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on Positive Political Economics |
| By: | Amrita Dhillon, Andrew Pickering and Tomas Sjöström |
| Abstract: | We examine default decisions under different political systems. If democratically elected politicians are unable to make credible commitments to repay externally held debt, default rates are inefficiently high because politicians internalize voter utility loss from repayment. A politician who is motivated by election concerns is more likely to default in order to avoid voter utility losses, and, since lenders recognize this, interest rates and risk premia rise. Therefore, democracy potentially confers a credit market disadvantage. Institutions that are shielded from political competition, such as independent central banks, may ameliorate the disadvantage by adopting a more farsighted perspective, taking into account how interest rates respond to default risk. Using a numerical measure of institutional farsightedness obtained from the Government Insight Business Risk and Conditions database, we find that the observed relationship between credit-ratings and democratic status is indeed strongly conditional on farsightedness. With myopic institutions, democracy is estimated to cost on average about 2.5 investment grades. With farsighted institutions there is, if anything, a democratic advantage.Keywords: Sovereign debt, Default, Risk premia, Autocracy, Democracy, Institutions JEL Classification: H63, F55, D72, D82, H75, O43, C72. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:308&r=pol |
| By: | Meriläinen; - Tukiainen Jaakko; Janne |
| Abstract: | We study how political parties select political leaders. Using regression discontinuity design and data from Finnish local elections, we find that parties use vote ranks to decide upon promotions. Moreover, we show that this primary effect is higher when competition either between or within parties is lower. We document differences in promotion patterns between parties, the primary effect being stronger in right-wing parties. This result is in line with previous research arguing that right-wing parties prefer more inclusive nomination procedures. Finally, our descriptive analysis suggests that parties weight previous political experience and candidates? policy positions in their promotion decisions more than voters value these characteristics. |
| Keywords: | Political promotions; Preference votes; Primary effect; Regression discontinuity design |
| JEL: | D72 C21 |
| Date: | 2016–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:79&r=pol |
| By: | Horacio Larreguy; Marshall, John; Laura Trucco |
| Abstract: | Clientelism is common in developing countries, and often detrimentally affects political accountability and public good provision. However, little is known about how clientelistic equilibria break down, particularly because reforms that could reduce voter dependence on incumbents for special favors may also cause voters to reward the reform?s architects. Exploiting Mexico?s federal structure and changes in incumbency over time, we separate these countervailing effects in the context of a federal land-titling program that reached nearly 2.16 million urban households over 35 years. We find that municipal incumbents, who were not responsible for the program?s implementation but often rely on weak property rights to enforce clientelistic exchanges, experience a large and persistent decrease in their vote share in electoral precincts where the program was implemented. The clientelistic capacity of future federal incumbents is diminished to a lesser degree. However, we show that this loss is more than compensated for by the lasting increase in the implementing federal incumbent?s vote share among the land titling program?s beneficiaries. Aligned municipal incumbents also successfully claim credit, receiving a smaller boost that partially offsets their loss of clientelistic capacity. These results thus demonstrate that major programmatic reforms can reduce clientelism while also rewarding incumbents for their policies while in office. |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:468666&r=pol |
| By: | Joungseok Park |
| Abstract: | I show that a credibility gap is created between the scientist and the government if the preference of the scientist is not perfectly aligned with that of the government. I find a remarkable result that the credibility gap is eliminated and the ex-ante social welfare is maximized if and only if the scientist’s preference is perfectly aligned with that of the government, not with that of the median voter. This is endogenously achieved when the government is allowed to appoint its optimal scientist without election concerns. In the case where the government has election concerns, if the median voter perceives an alarming message from the climate scientist, then even a “right-wing” government must choose an aggressive climate change policy to avoid losing the election. Accordingly, it will prefer to appoint a climate scientist who is unlikely to send an alarming message. Thus the government deliberately creates a credibility gap which may cause a distorted climate change policy in a democracy. Key Words: Climate Change; Cheap-Talk; Elections; SocialWelfare. |
