the impact of campaign expenditures on political competition in the french legislative elections of 1993 we use regression analysis to estimate the effect that campaign money had on the votes of challengers and incumbents in the 1993 elections to the french legislative assembly incumbent candidates can at best expect to win 1 01 of the popular vote for each extra franc they spend per registered voter in their district challengers can expect to win at least twice as much as this simulations show that if campaign spending ceilings were halved incumbents would have gained an extra ten percent of the popular vote over their closest challenging rivals the regression analysis also suggests that voters react negatively to candidates who rely heavily on their own money for their outlays and reward candidates who rely on contributions from private individuals these results suggest that campaign spending ceilings may inhibit political competition and that voters may resist a candidate who relies on narrow sources of funding

endogenous competence and a limit to the condorcet jury theorem the seminal contribution known as the condorcet jury theorem observes that under a specific set of conditions an increase in the size of a group tasked with making a binary decision guilty or innocent say leads to an improvement in the group s ability to make the correct choice an assumption that is not properly appreciated in the relevant literature is that the competency of the group members is assumed to be exogenous in numerous applications members of the group make investments to improve the accuracy of their decision making e g pre meeting efforts we consider the collective action problem that arises we show that if individual competence is endogenous then increases in the group size encourages free riding this trades off with the value of information aggregation thus the value of the larger group size is muted extensions illustrate that if committee members are allowed to exit not participate the equilibrium committee size is reduced additionally supermajority voting rules encourage investments and consequently individual competence

electoral outcomes with probabilistic voting and nash social welfare maxima abstract this paper provides unexpected support to nash s view of how bargaining determines the social choice we first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters preferences and their choice probabilities the outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a nash type social welfare function theorem 1 this electoral outcome is also interpreted as a unanimity likelihood maximum corollary 1 within our framework existence and uniqueness of such an outcome are guaranteed corollaries 2 and 3

the effect of political risk on the forward exchange bias the case of elections abstract the unsuccesful search for explanations of the forward bias has concentrated on variables suggested by traditional models of risk political news although important to foreign exchange traders has not been considered as a determinant of the forward bias i present a model in which the forward bias changes when the governing party changes elections in major industrial countries provide a natural test of the model the forward bias changed as predicted after half of the 13 elections in canada france the united kingdom and the united states between 1973 and 1985 politics provides useful information for foreign exchange traders which economists should not ignore

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

electoral politics interest groups and the size of government electoral politics interest groups and the size of government i introduction interest groups have been considered main actors in the political drama for some time now by political scientists as in bentley 1908 schattschneider 1935 and truman 1951 and more recently by economist also such as olson 1965 and stigler 1975 despite the widespread consensus on their importance there have been few formal attempts to analyze their impact on public policies thus borooah and van der ploeg 1983 90 were moved to declare that theory based on the importance of different interest groups is badly needed in economics an important exception is becker s 1983 1985 analysis of interest group competition becker draws insights about the nature of the trade offs that occur when interest groups compete for political influence but becker consciously avoids incorporating into his model political institutions such as voting voting rules and candidates 1983 391 4 1985 330 rather he assumes that the political process operates as a veil through which the underlying strengths and demands of various interest groups are revealed this paper takes a different tack but one complementary to becker s approach the analysis is based on an explicit model of the political process that includes interest groups in the model interest group influence is a potential supply of votes for which parties or candidates compete each party seeks a winning coalition of voters and thus engages in implicit logrolling tullock 1959 572 an equilibrium exists in the competition for the support of interest groups and the nature of the equilibrium electoral platforms is identified below embodied in the characterization of the equilibria is a set of parameters that can be said to measure the strengths of the various interest groups and which enable one to identify how candidates change their policy positions in response to a change in the strength of an interest group it is therefore possible to analyze simultaneously the existence of an electoral equilibrium its nature including its normative properties and changes in equilibrium due to shifts in the balance of forces between competing groups 1 in contrast to becker 1983 1985 these analytical features are not assumed outright rather they are based on an underlying model of elections the theoretical underpinnings for this model are discussed in section ii interest groups are often alleged to be responsible in part for recent increases in the size of government in western democracies 2 therefore in sections iii and iv a model of the political process is used to study the impact of an increase in the influence of a particular interest group on government size in the simple models of the public sector considered here increasing group influence per se does not cause the size of the government to increase but an increase in the government s size does result when i there are constraints on the government s ability to change tax shares in response to a shift in group power or ii there is a publicly provided good which benefits one untaxed group and that group s sole concern with government policy is to maximize the amount of the good that it gets the paper concludes by considering some of the normative implications of the results ii interest groups in the electoral process there are two sets of actors in the model parties and interest groups and two sets of relationships which must be analyzed the relationships between interest groups and the parties and the relationship between the parties themselves with respect to the first question this paper investigates the determinants of each interest group s influence on the platforms proposed by the parties with respect to the second it explores whether the competition for votes between the parties produces an equilibrium and if so what its properties are

information special interests and single issue voting the purpose of this paper has been to explore some of the implications of single issue voting in general terms single issue voting has been shown to be a stabilizing influence on majoritarian decision making in each case examined stable equilibria exist under single issue voting on the other hand the normative properties of electoral outcomes are less clear cut under pure zealotry electoral equilibria are uniformly pareto efficient however electoral outcomes are not necessarily pareto optimal in the case of strategic voting by special interest groups the results suggest that single issue voting can by itself cause electoral outcomes to depart from the center of the distribution of voter ideal points special interest groups might thus be served in the ordinary course of electoral politics even if they had no recourse to campaign contributions or rent seeking activities which induce principal agent problems voters who cast their votes as if they were single issue voters can affect policy at both the largely ignored margins and in the mainstream of policy formation voting is enough

