Public–private wage differential in a post‐transition economy

In this study, we estimate the public sector wage premium in a post‐transition economy, a quarter of a century since the collapse of the old regime. Our methodology uses a copula method to estimate the switching regression model, which allows for the relaxation of the restrictive assumption of joint normality. We control for employment selection into both sectors using an instrument based on information regarding learned professions. We use data from the Polish Survey of Earnings by Occupations (2012). Contrary to earlier results for Poland, we found positive selection into employment in both sectors, with positive average treatment effect on the treated and negative average treatment effect on the untreated. The results suggest that both private and public sector employees select themselves into the sector in which they earn more than they would in a counterfactual scenario.     

The political economy of public health expenditure and wait times in a public‐private mixed health care system

Abstract This paper investigates the determinants of public health expenditure in a public‐private mixed health care system, where a longer wait time for public care is the major difference between public and private sectors. Voter preferences for health care vary according to their age and by income, and public policy choices are part of a multi‐dimensional, competitive political equilibrium. We show how equilibrium public health expenditure and wait times depend on demographics and explain why they are independent of the distributions of income and political influence. We also show that population aging may not always lead to more public health expenditure.     

US state health expenditure convergence: A revisited analysis

This paper studies the evolution of US state health expenditure for a sample that covers 1966–2014. Our results provide evidence against the existence of a single pattern of behavior of personal health care expenditure across the US states. Rather, we can observe the existence of two statistically different convergence clubs. We cannot find evidence of convergence when we disaggregate health expenditure into its three main payers: Medicare, Medicaid and private health insurance expenditure, whilst we again find evidence of convergence clubs. However, the estimated clubs for Medicaid and private health insurance expenditure are statistically different that estimated for total health expenditure. Consequently, our results offer strong evidence of heterogeneity in the evolution of US health expenditure. The analysis of the forces that drive club creation shows that economic situation and some supply-side factors are important. We can also appreciate that some healthcare outcome variables are only related to private insurance health expenditure. The other health expenditures, thus, show a certain lack of efficiency which may be due to practices that have little benefit for patient health.     

Behavioral political economy: A survey

In explaining individual behavior in politics, economists should rely on the same motivational assumptions they use to explain behavior in the market: that is what Political Economy, understood as the application of economics to the study of political processes, is all about. In its standard variant, individuals who play the game of politics should also be considered rational and self-interested, unlike the benevolent despot of traditional welfare economics. History repeats itself with the rise of behavioral economics: Assuming cognitive biases to be present in the market, but not in politics, behavioral economists often call for government to intervene in a “benevolent” way. Recently, however, political economists have started to apply behavioral economics insights to the study of political processes, thereby re-establishing a unified methodology. This paper surveys the current state of the emerging field of “behavioral political economy” and considers the scope for further research.     

Education policy and inequality: A political economy approach

Regression results show that more unequal societies tend to spend comparatively more on higher levels of education. In a two-period model with heterogeneous agents, this paper investigates the political determinants of this bias. In the first period, public education is financed by the incumbent government by issuing bonds. Investments in basic and higher education have conflicting effects on future labour income distribution and net returns to these investments depend on the tax and transfers system being selected in the following period through the democratic process. Our idea is that public investment in basic education, by decreasing future labour income inequality, may induce future policy-makers to redistribute resources through financial rents taxation, thus making unfeasible the issuing of debt to finance basic education. This will be the more probable the greater wealth inequality is.     

Trade in trash: A political economy approach

We study how the opportunity to trade in trash might influence the equilibrium outcome when the tax on the externality is determined by a political economy process. In our model, individuals have heterogeneous preferences for environmental quality, and there is a wastage of real resources when funds are transferred from the pressure groups to the politicians. When hard-core environmentalists and capitalists are organized interest groups while moderate environmentalists are not organized, we find that the politically chosen tax on the externality is below the optimal Pigouvian level. The opportunity to export waste in unlimited quantities, but at a price, is not the environmentalists’ panacea and does not eliminate political social tension and suboptimal results.     

