a model of candidate location with endogenous valence this work gives a theoretical explanation for the increase in campaign spending and party polarization in u s politics i assume that the effectiveness of persuasive advertising and of costly valence campaigning in general positively depends on the share of nonpartisan voters a decline in the number of partisan voters in a constituency results in greater campaign spending by the candidates if the voters are risk averse the candidates who maximize their expected office rents minus the cost of campaigning will choose divergent policy platforms strategically in order to reduce the costs of subsequent campaign spending the degree of policy divergence positively depends on the share of nonpartisan voters for a broad class of voter disutility and candidate cost of valence functions

common agency with rational expectations theory and application to a monetary union we extend the theory of common agency to the situation where the principals payoffs are affected by their ex ante expectations of the agent s ex post choice we show how the usual truthful schedules must be modified to account for the rational expectations constraint we apply the model to a monetary union where member governments influence the policy of the common central bank using incentive contracts we examine how the outcomes depend on different delegated objectives of the bank and find that some often advocated rules create an excessive deflationary bias

central bank constitutions for federal monetary unions abstract in a monetary union the central bank constitution must distribute the power over monetary policy between the members and the administrative center of the union we compare alternative distributions and evaluate their performance dominance of regional interests always leads to inefficient monetary stabilization policies whether or not dominance of regional interests leads to a higher long run rate of inflation depends on the union s political constitution

long live the doge death as a term limit on venetian chief executives can an electorate use the projected life expectancy of a lifetime appointed chief executive to enforce binding informal term limits informal term limits based on the life expectancy of a chief executive candidate at election would enable an electorate to exercise discretion in adjusting tenure lengths to minimize expected turnover and tenure length costs while also providing a strictly binding term limit death we provide a detailed historical case study of venice from 1172 to 1797 when the ruling patricians utilized informal term limits on their chief executive the doge relying on the projected life expectancy of ducal candidates

does monetary unification lead to excessive debt accumulation abstract if discretionary monetary policy gives rise to an inflation bias monetary unification boosts the accumulation of public debt the additional debt accumulation harms welfare if governments are sufficiently myopic in the presence of myopic governments debt ceilings play a useful role in avoiding excessive debt accumulation in a monetary union and allowing a conservative independent central bank to focus on price stability with supply shocks monetary unification results in excessive variability of public debt a debt target that constrains stabilization policy helps to prevent this

dynamic optimization of political popularity in an empirical macroeconomic model we estimate a political popularity function for israel taking account of the effects of institutional and political changes on the structure of the function and then use this function in conjunction with a simple macroeconomic model of the israeli economy to calculate dynamic macroeconomic strategies which would have maximized the political popularity of three previous israeli governments we conclude that the dominant strategy was always to keep unemployment at the natural rate but that this strategy was optimally combined with either rising inflation close to elections for the earlier governments or with near zero inflation throughout the term for later governments

monetary cohabitation in europe how can monetary policy in stage iii of european monetary union be coordinated between the ins and the outs this paper compares alternative institutional mechanisms and concludes that a generalized system of inflation targets at the european level has several merits it strengthens domestic credibility of monetary policy it rules out deliberate attempts to gain competitiveness through devaluations it forces monetary policy to respond automatically to various macroeconomic shocks which is stabilizing for the real exchange rate and it distributes these shocks symmetrically across countries on the basis of a simple theoretical model of policy coordination the paper shows that a system of inflation targets approximates an optimal policy of international cooperation preliminary empirical evidence supports these theoretical results this abstract was borrowed from another version of this item

the stability pact more than a minor nuisance stability pact more than a minor nuisance the stability and growth pact will lead member countries to aim for cyclically balanced budgets until this steady state is reached europe will continue its efforts at de cit cutting while so doing politicians are less likely to undertake the dif cult labour market reforms that are really needed is further scal retrenchment wise the paper reviews the reasons that have been advanced in favour of a stability pact and nds them wanting the most serious justi cations such as the systemic risk of bank crisis following a government s failure to service its debt can be better dealt with in other ways for example by prudential limits on banks exposure to public debts moreover our analysis reveals that the macroeconomic costs of the stability pact while sizeable are not as dangerous as often believed the costs will be barely visible once the steady state is reached the true macroeconomic costs are front loaded they concern the next few years after a decade already dominated by convergence efforts barry eichengreen and charles wyplosz

do people care about democracy an experiment exploring the value of voting rights in almost all democratic national elections an individual vote cannot change the election outcome the fact that many individuals nevertheless participate voluntarily in such elections suggests that people do care about democracy as such this experiment investigates the value of democratic voting rights by providing participants the chance to sell them more specifically an incentive compatible mechanism is used to elicit the willingness to accept value of the voting right in the election of the german bundestag on 16 october 1994 a postexperimental questionnaire makes it possible to assess the relative importance of answers to the frequently raised question why do people vote

