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on Positive Political Economics |
| By: | Toke S. Aidt (University of Cambridge, Faculty of Economics); Francisco José Veiga (Universidade do Minho and NIPE, Escola de Economia e Gestão); Linda Gonçalves Veiga (Universidade do Minho and NIPE, Escola de Economia e Gestão) |
| Abstract: | The literature on political business cycles suggests that politicians systematically manipulate economic and fiscal conditions before elections. The literature on vote and popularity functions suggests that economic conditions systematically affect election outcomes. This paper integrates these two strands of literature. We use Rogoff (1990)’s model of the rational political business cycle to derive the two-way relationship between the win-margin of the incumbent politician and the size of the opportunistic distortion of fiscal policy. This relationship is estimated, for a panel of 275 Portuguese municipalities (from 1979 to 2001), as a system of simultaneous equations (by GMM). The results show that (1) opportunism pays off, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when their win-margin is small. These results are consistent with the theoretical model. |
| Keywords: | Voting and popularity functions, opportunism, rational political business cycles, local government, system estimation, Portugal. |
| JEL: | D72 E32 H72 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0007&r=pol |
| By: | Dalton Conley; Brian J. McCabe |
| Abstract: | Evidence on the relationship between political contributions and legislators' voting behavior is marred by concerns about endogeneity in the estimation process. Using a legislator's offspring sex mix as an exogenous variable, we employ a two-stage least squares estimation procedure to predict the effect of voting behavior on political contributions. Following previous research, we find that a legislator's proportion daughters has a significant effect on voting behavior for women's issues, as measured by score in the "Congressional Record on Choice" issued by NARAL Pro-Choice America. In the second stage, we make a unique contribution by demonstrating a significant impact of exogenous voting behavior on PAC contributions, lending credibility to the hypothesis that Political Action Committees respond to legislators' voting patterns by "rewarding" political candidates that vote in line with the positions of the PAC, rather than affecting or "bribing" those same votes -- at least in this high profile policy domain. |
| JEL: | H11 J18 K0 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13945&r=pol |
| By: | Mark Schelker (University of Fribourg, Switzerland; CREMA); Reiner Eichenberger (University of Fribourg, Switzerland; CREMA) |
| Abstract: | In the economic literature various political institutions designed to control the government have been analyzed. However, an important institution has been neglected so far: independent auditing institutions with an extended mandate to analyze the budget draft and individual policy proposals. We argue that auditors with an extended mandate improve transparency and provide essential information on the impact of policy proposals on common pool resources. This leads to less wasteful spending and a more efficient allocation of public resources. We empirically analyze the policy impact of local auditors with an extended audit mandate in Switzerland. Auditors, who can evaluate and criticize policy proposals ex ante to policy decisions, significantly reduce the general tax burden and public expenditures. We find similar results with different datasets. These results are robust to various changes in the econometric specification |
| Keywords: | Auditor, audit court, special interests, political economics, public finance. |
| JEL: | D70 H10 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2008/4/doc2008-3&r=pol |
| By: | Ehud Friedgut; Gil Kalai; Noam Nisan |
| Abstract: | The Gibbard-Satterthwaite theorem states that every non-trivial voting method between at least 3 alternatives can be strategically manipulated. We prove a quantitative version of the Gibbard-Satterthwaite theorem: a random manipulation by a single random voter will succeed with non-negligible probability for every neutral voting method between 3 alternatives that is far from being a dictatorship. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp481&r=pol |
| By: | Nadia Fiorino; Roberto Ricciuti |
| Abstract: | In the last two decades of the XIX century the Italian model of economic growth shifted from agricultural to industrial. Historians maintain that this process was affected by the action of some interest groups that pursued both state protection from competition and specific public expenditure programs. Starting from the economic literature of interest groups, this paper attempts to empirically investigate the role of the interest groups in public expenditure decisions in Italy from 1876 to 1913. We argue that a proper indicator of the role of interest groups is their output. The analysis suggests that government spending was sensitive to the preferences of heavy industry rather then those of textile and cereal cultivators. We therefore highlight the role of the political process in setting economic policy at the early stages of the Italian development. |
| Keywords: | industrialization; special interests groups; public expenditure, Italian economic history. |
| JEL: | H11 |
| Date: | 2008–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2008/08&r=pol |
| By: | Michele Ruta |
| Abstract: | Is the politicisation of monetary policy in a currency union desirable? This paper shows that in a setting where political influence by national governments is modeled as a common agency game with rational expectations, the answer to this question crucially depends on whether the common central bank can commit to follow its policy. |
| Keywords: | Common Agency, Political Pressures, European Monetary Union |
| JEL: | F33 E58 D78 |
| Date: | 2007–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2007/21&r=pol |
| By: | Toshihiro Ihori (Faculty of Economics, University of Tokyo); C. C. Yang (Institute of Economics, Academia Sinica and Department of Public Finance, National Chengchi University) |
| Abstract: | This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods. In contrast to Hoyt's (1991) finding that the extent to which public goods are undersupplied is monotonically increasing in the number of competing regions, we show that the relationship between the level of public good supply and the number of competing regions is nonmonotonic if political as well as tax competition is considered. Interestingly, some certain interaction between interregional tax competition and intraregional political competition can result in the optimal provision of public goods. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2008cf553&r=pol |
| By: | Yannis Karagiannis |
