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9 March 2021. Go Vote!
On March 17th, we have parliamentary elections in the Netherlands. And therefore, I’d like to share with you the joke of that economics professor who went out to vote.
He didn’t go.
Well, that is, if you believe the rational choice voting theory of Anthony Downs (Downs, 1957). According to Downs, the professor realizes that the benefit of voting does not outweigh the costs of travelling to the voting station, since her/his vote is most likely not going to be decisive for the election outcome.
There is a problem though. According to this theory nobody would vote. Yet, in reality we do observe massive turnout in large democratic elections. Since the theory is at odds with what is observed in reality, it is better known as the “Downsian Paradox” or “the paradox that ate rational choice theory.”
Throughout the years, a number of theories have been proposed to overcome the Downsian Paradox. These theories have widened the range of determinants in the cost-benefit analysis by including phenomena like warm-glow, altruism, peer-pressure, and expressive behavior. In particular, expressive behavior is a determinant that is widely studied and together with Rasmus Wiese, I also added my 2 cents (Wiese and Jong-A-Pin, 2017).
Even though it makes a lot of sense to include these non-monetary factors into a cost-benefit analysis, a dissatisfying feature of these theories is that they impose the solution to the paradox in an ad-hoc way. Naturally, there also have been studies that tried to overcome this ad hocery. These studies use game theory and are very successful in explaining voter turnout for small elections. However, they still perform poorly in explaining voter turnout for large elections.
In a recent research article published in the Journal of Economic Behavior and Organization, Oliver Herrmann, Bert Schoonbeek and I combine the aforementioned strands of research and present a prospect-theory model of voter turnout (Herrmann et al., 2019). On the one hand, we rely on a game-theoretic framework and, on the other hand, we depart from the standard rational choice approach by including prospect-theory preferences that replace standard expected- utility preferences. Central to prospect theory is that individuals evaluate perceived losses in a different way than perceived gains, and whether outcomes are perceived as gains or losses depends on a subjective reference point. Furthermore, individuals assign subjective (biased) weights to objective probabilities using non-standard weighting functions.
Our behavioral model provides new insight in the voting decision individuals make. We find that the reference point of an individual has a large impact on the propensity to vote. That is, individuals with a reference point corresponding to the act of voting have a much higher likelihood to vote than those whose reference point is based on the act of abstaining. This implies that if you believe that voting is your civic duty, then you are more likely to vote in comparison to people that lack civil duty. Even if you are (most likely) not going to influence the election outcome!
Another interesting finding is that non-standard probability weighting (as opposed to the assumption of voters using objective probabilities) leads turnout to decrease at a slower pace and leads to higher turnout predictions in larger electorates. This is because individuals tend to overvalue small probabilities. Consequently, the (small) chance of being pivotal in large elections is overweighted, turnout is increased, and the Downsian result is way less strong.
Now you may wonder what the conclusion is of this blog in which I briefly presented our prospect-theory model of voter turnout.
Here it is: Go Vote! It may not be rational in the traditional sense, but it is very human to do so!
References:
Herrmann, O., Jong-A-Pin, R., Schoonbeek, L., 2019. "A prospect theory model of voter turnout", Journal of Economic Behavior and Organization, 168: 362-373.
Wiese, R., Jong-A-Pin, R., 2017. “Expressive voting and political ideology in a laboratory democracy.” European Journal of Political Economy, 50: 54-74.
Downs, A., 1957. An Economic Theory of Democracy. Harper and Brothers, New York.
31 May 2019. Do fiscal rules constrain political budget cycles?
One of the main premises in the study of Public Choice is that politicians may serve other interests than the general interest. A prime example is the phenomenon that incumbent governments adopt expansionary fiscal policy in election years to increase their chances of re-election. The cycles in government spending, taxation, and budget deficits as a consequence of opportunistic political behavior are known as “political budget cycles” (PBC’s). However, the use of fiscal policy to “buy” votes is often inefficient and can be harmful for the economy, in particular when the economy would benefit from counter-cyclical policy.
In recent years, the focus of the research on political budget cycles has shifted from the question whether PBC’s occur towards the question under which circumstances do PBC’s occur. Even though this literature on so-called conditional political budget cycles is flourishing, till date no study has investigated the constraining impact of fiscal rules on the occurrence of PBC’s. This is rather surprising because fiscal rules are created to constrain fiscal policy through numerical aggregates.