separation of powers and political accountability political constitutions are incomplete contracts and therefore leave room for abuse of power in democracies elections are the primary mechanism for disciplining public officials but they are not sufficient separation of powers between executive and legislative bodies also helps to prevent the abuse of power but only with appropriate checks and balances checks and balances work by creating a conflict of interest between the executive and the legislature yet requiring both bodies to agree on public policy in this way the two bodies discipline each other to the voters advantage under appropriate checks and balances separation of powers also helps the voters elicit information

the limits of housing reform british social rented housing in a european context the british social rented sector has been characterised as operating like a socialist command system it places a much greater emphasis on housing very poor households than its counterparts in other european countries most of it is still owned and managed by the local state and pricing policies are not sensitive to demand consequently allocation decisions rely on bureaucratic processes some other european countries have more socially diverse social rented sectors and make much greater use of price signals these systems have been characterised as social markets it has been suggested that britain could adopt some of the organisational structures and practices used elsewhere and move away from the present command system towards a social market comparative evidence confirms that the british social rented sector does contain much greater concentrations of poor households and that this does not simply arise from the types of household housed in the sector but further analysis of the distribution of income and work suggests that the divisions in the housing sector may primarily reflect these broader contextual divisions greater poverty and inequality imply a greater need for the housing system to provide a safety net and make the introduction of market and quasi market mechanisms problematic this is illustrated with reference to allocations and pricing reforms currently under consideration it is concluded that given the socioeconomic context in which housing policy is formulated it might be best to concentrate on providing an effective and high quality safety net

guns and butter and government popularity in britain britain under the government of prime minister thatcher provides a unique opportunity to probe the effects of both war and macroeconomic performance on government popularity monthly ratings for thatcher and conservative party support june 1979 to july 1985 are examined by way of box tiao intervention models the model that best captures the impact of the falklands war of 1982 is of the gradual temporary variety popularity gains accrued through the three month war shrink in a geometric fashion nevertheless they prove to be worth over five percentage points for the conservative party a year later in the 1983 election macroeconomic performance meanwhile is found to have an asymmetric effect on government popularity with unemployment strongly significant but inflation not significant at all apparently the british public is punishing failure on employment while letting success on inflation go unrewarded qualifications of the positive effect of war and the negative effect of macroeconomic performance are suggested

government spending cycles ideological or opportunistic this paper examines whether partisan and opportunistic motives affect government expenditure growth in the netherlands the time series analysis covering the period 1953 1993 allows for different types of government spending in general spending is inspired by ideological and opportunistic motives all government expenditure categories show an upward drift during election times and the partisan motives behind government spending are clearly revealed left wing cabinets attach greater importance to social security and health care than right wing cabinets and right wing cabinets value expenditure on infrastructure and defense more than left wing parties

political reputations and campaign promises we analyze conditions under which candidates reputations may affect voters beliefs over what policy will be implemented by the winning candidate of an election we develop a model of repeated elections with complete information in which candidates are purely ideological we analyze an equilibrium in which voters strategies involve a credible threat to punish candidates who renege on their campaign promises and in which all campaign promises are believed by voters and honored by candidates we characterize the maximal credible campaign promises and find that the degree to which promises are credible in equilibrium is an increasing function of the value of a candidate s reputation jel d8

electoral and partisan cycles between us economic performance and presidential popularity a comment on stephen e haynes in this paper we discuss a recent paper by stephen e haynes in which he relates electoral cycles in political support to electoral cycles in economic variables haynes finds that the cycle in support for republican presidents is explained by the cycle in economic variables whereas the cycle in support for democratic presidents is not in our opinion this shortcoming is due to his specification of the popularity function haynes estimates a popularity function which incorporates the notion that voters reward the incumbent for favourable outcomes score hypothesis our popularity function combines the score hypothesis and the notion that voters cast their ballots for the party that best fits the current economic situation issue hypothesis we show that the electoral cycle in popularity of both republican and democratic presidents is explained very well by the cycle in economic variables

general economic conditions and national elections the fact that economic conditions influence voters is a leading commonplace of conversation in election years the question is is this fact in fact a fact despite the overwhelming popularity of the fact it has received neither an explicit theoretical analysis presumably because it is so obvious that economic adversity should create political adversaries nor until recently a satisfactory statistical analysis gerald h kramer has presented a multivariate analysis of congressional elections which would strongly suggest that fluctuations in the rate of unemployment have no appreciable effect upon elections but that fluctuations in per capita real income are influential in the following pages i propose to 1 reaffirm his finding on the electoral unimportance of ordinary fluctuations in unemployment 2 argue that contrary to kramer fluctuations in real income also do not have important electoral effects and 3 present an argument based upon rational voter behavior for the unimportance of general economic conditions in national elections

