What remains of the popularity function? The case of Austria

In this paper, the effects of changes in economic conditions on the popularity of political parties in Austria are investigated. According to the traditional theory of the popularity function, economic variables such as the rate of unemployment, the rate of inflation, and the growth rate of real disposable income exert direct influence upon voters' evaluations of political parties. Estimations of such popularity functions for Austria show that some effects of this kind can be found, but they seem to be unstable over time. On the other hand, models of political popularity based on the assumption of voters' rational expectations predict that only unexpected changes in economic conditions affect political popularity. One of these models seems to have favorable predictive properties for Austria.The authors are grateful to A. Kirschhofer-Bozenhardt (IMAS Linz) for providing the Austrian popularity data and to G. Kirchgässner for valuable comments on an earlier version of this paper. Financial support from the Ludwig Boltzmann-Institut zur Analyse wirtschaftspolitischer Aktivitäten is gratefully acknowledge. Sohbet Karbuz acknowledges support from the Institute for Advanced Studies, Vienna.     

On the Strategic Use of Representative Democracy in International Agreements

We consider as endogenous the choice of the delegation rule in an international agreement between two countries. We study three potential types of delegation: strong, weak or no delegation, the latter case corresponding to direct democracy. We show that populations decide to bind themselves by delegating the national policy decision-making to a "powerful conservative representative," in order to improve their bargaining position. These noncooperative behaviors of countries when they decide on their delegation rule induce negative political externalities between countries, which cancel the gains achieved by the internalization of economic externalities in the case of political integration. We then examine the consequences of ratification by referendum. We conclude that a Pareto improvement of the international agreement would be to incorporate an ex post referendum.     

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.     

Anchors,endorsements, and preferences: A field experiment

This study investigates how access to political endorsements affects stated preferences for an environmental public good in Switzerland. We developed a contingent valuation survey questionnaire with two valuation questions, the first formulated as a (hypothetical) policy referendum, the second an open-ended WTP question. For the referendum question we solicited endorsements from a range of political parties and relevant interest groups. We then conducted a split-sample mail-survey experiment in which a table listing the endorsements was included with a subsample of the questionnaires. Access to the policy endorsements significantly affected the responses to the open-ended willingness-to-pay question.     

Growth effects of EU and EZ memberships: Empirical findings from the first 15 years of the Euro

One of the major economic reasons for the creation of the European Union (EU) and of the Euro-zone (EZ) was an expected bonus of economic growth for member countries. Whilst several studies exist on the growth bonus of EU membership, there are none for the EZ, the latest and deepest step of economic integration in Europe. The aim of this article is to investigate whether EU and EZ memberships enhance growth for their members. In order to perform our empirical analysis, we estimate different growth models restricting the time frame to the first 15 years of the Euro - from 1999 to 2013. We find a positive impact of EU membership on economic growth, but no impact of being part of the EZ, except during the financial crisis, when the EZ has a negative impact on growth amongst its members. Considering the heated political debate related to the Brexit referendum, our results favour a “yes” to the EU but a less clear answer when it comes to the EZ.     

A Conversation with Kurt Rothschild

Kurt Rothschild was born in Vienna in 1914. In 1938 he came to Glasgow as a refugee from the Nazis, and taught there until his return to Austria in 1947. Between 1947 and 1966 he was a researcher at the Austrian Economic Research Institute in Vienna (WIFO), specialising in labour market and trade issues; he still works for WIFO as a consultant. From 1966 until 1985 he was Professor of Economics at the University of Linz. Two volumes of his collected papers appeared in the 1990s (Rothschild, 1993, 1995). His recent publications include Rothschild (2004a, 2004b, 2006, 2007a, 2007b). This interview took place in Vienna on 1 November 2007.     

Mapping the theory of political representation to the empirics: An investigation for proportional and majoritarian rules

We combine roll call votes and referendum decisions on identically worded legislative proposals to identify the effect of electoral rules on the way Swiss Members of Parliament (MPs) represent their constituents’ preferences. We exploit the fact that MPs in both Houses of Parliament are elected in the same electoral districts (the cantons). Yet, in the Lower House, MPs are elected using a proportional rule, while in the Upper House they are elected employing a majoritarian rule. We find that electoral rules matter strongly for political representation. The voting patterns of MPs are fully in line with three theoretical predictions regarding the influence of electoral rules on representation of constituents’ preferences: 1) The probability that a proportional-elected MP accepts a legislative proposal closely follows the share of voters that accept the proposal in the referendum. 2) In contrast, for majority-elected MPs the probability of acceptance is strongly increasing in the share of voter acceptance if the latter is close to the 50% threshold. 3) The estimated probability that an Upper House MP votes “yes” as a function of the share of voters voting “yes” in the referendum has an S-shape form with an inflection point close to 50%.     

Political uncertainty and stock market returns: evidence from the 1995 Quebec referendum

Abstract.  In this study, we investigate the short run effect of the 30 October 1995 Quebec referendum on the common stock returns of Quebec firms. Our results show that the uncertainty surrounding the referendum outcome had an impact on stock returns of Quebec firms. We also find that the effect of the referendum varied with the political risk exposure of Quebec firms, that is, the structure of assets and principally the degree of foreign involvement. JEL classification: G14, G15     

The political economy of constitutional choice: a study of the 2005 Kenyan constitutional referendum

Recent studies of the linkages between the wealth of nations and the institutions of governance suggest that concentrating political power in a monarchy or a ruling coalition impedes economic growth and, moreover, that while power-diffusing reforms can enhance the wellbeing of society in general, opposition by groups benefiting from the status quo is predictable. In November 2005, Kenyans rejected a proposed constitution that, despite promises made by their new chief executive, would not have lessened the powers of the presidency. Using a unique, constituency-level dataset on the referendum vote, we estimate a model of the demand for power diffusion and find that ethnic groups’ voting decisions are influenced by their expected gains and losses from constitutional change. The results also highlight the importance of ethnic divisions in hindering the power-diffusion process, and thus establish a channel through which ethnic fragmentation adversely impacts economic development.     

