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Political Economics (Special Interest Politics (11 models) (Papers…
Political Economics
Special Interest Politics (11 models)
Common Poll Resources & Legislative Bargaining
Trying to understand how legislators who are perfect representatives resolve their conflicts and implement policies.
Legislative Process Model with Norm of Universalism.
Legislative Bargaining Model with Minimum Winning Coalitions
Lobbying for Special Favours
The Collective Action Problem of Lobbying & how to get over it
2 theories of lobbying
Informational lobbying model
'Material Benefits' - buying policies through lobbying
Principal-Agent model of lobbying (for general policies)
Grossman-Helpman Protection for Sale model (specific model on lobbying for tariffs)
Rent-Seeking
The Tullock Contest
Productive vs. Unproductive Economic Rents
Corruption
The Grabbing Hand
Self-reinforcing corruption model
The Helping Hand
Papers
Legislative Process
People like having meetings over food, and in negotiations you have to try your hardest not to be scared or chicken?
It's one up from Fried Chicken. It's Kentucky Fried Bacon or Baqir
KFC which turns into KFB
Lobbying
I hate to do this, but when I think of lobbyists I think of that Fillipino talk show called GGV, but I prefer to think of the VeeGees. VGG where the two Gs are the protection for sale papers.
Rent-Seeking
This is bad, and it often has to happen in enclosed states. Think China and HK. Think HK DPRC. Just drop the R because of its republic-y ness. That's too USA. HK DPC
For last two. Simon Posner is a cow whose milk will be used for Mueller yoghurts.
Corruption
Think of a Fat Filipino Lady walking into Lidl on her BBM whose gonna be FIDLSS with some money in the Federal Reserve, or rather FIDLSR with her money.
Causes of Corruption
The causes of FIDLSR?? The causes of FIDLSR?
Fishy-man Fisman involved again with Italian Miguel. Ichino and Maggi. In Corruption. Do Tell. Di Tell. Tell me with a grandpiano. Di Tell and Shardgrovsky.
Effects of Corruption
What what do you think is going to be the effect of a fat filipino lady. Fat lard. FARD. Okay, maybe it's closer to a FAT FILIPPINO person going into the Federal Reserve Bank (FRB) on her Black Berry messaging (BBM).
FARD. Same F for FRB. Same B for BBM.
Aidt obviously does one. Svensson's involved in 2 including one with a Fishy-man Fisman. Bjorkman made an addition to their study as well. James Bates is a Mauri in Lesotho. Bates, Mauro, De Soto. He's dancing in a field with roses and Dr Ackerman from CAIS. Rose Ackerman
General Interest Politics
Conflict Between Citizens
Politics as Exchange vs politics as conflict
Lindahl-Wicksell Democracy
Downsian Model (MVT)
Probabilistic Voting Model
Pressure Group Models
Political efficient vs inefficient redistribution
Conflict Between Citizens and Politicians
Political Agency Models. The Principle Agent Model.
Political Budget Cycle Models
Papers
MVT
This section is loved by Arnav and he's a bit Canadian. The MVT is all about political parties swaming to the Median Voter - in what else does everyone swarm and hit each other for something? Hockey. Canadian Hockey League. Except it's also Aidt's first part so he has to include some papers, and he's written a lot of papers.
So Aidt squared times the Canadian Hockey League (CHL)
(A)^2 CHL
Proportional Voting
JFM
In Proportional Voting everyone gets a say including the strangest people in the world, including the people at the cambridge Journal of Fluid Mechanics. Of course the university doesn't matter. It's what they're doing that matters in a proportional system
We'll need a bit more help. Proportional Voting should make you think equal. Equal should make you think Sweden.
Journal of Fluid Mechanics is strange. Strange should make you think of strange music and Downton Abbey combined. Think the Earl of Grantham playing Funk Music. Funk & Gathman.