| JEL: | D72 D83 H89 Q48 Q54 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:16-19&r=pol |
| By: | Stegmueller, Daniel (Duke University); Käppner, Konstantin (University of Konstanz) |
| Abstract: | While the political power of labor unions is a contentious issue in the social sciences, it is often conceived mainly as a question of aggregate union membership. Going beyond the common focus on numerical strength, we argue that unions’ influence on national lawmaking has significant roots in their local organization. We delineate and test the hypothesis that the horizontal concentration of union members within electoral districts shapes legislators’ voting behavior. Drawing on extensive administrative records, we map the membership size and concentration of union locales to districts of the U.S. House of Representatives, 2003-2012. Our new data reveal that concentration clearly cuts across membership size. Consistent with theoretical expectations, both concentration and membership are robustly linked to legislators’ ideology and votes on key issues. Lower membership concentration means more legislative support of union positions. Altogether, we suggest a new perspective on the political power of unions in the twenty- first century. |
| Keywords: | JEL Classification: |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:304&r=pol |
| By: | Federico Revelli (Università di Torino) |
| Abstract: | This paper investigates the determinants of voter turnout in a panel dataset of more than 15,000 Italian municipal elections through over a decade (2002-2013). The estimation results show a significant negative effect of the size of the electorate on voter turnout, and an effect of its demographic structure that is compatible with the political life-cycle hypothesis. Moreover, turnout is systematically higher when municipal elections are held at the same time as more salient, higher stakes contests. Finally, all ex post indicators of election closeness are estimated to influence voter turnout in the expected direction. |
| Keywords: | voting, turnout, political life cycle, salience, electoral uncertainty |
| JEL: | D72 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:ipu:wpaper:51&r=pol |
| By: | Chen, Daniel L. |
| Abstract: | Using data from 1802 to 2004, I show that U.S. Courts of Appeals judges are less likely to retire in each of the three quarters preceding a Presidential election when the party of the President at the time the judge leaves is different from the party of the U.S. President who appointed the judge. Judges are more likely to resign in each of the four quarters after a Presidential election, when the party of the President at the time the judge leaves is the same as the party of the President that appointed the judge. My results suggest that 13% of retirements and 43% of resignations are politically motivated. Previous research has not found political cycles because they relied on judges’ self-reports or conducted yearly rather than quarter-to-election analysis. I also show that these political cycles have increased in recent years, which may raise concerns about the political evolution of the judiciary. |
| Keywords: | Judicial Tenure, Counter-Majoritarian Difficulty, Polarization |
| JEL: | K00 Z1 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31128&r=pol |
| By: | Yukihiro Nishimura (Graduate School of Economics, Osaka University); Kimiko Terai (Faculty of Economics, Keio University) |
| Abstract: | This paper examined a political process and economic consequences of tax competition among asymmetric countries. Citizens are endowed with heterogeneous capital incomes. The median-voters deliberately elect a delegate whose preferences differ from their own, to pursue advantages in the international tax competition. When the countries have different productivity of the capital, the country with a low capital productivity may delegate the tax authority to a citizen who is richer than the median-voter. As a result, the outcome through strategic delegation may make the median-voters and the majority of citizens worse-off than the selfrepresentation outcome, contrary to the previous studies with symmetric countries. Similar results are obtained when the countries differ in capital endowments. In contrast, when the countries differ in population size, productive inefficiency is reduced, and the median-voters are better-off through strategic delegation. We also point out that the role of campaign promises is important for the equilibrium tax rates and citizens f welfare. |
| Keywords: | Capital tax competition; Strategic delegation; Asymmetric countries; Voter welfare |
| JEL: | C72 D72 D78 H23 H87 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1627&r=pol |
| By: | Ari Hyytinen; Jaakko Meriläinen; Tuukka Saarimaa; Otto Toivanen; Janne Tukiainen |
| Abstract: | We analyze the effect of municipal employees? political representation in municipal councils on local public spending. To quantify the effect, we use within-party, as-good-as random variation in close elections in the Finnish open-list proportional election system. One more councilor employed by the public sector increases spending by about one percent. The effect comes largely through the largest party and is specific to the employment sector of the municipal employees. The results are consistent with public employees having an information advantage over other politicians, and thus, being able to influence policy. |