the unbearable tightness of being in a monetary union fiscal restrictions and regional stability we study how constrained fiscal policy can affect macroeconomic stability and welfare in a two region model of a monetary union with sticky prices and distortionary taxation both government spending and taxes can be used to stabilize regional variables however the best welfare outcome is obtained under some tax variability and constant regional inflations we use a variety of rules to characterize constrained fiscal policy and find that strict fiscal rules coupled with a monetary policy that targets union wide inflation result in regional inflation stability and the welfare costs of such rules are not as unbearable as one would expect fiscal authorities can enhance welfare by targeting the regional output gap while targeting regional inflation is less successful since inflation stability is guaranteed by the central bank

does social capital increase political accountability an empirical test for flemish municipalities social capital has been shown to positively influence government performance boix and posner br j polit sci 28 686 693 1998 suggest a possible explanation social capital makes citizens monitor the government more closely such monitoring will be more explicit to the extent that instrumental voting motivations outweigh expressive considerations we identify social capital as a source that facilitates instrumental voting and thus political accountability we present an empirical test of the boix and posner hypothesis and find a positive link between perceived quality of government and election results of the incumbent parties crucially we find this link to be stronger in municipalities high in social capital

the political impact of economic crisis in latin america in the 1980s research on the political implications of economic conditions is separated into two relatively distinct bodies of literature i bridge the theoretical gap between them by examining the effects of economic crisis on electoral outcomes in latin america from 1982 to 1990 an analysis of 21 competitive elections indicates that crisis conditions undermine support for incumbents and provoke high levels of electoral volatility but without necessarily fostering the growth of political extremism or the exhaustion of elite consensus associated with the breakdown of democracy the results also suggest that the relationship between economic conditions and electoral instability is mediated by party system structure rather than democratic age paradoxically the findings buttress prior research on electoral outcomes in the comparatively stable and homogeneous organization for economic cooperation and development oecd nations while undercutting theoretical frameworks elaborated with specific reference to the breakdown and consolidation of third world democracy

games of monetary and fiscal interactions in the emu abstract this paper constructs various models of the emu and ecb when member countries have different objectives voting in pursuit of national interest can yield moderate and stable inflation the metaphor of walsh type contracts implements a monetary policy rule that averages the member countries most preferred rules in a repeated relationship where a country suffering a large adverse shock can use political bargaining to subvert the ecb s commitment the optimal rule should incorporate some flexibility to forestall that finally freedom of national fiscal policies undermines the ecb s monetary commitment this may justify fiscal constraints like the stability and growth pact

valence politics and equilibrium in spatial election models spatial models of two party or two candidatecompetition almost never have pure strategy nashequilibria when the issue space has more than onedimension this paper shows that the introduction ofvalence issues can create conditions where equilibriaexist even in a multidimensional setting we derivesufficient conditions for the existence of equilibria and characterize the spatial locations of twocompeting parties or candidates when such equilibriaexist the party with the advantage on the valencedimension will generally take a moderate position onthe positional issues we consider the implications ofthese results for public perceptions of the parties incumbency advantages and realigning elections

monetary fiscal policy interactions and commitment versus discretion in a monetary union abstract we consider monetary fiscal policy interactions in a monetary union if monetary and fiscal authorities have different ideal output and inflation targets the nash equilibrium output or inflation or both are beyond the ideal points of all authorities leadership of either authority is better fiscal discretion entirely negates the advantage of monetary commitment the optimal monetary rule is equivalent to discretionary leadership of monetary over fiscal policy agreement about ideal output and inflation creates a monetary fiscal symbiosis yielding the ideal point despite disagreement about the relative weights of the two objectives for any order of moves without fiscal co ordination and without monetary commitment

econometric estimations of popularity functions a case study for austria in this paper we investigate the effects of changes in economic conditions on the popularity of political parties in austria after a brief description of the austrian political system we estimate single equations and simultaneous systems of popularity functions for different parties based on traditional theoretical foundations results show that some effects of economic variables on popularity exist although they are different between different policy regimes traditional popularity functions nevertheless outperform models based on the assumption of voters rational expectations which claim that only unexpected changes in economic conditions affect political popularity

monetary policy in a heterogeneous monetary union the australian experience australia is a monetary union with strong regional specialization manufacturing and service industries are located in the population centres on the south eastern seaboard and mining and pastoral activities take place in the interior and north of the continent monetary policy affects the interior and north more strongly than the south eastern seaboard because australian primary goods are mostly exported and the exchange rate provides the main transmission channel for monetary policy the reserve bank of australia must consider the economic interests of the interior and north and the south eastern seaboard since monetary policy cannot differentiate between regions there is a need for interregional macroeconomic risk sharing