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

can the president really affect economic growth presidential effort and the political business cycle presidential elections are often seen as referendums on the health of the economy however little evidence exists on the president s ability to influence gross domestic product gdp this study examines the effect of the incentive to be reelected and the resulting increase in presidential effort on gdp growth growth is found to rise in reelection years for first term presidents after 1932 and to fall in election years before 1932 when reelection was uncommon and for second term presidents generally this effect is largest for high quality presidents who probably have the highest return to effort and is spread across multiple sectors of the economy jel d78 d72 e32 j24

tax effects versus budget effects on labor supply this paper analyzes the effects on labor supply of parallel changes in taxes and public spending of various types a number of important recent developments in the labor supply behavior of households are highlighted by such a study of various types of budget effects rather than isolated tax effects this comes out in particular when considering cross substitution effects on labor supply of changes in public spending on goods and services or of the subsidization of goods and services provided by private markets moreover the income effects of tax changes are often mitigated or possibly even removed by the income effects of the accompanying expenditure changes

business cycle and political election outcomes evidence from the chilean democracy this paper explores the influence of economic variables in chilean presidential elections we use a panel where the dependent variable corresponds to the share of the vote obtained by the incumbent at a municipal level in the presidential elections of 1989 1993 and 1999 we focus on the unemployment rate and the output gap and find that both have a significant influence on the vote we also find that if the mayor is from the same coalition as the incumbent people will further punish the incumbent when regional unemployment is above national unemployment

unemployment and the democratic electoral advantage this article calls into question the conventional wisdom that incumbent parties are rewarded when unemployment is low and punished when it is high using county level data on unemployment and election returns for 175 midterm gubernatorial elections and 4 presidential elections from 1994 to 2010 the analysis finds that unemployment and the democratic vote for president and governor move together other things being equal higher unemployment increases the vote shares of democratic candidates the effect is greatest when republicans are the incumbent party but democrats benefit from unemployment even when they are in control the explanation for these findings is that unemployment is a partisan issue for voters not a valence issue and that the democratic party owns unemployment when unemployment is high or rising democratic candidates can successfully convince voters that they are the party best able to solve the problem

flexible pensions for politicians it may be difficult to motivate politicians in their last term to solve this problem we suggest a triple mechanism involving political information markets flexible pensions and democratic elections an information market is used to predict the potential reelection chances of the politician pensions depend on the price in the information market and thereby motivate the politician to act in a socially optimal manner we show that on balance the triple mechanism increases social welfare finally we suggest several ways to avoid the manipulation of information markets and we discuss possible pitfalls of flexible pensions

bread and peace voting in u s presidential elections a simple bread and peace model shows that aggregate votes forpresident in postwar elections were determined entirely byweighted average growth of real disposable personal income percapita during the incumbent party s term and the cumulativenumbers of american military personnel killed in action as aresult of u s intervention in the korean and vietnamese civilwars the model is subjected to robustness tests against twenty two variations in functional form inspired by the extensiveliterature on presidential voting not one of these variationsadds value to the bread and peace model or significantly perturbsits coefficients

voter turnout in us presidential elections does carville s law explain the time series we estimate a time series model of voter turnout for 34 us presidential elections 1880 2012 employing a variety of econometric techniques our major results are as follows 1 a negative and significant structural shift in voter turnout occurs in 1972 and is too large to be explained by the lowering of the voting age 2 the 1972 shift is the only statistically significant structural shift to occur since the first decade of the twentieth century 3 short term macroeconomic conditions significantly impact turnout with unemployment having a positive effect 4 turnout in recent presidential elections has not deviated significantly from the post 1972 norm 5 turnout is positively related to the expected closeness of the election outcome but contrary to some theoretical predictions closeness exhibits no trend over time

incomplete information and ideological explanations of platform divergence one of the paradoxes of formal spatial voting models is the robustness of the theoretical result that candidates will converge toward centrists positions and the empirical observation of persistent policy divergence of candidates a solution is that candidates are ideological have policy preferences when candidates have policy preferences and incomplete information about voter preferences then platform divergence is theoretically predicted experimental tests of the ideological model are presented it is shown that platform divergence is significant when candidates are ideological and have incomplete information about voter preferences however candidate positions are more convergent on average than the theory predicts suggesting that subjects value winning independently of the expected payment

differential information and the role for an active stabilization policy the paper considers the possibility of pursuing a systematic monetary policy to overcome the coordination problems arising when agents have differential information it is shown that a monetary feedback rule involving current feedback but no prospective feedback can eliminate the information problem making the implications of the differential information immaterial for real allocations the paper also considers a private indexation scheme as a substitute for monetary policy and it is shown that these differ since indexation on currently known variables is neutral indexation of a prospective nature is however equivalent to a prospective feedback to the money supply