| Keywords: | Close elections, political representation, public employees, public expenditures |
| JEL: | H72 D72 H75 C26 |
| Date: | 2016–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:78&r=pol |
| By: | Kirill Borissov; Mikhail Pakhnin; Clemens Puppe |
| Abstract: | In dynamic resource allocation models, the non-existence of voting equilibria is a generic phenomenon due to the multi-dimensionality of the choice space even if agents are heterogeneous only in their discount factors. Nevertheless, at each point in time there may exist a "median voter" whose preferred instantaneous consumption rate is supported by a majority of agents. Based on this observation, we propose an institutional setup ("intertemporal majority voting") in a Ramsey-type growth model with common consumption and heterogeneous agents, and show that it provides a microfoundation of the choice of the optimal consumption stream of the "median" agent. While the corresponding intertemporal consumption stream is in general not a Condorcet winner among all feasible paths, its induced instantaneous consumption rates receive a majority at each point in time in the proposed intertemporal majority voting procedure. We also provide a characterization of stationary voting equilibria in the case where agents may differ not only in their time preferences, but also in their felicity functions. |
| Keywords: | collective choice, common-pool resource, economic growth, heterogeneous agents, median voter theorem |
| JEL: | D11 D71 D91 O13 O43 |
| Date: | 2016–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:eus:ce3swp:0216&r=pol |
| By: | Mitra Akhtari; Diana Moreira; Laura Trucco |
| Abstract: | We study how political turnover, in particular a change in the political party of the mayor in Brazil, affects the turnover and profile of public employees in local governments. We find that when a new party takes office, there is inflation in the size of the bureaucracy: the share of new employees is 11 percentage points higher in municipalities with a new party in office compared to municipalities with no change in the ruling party. The hiring of new employees takes place within the first few months after the new party takes office and is not compensated for with a concurrent or eventual increase in the share of employees that leave the municipal government. We also document the source and destination employment of all those who enter and leave the municipal government and their portfolios in terms of education, prior wages and alignment between prior and current occupation to better understand selection into public office upon a change in the political party of the government. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:468676&r=pol |
| By: | Bertoli, P.; Grembi, V. |
| Abstract: | We provide a political economy interpretation of the variations in the prices of 6 obstetric diagnosis-related groups (DRGs) using Italy as a case study. Italy provides a unique institutional setting since the 21 regional governments can decide to adopt the national DRG system or to adjust/waive it. Using a panel fixed effects model, we exploit the results of 66 electoral ballots between 2000 and 2013 to estimate how obstetric DRGs are affected by the composition and characteristics of regional governments. We find that the incidence of physicians among regional politicians explains variations in DRGs with low technological intensity, such as normal newborn, but not of those with high technological intensity, as severely premature newborn. We further investigate these results by exploiting the implementation of a budget constraint policy. Applying a difference-in-difference strategy, we observe a decrease in the average levels of DRGs after the policy implementation, but the magnitude of this decrease depends on the presence of physicians among politicians and the political alignment between the regional and the national government. Finally, we rely on patient data (6,500,000 deliveries) to assess whether any of the political economy variables have a positive impact on the quality of regional obstetric systems. We find no effect. |
| Keywords: | Diagnosis-related Groups; Regional Governments; difference in differences; |
| JEL: | H51 H70 I1 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:16/33&r=pol |
| By: | Usman Qadir (Pakistan Institute of Development Economics, Islamabad) |
