EC304 Revision (2)

amarjotsidhu's version from 2017-05-26 07:41

Redistribution theory and literature (politics)


Question Answer
Problem with market pricesthey do not just measure marginal product. instead they reflect biases, market structures, social institutions. They may not accurately reflect social benefits from certain professions e.g. nurses
Problems of inequalitydivergence of social benefits and market prices may lead to underuspply of particular professions; extreme poor standard of living for some individuals; negative social dynamic; some people have too much power and access to resources; bad social dynamic; inequality between countries = some states have an unacceptable standard of living vs. others and lack of resources to sort this out on their own
Kuznet's U-hypothesisu shape of inequality against GNP. Initially in development, people move from agriculture to relatively high productive and small industry = increase in inequality but as industry grows, more people get paid more = higher inequality
Benefits of inequalityhigher concentration of income = higher MPS at top end = greater accumulation of savings and capital which enhances growth
Divergence between productivity and median wagebig divergence in the US post 70s. Keynesian worry: too much output but people can't afford to buy it. Reason: rent-seeking - owners of capital accrue benefits. Problem: if productivity isn't related to wages, then you may switch to unproductive sources of employment which are paid well
Income evolution in the 20th centuryinterwar period, big decline in inequality. wealth inequality decline more in Europe. Big decline in capital/income ratio in Europe (fell by nearly 2/3) and emergence of a middle class in countries (significant redistribution of wealth); big acceleration in inequality post 70s. US now has higher income and asset inequality vs. europe (top decile owns 60% of wealth and 35% of total labour income)
Piketty r>g mechanismif r>g then importance of inherited wealth and capital grows relative to wages and nation's income, compouded by law of cumulative growth + economies of scale
Piketty problemsdoesn't consider depreciation as a cause of increasing investment in wealth; returns on bonds over last few years <3 (vs. the stable 5% returns he talks about); income inequality increasing across all bands of spectrum
Acemoglu (2003) - how technology increases in inequalityskilled workers obtain highest productivity increase; higher demand for skills = relative wage effect; replaces tasks done by unskilled workers
Post 70s income inequality increaserise of supermanagers + move towards hypermeritcoratic society
Gailbraith - 'contented majority'middle class, who make up big proportion + morel ikely to come out than very poor, sufficiently distant from poverty + sufficient belief in merits of hard work vs. the rest, to vote for lower taxes and minimal state insurance mechanisms = lower taxes, means-testing
Limited downward mobility of wealthClark (2014) - rare oxbridge surname in 1800
importance of education in determining inequalitylindert and williamson (2016) - US loss in its lead in mass education + subsequent big gaps in educational attainment post 70s = big driver in inequality; gazeley (2014) - most important benefits in kind for reducing income inequality since the 70s = health and education; piketty argues most important way to reduce labour income inequality = invest in education
Neoliberalism and discourseMonbiot (2007) - wherever neoliberalism has been established, there has been an income transfer to the top 1%. This has been achieved by oligarchy setting up think tanks and funding university economics departments into beacons of neoliberalism+ they own newspapers and transform neoliberal discourse into neutral language e.g. tax relief, wealth creation
New labour and its welfare reform justificationAtkins (2010) - NL disicrouse combined labour's belief in inequality leading to social injustice with Thatcherite ideology about economic efficiency = NL argued that inequality is essential to economic growth; e.g. it argued its jobcentre plus policy = 'active service', the word active giving a link between its approach and strategies endorsed by the likes of the OECD, which include regular monitoring of work availability and empasis on individual responsibility = gives its policies more legitimacy
Conservastive party attitudes to poorHickson (2009) - over last 30 years, all sections within conservative party have expressed belief in the desirability of inequality. associated with new right view from 1979 - that poverty is absolute and requires mininmal welfare state. best tackled by free market through trickle down and individual responsibility. before, this, one naiton view dominated (50s-70s) - that poverty required collective action via welfare state