incentives in organizations n 1975 steven kerr published on the folly of rewarding a while hoping for b the argument was simple you get what you pay for kerr distilled this unifying theme from a disparate set of examples involving politicians soldiers doctors orphanage directors professors and students as well as manufacturing and clerical employees and even human resource managers from these examples kerr pp 77980 concluded that two main causes of distorted incentives are fascination with an objective criterion where individuals seek to establish simple quantifiable standards against which to measure and reward performance and overemphasis on highly visible behaviors when some parts of the task are highly visible while others are not it took agency theory 15 years to express kerr s title not to mention to evaluate or extend his conclusions during this period agency theory was obsessed with the tradeoff between incentives and insurance even though clear eyed observations like kerr s about the design and performance of real incentive contracts suggested that several other issues are at least as important fortunately recent work has brought agency theory not only to kerr s position but beyond in this paper i summarize four new strands in agency theory that help me think about incentives in real organizations as a point of departure i begin with a quick sketch of the classic agency model i then discuss static models of objective performance measurement that sharpen kerr s argument repeated game models of subjective performance assessments incentives for skill development rather than simply for effort and incentive contracts between versus within organizations i con

an economic analysis of voting in sweden using data from the swedish election studies between 1985 and 1994 supplemented with time series on inflation and unemployment i compare the impact of macro and microeconomic variables on the individual vote the principal finding is that macroeconomic variables influence the vote a bit more than microeconomic variables do in consequence both self interest and public interest appear to be important explanations of economic voting in sweden macroeconomic variables have however been much more influential in determining election outcomes since previous studies of economic voting have used cross sectional data only it is also worth noting that panel estimates indicate a much greater impact of macroeconomic variables on the individual vote than cross sectional estimates do

the vp function a survey of the literature on vote and popularity functions after 25 years vp functions explain the support for the government at votes and polls by economic and political variables most studies analyze macro time series we also cover studies of individual voters socio economic groups and regional cross sections the theory starts from the responsibil ity hypothesis voters hold the government responsible for economic conditions it works in two party block systems but not else voters in most countries are found to be sociotropic egotropic voting also occurs voters myopia is well established voting is retrospective as expectations are static it costs the average government almost 2 of the vote to rule

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

capital tax competition under a common currency abstract we re examine the view that capital taxes are too low when capital is mobile across tax jurisdictions we do so by emphasising a previously neglected implication of decentralised capital tax setting when jurisdictions share a common currency namely capital taxes give rise to a vertical externality by affecting the revenues of the over arching central bank from issuing the common currency this externality may lead ceteris paribus to too high regional capital taxes and may more than offset the usual effects of tax competition in this case and contrary to conventional wisdom decentralised capital taxes will be too high

a new view of political accountability for economic performance most political support models imply that in evaluating economic performance voters use a standard that would provide poor predictions of the future and leave the economy vulnerable to manipulation by vote hungry politicians drawing on macroeconomic theory we develop a simple standard of evaluation which encompasses a concern not only for current economic outcomes but also for accurately assessed future consequences of current policies we find that political support for the president can be explained as well by models that assume that voters use this sophisticated standard as by models that assume voter naivete our analysis questions the wisdom of measures typically used to assess voter evaluation of economic performance in a variety of theoretical contexts the results also help to explain the absence of convincing evidence that governments exploit voter ignorance in manipulating the economy

partisanship theory macroeconomic outcomes and endogenous elections recently there has been a surge of interest in partisanship theories of macroeconomic political interaction unlike political business cycle theory in which economic policy is motivated only by reelection concerns partisanship theory maintains that policy is motivated along ideological lines political parties differ with respect to economic policy and consequently economic performance may differ as well indeed not only is there evidence that political parties in the united states have quite different policy priorities but that this difference in policy priorities is translated into differences in economic outcomes 2

bread and the attrition of power economic events and german election results aggregate votes for incumbent parties in post war germany were determined by the weighted average growth of real per capita disposable income each percentage point of per capita real disposable income growth sustained over the legislative term yielded approximately two percentage points of votes in germany no other economic variables add value or significantly perturb the coefficients of our model however attrition of power reduced the vote share in election years 1961 1994 and 1998

misconceptions and political outcomes a large literature shows that strategic interactions among actors with conflicting objectives can cause the political process to produce outcomes that lower welfare this paper investigates an alternative explanation of such outcomes if individuals errors in assessing the likely effects of proposed policies are correlated democratic decisionmaking can produce welfare reducing outcomes even in the absence of conflicting objectives under plausible assumptions choosing candidates from among the best informed individuals does not remedy the problems created by such errors but subsidising information and exposing representatives to information after their election do concentration of power has ambiguous effects

the macroeconomics of social pacts in this paper we analyze macroeconomic interactions between trade unions the central bank and the fiscal policymaker we explicitly model unions concern for public expenditure paving the way for an analysis of the potential gains from cooperation between the fiscal policymaker and the unions i e the so called corporatist or social pacts that have characterized economic policies in a number of european countries in the last few decades we also highlight the profoundly different incentives generated by institutional arrangements such as the maastricht criteria and the stability and growth pact the former has unambiguously induced more efficient outcomes the latter is likely to backfire