Wage determination and the gender pay gap: A feminist political economy analysis and decomposition

Abstract

This paper develops a heterodox analytical framework of wage determination and a new method of decomposition of the gender pay gap drawing on Marxian and feminist theories. The proposed framework utilizes two wage equations for the analysis of the gender gap: the first equation refers to average occupational wages and the second to individual wages as deviations from occupational wages. Using a data set for wages from industries in Greece, this paper demonstrates and explains differences in results between this proposed decomposition of the gender pay gap and that of Oaxaca-Blinder, and discusses the merits of this new technique compared to the Brown-Moon-Zoloth method. The authors argue that the main advantage of this proposed method of decomposition over the other two methods is that the proposed method allows for separate estimates of the impact of social and individual gender wage discrimination on the gender pay gap.     

Comparative financing analysis and political economy of noncommunicable diseases

The pandemic of chronic non-communicable diseases (NCDs) poses substantial challenges to the health financing sustainability in high-income and low/middle income countries (LMICs). The aim of this review is to identify the bottle neck inefficiencies in NCDs attributable spending and propose sustainable health financing solutions. The World Health Organization (WHO) introduced the “best buy” concept to scale up the core intervention package against NCDs targeted for LMICs. Population- and individual-based NCD best buy interventions are projected at US$170 billion over 2011–2025. Appropriately designed health financing arrangements can be powerful enablers to scale up the NCD best buys. Rapidly developing emerging nations dominate the landscape of LMICs. Their capability and willingness to invest resources for eradicating NCDs could strengthen WHO outreach efforts in Asia, Africa, and Latin America, much beyond current capacities. There has been a declining trend in international donor aid intended to cope with NCDs over the past decade. There is also a serious misalignment of these resources with the actual needs of recipient countries. Globally, the momentum towards the financing of intersectoral actions is growing, and this presents a cost-effective solution. A budget discrepancy of 10:1 in WHO and multilateral agencies remains in donor aid in favour of communicable diseases compared to NCDs. LMICs are likely to remain a bottleneck of NCDs imposed financing sustainability challenge in the long-run. Catastrophic household health expenditure from out of pocket spending on NCDs could plunge almost 150 million people into poverty worldwide. This epidemiological burden coupled with population ageing presents an exceptionally serious sustainability challenge, even among the richest countries which are members of the Organization for Economic Co-operation and Development (OECD). Strategic and political leadership of WHO and multilateral agencies would likely play essential roles in the struggle that has just begun.     

A second chance at success: A political economy perspective

This paper characterizes a stationary Markov-perfect political equilibrium where agents vote over income taxation that distorts educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the cost of a second chance. First, when the cost is low, the economy is characterized by high levels of upward mobility and inequality, and a low tax burden supported by the poor with prospects for upward mobility. Second, when the cost is high, there are multiple equilibria with various patterns of upward mobility, inequality and redistribution. Numerical examples show that the shift from a high-cost economy to a low-cost economy may reduce social welfare.     

Regional economic growth disparities: A political economy perspective

Regional differences in economic growth have been observed within many countries. Our story emphasises three region-specific factors driving growth—capital, labour and political factors. Conditional on differences in production factor (i.e., labour and capital) variations across democratic states, what role do differences in underlying “political factors” across regions play in accounting for regional growth disparities? We build a political economy model of endogenous growth where regions have the same political institutions, but experience different (and estimable) distributions over voter political biases (i.e., our “political factors”). In our model, political factors affect regional productivity as a consequence of politico-economic equilibrium. We discipline our regional growth accounting exercises by calibrating/estimating each model to American state-level economic and political-survey data. We show that the capital factor is the predominant driving force behind growth in American states. Nevertheless, regional variations in distributions of voter's political biases also account a great deal for regional growth disparities. We also evaluate how much politics would have distorted agents' welfare and regional growth, were regional economies given the opportunity to live under an efficient social planner's allocation system; and, if agents were to live under the same democratic system but where all voters have equal voting influence.     

Federal homelessness policy: A robust political economy approach

In the wake of the financial crisis, the United States government introduced a new large-scale initiative to address homelessness. The policy mandate is marked by both an unprecedented increase in federal funding and a dramatic reallocation of resources toward Housing First, a service model emphasizing immediate housing subsidization. Although this service paradigm has received support from a sizeable literature, our knowledge of its success to date has been limited. This paper sheds light on the unobservable or unmeasured costs of this new centralized approach to ending homelessness. I argue that federal homelessness policy under the Housing First approach 1) generates resource misallocation, 2) exacerbates the Samaritan’s dilemma, and 3) invites rent seeking.     

