nep-pol New Economics Papers
on Positive Political Economics
Issue of 2024‒04‒22
eleven papers chosen by
Eugene Beaulieu, University of Calgary

  1. Paying off populism: How regional policies affect voting behavior By Gold, Robert; Lehr, Jakob
  2. Democratic Uncertainty: From Boulding’s Images to Downs’s Ideology. By Julien Grandjean; Cameron M. Weber
  3. Local knowledge economies, mobility perceptions and support for right-wing populist parties: New survey evidence for the case of Germany By Berriochoa, Kattalina; Busemeyer, Marius R.
  4. Elections for sale? Evidence from cash transactions around elections in Italy By Giuseppe De Feo; Giacomo De Luca; Mario Gara; Marianna Siino
  5. The Dynamics of Social Identity, Inequality and Redistribution By Ghiglino, C.; Muller, A.
  6. Displaced Worker Angst and Far Right Populism By Lambert, Thomas
  7. Political Geography and Stock Market Volatility: The Role of Political Alignment across Sentiment Regimes By Oguzhan Cepni; Riza Demirer; Rangan Gupta; Christian Pierdzioch
  8. Ownership Structure and Corporate Decisions: Capital Structure, M&A Activity, and Acquisition Financing By Gödecke, Timm
  9. Volatility and Resilience of Democratic Public-Good Provision By Hans Gersbach; Fikri Pitsuwan; Giovanni Valvassori Bolgè
  10. The design of welfare: unraveling taxpayers' preferences By Collewet, Marion; Fairley, Kim; Kessels, Roselinde; Knoef, Marike; van Vliet, Olaf
  11. The Swift Decline of the British Pound: Evidence from UK Trade-invoicing after the Brexit Vote By Crowley, M. A.; Han, L.; Son, M.

  1. By: Gold, Robert; Lehr, Jakob
    Abstract: This paper shows that regional policies can decrease populist support. We focus on the "development objective" (Objective-1) of the European Regional Development Fund (ERDF), meant to support lagging-behind regions. For causal inference, we exploit three sources of quasi-exogenous variation in a Regression-Discontinuity-Design (RDD), a Difference-in-Differences framework (DiD), and with matching techniques. Using NUTS3-level panel data on the outcomes of elections to the EU parliament, observed over the period 1999-2019, we consistently find that Objective-1 transfers reduces the vote share of right-fringe parties by about 2.5 pp. Left-fringe party support is not affected. Complementary analyses of individual-level survey data from the Eurobarometer show that the European Regional Policy increases trust in democratic institutions and decreases discontent with the EU.
    Keywords: Populism, Regional Policies, European Integration, Regression Discontinuity Design
    JEL: D72 H54 R11 R58
    Date: 2024
  2. By: Julien Grandjean; Cameron M. Weber
    Abstract: Reading Boulding’s The Image: Knowledge in Life and Society (1956) in light of recent work in public choice homo politicus theory sheds light on today’s partisan politics. Complex depersonalized societies and limited time in the democratic process means that voters make non-logical decisions based on expressive images as simple as “good” and “bad” (Brennan 2008). We find that this work by Boulding can be related to Downs (1957). In his well-known An Economic Theory of Democracy, Downs develops the importance of political ideology in electoral processes. But what is ideology if not expressive images? In this paper, we relate these two works, written at the same time, about the same subject but without referencing each other. Both Boulding and Downs build models which place an emphasis on the role of mental ideas to overcome imperfect information in representative democracy. Additionally, both theorists find that this uncertainty is what can make democracy a fragile form of governance.
    Keywords: Anthony Downs, Kenneth Boulding, Political ideology, Images, Democracy.
    JEL: B2 B31 D72 D81
    Date: 2024
  3. By: Berriochoa, Kattalina; Busemeyer, Marius R.
    Abstract: The rise of knowledge economies is transforming labor markets with substantial socio-political implications. Recent literature suggests that these economies foster voters who, due to the current or potential experience of upward mobility, are less likely to support far-right parties. Using novel survey data for the case of Germany, we examine this assertion by analyzing the association between the local share of knowledge-based economic activity and individual mobility perceptions and vote choices. We find that individual mobility perceptions are - somewhat counterintuitively - more negative in thriving local knowledge economies (LKEs). We also examine how these local economic contexts and mobility perceptions explain vote choices, focusing on support for the Greens and the right-wing populist AfD, finding that electoral support for the Greens is strongly and positively associated with well-developed LKEs and less influenced by mobility perceptions, while the latter matters more in the case of support for the AfD. Yet, we also find that thriving LKEs can reinforce the impact of static mobility perceptions increasing support for the AfD. Our analysis shows that LKEs, while a sign of positive economic growth, can also lead to friction between individuals with different perceptions of mobility likely reflecting the winners and losers of technological and labor market changes at the local level.
