Francesco Trebbi

Who Adjusts and When?The Political Economy of Reforms

Why do countries delay stabilizations of large and increasing budget deficits and inflation? And what explains the timing of reforms? We use the war-of-attrition model to guide our empirical study on a vast sample of countries. We find that stabilizations are more likely to occur when times of crisis occur, when new governments take office, when governments are “strong” (that is, presidential systems and unified governments with a large majority of the party in office), and when the executive branch faces fewer constraints. The role of external inducements like IMF programs has at best a weak effect, but problems of reverse causality are possible. [JEL H11, H61, H62]

Measuring Central Bank Communication: An Automated Approach with Application to FOMC Statements

The concept of semantic orientation (SO) seeks to evaluate a given word or phrase’s location on a semantic axis over which both direction and intensity of meaning can be defined. Operationally, a semantic axis is defined by two terms of opposite meaning, or antonyms—say, strong/weak, robust/fragile—which define direction and, by some given unit of measurement, intensity. In using their semantic expertise, human beings can subjectively categorize a sentence out of a statement. To a vast majority of readers the statement “Ernest Hemingway could kill a bear with his bare hands” will indicate strength rather than weakness, robustness rather than fragility. However, using the fuzzy logic of semantics leaves much potential for disagreements in terms of intensity and sometimes direction. The purpose of the automated SO procedures described in this Appendix is to provide an automated method of assigning such semantic values, which is objective, transparent, and easily replicable. The objectivity and replicability of the scores are relative to a reference corpus of text—in our implementation, the Internet and information from news outlets—on which the semantic orientation scores are based.

How is Power Shared in Africa

Is African politics characterized by concentrated power in the hands of a narrow group (ethnically determined) that then fluctuates from one extreme to another via frequent coups? Employing data on the ethnicity of cabinet ministers since independence, we show that African ruling coalitions are surprisingly large and that political power is allocated proportionally to population shares across ethnic groups. This holds true even restricting the analysis to the subsample of the most powerful ministerial posts. We argue that the likelihood of revolutions from outsiders and coup threats from insiders are major forces explaining allocations within these regimes. Alternative allocation mechanisms are explored. Counterfactual experiments that shed light on the role of Western policies in affecting African national coalitions and leadership group premia are performed.

The Revolving Door and Worker Flows in Banking Regulation

This paper traces career transitions of federal and state U.S. banking regulators from a large sample of publicly available curricula vitae, and provides basic facts on worker flows between the regulatory and private sector resulting from the revolving door. We find strong countercyclical net worker flows into regulatory jobs, driven largely by higher gross outflows into the private sector during booms. These worker flows are also driven by state-specific banking conditions as measured by local banks’ profitability, asset quality and failure rates. The regulatory sector seems to experience a retention challenge over time, with shorter regulatory spells for workers, and especially those with higher education. Evidence from cross-state enforcement actions of regulators shows gross inflows into regulation and gross outflows from regulation are both higher during periods of intense enforcement, though gross outflows are significantly smaller in magnitude. These results appear inconsistent with a “quid-pro-quo” explanation of the revolving door, but consistent with a “regulatory schooling” hypothesis.

Is Europe an Optimal Political Area

Employing a wide range of individual-level surveys, we study the extent of cultural and institutional heterogeneity within the European Union and how this changed between 1980 and 2009. We present several novel empirical regularities that paint a complex picture. Although Europe has experienced both systematic economic convergence and an increased coordination across national and subnational business cycles since 1980, this has not been accompanied by cultural or institutional convergence. Such persistent heterogeneity does not necessarily spell doom for further political integration, however. Compared with observed heterogeneity within EU member states themselves, or in well-functioning federations such as the United States, cultural diversity across EU members is of a similar order of magnitude. The main stumbling block on the road to further political integration may not be heterogeneity in fundamental cultural traits, but other cleavages, such as national identities.

Factions in Nondemocracies: Theory and Evidence from the Chinese Communist Party

This paper investigates theoretically and empirically the factional arrangements and dynamics within the Chinese Communist Party (CCP), the governing political party of the Peoples Republic of China. Our empirical analysis ranges from the end of the Deng Xiaoping era to the current Xi Jinping presidency and covers the appointments of both national and provincial officials. We present a set of new empirical regularities within the CCP and a theoretical framework suited to model factional politics within single-party regimes.

Insurgency and Small Wars: Estimation of Unobserved Coalition Structures

Insurgency and guerrilla warfare impose enormous socio-economic costs and often persist for decades. The opacity of such forms of conflict is often an obstacle to effective international humanitarian intervention and development programs. To shed light on the internal organization of otherwise unknown insurgent groups, this paper proposes two methodologies for the detection of unobserved coalitions of militant factions in conflict areas, and studies their main determinants. Our approach is parsimonious and based on daily geocoded incident-level data on insurgent attacks alone. We provide applications to the Afghan conflict during the 2004-2009 period and to Pakistan during the 2008-2011 period, identifying systematically different coalition structures. Further applications are discussed.

Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence

We explore the role of charitable giving as a means of political influence. For philanthropic foundations associated with large US corporations, we present three different identification strategies that consistently point to the use of corporate social responsibility in ways that parallel the strategic use of political action committee (PAC) spending. Our estimates imply that 6.3 percent of corporate charitable giving may be politically motivated, an amount 2.5 times larger than annual PAC contributions and 35 percent of federal lobbying. Absent of disclosure requirements, charitable giving may be a form of corporate political influence undetected by voters and subsidized by taxpayers.

Endogenous Network Formation in Congress

We develop a model of endogenous network formation as well as strategic interactions that take place on the resulting network, and use it to measure social complementarities in the legislative process. Our model allows for partisan bias and homophily in the formation of relationships, which then impact legislative output. We identify and structurally estimate our model using data on social and legislative efforts of members for each of the 105th-110th U.S. Congresses (1997-2009). We find large network effects in the form of complementarities between the efforts of politicians, both within and across parties. Although partisanship and preference differences between parties are significant drivers of socializing in Congress, our empirical evidence paints a less polarized picture of the informal connections of members of Congress than typically emerges from congressional votes alone. Finally, we show that our formulation is useful for developing relevant counterfactuals, including the effect of political polarization on legislative activity (and how this effect can be reversed), and the impacts of networks in the congressional emergency response to the 2008-09 financial crisis.

City Structure and Congestion Costs

This paper presents a model and an automated methodology for decomposing congestion costs in cities. We model a city as a directed graph and define the planner’s problem of finding the subgraph minimizing the congestion costs (latency) of endogenously-routing traffic flowing through the subgraph. We show that the minimal total latency subnetwork displays congestion directly proportional to city population. By applying an automated search algorithm on a widely available Internet mapping application, and hence sampling from the empirically implemented subgraphs, the paper estimates the congestion-minimizing distortions of city transit networks in a large sample of United States and Italian cities.