Recent evidence shows a worrying trend of declining popular support for the traditional liberal democracy across a range of Western societies. This decline is more pronounced for the younger cohorts of voters. The prevalent theories in political science link this phenomena to a rise in volatility of political and electoral outcomes either induced by the challenges from outside (e.g. Russia and China) or as the result of the aftermath of the recent crises. These views miss a major point: the key drivers for the younger generations’ skepticism toward the liberal democratic values are domestic intergenerational political and socio-economic imbalances that engender the environment of deep (Knightian-like) uncertainty. This distinction – between volatility/risk framework and the deep uncertainty is non-trivial for two reasons: (1) policy and institutional responses to volatility/risk are inconsistent with those necessary to address rising deep uncertainty and may even exacerbate the negative fallout from the ongoing pressures on liberal democratic institutions; and (2) investors cannot rely on traditional risk management approaches to mitigate the effects of deep uncertainty. The risk/volatility framework view of the current political trends can result in amplification of the potential systemic shocks to the markets and to investors through both of these factors simultaneously. Despite touching on a much broader set of issues, this note concludes with a focus on investment strategy that can mitigate the rise of deep political uncertainty for investors.
{"title":"Millennials’ Support for Liberal Democracy is Failing. An Investor Perspective","authors":"Constantin Gurdgiev","doi":"10.2139/SSRN.2993535","DOIUrl":"https://doi.org/10.2139/SSRN.2993535","url":null,"abstract":"Recent evidence shows a worrying trend of declining popular support for the traditional liberal democracy across a range of Western societies. This decline is more pronounced for the younger cohorts of voters. The prevalent theories in political science link this phenomena to a rise in volatility of political and electoral outcomes either induced by the challenges from outside (e.g. Russia and China) or as the result of the aftermath of the recent crises. These views miss a major point: the key drivers for the younger generations’ skepticism toward the liberal democratic values are domestic intergenerational political and socio-economic imbalances that engender the environment of deep (Knightian-like) uncertainty. This distinction – between volatility/risk framework and the deep uncertainty is non-trivial for two reasons: (1) policy and institutional responses to volatility/risk are inconsistent with those necessary to address rising deep uncertainty and may even exacerbate the negative fallout from the ongoing pressures on liberal democratic institutions; and (2) investors cannot rely on traditional risk management approaches to mitigate the effects of deep uncertainty. The risk/volatility framework view of the current political trends can result in amplification of the potential systemic shocks to the markets and to investors through both of these factors simultaneously. Despite touching on a much broader set of issues, this note concludes with a focus on investment strategy that can mitigate the rise of deep political uncertainty for investors.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116852368","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Zareh Asatryan, T. Baskaran, Theocharis N. Grigoriadis, F. Heinemann
This paper exploits the introduction of the right of referenda at the local level in the German state of Bavaria in 1995 to study the fiscal effects of direct democracy. In the first part of the paper, we establish the relationship between referenda activity and fiscal performance by using a new dataset containing information on all 2500 voter initiatives between 1995 to 2011. This selection on observables approach, however, suffers from obvious endogeneity problems in this application. The main part of the paper exploits population dependent discontinuities in the signature and quorum requirements of referenda to implement a regression discontinuity design (RDD). To safeguard against co-treatments that might affect fiscal outcomes simultaneously at the same thresholds, we validate our results by extending the RDD approach to a difference-in-discontinuity (DiD) design. By studying direct legislation in an archetypical cooperative federation as Germany, our paper extends the literature to a novel institutional setting. The results indicate that in our setting - and in contrast to most of the evidence from Switzerland and the US - direct democracy causes an expansion of local government budgets.
