EC304 Revision

amarjotsidhu's version from 2017-05-26 01:27

SIGs theory (economics)


Question Answer
What are SIGs?organisations that take political actions on behalf of groups of voters
Two types of SIG activitymoney lobbying and in house lobbyists
Regulations on money lobbyingUK - unlimited contributions but limited expenditure allowed for campaign spending at constituency level; US - contribution only allowed through PACs which are regulated but unlimited expenditure allowed at electoral district level
Olson's theory of SIG formationcollective action problem; problem of free riding (PD matrix); easier for firms in more concentrated industries to come together (co-ordination easier amongst a few big firms); the firm for which MB of lobbying is greatest, will bear disproportionate burden of cost; the more firms there are, the lower the public good supply
Rent seeking vs. profit seekingresources and activity devoted towards production and trade vs. resources and activity towards maintaining restraints on it
Money lobbying by a monopolyit must give government a bribe (times the weight of govt. on willingness to take bribe) = loss of consumer surplus
Competition amongst 2 firms for trying to gain monopoly statuscompetition makes things worse (2B wasted)

SIG theory (politics)


Question Answer
Increasing role of persuasionconstitutes about 30% of GDP incl. lawyers, etc.
Views of role of statepluralism - power dispersion, consisting of different groups (one type = corporatism)
Truman (1951)Pluralist - pressure groups spontaneously form
Social construction of profithuge social ramifications of lobbying; big decline in tax rates over last 50 years = large firms make more profit = less tax revenue and less money for public goods

SIGs literature and evidence


Question Answer
Was Olson right about more firms in more concentrated industries being more prominent in lobbying?Drope et al (2005) - no relationship between industry concentration and political activity, individual firms may seek individual benefits in non-concentrated indsutries
Impact of campaign contributions (through PACs) on US policy outcomesAnsolabehere et al. (2003) - US politics, 3/4 no impact of contributions on policy outcomes, endogeneity problem - SIGs already supported by politician + consumption/ideology spending
Direct informational lobbying vs. PAC contribtution?Igan and Mishra (2011) - included direct lobbying expenditures as well as pac contirbutions - 1% increase in spending increases prob. that legislator votes for financial bill by 17% (pac contributions alone have just impact of 2%)
Do contributions lead to facetime?Yes - Kalla and Brockman (2014) - RCT -> revealing contribution states = 3-4x morel likely to see member
HoL appointmentMell et al. 2015 - non patronage appointments had donated over 100 times as much as patronage appointments per capita
Informtional lobbying e.g. NGOsGrossman-Helpman (2001) - competition is beneficial
What determines success in EU informational lobbying?Chalmers (2013) - medium of info transmission + if you meet needs of body
Different dimensions to lobbyingChalmers, 2013 - different types of advice (legal, technical, advice on political consequences) + different tactics (inside - meetings, face time) vs. outside - social media, public campaigns
What makes lobbyists more attractive?Bertrand et al 2004 -37,000 US lobbyists reports with specialist = 3-8% premium vs. report with connection = 8-10% premium = presence of revolving door
Grant and Maloney (2007) on Olson's purposeto explain non-pariticipation rather than participation. That people join because of group mentality / collective gratification is not inconsistent with Olson's central point that non-participation is the norm due to small individual benefits
ERCT theoryOpp (1999) - all behaviour evolves around utility maximisation. Activities from which utility accrues includes altriusm, collective rationality = you add rationality to encompass all kinds of behaviour; still predicts under-mobilisation but aims to explain non-olsonian participation
Individual are steerableGrant and Maloney (2007) - group activity shapes preferences; organisations can pursue market techniques to induce participation; framing of issues - transformation of social problems into issues of public concern; membership represents social construction of interest
G30transnational financial policy community that provided advice to US govt. about regulation of OTC derivatives in 1993 that ultimately shaped policy and discourse. Argued in media at the time that only these i..e the players themselves, had enough knowledge to make regulation
SIG problemsSIGs are not on a level playing field (Marxist); they can impede progress (path dependency, post-war Britain, trade unions placed barriers on modernisation); market failure (igan et al. 2009); disproportionate influence - big decline in tax rates over the last 50 years - favoured the rich
Igan et al. 2009 - firms and financial lobbyinglenders who lobbied more intensively on issues of securitisation engaged in riskier lending ex ante and suffered from worse outcomes ex post, benefiting more from bailouts
Dodd-Frank Wall Street reform act lobbying (2012)estimated $1 billion spent on lobbying, 3,000 lobbyists working on it
Interdependence between government and SIGspolicy outcomes in favour of certain groups does not necessarily represent coercion - interests may be common e.g. interest of government to support financial sector to support economic growth = interdependence
Ideology retains a role in face of SIGsMian et a. 2010 - higher PAC contributions from financial industry increased the likelihood of representatives voting to support EESA but the more conservative the politician (right-wing republican), the less they change their voting behaviour in response to higher PAC contributions