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

a rational voter explanation of the cost of ruling it is well known that the average government loses votes the so called cost of ruling we show that the loss can be explained as a perfectly rational demand for change in a median voter model once the model is amended to let the two parties be visibly different

how lasting is voter gratitude an analysis of the short and long term electoral returns to beneficial policy dominant theories of electoral behavior emphasize that voters myopically evaluate policy performance and that this shortsightednessmayobstructthewelfare improvingeffectofdemocraticaccountability however weknowlittleabouthow long governments receive electoral credit for beneficial policies we exploit the massive policy response to a major natural disaster the 2002 elbe flooding in germany to provide an upper bound for the short and long term electoral returns to targeted policy benefits we estimate that the flood response increased vote shares for the incumbent party by 7 percentage points in affected areas in the 2002 election twenty five percent of this short term reward carried over to the 2005 election before the gains vanished in the 2009 election we conclude that given favorable circumstances policy makers can generate voter gratitude that persists longer than scholarship has acknowledged so far and elaborate on the implications for theories of electoral behavior democratic accountability and public policy

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

an analysis of the stability and growth pact we use a stylised model to analyse the stability and growth pact for countries that have formed the european monetary union emu in our model shortsighted governments fail to internalise the consequences of their debt policies for the common inflation rate fully therefore while governments have no incentive to sign a stability pact in the absence of a monetary union they do so with monetary union to restrain this externality with uncertainty a monetary union combined with an appropriately designed pact will be strictly preferred to autonomy with differences in initial conditions conflicts of interest arise we study the nash bargaining solution

the macroeconomic policy mix in a monetary union with flexible inflation targeting abstract policy mix problems may arise in a monetary union with centralized monetary policy and decentralized fiscal policy a consequence of this may be an inappropriate stabilization of shocks this paper addresses how policy coordination problems between fiscal authorities depend on the type of shocks and the objectives of the monetary authority it is shown that non coordinated fiscal policies tend to be too counter cyclical in the case of aggregate shocks and that this bias can be reduced by lowering the weight to output stability in monetary policy oppositely for country specific shocks non coordinated fiscal policies tend to be too pro cyclical and this bias can be reduced by increasing the weight to output stability in monetary policy considering the assignment of policy tasks within the set of binding policy rules for fiscal and monetary policies it is found that flexible inflation targeting dominates strict inflation targeting

citizens support for inter municipal cooperation evidence from a survey in the german state of hesse inter municipal cooperation imc is often proposed as a politically feasible way by which rural municipalities can cope with intensified interregional competition and demographic change we provid

why join the party in a one party system popularity versus political exchange the paper investigates empirically the determinants of political stability in one party states taking as an example socialist yugoslavia we assume that the number of the party members is an indicator of the stability of the regime and perform a time series analysis for the six yugoslav republics in the 1953 1988 period we find that rents distributed to the population were far more important than the popularity of economic policies and perhaps even more important than repression these findings provide strong empirical support for economic models of dictatorship based on the notion of political exchange

rational adaptive and learning behavior of voters evidence from disaggregated popularity functions for sweden the disaggregated study confirms earlier aggregated studies showing that unemployment strongly affects the popularity of the swedish government the results presented here however suggest that there are differences among popularity functions estimated across groups differing in age income and gender consequently popularity functions estimated at an aggregated level ignore reaction patterns within various groups in society

optimal monetary policy cooperation through state independent contracts with targets abstract simple state independent monetary institutions are shown to secure optimal cooperative policies in a stochastic linear quadratic two country world with international policy spill overs and national credibility problems institutions characterize delegation to independent central bankers facing quadratic performance related contracts punishing or rewarding deviations from primary and intermediate policy targets

trends in dutch housing policy and the shifting position of the social rented sector the housing system of the netherlands has acquired an international reputation because of its special nature and the way it has evolved in this contribution we explain how the dutch social rented

a repeated game model of monetary union given a policy rule of the common central bank of a monetary union member countries with different preferences about inflation and facing asymmetric shocks have different incentives to secure political intervention in the bank s operation and achieve the temporary benefit of surprise inflation this is modelled as a repeated game and the most cooperative outcome subject to the countries incentive compatibility constraints is found the optimal rule responds flexibly to asymmetric shocks adjusting policy away from the full commitment level toward the discretionary level so as to maintain the worse hit country s incentive to abide by the rule