Finally, whoever else would be playing next to the Funk of Gathman. Well, I suppose a mile long Ferret would be stranger, which could be done if the name rhymed and it was an Italian Mile Long Ferret. Milesi-Ferretti.
Political Accountability
What?? Don't be MAD!! Be MAB!! Be MABB.
MABB
Matsusaka (direct democracy) (1995), Aidt and Shvets (2012), Besley and Case (1995), Besley and Burgess (2002)
PBC
Woah, PBCs are a very modern thing. Like they only happen in the 21st century. And the 21st century is so on this side of history. Like more than 000 after the middle of history. That's like AD with three As. Not even Toke can write three papers, so Alesina has to sneak in as well
AAAD
Alesina (people don't necessarily reward governments who increase their spending), Aidt and Mooney, Aidt et al. (the really complicated one), Drazen (monetary policy)
Pressure Group
Dude, no pressure, give me a sec!
Du(de)sec
Dusek
Institutions and State Capacity
The story of institutions & democracy
From roaming to the Natural State (Autocracy)
NWW framework
Roaming to Natural State
Natural State to Open Order
Happen under 3 conditions: rule of law for elites, perpetual organizations and state monopoly of violence
Olson's Bandit Theory
From the Natural State to Democracy. (Open Order) Economic theories of Democratisation.
General Theories about why democracy/open access orders emerge (3 theories)
Threat of Revolution Theory
How Inequality affects democratization
Has positive effect. Revolution channel is assumed larger effect than welfare state channel. A&R did not make this assumption in their original paper.
How Income affects democratization
Has no effect because it raises incomes and the gains from revolution by the same amount.
Key Papers
A&R (2000) Historical Evidence on TR in UK, Germay and Great Reform Act
Aidt and Jensen (2014) Workers of the World, Unite!
The Model
If it is a good state, the poor will revolt if...
Rich choose to give democracy if
1 more item...
Critical Junctures Theory. (Includes Threat of Revolution Theory as a specific critical juncture)
Party Advantage Hypothesis
Political Inefficiency Hypothesis
Income affecting democratization (3 theories)
Modernization Theory
Idea: As the economy develops there is a greater incentive for the rich to share power. Works through either the Political Party Advantage hypothesis or the political inefficiency hypothesis.
Key paper: Acemoglu et al. (2008). Strong positive across-country correlation but no within-country correlation between changes in income and democracy index. Use FE.
Unified Growth Theory
They measure things like no. of domesticable animals, relative east-west orientation, suitability of climate for agriculture
If their study is good (Though IV's exogeneity condition is questionable - which is that factors explain growth but not institutions), then GDP can explain 30% of variation in observed institutions.
Idea: Income only affects democracy over very long run. pre-historical biological roots -> institutions of agrarian societies -> change in size of population -> transition from Malthusian to modern growth with IR -> LR income differences -> democracy
Consolidation Theory
Idea: The probability of a transition to a democracy from autocracy is independent of state of development. But democracies are less likely to revert to autocracies if they are richer.
Key Paper: Przeworski and Limongi
Critical Juncture Theory
The important paper for this is also A&R (2008). They seem to test both modernization theory and critical juncture theory simultaneously.
Inequality affecting democratization (3 theories)
Motivation: If changes in income don't affect democracy, maybe it is the distribution of income?
Must be careful about timings. Was transition or inequality first?
A&R and Boix's theories. Threat of Revolution
A&R Threat of Revolution (see above). 2 channels between inequality and likelihood of democratization. Revolution and distribution channels. Inequality leads to increase
Boix (2003) theory replaces redistribution with represssion which is very costly. Democratization happens when the cost of represssion is greater than the loss of wealth under democracy. Either when cost of repression soars or the cost of democracy for elite decreases
Democracy becomes less likely as inequality increases
Combination of the three channels. That is distribution, repression and revolution channels (with strange graph)
Key Paper: Dorsch and Maarek (2014). Positive relationship between inequality and democratization conditional on conditions for revolution. Say condition on downturn. Difference in difference suggests inequality does not have an effect
Ansell and Samuels Alternative View: Differences in wealth between land and capital wealth. Rising economic group want to protect their increasing wealth from high taxation by elite. Want vote to ensure this. Seems the fundamental idea is that landed elite's only wealth is land and industrial elite's only wealth is capital.
