nep-pol New Economics Papers
on Positive Political Economics
Issue of 2022‒12‒12
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Powers That Be? Political Alignment, Government Formation, and Government Stability By Felipe Carozzi; Davide Cipullo; Luca Repetto
  2. UFOs: The Political Economy of Unidentified Threats By Kitamura, Shuhei
  3. Trust We Lost: The Impact of the Treuhand Experience on Political Alienation in East Germany By Kim Leonie Kellermann
  4. Financing UK democracy : A stocktake of 20 years of political donations By Draca, Mirko; Green, Colin; Homroy, Swarnodeep
  5. Politics and Income Taxes: Progress and Progressivity By Marcus Berliant; Pierre C. Boyer
  7. Populism and the Skill-Content of Globalization: Evidence from the Last 60 Years By Frédéric Docquier; Lucas Guichard; Stefano Iandolo; Hillel Rapoport; Ricardo Turati; Gonzague Vannoorenberghe
  8. Stock Liquidity and Firm-Level Political Risk By Kuntal K. Das; Mona Yaghoubi
  9. Electoral Campaigns as Dynamic Contests By Avidit Acharya; Takuo Sugaya; Eray Turkel
  10. ‘Tiger-Hunting’ and Life Satisfaction: A Matter of Trust By Youxing Zhang; Peter Howley; Clemens Hetschko
  11. Income Misperception and Populism By Thilo N. H. Albers; Felix Kersting; Fabian Kosse
  12. Government Effectiveness, Economic Growth, Religion and the Socio-Political Role of the Middle Class in Bangladesh By Mia, Rubel; Tao, Jill L.; Anderson, Chad
  13. A Baseline Model of Behavioral Political Cycles and Macroeconomic Fluctuations By Corrado Di Guilmi; Giorgos Galanis; Christian R. Proaño
  14. Behind Every Good Lie is a Grain of Truth: Deriving Identity-based Demand for Disinformation in Moldova and Taiwan Using GIS Applications By Kurata, Katherine
  15. Buying off the revolution: Evidence from the colombian national peasant movement, 1957-1985 By María del Pilar López-Uribe
  16. Who Protests, What Do They Protest, and Why? By Chenoweth, Erica; Hamilton, Barton H.; Lee, Hedwig; Papageorge, Nicholas W.; Roll, Stephen; Zahn, Matthew V.

  1. By: Felipe Carozzi; Davide Cipullo; Luca Repetto
    Abstract: We study how partisan alignment across levels of government affects coalition formation and government stability using a regression discontinuity design and a large dataset of Spanish municipal elections. We document a positive effect of alignment on both government formation and stability. Alignment increases the probability that the most-voted party appoints the mayor and decreases the probability that the government is unseated during the term. Aligned parties also obtain sizeable electoral gains in the next elections over unaligned ones. We show that these findings are not the consequence of favoritism in the allocation of transfers towards aligned governments.
    Keywords: government stability, government formation, political alignment, inter-governmental relations
    JEL: D72 H20 H77
    Date: 2022
  2. By: Kitamura, Shuhei
    Abstract: In this paper, I study the effect of Unidentified Flying Objects (UFOs) on political outcomes in the United States. Exploiting a random variation in the visibility of UFOs in the sky, I find that UFO sightings before general elections between 2000-2016 increased the vote share of the Republican presidential candidates. I also find that UFO sightings led voters to believe that the government should increase federal spending on military defense and on technology and science, although the latter effect was marginal. The results indicate that voters regard UFOs as unidentified threats to national security that warrant further defense enhancements and scientific research.
    Date: 2022–07–29
  3. By: Kim Leonie Kellermann
    Abstract: Do politically administered mass layoffs undermine trust and political interest? During the German reunification, formerly state-owned socialist firms in East Germany were privatized by the Treuhand, which came at the cost of massive job losses and public protest. I demonstrate that these activities had a detrimental effect on attitudes and political behavior of the affected individuals. Using survey data from the German Socio-economic Panel and election results, I find that East Germans who lost their jobs exhibit significantly lower trust levels, lower political interest and a lower identification with mainstream democratic parties, even up to 30 years after reunification. I corroborate the causality of the results using fixed-effects estimations and a placebo analysis, which fails to explain political disenchantment by reasons other than the Treuhand experience. I interpret the findings as the persistent, negative effect of perceived political mismanagement during a crucial phase of economic transition on long-run political identification.
