Political Economy Model Research Articles

Youth Enfranchisement, Political Responsiveness and Education Expenditure: Evidence from the U.S.

This paper studies the effect of preregistration laws on government spending in the U.S. Preregistration allows young citizens to register before being eligible to vote and has been introduced in different states in different years. Employing a difference-in-differences regression design, we first establish that preregistration shifts state-level government spending toward expenditure on higher education. The magnitude of the increase is larger when political competition is weaker and inequality is higher. Second, we document a positive effect of preregistration on state-provided student aid and its number of recipients by comparing higher education institutions within border-county pairs. Lastly, using individual-level data on voting records, we show that preregistration promotes a de facto youth enfranchisement episode. Consistent with a political economy model of distributive politics, the results collectively suggest strong political responsiveness to the needs of the newly-enfranchised constituent group.

Federal Tax Policies, Congressional Voting, and the Fiscal Advantage of 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. Politiques fiscales federales, vote au congres et ressources naturelles. L'abondance de ressources naturelles peut‐elle avoir une incidence sur les comportements de vote relativement aux politiques fiscales federales ? Nous avons elabore un modele de politique economique base sur une economie federalisee au sein de laquelle des disparites regionales en matiere de richesses naturelles demeurent. Ce modele montre que les elus des regions riches en ressources naturelles sont moins (davantage) enclins a voter des hausses (baisses) de taxes federales. Cela est du au fait que les regions richement dotees en ressources naturelles sont moins sensibles aux variations de la fiscalite federale en raison de la nature immobile desdites ressources. Nous avons teste les previsions de ce modele grâce aux donnees des votes par appel nominal au sein de la Chambre des representants des Etats‐Unis pour tous les projets de loi sur les taxes federales inities entre 1945 et 2003, et ce conjointement avec la presence de champs petroliferes geants dans les circonscriptions americaines. Notre strategie d'identification s'appuie sur les decouvertes et l'exploitation de champs petroliferes geants et vraisemblablement exogenes, et des chocs fiscaux federaux d'ensemble exterieurs aux circonscriptions individuelles et leurs legislateurs. Nous avons remarque que : i) les circonscriptions riches en ressources naturelles sont moins sensibles aux variations de taxes federales, que ii) les elus des circonscriptions riches en ressources naturelles sont davantage (moins) favorables aux augmentations (baisses) de taxes federales en pesant s

The Political Economy of Preferential Trade Agreements: An Empirical Investigation

In this paper, we develop a political economy model to study the decision of representative democracies to join a preferential trading agreement (PTA), distinguishing between free trade areas (FTA) and customs unions (CU). Our theoretical analysis suggests that income inequality and bilateral trade imbalances are important factors in determining the formation of PTAs, while differences in production structure among prospective member countries determine whether a CU or an FTA will emerge in equilibrium. Using a sample of 136 countries over the period 1960-2005, our empirical analysis lends strong support to these predictions: Income inequality and trade imbalances both reduce the likelihood of PTA formation, while geographical specialization increases the conditional probability of an FTA (over a CU).

The Politics of International Trade

Traditional international trade models explain comparative advantage and describe aggregate gains for a country from trade and from terms-of-trade improvement but do not address the politics of international trade policy. A positive or predictive model that studies the politics of trade policy requires two premises, both with public choice origins: (1) that political self-interest underlies policy determination of trade policy rather than social-welfare objectives, and (2) politically assignable rents are preferred to budgetary revenue from trade restrictions and aggregate gains from terms-of-trade improvement. Originating political-economy models of protectionism and reciprocal trade liberalization acknowledge on both premises. Subsequent popular (and popularly replicated) models of trade policy include the first premise but not the second. The popular models are inconsistent with the actual conduct of trade policy. We also present public-choice perspectives on strategic trade policy, the most-favored nation clause, preferential trading, duty-free zones, globalization, and direct voting on trade policy, and we review and interpret empirical evidence.

Transregional and Regional Projects in “Post-Western” International Reality

The article focuses on the theoretical and practical explanations of political and economic processes in the “post-Western” international reality. Proceeding from the assumptions of the complex system theory, the authors prove the necessity to use already established analytical approaches in combination with the newly developed ones to be able to understand and forecast the spatial-temporal evolution of the international system as a complex system. International political economy and world regional studies now investigate the empirical aspects of working out the most competitive and simultaneously most stable socio-political and politicaleconomic model of development. These studies also search for the ways national versions of development can become closer to this model and analyze to what extent regional/national models may differ from it without losing their international competitiveness. Exploring the evolution of the international system and political and economic transformations in the world leading states the authors conclude that a polycentric world cannot sustain a growing geopolitical confrontation and struggle for the geopolitical infl uence over the buffer areas. The polycentric international system requires a consensual elaboration of mutually benefi cial regional policies aimed at building transregional links between various regional areas. Reducing the instability in its regional and national segments the international system will move towards its overall greater stability. The authors further support this assumption analyzing transregional projects in Eurasia and the AsiaPacific region.

