Modeling political change with a regime-switching model

The purpose of this paper is to investigate whether legislators vote in two distinct regimes as suggested by the U.S. political system and whether these voting patterns can be explained by economic variables. The paper exploits U.S. Roll-Call votes from a rich unbalanced panel data set of 540 legislative positions over 104 Congressional sessions and Presidents since the Korean War. The paper employs a variant of the Hamilton Regime-Switching Model (1989) to uncover three major patterns in the data. There appear to be two distinct regimes closely related though not identical to the two-party system. Shifts in these regimes are most frequent in Presidential elections and are less frequent in the Senate and the House. Finally, since World War II, economic variables do not seem to influence the shifts implying that these political shocks are exogenous. However, over longer horizons, recessions do tend to force political change in the legislature.     

Why is free education so popular? A political economy explanation

This paper analyzes the political support for different funding regimes of education in a one‐person, one‐vote democracy. We focus the analysis on four systems that have had a preponderant presence in the political debate on education: a private system, a public system that delivers the same resources to each student (universal‐free education), a public system that intends to equalize results, and a public system that aims to maximize the output of the economy. We show that a system of universal free education is the Condorcet winner. The level of income inequality and the degree to which income distribution is skewed to the right are key factors behind this conclusion. We also show that the voting outcome of public versus private funding for education depends crucially on the type of public funding under consideration.     

The Political Economy of Postmaterialism: Material Explanations of Changing Values

This paper uses a dynamic stochastic general equilibrium (DSGE) model of the US political economy to explore the impact of public insurance on the way individuals react to partisan changes in economic policy. In response to these aggregate political shocks, individuals rely on public insurance to insulate them from government-induced volatility in consumption. As a result, the public appears to be relatively less materialistic in its vote choices as well as in "values" surveys, but only because its underlying materialism has less political salience. Thus this insurance model provides an alternative analysis of the rise of "postmaterialist values" and their relation to unemployment.     

Does oil corrupt? Evidence from a natural experiment in West Africa

This paper explores the oil discovery announcements in Sao Tome and Principe (1997-1999) to assess the role of natural resources in determining corruption. For this purpose, we use a natural experiment framework which contrasts Sao Tome and Principe to Cape Verde, a control West African country sharing the same colonial past and important recent economic and political shocks. Our measurement is based on tailored household surveys we conducted in both island countries. The unique survey instrument was retrospective and used personal histories to elicit memories from the respondents. We analyze changes in perceived corruption across a wide range of public services and allocations. We find clearest increases on vote buying, education (namely in the allocation of scholarships) and customs, ranging from 31 to 40% of the subjective scale. We interpret these findings as symptoms of increased competition for core state resources.     

Maximizing votes under imperfect information

This paper presents an alternative, sympathy voting, to the usual public choice approaches. It deals with voters whose decision depends both on an economic component and a sympathy component. The politician is perfectly informed of the economic component, but not of the sympathy component. The paper compares vote maximization under sympathy voting to the maximization of votes which come from pure homines oeconomici. Sympathy voting is defined in such a way that pure economic voting is its limiting case. The latter property can be used to apply the classical Lagrangean technique to maximizing votes under economic voting. The approach is applied to two typical examples of political choice: the property tax/local public expenditure decision, and public pricing of local public utilities.     

An experimental study of democracy breakdown,income and inequality

Many empirical studies investigate the relationships between economic development, inequality, and democracy survival; however, establishing causal links with naturally occurring cross-country data is problematic. We address this question in a laboratory experiment, where in democracy citizens can invest in profitable projects and vote on income taxation. In the alternative regime—autocracy—efficient investment levels and equitable redistribution are implemented exogenously, but there is a risk of resources being partially expropriated. Citizens can voluntarily switch from democracy to autocracy by a majority vote, which mimics recent historical examples, where voters voluntarily delegate political powers to an autocrat in exchange for a promise of high taxation and redistribution. We find that the likelihood of democracy breakdown increases with the degree of inequality but does not vary with productivity. The link between productivity and democracy survival depends critically on the degree of sophistication of the median voter.     

Decentralisation or patronage: What determines government's allocation of development spending in a unitary country? Evidence from Bangladesh

This paper contributes to the decentralisation and distributive politics literature by empirically investigating the determinants of public expenditure at the sub-national level in Bangladesh. We argue that fragmentation in a unitary developing country may not channel higher resources to local areas. Political motives may instead play a significant role in the allocation process. Using panel data methods and a novel dataset on government's district-wise allocation of annual development expenditure in Bangladesh covering the period from 2005 to 2009, the analysis focuses on the impact of local government fragmentation and tests key political distribution models (the core voter hypothesis, the swing voter hypothesis, and the political alignment theory). The results show that local government fragmentation does not have any significant impact on public spending at the district level. However, the core vote share, local elected representative's political alignment with the ruling party, and the raw number of ministers from a district are all significantly associated with higher expenditure allocation. No evidence was found in support of the swing voter hypothesis. Overall, the findings suggest that political motives matter and that the allocation of developing spending is significantly influenced by political patronage. This may be a signficant obstacle to SDGs progress, as development spending may not be governed by resource delivery mechanisms that effectively target the poor.     