Fiscal rules can be implemented in different forms. The Netherlands, for example, have installed expenditure rules, revenue rules, and balanced budget rules on a national level. Furthermore, since the Netherlands are a member of the European Economic and Monetary Union (EMU), it faces also the fiscal rules that are part of the Stability and Growth Pact. On the other hand, countries like Switzerland and Norway (both not part of EMU) only have installed national balanced budget rules, whereas countries like Canada or Turkey do not use fiscal rules.
In a recent Working Paper of De Nederlandsche Bank (Gootjes, de Haan and Jong-A-Pin, 2019), we have studied the moderating role of fiscal rules in the relationship between elections and expansionary fiscal policies. We examined whether fiscal rules are an effective tool to constrain opportunistic political behavior in election times. In our study we use data for 77 (advanced and developing) democracies over the 1984-2015 and a new database on fiscal rules from the International Monetary Fund. We find that political budget cycles only occur in countries with weak fiscal rules or in countries with no fiscal rule at all. Hence, fiscal rules efficiently restrain politicians not to overspend in election years and once they become sufficiently strong, we do not see a significant impact of elections on the government budget. Our findings are remarkably robust if we control for other dominant explanations why PBC’s occur such as the degree of media freedom in a country.
The evidence we report in our paper holds primarily for the period after the global financial crisis of 2007-2008. In the aftermath of the global financial crisis, public finances deteriorated in most countries and fiscal variables more often reached or even surpassed the budgetary limits laid down in the fiscal rules. As a consequence, many countries responded by strengthening their fiscal frameworks and adopted more fiscal rules. We find that prior to the global financial crisis, fiscal rules do not seem to dampen political budget cycles, but after the crisis fiscal rules strongly affect the opportunistic behaviour of incumbent governments in election years. We think that a strengthening of the fiscal frameworks after the crisis and the fact that fiscal rules started to ‘bite’ more often lowered the room for fiscal maneuver for electoral purposes.
References
Gootjes, B., de Haan, J. and Jong-A-Pin, R. (2019). Do fiscal rules constrain political budget cycles? DNB Working Paper, no 634 / May 2019. De Nederlandsche Bank.
15 March 2018. Successful fiscal adjustments can also be achieved by raising taxes
Since fiscal policies in several countries across the world have become unsustainable, it has become inevitable that governments should reduce their indebtedness. Consequently, policy debates no longer focus on the question whether the fiscal house should be in order; instead they focus on how it should be made in order.
A dominant view in the economic literature is that fiscal adjustment packages that are most likely to reduce debt in the long-run are those that are heavily weighted toward spending reductions and not tax increases. In a forthcoming paper (Wiese, Jong-A-Pin and de Haan, 2018), we have re-examined this view. We have done so because we believe that previous studies have overlooked the importance of the variability of the budget balance within countries when identifying (successful) fiscal adjustments. In our view, disregarding this volatility is not innocuous.
In the economic literature, a fiscal adjustment is defined as a discretionary and significant decline in the general government’s budget balance. Significant in this case does not refer to statistical significance, but rather whether the change in the cyclically adjusted (primary) budget balance exceeds some subjectively selected threshold. Likewise, the success of an adjustment is, generally, based on the lasting effect the adjustment program has on reducing the government debt-to-GDP ratio and/or the budget deficit-to-GDP ratio, again based on some (subjectively selected) threshold. While we do fully agree that the definition should capture both the discretionary part as well as the “significance” part, we object the use of subjectively selected thresholds.
That is, in our paper, we argue that using the same subjectively selected threshold for every country is misleading as it fails to take into account that the budgetary processes in some countries may lead to a much more volatile budget balance than those in other countries. As such, a filter that does not consider volatility is prone to identify fiscal adjustments that are the result of the budgetary institutions in place (or other factors driving fiscal policy volatility), rather than deliberate attempts of politicians to improve the budget balance. An example, as we show in our study, would be Italy. However, the reverse is also true. In countries where the budgetary process leads to less volatile policy outcomes, such as in Switzerland, existing filters are less likely to detect significant changes in fiscal policy.
