Political Determinants of Intergovernmental Grants: Evidence From Argentina

This paper explores the determinants of federal grants allocation across provincial states in Argentina. Our analysis suggests that the redistributive pattern implicit in the federal system of intergovernmental grants cannot be explained on normative grounds exclusively. In order to understand the rationale behind federal grants distribution, a positive approach could render better results. Specifically, we claim that the distribution of federal grants could be associated with political variables such as the political representation of jurisdictions at Congress. The econometric analysis suggests that the significant disparity observed in the per capita representation across different provinces is an important factor explaining the allocation of those transfers. In this respect, overrepresented provinces, both at the senate and at the lower chamber, have received, on average, higher resources from the national government compared to more populous and less represented states. These results are consistent with those observed in other countries.     

Political importance and its relation to the federal prosecution of public corruption

In the US, federal prosecutors are appointed by the president, confirmed by the Senate, and have significant discretion over which cases they choose to take to court. Federal prosecutors handling an overwhelming majority of corruption cases invites the possibility of political influence in the monitoring of corruption. Additionally, political disparities across states may result in differences in corrupt behavior. Using individual case level data, I examine the effect political factors have on federal corruption cases, with an emphasis on states that are an important focus in the next presidential election. I find that corruption convictions tend to be higher in politically important states. This effect seems more significant when Democratic administrations are in power. In addition, it seems that these effects are relevant only for corruption crimes labeled as “federal”.     

Political budget cycles and voting within a federal country: The influence of political alignment

We study how distributive politics affects political budget cycles and voting within a federal country. Our model predicts not only that the president favors politically aligned governors with larger transfers, but also that voters favor gubernatorial candidates aligned with the expected presidential incumbent because larger transfers are expected in the future. These predictions are upheld by the data from Argentinean provinces during the 1984–2014 period. Our findings imply that political alignment can trump the selection effect of voting the most competent candidate. This can help explain in particular coattail effects when gubernatorial and presidential elections are concurrent.     

FORECASTING WOMEN,INFANTS, AND CHILDREN CASELOADS: A COMPARISON OF VECTOR AUTOREGRESSION AND AUTOREGRESSIVE INTEGRATED MOVING AVERAGE APPROACHES

Under the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), each state receives a fixed federal grant for the operation of WIC in the upcoming federal fiscal year. Accurate forecasting is vital because states have to bear the expenses of any underestimation of WIC expenditures. Using monthly data from 1997 through 2005, this paper examined the performance of two competing models, autoregressive integrated moving average (ARIMA) and vector autoregression (VAR), in forecasting New York WIC caseloads for women, infants, and children. VAR model predicted over $120,000 less per month in forecast errors in comparison to the ARIMA model. (JEL H7, C5)     

Battleground states and voter participation in US presidential elections: an empirical test

The winner-take-all method of allocating Electoral College votes (in 48 of the 50 states) in US presidential elections has promoted interesting behaviours by politicians and states that are evident throughout US (economic) history. This analysis explores the impact that being a ‘battleground state’ in presidential elections has on future voter participation rates. After quantifying the degree to which each state is a battleground state, the empirical analysis proffers what it refers to as the ‘battleground voting hypothesis’, which argues that the greater the degree to which a given state is a battleground state, the greater the expected benefits from voting in that state and hence the greater the voter turnout in that state. The empirical results suggest that the top-to-bottom ‘battleground state effect’ generated an average of 7.8 additional percentage points in voter participation in presidential elections over the period 1964–2008 for those states at the top of the scale.     

ASSESSING THE IMPACTS OF LABOR MARKET AND DETERRENCE VARIABLES ON CRIME RATES IN MEXICO

Many studies examine the relationship between crime rates and various economic and/or sociodemographic variables in high income countries, but similar efforts for middle and low income countries are less common. Utilizing an 8‐year panel data sample for all 32 states in Mexico, this study assesses the impact of Mexican labor market and deterrence variables on various Mexican crime rates. The principal results indicate that: (1) State gross domestic product (GDP) per capita has ambiguous effect on crime rates under different conditions. Both wages and unemployment rates are negatively linked with crime rates. (2) Although the Mexican judicial and public security systems are widely believed to be ineffective, increased federal police forces and incarceration rates are associated with lower crime rates, but higher public security expenditure per capita is associated with higher crime rates. (3) The impacts from labor market and deterrence variables presented in (1) and (2) continue to hold under the Fox administration as well as for non‐border states. Their respective impacts diminish, however, under the Calderon administration as well as for border states because of the small number of observations. Overall, the results indicate that increasing average wages, federal police forces, and incarceration rates would have significant impacts on reducing crime rates in Mexican states. (JEL O54, K42)     

The Impact of Treasury Yields on US Presidential Approval, 1960–2010

ABSTRACT

The ‘power of bond markets’ is a widely assumed and poorly understood feature of the global economy. We demonstrate that even in a bond market as stable as the United States this influence is considerable. In this article, we scrutinise a particularly direct influence, the impact of US Treasury yields on presidential approval rates. Our empirical analysis from 1961 to 2010 demonstrates that rising/falling bond yields lead to a decline/increase in approval rates. We show that this impact is mediated via the US mortgage market. The stronger the rise in mortgage rates, the stronger the influence of Treasury yields on presidential approval. We then outline the broader possible political impacts of this, particularly given foreign and domestic central bank ownership of US Treasuries.     