Predicting presidential election results

The 2004 US presidential election proved again how difficult it is to predict vote shares on the basis of polls. Midday media exit polls suggested that Senator Kerry would become the 44th President. Political scientists and econometricians, led by Ray Fair, have promulgated theoretical arguments and empirical results to predict US presidential elections, using macro-economic data and political factors. Respecifying Fair's war variable to include Korea and Vietnam and removing serial correlation improves his election forecasting without public opinion poll variables. This generalized Fair model predicts President Bush's two-party vote share would be 52.3 percent, well below predictions by Fair and prestigious political scientists.     

Electoral and welfare consequences of political manipulation of the economy

This paper examines the long-term electoral and welfare consequences of repeated strategies whereby a political office-holder induces cycles in economic variables to maximize his chances of re-election. Unlike other studies of political business cycles, we focus on questions of the desirability of these cyclical patterns and on the long-run properties of these political economic models. Noting that the welfare costs of vote maximizing in a single term extend beyond that term, we examine in detail the properties of the ‘long-run equilibrium path’ to which such cycles converge. If the economy starts above this path, vote maximizing can lead to increased social welfare and vote margins. However, if the economy starts below this path, vote-maximizing in the present can cause reduced votes and electocal defeat in subsequent terms. This possibility should lead a far-sighted, enlightened politician or political party to eschew vote-maximizing tactics and the political business cycles which accompany them and thus canhelp explain why empirical studies have not found convincing evidence of the existence of such cycles. This paper also quantifies the dependence of this long-run equilibrium path on the important political and economic parameters of the model.     

Zur Wahlzyklik wirtschaftspolitischer Maßnahmen

Summary Election cycles of economic policy measures: An empirical test of the votemaximizing hypothesis.A special characteristic of the economic theory of democracy lies in the assumption of the behaviour of politicians: they are not as much striving for the advancement of public interest but display much rather a behaviour of utility maximization. It is their goal to win the next elections. Public preferences are taken into consideration only because voters seem to favour the political party whose election pledge most closely corresponds to their own ideas. Assuming further that voters are forgetful, we can derive the hypothesis that governments set popular (i.e. vote capturing) economic policy measures ahead of elections and unpopular ones right afterwards. In this paper we test this hypothesis using the increase of political prices and the development of certain categories of public expenditure as explanatory variables.Administered prices and public tariffs proved greatly dependent upon the timing of elections. For all of the tariffs under examination a statistically significant predominance of increases (unpopular) could be observed shortly after elections. The extent of the increase, however, does not appear to have any correlation with the election date.As to popular government expenditures, only subsidies have been paid clearly in line with election cycles in the period under consideration.As to further spending categories, our hypothesis appears to be directionally confirmed, yet the data available is infufficient for a statistically significant proof. Besides, especially in the case of Austria, other factors seem to be important in the determination of economic policy measures as well. Some reasons are given in this paper.     

Why Sweden's pension reform was able to be successfully implemented

Governments that do not reform pay-as-you-go (PAYG) pension systems will eventually face a pension crisis. In a democracy, reforms require majority support. The problem is that pension reform requires today's generation to bear the burden to avoid burdening tomorrow's generation. Sweden recently passed pension legislation that specifies a gradual transition from a public defined-benefit plan to a defined contribution plan. Why was Sweden successful in reforming its pension system? We find that a political economy perspective helps to answer this question: there are more winners who would vote in favour of the reform than non-winners who would vote against it. When comparing the net effect (present value of expected benefits minus present value of remaining contributions) of the new and old systems, contributions of the working generation (age < 53) are reduced by more than their expected benefits.     

Vote buying and campaign promises

What explains the wide variation across countries in the use of vote buying and policy promises during election campaigns? We address this question, and account for a number of stylized facts and apparent anomalies regarding vote buying, using a model in which parties cannot fully commit to campaign promises. We find that high vote buying is associated with frequent reneging on campaign promises, strong electoral competition, and high policy rents. Frequent reneging and low party competence reduce campaign promises. If vote buying can be financed out of public resources, incumbents buy more votes and enjoy an electoral advantage, but they also promise more public goods. Vote buying has distributional consequences: voters targeted with vote buying pre-election may receive no government benefits post-election. The results point to obstacles to the democratic transition from clientelist to programmatic forms of electoral competition: parties may not benefit electorally from institutions that increase commitment.     

