nep-pol New Economics Papers
on Positive Political Economics
Issue of 2023‒12‒04
eight papers chosen by
Eugene Beaulieu, University of Calgary

  1. Partisan Alignment, Insurgency and Security: Evidence from the Indian Red-corridor By Ashani Amarasinghe; Pushkar Maitra; Yuchen Zhong
  2. Partisan Traps By Ethan Bueno de Mesquita; Wioletta Dziuda
  3. Heterogeneous Districts, Interests, and Trade Policy By Kishore Gawande; Pablo Pinto; Santiago Pinto
  4. Political adverse selection By Leonardo Bursztyn; Jonathan Kolstad; Aakaash Rao; Pietro Tebaldi; Noam Yuchtman
  5. Politicians, Trust, Financial Literacy and Financial Education: When Do Politicians Care? By Donato Masciandaro
  6. Beyond the Threshold: How Electoral Size-Dependent Uncertainty Affects Majority Determination By Giuseppe Attanasi; Anna Maffioletti; Giulia Papini; Patrizia Sbriglia; Maria Luigia Signore
  7. Analyzing the Effects of Openness and Political Variables on FDI in Indonesia By Niramaya Laksmitaningtyas; Wisnu Setiadi Nugroho
  8. Can Social Pressure Stifle Free Speech By Juan S. Morales, Margaret Samahita