    Keywords: East Germany, trust, political alienation, privatization, radical voting
    JEL: D72 E24 L33
    Date: 2022
  4. By: Draca, Mirko (University of Warwick, Department of Economics & CAGE); Green, Colin (Norwegian University of Science and Technology, Department of Economics & IZA); Homroy, Swarnodeep (University of Groningen, Department of Economics, Econometrics and Finance)
    Abstract: Political donations in the UK have been subject to comprehensive disclosure since 2001. We study the data produced as part of this disclosure policy to evaluate the role of private and public political finance over time. Total political donations have grown by 250% since 2001, reaching over £100 million in real terms for the first time in 2019. This increase has been driven by donations from private individuals, who now account for approximately 60% of donations in election years compared to 40-50% up to the late 2010s. Furthermore, ‘superdonors’ (those contributing more than £100,000) have been a prominent driver of the rise, increasing their own share from approximately 36% in 2017 to 46% in 2019. We also show that private donations to Labour fell sharply in the final stages of Jeremy Corbyn’s leadership. Overall, these trends have benefited the Conservative Party, leading to an historic resource gap between the two main parties emerging circa 2019. We calculate that the ‘resource gap’ between parties now stands at approximately £27 million compared to an historic average of £8-10 million (even when taking account of publicly-funded ‘Short’ money provided to the Opposition).
    Keywords: Political Connections ; Political Donations JEL Codes: D72
  5. By: Marcus Berliant; Pierre C. Boyer
    Abstract: This paper begins with a survey of the literature on the political economy approaches to labor income taxation. We focus on recent progress made by examining in detail the specific properties of non-linear taxes derived in the context of voting. Next, we present new results on the existence of majority voting equilibrium that unify work in the standard framework. Finally, we discuss how recent theoretical results help us uncover empirical patterns from the last 50 years in the US tax system, namely a sharp decrease in top marginal tax rates, the rise of the Earned Income Tax Credit (EITC), and increased progressivity in the middle of the income distribution.
    Keywords: non-linear income taxation, tax reform, political economy, optimal taxation, EITC
    JEL: C72 D72 D82 H21
    Date: 2022
  6. By: Tamilina, Larysa
    Abstract: This study focuses on comparing the identity formation processes between Ukraine and Russia. Drawing upon recent findings on the diversity of ethnicities, this analysis distinguishes between national, civic, and social identity types. World Values data are used to demonstrate that each of these identities is significantly influenced by the political values and preferences of the respondents. To define the political dimension, I discuss the contrasts between the two countries in terms of their political systems and dominant narratives of nationalism. My results suggest that of the wide range of the selected predictors, the value of voting, past participation in national elections, intolerance to control, and greater trust in the press essentially increase the likelihood of opting for Ukraine for at least one of the chosen identities. For Russia, strong evidence supports the current discourse on the imperial vision. My analysis demonstrates that individuals are more likely to identify themselves with Russia if they display greater trust in the government and support more authoritarian methods of governance such as tolerating surveillance and restrictions on freedom.
    Keywords: Ethnic identity, civil identity, social, identity, Ukraine, the WVS, political factors of identification
    JEL: Z10
    Date: 2022–10–30
  7. By: Frédéric Docquier; Lucas Guichard; Stefano Iandolo; Hillel Rapoport; Ricardo Turati; Gonzague Vannoorenberghe
    Abstract: We analyze the long-run evolution of populism and explore the role of globalization in shaping such evolution. We use an imbalanced panel of 628 national elections in 55 countries over 60 years. A first novelty is our reliance on both standard (e.g., the ”volume margin”, or vote share of populist parties) and new (e.g., the ”mean margin”, a continuous vote-weighted average of populism scores of all parties) measures of the extent of populism. We show that levels of populism in the world have strongly fluctuated since the 1960s, peaking after each major economic crisis and reaching an all-time high – especially for right-wing populism in Europe – after the great recession of 2007-10. The second novelty is that when we investigate the ”global” determinants of populism, we look at trade and immigration jointly and consider their size as well as their skill-structure. Using OLS, PPML and IV regressions, our results consistently suggest that populism responds to globalization shocks in a way which is closely linked to the skill structure of these shocks. Imports of low-skill labor intensive goods increase both total and right-wing populism at the volume and mean margins, and more so in times of de-industrialization and of internet expansion. Low-skill immigration, on the other hand, tends to induce a transfer of votes from left-wing to right-wing populist parties, apparently without affecting the total. Finally, imports of high-skill labor intensive goods, as well as high-skill immigration, tend to reduce the volume of populism.
    Keywords: elections, populism, immigration, trade
    JEL: D72 F22 F52 J61
    Date: 2022
  8. By: Kuntal K. Das (University of Canterbury); Mona Yaghoubi (University of Canterbury)
    Abstract: Exploiting a novel measure of firm-level political risk based on earnings conference calls, we examine the effect of firm-level political risk on stock liquidity. We show that liquidity decreases significantly more in firms that are exposed to political risk. An increase in firm-level political risk by one standard deviation lowers liquidity by around 3.64%. We further investigate whether the effect of firm-level political risk on stock liquidity can be mitigated or exacerbated by the political environment of the U.S. economy and find some evidence of the Democratic liquidity premium. Our results are robust to alternative measures of (il)liquidity, and an estimation method.
