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Economics of Governance
Journal Prestige (SJR): 0.431
Citation Impact (citeScore): 1
Number of Followers: 10  
  Hybrid Journal Hybrid journal (It can contain Open Access articles)
ISSN (Print) 1435-8131 - ISSN (Online) 1435-6104
Published by Springer-Verlag Homepage  [2573 journals]
  • The role of the past in public policy: empirical evidence of the long-term
           effect of past policy and politics on the local budget balance
    • Abstract: Abstract The main focus of this paper is on the role of the past in budgetary policy and the impact of a multitude of relevant political characteristics on the local budget balance in a dynamic context. Although the importance of past policy was stated approximately 6 decades ago by Lindblom (Public Adm Rev 19(2):79–88, 1959), dynamic studies are relatively underexposed in recent literature on the budget balance at the local government level. The studies that do take into account the dynamics surprisingly do not focus on the past but treat it as a control variable. This paper exhibits the theoretical background of introducing past performance into the analysis. It is also noticeable that the dynamic studies thus far only test the partisan and the political budget cycle hypotheses. In the empirical part of this study, we add government fragmentation and government power to the dynamic analysis, and we look for both short- and long-term effects on the budget balance. In doing so, we test the impact of multiple political characteristics simultaneously on a dataset of all Flemish local governments for the period 1995–2017. The results from the dynamic panel analysis show that past performance is of importance, as are the electoral budget cycle and the power of the government. The importance of the government power for the budget balance is a new insight in dynamic research. As we focus on the long-term impact of the explanatory variables due to the dynamics, we avoid the underestimation of the impact of politics on the budget balance in the long run.
      PubDate: 2019-12-03
  • The economics of politics: patronage and political selection in Italy
    • Abstract: Abstract This article investigates patronage in the Second Italian Republic by considering patronage a fundamental device able to guarantee a party presence in the governance of public bodies. The study sheds light on a particular area of party patronage, namely political appointments concerning legislators; it analyzes the factors which could determine whether a member of Parliament will be appointed to a state-owned enterprise’s board of directors after a legislature, seeking to gain a better understanding of how political actors exploit this opportunity. Direct political connections can be conceptualized as instruments to control and reward politicians and/or strategies to enhance political control over the bureaucracy. The empirical investigation suggests that legislators’ efforts in Parliament play a role in the likelihood of patronage appointments. Education does not seem to significantly increase the probability of receiving a nomination for a seat on public firms’ boards, moreover our result casts doubt on the merits or competencies of the appointed politicians.
      PubDate: 2019-11-05
  • Does enfranchisement affect fiscal policy' Theory and empirical
           evidence on Brazil
    • Abstract: Abstract This paper studies the effect of political participation on public spending at the local level in Brazil. In particular, we look at the phased-in implementation of electronic voting in the late 1990s—which enfranchised poorer voters by decreasing the number of invalid votes—to identify the causal effect of political participation on public spending. We build a theoretical political economy model which allows voters to cast, not purposefully, an invalid vote, and show that when poorer voters’ likelihood of casting a valid vote increases, public social spending increases as well. We test this prediction empirically using a difference-in-differences model where municipalities using electronic voting constitute our treatment group. We find that an increase of 1 percentage point in the valid vote to turnout ratio for state representatives increases health spending by 1.8%; education by 1.4%; public employment by 1.25%; intergovernmental transfers by 1%; and local taxes by 2.6%.
      PubDate: 2019-10-25
  • Do victims of crime trust less but participate more in social
    • Abstract: Abstract We explore how crime victimization affects two of the main dimensions of social capital: trust and participation in social groups. Using a large database that includes many Latin American countries, we find that victimization lowers trust, especially in other people and the police. However, participation in social groups is increased as a result of this event. These findings suggest that the net effect of victimization on social capital is miscalculated unless all of its dimensions are taken into account.
      PubDate: 2019-10-12
  • Is it the gums, teeth or the bite' Effectiveness of dimensions of
           enforcement in curbing corruption
    • Abstract: Abstract Adding a somewhat new dimension to the substantial body of research on factors driving cross-national corruption, this paper examines the effectiveness of dimensions of enforcement in reducing corruption. The main novelty lies in comparing the relative influences of latent enforcement (police, judicial, and prosecutorial employment) versus actual enforcement (conviction rates) and enforcing institutions. Results show that piecemeal enforcement efforts to combat corruption by increasing enforcement employment would not be effective, rather comprehensive improvements in institutional quality by strengthening the rule of law or regulatory quality bear greater results. These findings are robust across indices of corruption that capture somewhat different aspects. Thus, in terms of the title of the paper, when it comes to corruption control, strong gums (institutions) are more effective than showing teeth (enforcement employment) or the bite (conviction rates).
