Political Economy

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

James J. Feigenbaum, Boston University and NBER, and Daniel Thompson, Andrew B. Hall, and Jesse Yoder, Stanford University

Who Becomes a Member of Congress? Evidence From De-Anonymized Census Data

Feigenbaum, Hall, Thompson, and Yoder link future members of Congress to the de-anonymized 1940 census to offer a uniquely detailed analysis of how economically unrepresentative American politicians were in the 20th century, and why. Future members under the age of 18 in 1940 grew up in households with parents who earned more than twice as much as the population average, and who were more than 6 times as likely as the general population to hold college degrees. However, compared to siblings who did not become politicians, future members of Congress between the ages of 18 and 40 in 1940 were higher-earners and more educated, indicating that socioeconomic background alone does not explain the differences between politicians and non-politicians. Examining a smaller sample of candidates that includes non-winners, the researchers find that the candidate pool is much higher-earning and more educated than the general population. At the same time, among the candidate pool, elections advantage candidates with higher earnings ability and education. Feigenbaum, Hall, Thompson, and Yoder conclude that barriers to entry likely deter a more economically representative candidate pool, but that electoral advantages for more-educated individuals with more private-sector success also play an important role.

Elhanan Helpman, Harvard University and NBER, and Gene M. Grossman, Princeton University and NBER

Identity Politics and Trade Policy (NBER Working Paper No. 25348)

Helpman and Grossman characterize trade policies that result from political competition when assessments of wellbeing include both material and psychosocial components. The material component reflects, as usual, satisfaction from consumption. Borrowing from social identity theory, the researchers take the psychosocial component as combining the pride and self-esteem an individual draws from the status of groups with which she identifies and a dissonance cost she bears from identifying with those that are different from herself. In this framework, changes in social identification patterns that may result, for example, from increased income inequality or heightened racial and ethnic tensions, lead to pronounced changes in trade policy. The researchers analyze the nature of these policy changes.

Lubos Pastor and Pietro Veronesi, University of Chicago and NBER

Inequality Aversion, Populism, and the Backlash against Globalization (NBER Working Paper No. 24900)

Motivated by the recent rise of populism in western democracies, Pastor and Veronesi develop a model in which a populist backlash emerges endogenously in a growing economy. In the model, voters dislike inequality, especially the high consumption of "elites." Economic growth exacerbates inequality due to heterogeneity in risk aversion. In response to rising inequality, rich-country voters optimally elect a populist promising to end globalization. Countries with more inequality, higher financial development, and current account deficits are more vulnerable to populism, both in the model and in the data. Evidence on who voted for Brexit and Trump in 2016 also supports the model.

Matthew Jackson, Stanford University, and Yiqing Xing, Johns Hopkins University

The Complementarity between Community and Government in Enforcing Norms and Contracts, and their Interaction with Religion and Corruption

Jackson and Xing investigate the complementarity between informal communities and formal government enforcement of norms of reciprocation and exchange. They observe that, in a cross-country analysis, GDP is positively correlated with a measure of confidence in reliance on others within a community, and with the interaction of the that measure and a measure of Rule of Law -- suggesting that informal community and formal enforcement can be complements. The researchers introduce a model in which people exchange informally within their community as well as externally on a market. They show that informal community and formal enforcement are complements: the news that someone was convicted of cheating on the market leads that person to be ostracized by their community, bolstering incentives. Although transactions within a community can be less directly beneficial than those on a wider market, doing some transactions within a community and others on a formal market lowers overall costs of enforcement and is still welfare-enhancing compared to either extreme for a wide range of costs of formal enforcement. Jackson and Xing also show that religion can enhance the complementarity between community and formal enforcement, while corruption undermines it.

Francesco Giavazzi, Universita' Bocconi and NBER; Giacomo Lemoli, New York University; and Felix Iglhaut and Gaia Rubera, Universita' Bocconi

Terrorist Attacks, Cultural Incients and the Vote for Radical Parties

Giavazzi, Iglhaut, Lemoli, and Rubera study the recent increase in support for a radical right-wing party in Germany (AfD) relating it to the cultural shocks associated with a number of terrorist attacks, which happened in Europe around the same time, and a very salient incident occurred on New Year's Eve 2015/2016. The researchers measure shifts in voters' attitudes at the time of those events by the change in a measure of linguistic distance between the content of the tweets they posted and those posted by the main German parties. Next the researchers use the date of those events to identify exogenous shifts in language similarity at the electoral constituency level, using a random coefficients model. They find that following such events the similarity with the AfD tweets increases while it increases much less or even falls for the other parties. The researchers then regress differences in vote shares between the 2013 and 2017 general elections at the electoral constituency level on exogenous shifts in language similarity, finding that these are significant in explaining changes in vote shares.

Melanie Wasserman, University of California, Los Angeles

Gender Differences in Politician Persistence

Why are women underrepresented in politics? Wasserman documents gender differences in the career paths of novice politicians by studying the persistence of candidates after they win or lose elections. Wasserman tracks the political trajectories of over 11,000 candidates in local California elections and use a regression discontinuity approach. Losing an election causes 50 percent more attrition among female than male candidates: An electoral loss causes men to be 16 percentage points less likely to run again within the next four years, whereas the drop for women is 25 percentage points. Yet the gender gap in persistence depends on the setting: Wasserman finds no evidence of a gap among candidates for high female representation offices or among more experienced candidates. These results are inconsistent with behavioral explanations of women's differential attrition. Instead, the results suggest that in low information environments, voters may penalize novice female politicians, which deters women from running again. Wasserman discusses the implications of the results for the gender gap in office-holding.

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