    Keywords: Stock liquidity, political risk
    JEL: G11 G14
    Date: 2022–11–01
  9. By: Avidit Acharya (Stanford University, and the Hoover Institution Author-Name: Edoardo Grillo; University of Padova); Takuo Sugaya (Stanford University); Eray Turkel (Stanford University)
    Abstract: We develop a model of electoral campaigns as dynamic contests in which two office-motivated candidates allocate their budgets over time to affect their odds of winning. We measure the candidates’ evolving odds of winning using a state variable that tends to decay over time, and we refer to it as the can- didates’ “relative popularity.†In our baseline model, the equilibrium ratio of spending by each candidate equals the ratio of their initial budgets; spending is independent of past realizations of relative popularity; and there is a positive relationship between the strength of decay in the popularity process and the rate at which candidates increase their spending over time as election day ap- proaches. We use this relationship to recover estimates of the perceived decay rate in popularity leads in actual U.S. subnational elections.
    Keywords: campaigns, dynamic allocation problems, contests
    Date: 2022–11
  10. By: Youxing Zhang; Peter Howley; Clemens Hetschko
    Abstract: Governments will often look to publicly signal their efforts to tackle issues of concern as a way of garnering political support. Combining data on the public disclosure of anti-corruption efforts and individual well-being in China, we show that such signals may increase the salience of the issue in question and hence diminish the life satisfaction of citizens with low political trust. For citizens with high trust, such signals appear to enhance life satisfaction. This means that signalling efforts may have unintended negative consequences on population well-being and thus political support, particularly when faced with low political trust.
    Keywords: corruption, life satisfaction, political trust, signalling theory, confirmation bias
    JEL: D73 I31 P48 O17
    Date: 2022
  11. By: Thilo N. H. Albers; Felix Kersting; Fabian Kosse
    Abstract: We propose that false beliefs about the own current economic status are an important factor for explaining populist attitudes. Along with the subjects’ receptiveness to right-wing populism, we elicit their perceived relative income positions in a representative survey of German households. We find that people with pessimistic beliefs about their income position are more attuned to populist statements. Key to understanding the misperception-populism relationship are strong gender differences in the mechanism: Misperception triggers income dissatisfaction for both men and women, but the former are much more likely to channel their discontent into affection for populist ideas.
    Keywords: perception, income, populism
    JEL: D63 D72 D91 P16
    Date: 2022
  12. By: Mia, Rubel; Tao, Jill L.; Anderson, Chad
    Abstract: The objectives of the study are to develop an understanding of major changes such as the effectiveness of government, economic growth, religion, and the socio-political role of the middle-class people that have taken place in the society and politics of Bangladesh over the last few years. Apart from that this study also intends to analyze the crisis of the democratic system in Bangladesh and the widespread influence of religion on politicians of the society. In addition to that, the context of the developments of economic growth in Bangladesh has been significant over the last few decades, which has helped in the emergence and development of a new middle class in the country. In the past, it has been said theoretically and in the light of the experience of different countries that economic growth and development of the middle class simultaneously strengthen democracy and reduce the political appeal of religion in society and politics. All in all, this study attempted to present some hypotheses on the particular issues of Bangladesh.
    Date: 2022–09–04
  13. By: Corrado Di Guilmi; Giorgos Galanis; Christian R. Proaño
    Abstract: Although the rational choice approach remains the theoretical modeling paradigm in economics and political sciences, the relevance of behavioral factors such as heuristics and biases has been increasingly acknowledged in both fields over the last decades. Against this background, and in honor the lifetime work of Peter Flaschel, we set up a baseline political-macroeconomic model of the Keynes-Metzler-Goodwin (KMG) variety enhanced with endogenous political choices as in Di Guilmi and Galanis (2021). The mutual feedback between the political and the macroeconomic spheres, generated by our framework, gives rise to cyclical dynamics around moving long-term trends for certain parameter constellations. The results of both the stability analysis and the simulations illustrate the existence of multiple political equilibria in the presence of endogenous electoral presences resulting from the crucial role of income distribution not only as a determinant of aggregate investment and aggregate output, but also, of the political climate.
