the political economy of clientelism in this paper we argue that the political commitment problem provides an explanation for why much income redistribution takes an inefficient form particularly employment in the public sector a job is a credible way of redistributing when it provides rents such as in situations with moral hazard and employment is optimal ex post moreover a job is selective and reversible and thus ties the continuation utility of a voter to the political success of a particular politician we show that the need to make offers of employment incentive compatible leads to inefficiencies in the supply of public goods we also show that such inefficient redistribution becomes relatively attractive in situations with high inequality and low productivity inefficiency is increased when the stakes from politics are high when inequality is high and when money matters less than ideology in politics

does corporate governance influence earnings management in latin american markets although us and european research has documented improvement in earnings quality associated with corporate governance characteristics the situation in latin america is questionable given the business environment in which firms operate which is characterized by controlling family ownership and weak legal protection the purpose of this study is to examine the relation between the internal mechanisms of corporate governance and earnings management measured by discretionary accrual we use a sample of listed latin american non financial companies from the period 2006 2009 our results show how in the latin american context the role of external directors is limited and that boards which meet more frequently take a more active position in the monitoring of insiders so showing a lower use of manipulative practices in addition we find a non linear relation between insider ownership and discretionary accruals also pointing to the fact that ownership concentration may be a manipulative practices constrictor mechanism only when the ownership of main shareholders is moderate the findings have important policy implications since this is to the best of our knowledge the first study to analyze the relation between the effectiveness of the government and the earnings management behavior as policy implications we document how when a country implements controls aimed at reducing corruption strengthening the rule of law or improving the effectiveness of government this leads to a reduction in firm earnings management

subjective and objective measures of governmental regulations in oecd nations abstract since government regulations may have an important impact on the macroeconomic performance of market economies it is necessary to devise quantitative indicators of the regulatory regime which raises some difficult methodological issues after reviewing some of these problems we compare the results of several recent quantitative studies of regulation in oecd nations some based on an extensive review and quantification of laws and regulations others based on observational data of those familiar with these regulations despite their very different methodologies and coverage of particular types of governmental regulation the results of the three studies are significantly correlated which suggests that they all capture the same underlying reality

political selection and persistence of bad governments we study dynamic selection of governments under different political institutions with a special focus on institutional flexibility a government consists of a subset of the individuals in the society the competence level of the government in office determines collective utilities e g by determining the amount and quality of public goods and each individual derives additional utility from being part of the government e g rents from holding office we characterize the dynamic evolution of governments and determine the structure of stable governments which arise and persist in equilibrium in our model perfect democracy where current members of the government do not have veto power over changes in governments always leads to the emergence of the most competent government however any deviation from perfect democracy to any regime with incumbency veto power destroys this result there is always at least one other less competent government that is also stable and can persist forever and even the least competent government can persist forever in office we also show that there is a nonmonotonic relationship between the degree of incumbency veto power and the quality of government in contrast in the presence of stochastic shocks or changes in the environment a regime with less incumbency veto power has greater flexibility and greater probability that high competence governments will come to power this result suggests that a particular advantage of democratic regimes with a limited number of veto players may be their greater adaptability to changes rather than their performance under given conditions finally we show that royalty like dictatorships may be more successful than junta like dictatorships because in these regimes veto players are less afraid of change

presidential coattails versus the median voter senator selection in us elections abstract we show that senators elected in presidential elections are more ideologically extreme than senators elected in midterm elections this finding is in contrast to the literature suggesting that voters in presidential elections are more ideologically moderate than voters in midterm elections to explain this incongruence we propose a theory of spillover effects in which party labels enable voters to update their beliefs about candidates across contemporaneous races for office unexpected support for a candidate in one race carries marginal candidates from the same party in other races our theory implies that presidential coattails may skew representative government away from the median voter ideal

