Revenue decentralization,central oversight and the political budget cycle: Evidence from Israel

This paper examines whether revenue decentralization and direct external financial supervision affect the incidence and strength of political budget cycles, using a panel of Israeli municipalities during the period 1999–2009. We find that high dependence on central government transfers – as reflected in a low share of locally raised revenues in the municipality's budget – exacerbates political budget cycles, while tight monitoring – exercised through central government appointment of external accountants to debt accumulating municipalities – eliminates them. We also find that this pattern is predominantly accounted for by development expenditures. These results suggest that political budget cycles can result from fiscal institutions that create soft budget constraints: that is, where incumbents and rational voters can expect that the costs of pre-election expansions will be partly covered later by the central government.     

The measurement of disaster risk: An example from tropical cyclones in the Philippines

What determines disaster fatalities? We develop a tool to estimate tropical cyclone‐induced fatalities in the Philippine provinces, and to explain the variability of these fatalities across provinces using an evidence‐based approach. We construct a new provincial‐level panel dataset, and use statistical methods to assess the influence of socioeconomic vulnerability (i.e., levels of economic and social development, urbanization, governance), exposure (i.e., population, topography, and geography), and hazard characteristics (i.e., rainfall volume and wind speed) on the resulting fatalities from tropical cyclones. We find strong evidence that socioeconomic development and good local governance reduces disaster fatalities, while unplanned urbanization is associated with more fatalities. Exposure, including topography, and tropical cyclone strength are likewise important determinants of fatalities. However, disaster fatalities appear to be influenced much more by socioeconomic vulnerability and exposure, than by the hazard itself. We quantify this difference in order to contribute to policy planning at national and subnational scales.     

Ideological Divide within the Cabinet and Public Spending

A budget, i.e., spending by category, is prepared by the cabinet of (three key) ministers. The finance minister wants to minimize total spending, while the rest have single‐peaked preferences over budgets and each views his own spending as relatively more important. The goal is to understand effects of polarization in spending priorities,—or divergence of the ideal points,—on the budget under two typical budgeting procedures. If the procedure is “fragmented,” i.e., the finance minister just passively compiles spending requests, then the divergence of the ideal budgets increases total spending. If the procedure is more centralized, i.e., challenging the initial proposal of the finance minister is costly, and it also requires support of another minister, then polarization may lead to a tighter budget, as it enlarges the set of the unchallenged proposals, provided the ideals of the spending ministers are sufficiently far apart.     

Capability and opportunism: Evidence from city officials in China

Opportunism is prevalent in political competition and public policy making. This paper investigates how opportunism is mitigated by capabilities among city leaders in China. Taking advantage of China’s institutional setup with ample bureaucratic transfers, the paper estimates leaders’ capabilities as their personal contributions to local economic growth. The paper finds strong evidence of political business cycles – a typical form of political opportunism – as manifested by a significant boost in the growth rate preceding the Communist Party’s national congress. However, more capable leaders are found to generate more modest political business cycles than less capable ones do. The findings suggest that, to the extent that political selections are associated with the long term reputation of officials, career-concerned opportunism is at least partially moderated by the selection of capable officials in China. The paper provides supportive evidence for the reputation model of political business cycles as well as enriches the study of government officials in weak institutional environments.     

The effect of female representation on political budget cycle and public expenditure: Evidence from Italian municipalities

This study analyzes the impact of the gender composition of political institutions on the political budget cycle (PBC) and on the size and structure of public expenditure. An instrumental variable approach is implemented to evaluate the influence of female politicians in municipal councils. The introduction of gender quotas for Italian municipalities is used as an exogenous variation in female participation in politics. The results show that: (i) fluctuations in local public spending are only slightly affected by the presence of a wider female representation; (ii) an increase in the number of elected women reduces the overall amount of public expenditure; (iii) this reduction involves fields typically affected by PBC (e.g., roads' maintenance) except those related to females' needs (e.g., kindergarten, primary education, and social care).     

和谐社会与我国公共预算资金利益博弈

无论何种政体,在公共预算中都有一定的资金分配方法,各种公共预算资金分配的不同方法的深层原因是不同利益主体在不同的政体要求下对公共预算资金合法博弈的结果,我国公共预算资金分配也不例外.本文从我国公共预算资金分配的现状出发,探讨了我国目前公共预算资金利益博弈的各种具体表现形式及今后需要改进的一些方面,以期在我国逐步建立和谐而文明的小康社会中,在公共预算资金的科学、合理、合法分配的制度化、民主化建设的过程中,提供一些参考依据.     