      PubDate: 2019-09-28
  • Production inefficiency, cross-ownership and regional tax-range
    • Abstract: Abstract Using a simple asymmetric capital-tax competition model where the allocation of mobile capital is distorted in non-cooperative equilibrium, this paper analyzes the welfare impact of regional tax coordination on a range of possible tax rates (a combination of maximum and minimum capital taxes made by a subset of regions). Under the assumption that the ownership of immobile factors (e.g., business land) is diversified across regions, a new possibility of beneficial coordination arises which has not been identified before: tax-range coordination “among capital-exporting regions” or “among capital-importing regions” may improve the welfare of all regions. This is in contrast to the case without cross-ownership where both capital-exporting and capital-importing regions must be involved in tax-range coordination in order to achieve a Pareto improvement.
      PubDate: 2019-09-24
  • Intergroup inequality and the breakdown of prosociality
    • Abstract: Abstract Each year about 60 million people flee their home country and seek to cross into developed countries, thus urging the latter to develop different policy responses to face the growing concerns about how immigration may affect social order. We design a novel two-part public goods experiment with radical income asymmetry between groups to investigate how voting on (not) helping less-endowed others affects pro-social behavior in the voting groups. We find that no group ever votes to help less-endowed ones. This, in turn, results in a breakdown of prosociality within the voting groups. We study the reasons why the implementation of voting—compared to no voting or to imposed solidarity—results in a significant, negative impact on cooperation levels within the voting groups.
      PubDate: 2019-07-05
  • Political incentives in firms’ financial reporting: evidence from the
           crackdown on corrupt municipal officials
    • Abstract: Abstract This paper examines political incentives in firms’ financial reporting during the anti-corruption campaign in China. We find robust evidence that the turnover of municipal officials due to the prosecution of corruption causes affiliated firms to strategically withhold good news relative to bad news. This effect is more pronounced among state-owned firms and firms located in highly corrupt places, while it is depressed among firms with the big-four auditing firms and among firms with Qualified Foreign Institutional Investors. Further tests show that this effect is temporary. We find affiliated firms release minor bad news on time and withhold minor good news during the turnover of corrupt municipal officials. Overall, our study provides novel evidence that firms have political incentives in financial reporting regarding the release of good and bad news, and the anti-corruption campaign in China can act as a governance mechanism to temporarily improve the financial reporting environment.
      PubDate: 2019-05-31
  • Step-by-step group contests with group-specific public-good prizes
    • Abstract: Abstract The achievements reached by group members’ effort, which accompanies the possibility of members’ free-riding, affect the outcomes of competition among groups. In some cases, each achievement has the binary characteristic of “one or nothing.” For example, research groups face the challenge of making a scientific finding or not. The groups compete for a scientific breakthrough by making the related findings in a “step-by-step” manner. One finding could fail because of a mistake caused by a slight lack of effort by one member. Such a characteristic of “one or nothing” motivates group members without any incentive scheme. This study analyzes group contests with group-specific public-good prizes, in which we introduce a step function with the characteristics of “one or nothing” and “step-by-step” as a group impact function. We show the existence of the Nash equilibrium at which no group member free-rides on the others and at which more achievements than those reachable by a single member are reached.
      PubDate: 2019-03-18
  • When the purchasing officer looks the other way : on the waste effects of
           debauched local environment in public works execution
    • Authors: Calogero Guccio; Domenico Lisi; Ilde Rizzo
      Abstract: Abstract There is extensive evidence on waste effects of environmental corruption in public works procurement. However, corruption is not the only source of waste. In this paper, we adopt a wider perspective and look at the environmental institutional quality, identifying the channels through which it can lead to different types of waste in public works execution. We firstly provide some empirical evidence on public works contracts managed by a large sample of Italian municipalities, showing that performance measures of public works execution are associated with the quality of local institutional environment in which they are executed. Motivated by this evidence, we develop a model where weak institutions entail low accountability of purchasing officers, thus they have low incentives to pursue the mandated task of monitoring the execution of contracts, even if no bribery occurs. Then, we assume that endemic environmental corruption increases the return of managerial effort devoted to rent-seeking activities for getting cost overruns, leading the contractor to divert effort from the productive activity. Overall, our model predictions conform well with the empirical evidence on Italian public works execution.
