Political Economy

Members of the NBER's Political Economy Program met in Cambridge October 26. Program Director Alberto F. Alesina of Harvard University organized the meeting. These researchers' papers were presented and discussed:

Stefano Gagliarducci, University of Rome Tor Vergata; M. Daniele Paserman, Boston University and NBER; and Eleonora Patacchini, Cornell University

Hurricanes, Climate Change, and Political Accountability

Gagliarducci, Paserman, and Patacchini study how politicians and voters respond to new information on the threats of climate change. The researchers investigate how members of the U.S. House of Representatives change their support for bills aimed at contrasting climate change in the aftermath of a hurricane. In the year after the disaster, Congress members from districts hit by a hurricane are more likely to support bills supporting more environmental regulation and control, as predicated by the vast majority of the scientific community. The effect appears to be substantial and persistent, which is consistent with a permanent change in beliefs. Congress members who hold a safer seat are those who engage more in climate change legislation, which in turn reduces electoral support in the following election. The researchers interpret this as evidence that only politicians with a sufficient electoral credit can engage in promoting good but unpopular policies.

Ernesto Dal Bó and Frederico Finan, University of California, Berkeley and NBER; Olle Folke, SIPA, Columbia Univerisity; Torsten Persson, Institute for International Economic Studies and NBER; and Johanna Rickne, The Swedish Institute for Social Research

Economic Losers and Political Winners: Sweden's Radical Right

Dal Bó, Finan, Folke, Persson, and Rickne study the rise of the Sweden Democrats, a radical-right party that rose from negligible size in 2002 to Sweden's third largest party in 2014. The researchers use comprehensive data to study both its politicians (supply side) and voters (demand side). All political candidates for the party can be identified in register data, which also lets the researchers aggregate individual social and economic conditions in municipalities or voting districts and relate them to the party's vote share. The researchers take a starting point in two key economic events: (i) a series of policy reforms in 2006-2011 that significantly widened the disposable- income gap between "insiders"and "outsiders"in the labor market, and (ii) the financial-crisis recession that doubled the job-loss risk for "vulnerable" vs "secure"insiders. On the supply side, the Sweden Democrats over-represent both losing groups relative to the population, whereas all other parties under-represent them, results which also hold when disaggregated across time, subgroups, and municipalities. On the demand side, the local increase in the insider-outsider income gap, as well as the share of vulnerable insiders, are systematically associated with larger electoral gains for the Sweden Democrats. These findings can be given a citizen-candidate interpretation: economic losers (as demonstrated) decrease their trust in established parties and institutions. As a result, some economic losers became Sweden-Democrat candidates, and many more supported the party electorally to obtain greater descriptive representation. This way, Swedish politics became potentially more inclusive. But the politicians elected for the Sweden Democrats score lower on expertise, moral values, and social trust -- as do their voters which made local political selection less valence oriented.

Gianmarco Daniele, Bocconi University; Emilie Sartre, Center for Research in Economics and Statistics (CREST); and Paul Vertier, Sciences Po

Toxic Loans and the Entry of Extreme Candidates

Despite the importance of the 2008 financial crisis in explaining the growing trend of extreme and populist voting, the role played by public finance mismanagement has been so far neglected. Daniele, Sartre, and Vertier study the electoral consequences of a public finance scandal: the leak on September 2011 of a list of French municipalities which contracted "toxic" loans to the bank Dexia. Using an instrumental variable strategy, the researchers find that during the subsequent local elections in 2014, municipalities with toxic loans had a higher number of political parties and a higher share of extreme candidates. These effects were stronger in economically fragile municipalities and in cities with a higher growth of the immigrant population. The findings suggest that the revelation of public finance misconduct fosters the entry of extreme politicians, thus increasing their vote shares and decreasing the support for the incumbents' parties.

Oded Galor, Brown University and NBER, and Viacheslav Savitskiy, Brown University

Climatic Roots of Loss Aversion

Galor and Savitskiy explore the origins of loss aversion and the variation in its prevalence across regions, nations and ethnic group. They advance the hypothesis and establish empirically that the evolution of loss aversion in the course of human history can be traced to the adaptation of individuals to the asymmetric effects of climatic shocks on reproductive success during the Malthusian epoch. Exploiting variations in the degree of loss aversion among second generation migrants in Europe and the U.S., as well as across precolonial ethnic groups, the research establishes that consistent with the predictions of the theory, individuals and ethnic groups that are originated in regions in which climatic conditions tended to be spatially correlated, and thus shocks were aggregate in nature, are characterized by greater intensity of loss aversion, while descendants of regions marked by climatic volatility have greater propensity towards loss-neutrality.

David Y. Yang, Harvard University, and Yuyu Chen, Peking University

Historical Traumas and the Roots of Political Distrust: Political Inference from the Great Chinese Famine

What shapes citizens' trust in the government, and what makes it persist over time? Yang and Chen study the causal effect of the Great Chinese Famine (1958-1961) on the survivors' political distrust. Using a novel nationally representative survey, they employ a difference-in-differences framework to compare citizens who were exposed to the Famine versus those who were not, across regions with differential levels of drought during the Famine. The Famine survivors inferred the government's liability from personal hunger experiences, and they were more likely to blame the government for their starvation in regions with usual rainfall during the Famine. As a result, these citizens exhibit significantly less trust in the local government. The dampened political trust persists even half a century after the Famine, and it has been transmitted to the subsequent generation. The researchers provide suggestive evidence on the mechanisms that foster such persistence.

Alberto F. Alesina; Stefanie Stantcheva, Harvard University and NBER; and Armando Miano, Harvard University, "Immigration and Redistribution" (NBER Working Paper No. 24733)

Alesina, Stantcheva, and Miano design and conduct large-scale surveys and experiments in six countries to investigate how natives' perceptions of immigrants influence their preferences for redistribution. The researchers find strikingly large biases in natives' perceptions of the number and characteristics of immigrants: in all countries, respondents greatly overestimate the total number of immigrants, think immigrants are culturally and religiously more distant from them, and are economically weaker -- less educated, more unemployed, poorer, and more reliant on government transfers -- than is the case. While all respondents have misperceptions, those with the largest ones are systematically the right-wing, the non college-educated, and the low-educated working in immigration-intensive sectors. Support for redistribution is strongly correlated with the perceived composition of immigrants -- their origin and economic contribution -- rather than with the perceived share of immigrants per se. Given the very negative baseline views that respondents have of immigrants, simply making them think about immigration in a randomized manner makes them support less redistribution, including actual donations to charities. The researchers also experimentally show respondents information about the true i) number, ii) origin, and iii) "hard work" of immigrants in their country. On its own, information on the "hard work" of immigrants generates more support for redistribution. However, if people are also prompted to think in detail about immigrants' characteristics, then none of these favorable information treatments manages to counteract their negative priors that generate lower support for redistribution.

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