The political economy of public education

I study the relationship between income inequality and public spending in education in a voting model. Voters collectively choose the uniform quality level of public education, the amount of a public good, and the tax rate on labor income. Parents can decide to opt-out of the public education system by purchasing private education at the desired quality level, and children’s expected income is assumed to be increasing in the quality of education. I show that higher income inequality is associated with higher governmental spending in education if and only if the expected marginal returns to education are larger for the children of relatively low income parents. In turn, better public education tends to reduce future inequality. These results are consistent with most findings in the empirical literature about public investment in education. Lastly, I show that for other kind of publicly provided goods, such as health care, the relationship with income inequality exhibits an ambiguous or opposite sign.     

The political economy of fiscal procyclicality

It is well-recognized that fiscal spending in developing countries tends to display significant procyclicality (increased spending during expansions and vice versa), in contravention of rational stabilization policy. Theoretical explanations have relied on either financial access or political-economic factors to justify this phenomenon. In this paper, we model the fiscal-output relationship as a dcc-garch process, and inquire whether debt or political economy constraints play a comparatively more important role in conditioning this correlation. Our evidence favors a positive effect from political economy, with weaker and more mixed results pertaining to financial access. Somewhat surprisingly, we also find that politics-induced procyclicality appears to be driven by advanced economies, and fiscal rules exacerbate procyclical tendencies.     

The political economy of secession: The case of Quebec

In the absence of oppression, citizens of a sub-unit who contemplate secession carefully weigh the benefits and costs of different outcomes. Here these costs are shown to be highly variable: they depend on the strategic behavior of each state and on whether cooperative relations would be re-established after secession. Using Quebec as a case, it is shown that threats of non-cooperation by the predecessor state may be discounted as not credible. Elementary game theory, however, shows that, with repeat play, retaliatory non-cooperation could be a rational strategy. Moreover, it is shown that reaching a compromise solution requires a credible threat on the part of the potential secessor to accept a sovereignty where there would be no economic cooperation. In modern welfare states, these risks are severe enough to make secession rare, and incremental constitutional change the norm. For comments on earlier drafts of this paper I am grateful to Gordon Tullock, Isidoro Massa, other participants at meetings of the Public Choice Society and the European Public Choice Society, Ignatius Horstmann, Douglas Brown, the editors, and two anonymous referees. Errors are mine.     

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.     

Migration as an antidote to rent-seeking?

We develop a new mechanism through which skilled migration may influence economic performance in the sending country. If agents can choose between acting as rent-seekers and engaging in productive activities, and only productive skills are exportable, a positive probability of migration (to a more secure economy) reduces the relative expected returns from rent-seeking, thus decreasing the proportion of skilled workers who opt for “parasitic” activities. Such an improvement in the allocation of talent may prevail over the loss of skilled workers due to outmigration. However, we show that this result is not robust to the introduction of endogenous protection. If productive workers share their resources between accumulation of productive capital and investment in security, prospective migration may induce a weaker protection against rent-seeking, which in turn might depress average income in the source economy.     

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.     

The political economy of corruption and the role of economic opportunities1

In many developing and transition countries, we observe rather high levels of corruption. We argue that the missing political support for anti‐corruption policies is due to a lack of economic and financial reforms. Our model is based on the fact that corrupt officials have to pay entry fees to get lucrative positions. In a probabilistic voting model, we show that this, together with the lack of economic opportunities, makes anti‐corruption policies less likely. Compared to a reformed economy, more voters are part of the corrupt system and, more importantly, rents from corruption are distributed differently. Economic liberalization increases the support for anti‐corruption measures. The additional effect of financial liberalization is ambiguous.     

A political economy perspective on horizontal FDI in a dynamic Cournot-oligopoly with endogenous entry

Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al., 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises.     