    Keywords: Behavioral Macroeconomics, Disequilibrium, Discrete Choices, Macroeconomic Fluctuations, Political Cycles, Polarization
    JEL: D5 E3 H2
    Date: 2022–11
  14. By: Kurata, Katherine
    Abstract: Despite an ecosystem of falsehoods propagated by the People's Republic of China (PRC), Taiwanese citizens re-elected the pro-independence candidate Tsai Ing-wen as their president for a second term on January 11, 2020. Several months later, on November 15, Maia Sandu, a Harvard-educated economist who supports closer ties with the European Union, won Moldova's presidential election against a tapestry of false information favoring pro-Moscow incumbent President Igor Dodon. The proliferation of disinformation in Moldova and Taiwan should cripple to the electoral processes of these young democracies. The victories of President Tsai and President Sandu suggest that there are limits to which targeted foreign disinformation can disrupt, divide, confuse, or otherwise damage political cohesion or a target audience's understanding of reality; signifying that the pre-existing belief systems and social networks can play a pivotal role in constraining the natural flow of disinformation within a society. While the technological tools have evolved, the use of political disinformation-the purposeful use of misleading or manipulative information to subvert political discourse and confuse, divide, or negatively influence the public-is not a new phenomenon (Woolley & Joseff, 2020). Modern-day states, like China and Russia, have used disinformation campaigns to achieve their strategic objectives. Russian military intelligence materials state, "Psychological warfare has existed as long as man himself" (Kovalev, 2017). During the Cold War, Soviet policy integrated disinformation and malign influence operations, involving the Communist Party and state structure. In 1937, China established the United Front Work Department (UFWD), directing heterodox and hybrid means to conduct influence operations targeting foreign actors and states that oppose the policies and authority of its ruling Chinese Communist Party (CCP) (Bowe, 2018). At present, the UFWD's work enshrines former Chairman Mao Zedong's doctrine: "Anyone wanting to overthrow a political regime must create public opinion and do some preparatory ideological work" (Mao, 1974). (...)
    Date: 2022
  15. By: María del Pilar López-Uribe
    Abstract: This paper shows that franchise extension is not enough for commitment to redistribution and that in the absence of de facto empowerment, the threat of revolution is intact. In particular, the paper studies the relationship between a democratic reform that extends the political rights of a threatening group and redistribution during periods of revolutionary threat. Far from causing an increase in broad redistribution (e.g. social spending), I show that democratic reform -the state organization of a social movement that extends political rights- can be used to identify rebel leaders and provide private goods to them, in return for preventing social unrest and demobilizing their supporters. I study the context of the organization by the state of the most important social movement in Colombian history -the National Peasant Movement (ANUC)- over almost three decades (1957-1985), in which the threat of a Communist Revolution was perennial and throughout which the government gave ANUC direct political participation at the local level in the executive branch and economic support. Using three newly digitized data sets of Colombian municipalities, I find that rather than leading to broad redistribution to the benefit of the peasantry, the reform instead led to an increase in targeted redistribution in terms of public jobs and lands. In particular, by matching the names of the peasant leaders to the beneficiaries of the land reform, evidence suggests that peasant leaders disproportionately benefited from land reform, especially in municipalities where the communist threat was higher. Finally, I find suggestive evidence that buying off the rebel leaders was an effective counter-revolutionary strategy as it led to fewer revolutionary activities after the support of ANUC was terminated (1972-1985).
    Keywords: Threat of Revolution, Democratic Reform, Redistribution, Social Movements, Political Empowerment, Conflict.
    JEL: D70 H76 H41 N46
    Date: 2022–11–15
  16. By: Chenoweth, Erica (Harvard Kennedy School); Hamilton, Barton H. (Washington University, St. Louis); Lee, Hedwig (Washington University, St. Louis); Papageorge, Nicholas W. (Johns Hopkins University); Roll, Stephen (Washington University, St. Louis); Zahn, Matthew V. (Johns Hopkins University)
    Abstract: We examine individuals' decision to attend Black Lives Matter protests and demonstrations calling for less stringent public health measures to combat COVID-19 (e.g., for swifter reopening of businesses). Our analysis is facilitated by a unique staggered panel data set originally constructed to study the socioeconomic impacts of COVID-19. A wave of data collected in the summer of 2020 was expanded to capture details about protest attendance, political views, and support for different movements. We find that protests may provide novel and policy relevant information about potentially widely-held and mainstream social preferences that are obscured by extremist politics. We present evidence that protesters are a diverse yet representative part of the population and that the decision to protest is deliberate in the sense that it is responsive to incentives and issue salience. We also provide novel evidence of movement overlap – attending a Black Lives Matter protest is associated with a higher likelihood of attending a protest calling for fewer public health restrictions. This finding counters typical narratives characterizing these two protest movements as diametrically opposed. In a political landscape dominated by the voices of extremists, our findings suggest we can draw a line between recent protest behavior and a less radical and less extreme majority (sometimes called the "exhausted" majority) that espouses more nuanced views than the politicians, policymakers and institutions that are supposed to represent them.
    Keywords: protest, Black Lives Matter (BLM), reopening, COVID-19
    JEL: H00 H8 Z10
    Date: 2022–11

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