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

testing the satisficing version of the political business cycle 1905 1984 this paper develops a test of the satisficing version of the political business cycle previous tests have focused on maximizing models of political behavior and are not sufficiently general to test for satisficing behavior using annual u s data for the period 1905 to 1984 we find evidence supporting the satisficing version of the political business cycle model but we reject the maximizing version in accordance with the satisficing hypothesis we find that increasing inflation or unemployment and decreasing monetary base growth in the third year of a presidential term are followed typically by reversals during the election year

political deadlocks and distributional information the value of the veil contractarian normative theory relies on the veil of ignorance construct to generate the political consensus required for its theories of justice by eliminating distributional information the veil is presumed to facilite consensus building by reducing conflict over the distributional effects of proposed constitutional rules or institutions this paper explores the extent to which excessive distributional information might also impede the ordinary day to day decision making of democratic institutions our analysis suggests that distributive information makes political deadlocks under majority rule more likely statistical evidence suggests that the efficacy of the u s congress has been reduced by the dramatic increase in distributional information made available to it over the past twenty five years

partisan views on the economy in this paper it is argued that political parties may have incentives to adopt a partisan view on the working of the economic system our approach is based on a dynamical spatial voting model in which political parties are policy oriented this model revolves around two interrelated issues x and y the policy maker sets x directly there exist two views on the relationship between x and y model uncertainty confronts policy makers with the problem of the selection of a model to base their actions on we show that if voters have imperfect information about the working of the economic system that model selection contains a strategic element policy makers are inclined to adopt a view on the working of the economic system which fits in with their preferences

a problem with observational equivalence disentangling the renter illusion hypothesis the renter illusion hypothesis argues that renters are more likely to support local public expenditures than homeowners because of a misperception about the actual costs and benefits they face numerous empirical studies have produced mixed results which are difficult to interpret because of the lack of micro foundations for the renter illusion hypothesis this paper helps fill that gap by introducing in a theoretical model the concept of renter illusion behaviour which can be seen as a rational behaviour in the presence of cognitive anomalies i e behavioural or bounded rationality and asymmetric information the resulting theoretical framework can be used to interpret and support a large share of micro and macro econometric findings in the previous empirical literature on renter illusion

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

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

the political economy of unfunded public pension liabilities this paper applies a public choice approach to the problem of unfunded pension liabilities and adopts the methodology of congleton and shughart 1990 to model underfunding of state level public pension plans using the median voter theorem along with the theory of capture by special interest groups and a combined model of the two with panel data from 2001 to 2009 the paper finds that the combined model provides the strongest explanation for the current levels of unfunded liabilities hence both median voter preferences and special interest group influence are affecting political outcomes the special interest group model slightly outperforms the median voter model in direct comparisons

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

a model of the political economy of the united states we develop and test a model of joint determination of economic growth and national election results in the united states the formal model which combines developments in the rational choice analysis of the behavior of economic agents and voters leads to a system of equations in which the dependent variables are the growth rate and the vote shares in presidential and congressional elections our estimates support the theoretical claims that growth responds to unanticipated policy shifts and that voters use both on year and midterm elections to balance the two parties on the other hand we find no support for rational retrospective voting we do reconfirm in a fully simultaneous framework the naive retrospective voting literature s finding that the economy has a strong effect on presidential voting we find congressional elections unaffected by the economy except as transmitted by presidential coattails

demand for locally provided public services within the median voter s framework the case of the brazilian municipalities in this paper we estimated the demand for local public spending for the brazilian municipalities within a median voter s framework the rationale for applying that framework came from the fact that in federal systems voters preferences are more likely to be reflected at the local level as the consumers of public services have a better knowledge of the benefits and costs of the local public expenditures results obtained are consistent with the theoretical background thus suggesting that this hypothesis might be useful to describe the demand for local public goods in brazil in particular the use of quantile regression permitted us to investigate the impacts of the conditioning variables on local public expenses across different expenditures classes thus allowing for heterogeneity across municipalities our results also suggest that the impact of the city size on the quality of club goods shows crowding effects as is between zero and one however in the estimated models marginal congestion slightly d

a theory of political cycles abstract we study how the proximity of elections affects policy choices in a model in which policymakers want to improve their reputation to increase their reelection chances policymakers equilibrium decisions depend on both their reputation and the proximity of the next election typically incentives to influence election results are stronger closer to the election for a given reputation level as argued in the political cycles literature and these political cycles are less important when the policymaker s reputation is better our analysis sheds light on other agency relationships in which part of the compensation is decided upon infrequently

fiscal forecasts and political systems a legislative budgeting perspective which are the institutional and constitutional settings that best reduce the tendency to manipulate fiscal forecasts this paper addresses the question by examining the quality of fiscal forecasts at different stages of the budget process in 13 european union countries by using annual forecast vintages 1999 2013 from stability and convergence programmes both the role of political structures and the balance of power between the executive and the legislature are assessed as determinants of systematic forecasting errors the findings suggest that the forecasting bias is more effectively countered in presidential and semi presidential systems in parliamentary systems with strong bicameralism and when executive legislature relations are constrained by checks and balances confirmation of these results is also provided by linking our approach to the fiscal institutionalist approach based on the form of fiscal governance and the stringency of fiscal rules in terms of institutional capacity if fiscal rules and legislative organizational and research capacity counter the executive s monopoly of fiscal forecasting strengthening the legislature s formal powers negatively influences the fiscal forecast accuracy indeed strategic considerations may induce the executive to anticipate the legislature s amendment or rejection of the tabled budget by means of more favourable economic and fiscal assumptions the crisis and its urgencies crisis seem to have weakened the effect of institutional executive legislature relations on fiscal forecast accuracy

