nep-pol New Economics Papers
on Positive Political Economics
Issue of 2023‒12‒11
five papers chosen by
Eugene Beaulieu, University of Calgary

  1. Disciplining Ballots? – (Un-intended) Effects of Voter Engagement on the Fiscal Sustainability of Swiss Cantons By Yannick Bury; Lars P. Feld; Ekkehard A. Köhler
  2. Power, Scrutiny, and Congressmen’s Favoritism for Friends’ Firms By Quoc-Anh Do; Yen-Teik Lee; Bang D. Nguyen; Kieu-Trang Nguyen
  3. Free Trade and the Formation of Environmental Policy: Evidence from US Legislative Votes By Jevan Cherniwchan; Nouri Najjar
  4. Friendship Networks and Political Opinions: A Natural Experiment among Future French Politicians By Yann Algan; Nicolò Dalvit; Quoc-Anh Do; Alexis Le Chapelain; Yves Zenou
  5. The political economy of redistribution and (in)efficiency in Latin America and the Caribbean By Altube, Matias Guizzo; Scartascini, Carlos; Tommasi, Mariano

  1. By: Yannick Bury; Lars P. Feld; Ekkehard A. Köhler
    Abstract: We test whether the proactive use of instruments of direct democracy by voters can help to explain fiscal sustainability of 25 Swiss cantons. Using data of all cantonal popular votes since 1977, our results show that the fiscal reaction of cantonal governments to an increase in the debt to GDP ratio of a canton is stronger, the more cantonal voters actively made use of their direct democratic rights in the previous year.
    Keywords: direct democracy, political process, fiscal policy
    JEL: H11 H50 D72
    Date: 2023
  2. By: Quoc-Anh Do; Yen-Teik Lee; Bang D. Nguyen; Kieu-Trang Nguyen
    Abstract: Does higher office always lead to more favoritism? We argue that firms may lose their benefit from a connected politicians ascent to higher office, if it entails stricter scrutiny that may reduce favoritism. Around close Congress elections, we find RDD-based evidence of this adverse effect that a politicians win reduces his former classmates firms stock value by 3.2% after a week. Exploiting the entry of Craigslist across the U.S., we find that state-level scrutiny drives this effect. It further varies with politicians power, firm size and governance, and connection strength, and diminishes as a politicians career concern fades over time.
    Keywords: favoritism, power, scrutiny, political connection, congressmen, close election, RDD
    JEL: D72 D73 D85 G14 G32
    Date: 2023
  3. By: Jevan Cherniwchan; Nouri Najjar
    Abstract: We test the hypothesis that governments alter environmental policy in response to trade by studying NAFTA’s effects on the formation of environmental policy in the US House of Representatives between 1990 and 2000. We find that reductions in US tariffs decreased political support for environmental legislation. This decrease appears to be due to: (i) a reduction in support by incumbent Republican legislators in response to trade-induced changes in the policy preferences of their constituents, and (ii) changes in partisan representation in affected districts due to decreased electoral support for pro-NAFTA Democrats following the agreement.
    Keywords: NAFTA; trade liberalization; voting; environmental policy
    JEL: F18 F64 F68 Q56 Q58
    Date: 2023–11
  4. By: Yann Algan; Nicolò Dalvit; Quoc-Anh Do; Alexis Le Chapelain; Yves Zenou
    Abstract: We study how social interaction and friendship shape students' political opinions in a natural experiment at Sciences Po, the cradle of top French politicians. Quasi-random assignments of students into the same short-term integration groups before their scholar curriculum reduce political opinion gap, and increase friendship formation. Using the pairwise indicator of same-group membership as instrumental variable for friendship, we find that friendship causes a reduction of differences in opinions by 40% of the standard deviation of opinion gap. The evidence is consistent with a homophily-enforced mechanism, by which friendship causes initially politically-similar students to join political associations together, which reinforces their political similarity, without exercising an effect on initially politically-dissimilar pairs. Friendship affects opinion gaps by reducing divergence, therefore polarization and extremism, without forcing individuals’ views to converge. Network characteristics also matter to the friendship effect.
    Keywords: political opinion, social networks, friendship effect, polarization, homophily, extremism, natural experiment
    JEL: C93 D72 Z13
    Date: 2023
  5. By: Altube, Matias Guizzo; Scartascini, Carlos; Tommasi, Mariano
    Abstract: Predominant views on the political economy of Latin America and the Caribbean tend to emphasize that elite domination helps to understand the high levels of inequality. The contemporary fiscal version of that assertion goes something like “the rich are powerful and they don't like taxes, hence we have little taxation and little redistribution.” That is a good approximation to the reality of some countries, but not of others. There are cases in the region where there are high levels of taxation and non-negligible redistributive efforts. But in some of those cases such redistribution comes hand in hand with macroeconomic imbalances, high inflation, low growth, as well as low-quality public policies. When redistributive efforts are short-sighted and attempted with inefficient public policies, fiscal imbalances lead to inflation and to frequent macroeconomic crises that reduce growth and thwart poverty reduction efforts. The argument of this paper is that there are various possible political configurations (including elite domination and populism among others) that lead to different economic and social outcomes (including the degree of redistribution and others). We postulate that each configuration of social outcomes emerges out of different political economy equilibria. Different countries in the region will be in different political economy equilibria, and hence will have different combinations of political economy syndromes and of socioeconomic outcomes. In this paper, we characterize the countries regarding the size of the public sector, how much fiscal redistribution there is, and how efficient this public action is. We summarize various strands of literature that attempt to explain some elements of that fiscal vector one at a time; and then attempt to provide a simple framework that might explain why different countries present different configurations of size, distributiveness, and efficiency.
    Keywords: inequality; redistribution; political economy; growth; poverty
    JEL: H20 H23 E62 P16
    Date: 2023–11–01

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