GASOLINE PRICES,GOVERNMENT SUPPORT,AND THE DEMAND FOR HYBRID VEHICLES IN THE UNITED STATES*

We analyze the determinants of hybrid vehicle demand, focusing on gasoline prices and income tax incentives. We find that hybrid vehicle sales in 2006 would have been 37% lower had gasoline prices stayed at the 1999 levels, and the effect of the federal income tax credit program is estimated at 20% in 2006. Under the program, the cost of reducing gasoline consumption was $75 per barrel in government revenue and that of CO₂ emission reduction was $177 per ton. We show that the cost effectiveness of federal tax programs can be improved by a flat rebate scheme.     

Bandwagons and Momentum in Sequential Voting

In this paper I show that an equilibrium exists to the sequential voting game in which a bandwagon begins with probability 1. These bandwagons are driven by a combination of beliefs and the desire of voters to vote for the winning candidate. Significantly, in this equilibrium the pivot probability for each voter is non-zero, even in an infinite population. Consequently, the bandwagons do not always start after one (or at most two) favourable decisions (as do economic cascades) and varying levels of informative voting are observed, consistent with observations from sequential voting in U.S. presidential primaries. Further, voters are exposed to counterintuitive incentives, referred to as "buyers' remorse", that have been attributed to real primary voters.
I also derive equilibrium behaviour in this environment when voting is simultaneous and compare the quality of information aggregation within each mechanism. I relate the conclusions to U.S. presidential primaries and find they are consistent with a common conclusion about the front-loading of the primary process: that in tight elections (with no front-runner) simultaneous voting is preferred, whereas in lopsided elections sequential voting is preferred. The superior performance of sequential voting in lopsided races is precisely because bandwagons occur.     

Do formula-based intergovernmental transfer mechanisms eliminate politically motivated targeting? Evidence from Ghana

Various countries have adopted formulas for determining intergovernmental transfers as a strategy to limit the role of political considerations in resource allocation. In this paper, we investigate a formula-based system of allocating resources from a central government to local governments to determine whether the political characteristics of recipient areas have any bearing on their allocation. Specifically, we study the sharing of resources of the District Assemblies Common Fund (DACF) in Ghana amongst the country's district governments over the period 1994 to 2005. We find evidence that the mechanism does not eliminate politically motivated targeting of the grants. Per capita DACF grants were higher in districts where vote margins in the previous presidential election were lower, suggesting that swing districts were targeted. We find evidence that DACF formula indicators and their weighting were chosen and amended to produce politically desired patterns of transfers.     

BILATERAL TRADE RELATIONSHIP BETWEEN THE UNITED STATES AND CANADA: IMPLICATIONS OF THE FREE TRADE AGREEMENT

This study's primary objective is to evaluate empirically the economic effects of the U.S.-Canada Free Trade Agreement (FTA). The paper emphasizes bilateral trade flows of agricultural and industrial products between the United States and Canada, given that the FTA removes tariff and non-tariff barriers. It evaluates the FTA's impact on the two countries' trade with third countries. The paper specifies a traditional log-linear trade model consisting of import demand and export supply equations for both agricultural and industrial products. It uses quarterly time-series U.S. and Canadian trade data for 1972–1985.
The study uses the two-stage least-squares estimator to estimate the models. The models had R coefficients ranging from 0.78 to 0.99, indicating that the models' explanatory variables explain most causes of variations in the dependent variable. This study reveals that U.S. imports of agricultural and industrial products from Canada were more sensitive than were Canadian imports not only to import and domestic prices but also to world prices. This is because Canadian consumers have less domestic substitutes than do their U.S. counterparts. Also, Canada has a smaller internal market than does the United States. The study estimates that U.S. imports from Canada will increase $2.8 billion while Canadian imports from the United States will increase $1.2 billion. The impact on the two countries' trade with third-party countries will be insignificant.     

Support of State and Local Finance under Persistent Federal Deficits

The United States?? federal government subsidizes local public finance through grants. Given projected U.S. deficits, this may prove untenable. Further, a broader range of policy instruments may offer more effective support of local governments. Herein four policies are considered beginning with current policy: federal deficit financed grants, federal placement, federal underwriting, and Federal Reserve System interventions. Options are evaluated in a general framework considering citizen and government objective functions. Policy recommendations are for interventions to specify terms of entry and exit (as with automatic stabilizers), and for initiation of contingency-simulation exercises to determine the potential of options identified herein.     