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

rent seeking aspects of political advertising political contests have all the usual characteristics of rent seeking games characterized in the recent volume edited by buchanan tollison and tullock 1980 that is to say resources are committed to a distributive contest where the social pie is not necessarily enlarged but rather divided up a policy enacted via a winner take all apportioning since political advertising is one method of influencing electoral outcomes we might expect competitive political advertising to exhibit rent seeking losses of the usual sort the extent of the rent seeking losses associated with political advertising depends upon the extent to which advertising affects voter perceptions of the relative merits of electoral alternatives political proponents may well completely dissipate any electoral rents at stake through their advertising efforts yet still increase social welfare if political advertisments provide sufficiently valuable information to the electorate on the other hand if advertising has no effect on voter perceptions or provides information of dubious value then rent dissipating advertising may generate substantial rent seeking losses

voting and economic factors in french elections for the european parliament this article builds and estimates several econometric models that explain and forecast the outcomes of the french elections for the european parliament these models show the influence of the change in the local unemployment rate to explain the vote for the moderate left and the moderate right in the french elections for the european parliament these models appear to be accurate in forecasting the elections of the past and their behavior for the 2009 french election for the european parliament is satisfactory

grey power and the economy aging and inflation across advanced economies what explains the cross national variation in inflation rates across countries in contrast to most literature which emphasizes the role of ideas and institutions this article focuses on electoral politics and argues that aging leads to lower inflation rates countries with a larger share of elderly exhibit lower inflation because older people are both more inflation averse and politically powerful forcing parties seeking their votes to pursue lower inflation logistic regression analysis of survey data confirms that older people are more inflation averse and more likely to punish incumbents at the ballot box for inflation panel data regression analysis shows that social democratic parties have more economically orthodox manifestos in european countries with more elderly people and that the share of elderly is negatively correlated with inflation in both a sample of 21 advanced economies and a larger sample of 175 countries aging therefore pushes governments to pursue lower inflation

rational ignorance rational voter expectations and public policy a discrete informational foundation for fiscal illusion this paper demonstrates that rational ignorance properly defined allows the possibility that fiscal illusion affects policies in a democracy the implications of rational ignorance are examined in a setting where voters are assumed to completely understand the fiscal environment and make perfect use of any information that they possess in this setting it is demonstrated that ignorance may be rational manipulated and generate biased expectations over fiscal parameters

intertemporal substitution and the role of monetary policy new classical macroeconomists have asserted that once one ignores the consequences of sustained expected inflation or what is normally referred to as the tobin effect or inflation tax monetary policy is invariably ineffective both in the long and short run this view is not correct it will be shown that inflation tax free monetary policy rules can have strong stabilisation effects in rational expectations models with intertemporal substitution the best way to eliminate possible inflation tax effects of monetary growth is to assume that as in barro s i976 model the long run expected rate of growth of the money supply is zero more generally if one were concerned exclusively with the effectiveness of stabilisation policy in the new classical sense i e the capability of influencing deviations of actual equilibrium output from its full information level it would be sufficient to postulate that money transfers are simply proportional to pre existing money holdings the a priori exclusion of the tobin effect as a pre requisite for the new classical doctrine is clearly stated in lucas i98i

differential information and the role for active stabilization policy a comment in a recent paper t m anderson analyzes a new classical model in which demanders and suppliers are differentially informed he claims that a particular feedback monetary policy but not a private indexation rule is able to perfectly stablize the economy the authors show that anderson s private indexation rule is also able to perfectly stabilize the economy copyright 1991 by the london school of economics and political science

does the fed contribute to a political business cycle in contrast to findings of other studies evidence is presented to support the existence of a federal reserve induced political monetary cycle that corresponds to the u s presidential election cycle using various taylor rules we find support for the view that fed policy turns significantly more expansionary in the seven quarters prior to the election but only when the fed chair and incumbent presidential party have partisan affiliations

econometrics and presidential elections this paper discusses an econometric equation that explains votes for president as a function of economic events and incumbency information the history of the equation is reviewed the update after the 1992 election is discussed and a prediction for the 1996 election is made conditional on an economic forecast

rational expectations and the role of countercyclical monetary policy the potential role for systematic monetary policy to dampen fluctuations around the natural rate is examined in barro s 1976 model the source of the non neutrality is the effect of nonpermanent changes in the money supply on the inflation rate the real return to money which induces labor leisure substitutions when these non permanent changes take the form of future reactions to imperfectly perceived current disturbances they affect the deviation from the natural rate

party competition in a heterogeneous electorate the role of dominant issue voters this paper provides a theoretical model of party competition in a heterogeneous electorate the latter consists of numerous groups of dominant issue voters who base their voting decision primarily on one issue of the political agenda parties follow a lexicographic objective function aiming to gain power at minimum programmatic concessions the emerging pattern of movement in policy platforms is fundamentally different to the concept of convergence proposed by the spatial theory of voting rather than the centre of the scale of policy preference its extreme ends occupied by dominant issue voters attract the policy platforms the difference in policy platforms is not reduced the conclusions are found to be compatible with some major empirical findings of the manifesto research group