| Abstract: | Developed and developing countries are diverging rather than converging in their growth trajectories in contradiction to theory. Many explanations have been put forward to explain this fact but they fall short of providing an adequate account of the growth experiences of all countries. The key to explaining this divergence lies in the source of growth in developed countries on the one hand—industrial sector development, and the channel employed by developing countries attempting to emulate their experience on the other hand—industrial policy. The implementation of industrial policy in developing countries has been influenced by political economy factors such as political settlements. Against this backdrop, the interplay between political settlements and formulation and implementation of industrial policy will shed light on the experience of developing countries with industrialisation, and lessons for the future. The aim of this paper is to identify specific political economy factors that could explain the economic growth performance of Pakistan's industrial sector, by comparing two distinct periods of industrial development, and in so doing contribute to the policy debate on industrial policy in the country. his paper finds that Pakistan's political settlements have fractured over time and in doing so compromised the ability of the state to effectively monitor and enforce policies designed to influence and direct economic activity. |
| Keywords: | Political Settlements, Industrial Policy, Political Economy |
| JEL: | D72 P48 L52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2016:135&r=pol |
| By: | Murtinu, Samuele; Piccirilli, Giulio; Sacchi, Agnese |
| Abstract: | We model a two-parties electoral game in an environment where voters are imperfectly informed on the administrative ability of each party. In equilibrium, parties try to manipulate voters’ beliefs and implement fiscal policies that are looser than the social optimum. The size of this deviation from optimality increases with the incentive of parties to manipulate, the voters’ information disadvantage, and the interaction between these two elements. We test our theoretical predictions on a sample of 23 OECD countries over the period 1999–2008. We measure the incentive to manipulate voters’ beliefs through the ideological cohesion of the cabinet (i.e. government polarization), and the scope to manipulate such beliefs through the level of voters’ economic literacy. We find that polarized governments tend to worsen fiscal balances, and this is more likely in countries where the voters’ economic literacy is low. However, such tendency vanishes as literacy increases, suggesting that polarization leads to biased fiscal policies only when there is enough room for manipulation. Our results remain stable after controlling for potentially confounding differences across countries and over time – such as individuals’ education attainments, electoral and institutional systems, voter turnout –, several types of falsification tests, time dynamics and unobserved heterogeneity. |
| Keywords: | Budget balance; Government polarization; Electoral game; Economic literacy |
| JEL: | D72 E62 H62 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74864&r=pol |
| By: | Samuele Murtinu (University of Groningen); Giulio Piccirilli (Universitas Mercatorum); Agnese Sacchi (Sapienza University of Rome & Governance and Economics research Network (GEN)) |
| Abstract: | We model a two-parties electoral game in an environment where voters are imperfectly informed on the administrative ability of each party. In equilibrium, parties try to manipulate voters’ beliefs and implement fiscal policies that are looser than the social optimum. The size of this deviation from optimality increases with the incentive of parties to manipulate, the voters’ information disadvantage, and the interaction between these two elements. We test our theoretical predictions on a sample of 23 OECD countries over the period 1999–2008. We measure the incentive to manipulate voters’ beliefs through the ideological cohesion of the cabinet (i.e. government polarization), and the scope to manipulate such beliefs through the level of voters’ economic literacy. We find that polarized governments tend to worsen fiscal balances, and this is more likely in countries where the voters’ economic literacy is low. However, such tendency vanishes as literacy increases, suggesting that polarization leads to biased fiscal policies only when there is enough room for manipulation. Our results remain stable after controlling for potentially confounding differences across countries and over time – such as individuals’ education attainments, electoral and institutional systems, voter turnout –, several types of falsification tests, time dynamics and unobserved heterogeneity. |
| Keywords: | budget balance, government polarization, electoral game, economic literacy |
| JEL: | D72 E62 H62 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:ipu:wpaper:50&r=pol |
| By: | Joungseok Park |
| Abstract: | I test the theoretical predictions from Park (2016) that the right-wing politicians will distort environmental policy to avoid losing the election. I study how the population environmental preferences, as measured by the LCV scores, influence state governors to become more concerned about the environment. From a U.S. panel data in the period of 1971-2007, I find the Republican state governors increase the environmental expenditure per capita by approximately 1.5 percent as the Democrat LCV scores increase by 1 percent; and they increase the environmental expenditure per capita by 4.8 percent as the Republican LCV scores decrease by 1 percent. That is, Republican governors respond positively to the environmental preferences of Democrats, but not to that of Republicans. Key Words: Democracy; Environmental Policy. |