地方官员引领产业结构变动

新结构经济学在理论上揭示了发展中国家政府引领产业结构变动的可能性。本文构造了中国省级官员与四位数制造业产业结构变动相匹配的面板数据,系统分析省级官员对辖区产业结构变动的影响,结果发现,在1998—2007年间,平均而言,省委书记省长在短期内能引领辖区产业结构变动;其引领效应随任期增加而下降。本文的发现是相当稳健的,揭示了产业结构变动在短期可以靠官员,在长期主要靠市场。     

地方官员引领产业结构变动

新结构经济学在理论上揭示了发展中国家政府引领产业结构变动的可能性。本文构造了中国省级官员与四位数制造业产业结构变动相匹配的面板数据,系统分析省级官员对辖区产业结构变动的影响,结果发现,在1998-2007年间,平均而言,省委书记省长在短期内能引领辖区产业结构变动;其引领效应随任期增加而下降。本文的发现是相当稳健的,揭示了产业结构变动在短期可以靠官员,在长期主要靠市场。     

Discussing the political survival of Romanian ministers since 1989—Do economic conditions matter?

Political longevity in young democracies has attracted the attention of scholars and practitioners alike due to several particular characteristics of such democracies, such as a low level of trust, a low level of credibility, corruption, economic difficulties, a less well‐established rule of law and an increased bureaucracy. In such a context, we studied the tenure duration of Romanian ministers since 1989, as well as their accumulated political longevity in ministerial offices. Using proportional hazards regression, we observed some peculiarities in the young Romanian democracy in comparison with more established regimes. We observed that left‐wing majorities tend to increase the probability of seat changes and thus diminish tenure longevity. We also observed that good economic conditions may lead to the substitution of certain types of ministries, while higher inflation rates tend to shorten tenure longevity for Romanian ministers. Moreover, our estimations support the finding that Romanian ministers tend to have shorter tenures as the number of past ministerial functions increases and that the burden of simultaneously managing various ministries significantly contributes to the shorter political longevity of a given minister. Finally, recent ministers have had longer tenures than those in the first years after the fall of communism in Eastern Europe in 1989.     

The effectiveness of fiscal institutions: International financial flogging or domestic constraint?

Many have argued that financial markets are crucial in ensuring that governments maintain sustainable fiscal balances - the so called ‘market discipline hypothesis’. A recent version of this theory holds that both fiscal rules and fiscal transparency are necessary to enable markets to discipline overspending governments. I argue, however, that while these fiscal institutions are effective at improving governments fiscal balances, financial markets are likely not the causal mechanism which discipline governments’ fiscal policies. Instead, I propose that fiscal rules and transparency promote better budget balances because domestic political actors use fiscal institutions to constrain executive policymaking. I test these competing hypotheses of why these fiscal institutions are effective – financial markets vs political competition – and find that country budget balances are increased not as a consequence of financial markets, but when the level of political competition and civil society engagement is sufficiently high. These results are robust to accounting for the possible selection bias of who adopts fiscal institutions.     

Income Shocks,Inequality, and Democracy*

In this paper, motivated by contradictory evidence on the effect of income on democracy, we investigate the hypothesis that it is income shocks – major income fluctuations relative to the trend – rather than marginal year‐on‐year variation in income levels that lead to non‐trivial changes in the quality of political institutions. Empirical results provide support for this hypothesis, and show how income inequality plays a crucial role in the effects of economic shocks on democracy. In particular, negative income shocks reveal a positive effect on democracy in countries with high inequality, and vice versa.     

Riding High: Success in Sports and the Rise of Doping Cultures

In this paper, I develop a socioeconomic model that can be used to investigate the decisions made by professional athletes concerning doping. In their evaluation of whether to use performance‐enhancing drugs, athletes consider not only costs and benefits (through rank improvement) but also the approval from fellow athletes toward pro‐doping decisions. Peer‐group approval is modeled as a lagged endogenous variable, depending on the share of doping athletes in the history of a sport. As such, the model can explain an equilibrium of high incidence of doping as a “doping culture”. In addition to presenting comparative statics of the equilibrium (i.e., in order to answer the question of how a doping culture can be eliminated), I also investigate how doping decisions are affected by the standards set by the leader in a sport (e.g., Olympic qualification marks), and by the disproportionate public veneration of winners.     