To overcome this problem, we apply an econometric technique (i.e., the Bai and Perron Structural Break filter) that does take volatility in the budget balance within a country into account. The episodes of (successful) fiscal adjustments that we identify differ substantially from previous work. More importantly, when we estimate the effect of the importance of expenditure-based adjustments relative to tax-based adjustments for the success of a fiscal adjustment, we find that the results also differ substantially. That is, our results suggest that the composition of the fiscal adjustment, i.e. whether it is spending- or revenue-based, does not affect the probability of its success.
We like to stress that our findings do not imply that fiscal adjustments should (always) be tax-based. In fact, there may be good reasons to prefer spending-based fiscal adjustments, but not that this will enhance the likelihood that the fiscal adjustment will be more successful than when it is tax-based.
Reference:
Wiese, R., Jong-A-Pin, R, and J. de Haan (2018). Can successful fiscal adjustments only be achieved spending cuts? European Journal of Political Economy, forthcoming.
15 November 2017. My TEDx Adventure
Just before the summer, I was invited to do a TED talk. A TED TALK!!! The mother of all public speaking events!
Since I love (the art of) public speaking and gave many presentation training sessions in the past, and, on top of that, I love challenges, and above everything else, it was an absolute honor to be asked, it was (of course) a no-brainer to accept the invitation.
In absolute secrecy and with the help of a professional speaker coach (facilitated by the TED crew), I started working on a presentation about "How we make low-cost decisions". The idea originates in the work that I have done with Rasmus Wiese on Expressive Voting.
Coming up with the idea was one thing, but coming up with a really good talk is another matter. In all, I rewrote my script 9 times, uploaded rehearsals on Youtube to obtain useful feedback 6 times from my coach, did a few try-outs, and rehearsed my talk about 60 times - if not more - in my office, in the shower, on my bike, whilst cleaning the house, etc, etc.
And then it was October 26... In a fully packed Stadsschouwburg in Groningen. I was superfreaking nervous, full of excitement, but confident. And what happened then, you can see below...
23 March 2017. Why Bother Voting Anyway?
A week after the Dutch elections, it is easy to find cynical observers making claims like: “I might as well not have voted, as my vote did not change the election outcome”.
Even though this observation is almost always correct in large scale elections, over 10 million Dutch citizens decided to cast their vote during the most recent parliamentary elections on March 15th.
In a new study that is forthcoming in the European Journal of Political Economy, we provide experimental evidence that expressive behaviour explains why people vote.
The paradox of why people cast a costly vote in large elections even though it is unlikely to be decisive has puzzled economists using rational choice theory (theories based on cost-benefit analysis). As far back as the 1950’s, Gordon Tullock proposed the idea underlying our research project.
In his article, “the charity of the uncharitable”, it is argued that moral beliefs will govern the voting decision when the chance that a single vote will impact the outcome is very low. When individual votes do not matter, individuals can disregard their economic preference when voting and vote according to their moral beliefs because it is costless to do so. These moral beliefs provide warm glow and confirm the identity of voters. In economic terms this is called moral or expressive utility.
In our paper we study expressive (moral) voting behaviour and relate it to political ideology. In an experiment, we asked participants whether they were willing to pay in order to vote and upon their payment, they were asked to vote in favour of their preferred stylized society. The first society has low-income inequality and low overall economic output, the second society has high inequality and high overall economic output. During the experiment we changed the size of the electorate and studied whether voters with clear ideological preferences behaved differently than voters without ideological preferences.
We found that participants with a strong ideological view were markedly more likely to participate in the laboratory election with many voters, compared to voters without clear ideological preferences. In settings with few voters this difference was almost absent.
Our results indicate that monetary considerations are not the only reason why people vote, but that moral beliefs also guide voters to participate in elections.
Further reading:
Wiese, R. and R. Jong-A-Pin. (2017). Expressive voting and political ideology in a laboratory democracy. European Journal of Political Economy. Forthcoming.