incentives to cultivate favored minorities under alternative electoral systems a simple model is used to compare under different electoral systems the incentives for candidates to create inequalities among otherwise homogeneous voters by making campaign promises that favor small groups rather than appealing equally to all voters in this game model each candidate generates offers for voters independently out of a distribution that is chosen by the candidate subject only to the constraints that offers must be nonnegative and have mean 1 symmetric equilibria with sincere voting are analyzed for two candidate elections and for multicandidate elections under rank scoring rules approval voting and single transferable vote voting rules that can guarantee representation for minorities in multiseat elections generate in this model the most severely unequal campaign promises

inherited trust and growth this paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation we show that inherited trust of descendants of us immigrants is sig nificantly influenced by the country of origin and the timing of arrival of their forebears we thus use the inherited trust of descendants of us immigrants as a time varying measure of inherited trust in their country of origin this strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects jel n11 n12 n31 n32 o47 z13

does electoral accountability affect economic policy choices evidence from gubernatorial term limits this paper analyzes the behavior of u s governors from 1950 to 1986 to investigate a reputation building model of political behavior we argue that differences in the behavior of governors who face a binding term limit and those who are able to run again provides a source of variation in discount rates that can be used to test a political agency model we find evidence that taxes spending and other policy instruments respond to a binding term limit if a democrat is in office the result is a fiscal cycle in term limit states which lowers state income when the term limit binds

redistributive politics and economic efficiency the political process often compensates the losers from technical change or international competition in an economically inefficient way namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses we find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome to achieve economically efficient outcomes it is necessary that those making economically inefficient choices not be given offsetting transfers but the political process distributes income on the basis of political characteristics which are in general different from the economic characteristics that are rewarded by the market we identify circumstances in which the inefficient choosers have desirable political characteristics and are therefore immune from threats of having to face the economic consequences of their choices

institutional corruption and election fraud evidence from a field experiment in afghanistan w e investigate the relationship between political networks weak institutions and election fraud during the 2010 parliamentary election in afghanistan combining i data on political connections between candidates and election officials ii a nationwide controlled evaluation of a novel monitoring technology and iii direct measurements of aggregation fraud we find considerable evidence of aggregation fraud in favor of connected candidates and that the announcement of a new monitoring technology reduced theft of election materials by about 60 percent and vote counts for connected candidates by about 25 percent the results have implications for electoral competition and are potentially actionable for policymakers jel c93 d02 d72 k42 o17

exposing corrupt politicians the effects of brazil s publicly released audits on electoral outcomes author s finan frederico ferraz claudio abstract this paper examines the extent to which access to information enhances political accountability based upon the results of brazil s recent anti corruption program that randomly audits municipal expenditures of federally transferred funds it estimates the effect of the disclosure of local government corruption practices upon the re election success of incumbent mayors in municipal elections comparing municipalities which were randomly audited before the elections with those audited after the analysis shows that the disclosure of audit results had a significant impact on the re election rates of mayors found to be corrupt for a one standard deviation increase in reported corruption the audit policy reduced the incumbent s likelihood of re election by 25 percent this effect is more pronounced in municipalities where radio stations are present and higher levels of corruption are identified these findings highlight the value of information and the role of the media in reducing informational asymmetries in the political process thus enabling voters to not only hold corrupt politicians accountable but also to reward non corrupt politicians

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

the observer effect in international politics evidence from a natural experiment by pressuring governments to hold democratic elections and by becoming directly involved in the electoral process through technical assistance and funding or as election monitors international actors now play a visible role in domestic elections and other democratic processes throughout the developing world although scholars have documented several macrolevel relationships between international level variables and movement toward democracy there has been little attention paid to the microlevel effects of international involvement in the democratization process this article examines the effects of international election observation as a prominent form of international involvement in domestic elections and exploits a natural experiment in order to test whether international observers reduce election fraud using data from the 2003 presidential elections in armenia the article demonstrates that although observers may not eliminate election fraud they can reduce election day fraud at the polling stations they visit the unusual advantage of experiment like conditions for this study offers unique causal evidence that international actors can have direct measurable effects on the level of election day fraud and by extension on the democratization process

