Machiavellian Fair Play: Electoral Incentives to Implement Programmatic Transfers (under review)
If a welfare transfers policy is programmatic (it is non-partisan, transparent and persisting), is it irrelevant for politicians' electoral fortunes? I show that the answer is no with a political agency model where politicians' competence is uncertain to all. In my set-up, an incumbent politician can allocate a budget to public goods, which are informative about his competence, and programmatic transfers, which are not. When the incumbent increases the budget to public goods by reducing transfers, two effects arise: his performance in office today would reveal more information about his ability (an informativeness effect), and voters' anticipation of narrow transfers tomorrow would increase the salience of political selection (an stakes effect). I show that, from the incumbent's viewpoint, these two effects move in opposing directions and, consequently, the strategic allocation of the budget weakly helps him to advance his electoral fortunes —with the stakes effect broadly dominating the informativeness effect in equilibrium. Finally, I explain how existing studies on the effects of programmatic transfers are unlikely to be able to measure its electoral impact.
Merchants of Reputation: Privatization under Elites' Outside Lobbying
An economic elite wants to buy a public asset as cheaply as possible, whose ownership is decided by an incumbent politician who can be of high or low competence. The elite can exert influence through two channels: they can make a take-it-or-leave-it offer for the asset, and they can manipulate the information available to voters about the incumbent's competence. A key innovation of this paper is to consider that the elite's capacity to mobilise information can complement their buying offer: by attacking the incumbent (trying to uncover bad news about his competence before his decision to sell) or threatening him (menacing to uncover bad news if he refuses to sell), the elite can reduce the privatization prices. I show that the elite often (but not always) uses threats against a leading incumbent (one who has better reputation ex-ante than her challenger) and attacks against a trailing one. Surprisingly, I find that a better reputation can actually render an incumbent more susceptible to the elite's influence. The paper also highlights the large distortions induced by the elite's capacity to mobilise information about incumbent politicians.
Work in Progress
A Political Economy of Tax Evasion: Theory and Evidence (with Alberto Parmigiani)
An economic group wants to avoid getting caught in their evasion of taxes. To do so, they can employ two strategies. First, the group can invest in "brains": they choose the complexity of their tax evasion scheme, in order to reduce the chances that a tax inspector starts an audit against them —such as tactics to have their wealth hidden offshore. Second, they can invest in "muscles": to decrease the inspector's effort in searching for evidence that leads to their indictment, they choose a level of punishment —such as covert legal retaliation or smear campaigns. We show that there exists a threshold in the quality of institutions below which muscles and brains are complements, and above which they become substitutes —with brains eventually offsetting muscles. The equilibrium effect that the economic group’s strategies have on the chances of getting audited and on the tax inspector’s effort yields an empirically testable prediction: estimated tax evasion is non-monotonic along the quality of institutions. We provide evidence of this finding by building a panel dataset of estimated offshore wealth by individuals for 37 countries between 1992 to 2016. Aligned with the predictions of the theoretical model, we show that country estimates of international tax evasion display an inverted U-shape along measures of institutional quality regarding the enforcement of contracts, property rights, the police, and the courts. This relationship is robust to alternative specifications and additional controls.