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 Europeanisation of the measurement of diversity in education: a soft instrument of public policy

Faced with an increasing number of data and rankings, the author questions the roles of the different groups of actors who were originally involved in questioning the use of statistical indicators as a means of addressing issues of access to higher education. The comparison and nature of these international (UNESCO, OECD, EUROSTAT) and national (Germany, England, France, Switzerland) indicators in matters of inequalities of access to higher education question the tension between the discourses and the indicators they generate, and their recording at the national level. Who says what and with what consequences? What range of actors are involved in this process? What kind of power relations forms them? The author discusses how the issue of inequalities of access to higher education got on to the agendas of European organisations, identifies the policies that were defined, and sets them against an array of indicators, showing the discrepancy between the discourses and what the indicators reveal, the gap between the recommendations and the available tools. Why is there such a contrast? What are the mechanisms at work? Is it a technical or a political problem? What does this discrepancy reveal as far as national specificities within the construction of social inequalities are concerned?

The policy-making structure of European regulatory networks and the domestic adoption of standards

European regulatory networks (ERNs) constitute the main governance instrument for the informal co-ordination of public regulation at the European Union (EU) level. They are in charge of co-ordinating national regulators and ensuring the implementation of harmonized regulatory policies across the EU, while also offering sector-specific expertise to the Commission. To this aim, ERNs develop 'best practices' and benchmarking procedures in the form of standards, norms and guidelines to be adopted in member states. In this paper, we focus on the Committee of European Securities Regulators and examine the consequences of the policy-making structure of ERNs on the domestic adoption of standards. We find that the regulators of countries with larger financial industries tend to occupy more central positions in the network, especially among newer member states. In turn, network centrality is associated with a more prompt domestic adoption of standards.

Hospital admission rates for alcoholic intoxication after policy changes in the canton of Geneva, Switzerland.

Background: In February, 2005, the canton of Geneva in Switzerland prohibited the off-premise sale of alcoholic beverages between 9pm and 7am, and banned their sale in gas stations and video stores. The aim of this study is to assess the impact of this policy change on hospital admission rates for alcoholic intoxication.Methods: An interrupted time series analysis of this natural experiment was performed with data on hospitalisations for acute alcoholic intoxication during the 2002-2007 period. The canton of Geneva was treated as the experimental group, while all other Swiss cantons were used as the control group.Results: In the experimental site, the policy change was found to have a significant effect on admission rates among adolescents and young adults. Depending on the age group, hospitalisation rates for alcoholic intoxication fell by an estimated 25-40% as the result of restricted alcohol availability.Conclusions: Modest restrictions on opening hours and the density of off-premise outlets were found to be of relevance for public health in the canton of Geneva. In light of this finding, policy makers should consider such action as a promising approach to alcohol prevention. (C) 2011 Elsevier Ireland Ltd. All rights reserved.

Are the Policy Preferences of Relatively Poor Citizens Under-represented in the Swiss Parliament?

The principle of equal political representation can be undermined by differences in economic resources among citizens. Poor citizens are likely to hold policy preferences that differ from those of richer citizens. At the same time, their lack of resources can have as a consequence that these preferences are not taken into consideration by their representatives. Focusing on the case of the Swiss Parliament and using survey data on the opinions of citizens and MPs in the 2007-2011 legislature, this study investigates whether the income of citizens systematically affects the proximity of their policy preferences with stances of their representatives. It demonstrates that on economic issues MPs hold preferences that are generally less in favour of the state's intervention in the economy than the median citizen and that relatively poor citizens are less well represented as compared to citizens with high incomes. This remains true when taking into account only the opinions of the most knowledgeable citizens among these groups as well as when the focus is only on those who turned out to vote.

Taking "Galton's problem" Seriously : Towards a Theory of Policy Diffusion

This article builds on the recent policy diffusion literature and attempts to overcome one of its major problems, namely the lack of a coherent theoretical framework. The literature defines policy diffusion as a process where policy choices are interdependent, and identifies several diffusion mechanisms that specify the link between the policy choices of the various actors. As these mechanisms are grounded in different theories, theoretical accounts of diffusion currently have little internal coherence. In this article we put forward an expected-utility model of policy change that is able to subsume all the diffusion mechanisms. We argue that the expected utility of a policy depends on both its effectiveness and the payoffs it yields, and we show that the various diffusion mechanisms operate by altering these two parameters. Each mechanism affects one of the two parameters, and does so in distinct ways. To account for aggregate patterns of diffusion, we embed our model in a simple threshold model of diffusion. Given the high complexity of the process that results, strong analytical conclusions on aggregate patterns cannot be drawn without more extensive analysis which is beyond the scope of this article. However, preliminary considerations indicate that a wide range of diffusion processes may exist and that convergence is only one possible outcome.

Insight into oversight : how information commissioners contribute to the achievement of access-to-information policy objectives

This thesis examines how oversight bodies, as part of an ATI policy, contribute to the achievement of the policy's objectives. The aim of the thesis is to see how oversight bodies and the work they do affects the implementation of their respective ATI policies and thereby contributes to the objectives of those policies using a comparative case study approach. The thesis investigates how federal/central government level information commissioners in four jurisdictions - Germany, India, Scotland, and Switzerland - enforce their respective ATI policies, which tasks they carry out in addition to their enforcement duties, the challenges they face in their work and the ways they overcome these. Qualitative data were gathered from primary and secondary documents as well as in 37 semi-structured interviews with staff of the commissioners' offices, administrative officials whose job entails complying with ATI, people who have made ATI requests and appealed to their respective oversight body, and external experts who have studied ATI implementation in their particular jurisdiction. The thesis finds that while the aspect of an oversight body's formal independence that has the greatest impact on its work is resource control and that although the powers granted by law set the framework for ensuring that the administration is properly complying with the policy, the commissioner's leadership style - a component of informal independence - has more influence than formal attributes of independence in setting out how resources are obtained and used as well as how staff set priorities and utilize the powers they are granted by law. The conclusion, therefore, is that an ATI oversight body's ability to contribute to the achievement of the policy's objectives is a function of three main factors: a. commissioner's leadership style; b. adequacy of resources and degree of control the organization has over them; c. powers and the exercise of discretion in using them. In effect, the thesis argues that it is difficult to pinpoint the value of the formal powers set out for the oversight body in the ATI law, and that their decisions on whether and how to use them are more important than the presumed strength of the powers. It also claims that the choices made by the commissioners and their staff regarding priorities and use of powers are determined to a large extent by the adequacy of resources and the degree of control the organization has over those resources. In turn, how the head of the organization leads and manages the oversight body is crucial to both the adequacy of the organization's resources and the decisions made about the use of powers. Together, these three factors have a significant impact on the body's effectiveness in contributing to ATI objectives.