the use of knowledge about society abstract selection of efficient institutions or policies in politics requires constituents to estimate the net benefits of political reforms political competition fails to inform constituents of the costs of forgone political alternatives ignorance of political opportunity costs prevents the adoption of welfare enhancing reforms of public institutions and policies the empirical record supports this contention

campaign spending in congressional elections campaign spending in congressional elections i introduction empirical studies of the effects of campaign spending on the outcome of congressional elections have found that campaign spending by incumbents is not as effective as that of their challengers indeed kau and rubin 1982 and jacobson 1985 1987 find that incumbent spending reduces the number of votes they receive and netter 1983 that it increases the challenger s votes incumbents seeking reelection however are very successful winning nine times out of ten in the postwar era if their campaign spending is so inefficient why do incumbents continue to outspend their challengers in a majority of elections we argue that these researchers counterintuitive findings are the result of using models which do not adequately correct for the simultaneous determination of the election outcome and campaign contributions and which do not include an electoral check on incumbent behavior 1 in their studies jacobson and netter as well as lott 1986 and laband and lentz 1985 assume the incumbent s ability to repel challengers is independent of his or her behavior while in office few would agree that the electoral check is so ineffective we develop a simultaneous model to correct these deficiencies it captures the effects of campaign expenditures tenure the consistency of the incumbent s votes with his constituents preferences and the size of the voter turnout on the votes received by incumbents and challengers in four congressional elections between 1978 and 1984 the model is very robust over these four elections the use of primary election data insures model identification ii model and empirical measures we assume that the platforms of any two candidates for a political office can be measured along a single left right spectrum voters know their preferred position on the dimension but cannot observe the positions of the two candidates with certainty because of rational ignorance a theory accepted since downs 1957 following congleton 1986 we assume voters are risk averse and receive more utility from candidates with positions closer to the voters preferred position but lose utility as the candidate s position becomes more uncertain voters compare the candidates and vote for the one that provides them greater expected utility voters can observe the incumbent s performance and are thus less uncertain of his views and credibility uncertainty should decrease with an incumbent s tenure in office tenure provides voters with knowledge of the incumbent s position and the incumbent with political capital this accumulation of political capital may make it more difficult for challengers to mount a successful campaign in this sense tenure acts as a barrier to entry 2 if all incumbents were at the same point on the spectrum as the median voter of their districts all incumbents would win reelection if all potential challengers were aware of this fact they would not challenge since campaigns are costly but one observes many challengers and some defeated incumbents so we proceed from the hypothesis that challengers enter the race when they perceive a gap between the position of the incumbent and that of the median voter and assume this position as their platform a large difference between the incumbent s position and the median voter s position increases the likelihood of a successful challenge if voters were certain of the positions of both candidates and the challenger s assessment was correct the challenger would win but challengers are usually less well known than incumbents and this additional uncertainty gives incumbents an advantage thus the challenger must convince the voters that his or her position is closest to the median voter s position and advertising is the primary means to that end 3 repetition of the message reduces the voters uncertainty over a challenger s position

information aggregation and policy the function of monetary policy to alter the informational content of money price signals is examined in a model where traders can observe an economy wide financial signal and a local commodity price under a passive policy money demand disturbances which are not directly observable are shown to be confused with real productivity shocks and thereby preclude prices from fully reflecting all information even when the policy authority has no informational advantage prospective money growth feedback rules can improve the structure of available information applications of the rational expectations hypothesis to monetary theory have focused on the informational aspects of money price signals a key element of the models of lucas 1972 1975 barro 1976 and sargent and wallace 1975 is that agents have limited powers of information acquisition and use prices as imperfect summaries from the rest of the world those works have suggested that monetary policy can affect the informational content of observed price signals and thereby affect real variables in weiss 1980a it was shown systematic money growth feedback rules can contribute to economic efficiency when the money demands of one group are based on factors not directly observed by all in this context monetary policy can alter the information content transmitted from the informed to the uninformed through observation of nominal price signals a limitation of these analyses is the omission of economy wide financial signals clearly stock and bond prices are observed accurately and costlessly empirically there are strong comovements between financial signals and economic activity traditional keynesian theory argues that financial signals exert an important influence on output by affecting the demand for new capital goods understanding the informational role of such signals is crucial to any theory which explains fluctuations as arising from incomplete information the present analysis investigates the structure of available information with its implications for real variables in a model where agents trade on both an economy wide capital market and a local commodity market the model has positive implications for the comovements of money demand disturbances aggregate investment expected and realized returns as well as normative implications for the conduct of policy the structure of exogenous information in the model differs from that of my earlier paper rather than assuming two types of traders informed and uninformed the model considers traders to have symmetric although noisy exogenous private information in this framework the economy wide market both aggregates and transmits individuals information about an aggregate structural variable this modification is both analytically convenient and illustrates how noise in the price system alters the importance of public relative to private sources of information the idea that prices aggregate individual information was first formalized in grossman 1976 in that paper a non monetary model of a speculative market was developed in which the price system conveyed all relevant information so as to yield an efficient allocation however this feature was also shown to break down if prices are influenced by