{"title":"Direct Democracy and Local Public Finances Under Cooperative Federalism","authors":"Zareh Asatryan, T. Baskaran, Theocharis N. Grigoriadis, F. Heinemann","doi":"10.1111/sjoe.12169","DOIUrl":"https://doi.org/10.1111/sjoe.12169","url":null,"abstract":"This paper exploits the introduction of the right of referenda at the local level in the German state of Bavaria in 1995 to study the fiscal effects of direct democracy. In the first part of the paper, we establish the relationship between referenda activity and fiscal performance by using a new dataset containing information on all 2500 voter initiatives between 1995 to 2011. This selection on observables approach, however, suffers from obvious endogeneity problems in this application. The main part of the paper exploits population dependent discontinuities in the signature and quorum requirements of referenda to implement a regression discontinuity design (RDD). To safeguard against co-treatments that might affect fiscal outcomes simultaneously at the same thresholds, we validate our results by extending the RDD approach to a difference-in-discontinuity (DiD) design. By studying direct legislation in an archetypical cooperative federation as Germany, our paper extends the literature to a novel institutional setting. The results indicate that in our setting - and in contrast to most of the evidence from Switzerland and the US - direct democracy causes an expansion of local government budgets.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122277930","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a model of strategic information transmission from an outside expert with informational superiority to a group of people who make a decision by voting on a proposal. An outside expert who observes the qualities of a proposal sends a cheap talk message to decision makers with limited information. A simple cheap talk strategy of the expert can be surprisingly effective in persuading decision makers by polarizing or unifying their opinions. When there is a significant informational gap, decision makers vote in the expert's interest by focusing only on the expert's message, even though they know she has her own bias.
{"title":"Using Cheap Talk to Polarize or Unify a Group of Decision Makers","authors":"Daeyoung Jeong","doi":"10.2139/ssrn.2996292","DOIUrl":"https://doi.org/10.2139/ssrn.2996292","url":null,"abstract":"We develop a model of strategic information transmission from an outside expert with informational superiority to a group of people who make a decision by voting on a proposal. An outside expert who observes the qualities of a proposal sends a cheap talk message to decision makers with limited information. A simple cheap talk strategy of the expert can be surprisingly effective in persuading decision makers by polarizing or unifying their opinions. When there is a significant informational gap, decision makers vote in the expert's interest by focusing only on the expert's message, even though they know she has her own bias.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"47 24","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120876794","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper attempts to model the relationship between economic growth and democratization, with an emphasis on non-linearities. I adopt and explore the concept of “political capital” as a measure of democracy, which is extremely uncommon in the literature and brings considerable advantages in dynamic terms. My results indicate that the impact of democratization on growth is significant and does vary according to the stage of democratic development each country is in, which is likely to be an important factor in explaining the academic dissonance regarding this topic. Broadly, I find that initial democratization enacts a stronger and positive change in economic performance, which then subsides until a level of near zero at the intermediate democracy level. For more evolved democracies, further democratization may impact growth negatively, negligibly or positively (albeit more weakly so than in the initial stages). Additionally, this relationship is found to be significant both when accounting for more and less direct effects of democracy. Results for the more direct avenue are more optimistic, implying that the indirect impacts of democracy on growth, as a whole, might be negative. For most estimations, a (minimum) level of democracy that maximizes growth is found, which I call the “democracy maximum”. My results suggest this occurs for a democracy level of, on a scale of 1 to 10, around or above 6.
{"title":"Democracy as a Curve: The Dynamic Effects of Democratization on Economic Growth","authors":"Henrique Alpalhão","doi":"10.2139/ssrn.3160111","DOIUrl":"https://doi.org/10.2139/ssrn.3160111","url":null,"abstract":"This paper attempts to model the relationship between economic growth and democratization, with an emphasis on non-linearities. I adopt and explore the concept of “political capital” as a measure of democracy, which is extremely uncommon in the literature and brings considerable advantages in dynamic terms. My results indicate that the impact of democratization on growth is significant and does vary according to the stage of democratic development each country is in, which is likely to be an important factor in explaining the academic dissonance regarding this topic. Broadly, I find that initial democratization enacts a stronger and positive change in economic performance, which then subsides until a level of near zero at the intermediate democracy level. For more evolved democracies, further democratization may impact growth negatively, negligibly or positively (albeit more weakly so than in the initial stages). Additionally, this relationship is found to be significant both when accounting for more and less direct effects of democracy. Results for the more direct avenue are more optimistic, implying that the indirect impacts of democracy on growth, as a whole, might be negative. For most estimations, a (minimum) level of democracy that maximizes growth is found, which I call the “democracy maximum”. My results suggest this occurs for a democracy level of, on a scale of 1 to 10, around or above 6.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"260 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122754936","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Eric Avis, C. Ferraz, Frederico Finan, Carlos Varjao
This paper examines the effects of campaign spending limits on political competition and incumbency advantage. We study a reform in Brazil that imposed limits on campaign spending for mayoral elections. These limits were implemented with a discontinuous kink which we exploit for causal identification. We find that stricter limits increase political competition by creating a larger pool of candidates that is on average less wealthy. Moreover, we find that stricter spending limits reduce the incumbency advantage, causing mayors to be less likely to be reelected. These findings are consistent with a contest model with spending caps and endogenous candidate entry.
