Elections, exchange rates and reform in Latin America

In this paper, we study the link between real exchange rate (RER) depreciation and elections in Latin America. Our contribution is threefold. First, we employ a statistical model that takes into account the pervasive conditional heteroskedasticity found in financial data and includes a wide range of macroeconomic variables as regressors. Second, we test whether the wave of central bank reform that swept the region has had any effect on the existence or strength of the electoral cycle in exchange rates. Third, we test an additional hypothesis, namely, that financial liberalization may also be an important variable explaining changes in electoral effects on the real exchange rate. In a panel of 9 Latin American countries with available macroeconomic data and a history of exogenous election dates, we confirm the previous findings that real depreciation intensifies after elections even when modeling the significant conditional heteroskedasticity in these data. We also show, for the first time in the literature, that post-election exchange rates are significantly less predictable. We go on to test whether central bank reform has influenced the way in which elections affect the RER in Latin America. If reform has been effective at reducing political manipulation of the exchange rate, then any relationship we see between elections and the RER before central bank reform should be mitigated in the post-reform era. We find that the relationship disappears after reform and that post-reform real exchange rates are also significantly less volatile. Finally, we show that financial liberalization seems to have a stronger effect on the conditional variance of the RER than does central bank reform, but reform has a stronger impact on the conditional mean.     

Turnout and Closeness: Evidence from 60 Years of Bavarian Mayoral Elections

One prediction of the calculus of voting is that electoral closeness positively affects turnout via a higher probability of one vote being decisive. I test this theory with data on all mayoral elections in the German state of Bavaria between 1946 and 2009. Importantly, I use constitutionally prescribed two‐round elections to measure electoral closeness and thereby improve on existing work that mostly uses ex post measures that are prone to endogeneity. The results suggest that electoral closeness matters: a one standard deviation increase in closeness increases turnout by 1.27 percentage points, which corresponds to 1/7 of a standard deviation in this variable. I also evaluate how other factors such as electorate size or rain on election day affect turnout differentially depending on the closeness of the race. While rain decreases turnout on average, this effect is mitigated in close elections, as indicated by a positive interaction effect of the two variables.     

INFORMATION AND THE BEAUTY PREMIUM IN POLITICAL ELECTIONS

We use data on 800 candidates from the 2012 U.S. election cycle in U.S. and state congressional races to examine the degree to which beauty affects electoral outcomes. We find that a candidate that is one standard deviation more beautiful receives a 1.1 percentage point higher vote share and is 6.0 percentage points more likely to win the election. This beauty premium is larger in situations where voters are less likely to have more information about the candidate. The beauty premium is much smaller for U.S. congressional races than for state congressional races, and is also much smaller for incumbent candidates. In addition, we find a correlation that the beauty premium is lower when a candidate spends more money on the election. (JEL D72, J70)     

Political credit cycles

This paper tests the existence of political credit cycles, the positive comovement between credit and elections. While several single‐country studies point to the existence of this relationship, the link between electoral cycles and credit expansion has seen little exploration at the multicountry level. Using a comprehensive dataset covering bank and non‐bank credit in 165 countries from 1960 to 2013, we show that both government and private credit significantly increase in election years. This finding suggests the possibility that politicians use not only fiscal and monetary policy to court voters, but also implement credit policies such as interest rate subsidies and tax breaks for debt to enhance credit growth. We also find that a higher degree of financial openness weakens the frequency and magnitude of political credit cycles; yet, the conditional effect of financial openness is stronger for developing countries than developed economies.     

Coattails and the forces that drive them: Evidence from Mexico

Coattails and the forces behind them have important implications for the understanding of electoral processes and their outcomes. By focusing our attention on neighboring electoral sections that face the same local congressional election, but different municipal elections, and assuming that political preferences for local legislative candidates remain constant across neighboring electoral sections, we exploit variation in the strength of the municipal candidates in each of these electoral sections to estimate coattails from municipal to local congressional elections in Mexico. A one percentage increase in vote share for a municipal candidate translates, depending on his or her party, into an average of between 0.45 and 0.78 percentage point increase in vote share for the legislative candidates from the same party (though this effect may not have been sufficient to affect an outcome in any electoral district in our sample). In addition, we find that a large fraction of the effect is driven by individuals switching their vote decision in the legislative election, rather than by an increase in turnout.     