    Keywords: Political Preferences, Inequality, Knowledge Economy, Populism, Local Context
    Date: 2024
  4. By: Giuseppe De Feo; Giacomo De Luca; Mario Gara; Marianna Siino
    Abstract: This paper studies the dynamics of electoral corruption in the context of local elections in Italy. It exploits the asynchronous nature in the timing of mayoral elections to estimate a relationship between elections and the municipality-level amount exchanged through cash transactions. Cash transactions are sourced from a unique comprehensive dataset, taken from the Aggregate Anti–Money Laundering (AML) Reports between 2008 and 2018, which all Italian financial intermediaries are mandated to file with reference to transactions worth \euro 15, 000 or more. The difference-in-difference estimates, including municipality and time fixed effects, suggest that the municipal elections in Italy systematically trigger an anomalous increase in the volume of cash transactions, which we interpret as evidence of electoral corruption, i.e. an intense circulation of money to secure electoral support in the shadow of the law. Exploring the heterogeneity of our main result along several potential mediating factors confirms some intuitively appealing patterns, such as tighter competition, the presence of active criminal organizations, as well as the size of the municipality budget, let us show which significantly affects the volume of cash transactions. Our results can be used to define better anticorruption policies on political campaign practices specifically focusing on cash payments. The same approach can be easily applied to other countries and contexts, by drawing on the data submitted to AML authorities by financial intermediaries.
    Keywords: D72, D73, F33, G28, K42
  5. By: Ghiglino, C.; Muller, A.
    Abstract: We provide a politico-economic theory of income redistribution with endogenous social identity of voters. Our analysis uncovers a non-monotonic relationship between market income inequality and redistributive taxation in line with the mixed evidence on the sign of their empirical relationship: taxation first increases with wage inequality as all voters identify with others, but then drops sharply as affluent voters switch to identify in-group. We further add ethnicity as an identification attribute. Consistent with existing empirical evidence, our model predicts that the presence of ethnic minorities and across ethnic group inequality reduce redistribution, while within ethnic group wage inequality increases it.
    Keywords: Inequality, Probabilistic Voting, Redistribution, Social Class, Social Identity, Tax Rate
    JEL: D64 D71 D72 H20
    Date: 2023–11–14
  6. By: Lambert, Thomas
    Abstract: This paper looks at how downward socio-economic mobility of displaced workers is fueling the rise of right-wing populism. After a review of relevant literature on worker displacement and angst follows an analysis of its implications for US politics. Data from government sources suggest that displacement has contributed to the deeply conservative populism. Finally, survey data demonstrate those who are more subject to bouts of unemployment are more likely to believe that immigrants take jobs away from US citizens and that “free” trade agreements are not good for the US.
    Keywords: right-wing populism, working class angst, downward mobility, unemployment, underemployment
    JEL: B50 B52
    Date: 2024–02–16
  7. By: Oguzhan Cepni (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Ostim Technical University, Ankara, Turkiye); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Christian Pierdzioch (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany)
    Abstract: This paper extends the literature on the nexus between political geography and financial markets to the stock market volatility context by examining the interrelation between political geography and the predictive relation between the state- and aggregate-level stock market volatility via recently constructed measures of political alignment. Using monthly data for the period from February 1994 to March 2023 and a machine learning technique called random forests, we show that the importance of the state-level realized stock market volatilities as a driver of aggregate stock market volatility displays considerable cross- sectional dispersion as well as substantial variation over time, with the state of New York playing a prominent role. Further analysis shows that stronger political alignment of a state with the ruling party is associated with a lower contribution of the state's realized volatility to aggregate stock market volatility, highlighting the role of risk effects associated with the political geography of firms. Finally, we show that the negative link between the political alignment of a state and the importance of that state's realized volatility over aggregate stock market volatility is statistically significant during high-sentiment periods, but weak and statistically insignificant during low-sentiment periods, underscoring the role of investor sentiment for the nexus between political geography and financial markets. Our findings presents new insight to the risk-based arguments that associate political geography with stock market dynamics.