the cost of regulation osha epa and the productivity slowdown the slowdown in productivity growth in the u s economy during the 1970 s has been a matter of great concern to policymakers associated as it is with inflation unemployment and declining real wage growth this paper examines the impact on productivity growth of government regulation specifically worker health and safety regulation by the occupational safety and health administration osha and environmental regulation by the environmental protection agency epa looking at data for 450 manufacturing industries between 1958 and 1978 the study finds a large negative relationship between such regulation and productivity growth using these results about 30 percent of the decline in productivity growth in manufacturing during the 1970 s may be attributed to such regulation several previous studies have looked at the contribution of regulation to the productivity slowdown many of these have inferred that the contribution must be small on the basis of the relatively small amount spent on complying with such regulations edward denison 1979 estimates that only about 16 percent of the productivity slowdown in the 1972 75 period was due to regulation 35 percentage points out of a slowdown of 2 17 percentage points paul portney 1981 notes that little of gnp is spent on pollution control under 2 percent concluding that therefore pollution regulations could have little effect on productivity growth norsworthy et al 1979 also find a small impact of pollution abatement capital expenditures on productivity growth studies based on econometric estimation of the regulation productivity relationship have found a wide range of results gregory christainsen and robert haveman 1981 find regulation reduced labor productivity growth by 27 percentage points using time series data and measures of total federal regulation robert crandall 1981 finds a strong relationship between pollution abatement capital and productivity growth but this relationship disappears when a measure of energy intensity is included robin siegel 1979 observes a significant contribution 5 percentage points from pollution control expenditures to the productivity slowdown for 1965 73 but not for later years finally frank gollop and mark roberts 1983 examine data for a set of electric utilities and find that regulation of emissions had a large impact on total factor productivity growth lowering it for regulated firms by 59 percentage points many other factors might help to explain the productivity slowdown including the rise in energy prices the long and severe recession and declines in research and development expenditures there have been a variety of studies examining the contributions of each factor to the slowdown they generally conclude that many factors contributed to the slowdown but that a sizable fraction of the slowdown remains unexplained by the estimated contributions of all the factors considered

regulation and productivity performance the paper reviews theory and evidence on the ways in which regulation affects productivity outcomes in a context of endogenous growth it is argued that traditional measures of compliance costs miss the potentially most important impacts of regulation on productivity which occur through changes in incentives to invest and to innovate recent attempts to measure cross country variations in the strength of product market and employment regulation are considered and some weaknesses are highlighted nevertheless consistent with endogenous growth models there appears to he quite strong evidence that regulations which inhibit entry into product markets have an adverse effect on tfp growth in oecd countries although there are some discrepancies in the evidence on most measures the uk appears lightly regulated relative to france and germany and this may have contributed to a reduction in the recent past in the uk s tfp gap

who monitors the monitor effect of party observers on electoral outcomes abstract we investigate whether electoral monitors who are in charge of assuring the fairness of elections interfere with their outcome more precisely does the monitors presence bias the results in favor of their own preferences to do so we construct a novel dataset from the raw voting records of the 2011 national elections in argentina we exploit a natural experiment to show that electoral observers cause on average a 1 5 increase in the vote count for the observers preferred party which can reach up to 6 for some parties this bias which appears under various electoral rules occurs mainly in municipalities with lower civic capital and weakens the accountability role of elections

