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on Positive Political Economics |
| By: | Clément MATHONNAT; Pierre MANDON |
| Abstract: | The political economy of finance literature emphasizes the critical role of political institutions in promoting financial development. Related empirical findings highlight a robust positive effect of democratic regimes on financial development compared to dictatorships. However, no study focused so far on identifying the precise political institutions explaining the financial development enhancing effect of democracies. In this paper, we study the effects of disaggregated political institutions on financial development along three institutional dimensions, namely forms of government, electoral rules and state forms. Using a large panel of 140 countries over 1984-2007, we show that institutional details are of crucial importance, since the positive effect of democracies on financial development clearly depends on the precise institutional dimensions at work, namely: parliamentary governments and, to a lesser extent federal states. Thus, our study contributes to the institutional design debate, by showing that the simple promotion of democratic regimes might not be sufficient to foster financial development. |
| JEL: | P48 H00 G28 D72 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdi:wpaper:1730&r=all |
| By: | J. Stephen Ferris (Department of Economics, Carleton University); Marcel-Cristian Voia (Department of Economics, Carleton University) |
| Abstract: | In this paper we consider two margins of individual political party life in Canada since Confederation—the extensive margin governing existence (the entry and exit decisions together with party turnover or churning) and the intensive margin determining lifespan or survival length. The results confirm in a more formal way many of the individual hypotheses advanced in the political literature for entry and exit—the importance of voter heterogeneity, minority governments, world wars, number of competitors and, to a lesser degree, economic circumstance. What stands out most strongly in the data is the introduction of public funding for established political parties following 1974 and immigration flows. The intensive margin is analyzed using a number of hazard models before focusing on semi-parametric models. These best capture the form of the empirical hazard and in the discrete form allows for the detection of party type heterogeneity. The results suggest presence of two distinct political party types in and, more generally, mirror those found for the entry/exit decision. The public funding and immigration flows variables again stand out as being particularly significant. |
| JEL: | D72 C41 C24 |
| Date: | 2015–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:15-08&r=all |
| By: | Pantelis Kammas (Department of Economics, University of Ioannina); Vassilis Sarantides (Department of Economics, University of Sheffield) |
| Abstract: | This paper examines whether policy intervention around elections affects income inequality and actual fiscal redistribution. We first develop a simplified theoretical framework which allows us to examine fiscal redistribution around elections when democracy is not “the only game in town” and there is a threat of revolution from some groups of agents. Subsequently, employing data for a panel of 65 developed and developing countries during the period of 1975-2010, we provide robust empirical evidence of electoral cycles on income inequality and actual fiscal redistribution in countries characterized as new democracies. Moreover, our analysis suggests that this effect is mainly driven by a political instability channel which induces incumbents to redistribute resources - through fiscal policy - towards the poorer segments of the society in order to convince them that “democracy works”. In contrast, inequality and actual fiscal redistribution are not affected by elections in countries characterized as established democracies. |
| Keywords: | elections, new democracy, redistribution, income inequality |
| JEL: | D63 D72 E62 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2015019&r=all |
| By: | Casey, Katherine (Stanford University) |
| Abstract: | Many lament that weak accountability and poor governance impede economic development in Africa. Politicians rely on ethnic allegiances that deliver the vote irrespective of performance, dampening electoral incentives. Giving voters information about candidate competence counters ethnic loyalty and strengthens accountability. I extend a canonical electoral model to show how information provision flows through voter behavior and ultimately impacts the distribution of political spending. I test the theory on data from Sierra Leone using decentralization and differential radio coverage to identify information's effects. Estimates suggest that information increases voting across ethnic-party lines and induces a more equitable allocation of campaign spending. |
| JEL: | D72 H41 O17 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3299&r=all |
| By: | Janne Tukiainen; Tuukka Saarimaa |
| Abstract: | We analyze whether voters value local political representation by exploiting municipal mergers, which increase the number of candidates available to voters and intensify political competition. In the Finnish open-list proportional representation system, voters rank the candidates within parties, and thus, concentrating votes to local candidates increases the extent of local representation. Using a difference-in-differences strategy, we find that the vote distributions become more concentrated in municipalities less likely to gain local representation after the mergers. Moreover, the effect is much larger in municipalities where the benefits of local representation to voters are large. The latter result disentangles voters? responses from the responses of other political actors. The results are important also for designing local government mergers, which are an important policy tool in many countries. They highlight that concerns over deteriorating local democracy due to mergers have merit, because voters have preferences for local representation. At the same time, the vote concentration patterns we find alleviate these concerns. |
| Keywords: | Electoral boundary reform, difference-in-differences, local representation, municipality mergers, strategic voting. |
| JEL: | C23 D72 C21 H73 H77 |
| Date: | 2015–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:64&r=all |
| By: | Pierre Mandon (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Clément Mathonnat (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I) |
