Three Essays on the Formation and Impact of Economic Policy

Introduction In my thesis I argue that economic policy is all about economics and politics. Consequently, analysing and understanding economic policy ideally has at least two parts. The economics part, which is centered around the expected impact of a specific policy on the real economy both in terms of efficiency and equity. The insights of this part point into which direction the fine-tuning of economic policies should go. However, fine-tuning of economic policies will be most likely subject to political constraints. That is why, in the politics part, a much better understanding can be gained by taking into account how the incentives of politicians and special interest groups as well as the role played by different institutional features affect the formation of economic policies. The first part and chapter of my thesis concentrates on the efficiency-related impact of economic policies: how does corporate income taxation in general, and corporate income tax progressivity in specific, affect the creation of new firms? Reduced progressivity and flat-rate taxes are in vogue. By 2009, 22 countries are operating flat-rate income tax systems, as do 7 US states and 14 Swiss cantons (for corporate income only). Tax reform proposals in the spirit of the "flat tax" model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. In joint work, Marius Brülhart and I explore the implications of changes in these three parameters on entrepreneurial activity, measured by counts of firm births in a panel of Swiss municipalities. Our results show that lower average tax rates and reduced complexity of the tax code promote firm births. Controlling for these effects, reduced progressivity inhibits firm births. Our reading of these results is that tax progressivity has an insurance effect that facilitates entrepreneurial risk taking. The positive effects of lower tax levels and reduced complexity are estimated to be significantly stronger than the negative effect of reduced progressivity. To the extent that firm births reflect desirable entrepreneurial dynamism, it is not the flattening of tax schedules that is key to successful tax reforms, but the lowering of average tax burdens and the simplification of tax codes. Flatness per se is of secondary importance and even appears to be detrimental to firm births. The second part of my thesis, which corresponds to the second and third chapter, concentrates on how economic policies are formed. By the nature of the analysis, these two chapters draw on a broader literature than the first chapter. Both economists and political scientists have done extensive research on how economic policies are formed. Thereby, researchers in both disciplines have recognised the importance of special interest groups trying to influence policy-making through various channels. In general, economists base their analysis on a formal and microeconomically founded approach, while abstracting from institutional details. In contrast, political scientists' frameworks are generally richer in terms of institutional features but lack the theoretical rigour of economists' approaches. I start from the economist's point of view. However, I try to borrow as much as possible from the findings of political science to gain a better understanding of how economic policies are formed in reality. In the second chapter, I take a theoretical approach and focus on the institutional policy framework to explore how interactions between different political institutions affect the outcome of trade policy in presence of special interest groups' lobbying. Standard political economy theory treats the government as a single institutional actor which sets tariffs by trading off social welfare against contributions from special interest groups seeking industry-specific protection from imports. However, these models lack important (institutional) features of reality. That is why, in my model, I split up the government into a legislative and executive branch which can both be lobbied by special interest groups. Furthermore, the legislative has the option to delegate its trade policy authority to the executive. I allow the executive to compensate the legislative in exchange for delegation. Despite ample anecdotal evidence, bargaining over delegation of trade policy authority has not yet been formally modelled in the literature. I show that delegation has an impact on policy formation in that it leads to lower equilibrium tariffs compared to a standard model without delegation. I also show that delegation will only take place if the lobby is not strong enough to prevent it. Furthermore, the option to delegate increases the bargaining power of the legislative at the expense of the lobbies. Therefore, the findings of this model can shed a light on why the U.S. Congress often practices delegation to the executive. In the final chapter of my thesis, my coauthor, Antonio Fidalgo, and I take a narrower approach and focus on the individual politician level of policy-making to explore how connections to private firms and networks within parliament affect individual politicians' decision-making. Theories in the spirit of the model of the second chapter show how campaign contributions from lobbies to politicians can influence economic policies. There exists an abundant empirical literature that analyses ties between firms and politicians based on campaign contributions. However, the evidence on the impact of campaign contributions is mixed, at best. In our paper, we analyse an alternative channel of influence in the shape of personal connections between politicians and firms through board membership. We identify a direct effect of board membership on individual politicians' voting behaviour and an indirect leverage effect when politicians with board connections influence non-connected peers. We assess the importance of these two effects using a vote in the Swiss parliament on a government bailout of the national airline, Swissair, in 2001, which serves as a natural experiment. We find that both the direct effect of connections to firms and the indirect leverage effect had a strong and positive impact on the probability that a politician supported the government bailout.

The de facto independence of regulatory agencies and its consequences for policy making and regulatory outcomes