The Effects of Fiscal Consolidation and Welfare Composition of Spending on Electoral Outcomes: Evidence from US Gubernatorial Elections between 1978 and 2006

This study attempts to make a contribution to the field of spending aspects of fiscal policy and their impacts on electoral outcome. Due to varying degrees of financial responsibilities and commitments to provide public goods and services, US state governments serve as a perfectly natural laboratory to test the electoral significance of fiscal policies. We adopt a probit model, with several specifications, to determine significant impacts of fiscal consolidation and increases in welfare spending on US gubernatorial elections from 1978 to 2006. The analyses show that voters are more concerned about the increase in debt than current budget deficits. An increase in welfare spending is negatively associated with reelection. Moreover, the impact of taxation on gubernatorial elections turns out to be insignificant. In particular, findings suggest that the political business cycle model does not hold true in US gubernatorial elections. Expansionary fiscal policy right before the election may not have crucial impacts on the chances of an incumbent winning the election.     

Existence and Uniqueness of Nash Equilibrium in Electoral Competition Games: The Hybrid Case

This paper analyzes the traditional unidimensional, two‐party electoral competition game when parties have mixed motivations, in the sense that they are interested in winning the election, but also in the policy implemented after the contest. In spite of having discontinuous payoffs, this game, referred to as the hybrid election game, is shown to be payoff secure and reciprocally upper semi‐continuous. Conditional payoffs, however, are not quasi‐concave. Hence, the existence of a pure strategy Nash equilibrium (psne ) is ensured only if parties have homogenous interests in power. In that case, an equilibrium not only exists, but it is also unique. Instead, if parties have heterogeneous motivations, depending upon the relationship between the electoral uncertainty, the aggregate opportunism, and its distribution across parties, a psne may or may not exist. The mixed extension, however, is always better reply secure. Therefore, a mixed strategy Nash equilibrium does indeed exist.     

Local equilibrium equivalence in probabilistic voting models

Electoral equilibria depend upon candidates' motivations. Maximization of expected vote share may not lead to the same behavior as maximization of the probability of winning the election. Accordingly, it is desirable to understand when electoral equilibria are insensitive to the choice of candidate motivations. This paper examines sufficient conditions for local equilibrium equivalence between expected vote share maximization and maximization of probability of victory in the spatial model of elections with probabilistic voters.     

Primaries and the New Hampshire Effect

Candidates for U.S. presidential elections are determined through sequential elections in single states, the primaries. We develop a model in which candidates can influence their winning probability in electoral districts by spending money on campaigning. The equilibrium replicates several stylized facts very well: Campaigning is very intensive in the first district. The outcome of the first election then creates an asymmetry in the candidates' incentives to campaign in the next district, which endogenously increases the equilibrium probability that the first winner wins in further districts.On the normative side, our model offers a possible explanation for the sequential organization: It leads (in expectation) to a lower level of advertising expenditures than simultaneous elections. Moreover, if one of the candidates is the more effective campaigner, sequential elections also perform better with regard to the selection of the best candidate.     

Political budget cycles: Do they differ across countries and why?

This paper uses a large panel data set to examine the relation between elections and fiscal policy. We find evidence of political budget cycles: on average, government fiscal deficit increases by almost 1% of GDP in election years. Moreover, these political budget cycles are significantly larger, and statistically more robust, in developing than in developed countries. We propose a moral hazard model of electoral competition to explain this difference. In the model, the size of the electoral budget cycles depends on politicians' rents of remaining in power and the share of informed voters in the electorate. Using suitable proxies, we show that these institutional features explain a large part of the difference in electoral budget cycles between developed and developing countries.     

