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on Positive Political Economics |
| By: | Ana Barreira; Rui Nuno Baleiras |
| Abstract: | The paper presents an intertemporal utility model that determines the effects of elections on the public expenditure composition. Conventional political budget cycle models describe incumbents as concerned only with the conditions that guarantee re-appointment. Aiming at achieving re-election, incumbents behave opportunistically in order to seduce voters about their political performance. The paper introduces another motivation for the manipulation of the public expenditure mix near elections: the incumbent’s concern with her future utility in the case of defeat. We provide data to suggest that both central and local governments in the European Union do manipulate the budget composition around election moments. In order to rationalise this observation, the paper proposes a model where voters and incumbent are rational, have complete information and no bias towards any category of public expenditure, namely consumption expenditure or investment expenditure. The paper shows that even under these extreme conditions, an electorally induced cycle on public expenditure mix is still expected, one where consumption expenditure raises relative to investment expenditure in pre-election periods. This opportunistic budget manipulation follows from two facts. First, any decision an incumbent makes on consumption expenditure pays back political dividends during the same period the expenditure is incurred, while any investment expenditure only becomes visible to voters with a one-period delay. Second, re-election is an uncertain event, which makes the second state of nature valuable. Outside politics, the incumbents’ pay back is a direct function of the voters’ assessment of the incumbents’ job while in office. The model is then extended to accommodate the scenario where voters and society at large do not share preferences. When voters or society evidence a preference prone to one of the public expenditure categories, a bias towards such category emerges in post-election periods. In pre-election periods two cases are found. Consumption expenditures exceed investment expenditures if either voters or society prefer the former category at the margin. The cycle’s nature is ambiguous if the marginal preferences of voters or society are biased towards investment expenditures. JEL classification: H50, E62. Keywords: Political Budget Cycles, Public Expenditure, Elections. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p291&r=pol |
| By: | Mauricio Drelichman (University of British Columbia) |
| Abstract: | The widespread ennoblement of the Spanish bourgeoisie in the sixteenth century has been traditionally considered one of the main causes of Iberian decline. I document and quantify the surge in ennoblement through a new time series of nobility cases preserved in the Archive of the Royal Chancery Court of Valladolid and use the insights provided by lawsuits from several localities to model the rent seeking mechanisms at work in a game theoretical framework. I then validate the game against the data and use it to draw inferences about the unobserved redistributive activity in local politics. Contrary to established scholarship, I find that: 1) the tax exemptions granted to nobles cannot alone explain the flight to privilege, since ennoblement was more costly than the present value of the future tax benefits; 2) the central motivation behind ennoblement was to gain control of local governments and acquire decision-making power over common resources; 3) while ennoblement reflected a high level of redistributive activity, there is no evidence in the archival record linking it to the stagnation and decline of Spain. |
| Keywords: | rent seeking, nobility, local government, litigation, redistribution, institutions, institutional analysis, empirical method, game theory, Castile, Spain |
| JEL: | N43 H71 K4 |
| Date: | 2005–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpeh:0508004&r=pol |
| By: | Linda Veiga; Francisco Veiga |
| Abstract: | The political article tests for rational political business cycles models on an unexplored and large data set of Portuguese municipalities. This data allows for a clean test of the models due to its high level of detail on expenditure items, an exogenous fixed election schedule and the homogeneity of local governments with respect to policy instruments and institutions. Estimation results clearly reveal the opportunistic behaviour of local governments, that in pre-electoral periods, increase expenditure on items highly visible to the electorate such as roads and street construction, in an effort to signal competence and increase their chances of re-election. JEL classification: H72, D72, D78 Keywords: political business cycles, public finance, local governments |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p427&r=pol |
| By: | José da Silva Costa; Ester Gomes Silva |
| Abstract: | The application of the rational choice postulate to a political context invariably leads to the conclusion that most voters are ill informed when making the decision for whom to vote. In this paper, the authors do an empirical evaluation of the rational ignorance theory, based on the results of the 1997 Portuguese Local Elections. The results only partially sustain the hypothesis of rational ignorance, although it is also possible to identify several limitations that prevent the establishment of definite conclusions in this specific field.JEL Classification: H7 Key words: Voter’s Behaviour; Local Elections; Local Governments; Portugal. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p52&r=pol |
| By: | Elizabeth Real Oliveira; Manuela Castro e Silva |