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.     

A comparative analysis of the voting behavior of constituents and their representatives for public debts

We explore the quality of political representation of constituents?? preferences for budgetary decisions within a quasi-experimental setting. In the Swiss referendum process, constituents reveal their preferences for budgetary proposals which are either expected to increase or decrease public debts. We match individual politicians?? voting behavior on debt increasing and debt reducing legislative proposals with eight real referendum decisions on exactly the same issues from 2008 to 2011. Thereby, we directly explore deviations of politicians from constituents?? preferences with respect to budgetary 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.     

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.     

Political Stock Markets and Unreliable Polls

A political stock market (PSM) clearly beat the polls in predicting the outcome of a Swedish referendum on whether or not Sweden should join the European Union. In fact, polls were unable to make such predictions since the number of undecided respondents always far exceeded the observed YES/NO margin. However, an obstacle to PSMs serving as a superior forecasting instrument is that they can be sensitive to price distortions - by interest groups that may wish to effectuate, and pay for, such distortions - or forecast competitions tied to PSM trade gains, the latter of which was tested here.     

Political uncertainty and stock market volatility: new evidence from the 2014 Scottish Independence Referendum

We investigate the impact of heightened political uncertainty in the run‐up to, and after, the 2014 Scottish independence referendum. The conditional volatilities of stock returns of our Scottish index and the FTSE all share index are characterised by the same GARCH parameters for a sample ending in late 2013, but this no longer holds when estimation extends closer to the referendum. The relative volatility of Scottish companies’ stock returns peaked when polls indicated the referendum result was ‘too close to call,’ fell back on the result, but rose again in the run‐up to publication of proposals for further devolution.     

Uncertainty of Governmental Relief and the Crowding out of Flood Insurance

This paper discusses the problem of crowding out of insurance by co-existing governmental relief programs—the so-called ‘charity hazard’—in the context of different institutional schemes of governmental disaster relief in Austria and Germany. We test empirically whether an assured partial relief scheme (as in Austria) drives a stronger crowding out of private insurance than a scheme promising full relief which is subject to ad-hoc political decision making (as in Germany). Our general finding is that the institutional design of governmental relief programs significantly affects the demand for private natural hazard insurance.     

Constitutional safeguards against centralization in federal states: An international cross-section analysis

This paper contains an international cross-section analysis of the share of central government expenditure in total government expenditure for a sample of about 50 countries and a subsample of 23 industrial countries in 1989–91. The expenditure shares, their changes and the unexplained residuals for each country are reported in Table 1. As the analysis demonstrates, the share of central government is significantly lower, if income per capita and the country's area are large and if it is a federal state. The explanatory power of the equation rises considerably if the binary dummy for federalism is replaced by quantitative constitutional variables. The most powerful single explanatory variable is the age of the constitutional court in the complete sample or the constitutional court's independence of union institutions in the sample of industrial countries. The equation's explanatory power (adjusted for degrees of freedom) can be raised by allowing also for the degree of control which provincial institutions have over the constitution and over the second chamber and by taking into account whether an increase in federal tax rates requires a popular referendum. Other types of constitutional referenda and the relative age of the federal constitution do not seem to matter. Among the federal states, the share of central government is much larger than predicted in the United States and Mexico, and it is much smaller than predicted in Argentina and Canada. The constitutional variables are particularly helpful in explaining the relatively small share of central government in Switzerland, Malaysia, Germany and Austria. The last section draws conclusions for the design of constitutions with some special applications to the European Union.     

Election cycles in mining licensing: theory and evidence from Albania

Most of the literature on political business and budgetary cycles (PBBC) has focused on fiscal and monetary policy variables in advanced-country contexts. We extend this literature by investigating political cycle effects in a non-monetary, non-fiscal policy regime (the allocation of mining licences) in a transition country context. We propose a model of mining licensing that allows for corruption and for both supply and demand effects to determine the outcome. We then estimate this model using time-series data from post-communist Albania. Relying on a dynamic Poisson model, we find evidence of both opportunistic and partisan effects. Based on our theory, we suggest a corruption interpretation of political cycles in non-fiscal/non-monetary variables. This interpretation, we suggest, may be more applicable to the context of developing and transition countries. Our study raises important questions about the unintended (and often pernicious) effects of transition politics on economic regulation and economic performance in post-socialist economies.     

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.     

Political bargaining in a federation: Buchanan meets Coase

In recent decades, the issues of federalism and political integration have gained prominence in public debate as well as in the academic realm. A frequently made point is that allowing free secession may protect the minority's interests, thus providing it with an incentive to enter the federation. This paper explicitly considers the political process in the federation arguing that the option to secede may distort the political choices made by the individual regions to improve their bargaining positions. As a result, the allocation of resources in the federation could well end up being inefficient and unattractive for the minority region. In contrast, limiting the secession possibilities by requiring the consent of a majority of voters through a regional referendum, rather than leaving it to the discretion of the legislature, restores efficiency.