{"title":"Money and Politics: The Effects of Campaign Spending Limits on Political Competition and Incumbency Advantage","authors":"Eric Avis, C. Ferraz, Frederico Finan, Carlos Varjao","doi":"10.3386/W23508","DOIUrl":"https://doi.org/10.3386/W23508","url":null,"abstract":"This paper examines the effects of campaign spending limits on political competition and incumbency advantage. We study a reform in Brazil that imposed limits on campaign spending for mayoral elections. These limits were implemented with a discontinuous kink which we exploit for causal identification. We find that stricter limits increase political competition by creating a larger pool of candidates that is on average less wealthy. Moreover, we find that stricter spending limits reduce the incumbency advantage, causing mayors to be less likely to be reelected. These findings are consistent with a contest model with spending caps and endogenous candidate entry.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121163518","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is large evidence that European countries, the EMU in particular, are engaged in an interdependence war, i.e. non-cooperative policies with huge social and economic costs due to mutual negative externalities. In this regard, the EMU as a supranational institution with the overarching end to generate and distribute collective benefits from integration and policy coordination seems off the mark. We present a policy game between two interdependent countries showing that the causes and consequences of interdependence wars lye in non-cooperative strategies dictated by the national social preferences over ''good'' but costly policy choices embedded into the government's policy function. By means of the model we examine what supranational policy regimes may achieve a Pareto improvement. Among the latter, one that we call ''Europe'', minimises the additive loss function of the two countries. The thrust of our analysis is that the supranational regimes which do not take national preferences into account, dubbed ''technocratic regimes'', are dominated, so that the single alternative is between Europe and ''exit'' for the non-cooperative regime. An important result is that Europe is the Pareto-dominant regime only within a limited range of asymmetry between countries' social preferences. The paper concludes with some political-economic implications for the reform of the EMU.
{"title":"Why Is Europe Engaged in an Inter-Dependence War, and How Can It Be Stopped?","authors":"L. Andreozzi, R. Tamborini","doi":"10.2139/ssrn.2965766","DOIUrl":"https://doi.org/10.2139/ssrn.2965766","url":null,"abstract":"There is large evidence that European countries, the EMU in particular, are engaged in an interdependence war, i.e. non-cooperative policies with huge social and economic costs due to mutual negative externalities. In this regard, the EMU as a supranational institution with the overarching end to generate and distribute collective benefits from integration and policy coordination seems off the mark. We present a policy game between two interdependent countries showing that the causes and consequences of interdependence wars lye in non-cooperative strategies dictated by the national social preferences over ''good'' but costly policy choices embedded into the government's policy function. By means of the model we examine what supranational policy regimes may achieve a Pareto improvement. Among the latter, one that we call ''Europe'', minimises the additive loss function of the two countries. The thrust of our analysis is that the supranational regimes which do not take national preferences into account, dubbed ''technocratic regimes'', are dominated, so that the single alternative is between Europe and ''exit'' for the non-cooperative regime. An important result is that Europe is the Pareto-dominant regime only within a limited range of asymmetry between countries' social preferences. The paper concludes with some political-economic implications for the reform of the EMU.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117298711","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a provocative paper, Santa-Clara and Valkanov (2003) present evidence that stock market returns are much higher under Democratic presidents than Republican presidents. Their work was updated by Pastor and Veronesi (2017), who find that the effect is even stronger when the data are extended through the end of 2015. Given the strength of the results, Pastor and Veronesi go on to develop a model based on time varying risk aversion to explain the pattern. There is reason to suspect that the resulting linking stock market performance with presidential affiliation maybe spurious... In particular, two key events are responsible for much of the differential return under Democratic and Republican presidents. Specifically, the fact that Republicans were president during the two great crashes beginning in 1929 and 2008 and, not surprisingly, Democrats were president during the subsequent recoveries explains a majority of the differential. This suggests the finding may be serendipity. To study this possibility, we turn to international data for five major countries as out-of-sample test: Australia, Canada, Germany, France and the United Kingdom. Consistent with the suspicion that the U.S. results are spurious, we find no systematic relationship between the party in power and stock market returns.