Inequality, ethnic diversity, and redistribution

Seminal political economy models from Meltzer and Richard, among others, theorize that, in democracies, more inequality should lead to more redistribution. Most country-level empirical studies find weak support for this prediction. This paper makes two contributions to this debate. First, I identify some of the key shortcomings of previous tests and provide a new empirical analysis that corrects for these limitations. Using a dataset covering 89 developed and developing democracies, I find that inequality is associated with more redistribution. Second, I show that inequality’s effect on redistribution is weaker in democracies in which the poor – defined as the people with income below the median – are divided along ethnic lines than in those in which they are ethnically unified. Taken together, these results suggest that although economic inequality increases redistribution, the magnitude of the relationship is conditional on how inequality interacts with other social cleavages, such as ethnicity.

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.

The political economy of targeting – a critical review

The political economy models of targeting postulate that going universal is a win‐win situation, for the poor and the middle class, as well as those who are in power. This article critically discusses the assumptions behind the political economy arguments of targeting and tests whether a universal mechanism is bound to politically excel in a low‐income country context. On the basis of attitudinal surveys with the urban, rural and student population in Zambia, we do not find any support for the predictions of the political economy models. We discuss the assumptions of the political economy models in the light of these findings and consider potentially decisive parameters that the models currently do not incorporate.

The Political Economy Model: 2016 US Election Forecasts

The Political Economy Model: 2016 US Election Forecasts

State-Level Forecasts for the 2016 US Presidential Elections: Political Economy Model Predicts Hillary Clinton Victory

State-Level Forecasts for the 2016 US Presidential Elections: Political Economy Model Predicts Hillary Clinton Victory

Commitment versus discretion in a political economy model of fiscal and monetary policy interaction

Does price commitment result in lower welfare? I pair an independent monetary authority controlling nominal bonds with a fiscal authority microfounded by the political economy model of Battaglini and Coate (2008). Without price commitment, time inconsistency is alleviated by interaction between the benevolent monetary authority and the politically distorted fiscal authority. With price commitment, nominal bonds will be used for wasteful spending by the politically distorted fiscal authority. Price commitment results in lower welfare because it eliminates monetary control over fiscal decisions.

Potential for Emulating Developmental States Model Using SNS in Africa

In the postwar period, the countries around the world experienced political, economic and social transformation, shaping or adapting different political economic models. On the one side of the world, East Asian developmental states, such as Japan, South Korea, Taiwan and Singapore, shaped developmental states model, experiencing miraculous economic development though strategic state intervention. African states on the other hand adapted neoliberal economy, which turned out to be a failure, resulting economic backwardation. In this paper, we propose that African states should follow the footsteps of East Asian developmental sates model in order to achieve social, political stability and economic development. For the study, secondary data from international organization has been used, and theories of international political economy is outlined to test the credibility. Although African states face structural problem on the key actors of developmental states model, social, political and economic structure, they can overcome these issue with the effective use of social network service (SNS).

Polanyi, political-economic opportunity structure and protest: capitalism and contention in the post-communist Czech Republic

Drawing on Polanyian logic, we focus on the gradual institutionalization of capitalism in the Czech Republic and the protests accompanying this process. We hypothesize that different configurations of political economy, or what we term the political economic opportunity structure, trigger different popular responses and are a potent indicator of expected protest forms. To analyze this we chose to carry out a country case study, in which many variables commonly associated with political mobilization, in particular the state’s institutional structure, are kept constant. By contrast, models of political economy vary over time, as a function of the extent and form of the international integration of capitalism. We focus on three configurations of political economy – national, globalized and austerity models – and for each one, identify the characteristics and mechanisms, i.e. concrete policy measures, that shape particular protest patterns in the context of our case study. In theoretical terms, this paper seeks to present one possible response, in this case a Polanyian response, to recent complaints about the disappearance of capitalism from social movement studies. At the same time, given the focus of this special issue, our goal is to analyze the current wave of anti-austerity protest that emerged in relation to what has been labelled the Great Recession.

A quantitative analysis of Turkish Private Education Reform

A recent education policy Turkish government is wishing to undertake is to shut down all private supplementary education centers (SECs) unless SECs manage to convert into a private school. With this policy, the government is willing to increase equality of opportunity among students. We show quantitatively that the policy, in fact, leads to a decrease in equality of opportunity since SECs are given the option to convert into private schools. We use a political economy model of education at which households, heterogeneous with respect to exogenously set income, choose among a continuum of private schools differentiated by tuition and a public school. Households choosing the public school can privately supplement their child's education spending in any amount. Public school is free of charge, and its spending is financed by income tax revenue collected from all households. Income tax rate is determined by majority voting. Achievement of a child depends only on educational spending. We calibrate the model's parameters by matching certain targets from 2013 Turkish data. We then exogenously restrict the supplemental education spending to zero in a counterfactual experiment. We find that variance of achievement (or inequality of opportunity) increases by 23.51% and mean achievement decreases by 1.74%.