Corruption and accountability (econ)


Question Answer
Basline modelvoters are more likely to elect a politicians if a=1. In period 1, good politician will always choose a=1 while bad will always choose a=0. People therefore choose a=1 as it is a higher prob. that you get a good politician (aim of voter is to get good politician, which is the only type to a=1 in time 2). Therefore in t 1, opportunist politician will be a=1
PA problemprincipal = voters who delegate reponsibility to politicians = agent
Aspects to PA problemdo voters reward politicians for directly receiving benefits; do voters reward politicians for being 'good'; do politicians act differently if no reelection prospect
De La O (2012)random treatment of villages in Mexico with money for mothers for sending children to schools and health services (RCT). Those villages who received treatment for longer = higher turnout and more likely to vote for incumben=> voters reward politicians for getting direct benefit
Implications of De La O modelif you are incumbent, you have greater desire to put effort in to get bills passed; if you are opposition, you have greater incentive to block bills
Two types of problem within PA problemmoral hazard (do politicians change behaviour because of reward) + political selection (does reward bring in better quality politicians)
Ferraz and Finan (2008)Municipal govts in Brazil. Randomly selected to have audits, some would have results publicly released before auction and some after. Those corrupt municipalities who had pre election audits were punished for corruption, with the prob. of reelection declining as number of corrupt offences increased = voters do respond to politicians' behaviour. Then they look at relection impact. Consider first term (eligible for reelection) vs. second term (non reelectable mayors). First term mayors honesty > second term mayors = elections important in accountability and politicians do respond to election incentives
Conditions for someone becoming a politicianw + ui > vi
Consequences of different u and vhigh ui and vi = idealist; low ui and high vi = competent, business type
Why is it hard to estimate relation between salaries and performance?omitted variable, 2 way relation and the fact that politicians choose their own wages
Ferraz and Finan (2011)attempt to tackle issue of politicians setting their own wages; consider municipal legislators in Brazil whose wages depend on population size of municipality; consider and compare municipalities just above/below a population cut off point (RD); in municipalities with higher legislator wages, legislative performance is higher e.g. more bills proposed
Brollo et al (2010) - political resources cursethere exists a political resource curse such that an increase in state funds increases corruption as individuals can afford to grab more without disappointing voters and if benefit of corruption is more valuable to those with worse outside options, individuals of lower quality are attracted into politics. The interaction between these 2 gives rise to complimentarity: as his opponents are now of lower quality, the incumbent can afford to grab more while increasing reelection chances. In brazil, a 10% increase in federal transfers to municipalities increased corruption by 6% and lowered chance of opponent having a degree by 6%

Corruption and accountability (politics)


Question Answer
Conceptualising governmentPA problem, executive committee of bouregeosie, tension between liberal vs. democratic, paternalistic
Costs of corruptionmisuse of public funds, distortion of competiton, infringement of independence/representation
Problems with PA modelwe don't want govt. to do exactly what we want - we lack knowledge, subject to emotion hence we use representative system
How should we select politicians?competency / honesty / ideology / connection to constitutents
De politicisationtension between representation and technical expertise. Politicians can depoliticise as a political strategy (Reduced responsibility) or necessity - need for technical knowledge/constraining device
Allen (2011) - regulation in parliamentsince 1995, commons has introduced new rules about MPs outside interests = this kind of misconduct has fallen but other forms of misconduct has increased e.g. expenses; behaviour is very close to what is considered necessary in duty - communicating with constituents, having a second house
Lessons from cash for questions scandalWoodhouse (1998) - parliament should be subject to external control - the courts - rather than just iself. Commissioner for standards constrained by also being part of westminster
Voter reaction to UK expenses scandalEggers and Fisher (2011) voters did punish those MPs whose expenses most discussed in media but much less than US etc = most MPs have fewer powers + no other way to express interest in party at national level = electoral accountability depends on political institutions