identity and social-issue positions mediate reactions to economic policies.
    JEL: D72 F16 H5 J2
    Date: 2021–11
  2. By: Samuel Bazzi; Andreas Ferrara; Martin Fiszbein; Thomas P. Pearson; Patrick A. Testa
    Abstract: This paper provides a novel perspective on the Great Migration out of the U.S. South. Using a shift-share identification strategy, we show how millions of Southern white migrants transformed the cultural and political landscape across America. Counties with a larger Southern white share by 1940 exhibited growing support for right-wing politics throughout the 20th century and beyond. Racial animus, religious conservatism, and localist attitudes among the Southern white diaspora hastened partisan realignment as the Republican Party found fresh support for the Southern strategy outside the South. Their congressional representatives were more likely to oppose politically liberal legislation, such as the Civil Rights Act of 1964, and to object to the Electoral College count in 2021. These migrants helped shape institutions that reinforced racial inequity and exclusion, they shared ideology through religious organizations and popular media, and they transmitted an array of cultural norms to non-Southern populations. Together, our findings suggest that Southern white migrants may have forever changed the trajectory of American politics.
    JEL: D72 J15 J18 N32 P16
    Date: 2021–11
  3. By: Elliott Ash; Sharun Mukand; Dani Rodrik
    Abstract: We distinguish between ideational and interest-based appeals to voters on the supply side of politics, and integrate the Keynes-Hayek perspective on the importance of ideas with the Stigler-Becker approach emphasizing vested interests. In our model, political entrepreneurs discover identity and worldview “memes” (narratives, cues, frames) that shift beliefs about voters’ identities or their views of how the world works. We identify a complementarity between worldview politics and identity politics and illustrate how they may reinforce each other. Furthermore, we show how adverse economic shocks may result in a greater incidence of ideational politics. We use these results to analyze data on 60,000 televised political ads in U.S. localities over the years 2000 through 2018. Our empirical work quantifies ideational politics and provides support for the key model implications, including the impact of higher inequality on both identity and worldview politics.
    JEL: D72 D78
    Date: 2021–11
  4. By: Giovanni Facchini; Timothy J. Hatton; Max F. Steinhardt
    Abstract: The Immigration Act of 1965 marked a dramatic shift in policy and one with major long term consequences for the volume and composition of immigration to the United States. Here we explore the political economy of a reform that has been overshadowed by the Civil Rights and Great Society programs. We find that public opinion was against expanding immigration, but it was more favorable to abolishing the old country of origin quota system. Votes in the House of Representatives and the Senate were more closely linked to opinion on abolishing the country of origin quotas than to public opinion on the volume of immigration. Support for immigration reform initially followed in the slipstream of civil rights legislation both among members of Congress and their constituents. The final House vote, on a more restrictive version of the bill, was instead more detached from state-level public opinion on civil rights and gained more support from those whose constituents wanted to see immigration decreased.
    Keywords: US immigration policy, 1965 Immigration Act, Congressional voting
    JEL: N12 F22 J68
    Date: 2021–12
  5. By: Michael Becher; Nicolas Longuet Marx; Vincent Pons; Sylvain Brouard; Martial Foucault; Vincenzo Galasso; Eric Kerrouche; Sandra León Alfonso; Daniel Stegmueller
    Abstract: Beyond its immediate impact on public health and the economy, the COVID-19 pandemic has put democracy under stress. While a common view is that people should blame the government rather than the political system for bad crisis management, an opposing view is that dissatisfaction with government performance may cause deeper dissatisfaction with democracy even in consolidated democratic regimes. We use a pre-registered survey and experiment covering 12 countries and 22,500 respondents to examine the impact of the pandemic on public attitudes about incumbent governments, the functioning of democracy and support for different types of regimes. To estimate causal effects, we leverage experimental treatments using an instrumental variable design. We find that dissatisfaction with the government, which is equally driven by economic and health considerations, decreases satisfaction with how democracy works. However, it does not translate into an embrace of non-democratic regime types.