land inequality -> reduces chance of democratic transition
wealth inequality -> increases the chance of democratic transition
Empirics: In their own paper. Cross country over long horizon. Used gini for income inequality, amount of land worked by families adjusted for size of rural sector as land inequality. Find income inequality has positive effect on democracy while land inequality has a engative effect
State Capacity
Besley-Persson Model of State Capacity
The Model
Investments in state capacity governed by 3 main considerations: common interest, cohesiveness, stability
cohesiveness: Are there checks and balances on what governments can do to the opposition? (i.e. how much redistribution needs to be shared equally?)
stability: the likelihood that a current government will also be in charge in the next period.
common interest: Is there an agreement in society on what taxes should be spent on? This is measured as the likelihood of the threat of war
Threat of War. Proxies the value of a public good. Has a probability of occuring.
Three different types of democratic states depending on the different conditions
Value of Public Good is very high (High common interest - high probability of war) and cohensiveness is high (any redistribution has to be split more evenly between incumbent and opposition. Everyone prefers public good to redistribution. This is only true if cohesiveness condition is satisfied.
The Common Interest State
Fiscal capacity in common interest state increase when value of public good increases (war is more likely) and when income is higher (because there's a larger tax base in period 2 which increases the return to investments in fiscal capacity).
Cohesiveness Condition: If condition satisfied, the government will spend money on the public good in period 2 irrespective of whether the threat of war is high or low. The value of the public good is sufficiently high compared to the value of redistribution.
i.e. alpha is the value of public good (and is not the probability of war, it is just the benefit of the public good) and theta is cohesiveness (what fraction the incumbent can take for themselves from any redistribution).
Cohesiveness Condition is not satisfied. Low Common Interest. Value of public good is not great, so the value of the public good is only high to justify spending when the threat of war is high.
Redistributive or Weak States possible
. Incumbent prefers redistribution to public goods when threat of war is low.
If stability condition satisfied:
redistributive state
Investment less than common interest, more than weak state. Amount of funding depends on cohesiveness, risk of war, turnover rate etc. And income (higher income -> more taxable income -> more incentive to invest in fiscal capacity).
If stability condition not satisfied:
weak state
Invests nothing because return to current consumption is higher than expected benefit from investment in fiscal capacity
Stability Condition:
phi - likelihood of war. alpha h is value of public good when threat of war is high. gamma is someone else getting elected. sigma is proportion of redistribution you have to give to others out of all money allocated. 1 is the marginal cost of the tax.
1 more item...
Picture it as: probability of high threat of war
benefit + probability of low threat of war
benefit.
Benefit in low threat of war = probability you are re-elected
what you get when re-elected + probability you are not re-elected
what you get when you are not re-elected
gamma is probably you do not get re-elected. I.e. high gamma means high government turnover/low government stability
Stability condition more likely to hold with...
high alphaH, high phi, low gamma.
effect of cohesion depends on whether gamma is less than or more than 1/2
1 more item...
Local and Global Comparative Statics
Global Comparative Statics: Changes in variables that may change which state we are in
See cohesiveness and stability conditions for these
Local Comparative Statics: Changes in variables that may change how much investment there is in fiscal capacity when we are in a state
In Common Interest State
higher threat of war, higher national income increase investment in fiscal capacity.
Turnover risk has no effect because everyone benefits equally regardless of whose incumbent
In Redistributive State
higher threat of war, higher income increase investment in fiscal capacity.
Turnover risk being low increases investment because we are more likely to benefit from our investment. This is because value of cohesion has a maximum of 1/2.