| JEL: | Q48 Q54 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:16-20&r=pol |
| By: | Andrea Bonfatti (University of Padova); Lorenzo Forni (University of Padova) |
| Abstract: | The paper provides evidence that fiscal rules can limit the political budget cycle. It uses data on Italian municipalities during the early 2000 and shows that: 1) municipalities are subject to political budget cycles in capital and total spending; 2) the Italian sub-national fiscal rule introduced in 1999 has been enforced by the central government; 3) municipalities subject to the fiscal rule show more limited political budget cycles than municipalities not subject to the rule. In order to identify the effect, we rely on the fact that the domestic fiscal rule does not apply to municipalities below 5,000 inhabitants. We find that the political budget cycle increases real capital spending by about 15 percent on average, and total spending by 5 percent, in the years prior to municipal elections and that the sub-national fiscal rule reduces these figures by about one third. A regression discontinuity analysis around the 5,000 threshold reinforces these results, as the reduction in capital spending in pre-electoral years for municipalities subject to the fiscal rule is about two-thirds as compared to the municipalities not subject to the rule. |
| Keywords: | fiscal rules, local government finance, difference-in-difference. |
| JEL: | C21 C23 H62 H72 H77 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0208&r=pol |
| By: | Mitra Akhtari; Diana Moreira; Laura Trucco |
| Abstract: | We study how political party changes in mayoral elections in Brazil affect the provision of public education. Exploiting a regression discontinuity design for close elections, we find that municipalities with a new party in office have test scores that are 0.07 standard deviations lower than comparable municipalities with no change in the ruling party. Party turnover leads to a sharp increase in the replacement rate of headmasters and teachers in schools controlled by the municipality. In contrast, we show that changes in the party of the mayor do not impact the rate of replacement of school personnel or student test scores for local (non-municipal) schools that are not controlled by the mayor's office. The findings suggest that political turnover in Brazilian municipalities negatively impacts student outcomes through political discretion over the municipal education bureaucracy. Political turnover can adversely affect the quality of public service provision in environments where the bureaucracy is not shielded from the political process. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:468671&r=pol |
| By: | Chen, Daniel L.; Lind, Jo Thori |
| Abstract: | Why are religious groups with greater within-group charitable giving more socially conservative and opposed to the welfare state? We propose and test a theory where religious provision of social insurance explains why fiscal and social conservatism align. The alignment disappears when there is a state church and reverses for members of a state church. This reversal is unlikely to be driven by omitted environmental variables: exogenous increases in church-state separation precede increases in the alignment between fiscal and social conservatism. The theory provides a novel explanation for religious history: as elites gain access to alternative social insurance, they judiciate increasing church-state separation to create a constituency for lower taxes. This holds if religious voters exceed non-religious voters, otherwise, elites prefer less church-state separation in order to curb the secular left, generating multiple steady states where some countries sustain high church-state separation, high religiosity, and low welfare state, and vice versa. We use this framework to explain the changing nature of religious movements, from Social Gospel to the Religious Right, and why church-state separation arose in the U.S. but not in many European countries. |
| Keywords: | Voting, Religion, Ideology, Church-State Separation, Welfare State |
| JEL: | D31 D71 D78 I38 Z12 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31129&r=pol |
| By: | Chen, Daniel L.; Lind, Jo Thori |
| Abstract: | Why are religious groups with greater within-group charitable giving more socially conservative and opposed to the welfare state? We propose and test a theory where religious provision of social insurance explains why fiscal and social conservatism align. The alignment disappears when there is a state church and reverses for members of a state church. This reversal is unlikely to be driven by omitted environmental variables: exogenous increases in church-state separation precede increases in the alignment between fiscal and social conservatism. The theory provides a novel explanation for religious history: as elites gain access to alternative social insurance, they judiciate increasing church-state separation to create a constituency for lower taxes. This holds if religious voters exceed non-religious voters, otherwise, elites prefer less church-state separation in order to curb the secular left, generating multiple steady states where some countries sustain high church-state separation, high religiosity, and low welfare state, and vice versa. We use this framework to explain the changing nature of religious movements, from Social Gospel to the Religious Right, and why church-state separation arose in the U.S. but not in many European countries. |