| Abstract: | Economic theories are increasingly popular in political science, and in particular in research on the relations between the legislative, the executive, and the judicial branches of government. Among these theories, principal-agent (´PA´) and transaction cost economics (´TCE´) feature particularly high in our research agenda. Yet, pushed by the view that "the content of ´science´ is primarily the methods and rules" (King et al. 1994: 9), and working with limited resources, political scientists have tended to neglect careful theorizing. PA and TCE are taken off-the-shelf without much prior scrutiny, and past conceptual mistakes are perpetuated. This paper aims at introducing and explaining the real PA, positive agency, TCE, and incomplete contracts theories for the purposes of political analysis. In a companion paper, I show the serious mistakes perpetuated by political scientists, and I argue that, faced with a choice between those four economic theories, we should place our bets on a revised version of TCE. |
| Keywords: | Theory of delegation, political science, principal-agent models, transaction costs economics |
| Date: | 2007–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2007/16&r=pol |
| By: | Vincent Vicard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This paper investigates the determinants of the shape of regional trade agreements (RTAs). Because the world is constituted by independent political entities, international trade flows take place in a system where property rights are unsecured and RTAs should be understood as regulation mechanisms. In this theoretical framework, trade and security issues interact in the formation of RTAs, so that their determinants differ according to their level of political integration, defined by their ability to promote the negotiated settlement of conflicts. Empirical results confirm that countries more subject to interstate disputes and naturally more opened to trade are more likely to create politically integrated regional agreements, such as common markets or custom unions. On the contrary, international insecurity deters less integrated agreements implying a weak institutional framework, such as preferential or free trade agreements. |
| Keywords: | International conflicts, political integration, regionalism, trade, war. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00270618_v1&r=pol |
| By: | Jon G. Sutinen |
| Abstract: | A political economy perspective of fisheries governance is presented in this paper. In most countries, formal and informal linkages exist among four components of the governance system. The legislature passes laws that authorise the implementation of policies and programmes by a fisheries agency. The fisheries agency establishes a fisheries management authority. Stakeholders often have a formal role – from advising to decision-making – in the management plan development process and approved plans are implemented by the fisheries agency. In general, governance failure (that is, undesirable public policy outcomes) has been attributed to special interest effects, rational voter ignorance, bundling of issues, shortsightedness, decoupling of costs and benefits, and bureaucratic inefficiencies. No studies demonstrate whether private interests significantly influence fishery policies and regulations, but evidence from other sectors suggests that this is very likely. One of the features that distinguishes the fishing industry from other regulated activities is that often there are no strong property rights, and regulation seeks to prevent overexploitation of a common pool resource (CPR). Fishers, in effect, impose costs on each other rather than on consumers, in the absence of regulation. A laboratory experiment was designed to simulate lobbying to influence regulation of a CPR. Results show that competition for fishery earnings weakens the incentive to effectively lobby for regulations that maximise group well-being. More experienced participants believe that their contributions to changing a regulation are not worthwhile. Instead, they focus more on competing for earnings from their use of the CPR. Correcting or mitigating government failure in fisheries might be assisted by the introduction of strong property rights, the devolution of rights and responsibilities to user groups, the use of the cost recovery and sustainable financing mechanisms, and for shielding fishery managers from the shortsighted tendencies of elected officials. But these recommendations may have difficulty in being implemented in the face of strong opposition from private interests in the fishery. <P>Les grands défis de la réforme de la pêche : Économie politique de la réforme <BR>Une analyse de la gouvernance des pêcheries sous l’angle de l’économie politique est présentée dans ce document. Dans la plupart des pays, il existe des liens formels et informels entre les quatre composantes du système de gouvernance. Le Parlement vote des lois autorisant les autorités compétentes de la pêche à mettre en œuvre des politiques et des programmes. Ces autorités compétentes de la pêche établissent un organisme de gestion des pêches. Les parties prenantes jouent souvent un rôle officiel — variant du conseil à la prise de décision — dans le processus d’élaboration des plans de gestion ; les plans approuvés sont mis en œuvre par les autorités compétentes de la pêche. En général, les échecs de gouvernance (à savoir les résultats indésirables des mesures adoptées par les pouvoirs publics) sont mis sur le compte des intérêts particuliers, de l’ignorance des électeurs, du regroupement des problèmes, de l’absence de vision, du découplage des coûts et des avantages et de l’inefficacité bureaucratique. Bien qu’aucune étude n’ait démontré que les intérêts privés influaient sensiblement sur les politiques et la réglementation de la pêche, ce que l’on a pu observer dans d’autres secteurs laisse à penser que cette influence est très vraisemblable. Le secteur de la pêche se distingue d’autres activités réglementées notamment par l’absence fréquente de droits de propriété solidement établis et par le fait que la réglementation tente d’éviter la surexploitation de ressources communes. En l’absence de réglementation, les pêcheurs font en fait peser des coûts les uns sur les autres plus que sur les consommateurs. Une expérience en laboratoire a été conçue pour simuler les activités de groupes de pression destinées à influer sur la réglementation des ressources communes. Les résultats de l’expérience montrent que la compétition entre pêcheurs pour réaliser le maximum de profits diminue leur volonté de faire pression en faveur de règlements qui maximiseraient le bien-être du groupe. Des participants plus expérimentés estiment que leur contribution à la modification de la réglementation ne présente aucun intérêt. Ils s’attachent en fait davantage à se disputer les profits de l’exploitation de la ressource commune. L’introduction de droits de propriété solidement établis, la délégation des droits et des responsabilités aux groupes d’utilisateurs, le recours à la récupération des coûts et à des mécanismes durables de financement et la protection des gestionnaires des pêches contre la tendance des élus à raisonner à court terme pourraient contribuer à corriger et à réduire l’échec des pouvoirs publics. Néanmoins, ces recommandations risquent de ne pouvoir être mises en œuvre aisément face à la forte opposition des intérêts privés dans le secteur de la pêche. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:oec:agraaa:8-en&r=pol |