{"title":"Presidential Politics and Stock Returns","authors":"R. Arnott, Bradford Cornell, Vitali Kalesnik","doi":"10.2139/ssrn.2960458","DOIUrl":"https://doi.org/10.2139/ssrn.2960458","url":null,"abstract":"In a provocative paper, Santa-Clara and Valkanov (2003) present evidence that stock market returns are much higher under Democratic presidents than Republican presidents. Their work was updated by Pastor and Veronesi (2017), who find that the effect is even stronger when the data are extended through the end of 2015. Given the strength of the results, Pastor and Veronesi go on to develop a model based on time varying risk aversion to explain the pattern. There is reason to suspect that the resulting linking stock market performance with presidential affiliation maybe spurious... In particular, two key events are responsible for much of the differential return under Democratic and Republican presidents. Specifically, the fact that Republicans were president during the two great crashes beginning in 1929 and 2008 and, not surprisingly, Democrats were president during the subsequent recoveries explains a majority of the differential. This suggests the finding may be serendipity. To study this possibility, we turn to international data for five major countries as out-of-sample test: Australia, Canada, Germany, France and the United Kingdom. Consistent with the suspicion that the U.S. results are spurious, we find no systematic relationship between the party in power and stock market returns.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"198 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124443365","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider an infinite-horizon model of elections where policy changes are costly for citizens and parties. The so-called costs of change increase with the extent of the policy shift and make policy history-dependent. First, we provide a detailed description of the equilibrium dynamics and analyze how policies are influenced by history, costs of change, party polarization, and the incumbent's ability. We show that policies converge to a stochastic alternation between two states and that in the long run costs of change have a moderating effect on policies. Second, we analyze welfare as a function of the marginal cost of change. If the initial level of policy polarization is low, welfare is highest for intermediate marginal costs of change. Moreover, any positive level of costs of change will benefit society if the future is sufficiently valuable. If the initial level of policy polarization is high, however, welfare will be highest for low or zero costs of change.
{"title":"A Dynamic Model of Electoral Competition with Costly Policy Changes","authors":"H. Gersbach, Philippe Muller, O. Tejada","doi":"10.2139/ssrn.2955712","DOIUrl":"https://doi.org/10.2139/ssrn.2955712","url":null,"abstract":"We consider an infinite-horizon model of elections where policy changes are costly for citizens and parties. The so-called costs of change increase with the extent of the policy shift and make policy history-dependent. First, we provide a detailed description of the equilibrium dynamics and analyze how policies are influenced by history, costs of change, party polarization, and the incumbent's ability. We show that policies converge to a stochastic alternation between two states and that in the long run costs of change have a moderating effect on policies. Second, we analyze welfare as a function of the marginal cost of change. If the initial level of policy polarization is low, welfare is highest for intermediate marginal costs of change. Moreover, any positive level of costs of change will benefit society if the future is sufficiently valuable. If the initial level of policy polarization is high, however, welfare will be highest for low or zero costs of change.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131018423","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Europeans’ confidence in political institutions has dropped precipitously since the onset of the Euro-crisis in 2010. However, the decline in public trust in government varies tremendously across countries and occupational and educational groups. Analyzing more than 600,000 responses from 23 waves of the Eurobarometer conducted from 2004-2015, we find that economic factors explain much of the cross-national and over-time variation. The baseline level of trust is influenced greatly by a person’s position in the labor market: across European countries, citizens with more education and higher levels of skills express more trust in government than those educational and occupational groups that have benefited less from European integration. The acute decline in the level of public trust in the past decade also has strong economic foundations. Residents of debtor countries that have seen unemployment rates skyrocket in recent years are now much less likely to trust national government than those in creditor countries that have fared better during the economic crisis, while the unemployed have lost faith in government to a greater degree than other parts of the population. Cultural, ideational, and political factors remain important for baseline levels of trust, but on their own they cannot explain the acute, asymmetrical decline in citizen trust observed over the last decade.