| Keywords: | Voting, Religion, Ideology, Church-State Separation, Welfare State |
| JEL: | D31 D71 D78 I38 Z12 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:iastwp:31143&r=pol |
| By: | Omar A. Guerrero; Ulrich Matter |
| Abstract: | Cooperation in the form of vote trading, also known as logrolling, is central for law-making processes, shaping the development of democratic societies. Empirical evidence of logrolling is scarce and limited to highly specific situations because existing methods are not easily applicable to broader contexts. We have developed a general and scalable methodology for revealing a network of vote traders, allowing us to measure logrolling on a large scale. Analysis on more than 9 million votes spanning 40 years in the U.S. Congress reveals a higher logrolling prevalence in the Senate and an overall decreasing trend over recent congresses, coincidental with high levels of political polarization. Our method is applicable in multiple contexts, shedding light on many aspects of logrolling and opening new doors in the study of hidden cooperation. |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1611.01381&r=pol |
| By: | Sascha O. Becker, (University of Warwick); Thiemo Fetzer (University of Warwick); Dennis Novy (University of Warwick) |
| Abstract: | On 23 June 2016, the British electorate voted to leave the European Union. We analyze vote and turnout shares across 380 local authority areas in the United Kingdom. We find that fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their age and education profiles as well as the historical importance of manufacturing employment, low income and high unemployment. Migration was relevant only from Eastern European countries, not from older EU states or non-EU countries. We also find an important role for fiscal cuts being associated with Vote Leave. Our results indicate that modest reductions in fiscal cuts could have swayed the referendum outcome. In contrast, even drastic changes in immigration patterns would probably not have made a difference. We confirm the above findings at the much finer level of wards within cities. Our results cast doubt on the notion that short-term campaigning events had a meaningful influence on the vote. |
| Keywords: | JEL Classification: Political Economy, Voting, Migration, Austerity, Globalisation, UK, EU |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:305&r=pol |
| By: | Alan Gelb and Anna Diofasi |
| Abstract: | Elections have emerged as a leading area for the application of biometric technology in developing countries, despite its high costs and uncertainty over its effectiveness. One-off voter registrations, as practiced in many countries and supported by donors, also often leave nothing behind in terms of permanent, sustainable, identification assets. Why then do donors support such programs? The paper considers the costs and benefits of technology, where the latter involves its potential to reduce the probability of seriously disputed elections that escalate into violence. |
| Keywords: | biometrics, elections, democracy, development |
| JEL: | D72 D74 F35 O32 O33 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:435&r=pol |
| By: | Kouramoudou Keita; Hannu Laurila (School of Management, University of Tampere) |
| Abstract: | In the economic literature, the nexus between economic growth and corruption is well covered, but there are only few empirical studies on cyclical variation of corruption. Gokcekus & Suzuki (2011) in one such study. It finds that transitory income and corruption vary in parallel, thus confirming the famous claim of Galbraith (1997) that embezzlement flourishes in business booms and withers in recessions. This paper tests the general validity of the finding by using a more extensive dataset. The results are conflicting: corruption is found to shrink with the increase in transitory income and vice versa. In other words, economic booms foster integrity, and recessions make corruption bloom. |
| Keywords: | embezzlement, permanent income, transitory income |
| JEL: | D73 E32 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:tam:wpaper:1602&r=pol |
| By: | Kouramoudou Keita; Hannu Laurila (School of Management, University of Tampere) |