Dissertation abstract: Voting in the laboratory

Almost every week national elections are held somewhere in the world. Many more elections take place at federal and local levels of government. Surely, these are important events to many of us. This thesis aims at providing a better understanding of why and how people vote in elections. Three original modifications of Palfrey and Rosenthal’s (1983) participation game are used to study voter turnout theoretically and experimentally.¹ In the basic game, each voter supports (i.e., prefers) one of two exogenous candidates and privately decides between voting at a cost and abstaining (without costs). The candidate who receives more votes wins the election (ties are broken randomly) and each supporter of this candidate receives an equal reward, independent of whether or not she voted. The first study (published in the American Political Science Review 100, pp. 235–248) analyzes the effects of social embeddedness on turnout, assuming that voters may be influenced by observing the decisions of other voters around them (e.g., a family or working place). Our experimental results show that the social context matters: this information increases turnout by more than 50%. The increase is greater when neighbors support the same candidate rather than when they support opponents. The second study investigates the effects of public opinion polls on voter turnout and welfare. Poll releases resolve uncertainty about the level of support for each candidate caused by `floating’ voters, whose preferences change across elections. This information increases turnout in the laboratory by 28–34%, depending on the fraction of floating voters in the electorate. If polls indicate equal levels of support for both candidates—in which case aggregate benefits for society are not affected by the outcome—welfare decreases substantially due to costs from excessive turnout. In the final study, elections are preceded by the competition between two candidates: they simultaneously announce binding policy offers in which some voters can be favored at the expense of others through inclusion and exclusion in budget expenditure (Myerson 1993).² We observe that policy offers include 33% more voters—yielding a smaller budget share for each—when voting is compulsory rather than voluntary. Moreover, we find evidence of political bonds between voters and long-lived parties. Overall, in all three experiments many subjects strongly react to economic incentives (i.e., benefits, costs, and informational clues), often in line with what is observed outside of the laboratory. JEL Classification C72, C92, D72 Dissertation Committee: Arthur Schram, University of Amsterdam (advisor) Axel Ockenfels, University of Cologne Thomas Palfrey, California Institute of Technology Cees van der Eijk, University of Nottingham Frans van Winden, University of Amsterdam ¹Palfrey, T.R., & Rosenthal, H. (1983). A strategic calculus of voting. Public Choice, 41, 7–53. ²Myerson, R.B. (1993). Incentives to cultivate favored minorities under alternative electoral systems. American Political Science Review, 87, 856–869.     

ENDOGENOUS ELECTION TIMING IN MAJORITARIAN PARLIAMENTARY SYSTEMS*

The election date is an endogenous choice in many parliamentary systems. This paper explores when governments call elections and how the timing of an election influences the electoral result. Governments have an incentive to behave opportunistically, calling elections at a time when they are performing well. However, the choice of election date reveals information about the government. Specifically, early elections indicate that a government has little faith in its ability to perform well in the future. The analysis is expanded to consider changes in government composition, political business cycles, informational asymmetries and the role of opposition campaigning.     

The power of social mobilisation: The impact of monitoring the 2015 presidential elections in Poland

In recent years we have observed an increased engagement of citizen’s movements with elections in democratic polities. Yet our understanding of the influence that this engagement can have over elections is still rather limited. In this paper we study electoral consequences of citizens’ involvement in monitoring 2015 presidential elections in Poland. Our analysis provides strong support for arguments saying that watchdog organisations may have an important influence on electoral outcomes. Our findings suggest that in municipalities in which election observers were present the share of vote for an incumbent candidate, Bronis?aw Komorowski, was significantly lower than in municipalities where the watchdog organisation did not have its representatives. Our results are robust to several tests which allows us to argue that the effect we find should not be attributed to some unobservable factors.     

Immigration,Ethnic Diversity,and Political Outcomes: Evidence from Denmark

I study the impact of immigration and increasing ethnic diversity on political outcomes in immigrant‐receiving countries, focusing on immigration and election outcomes in Danish municipalities between 1981 and 2001. A novel instrumental variable strategy based on historical housing stock data addresses issues of endogenous location choices of immigrants and a rich set of control variables is employed to isolate ethnic diversity effects from those of other immigrant characteristics. Increases in local ethnic diversity lead to rightward shifts in election outcomes by shifting electoral support away from traditional “big government” left‐wing parties and towards anti‐immigrant nationalist parties. This holds for both local and national elections.     

