Political Economy

Political Economy

April 21, 2017
Alberto F. Alesina of Harvard University, Organizer

Klaus Desmet, Southern Methodist University; Joseph F. Gomes, the University of Navarra; and Ignacio Ortuño-Ortín, Universidad Carlos III

The Geography of Linguistic Diversity and the Provision of Public Goods

Desmet, Gomes, and Ortuño-Ortín analyze the importance of local interaction between individuals of different linguistic groups for the provision of public goods at the national level. The micro-founded theory the researchers develop predicts that a country's provision of public goods (i) decreases in its overall linguistic fractionalization, and (ii) either increases or decreases in how much individuals locally learn about other groups, depending on whether local interaction mitigates or reinforces antagonism towards other groups. After constructing a 5 km by 5 km geographic dataset on language use for 223 countries, the researchers empirically test their theory. While overall fractionalization worsens public goods outcomes, they find a positive causal effect of local learning. As a result, public goods outcomes are maximized when the diversity of each location mirrors that of the country as a whole.

Nicola Fontana, London School of Economics; Tommaso Nannicini, Università Bocconi; and Guido Tabellini, IGIER

Historical Roots of Political Extremism: The Effects of Nazi Occupation of Italy

The Italian civil war and the Nazi occupation of Italy occurred at a critical juncture, just before the birth of a new democracy and when, for the first time in a generation, Italians were choosing political affiliations and forming political identities. In this paper Fontana, Nannicini, and Tabellini study how these traumatic events shaped the new political system. They exploit geographic heterogeneity in the intensity and duration of the civil war, and the persistence of the battlefront along the "Gothic line" cutting through Northern-Central Italy. The researchers find that the Communist Party gained votes in the post-war elections where the Nazi occupation and the civil war lasted longer, mainly at the expense of the centrist and catholic parties. This effect persists until the early 1990s. Evidence also suggests that this is due to an effect on political attitudes. Thus, the foreign occupation and the civil war left a lasting legacy of political extremism and polarization on the newborn Italian democracy.

Samuel A. Bazzi, Boston University; Arya Gaduh, the University of Arkansas; Alexander D. Rothenberg, Rand Corporation; and Maisy Wong, the University of Pennsylvania

Unity in Diversity? Ethnicity, Migration, and Nation Building in Indonesia

While diversity has long been associated with adverse social outcomes, much less is known about how to unite different groups and foster nation building. Many governments introduce policies to establish a shared sense of national identity and to encourage integration. However, intergroup relationships at the local level are often slow to develop and confounded by endogenous sorting. Bazzi, Gaduh, Rothenberg, and Wong shed new light on this local, long-run process of integration using a large resettlement program in Indonesia designed to encourage mixing between the several hundred ethnic groups across the archipelago. Between 1979 and 1988, the Transmigration program relocated two million voluntary migrants from the Inner Islands of Java and Bali to the Outer Islands. These migrants could not choose their destinations, and by exploiting certain features of the planning and implementation process, the study's research design isolates plausibly exogenous variation in long-run diversity. Moreover, the unprecedented scale of the program created hundreds of new communities with varying degrees of ethnic diversity, allowing the researchers to estimate the nonlinear ways in which diversity shapes incentives to integrate and influences identity formation. Using rich microdata on marriage, language use at home, and intergenerational identity choices, they find substantial changes in socialization and preferences consistent with deeper integration amidst rising diversity. Overall, the findings provide a unique lens into the slow intergenerational process of weakening ethnic attachment and converging towards new forms of shared identity.

Patrick Francois, the University of British Columbia; Francesco Trebbi, the University of British Columbia and NBER; and Kairong Xiao, the University of British Columbia

Factions in Nondemocracies: Theory and Evidence from the Chinese Communist Party (NBER Working Paper No. 22775)

Francois, Trebbi, and Xiao investigate theoretically and empirically the factional arrangements and dynamics within the Chinese Communist Party (CCP), the governing political party of the People's Republic of China. The researchers' 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. They present a set of new empirical regularities within the CCP and a theoretical framework suited to model factional politics within single-party regimes.

Ruben Enikolopov and Maria Petrova, Barcelona Institute of Political Economy and Governance, and Alexey Makarin, Northwestern University

Social Media and Protest Participation: Evidence from Russia

Do new communication technologies, such as social media, reduce collective action problem? This paper provides evidence that penetration of VK, the dominant Russian online social network, affected protest activity during a wave of protests in Russia in 2011. As a source of exogenous variation in network penetration, Enikolopov, Makarin, and Petrova use information on the city of origin of the students who studied together with the founder of VK, controlling for the city of origin of the students who studied at the same university several years earlier or later. The researchers find that a 10% increase in VK penetration increased the probability of a protest by 4.6%, and the number of protesters by 19%. At the same time, VK penetration increased pro-governmental support, with no evidence of increased polarization. Additional results suggest that social media has affected protest activity by reducing the costs of coordination, rather than by spreading information critical of the government. The researchers find that cities with higher fractionalization of network users between VK and Facebook experienced fewer protests, and there is a critical mass of VK users necessary to jumpstart the protests. Finally, they provide suggestive evidence that municipalities with higher VK penetration received smaller transfers from the central government after the occurrence of protests.

Alberto F. Alesina; Stefanie Stantcheva, Harvard University and NBER; and Edoardo Teso, Harvard University

Intergenerational Mobility and Preferences for Redistribution (NBER Working Paper No. 22863)

Using data from 16 OECD countries from 1981 to 2014, Alesina, Stantcheva, and Teso find that the composition of fiscal adjustments is much more important than the state of the cycle in determining their effects on output. Adjustments based upon spending cuts are much less costly than those based upon tax increases regardless of whether they start in a recession or not. The results appear not to be systematically explained by different reactions of monetary policy. However, when the domestic central bank can set interest rates -- that is outside of a currency union -- it appears to be able to dampen the recessionary effects of tax-based consolidations implemented during a recession. This finding could help understand the recessionary effects of European "austerity," which was mostly tax based and implemented within a currency union.