interest rates aggregate information and monetary policy abstract interest rates set on economy wide markets represent an important source of information to economic agents within the class of business cycle models advanced by lucas and barro this paper explores the information conveyed by such aggregate signals and the types of monetary policies that can influence economic activity by changing the information content of interest rates

do political factors affect stock returns during presidential elections abstract this study investigates whether or not political factors such as government policy and political connections affected stock returns during the 2008 taiwanese presidential election we find that firms that benefitted from were threatened by the proposed three links policy of the winning party experienced positive negative stock returns during the election we use the sensitivities of firms returns to bilateral trade flows between taiwan and china to measure the government policy effect our results show that the effects of political connections weakly exist but they become more significant when the support ratio of the winning party increased in polling data we also find that only the government policy effect holds for different crash risk and corporate governance levels finally investment strategies based on both political factors can generate positive abnormal returns with respect to the fama french three factor model

government growth and private contributions to charity we exploit the time series properties of charitable giving to provide additional insights into the relationship between charitable contributions and government spending cointegration tests reveal a significant long run relationship between several categories of charitable giving and government spending granger causality tests provide evidence on the short run giving and spending relationship evidence suggests that charitable contributions to education respond quite differently to state and local government education expenditures versus federal government expenditures we argue that the government spending and charitable giving relationship depends on the source of government revenue how this revenue is used and the rational ignorance of private donors

income distribution in the united states political action has affected postwar income distribution in the united states mainly through policy induced variations in macroeconomic activity and government transfer benefits in proportion to total income we present a small dynamic model of the connections among the partisan balance of power macroeconomic fluctuations transfer spending trends and income distribution outcomes the model is based on the premise that the parties have different distributional goals and it is designed to identify how shifts in party control of the presidency and the strength of the parties in congress have affected the distribution of after tax after transfer income by influencing cyclical economic performance and the flow of resources to transfer programs we therefore extend the partisan theory of macroeconomic policy to the domain of income distribution outcomes

the unemployment rate consequences of partisan monetary policies economists and political scientists have identified several ways in which political motivations and institutional arrangements can affect macroeconomic policymaking one way is described by the political business cycle model 42 37 in which vote seeking politicians manipulate the path of the economy to secure unsustainably favorable conditions at election times variants of this model have been widely tested with limited success a second channel for political impacts comes through partisan policy changes brought about by electoral turnover the pathbreaking work in this literature includes the contributions of hibbs 30 31 32 33 and beck 11 these works have focused on the empirical issue of how unemployment rates vary under democratic and republican presidents in the u s and have found strong support for the proposition that unemployment rates decline under democratic administrations a third phenomenon has been studied primarily by economists and concerns the credibility problem faced by a central bank selecting money growth rates models of the credibility problem 8 21 describe a setting in which the central bank and the public interact by respectively choosing actual and expected money growth rates in a variant of the prisoners dilemma this interaction can result in excessive inflation

the neutrality and optimality of counter cyclical monetary policy in equilibrium models with a wealth effect a condition is offered which is both necessary and sufficient for the counter cyclical neutrality of all linear monetary feedback rules with respect to deviations in real market output in that class of stochastic macro economic models with rational expectations additive disturbances multiple markets and a wealth effect on excess commodity demand studied by barro 1976 barro and fischer 1976 king 1982 asako 1982 waldo 1982 and marini 1985 the condition has the form of a constraint on the values of the control parameters of a general monetary feedback rule that includes all other linear feedback rules in this class of models as special cases when the selection of parameters violates this constraint prospective monetary feedback can completely stabilize deviations in real market output around its natural rate without sustained inflation la neutralite et loptimalite de la politique monetaire dans des modcles d equilibre quand un effet de richesse existe on propose une condition necessaire et suffisante pour assurer la neutralite contre cyclique de toutes les regles de retroaction mon6taires lin6aires pour ce qui est des deviations dans le niveau de produit r6el dans cette classe de modeles macro economiques stochastiques avec anticipations rationnelles chocs additifs marches multiples et un effet de richesse sur la demande exc6dentaire de biens tels qu etudies par barro 1976 barro fischer 1976 king 1982 asako 1982 waldo 1982 et marini 1985 cette condition prend la forme d une contrainte sur les valeurs des parametres de controle d une regle mon6taire generale de retroaction dont toutes les autres regles mon6taires lineaires dans cette classe de modele ne sont que des cas particuliers quand la s6lection des parametres ne satisfait pas cette contrainte la retroaction mon6taire prospective peut stabiliser completement les deviations du produit reel autour de son taux naturel sans engendrer une inflation soutenue i would like to thank jim brander ed burmeister john b carlson marsha courchane mike devereux ian domowitz jim glassman craig hakkio stephen r g jones woo sik jung doug mctaggart keizo nagatani doug pearce steve poloz neil raymon stan reynolds john seater shinichi watanabe de mmn wu two anonymous referees and seminar participants at the 1986 canadian economic association meetings the 1986 north american summer meetings of the econometric society the system committee on financial canadian journal of economics revue canadienne d economique xx no 3 august aouit 1987 printed in canada imprime au canada 0008 4085 87 612 624 1 50 canadian economics association this content downloaded from 207 46 13 52 on fri 21 oct 2016 05 54 00 utc all use subject to http about jstor org terms neutrality and optimality 613

