Vukovic, Vuk (2011): Political agency model of persistent electoral success with endogenous rents.
Download (398Kb) | Preview
The paper presents a political agency model that observes how budgetary decisions on public good production affect the prospects of holding office for an incumbent political party. A simple budgetary function is broadened to include other expenditures such as public sector wages and social transfers so as to present a constraint to rent-extraction. Upon this a ratio of public goods to other expenditures is determined, which the party must keep within certain boundaries set by the voters. Rents are extracted from public good expenditures instead of being exogenously given as a part of a budget, as the party must be able to conceal rent-extraction due to constitutional boundaries. The incumbent’s decision on rents and public good production directly affects the state of the economy upon which the voters decide whether to re-elect the incumbent or not. Incumbents make their decisions based on observing the economic growth shock. For high levels of growth they decide to respect the voter re-election rule, while for low levels they will defect and extract maximum rents. In a repeated game setting an incumbent will always chose the optimal strategy with respect to the observed growth shock. This way, for high enough levels of economic growth an incumbent party may stay in office for an infinite amount of periods and keep maximizing rents with respect to the given constraints, without having to trade-off rents for holding office. The paper presents empirical evidence on United States gubernatorial and state legislature elections from 1992 to 2008 to evaluate the underlining theory.
|Item Type:||MPRA Paper|
|Original Title:||Political agency model of persistent electoral success with endogenous rents|
|Keywords:||Political agency, rent-extraction, public good production, political parties, endogenous rents|
|Subjects:||C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C71 - Cooperative Games
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H72 - State and Local Budget and Expenditures
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C33 - Models with Panel Data; Longitudinal Data; Spatial Time Series
|Depositing User:||Vuk Vukovic|
|Date Deposited:||28. May 2012 23:36|
|Last Modified:||11. Feb 2013 21:56|
Alesina, A. (1988) “Credibility and Policy Convergence in a Two-Party System with Rational Voters”, American Economic Review, 78(4): 796-805.
Alesina, A., Roubini, N., and Cohen G. (1997) Political Cycles and the Macroeconomy. Cambridge: MIT Press.
Alt, J., de Mesquita, E.B., and Rose, S. (2011) “Disentangling Accountability and Competence in Elections: Evidence from US Term Limits”, Journal of Politics, 73(1): 171-186.
Austen-Smith, D., and Banks, J. (1989) “Electoral Accountability and Incumbency.” In P.C. Ordeshook, (ed.), Models of Strategic Choice in Politics. Ann Arbor: University of Michigan Press, pp.121-148.
Banks, J., and Sundaram, R. (1993) “Adverse Selection and Moral Hazard in a Repeated Elections Model”, in W. Barnett, M. Hinich, and N. Schofield (eds.) Political Economy: Institutions, Information, Competition and Representation. New York: Cambridge University Press, pp.295-311.
Barro, R. (1973) “The Control of Politicians: An Economic Model”, Public Choice 14: 19-42.
Besley, T. (2004) “Paying Politicians: Theory and Evidence”, Journal of the European Economic Association 2(2-3): 193-215.
Besley, T. (2006) Principled Agents? The Political Economy of Good Government. New York: Oxford University Press.
Besley, T., and Case, A. (1995a) “Incumbent Behaviour: Vote-Seeking, Tax-Setting and Yardstick Competition”, American Economic Review, 85(1): 25-45.
Besley, T., and Case, A. (1995b) “Does Political Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits”, Quarterly Journal of Economics, 110(3): 769-798.
Besley, T., and Case, A. (2003) “Political Institutions and Policy Choices: Evidence from the United States”, Journal of Economic Literature, 41(1): 7-73.
Besley, T., and Coate, S. (1997) “An Economic Model of Representative Democracy”, Quarterly Journal of Economics, 112(1): 85-114.
Besley, T., and Prat, A. (2006) “Handcuffs for the Grabbing Hand? Media Capture and Government Accountability”, American Economic Review, 96: 720-736.
Besley, T., and Smart, M. (2007) “Fiscal Restrains and Voter Welfare”, Journal of Public Economics, 91: 755-773.
Brender, A., and Drazen, A. (2008) “How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries”. American Economic Review, 98(5): 2203-2220.
Brennan, G., and Buchanan, J. (1980) The Power to Tax: Analytical Foundations of a Fiscal Constitution. Cambridge: Cambridge University Press.
Caselli, F., and Morelli, M. (2004) “Bad Politicians”, Journal of Public Economics, 88: 759-782.
Coate, S., and Morris, S. (1995) “On the Form of Transfers to Special Interests”, Journal of Political Economy, 103(6): 1210-1235.
Diermeier, D., Keane, M. and Merlo, A. (2005) “A Political Economy Model of Congressional Careers”, American Economic Review, 95: 347-373.
Downs, A. (1957) An Economic Theory of Democracy. New York: Harper and Row.
Ferejohn, J. (1986) “Incumbent Performance and Electoral Control”, Public Choice 50: 5-25.
Ferraz, C., and Finan, F. (2011) “Electoral Accountability and Corruption: Evidence from the Audits of Local Governments”, American Economic Review, 101(4): 1274-1311.
Gagliarducci, S., Nannicini, T., and Naticchioni P. (2010) “Moonlighting Politicians”, Journal of Public Economics, 94(9-10): 688-699.
Krueger, A. (1974) “The Political Economy of the Rent Seeking Society”, American Economic Review, 64: 291-303.
Levy, G. (2004) “A Model of Political Parties”, Journal of Economic Theory, 115(2): 250-277.
Listz, J., and Sturm, D. (2006) “How Elections Matter: Theory and Evidence from Environmental Policy”, Quarterly Journal of Economics, 121(4): 1249-1281.
Mattozzi, A., and Merlo, A. (2008) “Political Careers or Career Politicians?” Journal of Public Economics, 92(3-4): 597-608.
Murphy, K., Shleifer, A., and Vishny, R. (1993) “Why is Rent-Seeking So Costly for Growth?” American Economic Association Papers and Proceedings, 83(2): 409-414.
Nordhaus, W. (1975) “The Political Business Cycle”, Review of Economic Studies 42(2): 169-190.
Osborne, M., and Slivinski, A. (1996) “A Model of Political Competition with Citizen Candidates”, Quarterly Journal of Economics, 111(1): 65-96.
Persson, T., and Tabelini, G. (2000) Political Economics. Explaining Economic Policy. Cambridge: MIT Press.
Rogoff, K. (1990) “Equilibrium Political Budget Cycles”, American Economic Review, 80(1): 21-36.
Rogoff, K., and Sibert, A. (1988) “Elections and Macroeconomic Policy Cycles” Review of Economic Studies, 55(1): 1-16.
Smart, M., and Sturm, D. (2006) “Term Limits and Electoral Accountability” CEP Discussion Papers dp0770, Centre for Economic Performance, London School of Economics.
Tax Foundation (2011) State and Local Tax Burdens: 1977 – 2009. [online] Available at: <http://www.taxfoundation.org/news/show/335.html> [Accessed 5th August 2011].
Tullock, G. (1967) “The Welfare Costs of Tariffs, Monopolies and Theft”, Western Economic Journal. 5(3): 224-232.
United States Census Bureau (2011) Statistical Abstract of the United States. [online] Washington DC, years 1992 – 2010. Available at: <http://www.census.gov/statab/> [Accessed 27th June 2011].
United States Department of Commerce, Bureau of Economic Analysis (2011) Interactive Data, GDP, years 1990 – 2008. [online] Available at: <http://www.bea.gov/iTable/ index_nipa.cfm> [Accessed 30th July 2011].