A systemic approach to the problems of the rare earth market

China’s dominance of the rare earth market has been raising issues of major concern since 2010. Reduced export quotas and consecutive price peaks led to fears concerning supply security. Forward integration is shifting the rare earth-dependent high-technology value chain to China. China’s export embargo to Japan showed the world the strategic relevance of its economic dependence on China’s rare earth products. Despite multiple political and industrial efforts outside China, it has not been possible to diminish the dependence on China, e.g. by building up an independent rare earth supply chain. We think that this is prevented by systemic problems of the rare earth market. This paper examines these distortions of the rare earth market with a systemic approach. Problems are identified and structured qualitatively in order to expose their economic and political connections. The systemic problems are (1) competing political-economic models, (2) resource nationalism, (3) market opacity, (4) a lack of trust, (5) weak cooperation and (6) short-versus long-term approaches and profit orientation. These problems are interconnected and amplify each other. In this context, the potential of four solutions to influence the rare earth market system is discussed.

The allocation of transport infrastructure in Swedish municipalities: Welfare maximization, political economy or both?

This paper compares models for explaining the volume of transport investments in Swedish municipalities: 1. by the planned projects’ welfare consequences, 2. in terms of the district demand (the common pool) model, namely a municipality's share of the cost towards the investment and 3. electoral concerns and/or lobbying, as described by a swing voter model. We find that the welfare only hypothesis has little explanatory power. The district demand model explains the investment volume in rail projects, while the swing voter model explains road investment better. Lobbying does not seem to have any impact on the investment volume. Finally, we find that including a measure of the welfare in the political economy models greatly enhances the models’ explanatory power. Our main conclusion is that future analyses of what drives the allocation of resources for transport infrastructure should consider aspects related to both political economy, welfare, and the transport mode.

Structural reforms at the zero bound

The paper uses the a multi-region (reforming euro-area region, rest of euro area, rest of world) version of the QUEST macroeconomic model to analyse the impact of structural reforms on economic activity in a macroeconomic environment in which the zero bound on monetary policy rates is temporarily binding. Following Eggertsson et al. (2014), the simulations focus on reforms with deflationary impact, namely reforms that increase competition and reduce mark-ups and labour costs in the economy. The results suggest that the short-term output response to reforms is less positive at the zero bound compared to 'normal times' and can indeed be negative. Negative net effects are small and rather short-lived, however. Simulations that compare current and pre-announced future reforms question the idea that commitment to future reforms would improve economic conditions compared to reform implementation at the zero bound. According to political economy models, the zero bound may reduce reform intensity by increasing the short-term cost of implementation.

Can we leave road pricing to the regions? -The role of institutional constraints

Many countries still use federal fuel taxes as the main instrument to charge for road use. Recently, urban road pricing and regional distance charging have gained momentum, increasing opportunities for future decentralized decision-making. However, whether leaving road pricing decisions to regional authorities is a good idea is not a priori clear. Previous political economy models have suggested that in the large majority of cases decentralization yields higher welfare than federal pricing decisions. In this paper, we extend a political economy model of a two-region federation to show that this conclusion does not hold once we allow for commonly observed institutional constraints on federal decision making. We show that requiring user prices to be uniform across regions greatly improves the efficiency of centralized decision making. The same holds when federal decisions are the result of a legislative bargaining process among elected regional representatives. Under these institutional constraints, federal decisions may easily outperform decentralization, even when the opposite would hold in the absence of the constraints. The model also explains under what conditions such constraints will automatically be embedded in the federal constitution. Specifically, if regions are symmetric and drivers have a majority in both regions, they will voluntarily transfer power to the federal level, provided the relevant policy restrictions (uniform pricing or legislative bargaining) are constitutionally imposed. However, if drivers have a majority in one region only, the region where non-users have a majority will never agree to transfer decision power to the federal level.

Should I stay or should I go? Exit options within mixed systems of public and private health care finance

Mixed public–private finance is widespread in health care systems internationally. In one variant of mixed finance, some countries (e.g., Germany) allow eligible beneficiaries to fully exit from the public (social insurance) system and purchase private insurance. Using a controlled laboratory experiment, we empirically investigate the predictions of a political economy model of mixed systems of public and private finance with two types of exit: universal-exit, when all individuals can choose to exit the public system, and conditional-exit, when only individuals with an income at or above a threshold income level can choose to exit. We find that high-income individuals are less likely to exit under universal-exit than under conditional-exit, despite having the same incentive to exit in both treatments. Sensitivity treatments suggests that a number of factors may be at play in explaining this result, including learning effects, a priming effect and a framing effect, but that other-regarding preferences do not appear to be an important factor.

The Euro and the Yuan: Some Political Economy Considerations

This paper sets out a political economy model of exchange rates, focusing on the importance of lobbying. Applying it to the Euro and the Chinese Yuan, we show that pressure groups in China can influence the determination of exchange rate. Furthermore, international negotiations could theoretically lead to an appreciation of the Chinese Yuan. We further extend the political economy model to include some of the special characteristics of Chinese trade such as the prevalence of processing trade and foreign-invested enterprises. Our paper makes a theoretical contribution in linking the Yuan, the Euro, trade disputes and politics. High unemployment and sluggish growth in Europe have led many European voters to put pressure on their governments and Brussels to take a tougher stance in trade disputes with China, leading to a form of “China bashing”.