Happy partisans and extreme political views: The impact of national versus local representation on well-being

The political party of elected officials can affect the happiness of the voting public through several different channels. Partisan voters will be happier whenever a member of their party controls political office regardless of the policies implemented. It is hypothesized that congruence between individual party identity and state politician affiliations should have a greater impact on citizen happiness than congruence with politicians at the national level due to results from the literature on Tiebout sorting. It is further hypothesized that individuals with extreme ideological views may report greater happiness as their ideology fulfills basic psychological needs for certainty and structure. Using data from the Generalized Social Survey the effect of party congruence of individuals with national and state politicians on happiness is estimated. The effect of extreme ideological political views on happiness is also estimated. Results find that congruence with presidential party affiliation has a much greater impact on happiness than congruence with national legislative affiliation, gubernatorial, or state legislative affiliation contradicting the hypothesis. Those who possess extreme political views are also found to report higher levels of happiness.     

Income Taxation and the Diversity of Consumer Goods: A Political Economy Approach*

After‐tax income inequality has risen since the mid‐1990s, as increases in market income inequality have not been offset by greater fiscal redistribution. We argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution. Within a probabilistic voting framework, we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income, then an increase in goods diversity can reduce the political equilibrium tax rate. Focusing on OECD countries, we find empirical support for both the model's micro‐political foundations and the implied relation between goods diversity and fiscal policy outcomes.     

Monetary and Fiscal Management, Finance, and Growth

This paper addresses three related aspects of monetary and fiscal management in Europe and elsewhere. First, I discuss the implications of economic integration for monetary and fiscal policy, especially the narrow focus on low inflation as the main objective of monetary policy. I argue that because inflation springs from several sources, monetary authorities held responsible by law for maintaining low inflation need to exercise their newfound independence by reserving the right to address all sources of inflation. In this context, I also ponder the question as to whether the increased independence of fiscal policy from short-term political interference would be desirable. Second, I present new empirical evidence of the relationship between inflation, finance, and economic growth across countries, arguing that long-run growth considerations provide an important additional justification for why price stability ought to remain a priority of independent policy makers. Third, I review some further aspects of the relationship between fiscal policy and economic growth, emphasizing the traditional three-pronged role of fiscal management: stabilization, allocation, and distribution, all of which can be conducive to growth. The argument leads to the conclusion that only the stabilization function of fiscal policy and, perhaps, some aspects of the allocation function as well could be usefully delegated in an attempt to immunize them from shortsighted and socially counter-productive political interference, but not the distribution function.     

Party hacks and true believers: The effect of party affiliation on political preferences

This paper examines the effect of party affiliation on an individual's political views. To do this, we exploit the party realignment that occurred in the U.S. due to abortion becoming a more prominent and highly partisan issue over time. We show that abortion was not a highly partisan issue in 1982, but a person's abortion views in 1982 led many to switch parties over time as the two main parties diverged in their stances on this issue. We find that voting for a given political party in 1996, due to the individual's initial views on abortion in 1982, has a substantial effect on a person's political, social, and economic attitudes in 1997. These findings are stronger for highly partisan political issues, and are robust to controlling for a host of personal views and characteristics in 1982 and 1997. As individuals realigned their party affiliation in accordance with their initial abortion views, their other political views followed suit.     

The Role of State Fiscal Policy in State Economic Growth

Do state policy makers have the ability to affect a state's rate of economic growth? This article examines one possible source of growth and per capita output level disparities by studying the role that state taxation and public expenditure decisions play in fostering economic development. Using pooled annual U.S. state‐level data from 1972 to 1998, a fixed‐effects model is employed to examine the effects of changing tax rates on both state per capita output levels and growth rates. The results indicate that higher tax rates negatively influence short‐run state economic growth, which lowers state output levels. However, long‐run growth is unaffected by changes in state tax rates, even after adjusting for the effects of initial per capita output levels, state expenditures, and aid from the federal government. Nor do changes in state public spending rates and federal aid permanently alter state growth rates, implying that state fiscal policies have only transitory effects on state growth. (JEL H71, O40, R11)     

Green Polities: Urban Environmental Performance and Government Popularity

Ascertaining whether local election results are driven by incumbents' performance while in office or mechanically reflect constituencies' ideological affiliation and macroeconomic conditions is crucial for evaluating the alleged accountability‐enhancing property of decentralization. On the basis of a unique score of urban environmental performance and the results of all elections held in the major Italian cities over a decade, we investigate the role of local (fiscal and environmental) vs. national issues in municipal elections. Although the empirical evidence points to a strong ideological attachment and a somewhat weaker “fiscal conservatism,” it reveals that media reported environmental rankings have an impact on the popularity of city governments.     

The regionalization of indian politics and its implications for economic reform

Is political decentralization an impetus for economic liberalism, or are state and local governments impediments to a rigorous reform process? This article describes India's federal system, the growth of regional parties and governments, the changing balance of power between India's state and central governments, and the deterioration of state administrations, then assesses the economic reform and human resource policies of the states. The factors which slow the pace of reforms (politically unstable governments, fiscal populism, organized local interests, patronage and rents for party and government officials) and those that push for reforms (fiscal deficits, the need for investments in infrastructures, and inter-state competition for private investment) are analyzed.     