self enforcing democracy author s fearon james abstract if democracy is to have any of the good effects said to justify it it must be self enforcing those who control the government must want to hold regular competitive elections for the highest offices and all parties must be willing to comply with the results i consider a model in which citizens can always protest or rebel against the current ruler but can unseat the ruler only if enough people rebel when individuals privately observe a signal of the government s performance e g their own welfare they face a difficult problem of how to coordinate to pose a credible threat of rebellion necessary to keep the ruler from stealing further if the signals are noisy inefficient rebellions must occur in equilibrium to keep the ruler honest allowing for the possibility of elections makes for equilibria that eliminate both problems the convention of holding elections at particular times provides a public signal for coordinating rebellion in the event that elections are suspended of blatantly rigged the electoral results themselves aggregate private information about the ruler s performance providing the ruler an incentive to stick to the terms int he case of noisy signals of government performance the electoral results act as a cheap talk signal that allows the public to commit to rebel if a losing ruler does not step down avoiding the need for costly rebellions these arguments pose an explanation for self enforcing democracy whereas the several models in the literature do not because they do not explain why anyone would want to use elections to allocate power

a political agency model of coattail voting abstract this paper provides a theoretical model for the coattail effect where a popular candidate for one branch of government attracts votes to candidates from the same political party for other branches of government i assume a political agency framework with moral hazard in order to analyze the coattail effect in simultaneous presidential and congressional elections i show that coattail voting is the outcome of the optimal reelection scheme adopted by a representative voter to motivate politicians efforts in a retrospective voting environment i assume that an office motivated politician executive or member of congress prefers her counterpart to be affiliated with the same political party this correlation of incentives leads the voter to adopt a joint performance evaluation rule which is conditioned on the politicians belonging to the same party or to different parties two sided coattail effects then arise on the one hand an executive s success props up while failure drags down her partisan ally in the congressional election which implies a presidential coattail effect on the other hand the executive s reelection itself is affected by a congress member s performance which results in a reverse coattail effect

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

campaign advertising and election outcomes quasi natural experiment evidence from gubernatorial elections in brazil whether campaign advertising influences election outcomes is an open question a paradox given the amount spent on campaigning in general and tv advertising in particular we argue that such absence of documentation is due to the focus of the empirical literature on the u s where the allocation of campaign spending and advertising is decentralized we explore a quasi natural experiment that enables us to mitigate the omitted variables and reverse causality problems caused by decentralized allocation in brazil gubernatorial elections work in a two round system in the first round candidates tv time shares are determined by their coalitions share of seats in the national parliament in the second round tv time is split equally between the first round winner and runner up using differences between rounds as a source of variation we find a large causal effect of tv advertising on election outcomes

inferring strategic voting we estimate a model of strategic voting and quantify the impact it has on election outcomes because the model exhibits multiplicity of outcomes we adopt a set estimator using japanese general election data we nd a large fraction 75 3 80 3 of strategic voters only a small fraction 2 4 5 5 of whom voted for a candidate other than the one they most preferred misaligned voting existing empirical literature has not distinguished between the two estimating misaligned voting instead of strategic voting accordingly while our estimate of strategic voting is high our estimate of misaligned voting is comparable to previous studies

who delivers partisan clients in the argentine electoral market why do some parties fail to benefit from patronage in pork ridden political systems this article analyzes the interaction between patronage and partisanship to explain why some incumbents are more likely to benefit from pork politics than others we explain such differences by focusing on political parties access to resources supply side and voters dependence on fiscal largesse demand side we show how these differences affect the patron s choice of public sector wages and employment we use subnational level data to show different electoral returns from patronage for the two major political coalitions in argentina peronism and the ucr alianza and their effect on preferences over public sector wages and employment w hy do some political parties fail to benefit from patronage in pork ridden political systems this article analyzes the interaction between patronage and partisanship to explain why some incumbents are more likely to benefit from pork politics than others we explain returns to patronage by highlighting differences in the political parties access to resources supply side and the voter s dependence on public sector jobs demand side we propose that just as political parties cater their policies to particular groups of voters they pursue different strategies when allocating pork in exchange for support on the supply side we highlight the importance of partisan biases in the fiscal and electoral institutions that regulate the access and distribution of public resources on the demand side we show that patronage is a distributive mechanism that provides different returns to voters with different skills and labor market expectations