Toke S. Aidt

Political internalization of economic externalities and environmental policy

Abstract This paper derives the characteristics of endogenous environmental policy in a common agency model of politics, and proceeds to show that competition between lobby groups is an important source of internalization of economic externalities. Our analysis generalizes Bhagwatis principle of targeting to the case of distorted political markets. Moreover, we show that the politically optimal structure of environmental taxes incorporates a Pigouvian adjustment. However, since lobby groups care about the distribution of income as well as about efficiency, the equilibrium structure of taxes differs considerably from the Pigouvian rule.

Economic voting and information

The notion that voters are rational causes three closely related paradoxes: the paradox of voting, the paradox of indeterminacy and the paradox of ignorance. In this paper, we discuss the paradox of ignorance, i.e., the claim that the rational voter is uninformed about economic and political issues. We argue that the paradox of ignorance exaggerates the degree of voter ignorance. We maintain that voters, on average, are ignorant about the economy because of the consumption cost of information. Nevertheless, some voters do have an incentive to become informed, either because vote-relevant information is collected as a by-product of other activities or because information has value in social interaction.

The Retrenchment Hypothesis and the Extension of the Franchise in England and Wales

Does an extension of the voting franchise always increase public spending or can it be a source of retrenchment? We study this question in the context of public spending on health-related urban amenities in a panel of municipal boroughs from England and Wales in 1868, 1871 and 1886. We find evidence of a U-shaped relationship between spending on urban amenities and the extension of the local voting franchise. Our model of taxpayer democracy suggests that the retrenchment effect was related to enfranchisement of the middle class through nation-wide reforms and that these reforms might have been Pareto inferior in the average borough.

Trade Unions, Collective Bargaining and Macroeconomic Performance: A Review

Coordination through collective bargaining is recognised as an influential determinant of labour market outcomes and macroeconomic performance. This article provides a systematic review of the empirical literature on the subject. What emerges from the review is that it is different types and coverage of bargaining coordination, rather than cross-country variation in trade union density, that matter for economic performance. High levels of bargaining coverage tend to be associated with relatively poor economic performance, but this adverse relationship can be at least mitigated by high levels of bargaining coordination. In the absence of formal bargaining arrangements, economies often develop informal bargaining mechanisms whose effects are similar to those arising from formal bargaining provided they both operate at similar levels of coordination. The consequences of labour market coordination or absence thereof depend on the monetary policy regime as non-accommodating monetary policy can eliminate some of the adverse unemployment consequences otherwise associated with industry-level collective bargaining. Finally, bargaining coordination seems to matter most in times of rapid economic change rather than under more stable conditions. Overall, we conclude that it is the total ‘package’ of (formal and informal) labour market institutions that matters for the performance of the economy rather than unionisation as such or individual aspects of unionism.

Democratization Under the Threat of Revolution: Evidence From the Great Reform Act of 1832

We examine the link between the threat of violence and democratization in the context of the Great Reform Act passed by the British Parliament in 1832. We geo‐reference the so‐called Swing riots, which occurred between the 1830 and 1831 parliamentary elections, and compute the number of these riots that happened within a 10 km radius of the 244 English constituencies. Our empirical analysis relates this constituency‐specific measure of the threat perceptions held by the 344,000 voters in the Unreformed Parliament to the share of seats won in each constituency by pro‐reform politicians in 1831. We find that the Swing riots induced voters to vote for pro‐reform politicians after experiencing first‐hand the violence of the riots.

Political Competition, Electoral Participation and Public Finance in 20th Century Latin America

Rational choice models predict that political competition and political participation have opposite effects on the size of government. We investigate these theories using data from a panel of 18 Latin American countries during the 20th century. Our research builds evidence for the prediction that reforms enhancing political competition tend to limit the size of government, while reforms increasing political participation tend to increase the size of government. Furthermore, we find that reforms which remove literacy requirements from franchise laws are associated with governmental expansion, while changes in womens suffrage laws have no impact on the size of government. Our findings demonstrate the empirical relevance of the distinction between political competition and participation.

The Democratic Window of Opportunity Evidence from Riots in Sub-Saharan Africa

We show that drought-induced changes in the intensity of riots lead to moves toward democracy in sub-Saharan Africa and that these changes are often a result of concessions made as a result of the riots. This provides evidence that low-intensity conflict can have a substantial short-run impact on democratic change and supports the “window of opportunity” hypothesis: droughts lead to an increase in the threat of conflict, and incumbents often respond by making democratic concessions.

Policy Compromises: Corruption and Regulation in a Democracy

This paper evaluates the extent of regulation in a democracy with corruption. Elected politicians can restrict entry of firms in exchange for bribes from entrepreneurs. Full liberalization implies free entry and allocative efficiency. Voters re-elect politicians based on observed performance. We demonstrate that voters agree to tolerate corruption and inefficient regulation; that efficient policies can be promoted by productivity growth; that productivity growth reduces the cost of providing wage incentives; and that corruption is procyclical and economic policy is countercyclical in a corrupt democracy.

Corruption and Sustainable Development

This paper studies the relationship between corruption and sustainable development in a sample of 110 countries between 1996 and 2007. Sustainability is measured by growth in genuine wealth per capita. The empirical analysis consistently finds that cross-national measures of perceived and experienced corruption reduce growth in genuine wealth per capita. In contrast to the evidence on the relationship between corruption and growth in GDP per capita, the negative correlation between a wide range of different corruption indices and growth in genuine wealth per capita is very robust and is of economic as well as of statistical significance. We relate the finding to the literature on the resource curse and demonstrate that rampant corruption can put an economy on an unsustainable path along which its capital base is being eroded.

Policy Myopia and Economic Growth

We develop a theory of second best policy myopia. Policy myopia arises when rational voters allow politicians to bias public investments towards short-term investments. We demonstrate that policy myopia is not an inevitable implication of the fact that voters cannot observe immediately how much their politicians invest in certain types of public goods; rather it is the interaction between observation lags, economic growth and binding revenue constraints that forces rational voters to accept a short-term bias. We argue that growth in government and policy myopia are related social phenomena. The analysis is motivated by stylized facts about public spending patterns.