      PubDate: 2019-02-04
      DOI: 10.1007/s10101-019-00223-5
  • The impact of state intervention and bankruptcy authorization laws on
           local government deficits
    • Authors: Lang Yang
      Abstract: Abstract Local governments in the United States can file for bankruptcy to restructure their debt if allowed by state laws. While some states legislate an unconditional authorization, others conditionally permit local filings, do not give authorization, or intervene in local crises. This paper investigates the impact of state policy adoption on local governments’ revenue to expense ratio, a measure of deficit. While bankruptcy authorizations do not show an impact at the mean, a median locality decreases the revenue–expense ratio after the state adopts an authorization unconditional on state intervention, suggesting a moral hazard effect. Localities with conditionally high deficits, however, increase the ratio upon the adoption of a conditional authorization, possibly because they want to avoid being subjective to conditions placed by states.
      PubDate: 2019-02-02
      DOI: 10.1007/s10101-019-00222-6
  • The role of matching grants as a commitment device in the federation model
           with a repeated soft budget setting
    • Authors: Nobuo Akai; Motohiro Sato
      Abstract: Abstract This paper revisits the soft budget versus the hard budget constraint in federations. By extending Besfamille and Lockwood (Int Econ Rev 49:577–593, 2008), who examine a case where the soft budget is ex ante favorable, we consider a model that allows the federal government to use a matching grant as an ex post policy instrument. We establish that this instrument acts as a commitment device and may improve social welfare compared with the situation in which the government’s ex ante policy options are limited to a hard or soft budget.
      PubDate: 2019-01-25
      DOI: 10.1007/s10101-019-00221-7
  • The state economic modernity index: an index of state building, state size
           and scope, and state economic power
    • Authors: Ryan H. Murphy
      Abstract: Abstract One line of thought in development economics and political science emphasizes the need for state building to achieve economic growth and better outcomes throughout the developing world. Conventionally, this has been conceptualized in terms of “state capacity,” sometimes operationalized via the Worldwide Governance Indicators report. This paper proposes a simple alternative, using two of the five components of the Economic Freedom of the World report, with a greater emphasis placed on state power within an economy, as opposed to its capacity. This alternative measure, here called the “State Economic Modernity” index (SEM) is a combination of various measures of a state’s willingness and ability to perform its core public goods functions, and the state’s size relative to the economy. It is shown that the SEM index, in combination with the Economic Freedom of the World report, creates intuitive categorizations of economic institutions across countries. The SEM index is shown to relate to various measures of social capital and may be determined by them. Finally, while the SEM index is closely related to economic growth and output as seen in raw correlations, it appears to cause neither upon the inclusion of country fixed effects.
      PubDate: 2019-01-17
      DOI: 10.1007/s10101-018-00220-0
  • Environmental policy efficiency: measurement and determinants
    • Authors: Antonis Adam; Sofia Tsarsitalidou
      Abstract: Abstract This paper provides measurement of relative public environmental policy efficiency (EPE) at country level. We use data envelopment analysis methods to construct measures of relative efficiency, for 39 countries over the period 1995–2010. Then, we estimate a truncated regression model, using the bootstrap method of Simar and Wilson (J Econom 136(1):31–64, 2007) in order to determine the factors that affect EPE. Our findings indicate that (i) EPE is affected both by economic and political variables, (ii) the effect of the political regime on EPE depends on the level of economic development. Our results are robust across alternative specifications.
      PubDate: 2019-01-03
      DOI: 10.1007/s10101-018-0219-y
  • A test of the institutionally-induced equilibrium hypothesis: on the
           limited fiscal impact of two celebrity governors
    • Authors: Roger D. Congleton; Yang Zhou
      Abstract: Abstract The governorships of Jesse Ventura of Minnesota and Arnold Schwarzenegger of California provide two natural experiments for testing the institutionally induced stability hypothesis. Both men rose to their governorships through unique career and electoral paths that would reduce the stabilizing effects of partisan commitments and electoral competition, which would tend to increase their impact on public policy. Nonetheless, our evidence suggests that despite their unique backgrounds and paths to office neither governor had a statistically significant impact on their state’s expenditures or deficits.