| Abstract: | The paper is an econometric study of the economic effects of corruption in African countries. In economic literature, the mainstream view is that corruption is plainly detrimental (the Sanding the Wheels Hypothesis, SWH). Still, efficient corruption gains considerable support, too, particularly in the context of bad governance (the Greasing the Wheels Hypothesis, GWH). In this paper, the effects of corruption on Gross Domestic Product (GDP per capita) and investments (Investment to GDP Ratio) are estimated with respect to several indicators that measure the quality of governmental and social institutions. The paper finds substantial proof for GWH. Corruption enhances economic growth in countries suffering from problems in public management, business environment, infrastructure, or rural sector. Corruption fosters investments in countries encountering shortcomings in terms of safety and legislation, or political participation and human rights. Corruption has positive effects on both growth and investments, if public health, social welfare, or education are flawed by bad institutions. To sum up, while SWH holds in the big picture, GWH is also valid for many African economies with depressing socioeconomic conditions. Therefore, efforts should be put rather on reinforcing institutions than on plain battle against corruption. |
| Keywords: | corruption, growth, institutions, investments |
| JEL: | D73 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:tam:wpaper:1699&r=pol |
| By: | Kouramoudou Keita; Hannu Laurila (School of Management, University of Tampere) |
| Abstract: | In the economic literature, a common view is that corruption is more an institutional problem than a market failure: malfunctioning bureaucracy makes firms turn to corruption. Following this viewpoint, major International Financial Institutions urge developing countries to improve their governance in order to secure efficiency in all international transactions. Still, some observers claim that rent-seekers deliberately provoke institutional malfunctioning in order to extract private gains. This is to say that corruption is a built-in element of poor governance. This paper tackles this endogeneity issue by testing for Granger causality between bad governance and corruption. The test utilizes dynamic panel data of 117 countries, consisting of World Bank’s WGI indicators from 1996 to 2013. The paper finds substantial proof for causal effects between poor governance and corruption, the causal direction depending on specific measures of the quality of governance. In particular, the findings show that global anti-corruption efforts have made these causalities clearer, and that they depend on country-specific socio-economic mentalities. |
| Keywords: | endogeneity, governance indicators, institutions |
| JEL: | D73 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:tam:wpaper:1698&r=pol |
| By: | Farina, Francesco; Tamborini, Roberto |
| Abstract: | The aim of the 'Five Presidents Report' cited in the title acknowledges that an important driver of the European economic crisis has been the faulty original design of the Monetary Union, and that substantial steps are urgently needed towards the creation of truly supranational institutions. Yet economists tend to neglect that however compelling economic analyses may be, the stumbling block on the way of the reform of the Monetary Union is political will, and that in democracies the ultimate source of political will comes from electors. In this paper, first of all the authors wish to bring to the economists' attention some recent analyses of citizens' attitudes towards Europe from political science. Then, by cross-referencing the results of the 2014 elections of the European Parliament with Eurobarometer opinion polls eliciting judgements for the EU vis-à-vis home countries and an indicator of economic pain, they show the presence of a geo-economicpolitical cleavage across four groups of countries. This is more complex, and perhaps worse, than the simplistic divide between 'North' and 'South' or 'Core' and 'Periphery'. The main implication is that the EU experiences a stalemate between 'more Europe vs. less Europe' at the level of peoples, which seriously undermines support for further integration 'from below'. |
| Keywords: | European Economic and Monetary Union,economic crisis,European integration,Eurobarometer opinion polls,2014 elections of the European Parliament |
| JEL: | E02 E42 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201644&r=pol |
| By: | Sascha O. Becker (University of Warwick); Thiemo Fetzer (Economic geography, market potential, structural gravity, trade costsAbstract: The 2004 accession of 8 Eastern European countries (plus Cyprus and Malta) to the European Union (EU) was overshadowed by feared mass migration of workers from the East due to the EU’s rules on free mobility of labour. While many incumbent EU countries imposed temporary restrictions on labour mobility, the United Kingdom did not impose any such restrictions. We document that following accession at least 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. Places that received large numbers of migrants from Eastern Europe saw a significant increase in anti-European sentiment after 2004, measured by vote shares for the UK Independence Party (UKIP) in elections to the European Parliament. We show that the migration wave depressed wages at the lower end of the wage distribution and contributed to increased pressure on public services and housing.) |
| Keywords: | Political Economy, Migration, Globalization, Voting, EU JEL Classification: R23, D72, N44, Z13creation-date: 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:306&r=pol |