6 March 2017. De Verkiezingen en de Markt voor Ideologie
Met de verkiezingen in aantocht lijkt het gat tussen de leidende partijen in de peilingen kleiner te worden. Meer dan ooit rijst de vraag: wie wordt de grootste? Tot nu toe wijzen de peilingen nog altijd naar de VVD of de PVV, maar D66, CDA en GroenLinks zijn niet uitgeschakeld voor de overwinning. Hoewel het populisme in Nederland groter is dan ooit, stellen wij dat de economie de doorslag zal geven in de laatste fase van de campagne.
Recentelijk hebben wij onderzoek gedaan naar de ideologische voorkeuren van het Nederlandse electoraat. Uit ons onderzoek, te verschijnen in de Economische Statistische Berichten van 9 maart, blijkt dat politieke denkbeelden van kiezers allang niet meer links of rechts zijn. Daarentegen hebben kiezers voorkeuren met betrekking tot vier ideologische dimensies: herverdeling, marktwerking, zelfbeschikking en populisme/nationalisme. Laten we de huidige verkiezingsstrijd beschouwen als een markt waarin de politieke partijen fungeren als aanbieders en het electoraat als vragers van ideologie. Wanneer we onze classificatie toepassen om marktaandeel te analyseren blijkt dat er onder gevestigde partijen geen goede ideologische alternatieven zijn voor de PVV-kiezer.
De PVV is een monopolist op een uniek gedachtegoed, waar, zo het lijkt, een belangrijk deel van het electoraat behoefte aan heeft. De PVV heeft een sterke voorkeur voor nationalisme en populisme, is conservatief op sociaaleconomisch gebied, is voor economische gelijkheid en tegen marktwerking. De enige partij die ideologisch in de buurt komt is 50plus, maar zij is meer gematigd en richt zich bovendien alleen op ouderen.
Zoals in elke markt met monopolistische concurrentie kunnen aanbieders marktaandeel winnen door hun aanbod aan te passen. Zo ook in de politieke markt. Wij gebruiken onze ideologische dimensies hieronder om te analyseren op welke fronten partijen met elkaar kunnen, dan wel moeten, strijden.
De VVD biedt een alternatief voor kiezers met gematigde nationalistische en populistische denkbeelden. Echter, op economisch gebied is zij de tegenhanger van de PVV. Het is daarom onwaarschijnlijk dat de VVD een alternatief biedt voor de PVV-stemmer. Dit laatste geldt ook voor D66 en CDA. Hun beoogde kiezers geven aan dat zij tegenpolen zijn van de PVV-kiezer op het gebied van economische en nationalistische en populistische zaken. Zij zullen dus eerder met de VVD concurreren om hetzelfde deel van het electoraat.
GroenLinks en SP zijn wel alternatieven voor de PVV-kiezer op economisch vlak, maar zijn weer tegenhangers op sociale en vooral nationalistische zaken. Zij zullen geen partij zijn voor de potentiële PVV-aanhanger, tenzij ze meer populistische en nationalistische standpunten innemen. Echter zal een koerswijziging op deze gebieden ervoor zorgen dat de SP en vooral GroenLinks een substantieel deel van hun achterban verliezen. Hetzelfde geldt voor de PvdA, waarvan de overgebleven achterban min of meer het politieke midden op economisch gebied inneemt.
Op dit moment is dus geen gevestigde partij een ideologisch alternatief voor de PVV. Het is dan ook niet verwonderlijk dat nieuwe partijen zoals VNL en FvD de politieke arena zijn toegetreden. Tegelijkertijd concurreren de gevestigde partijen om de gunst van hetzelfde deel van het electoraat. Aangezien het aannemelijk is dat de andere partijen niet bereid zijn om zich nationalistischer en populistischer op te stellen, lijkt het erop dat de VVD en de PVV gaan bepalen wie de verkiezingen wint. Met name hun standpunten op economisch gebied zullen het verschil moeten maken. Waar de VVD zich moet richten op D66- en CDA-stemmers, zal de PVV moeten inzetten op de achterban van de SP en, in mindere mate, de PvdA en GroenLinks (en vice versa). Hoewel het populisme hoogtij viert in het politieke debat, zullen zeer waarschijnlijk de plannen voor de economie gaan bepalen wie er op 15 maart met de overwinning vandoor gaat.
Zie voor onderzoek: http://www.rug.nl/(...)rechts_ingehaald.pdf