VALUING HEALTH EFFECTS: THE CASE OF OZONE AND FINE PARTICLES IN SOUTHERN CALIFORNIA

This study presents a conservative estimate of the health benefits that would result from attainment of the federal ozone and fine particle (PM_2.5) standards in the South Coast Air Basin of southern California. A three‐stage approach is used that links pollution exposures to adverse health outcomes to economic values. The annual value of the aggregate health benefits approaches $500 million (with a range of $295–$646 million) for ozone and exceeds $21 billion (with a range of $12.85–$34.22 billion) for fine particles. Such results are useful to regulatory agencies and other policy makers when evaluating the merits of various air pollution reduction strategies. (JEL Q51, Q53)     

THE DEMAND FOR VANITY (PLATES): ELASTICITIES, NET REVENUE MAXIMIZATION, AND DEADWEIGHT LOSS

States raise revenue and provide a service when offering to personalize license plates. To determine the revenuE-maximizing price and the marginal deadweight loss per dollar of net revenue, one must estimate both the slope and shift factors of the demand for vanity license plates. Shift factors include the percentage of special background plates sales (price of a complement), the requirement of front and back license plates (preferences), the age distribution (population), and income. Each $1 increase in the annual cost of owning a vanity plate reduces the final percentage of all plates personalized by 0.08%. At least ten states continue to charge a price exceeding the revenuE-maximizing level. Many other states raise funds whose marginal social cost exceeds marginal net revenue by over 100%.     

ESTIMATED MACROECONOMIC EFFECTS OF THE U.S. STIMULUS BILL

This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of the U.S. stimulus bill passed in February 2009. The analysis has the advantage of taking into account many endogenous effects. Real U.S. output is estimated to be $554 billion larger when summed over the 12‐year period 2009:1–2020:4 (0.29% of the total sum of output). The average number of jobs is 509 thousand larger (0.37%). There is some redistribution of output and employment away from 2012 to 2015. At the end of 2020, the federal government debt is larger by $637 billion in real terms (the debt/GDP ratio is larger by 3.19 percentage points), which may increase the risk of negative asset‐market reactions. (JEL E17)     

WORDS AND DEEDS: SYMBOLIC POLITICS AND DECISION MAKING AT THE FEDERAL RESERVE

The Fed has often been accused of using ambiguity, concealment, and deception when it is subject to intense scrutiny and pressure. We investigate this issue by examining the relationship between the Fed's policy statements and its subsequent use of a key policy instrument, the federal funds rate. Our analysis shows that the Fed usually does what it says it will do during times of economic distress (recessions), but that its actions are more inclined to diverge from its stated intent when a sluggish economy coincides with presidential elections.     

GOVERNMENT FRAGMENTATION AND BUDGETARY POLICY IN "GOOD" AND "BAD" TIMES IN FLEMISH MUNICIPALITIES

Using a panel of budgetary data over the period 1989–1996, we analyse how political fragmentation of Flemish local governments affects their reactions in the context of a major reform of the grant system. This reform reallocated grants among municipalities and thus unavoidably created "winners" and "losers". Thus, it is possible to distinguish between political reactions in good and bad times. The presence of a balanced budget requirement implies that in bad times municipalities have to react whereas in good times the decision to react is endogenous to the government. The results are in line with the hypotheses, if not the findings, of Kontopoulos and Perotti (1999) in that we find that fragmentation is important both in good and in bad times. Coalition size – the number of political parties – plays a crucial role when the budgetary shock is endogenous (in "good times" when grants increase). In this case, we find that more-party governments spend more of the additional funds. On the other hand, cabinet size – the number of spending ministers (aldermen) – is the relevant dimension of fragmentation when the reaction is exogenous (in "bad times"). When grants are cut back, expenditures are cut back more in municipalities with fewer ministers.     

THE FED AND THE POLITICAL BUSINESS CYCLE

This study asks whether the Federal Reserve has actively made monetary policy so as to aid the president's reelection. Using Shiller's smoothness "prior" to estimate the shape of cycles, the study finds a political business cycle in unemployment and a preelection increase in growth of the money supply. But the timing of these two cycles is inconsistent. Furthermore, little evidence exists of a cycle in the instruments of monetary policy. Thus, the Fed is not actively creating a political business cycle. Apparently, movements in real money that are not caused—but are not offset—by the Fed are an important cause of the political business cycle.
Elections influence Fed behavior. Monetary tightness occurs early in a presidential term, before reelection incentives become critical. This is due to the Fed's political weakness. Thus, the Fed's independence only partly insulates it from electoral pressures.     

THE FED AND THE POLITICAL BUSINESS CYCLE

This study asks whether the Federal Reserve has actively made monetary policy so as to aid the president's reelection. Using Shiller's smoothness "prior" to estimate the shape of cycles, the study finds a political business cycle in unemployment and a preelection increase in growth of the money supply. But the timing of these two cycles is inconsistent. Furthermore, little evidence exists of a cycle in the instruments of monetary policy. Thus, the Fed is not actively creating a political business cycle. Apparently, movements in real money that are not caused—but are not offset—by the Fed are an important cause of the political business cycle.
Elections influence Fed behavior. Monetary tightness occurs early in a presidential term, before reelection incentives become critical. This is due to the Fed's political weakness. Thus, the Fed's independence only partly insulates it from electoral pressures.     

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.