ALL IN: AN EMPIRICAL ANALYSIS OF LEGISLATIVE VOTING ON INTERNET GAMBLING RESTRICTIONS IN THE UNITED STATES

In 2006, the U.S. Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA) which prohibited financial institutions from processing transactions arising from online gaming activities, thereby severely hindering U.S. residents from participating in online casino games, primarily poker. Enactment of this legislation followed lobbying and political pressure from a variety of interest groups. By examining House roll call votes, we identify empirically the sources of political influence that resulted in passage of the internet gambling legislation. We find that party affiliation was of primary importance, with Republicans more likely to vote in favor of the bill. The percentage of constituents who are Evangelical Christians and also the number of gambling establishments in the district were positively associated with votes for the bill. However, contributions from the gaming industry decreased the probability a congressman would vote for the bill. (JEL D72, L83)     

转型期中国县级政府的客观治理绩效与政治信任——从“经济增长合法性”到“公共产品合法性”

善治是中国政府的执政要务,政治信任反映着公民对政府治理的认可和支持。文章利用2008年中国公民意识调查及政府统计数据,实证分析了政府治理绩效的主观和客观维度对政治信任的影响。研究发现,公民对政府在经济增长、民生福利、纯公共产品领域治理绩效的回顾性和前瞻性积极评价都正相关于政治信任;纯公共产品提供的主观评价对政治信任的影响大于经济增长和民生福利。县级政府的客观治理绩效对政治信任有重要影响,在高人均福利支出、低基尼系数和低失业率的县级单位,政治信任更高,而人均GDP反而微弱地负作用于政治信任。因此,尽管经济增长仍然是政治信任的重要来源,但民生福利和纯公共产品正赶上并超越经济增长,成为公民提供政治信任的新源泉。     

“The mother of all political problems”? On asylum seekers and elections

As immigration to Europe has increased, so has support for extremist parties. While many studies have examined the effect of immigration on election outcomes, few have probed the effect of asylum seekers – those fleeing strife and persecution – on voting, nor has there been much research on the mediating role of local economic conditions. Drawing on county level panel data from Germany, our study fills both gaps. We find that economic circumstances, as measured by the unemployment rate and the level of disposable income, condition voters’ responses to the presence of asylum seekers, but the effects for parties on the far right and left diverge markedly. Under economic prosperity, immigration increases support on both sides of the political spectrum. As economic conditions worsen, however, the effect of asylum seekers on the vote share for the far right remains stable, but weakens for the left, eventually becoming negative. This divergence – which has not yet been reported in the literature – suggests that an influx of asylum seekers, particularly when coupled with an economic downturn, could tilt a political system rightwards. From a policy perspective, these results suggest that heterogeneity arising from local economic conditions has important implications for the regional allocation of asylum seekers.     

WESTERN RANGELANDS REFORM: AN ANALYSIS OF THE 1996 SENATE VOTE ON FEDERAL GRAZING FEES

Grazing of livestock on public lands is a controversial environmental issue, despite a long history of federal regulation of this activity. Environmentalists and economists have argued that grazing fees charged by the Bureau of Land Management subsidize livestock operators and that higher fees would help bring rangeland usage in line with environmental and economic goals. In 1996, the U.S. Senate voted to determine whether higher fees would be charged for use of federally owned land. Based on a theoretical model, probit regressions are used to analyze this vote with respect to the influences of the general electorate, special interests, party affiliation, senatorial preferences, and electoral security. We find that political competition among producers utilizing federal lands was a crucial factor in determining voting decisions. However, environmental interests had a smaller direct impact on the grazing fee vote.     

ON THE IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH: DOES COUNTRY RISK MATTER?

This study examines the nonlinear impacts of four country risk indices on the debt‐growth nexus for 61 countries in a panel data framework. Our results show evidence of the different debt‐growth nexus under the different degrees of country risk. Under a high‐risk environment, a country's economic growth is harmed by raising its public debt. The negative effects public debt has on economic growth become weak under low political and financial‐risk environments, while an increase in public debt could help to stimulate economic growth under low composite and economic risk environments. In addition, the differences of countries' income and debt levels also lead country risks to have different effects on the debt‐growth nexus, suggesting that a country should borrow appropriately based on its current risk environments while improving economic performance. (JEL C33, E02, H63, O43)     

Growth, Inequality, and Integration: A Political Economy Analysis

The issue of political integration between two countries (more generally two political constituencies) for economic reasons is studied within the context of a simple endogenous growth model with a productive public good financed by taxation. We consider two countries that initially differ in terms of average endowment, size, and inequality. Because taxation affects the distribution of income both within and between countries, we are able to show how integration impacts it over the entire time horizon. The decision to integrate or not is made by the two national median voters. We establish the net gain for any individual in any country derived from integration and offer a simple decomposition of this gain. It is then proven that even though integration generates aggregate gains for both countries through an endogenous growth mechanism related to size, it may be in the interest of either median voter not to vote for integration given the transformation in the inequality schedule it implies. Surprisingly, even the poorer median voter may vote against integration. Turning to the process of union building, we prove that, once it is decided, integration is irreversible. Countries may initially decide against integration yet be willing to reverse this decision in a subsequent period.     

The political economy of Brexit: explaining the vote

The UK’s closely contested Brexit vote to leave the EU is expected to have a significant impact on the UK and EU. While calculating the impact of Brexit is difficult since the UK is still formally a member of the EU, understanding the vote is possible. Leading up to the referendum, public opinion was divided along demographic and economic lines. This article uses referendum results at the local government level to test whether national, racial, religious and economic factors actually influenced the vote. Results indicate that demographic variables played a role while economic variables did not.