    Keywords: Stock market volatility, Random forests, Political alignment, Investor sentiment
    JEL: C22 C23 C51 C53 G10 D81
    Date: 2024–03
  8. By: Gödecke, Timm
    Abstract: The objective of this dissertation is to deepen our understanding of how large shareholders make decisions, since we recently experienced a significant increase in concentration of voting rights around the world, which has amplified their influence in corporate governance. Accordingly, this dissertation investigates the impact of the largest shareholder’s voting stake on corporate decisions across three distinct studies. The first study focuses on capital structure decisions, revealing a negative relationship between the voting stake of the largest shareholder and leverage. Family-controlled firms show a weaker association, emphasizing their desire to maintain control over the firm. The second study finds that a high concentration of voting rights decreases the likelihood of undertaking an acquisition, which aligns with the risk-reduction motive of large shareholders. While family identity influences capital structure decisions, no significant differences are observed in acquisition behavior. The third study examines how concentration of voting rights affects acquisition financing and reveals an aversion of large shareholders towards equity to prevent dilution. This aversion towards equity financing is particularly pronounced in the intermediate ownership range, where shareholders are most susceptible to a potential loss of control. Overall, the findings underscore the significance of risk reduction and control motives for large shareholders that potentially limit corporate growth. Considering the proposed reintroduction of multiple-vote shares by the European Commission, which are expected to result in an increased concentration of voting rights, these insights are particularly relevant.
    Date: 2024–03–26
  9. By: Hans Gersbach; Fikri Pitsuwan; Giovanni Valvassori Bolgè
    Abstract: We examine democratic public-good provision with heterogeneous legislators. Decisions are taken by majority rule and an agenda-setter proposes a level of the public good, taxes, and subsidies. Members are heterogeneous with respect to their benefits from the public good. We find that, depending on the status quo public-good level, the agenda-setter will form a coalition with the agents who most desire, or least desire, the public good, and we may observe ‘strange bedfellow’ coalitions. Moreover, public-good provision is a non-monotonic function of the status quo public-good level. In the dynamic setting, public-good provision fluctuates endogenously, even if the agenda-setter stays the same over time. Moreover, the more polarized the legislature is, the higher is the volatility of public-good provision and the longer it may take for a society to recover from negative shocks to public-good provision. We illustrate these findings for a two-party system with polarized parties.
    Keywords: legislative bargaining, coalition, public goods, polarization, resilience
    JEL: C73 D72 H50
    Date: 2024
  10. By: Collewet, Marion; Fairley, Kim; Kessels, Roselinde; Knoef, Marike; van Vliet, Olaf
    Abstract: We study Dutch taxpayers’ preferences in designing a social welfare system. With help of a choice experiment we ask 2000 respondents to make choices between policy packages, characterized by different levels of income for welfare recipients, of obligations, of sanctions, of earnings and gifts disregards, and of taxes for the average Dutch household. The results show that respondents are in favor of relatively generous benefits and disregards, but also find monitoring and activation very important. Both self-interest and altruism, as well as trust in the government, appear to shape respondents' preferences. Respondents’ preferences line up with their voting behavior.
    Date: 2024–03–25
  11. By: Crowley, M. A.; Han, L.; Son, M.
    Abstract: Using administrative transactions data from the United Kingdom, we document a swift decline in sterling use among British exporters after the 2016 Brexit vote. Through a novel decomposition, we document most of this decline comes from two sources: (i) continuously-operating firms switching from sterling to dollars or local currencies and (ii) reductions in transactions for sterling-loyal firms. In contrast, new entrants into exporting primarily invoice in sterling before and after the Brexit vote. Our findings provide the first evidence on the quantitative relevance of new channels that contribute to changes in aggregate invoicing shares amidst political upheaval.
    Keywords: Invoicing Currency, Trade Transactions, Sterling, Brexit
    JEL: F14 F31 F41
    Date: 2024–03–11

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