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

informational limits to democratic public policy the jury theorem yardstick competition and ignorance condorcet s jury theorem provides a possible explanation for the success of democracies relative to other forms of government in its modern form the jury theorem predicts that majority decisions are well informed because they are based upon far more information than possessed by any single individual on the other hand it is evident that democratic politicians and policies are not always as good as the jury theorem implies they should be

is there a dead spot new evidence on fomc decisions before elections using new data that chronicle the fed s internal forecast of the output gap from 1973 to 1998 this paper tests for an electoral cycle in the decisions of the federal open market committee fomc the paper provides evidence of a dead spot in the committee s decisions before presidential elections for given values of these internal forecasts the fomc is less likely to decide to tighten monetary policy in the year preceding a presidential election than at other times

tax revenue and the marginal cost of public funds in sweden abstract we assess the welfare cost of raising a marginal unit of tax revenue in a balanced budget general equilibrium framework the calculated social cost of an increment of public funds is sensitive to both the specific type of tax increase and the type of public spending used on the margin best guess assumptions on labor supply elasticities yield marginal costs of public funds for different fiscal mixes of between 0 67 and 4 51 at prevailing tax rates in sweden alternative labor supply assumptions well within the range of current estimates substantially affect the results and can imply infinite marginal welfare costs marginal welfare costs are also sensitive to assumptions about both the income and substitution effects of labor supply

optimal monetary policy with missing markets in real business cycle models with spot markets agents respond optimally to fluctuations by varying their labor supply while this is individually optimal the employment volatility that results is efficient the inefficiency is due to the lack of forward markets for labor and the consequent inability of the young to insure against future shocks a real business cycle model is constructed in which an active monetary policy accommodating past price shocks to prevent the expectation of price reversion pareto dominates a stable moeny stock by stabilizing employment over the cycle stable employment approximates the outcome with complete insurance markets the young would like to sell a fixed volume of labor forward allowing less risk averse agents to bear the volatility in the spot labor market these results undermine the use of the full information competitive equilibrium as a benchmark for policy analysis in spot market models copyright 1989 by the london school of economics and political science

monetary policy and the information content of prices rational expectations and cleared markets lead to the proposition that feedback monetary policy is irrelevant to real activity as in the analyses of sargent and wallace however if agents are differentially informed and have access to a common price then prospective monetary policy actions future feedback to imperfectly known current circumstances can alter real activity by changing the information content of prices

determinants of county level voting patterns in the 2012 and 2016 presidential elections county level data are used to estimate the incumbent party share of the two party vote in the 2012 and the 2016 u s presidential elections using a seemingly unrelated estimation procedure the r

inequality and media capture abstract popular support of redistributive policies depends on information they have about the tax system and efficiency of public projects mass media provides a convenient means for manipulating public opinion even when voters understand that the media can be biased i develop a theory of media capture in which the rich can influence information published in a media outlet at a cost the model shows that higher inequality is associated with lower media freedom this effect is stronger in democratic regimes i find empirical support for the model in both panel data and cross country analysis

it s the economy and then some modeling the presidential vote with state panel data using data for the 50 us states for presidential elections from 1972 to 2004 two theories for determining state voting outcomes are considered jointly the economy matters and home grown ness theories fixed effects regressions show that measures of the economy matters real income unemployment and a proxy for inflation have the predicted effects on state voting patterns for presidential elections the home grown theory receives mixed support there is weak evidence that incumbent party candidates garner greater support in their home states there is strong support however for the proposition that incumbent party candidates fare worse in the home state of rival party candidates

is the political business cycle for real abstract this paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models we augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities first that on average the economy expands early under democratic presidents and contracts early under republican presidents second that presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms the model generates both of these features that conform to u s post world war ii data

party cues in elections under multilevel governance theory and evidence from us states this is the authors accepted refereed and final manuscript to the article the final publication is available at www elsevier com

the superiority of contingent rules over fixed rules in models with rational expectations the paper investigates the robustness of the proposition that in stochastic models contingent or feddback rules dominate fiped or openloop rules four arguments in favour of fixed rules are considere 1 the presence of an incompetent op malevolent policy maker 2 a trade off between flexibility and simplicity or credibility 3 the new classical proposition that only unanticipated stabilization policy has real effects 4 the time inconsistency of optimal plans in non causal models that is models in which the current state of the economy depends on expectations of future states the main conclusion is that the rational expectations revolution represented by arguments 3 and 4 does not affect the potential superiority of time inconsistent closed loop policies over time inconsistent open loop policies the case against conditionality in the design of policy must therefore rest on argument 1 or 2 which predate the new classical macroeconomics

intertemporal substitution and the role of monetary policy policy irrelevance once again recently marini i985 demonstrates that feedback policy is effective in barro s i976 model even in the absence of differentially informed agents or non proportional money transfers in particular marini demonstrates that a policy rule with feedback to the current money stock from disturbances dated t 2 or further in the past will be effective at fully stabilising output in barro s model this paper demonstrates that this policy effectiveness result is dependent on an implicit assumption that the length of private agents horizon falls short of the length of the lags in the feedback rule more generally this paper points out that a crucial feature of barro s i976 model is the specification of the decision horizon of private agents relative to the lag on demand disturbances in the monetary rule if the feedback lag in the monetary rule exceeds the horizons of private agents then monetary policy can stabilise output if the horizon of private agents is equal to or exceeds the lags in the monetary rule