| Abstract: | The political economy of finance literature emphasizes the critical role of political institutions in promoting financial development. Related empirical findings highlight a robust positive effect of democratic regimes on financial development compared to dictatorships. However, no study focused so far on identifying the precise political institutions explaining the financial development enhancing effect of democracies. In this paper, we study the effects of disaggregated political institutions on financial development along three institutional dimensions, namely forms of government, electoral rules and state forms. Using a large panel of 140 countries over 1984-2007, we show that institutional details are of crucial importance, since the positive effect of democracies on financial development clearly depends on the precise institutional dimensions at work, namely: parliamentary governments and, to a lesser extent federal states. Thus, our study contributes to the institutional design debate, by showing that the simple promotion of democratic regimes might not be sufficient to foster financial development. |
| Keywords: | cerdi |
| Date: | 2015–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01196108&r=all |
| By: | Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This study presents an overlapping-generations model featuring capital accumu- lation, collective wage-bargaining, and probabilistic voting over fiscal policy. We characterize a Markov-perfect political equilibrium of the voting game within and across generations and show the following results. First, greater bargaining power of unions lowers the growth rate of capital and creates a positive correlation between unemployment and public debt. Second, greater political power of the old lowers the growth rate and shifts government expenditure from the unemployed to the old. Third, when the government finances its spending by issuing public debt, an introduction of a balanced-budget requirement increases the growth rate but may benefit the old at the expense of the unemployed. |
| Keywords: | Economic Growth; Fiscal Policy; Government Debt; Unemployment; Voting |
| JEL: | E24 E62 H60 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1430r&r=all |
| By: | Fabrizio Zilibotti (University of Zurich); Matthias Doepke (Northwestern University) |
| Abstract: | We examine the political economy of economic policy reforms. Anecdotal evidence suggests that major economic reforms are undertaken primarily after a sustained period of deteriorating economic performance; examples include the reforms in Britain under Thatcher in the 1980s, the Swedish reforms in the 1990s, and labor market reforms in Germany under Schroeder in the early 2000s. To understand these patterns, we consider the decision problem of an incumbent politician who derives rents from remaining in office. The quality of the politician is not directly observable, but the electorate updates beliefs about quality based on the performance of the economy. When beliefs about the quality of the politician fall below a threshold value, the politician is replaced. The politician can undertake economic reforms that, in expectation, increase the growth rate of the economy. The nature of the reforms may not be perfectly observable either. We derive conditions under which this setup leads to reform cycles, i.e., reforms are undertaken only when the state of the economy is sufficiently bad. We confront our theory with data on labor market reforms in OECD countries, and show that low GDP growth and high unemployment over a multi-year period predict economic reform. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:689&r=all |
| By: | Andrey Stoyanov (York University, Department of Economics, Faculty of Liberal Arts and Professional Studies); Halis Murat Yildiz (Ryerson University, Department of Economics) |
| Abstract: | In this paper we analyze the e¤ect of the freedom to pursue preferential trade liberalization, permitted by Article XXIV of the GATT, on country.s incentives to participate in multilateral negotiations and on the feasibility of the global free trade. We present a model in which countries choose whether to participate in preferen-tial or multilateral trade agreements under political pressures from domestic special interest groups. We show that heterogeneity in political preferences across coun-tries plays an important role for the relative merits of preferential and multilateral approaches to trade liberalization. On one hand, the opportunity to liberalize pref-erentially may be necessary to induce countries with strong political motivations to participate in multilateral free trade negotiations. On the other hand, when countries share similar political preferences, multilateral free trade that would have been politically supported otherwise becomes unattainable if countries can pursue preferential liberalization. |
| Keywords: | Free Trade Agreements, Multilateralism, Political Economy, Coalition-proof Nash Equilibrium |
| JEL: | F12 F13 C72 |
| Date: | 2015–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:yca:wpaper:2015_5&r=all |
| By: | Dimick, Matthew (SUNY Buffalo Law School); Stegmueller, Daniel (University of Mannheim) |
| Abstract: | This paper argues for the central role of risk aversion in shaping political ideology.We develop a political economy model to establish this link and provide empirical evidence in support of our argument. Our model distinguishes the effects of risk aversion from unemployment risk and our evidence sheds light on debates over explanations for the welfare state. We show that risk aversion is an important determinant of political-economic attitudes and is at least as important as, if not more so, an individual’s position in the income distribution. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:237&r=all |
| By: | Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This study presents an overlapping-generation model featuring probabilistic vot- ing over two policy issues: pensions and public goods. The results show that as the population ages, the pension-to-GDP ratio and the growth rate of capital increase, but the public goods-to-GDP ratio decreases. Moreover, per retiree pension-to- GDP shows a hump-shaped pattern in response to population aging, but only a rising phase is valid under empirically plausible parameter values. |
| Keywords: | Economic Growth; Population Aging; Probabilistic Voting; Public Pension; Public Goods Provision |
| JEL: | D70 E24 H55 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1417r&r=all |