The political economy of public investment when population is aging: A panel cointegration analysis

Time preferences vary by age. Notably, according to experimental studies, senior citizens tend to discount future payoffs more heavily than working-age individuals. Based on these findings, we hypothesize that demographic change has contributed to the cut-back in government-financed investment that many advanced economies experienced over the last four decades. We demonstrate for a panel of 19 OECD countries between 1971 and 2007 that the share of elderly people and public investment rates are cointegrated, indicating a long-run relationship between them. Estimating this cointegration relationship via dynamic OLS (DOLS) we find a negative and significant effect of population aging on public investment. Moreover, the estimation of an error correction model reveals long-run Granger causality running exclusively from aging to investment. Our results are robust to the inclusion of additional control variables typically considered in the literature on the determinants of public investment.     

The liberalization of trade and foreign direct investment: a political economy analysis

Abstract

In theory, the IMF could influence fiscal and monetary policy via several channels, among them advice to policy makers, conditionality, and the moral hazard it induces with the borrowers. This article tries to disentangle those effects empirically. Using panel data for 98 countries over the period 1975–2000 it analyzes whether IMF involvement indeed influences fiscal and monetary policy in program countries. There is evidence that participation in IMF Standby and Extended Fund Facility arrangements improves economic policy. Money disbursed and the degree to which a program is implemented does not have any systematic influence. The same is true for future availability of resources as measured by exhaustion of a country’s quota with the Fund. The final section discusses policy implications.     

The public and private provision of pure public goods and the distortionary effects of income taxation: a political economy approach

Abstract .  A pure public good is provided by the government and the voluntary contributions of two types of households. The government finances its contribution by means of income taxation. The latter has distortionary effects. A third type of household never makes contributions. We analyse the effects of changes in the income tax rate on (a) the provision of the public good, (b) the private contributions of the households, and (c) changes in the distribution of income and welfare between contributing and non-contributing households. We derive a simple and testable condition under which the lowering of the income tax entails a Pareto improvement.     

A dependent economy model of public expenditure and the exchange rate

This paper examines the impact of public expenditure shocks on the exchange rate and the external accounts in a macroeconomic model of exchange rate determination. It extends the dependent economy approach to the open economy based on the tradables/nontradables dichotomy by incorporating international capital flows and intertemporal adjustment. Consistent with empirical evidence on exchange rate behavior, yet contrary to a major result of the popular Mundell-Fleming approach, this model suggests that fiscal expansion attributable to increased public expenditure usually causes exchange rate depreciation, not appreciation. However, if the increased public spending is on investment, the exchange rate is neutrally affected.     

The political economics of complexity : From the information economy to the ‘complexity’ economy

The economics of information allows one to distinguish within the national product the real production from the costs of organization. It reveals a continuous inflation of these costs which, per employee and since 1900, has been twice as fast as the increase of productivity. From this, one can conclude that the growth of productivity comes up against a real ‘wall’ when the costs of organization approach 50% of the national product. This is the essential cause of the present crisis. The author subsequently designs an economy of organization structures applicable to complex systems, such as physical, biological or social systems. He shows how the 50% wall is characteristic for centralized structures. Most economic structures are those where social forces and solidarities are distributed justly among all levels of organization, from local to global ones. They tend to establish themselves by self-organization, but a new political economy applying these principles would, aided by information and communication technologies, accelerate this process.     

The political economy of participation in IMF programs: a disaggregated empirical analysis

What factors determine whether or not countries have programs with the International Monetary Fund (IMF)? The existing literature suggests that a number of economic and political variables are important, but there is disagreement about their relative significance. Moreover, the fit of general participation models is not particularly good. An increasingly popular view in the recent literature is that the pattern of IMF lending is politically driven and that it reflects the interests of the Fund’s leading shareholders; the US is seen as exerting a powerful influence. Using both quantitative and qualitative techniques, and based on an informal analytical framework, we examine in detail the factors that may be at work. We cover the period from 1984 to 2008. We discover considerable variation across the nature of programs (concessional and non-concessional), income levels, geographic regions, and time periods. The degree of observed variation means that it is unsafe to use one general participation model as the basis for evaluating the effects of IMF programs. It also means that the design of policy needs to reflect the nuances that the data reveal.