The golden hello and political transitions

We analyze the influence of IMF and World Bank programs on political regime transitions. We develop an extended version of Acemoglu and Robinson’s [American Economic Review 91, 2001] model of political transitions to show how the anticipation of new loans from international financial institutions can trigger political transitions which would not otherwise have taken place. We test this unexplored implication of the theory empirically. We find that the anticipation of receiving new loan programs immediately after a political regime transition increases the probability of a transition from autocracy to democracy and reduces the probability of democratic survival.     

Manipulation through political endorsements

We study elections with three candidates under plurality voting. A candidate is a Condorcet loser if the majority of the voters place that candidate at the bottom of their preference rankings. We first show that a Condorcet loser might win the election in a three-way race. Next we introduce to the model an endorser who has private information about the true probability distribution of the preferences of the voters. Observable endorsements facilitate coordination among voters who may otherwise split their votes and lead to the victory of the Condorcet loser. When the endorser has an ideological bias towards one of the candidates, the coordination impact of endorsements remains unaltered, moreover the endorser successfully manipulates the outcome of the election in favor of his bias, even if his ideological bias is known by the voters. The results are true for any endorsement cost and any magnitude of bias as long as the electorate is large enough.     

The political economy of regionalism

We examine the incentives of regions to unite and separate. Separation allows for greater influence over the nature of political decision making while unification allows regions to exploit economies of scale in the provision of government. Our paper explores the influence of size, location and the diversity within regions in shaping this trade-off. We then examine the way in which alternative political institutions aggregate regional preferences and thereby define the number of countries.     

“The people want the fall of the regime”: Schooling,political protest,and the economy

We provide evidence that economic circumstances are a key intermediating variable for understanding the relationship between schooling and political protest. Using the World Values Survey, we find that individuals with higher levels of schooling, but whose income outcomes fall short of that predicted by their biographical characteristics, in turn display a greater propensity to engage in protest activities. We discuss a number of interpretations that are consistent with this finding, including the idea that economic conditions can affect how individuals trade off the use of their human capital between production and political activities. Our results could also reflect a link between education, “grievance”, and political protest, although we argue that this is unlikely to be the sole explanation. Separately, we show that the interaction between schooling and economic conditions matters too at the country level: Rising education levels coupled with macroeconomic weakness are associated with increased incumbent turnover, as well as subsequent pressures toward democratization.     

Do return migrants transfer political norms to their origin country? Evidence from Mali

This paper explores the link between return migration and political outcomes in the origin country, using the case study of Mali. We use electoral and census data at the locality level to investigate the role of return migration on participation rates and electoral competitiveness. First, we run OLS and IV estimations for the 2009 municipal election, controlling for current emigration and using historical and distance variables as instruments for return migration and current emigration. Second, we build a panel dataset combining the 1998 and 2009 censuses and the electoral results for the municipal ballots of those two years to control for the potential time-invariant unobservable characteristics of the localities. We find a positive impact of the stock of return migrants on participation rates and on electoral competitiveness, which mainly stems from returnees from non-African countries. Finally, we show that the impact of returnees on turnout goes beyond their own participation, and that they affect more electoral outcomes in areas where non-migrants are poorly educated, which we interpret as evidence of a diffusion of political norms from returnees to non-migrants.     

A model of political parties

This paper presents a new model of political parties. I assume that the role of parties is to increase the commitment ability of politicians vis-à-vis the voters. Whereas a politician running alone can only offer his ideal policy, the set of policies that a party can commit to is the Pareto set of its members. I show that the commitment mechanisms provided by the institution of parties has no effect when the policy space is unidimensional; the policies parties can induce in equilibrium arise also when politicians are running independently. However, when the policy space is multidimensional, politicians use the vehicle of parties to offer equilibrium policies that they cannot offer in their absence.     