Remittances and household expenditure behaviour: Evidence from Senegal1

We use different econometric techniques, from propensity score matching to multinomial treatment methods, to assess the impact of internal and external remittances on several household budget shares in Senegal. When only considering the average impact of remittances on the household expenditure behaviour, we find an overall productive use of remittances. However, the impact of remittances disappears when the marginal spending behaviour is considered, i.e., households do not show a different consumption pattern with respect to their remittance status. The marginal spending behaviour therefore suggests that, in the decision on how to allocate expenditure, remittances are treated just as any other source of income.     

The communication requirements of social choice rules and supporting budget sets

The paper examines the communication requirements of social choice rules when the (sincere) agents privately know their preferences. It shows that for a large class of choice rules, any minimally informative way to verify that a given alternative is in the choice rule is by verifying a “budget equilibrium”, i.e., that the alternative is optimal to each agent within a “budget set” given to him. Therefore, any communication mechanism realizing the choice rule must find a supporting budget equilibrium. We characterize the class of choice rules that have this property. Furthermore, for any rule from the class, we characterize the minimally informative messages (budget equilibria) verifying it. This characterization is used to identify the amount of communication needed to realize a choice rule, measured with the number of transmitted bits or real variables. Applications include efficiency in convex economies, exact or approximate surplus maximization in combinatorial auctions, the core in indivisible-good economies, and stable many-to-one matchings.     

Familiarity breeds growth: The impact of factional ties on local cadres’ economic performance in China

Some attribute China's rapid economic growth to a cadre promotion system that rewards economic performance. Others argue that political promotion in China hinges on factionalism. Extant empirical studies often assume that performance can be measured independently from the effect of factionalism. We test the validity of this assumption by examining whether local cadres’ economic performance would change as a result of losing vertical ties to a higher authority. We find an immediate increase in the growth rates of local GDP and government revenue. However, the performance change is mediated by the type of succeeding leaders, as it occurs only under locally promoted leaders who have existing ties with the local cadres. We further examine various channels through which a leader's insider status may affect local economic performance and find that newly appointed outsider leaders would cut fiscal transfers to the local level, which may explain the drop in their short‐term performance.     

TURNOVER IN POWER AS A RESTRAINT ON INVESTING IN INFLUENCE: EVIDENCE FROM THE POSTCOMMUNIST TRANSITION

We develop and implement a method for measuring the frequency of changes in power among distinct leaders and ideologically distinct parties that is comparable across political systems. We find that in the postcommunist countries, more frequent changes in power in the early years of transition are associated with better governance in the later years. The results are consistent with the hypothesis that more frequent turnover in power lowers the returns to firms seeking to buy political influence: i.e. that government turnover serves as a restraint on investing in influence regardless of the ideology of the government.     

The Political Economy of the "Minimum-Wage Institution" in an Internationally Integrated Market

The paper explores the political economy of the “minimum‐wage institution (MWI)” in an internationally integrated product market. The authors consider a two‐sector Economic Union (EU) with a perfectly competitive agricultural sector and a unionized oligopolistic manufacturing sector in which there exist productivity asymmetries across firms. It is shown that efficient firms have an incentive to strategically opt for intercountry minimum‐wage agreements high enough to raise their inefficient rivals’ costs and thus gain business in equilibrium. The unions of workers in all countries also find these agreements in their best interest. As a consequence, the MWI may emerge as the equilibrium institutional resolution of alternative political processes (i.e., an EU‐wide referendum or special‐interest politics), despite its negative effect on aggregate employment.     

HYPERBOLIC DISCOUNTING,PUBLIC DEBT AND BALANCED BUDGET RULES

This paper considers a government that chooses its tax and borrowing policy in order to minimize the present value of the excess burden caused by taxation. In doing so, the government uses hyperbolic discounting. It turns out that public deficits are positive even if public expenditures are constant over time. With cyclical expenditures, the government chooses an asymmetric debt policy, i.e., in bad times it borrows more than it repays in good times. In contrast to tax smoothing and political economy theories of public debt, the welfare effects of a balanced budget rule are ambiguous.     

Incentives for budget discipline in the presence of elections

This paper presents a mechanism to mitigate the adverse consequences of the political budget cycle on social welfare. We use a simplified two-period version of Rogoff's [Rogoff, K., 1990. Equilibrium political budget cycles. American Economic Review 80, 21–36.] rational budget cycle model to address the normative issue of reducing the budget deficit in pre-electoral periods. A regulation consisting of a sanction scheme contingent on fiscal policy joint with a fixed transfer is shown to provide the appropriate incentives for budget discipline in the presence of elections.