{"title":"Crisis of Trust: Socio-Economic Determinants of Europeans' Confidence in Government","authors":"Chase Foster, J. Frieden","doi":"10.2139/ssrn.2953951","DOIUrl":"https://doi.org/10.2139/ssrn.2953951","url":null,"abstract":"Europeans’ confidence in political institutions has dropped precipitously since the onset of the Euro-crisis in 2010. However, the decline in public trust in government varies tremendously across countries and occupational and educational groups. Analyzing more than 600,000 responses from 23 waves of the Eurobarometer conducted from 2004-2015, we find that economic factors explain much of the cross-national and over-time variation. The baseline level of trust is influenced greatly by a person’s position in the labor market: across European countries, citizens with more education and higher levels of skills express more trust in government than those educational and occupational groups that have benefited less from European integration. The acute decline in the level of public trust in the past decade also has strong economic foundations. Residents of debtor countries that have seen unemployment rates skyrocket in recent years are now much less likely to trust national government than those in creditor countries that have fared better during the economic crisis, while the unemployed have lost faith in government to a greater degree than other parts of the population. Cultural, ideational, and political factors remain important for baseline levels of trust, but on their own they cannot explain the acute, asymmetrical decline in citizen trust observed over the last decade.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132415516","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is wide consensus that social capital increases government performance. However, the very mechanism underlying the relationship between social capital and well-performing governments remains unclear. In this paper we focus on the budgetary composition of local governments and find that the joint effect of larger social capital and higher quality in government’s spending improves the re-election chances of incumbent policy makers. By looking at 8,000 Italian municipalities over the period 2003-2012, we show that incumbent mayors who carry out a forward-looking and transparent fiscal agenda are more likely to be reelected where the level of local social capital is larger. In contextswith larger social capital, we obtain a non-trivial average effect of a 54% larger probability to be reelected when a more forward-looking agenda is in place. Thus, the good conduct of incumbent mayors is rewarded, but only in contexts with more social capital. Twin estimates considering a more transparent fiscal agenda are not significantbut show the predicted sign and the comparable size of a 31% larger probability. Our evidence is robust when controlling for the political budget cycle, and provides ground for further exploration of the electoral mechanism as an important channel to explain the connection between social capital and good government performance.
{"title":"Why Does Social Capital Increase Government Performance? The Role of Local Elections across Italian Municipalities","authors":"Alberto Batinti, Luca Andriani, A. Filippetti","doi":"10.2139/ssrn.2995833","DOIUrl":"https://doi.org/10.2139/ssrn.2995833","url":null,"abstract":"There is wide consensus that social capital increases government performance. However, the very mechanism underlying the relationship between social capital and well-performing governments remains unclear. In this paper we focus on the budgetary composition of local governments and find that the joint effect of larger social capital and higher quality in government’s spending improves the re-election chances of incumbent policy makers. By looking at 8,000 Italian municipalities over the period 2003-2012, we show that incumbent mayors who carry out a forward-looking and transparent fiscal agenda are more likely to be reelected where the level of local social capital is larger. In contextswith larger social capital, we obtain a non-trivial average effect of a 54% larger probability to be reelected when a more forward-looking agenda is in place. Thus, the good conduct of incumbent mayors is rewarded, but only in contexts with more social capital. Twin estimates considering a more transparent fiscal agenda are not significantbut show the predicted sign and the comparable size of a 31% larger probability. Our evidence is robust when controlling for the political budget cycle, and provides ground for further exploration of the electoral mechanism as an important channel to explain the connection between social capital and good government performance.","PeriodicalId":117783,"journal":{"name":"ERN: Models of Political Processes: Rent-Seeking","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128749797","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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