Patronage and ideology in electoral behavior: Evidence from Egypt's first presidential elections

This paper investigates the impact of patronage and ideology on voter behavior and election outcomes. Egypt's first free presidential elections represent a good case study to answer the question whether private gain outweighs ideology in voter behavior on a broader level. First, we combine election results with household surveys and national statistics to estimate the impact of patronage (measured by public employment) on voting for the pre-revolution regime candidate. Second, using results of the first round of elections as a proxy for ideology, we test for the effect of ideological preferences on voting behavior. Additionally, we test for candidates' ability to mobilize supporters. Our results suggest that patronage has a stronger effect than secularist ideology but a weaker effect than pro-change ideology. Results show that the number of public sector and government employees in each electoral district has a positive impact on participation rates.     

DO STOCK RETURNS VARY WITH CAMPAIGN CONTRIBUTIONS? BUSH VS. GORE: THE FLORIDA RECOUNT

I examine the relation between campaign contributions and stock returns during the Florida recount period of the 2000 presidential elections. Using the full population of publicly traded firms, I find an economically significant positive (negative) relation between pre‐election campaign contributions to Bush (Gore) and stock returns during the 37‐day election recount period. This relation exists for both the level and partisanship of contributions, and exists incrementally at both the firm and industry levels. These relations are robust to several different specifications, including alternative event windows that exclude the potentially confounding House/Senate races. The firm‐level analysis is consistent with contributions being influence‐motivated.     

Candidates’ Education and Turnout: Evidence from Italian Municipal Elections

We analyze the impact that the educational level of candidates running for the position of mayor has on electoral turnout by using a large dataset for Italian municipal elections held between 1993 and 2011. We firstly estimate a municipality fixed effects model and show that the median education of candidates standing in an election is positively correlated with turnout. To handle endogeneity issues arising from the unobservable time variant features of electoral races, we build on the literature which shows that politicians’ educational level is positively affected by their wage and apply a Fuzzy Regression Discontinuity Design on the basis of the fact that the wages of mayors in Italy increase non‐monotonically at different thresholds. Results show that an exogenous increase in the median educational level of candidates, induced by a higher wage, leads to an increase in turnout of about 1 percentage point.     

Strategic Transparency and Electoral Pressure

This paper investigates how an office‐motivated incumbent can use transparency enhancement on public spending to signal his budgetary management ability and win re‐election. We show that, when the incumbent faces a popular challenger, transparency policy can be an effective signaling device. It is also shown that electoral pressure can have a nonmonotonic effect on transparency, but a higher electoral pressure always increases the informativeness of signaling and the voter's utility.     

A Spatial Theory of Positive and Negative Campaigning

In order to explore the content of electoral campaigns, this paper makes two modifications to Hotelling's model of spatial competition. First, we assume that agents inherit initial locations and engage in costly relocation. Second, an agent's relocation is affected by her rival's actions. We investigate how a candidate allocates resources between positive campaigning—which influences voters' perceptions of her own ideology—and negative campaigning—which influences her opponent's perceived ideology. Our theory predicts that the candidate who is perceived as having less attractive personal attributes runs a relatively more negative campaign. The theory's implications are illustrated for the 1988 presidential election.Journal of Economic LiteratureClassification Numbers: C7, H0.     

Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries

We empirically examine whether and how opportunistic and partisan political business cycle (“PBC”) considerations explain election‐period decisions by credit rating agencies (“agencies”) publishing developing country sovereign risk‐ratings (“ratings”). Analyses of 391 agency ratings for 19 countries holding 39 presidential elections from 1987–2000, initially suggest that elections themselves prompt rating downgrades consistent with opportunistic PBC considerations, that incumbents are all likely to implement election‐period policies detrimental to post‐election creditworthiness. But more refined analyses, integrating both opportunistic and partisan PBC considerations in a unified framework, suggest that election‐period agency downgrades (upgrades) are more likely as right‐wing (left‐wing) incumbents, become more vulnerable to ouster by challengers. Together, these results underscore the importance of integrating both opportunistic and partisan PBC considerations into any explanation of election‐period risk assessments of agencies and, perhaps, other private, foreign‐based financial actors important to the pricing and allocation of capital for lending and investment in the developing world.