| Abstract: | The basic problem of environmental regulation involves the government trying to induce a polluter to take socially desirable actions, which ostensibly are not in the best interest of the polluter. But the government may not always be able to precisely control the polluter. To further complicate matters the government faces a complex problem of determining exactly what level of pollution is best for society. In reality the government faces pressures from consumers and polluters. There are some important lessons to gather from the analysis of current models of regulation. One is that there are many imperfect links between the legislature and the pollution-generating process. In this case regulation may be excessively costly, may result in considerable cheating, and may result in excessive pollution. Another lesson is that legislature does not necessarily act as an efficient benevolent maximizer of social well-being. The authors intend in this paper to explain the current view of political models of regulation, analysing them for their complexity, and attempt to provide a reasonable explanation of their functioning recurring to fuzzy logics. Understanding how the browns and greens interact with the legislature and regulatory agencies can to some extent explain the current environmental regulations. The fuzzy approach, intends to allow for easier understanding of these interactions, and provide an answer for more effective decision making. Keywords: Environmental Regulation, Environmental Economics, Fuzzy Logics, Models, Pollution Control, Sustainability |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p189&r=pol |
| By: | Maria Manuel Pinho; Linda Veiga |
| Abstract: | We use a large and unexplored dataset covering all mainland Portuguese municipalities from 1979 to 2001 to evaluate the impact of political forces in the allocation of grants from the central government to local authorities. Empirical results clearly show that, besides variables that proxy the social and economic development of municipalities, political variables also condition the granting system: (1) grants increase in municipal and legislative election years; (2) the larger the number of years a mayor has been in office the larger the amount of funds transferred to his municipality; (3) municipalities ruled by mayors that belong to the prime-minister’s party are favored in the grants distribution process. Keywords: grants, intergovernmental relations, public choice, Portugal JEL classification: H77, D72, D78 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p192&r=pol |
| By: | José Manuel Cruz |
| Abstract: | When estimating a specification combining different influences on local public choice, three public issues of different ideological attributes were compared for two periods of Portuguese local government intervention: the beginning and the ending of one electoral cycle. The most exciting results of the paper are the significance of ideology at local level and the decline of its importance in the ending of the electoral cycle. There is also some evidence on the political influence of interest groups, especially in low visible issues. On the general issue, majority is also influent and fiscal illusion is found. Some preliminary panel data results including two electoral cycles are analyzed. JEL CLASSIFICATION: H42; H73; R51 KEYWORDS: Median Voter; Interest Groups; Ideology; Local Government, Opportunistic Political Cycle |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p367&r=pol |
| By: | Tuuli Juurikkala; Olga Lazareva |
| Abstract: | In the planned economy firms were made responsible for providing their workers with social services, such as housing, day care and medical care. In the transforming Russia of the 1990s, social assets were to be transferred from industrial enterprises to the public sector. A law on divestment was put into force but it provided mostly general principles. Thus, for a period of several years, property rights over a major part of social assets, most notably housing, were not properly defined as the transfer decisions were largely left for the local level players to make. Strikingly, the time when assets were divested varied considerably across firms. In this paper we take a political economy approach and utilize recent survey data from 404 medium and large industrial enterprises in 40 Russian regions to study the effects different forms of bargaining between the firm and the municipality may have on the timing decisions. In particular, we apply survival data analysis to explore the determinants of the divestiture timing. Our results show that the firms which divested assets later receive more benefits from the local authorities, especially in places where there are more benefits to extract (i.e. the local budget is richer). Further, we find evidence that the firms which transferred assets later performed relatively worse in 2002 in terms of profitability, productivity and investments. Finally, the data shows that poorly defined property rights have an adverse effect on the incentives to invest in social assets, and hence on the quality of public service provision. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p637&r=pol |
| By: | Marcus Adolphson |
| Abstract: | Changes of land use pattern and urban form could be seen as a dynamic result of the trade off by public and private interests. Private interest – individual residents or firms – tries, according to micro economic theory, to maximize their individual utility. Public interests – conveyed by government institutions on different geographical levels - on the other hand, try according to macro economic theories to maximize the general welfare in a community according to the preferences of the political system. The focus is to measure the importance of spatial locations factors regarding new residential and commercial buildings in relation to the existing urban form, political guidelines and ecological features. In the region transportation infrastructure systems, as high speed commuting train and highways, have been implemented in the middle of the period. The time period investigated is 1992-2000. The importances of the location factors were obtained by logistic regression analysis and transformation of the ß -values into elasticities. The dependent variables were settlements of new urban elements in pixels of 50*50 meters. Independent variables where distances to existing urban elements, presence of public interests and some ecological features as south faced hill slopes, distance to water areas and geology. Results from this projects reveals that new urban settlements in general are located in proximity to existing urban settlements of the same kind, in remotness to existing urban focal points and to some extend within planned areas. National/regional transportation nodes do not have any apparent influence on the location. A general conclusion from this investigation is that the built environment develops towards a further dispersed rural spatial pattern though with some correspondence to the comprehensive land use plan. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p684&r=pol |