This dissertation focuses on the practice of regulatory governance, throughout the study of the functioning of formally independent regulatory agencies (IRAs), with special attention to their de facto independence. The research goals are grounded on a "neo-positivist" (or "reconstructed positivist") position (Hawkesworth 1992; Radaelli 2000b; Sabatier 2000). This perspective starts from the ontological assumption that even if subjective perceptions are constitutive elements of political phenomena, a real world exists beyond any social construction and can, however imperfectly, become the object of scientific inquiry. Epistemologically, it follows that hypothetical-deductive theories with explanatory aims can be tested by employing a proper methodology and set of analytical techniques. It is thus possible to make scientific inferences and general conclusions to a certain extent, according to a Bayesian conception of knowledge, in order to update the prior scientific beliefs in the truth of the related hypotheses (Howson 1998), while acknowledging the fact that the conditions of truth are at least partially subjective and historically determined (Foucault 1988; Kuhn 1970). At the same time, a sceptical position is adopted towards the supposed disjunction between facts and values and the possibility of discovering abstract universal laws in social science. It has been observed that the current version of capitalism corresponds to the golden age of regulation, and that since the 1980s no government activity in OECD countries has grown faster than regulatory functions (Jacobs 1999). Following an apparent paradox, the ongoing dynamics of liberalisation, privatisation, decartelisation, internationalisation, and regional integration hardly led to the crumbling of the state, but instead promoted a wave of regulatory growth in the face of new risks and new opportunities (Vogel 1996). Accordingly, a new order of regulatory capitalism is rising, implying a new division of labour between state and society and entailing the expansion and intensification of regulation (Levi-Faur 2005). The previous order, relying on public ownership and public intervention and/or on sectoral self-regulation by private actors, is being replaced by a more formalised, expert-based, open, and independently regulated model of governance. Independent regulation agencies (IRAs), that is, formally independent administrative agencies with regulatory powers that benefit from public authority delegated from political decision makers, represent the main institutional feature of regulatory governance (Gilardi 2008). IRAs constitute a relatively new technology of regulation in western Europe, at least for certain domains, but they are increasingly widespread across countries and sectors. For instance, independent regulators have been set up for regulating very diverse issues, such as general competition, banking and finance, telecommunications, civil aviation, railway services, food safety, the pharmaceutical industry, electricity, environmental protection, and personal data privacy. Two attributes of IRAs deserve a special mention. On the one hand, they are formally separated from democratic institutions and elected politicians, thus raising normative and empirical concerns about their accountability and legitimacy. On the other hand, some hard questions about their role as political actors are still unaddressed, though, together with regulatory competencies, IRAs often accumulate executive, (quasi-)legislative, and adjudicatory functions, as well as about their performance.

Life-threatening versus non-life-threatening manual strangulation: are there appropriate criteria for MR imaging of the neck?

The aim of the study was to determine objective radiological signs of danger to life in survivors of manual strangulation and to establish a radiological scoring system for the differentiation between life-threatening and non-life-threatening strangulation by dividing the cross section of the neck into three zones (superficial, middle and deep zone). Forensic pathologists classified 56 survivors of strangulation into life-threatening and non-life-threatening cases by history and clinical examination alone, and two blinded radiologists evaluated the MRIs of the neck. In 15 cases, strangulation was life-threatening (27%), compared with 41 cases in which strangulation was non-life-threatening (73%). The best radiological signs on MRI to differentiate between the two groups were intramuscular haemorrhage/oedema, swelling of platysma and intracutaneous bleeding (all p = 0.02) followed by subcutaneous bleeding (p = 0.034) and haemorrhagic lymph nodes (p = 0.04), all indicating life-threatening strangulation. The radiological scoring system showed a sensitivity and specificity of approximately 70% for life-threatening strangulation, when at least two neck zones were affected. MRI is not only helpful in assessing the severity of strangulation, but is also an excellent documentation tool that is even admissible in court.

Intraobserver and interobserver variability of ascending aorta diameter as assessed with ECG-gated MDCT: automatic versus manual measurements

Purpose: Recently morphometric measurements of the ascending aorta have been done with ECG-gated MDCT to help the development of future endovascular therapies (TCT) [1]. However, the variability of these measurements remains unknown. It will be interesting to know the impact of CAD (computer aided diagnosis) with automated segmentation of the vessel and automatic measurements of diameter on the management of ascending aorta aneurysms. Methods and Materials: Thirty patients referred for ECG-gated CT thoracic angiography (64-row CT scanner) were evaluated. Measurements of the maximum and minimum ascending aorta diameters were obtained automatically with a commercially available CAD and semi-manually by two observers separately. The CAD algorithms segment the iv-enhanced lumen of the ascending aorta into perpendicular planes along the centreline. The CAD then determines the largest and the smallest diameters. Both observers repeated the automatic measurements and the semimanual measurements during a different session at least one month after the first measurements. The Bland and Altman method was used to study the inter/intraobserver variability. A Wilcoxon signed-rank test was also used to analyse differences between observers. Results: Interobserver variability for semi-manual measurements between the first and second observers was between 1.2 to 1.0 mm for maximal and minimal diameter, respectively. Intraobserver variability of each observer ranged from 0.8 to 1.2 mm, the lowest variability being produced by the more experienced observer. CAD variability could be as low as 0.3 mm, showing that it can perform better than human observers. However, when used in nonoptimal conditions (streak artefacts from contrast in the superior vena cava or weak lumen enhancement), CAD has a variability that can be as high as 0.9 mm, reaching variability of semi-manual measurements. Furthermore, there were significant differences between both observers for maximal and minimal diameter measurements (p<0.001). There was also a significant difference between the first observer and CAD for maximal diameter measurements with the former underestimating the diameter compared to the latter (p<0.001). As for minimal diameters, they were higher when measured by the second observer than when measured by CAD (p<0.001). Neither the difference of mean minimal diameter between the first observer and CAD nor the difference of mean maximal diameter between the second observer and CAD was significant (p=0.20 and 0.06, respectively). Conclusion: CAD algorithms can lessen the variability of diameter measurements in the follow-up of ascending aorta aneurysms. Nevertheless, in non-optimal conditions, it may be necessary to correct manually the measurements. Improvements of the algorithms will help to avoid such a situation.