AN ANALYSIS OF POLITICAL AND INSTITUTIONAL POWER DISPERSION: THE CASE OF TURKEY

This study examines the effects of fragmented governments and fiscal authorities on budget deficits in Turkey along with political business cycle effects. For econometric analysis we will use annual data from the period 1960 to 2009. This article sheds light on various dispersion indices and their use in the field of political power and fiscal performance. The results show that the power dispersion indices of governments and fiscal institutions significantly explain the increases in the ratio of budget deficit to gross national product. The article draws attention to the unification and better coordination of fiscal authorities in Turkey. The analysis has important policy implications for Turkey and other developing countries from the viewpoint of fragmented political and administrative dispersion of power and poor budget performances. (JEL P16, H72, C22, C43)     

Vox Populi,Vox Dei? Tacit collusion in politics

We study competition between political parties in repeated elections with probabilistic voting. This model entails multiple equilibria, and we focus on cases where political collusion occurs. When parties hold different opinions on some policy, they may take different policy positions that do not coincide with the median voter's preferred policy platform. In contrast, when parties have a mutual understanding on a particular policy, their policy positions may converge (on some dimension) but not to the median voter's preferred policy. That is to say, parties can tacitly collude with one another, despite political competition. Collusion may collapse, for instance, after the entry of a new political party. This model rationalizes patterns in survey data from Sweden, where politicians on different sides of the political spectrum take different positions on economic policy but similar positions on refugee intake—diverging from the average voter's position, but only until the entry of a populist party.     

Federal tax policies,congressional voting and natural resources

Can abundance of natural resources affect legislators' voting behaviour over federal tax policies? We construct a political economy model of a federalized economy with district heterogeneity in natural resource abundance. The model shows that representatives of natural resource‐rich districts are more (less) willing to vote in favour of federal tax increases (decreases). This occurs because resource‐rich districts are less responsive to federal tax changes due to the immobile nature of their natural resources. We test the model's predictions using data on roll‐call votes in the US House of Representatives over the major federal tax bills initiated during the period of 1945–2003, in conjunction with the presence of active giant oil fields in US congressional districts. Our identification strategy rests on plausibly exogenous giant oil field discoveries and exploitation and narrative‐based aggregate federal tax shocks that are exogenous to individual congressional districts and legislators. We find that: (i) resource‐rich congressional districts are less responsive to changes in federal taxes and (ii) representatives of resource‐rich congressional districts are more (less) supportive of federal tax increases (decreases), controlling for legislator, congressional district and state indicators. Our results indicate that resource richness is approximately half as dominant as the main determinant, namely party affiliation, in driving legislators' voting behaviour over federal tax policies.     

Sustainability of Austrian public debt: a political economy perspective

Sustainability of Austrian public debt is investigated in the context of political objectives such as stabilizing the business cycle, increasing chances for being re-elected and implementing the ideologies of political parties. Several tests indicate that Austrian fiscal policies were sustainable in the period 1960–1974, while from 1975 on, public debt grew much more rapidly. The development of public debt in Austria seems to be driven not primarily by ideology, but by structural causes and a shift in the budgetary policy paradigm. We find some empirical evidence that governments in Austria dominated by one party run higher deficits than coalition governments. There are no indications of a political business cycle.     

FISCAL POLICY RULES AND THE SUSTAINABILITY OF PUBLIC DEBT IN EUROPE*

The sustainability of public debt is interpreted as the result of the interaction of fiscal policy with the economic environment, and not as a statistical concept as in most of the recent literature. If debt is not to explode over time, policymakers have to respond to the changing conditions in the macroeconomic environment. This article defines the conditions that will ensure compliance of fiscal policy with the intertemporal budget constraint in the context of Europe's fiscal policy rules. The empirical part of the article reveals that European public debt is sustainable in this respect, but questions regarding long‐run liquidity requirements remain unresolved.     

Is there a Role for an Active Fiscal Stabilization Policy?

This paper discusses the need and scope for an active fiscalstabilization policy. It is argued that the effectiveness offiscal policy as a short run stabilizer does not depend on thelong run multipliers of (balanced budget) fiscal policies. Tothe extent that activity can be affected by aggregate demandin the short run, there is a case for a fiscal stabilizationpolicy in terms of temporary variations in taxes or public consumptioncontingent on the state of the economy. The effectiveness offiscal policy is supported by empirical evidence. However, anappropriate policy intervention depends both on the nature ofthe shock and the structure of the economy. There are thus fundamentalinformation problems in pursuing discretionary fiscal policieson top of political economy concerns, and fiscal fine-tuningis not to be recommended. Automatic stabilizers do not to thesame extent suffer from these problems, but their strength isnot by design but the net result of other policy considerations.Hence, there is a need to consider the structure and size ofautomatic stabilizers. (JEL E6)     

Fiscal policy,rent seeking,and growth under electoral uncertainty: theory and evidence from the OECD

Abstract. We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties alternate in power according to exogenous electoral uncertainty. The main prediction is that uncertainty about remaining in power results in increased fiscal spending, which in turn distorts incentives by pushing individuals away from productive work to rent‐seeking activities; then, distorted incentives hurt growth. This scenario receives empirical support in a dataset of 25 OECD countries over the period 1982–96. In particular, uncertainty about remaining in power leads to larger government shares in GDP, which in turn exert an adverse effect on the ICRG index measuring incentives and this is bad for growth.     