voting and the economic cycle sophisticated voters assess incumbent competence by filtering out economic cycles which they do not like from trend growth which they do naive voters on the other hand respond only to raw economic growth this implies that voting in the aggregate should respond asymmetrically to the economic cycle upswings are rewarded by the naive but punished by the sophisticated downswings are punished by all voters using an established dataset of over 400 general elections we find that the incumbent vote share a responds differently to trend growth than to the cycle b does not respond significantly to positive variation in the economic cycle and c responds significantly and negatively to negative realizations in the economic cycle in contrast to standard formulations of the grievance asymmetry this asymmetric vote response is found to be independent of trend growth

a model of candidate location when one candidate has a valence advantage that under some fairly weak assumptions for all levels of the valence advantage the advantaged candidate chooses a more moderate position than the disadvantaged candidate empirical studies of congressional elections by fiorina 1973 and ansolabehere snyder and stewart 2001 support this result d owns 1957 seminal work presents a puzzle for scholars of u s elections why do candidates not converge to the median voter one of the best explanations is that the candidates themselves have ideological preferences as calvert 1985 and wittman 1977 1983 have shown when candidates have such preferences and they are sufficiently uncertain about the preferences of the median voter then they do not converge although they may moderate their positions from their ideal point the basic version of the calvert wittman model however does not account for another basic fact of u s elections often one of the candidates has an advantage due to a nonpolicy factor such as incumbency greater campaign funds better name recognition superior charisma superior intelligence and so on stokes has dubbed such factors valence factors and he has noted their importance in u s elections stokes 1963 1992 1 in this article i extend the basic calvert wittman model by giving one candidate a valence advantage over the other i show that if the valence characteristics of the candidates are approximately equal then when a candidate s valence advantage increases this causes her to move toward the

a re examination of an irish popularity function this paper focuses on replication in the sense of herrnson 1995 it re examines the only study of an irish popularity function borooah and borooah 1990 in the light of recent developments in econometric methodology and in irish politics using error correction models the analysis provides an alternative account of the relationship between economics and government popularity to that provided by borooah and borooah the findings indicate that the short term impact of the economy is weaker than and different from that suggested by them economic influences at most set the general level of government approval rather than determine the quarter by quarter fluctuations

optimal reputation building in the new keynesian model abstract we study the optimal committed monetary policy when the private sector has imperfect information and has to infer the central banker s ability to commit the optimal policy is designed to influence learning and improve the central banker s reputation of being committed the reputation building implies that when a committed central banker first takes office he should resist the temptation to stimulate output with initially high but declining inflation he should reverse a missed inflation target rather than accommodate it and he should adopt a less accommodative inflation response to a cost push shock than a full commitment solution suggests

biased beliefs and retrospective voting why democracies choose mediocre policies there are two well established empirical regularities about voters first they entertain systematically biased beliefs about how public policies affect economic outcomes second voters vote retrospectively they punish the incumbent for poor and reward him for good macroeconomic performance thus political parties face a trade off offering popular yet economically harmful policies increases the chance of being elected today but decreases the chance of re election we provide the first rigorous game theoretical analysis of the trade off the model addresses two questions how can biased beliefs and retrospective voting be explained consistently what policy outcomes emerge in party competition to micro found persistently biased beliefs we introduce the psychological concept of mental models deviating from earlier studies we allow parties to choose strategic mixtures of populist i e bad yet popular and good but less popular platforms we show that retrospective voting provides a self correction mechanism so that parties offer strategic mixtures of policies in equilibrium rather than purely populist or purely good policy platforms thus democracy is characterized by mediocre policy choices and half hearted reforms an incumbent bias or unclear responsibilities weaken the self correction mechanism

political support for reforms economics of voting in transition countries i analyze the relationship between economics and politics across eight parliamentary elections in four transition countries the czech republic hungary poland and slovakia i argue that support for reform reflects the balance between positive and negative effects of the reform accordingly i identify economic groups that support or oppose the reform the former are private entrepreneurs white collar workers and university educated voters the latter are the unemployed retirees and blue collar and agricultural workers this general pattern holds both within countries and across countries and across tenures of different governments in contrast with the responsibility hypothesis voters in the transition countries are found to be forward looking not retrospective

two types of rental system an exploratory empirical test of kemeny s rental system typology the organisation of the rental market varies from country to country kemeny draws a distinction between societies with an integrated rental system relatively minor differences between the non profi t and the profi t rental sectors and societies with a dualist rental system relatively major differences between the non profi t and the profi t rental sectors in this exploratory paper kemeny s typology is tested against data from the european community household panel echp the tentative conclusion is that integrated rental systems and dualist rental systems do indeed exist but there are signs of increasing convergence between the two