the bias towards zero in aggregate perceptions an explanation based on rationally calculating individuals i introduction a central theme in the study of economic behavior is individual rationality or utility maximizing behavior contrary to the accusations of many outside critics the economics assumption of rationality neither denies that information is costly nor implies that decisions are error free rational expectations allows for ignorance but insists on the absence of systematic errors in the aggregate even if some individuals make large underestimates their errors are offset by large overestimates made by others alternatively even if people on average underestimate the effect of some variable during one period they may overestimate its effect at a later date these assumptions form the basis for the standard conclusion that the government cannot systematically outsmart the public the theory and application of rational expectations has generated a vast literature over the last couple of decades it is now well known that the application of rational expectations theory to actual cases may for instance be unsuitable when there are systematic errors in the observed variables when loss functions are not quadratic or when variables are constrained to take only positive values while such limitations may well be problematic these objections have in our view not been very damaging in the sense that rational expectations still provides a natural starting point for much economic analysis like rational expectations this paper takes individual rationality as its central theme yet we reach a radically different conclusion from rational expectations regarding aggregate behavior we demonstrate that individual errors in identifying the relationships among variables cause a downward bias in the aggregate that would be equivalent to the public underestimating the strengths of the true relationships rational expectations has considered the misestimation type of error which can cancel out in the aggregate but with errors in identifying relationships there exists no similar cancelling out effect and thus the public appears to irrationally underestimate the strengths of relationships the paper is organized as follows first we set up a simple formal model to examine the misestimation problem and then contrast it to the identification problem section iii explains why the identification problem can be so important even when a relatively small number of variables are involved section iv reviews empirical evidence of bias in the expectations formation literature as shown in section v our hypothesis can be used to explain political business cycles in a standard aggregate supply and demand framework ii theory in our model individuals acquire knowledge in two steps they first identify the causal relationship between two or more variables and then estimate the strength of that relationship as with herbert a simon s satisficing approach 1959 1979 and the analysis in ronald a heiner 1988 we assume finite intellectual capabilities however our model neither assumes nor implies anything about simon s satisficing approach and the often related concept of bounded rationality instead our inquiry is strictly limited to the consequences of omitting variables and will not address the more ambitious question of what strategies individuals might adopt to improve learning like heiner we distinguish between the reliability of making decisions and the issue of obtaining information heiner shows that while decision making itself might be flawless when individuals face only a very limited amount of information it is optimal for them to choose a larger information set and enter into the imperfect decision zone he provides several different reasons finite channel capacity information complexity and nonlocal information for why the advantage of having much information also translates into more decision error while heiner s model deals with individuals making correct or incorrect decisions his underlying reasoning could equally well be used to motivate our analysis of why a portion of the population fails to appreciate certain economic relationships

the trade off between equality and efficiency this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax transfer system the analysis uses a simulation methodology in which only the labor supply effects are evaluated other behavioral effects are ignored the most striking finding is that marginal cost is quite high even for modest labor supply elasticities for example in the benchmark case with a weighted average economy wide uncompensated wage elasticity of 0 2 and compensated elasticity of 0 31 the disposable money income of upper income quintiles of households is depressed by 9 51 for each dollar increase in the disposable money income of lower income quintiles when income equivalent values that take account of the value of leisure are compared the marginal cost for this case is estimated to be 3 49

government subsidies and presidential election outcomes evidence for a developing country summary we explore the effects of government subsidies on presidential elections in chile in 1989 99 we use a panel with three periods the elections of 1989 1993 and 1999 and 229 counties we correct for the potential simultaneity problem deriving from the fact that an incumbent facing a difficult political scenario might react by increasing subsidies to improve his her electoral performance our results indicate that the greater the coverage of these types of programs i e the percentage of people receiving subsidies the higher the votes for the incumbent

politics at the water s edge parties voters and the use of force abroad this article examines the effects of party politics and presidential election cycles on u s recourse to force abroad i analyze a game theoretic model to generate predictions about these effects in the unique time consistent equilibrium outcome of the one shot game policy varies across political parties in a subgame perfect equilibrium outcome of the repeated game the use of force is invariant to the partisan composition of government in neither case does policy respond to the electoral cycle an empirical analysis supports the predictions of the repeated game between 1870 and 1992 u s recourse to force abroad responds neither to partisan politics nor to the domestic political calendar it responds only to changes in u s power status and to the advent of general wars

information and efficiency in political stock markets using computerized markets to predict election results this study concentrates on four computerized political markets in germany between 1990 and 1998 while this new method for the prediction of election events worked quite well in the usa it did not perform as well in germany searching for the causes of this distinction it is shown that in contrast to the findings of forsythe et al 1992 i extraordinary profits were achieved less by people who took advantage of other people s anomalies than by those people who acquired an advantage from the existence of asymmetric information ii the marginal trader hypothesis does not hold when applied to german markets and that iii traders relied on public opinion polls it is argued that these distinctions are caused by the differences in the german and the us voting systems additionally it is shown that to a certain extent iv election markets were able to predict the contemporary mood of the electorate without the help of public opinion polls v first of all the informed traders used public opinion pol