Cohesion has ambiguous effect. Depends on the turnover risk. Same as in global comparative statics. If turnover risk low (<0.5), then low cohesion is better. If turnover risk is high (>0.5) then high cohesion is better.
Empirics
How to measure the different variables
Variables that affect investment in fiscal capacity
Cohesiveness of institutions. Are there checks and balances on what the executive can do?
Polity IV: constraints on executives
Turnover? Is the incumbent entrenched and subject to competition?
Polity IV: how much opportunity there is for any member of the politically active population to become chief executive.
Common Interest? Is there agreement on how to spend public funds?
Ethnic homogeneity
Proportion of years in war or historical war casualties
Fiscal Capacity
direct taxes (with lower deadweight cost) as proportion of total tax take. i.e. VAT or Income tax.
Size of informal sector
Does fiscal capacity have an effect on growth?
Reverse causality problem. Fiscal capacity affect GDP per capita and GDP per capita affect fiscal capacity.
Use IV of pre-modern wars which affect fiscal capacity but not current GDP per capita (or at least this is assumed)
It's a strong instrument. Pre-modern wars do increase fiscal capacity
fiscal capacity has strong positive effect on income per capita
BUT sometimes wars affect both such as WWI and WWII. Hence we only use pre-modern wars. Modern wars affected women's labour market participation. Increases income per capita
Study whether suffrage affects prob. of adopting an income tax
Low suffrage and high suffrage do.
Low suffrage
Rich can place income tax on poor
Middle Suffrage
No checks and balances. Turnover rate increasing so entrenched interest gets less of benefit. No reason to invest in state capacity
High Suffrage
Cohesiveness improves. Reason for taxation increases
Two Channels
Turnover effect assumed to increase with increasing suffrage
Cohesiveness assumed to increase with increasing suffrage
Different types of state capacity: Fiscal capacity & legal capacity
Example of UK scrapping income tax info at the end of the Napoleonic Wars as example of lost state capacity. Good example because the UK introduced 'such an evil' because the value of paying for the war was so high.
Papers
Threat of Revolution
This is bread and butter stuff. You need it to power your way through. AAA batteries or car hire
Political Inefficiency Hypothesis
Fiss (Lizzeri) and Pepsico (Persico). Pepsi is not just as efficiently as fizzy as Cocal Cola. Cites two paper within it.
Inequality and Democracy
Two papers for the two key words in 'Inequality and Democracy'.
One paper is evil and dorkish. Inequality is a Dork. Hence Dorsch. And it's evil like Molek, so Maarek. Dorsch and Marek.
But there's also a brighter side. Like there is summer Ansell and Summers
Income and Democracy (Modernisation)
There's a big Income GAP between countries. Many people have given theories for why the GAP exists, which is why each of these GAP papers is for a different theory.
The P is for Prezworski. Don't ask why. It does rhyme though which the Limongi counterpart.
Besley-Persson Model of Fiscal Capacity
Like PBCs, BP and its oil industry is from the future. Though the oil industry is no nearly so far into the future. 'BP' only has two letters for two papers. AD is the key phrase because oil is from the future.
One is that the Taxman tools Up to give income taxes
Aidt and Jensen (2009)
The other is a paper on tax collection based on a history of wars. Taxes make you rich so you wear prada. You also has to hunt people if you want them to pay you taxes and you need to be super terrifying and strong to win wars. So think of a dinosaur in Prada heels. It's gotta rhyme as well. Dinneco and Prado.
Resources and Conflict
How do we predict conflict? Rauh
Topic Models, Within-country vs. Between country. The difference between causality and prediction
Theories of Conflict Aidt
Granovetter
Kuran
Tullock
Spatial Effect Theories (London riots)
Why is there conflict? Krishnan (Between-country)
Fractionalisation vs. Polarisation & Evidence
Resources
Leaders
Economics Costs of Conflict