The returns from rent-seeking: campaign contributions, firm subsidies and the Byrd Amendment

Abstract .  This is the first empirical study to examine Congressional support of a new law that distributes antidumping duties to protected firms. Because the law produces a transparent measure of how much each firm was rewarded for its efforts to secure the bill's passage, it provides researchers with a unique opportunity to study the link between the expected financial returns to firms, campaign contributions, and Congressional behaviour. Our results indicate that campaign contributions from beneficiaries increased the likelihood that lawmakers would sponsor the law, while contributions from the law's beneficiaries increased with the rewards they expected to receive.     

The effects of economic and political integration on fiscal decentralization: evidence from OECD countries

Abstract .  This paper examines the impact of economic and political integration on the vertical government structure. It argues that, by increasing the market size and the benefits of decentralized provision of public goods, integration triggered the recent process of decentralization in OECD countries. A panel analysis relates the degree of fiscal decentralization to economic and European integration, controlling for interregional heterogeneity, economies of scale, and institutions. The results mostly support a decentralizing effect of economic integration in general and of European integration in particular for heterogeneous EU countries, whereas participation of subnational governments in national decision-making is associated with more centralization.     

The political economy of conditionality: An empirical analysis of World Bank loan disbursements

Traditional aid conditionality has been attacked as ineffective in part because aid agencies – notably the World Bank – often fail to enforce conditions. This pattern undermines the credibility of conditionality, weakening incentives to implement policy reforms. The standard critique attributes this time inconsistency to bureaucratic factors within the aid agency such as pressure to lend, defensive lending, or short-sighted altruism. Pressure from powerful donors provides another potential explanation for lax enforcement. This paper presents an empirical analysis of the political economy of conditionality in international organizations using the case of the World Bank and the United States. The analysis examines panel data on World Bank disbursements to 97 countries receiving structural adjustment loans between 1984 and 2005. Using UN voting as an indicator of alignment with the U.S., the paper presents evidence that World Bank structural adjustment loan disbursements are less dependent on macroeconomic performance in countries aligned with the United States.     

A theory of political cycles

We study how the proximity of elections affects policy choices in a model in which policymakers want to improve their reputation to increase their reelection chances. Policymakers' equilibrium decisions depend on both their reputation and the proximity of the next election. Typically, incentives to influence election results are stronger closer to the election (for a given reputation level), as argued in the political cycles literature, and these political cycles are less important when the policymaker's reputation is better. Our analysis sheds light on other agency relationships in which part of the compensation is decided upon infrequently.     

The political economy of IMF conditionality and central bank independence

International organizations (IOs) often drive policy change in member countries. Given IOs' limited political leverage over a member country, previous research argues that IOs rely on a combination of hard pressures (i.e., conditionality) and soft pressures (i.e., socialization) to attain their political goals. Expanding this literature, we hypothesize that IOs can enhance their political leverage through loan conditions aimed at enhancing the political independence of key administrative units. Studying this mechanism in the context of the International Monetary Fund (IMF), we argue that through prescribing structural loan conditions on central banks (CBI conditionality), the IMF empowers central banks to gain more political leverage with the aim to limit a government's ability to (ab)use monetary policy for political gain. Divorcing monetary authorities from their respective government, the IMF intends to alter political dynamics towards achieving greater program compliance and enhance long-term macro-financial stability. Relying on a dataset including up to 124 countries between 1980 and 2012, we find that the IMF deploys CBI conditionality to countries with fewer checks and balances, a less independent central bank, and where the government relies more heavily on the monetization of public debt.     

The political economy of tariff protection in China: evidence from the WTO accession

We analyze China's tariff rates at WTO accession using a political economy approach. A model drawing on Branstetter and Feenstra ( 2002 ) is used to derive an optimal tariff rate for each industry. The model predicts that a government would set a high tariff rate if an industry is of large state‐owned enterprise (SOE) share, multinational share, or small foreign import share. From the model we reveal the Chinese government's preference towards different interest groups under the binding tariff constraint from the WTO commitments. The estimated structural parameters imply that the political weights on both the SOE profits and consumer income diminish with the economic opening. More important, the government still favours SOEs over consumer income. Our findings are consistent with the special features of China's economy.