      PubDate: 2018-12-14
      DOI: 10.1007/s10101-018-0218-z
  • Selection rates and bureaucratic performance
    • Authors: Daniel Gibbs
      Abstract: Abstract Bureaucratic personnel policy influences agency performance by affecting both the types of bureaucrats who are selected for employment and the actions that bureaucrats take. An effective policy selects intrinsically motivated bureaucrats for promotion or retention and provides incentives for bureaucrats to exert a high level of effort. I investigate a retention and promotion policy used in a number of U.S. government agencies in which only a previously specified percentage of bureaucrats in a cohort are retained after one period. The proportion of bureaucrats retained after a review is referred to as a “selection rate”. Using a formal model, I show that the adoption of a selection rate facilitates the separation of intrinsically motivated and unmotivated bureaucrats where they would otherwise pool, allowing bureaucratic personnel managers to screen out unmotivated bureaucrats. Effective screening by itself, however, is not welfare-enhancing because screening removes unmotivated bureaucrats’ incentives to exert effort. Compared to alternative welfare-reducing screening mechanisms which bring about screening through monitoring or wage policy, selection rates facilitate welfare-enhancing screening by inducing motivated types to exert additional effort in order to distinguish themselves from unmotivated bureaucrats. I find that selection rates are most effective where material or ego rents from government employment are high and where the policy rewards that motivated bureaucrats realize are low. These properties of selection rates explain their adoption in several U.S. government agencies’ personnel systems, most notably the military officer corps.
      PubDate: 2018-11-21
      DOI: 10.1007/s10101-018-0217-0
  • Expenditure visibility and voter memory: a compositional approach to the
           political budget cycle in Indian states, 1959–2012
    • Authors: J. Stephen Ferris; Bharatee Bhusana Dash
      Abstract: Abstract In this paper we argue that the political budget cycle test for opportunistic spending is weakened by the absence of a strong reason for why spending increases should be restricted to the time period leading into the next election. One would expect that a targeted benefit should elicit the same degree of voter support whenever it is received. Here we argue that while the political need to fulfill a list of pre-election promises serves to constrain excessive spending, the characteristic that some expenditure items better demonstrate the contributions of the current government to voters (with depreciating memories) leads to a predictable reallocation of the composition of budgetary spending across the life of a government. Our test for a predictable timing pattern to subcomponents of the budget uses capital expenditures as the budgetary item with greater visibility spillovers and a data set of 14 Indian states over 54 years (1959/60–2012/13). The predictions that capital expenditures relative to both total government expenditure and government consumption should rise across the governing interval are found to be consistent with the data and provide a better fit with the data than more traditional political budget cycle models that use aggregate spending/deficits in the pre-election period.
      PubDate: 2018-11-15
      DOI: 10.1007/s10101-018-0216-1
  • Economies of scale and governance of library systems: evidence from West
    • Authors: Amir B. Ferreira Neto; Joshua C. Hall
      Abstract: Abstract Public libraries are a billion dollar industry in the United States. We explore the institutional determinants of public library technical efficiency using data from West Virginia. We first document considerable cross-district variation in library efficiency. While the average library district in our sample is between 81 and 90% efficient depending upon the year and measure, there are many district-years that are under 50%. We then explain our technical efficiency measures as a function of institutional variables reflecting the type of district and sources of funding. We find consistent evidence that urban libraries are more inefficient, perhaps because they are too small to achieve sufficient economies-of-scale in production of library services. In addition, we find revenue from local sources is associated with reduced efficiency, contrary to what would be predicted by local public goods producer theory.
      PubDate: 2018-10-27
      DOI: 10.1007/s10101-018-0215-2
  • Corruption and paradoxes in alliances
    • Authors: Ricardo Nieva
      Abstract: Abstract In order to study corruption when a person can adjudicate over property rights, we extend the Tullock contest model by letting identical workers and a non-productive enforcer, who is more effective at fighting, contest over a resource. Property rights for output are well defined, but it is not so for the resource. If the enforcer assigns the resource in the way he was mandated, then the grand coalition forms with no corruption. There is corruption if he colludes with a subset of the workers and gets a transfer; this coalition then fights over the resource against other groups of workers. For general cost effort functions, if the enforcer is effective enough and marginal productivity of labor is adequately low, addition of the enforcer to a coalition increases the sum of payoffs of its members and generates negative externalities on other coalitions; that is, to divide and rule becomes an attractive prospect. This matches the empirical association between corruption and labor productivity or income inequality.
      PubDate: 2018-09-08
      DOI: 10.1007/s10101-018-0213-4
  • Camaraderie, common pool congestion, and the optimal size of surf gangs
    • Authors: Franklin G. Mixon
      Abstract: Abstract This study integrates some of the seminal public choice research on clubs and recent research on prison gangs into an analysis of the formation of surf gangs. More specifically, this study presents a model examining how surf break congestion, localism effort, and surfing camaraderie work to determine the optimal size of a local surf gang. The benefits of surfing in groups fall under the heading of camaraderie, and their presence means that the optimal surf gang size is bounded away from one. The benefits of camaraderie in surfing will likely be exhausted at small numbers owing to crowding of the surf break.
      PubDate: 2018-07-06
      DOI: 10.1007/s10101-018-0211-6
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