  1. By: Ashani Amarasinghe (School of Economics, University of Sydney and and SoDa Laboratories, Monash University;); Pushkar Maitra (Department of Economics, Monash University); Yuchen Zhong (Melbourne Institute of Applied Economics and Social Research, University of Melbourne)
    Abstract: Better economic outcomes can prevail when governments at different levels of hierarchy are politically aligned. This often happens because upper level governments are more willing to transfer resources to, and invest in public goods in, aligned constituencies. In this paper we examine whether such political alignment causally affects security. We consider the case of the Naxalite insurgency in India, an issue of significant public safety and security. We focus on close elections and use a regression discontinuity (RD) design, which allows us to examine the causal impact of electing an aligned candidate on security. Our RD estimates show that the election of an aligned candidate leads to a significant reduction in violence. Examining the role of local natural resource activity, i.e., mining, as an underlying mechanism, we find that this negative effect is driven by constituencies close to mining areas. These findings confirm the relevance of political alignment in delivering security within constituencies, and the potential role played by local mining activity.
    Keywords: Political alignment, Naxalite insurgency, security, India
    JEL: H11 H41 H56 D72
    Date: 2023–11
  2. By: Ethan Bueno de Mesquita; Wioletta Dziuda
    Abstract: Electoral incentives may lead policymakers to eschew opportunities for common-interest reform, focusing instead on zero-sum, partisan policymaking. By forgoing opportunities for common-interest reforms, incumbents may convince their constituents that such reforms are rarely feasible, so that policymaking is primarily about zero-sum, partisan conflict. Voters with such beliefs vote based on ideological alignment, rather than factors such as quality or honesty. This is electorally beneficial for incumbents, who are typically ideologically aligned with their constituents. We capture this logic in an infinite horizon model and characterize the resulting dynamics of politics and policymaking. Equilibrium exhibits partisan traps---voters are pessimistic about common-interest opportunities, politicians behave in a purely partisan manner that shuts down voter learning, and ideologically aligned incumbents are consistently reelected. Partisan traps often occur in equilibrium even when common-interest reforms are in fact frequently feasible. The model shows how elite and mass polarization are intertwined, with politicians engaging in strategically polarized and polarizing behavior which leads to pessimistic beliefs among voters, who come to perceive there to be little political common ground.
    JEL: D0 P0
    Date: 2023–11
  3. By: Kishore Gawande; Pablo Pinto; Santiago Pinto
    Abstract: Congressional districts are political entities with heterogeneous trade policy preferences due to their diverse economic structures. Representation of these interests in Congress is a crucial aspect of trade policymaking that is missing in canonical political economy models of trade. In this paper, we underscore the influence of districts by developing a political economy model of trade with region-specific factors. Using 2002 data from U.S. Congressional Districts, we first characterize the unobserved district-level demand for protection. Extending the model beyond the small country assumption to account for export interests as a force countering protection, we develop a model of national tariff-setting. The model predictions are used to estimate the welfare weights implied by tariff and non-tariff measures enacted nationally. Our supply-side explanation for trade policy, while complementing Grossman and Helpman (1994), reveals district and industry-level patterns of winners and losers, central to understanding the political consequences of trade and the backlash against globalization.
    Keywords: Trade Policy; Political Economy; Districts; Tariffs; NTMs; Legislature
    JEL: F13 F14 D72 D78
    Date: 2023–03
  4. By: Leonardo Bursztyn; Jonathan Kolstad; Aakaash Rao; Pietro Tebaldi; Noam Yuchtman
    Abstract: We study how the politicization of policies designed to correct market failures can undermine their effectiveness. The Patient Protection and Affordable Care Act (ACA) was among the most politically divisive expansions of the US government. We examine whether partisanship distorted enrollment and market outcomes in the ACA insurance marketplaces. Controlling for observable characteristics and holding fixed plans and premiums available, Republicans enrolled less than Democrats and independents in ACA marketplace plans. Selection out of the ACA marketplaces was strongest among Republicans with lower expected healthcare costs, generating adverse selection. Computing enrollment and average cost with and without partisan differences, we find that this political adverse selection reduced enrollment by around three million people and raised average costs in the marketplaces, increasing the level of public spending necessary to provide subsidies to low-income enrollees by around $105 per enrollee per year. Lower enrollments and higher costs are concentrated in more Republican areas, potentially contributing to polarized views of the ACA.
    Keywords: politicization, policies, marketplace, adverse
    Date: 2022–07–12
  5. By: Donato Masciandaro
    Abstract: Politicians can be more or less active in pursuing financial education policies in order to strength the financial literacy of the citizens, and consequently their trust. This paper explores the role of financial education policy in modifying the financial-trust endowment of a given population taking the political cost-benefit analysis into account. As, in any period, each incumbent government can design and implement its own financial education policy and as financial-literacy deficits are more likely in a period of financial innovation, we assume that constituencies more or l ess in favour of such policies are present in a given country. If this is the case, we can show that, in a democracy with political competition, the level of activism in implementing financial education policies is positively associated with financial-instability risks, literacy benefits, and illiteracy costs. Moreover, preferences and constraints motivate the politician in charge. More specifically, a more longer time horizons, lower psychological attitudes towards the status quo, and a higher probability of re-election can increase financial-literacy efforts.
    Keywords: financial literacy, financial education, financial trust, fintech, financial crisis, loss aversion, political competition
    JEL: D72 G28 G53 H10 K00
    Date: 2023
  6. By: Giuseppe Attanasi (Sapienza University of Rome, Italy; BETA, University of Strasbourg, France; Université Côte d'Azur, CNRS, GREDEG, France); Anna Maffioletti (Università degli Studi di Torino); Giulia Papini (Università degli Studi di Torino); Patrizia Sbriglia (Università degli Studi della Campania "Luigi Vanvitelli"); Maria Luigia Signore (Sapienza University of Rome, Italy)
    Abstract: The determination of a majority threshold in any voting system can be influenced by voters' attitudes towards uncertainty. Traditionally, a higher majority threshold is associated with a risk-averse attitude, serving as a means to protect against the tyranny of the majority. Moreover, the absence of ex-ante information regarding the likelihood of the voting outcome introduces a further layer of uncertainty, that of ambiguity, which motivates decision-makers to seek increased protection. In this study, we first provide a thorough formalization of this theoretical prediction, relying on a second-order expected utility model with both risk and ambiguity aversion of the voter toward the voting lottery. Second, we experimentally test its predictions by integrating the majority threshold implication into traditional experiments for risk and ambiguity elicitation. Through a series of classroom experiments run on 2020-2023 (about 1, 100 subjects in Italy & France), we analyze how individuals, placed under varying conditions of uncertainty, react to the determination of a barrier threshold. We find a strong correlation between the number of voters and the chosen quorum for a majority: as each subject is only aware of her own voting preference, expanding the electoral base results in a more ambiguous probability about the outcome. This favors more conservative behavior and results in an upward adjustment of the majority threshold.
    Keywords: voting lottery, majority threshold, risk and ambiguity attitude, theory-driven experiment
    JEL: D72 D81 C91
    Date: 2023–06
  7. By: Niramaya Laksmitaningtyas (Central Bank of Indonesia, Bangka Belitung Province Representatative Office); Wisnu Setiadi Nugroho (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)
    Abstract: To recognize the importance of investment flows as one of the components of development, ASEAN member countries have created the ASEAN Economic Community (AEC) 2015 blueprint as guidelines for setting up a free and open investment regime in ASEAN. The enactment of AEC makes the issue of foreign direct investment (FDI) in Indonesia more attractive. However, an increase in FDI is followed by uneven absorption of FDI in various regions of Indonesia. The implementation of regional autonomy, which gives more authority to governors, allegedly influence investors’ decision to invest. This study aims to determine whether the disclosure of openness and the presidential election have an influence on FDI inflows across 30 provinces of Indonesia. This study employs panel data regression with a fixed effect model. The findings suggest that the level of openness and political variables contribute to the absorption rate of FDI inflows in the regions.
    Keywords: Foreign Direct Investment, Openness, Political Variables
    JEL: C5 O1 R5
    Date: 2023–03
  8. By: Juan S. Morales, Margaret Samahita (Wilfrid Laurier University)
    Abstract: This paper studies public opinion in the context of strong social norms that can induce conformity and self-censorship. We present a model that highlights how social pressure can affect the public expression of opinion either through a change in publicly stated views (conformity) or by inducing self-censorship (silence). In a series of pre-registered online experiments in the US, we elicit participants’ views on two controversial topics (race and gender) and their willingness to publish these views online in an incentivized manner. The empirical patterns are consistent with the presence of ideologically left-wing social norms: participants who held left-wing views were more willing to publish their opinions, and those who were randomly made aware of the prospect of publication reported less conservative views. A priming information treatment, in which participants were informed about cancel culture and the potential negative backlash from social media posts, induced some conformity and silencing, but the results were generally weak and not statistically significant. Finally, a social information treatment, which informed respondents about high rates of others’ willingness to speak up, significantly decreased self-censorship. We use our theoretical model, and empirical estimates from the experiment about the value of "speaking up", to analyze potential welfare implications. The analysis reveals that social norms which restrict freedom of expression may enhance social welfare.
    Keywords: social media; spiral of silence; public opinion; cancel culture; free speech
    JEL: D83 P16 C90 Z13
    Date: 2023–08

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