    JEL: D72 D83
    Date: 2021–11
  6. By: Murat Demirci (Department of Economics, Koç University)
    Abstract: Populism is on the rise, and democratic rights are deteriorating in many countries as a result of authoritarian policies adopted by populist leaders. This study analyzes how rising political populism in developing countries affects whether their citizens pursue higher education abroad. Applying the Synthetic Control Method, student migration patterns from Hungary, Ukraine, Venezuela, and Indonesia are explored as cases constituting early examples of populism. The estimates show that the rise of populism in these countries increases the number of citizens who attend universities in foreign countries. Limited evidence for worsening higher education options in the origin countries suggests that more students start pursuing foreign education to increase their chances of living abroad after graduation.
    Keywords: International Students, Outmigration of Skilled People, Political Populism, Synthetic Control Method.
    JEL: F22 I23 J24 O15
    Date: 2021–12
  7. By: Mr. Itai Agur
    Abstract: The deferred recognition of COVID-induced losses at banks in many countries has reignited the debate on regulatory forbearance. This paper presents a model where the public's own political pressure drives regulatory policy astray, because the public is poorly informed. Using probabilistic game stages, the model parameterizes how time consistent policy is. The interaction between political motivations and time consistency is novel and complex: increased policy credibility can entice the politically-motivated regulator to act in the public's best interest, or instead repel it from doing so. Considering several regulatory instruments, the paper probes the nexus of political pressure, perverse bank incentives and time inconsistent policy.
    Keywords: Time inconsistency;Political economy;Financial stability;Bank regulation.;WP;risk profile;bank risk;bank insolvency;bank owner
    Date: 2021–01–08
  8. By: Mr. Niels-Jakob H Hansen; Ms. Margaux MacDonald
    Abstract: How did expectations of the outcome of the United Kingdom's (UK) referendum on European Union (EU) membership in 2016 affect prices in financial markets? We study this using high frequency data from betting and financial markets. We find that a one percentage point increase in the probability of "Leave" result caused British stocks (FTSE All-Share) to decline by 0.004 percent, and the Pound to depreciate by 0.006 percent against the euro. We find negative and significant effects for most sub-sectors, and negative spill-overs to other EU member countries. We show that the differential impact across sectors and countries can be explained by differences in the trade exposures.
    Keywords: Brexit; EU referendum; political uncertainty; high frequency data.
    Date: 2021–02–05
  9. By: Weijie Luo (Central University of Finance and Economics)
    Abstract: The median voter theory of government size argues that increased income inequality brings about greater demand for redistribution (Meltzer and Richard, 1981). However, this prediction is rejected empirically using US state-level data. Following Luo (2020), with the twist that income inequality is engendered from differences in capital income as well as differences in labor productivity, the purpose of this paper is to analyze how income inequality affects the size of US state government. Inequality induced by differences in capital income, derived from the Panel Study of Income Dynamics data, is found to be negatively associated with state government size. Moreover, this paper shows that capital income inequality plays a key role in poor states, whilst labor income inequality does in rich places regarding the explanation of the change in state government.
    Keywords: capital income, labor income, inequality, size of government
    JEL: D78 E62 H10
    Date: 2021–12
  10. By: Michael Sposi; Kei-Mu Yi; Jing Zhang
    Abstract: We add to recent evidence on deindustrialization and document a new pattern: increasing industry polarization over time. We assess whether these patterns can be explained by a dynamic open economy model of structural change in which the two primary driving forces are sector-biased productivity growth and sectoral trade integration. We calibrate the model to the same countries used to document our patterns. We find that sector-biased productivity growth is important for deindustrialization, and sectoral trade integration is important for industry polarization through specialization. The interaction of these two driving forces is also essential. The key transmission channel is the declining relative price of manufacturing goods to services over time.
    JEL: F11 F43 O11 O41
    Date: 2021–11

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