the immediate challenges for the european central bank immediate challenges for the ecb issues in formulating a single monetary policy this paper discusses a number of issues that the newly constituted board of the ecb will face early on conducting a european monetary policy will be very different from living under the protective umbrella of the bundesbank we discuss voting on the ecb board and argue that the ability to communicate with the public will be critical for the success of the new institution we also ask how a single monetary policy a common change in the interest rate controlled by the ecb is transmitted to the economy of each member country we show that the monetary process differs significantly inside emu initially at least the cost of a disinflation episode could fall disproportionately on a few member countries those with both a financial structure that spreads a monetary contraction widely and a wage price structure that is relatively inflexible this process moreover is sure to evolve in part as a result of financial industry restructuring already under way but in part accentuated by the common money furthermore as the lucas principle suggests the wage price process itself will adapt to the changing focus of european monetary policy rudi dornbusch carlo favero and francesco giavazzi

the varying political toll of concerns about corruption in good versus bad economic times under what conditions do citizens connect concerns about corruption to their evaluations of sitting executives in contrast to conventional scholarship positing a direct negative relationship between corruption and political support we build on a small but suggestive body of research to argue that this relationship is conditional on economic context we test this claim with national survey data collected in 19 presidential systems as part of the americasbarometer 2010 study using both fixed effects ordinary least squares and hierarchical linear regression analyses we show that individuals facing bad good collective economic conditions apply a higher lower penalty to presidential approval for perceived political corruption this result holds across both an individual level indicator of national economic assessment and a regional economic measure we further test and find less substantial results for the moderating influence of personal economic conditions on the political toll of corruption perce

political shocks and public debt the case for a conservative central bank revisited abstract we explore the dynamics of public debt and optimal institutions in the presence of political shocks arising from electoral uncertainty under commitment optimal stabilization is established by combining an inflation target with a debt target the inflation target should be contingent on the political shocks while the debt target forces the government to fully absorb the political shocks in the period in which it occurs in the absence of such inflation and debt targets but with monetary commitment a conservative central bank enhances stabilization an even more conservative central bank is optimal if monetary policy cannot commit

inflation unemployment and public opinion polls it is well known that public opinion polls report that the public regards inflation as a more serious problem than unemployment in this paper we examine public opinion surveys with the aim of discovering what if anything the poll results mean we describe in some detail the questions about inflation and unemployment asked in the surveys and analyze the determinants in both cross section and time series of answers to those questions the typical opinion poll question about inflation and unemployment is which of the two problems inflation or unemployment do you think will cause the more serious economic hardship for people during the next year or so 1 section 1 discusses the possible issues to which opinion poll questions about inflation and unemployment might be relevant section 2 tabulates a variety of questions that have been asked along with the responses and examines the views expressed and their consistency both internal and across different polls section 3 presents a regression analysis of the cross sectional determinants of responses to the michigan poll question cited above while section 4 studies determinants of changes over time

motivation of politicians and long term policies we analyze the motivation of politicians in democracies when long term policies are socially desirable politicians receive utility from holding office and from the success of their projects we refer to the two extreme types of politicians as populists and policy success seekers one result is that inefficiencies in the political process are smaller when a politician is of the populist type when politicians offer incentive contracts the problem of inefficient decision making may be solved the amount of money necessary to induce the incumbent to undertake the socially optimal project decreases with the degree of populism he displays

monetary and fiscal policies interaction in monetary unions in this paper the literature on the interaction between monetary and fiscal policies in a monetary union is surveyed by adopting the concept of symbiosis as a starting point the paper highlights the importance of uncertainty policy makers preferences and targets then the role of commitment to policy rules and coordination is addressed the analysis also focuses on the importance of the data considered for the generation of the policy mix as a final step the paper discusses the main results in the literature on public debt management in a monetary union all the reported theoretical results are then adopted to retrieve policy and institutional implications for the european monetary union

the role of economic issues in elections the case of the 1988 chilean presidential referendum in this paper we tested the hypothesis that the performance of the economy is a determinant factor in the voter s preferences the results obtained enable us to corroborate this notion since the model has a high predictive value and the behavior of the economy both in terms of level of activity as well as in its changes comes up consistently as a determinant factor of voting behavior these results are also consistent with those obtained through chilean polls in which it has been ascertained that economic events particularly in the case of those who favored the anti pinochet option no were of utmost importance in the voters decisions the results also confirm the idea that in chile women tend to give economic issues a lesser weight in their political preferences

long term evidence of retrospective voting a natural experiment from the german democratic republic abstract the paper investigates long lasting electoral punishment decades of communist socialization and the repressive rule of a single party have left their left wing fingerprint on east germany in this paper we show that voters act rationally given negative life circumstances experienced under the rule of the communist party they display retrospective voting even decades later our insight is based on the analysis of 19 years of revealed and stated party preferences we argue that life at the border region to west germany was particularly hard and find that east german voters who lived close to the inner german border before the reunification of the two states are 5 9 percentage points less likely to lean toward the successor party to east germany s communists given that over the years roughly every fifth person has revealed preferences for the communists in the east this translates to over thirty percent reduction we confirm the preferences with administrative data the electoral punishment estimated at the district level amounts to a reduction of 1 3 percentage points of votes for the party