Redistribution theory and literature (economics)


Question Answer
Evolution of income inequalitydeclining through interwar and post war then big spike after 80s
Evolution of top rate of marginal income taxincreasing interwar and postwar then big declines after 70s
Implications of inequalitylower growth (very rich spend less), sections of population which are 'very poor' = very little access to education and poor living standards = poor levels of human capital; conflict
Median voter tax preferencesif income of median voter > mean income, then majority will prefer no redistribution (no redistribution in majoritarian system occurs); if income of median voter < mean income, then redistribution is preferred by majority (in majoritarian system, redistribution occurs) ; empirically, in most income distributions, median < mean; stronger pressure for redistribution, the bigger the gap between mean/median is
Testing median voter redistribution preference theoryMilanovic (2000)- as inequality goes up, redistribution goes up (gain between pre-tax and post-tax gini goes up); if share of middle class income goes up, there is less pressure for redistribution; if ratio of average to middle class income goes up, there is more pressure for redistribution
Determinants of preferences of redistributionmedian vs. mean income; POUM; beliefs about merit vs. luck
Testing POUMBenabou and OK (2001) - prove that below average income voters will vote for low/no taxes if they believe future upward mobility. This relies on concave transition function, sufficiently persistent redistribute policy and so long as voters are not too risk averse
Preferences for redistribution vs. objective future mobilityAlesina and La Ferrera (2005) - data is USA 1970s-90s. Dependent variable = survey asking people how strongly they agree with statement that washington should redistribute income. They compare this against a transition matrix (objective measure of mobility in which they measure the likelihood of you being in a given decile in 5 years based on your decile today) and a number of other social varibles. They find that if you expect to be richer in the future, you will have a lower preference for distribution today. Secondly, the higher the chance of you becoming very rich in 5 years (7-10 decile), the lower you preferences for redistribution. Finally, if you have a job of greater prestige than your fathers, you prefer less distribution now.
History of mobility mattersPiketty (1995) - if respondent was high income but came from parents who had low income, they were morel likely to vote for a left wing party vs. a high income person who had high income individual
Differences in beliefs about effort vs. luckAlesina and Glaeser (2004) - if you believe that effort determines income, you have preferences for lower redistribution and low taxes e.g. US while if you believe that luck determines income, you want high redistribution and high taxes e.g. Europe, Latin America. 26% of Europeans believe that poor are lazy vs. 60% of Americans.
Democrat vs. Republic attitudes in USindividuals asked question. Do you think that everyone in the US has the same opportunity to succeed or do only some people have it? 17.9% of Democrats believed that everyone has the opportunity vs. 42.8% of Republicans. Alesina and Glaeser (2004)
Relationship between immobility and inequalityhigher income inequality correlated with lower mobility
Historical evidence of Median voter theory of redistribution preferencesMeltzer and Richard (1981) - spread of franchise in 18th-19th centuries -> higher tax rates; similar effect of increase in social security recipients in recent decades
MVT and intertemporal redistributionMeltzer and Richard (1981) - optimal for median voter to support redistribution policies that increase govt. debt today = intertermporal redistribution
Relationship between inequality and growthPersson and Tabbelini (1994) - income inequality is harmful for growth a in a society in which there is greater distributional conflict, there is likely to be greater pressure for redistributive and tax policies that decrease incentives to accumulate capital = less growth
Political losers and barriers to economic developmentAcemoglu and Robinson (2000) - it is agents who have political power and fear losing this that will have incentives to block technological changes that a pose a risk to it hence why elites in 19th century Austria-Hungary and Russia attempted to block railroad vs. Britain and Prussia