Pensions,Ageing and Retirement in Australia: Long‐Term Projections and Policies

Australia's retirement income provision system, comprising the ‘three pillars’ of a means‐tested aged pension, mandatory occupational superannuation and other, voluntary long‐term savings, is at the heart of understanding the fiscal implications of ageing. While the Intergenerational Report, an account of long‐term fiscal sustainability, is celebrating its tenth birthday since the first edition was published, the Superannuation Guarantee, first implemented in 1992, turns a sprightly 20 years old. This article considers the Intergenerational Report as a prism for studying fiscal, demographic and policy developments in the Australian retirement income system over the last decade and into the future.     

ON THE ROLE OF THE PRIMARY SYSTEM IN CANDIDATE SELECTION

How does the type of the primary system affect political outcomes? We address this issue by constructing a simple model that accounts for intra‐party as well as inter‐party political competition. Our model suggests that allowing non‐partisan voters to participate in the primaries (i.e. a semi‐open primary system) indeed improves the chances of a moderate candidate getting elected. However, this need not necessarily happen in the case of a completely open primary system. Under such a system there arise multiple equilibria, some of which may lead to a greater degree of extremism than the closed primary system. Thus, our model contributes to the current debate on the choice of primary systems from an analytical perspective and helps explain some of the empirical findings.     

Masculinity cues,perceptions of politician attributes,and political behavior*

How are masculine‐looking politicians perceived by voters? Are these judgments accurate? We asked Australian survey participants to rate images of unknown‐to‐them Swiss politicians. We find that politicians with prominent markers of masculinity (including facial hair, baldness, and higher facial width‐to‐height ratio) are perceived as less honest and competent. To determine whether these perceptions correlate with political behavior, we exploit two unique features of Swiss politics. First, to check for politician–voter congruence, we match each politician's voting record to that of their constituents on identically worded legislative proposals. We find that bearded politicians are less likely to behave according to constituents' preferences. Second, by exploiting the mandatory disclosure of lobby group affiliations, we show that bearded politicians are less likely to be captured by interest groups. Our results suggest that more masculine‐looking politicians are recognized by both voters and lobby groups as less amenable to being controlled.     

Germany in crisis: the unification challenge,macroeconomic policy shocks and traditions,and EMU

Conventional wisdom blames Germany's ongoing economic and fiscal crisis on the unification shock of the early 1990s and structural problems in labour markets. Challenging this view, this paper offers a fresh assessment that focuses on macroeconomic demand management. It is shown that Germany's fiscal crisis cannot be attributed to unification per se; it arose as a consequence of ill‐guided macroeconomic policies pursued in response to that event. Many structural problems that popped up along the way were mere symptoms of persistent macroeconomic mismanagement and protracted domestic demand stagnation. Arguably, systematically ill‐guided macroeconomic policies of this type are potent enough to wreck any real world economy, no matter how flexible it may be. Because Germany provided the blueprint for Europe's stability‐oriented macroeconomic policy regime, it comes as no surprise that a peculiar repeat of certain symptoms that started to arise in Germany a decade ago may now be observed across the euro area—protracted domestic demand weakness and inflation stickiness because of ‘tax‐push inflation’ in particular.     

Does Centralization Affect the Number and Size of Lobbies?

Previous research has shown that the effect of fiscal centralization is to reduce lobbying. However empirical evidence suggests that this is not always the case. This paper attempts to explain the empirical evidence in a two‐jurisdiction political economy model of endogenous lobby formation and policy determination. We measure lobbying in two ways: (i) the number of lobbies formed under the two settings and (ii) their impact on policy decisions. We show that, contrary to the predictions of the preference dilution effect, the effect of centralization on lobbying are ambiguous with respect to both measures of lobbies.     

He Who Counts Elects: Economic Elites,Political Elites,and Electoral Fraud

What determines the extent of electoral fraud? This paper constructs a model of the tradeoff between fraud and policy concessions (public good provision) which also incorporates the strength of the state. In addition, we parameterize the extent to which economic elites (to whom fraud is costly) and political elites (to whom fraud is advantageous) “overlap.” The model predicts that fraud will be lower and public good provision higher when land inequality is higher, the overlap between elites lower, and the strength of the state higher. We test these predictions using a unique, municipal‐level dataset from Colombia's 1922 Presidential elections. We find empirical support for all the predictions of the model.