the ecological fallacy revisited aggregate versus individual level findings on economics and elections and sociotropic voting several aggregate level studies have found a relationship between macroeconomic conditions and election outcomes operating in intuitively plausible directions more recent survey based studies however have been unable to detect any comparable relationship operating at the individual voter level this persistent discrepancy is puzzling one recently proposed explanation for it is that voters actually behave in an altruistic or sociotropic fashion responding to economic events only as they affect the general welfare rather than in terms of self interested pocketbook considerations it is argued here that the discrepancies between the macro and micro level studies are a statistical artifact arising from the fact that observable changes in individual welfare actually consist of two unobservable components a government induced and politically relevant component and an exogenous component caused by life cycle and other politically irrelevant factors it is shown that because of this individual level cross sectional estimates of the effects of welfare changes on voting are badly biased and are essentially unrelated to the true values of the behavioral parameters of interest they will generally be considerable underestimates and may even be of the wrong sign an aggregate level time series analysis on the other hand will often yield reasonably good if somewhat attenuated estimates of the underlying individual level effects of interest thus in this case individual behavior is best investigated with aggregate rather than individual level data it is also shown that the evidence for sociotropic voting is artifactual in the sense that the various findings and evidence which ostensibly show sociotropic behavior are all perfectly compatible with the null hypothesis of self interested pocketbook voting

the rationality of economic voting and the macroeconomic regime since voter rationality plays a major role in theories of political economics it is important for political analysts to investigate the extent of voter sophistication a conventional strategy for addressing this question is to determine what decision rule voters appear to use by estimating rival political support models that embody varying assumptions about voter rationality however under some circumstances such a strategy may be incapable of identifying the descriptively superior model due to an observational equivalence problem the paper estimates the competing political support models under alternative macroeconomic regimes and finds evidence favoring the nonrationalist or adaptive model

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

social rented housing in western europe developments and expectations what lies ahead for the social rented sector in western europe do countries differ merely in degree or do differences between countries offer grounds on which to sketch divergent scenarios for th

inflation and political instability in eight latin american countries 1946 83 the path of consumer price rises is compared with data for the incidence of political change and the frequency of military regimes from 1946 to 1984 for the following countries argentina brazil chile colombia mexico peru uruguay and venezuela a highly significant connection between the frequency of military government and the level of inflation is found this appears to be due to two other significant results i the military regimes are relatively unstable ones ii inflation normally turns upwards under civilian and downwards under military regimes i e the military regimes are relatively strong in fighting inflation finally it is demonstrated that few regimes survive a spell of hyperinflation

political accountability for price stability and unemployment in a multi party system with coalition governments a model of party popularity for multi party systems is presented and applied to the netherlands main conclusions are first inflation and unemployment and their interaction affect the popularity of parties second it is important to take into account that voters may reckon with a trade off between these variables third it is wrong to handle a coalition government as a homogeneous entity

economic outcomes and voting behaviour in a multi party system an application to the netherlands this paper is an empirical study to the effects of economic outcomes on party choice for the netherlands in the first part of the paper we employ a multinomial logit model to examine the links between voters characteristics and party choice the results suggest that there are long run movements in party choice which are unlikely be the result of changing economic outcomes in the second part we use time series analysis to determine the effects of economic conditions on short run and medium run movements in votes shares the estimations results provide support for the responsibility hypothesis and for the predictions of the partisan voter model that left wing right wing parties benefit suffer from favourable economic growth prospects

rationality causality and the relation between economic conditions and the popularity of parties an empirical investigation for the federal republic of germany 1971 1982 abstract two questions are discussed using german popularity data from 1971 to 1982 it is asked whether it is true that using time series methods no relation can be found between economic variables and the popularity of parties taking ex post predictions strong evidence is presented that such a relation exists even if usual granger causality tests cannot detect it but is this relation compatible with rational expectations of the electorate this is at best partly the case as the anticipated part of the unemployment rate has a significant impact on the popularities of the two major german parties

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

the dynamics of public support for coalition governments this article investigates the relationship between economic conditions and party support for coalition parties in denmark and the netherlands the article argues that the simple reward punishment model cannot fully account for changes in citizens support for parties given variable economic performance using aggregate public support data for political parties the article shows that citizens differentiate between coalition partners depending on the parties issue priorities instead of blaming or rewarding all coalition parties in a uniform fashion citizens shift support from one coalition party to another depending on the perceived competence of a party to deal with particular economic problems the article finds that the structure of responsibility in parliamentary democracies ruled by coalition governments is more complex than is often assumed therefore it is argued that students of economics and public opinion should pay particular attention to the institutional context in which citizens make ch