In this study, we examine the factors that determine the adoption of state economic development incentives in the ethanol industry. We compile data on the implementation dates for subsidies/tax credits for all states for the years 1984–2007, a period that covers the complete emergence of the biofuel industry in the United States and that was characterized by the passage of numerous state-level subsidies and tax breaks aimed at increasing ethanol production. Using Cox proportional hazard regression analysis, we find that states are more likely to adopt ethanol subsidies when corn production is high, when corn prices are low and gasoline prices are high, when a state is affiliated with the National Corn Growers Association, when a check-off is present, when a state has a high environmental score, and when state government is under the control of Democrats.

What impact does party fragmentation have on the likelihood of democracies to run a fiscal deficit? Past research is almost unanimous in finding that as the number of parties in a country's legislature or government grows, so does its probability of overspending. However, this finding is based largely on parliamentary systems, and there is no reason to believe that it should hold when executives are independent. In this article, I develop a theory for the impact of legislative fragmentation on budgetary politics in presidential democracies. I argue that unified presidential systems should tend most toward fiscal solvency but that increasing fragmentation should actually facilitate budget balancing when government is divided. The logic is that presidents, who are likely to prefer balanced budgets due to their broad constituencies, will be better able to craft acceptable governing coalitions from divided legislatures than from ones controlled by a single opposing party. They will also be better able to circumvent such fragmented legislatures should a coalition prove impossible. I test these propositions quantitatively in all presidential democracies from 1976 to 2007. The results provide support for the theory and highlight the contrasting impact of legislative fragmentation on public policy in presidential vs. parliamentary systems.

This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food. In the small-country case, when the tax on crude is not available as a policy option, a second-best biofuel subsidy may or may not be positive. In the large-country case, the twin objectives of pollution reduction and terms-of-trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms-of-trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.

Financial contributions to the EU budget depend basically on official GDP. This means that countries with higher shadow economic activity contribute less than they should contribute in a system based on actual GDP and therefore could reduce their incentive to fight against such activities. In this paper we investigate if the EU financing system really has an influence on the intensity with which governments in EU member states fight against shadow economic activity. We find that the EU net contributors significantly fight more intensively against shadow economic activity while EU net receivers fight less. As a result, shadow economic activity is higher in net receiver and lower in net contributor countries than it were in comparison with a scenario of nationally balanced EU funding. Quantitatively and averaged over the time period 2001–2007, the diagnosed effect amounts to a stimulation of hidden economic activity by almost 10% for particular economies.

Independent central banks are thought to be effective inflation hawks because they are run by technocrats with conservative monetary policy preferences. However, central bankers can only protect their independence by compromising with the elected officials who grant them their independence. Policy, therefore, is likely to be a weighted average of the preferences of the central bank and the government. Consequently, central bankers may be eager to help right-wing governments stay in power and oppose the election of left-wing governments. We show evidence from the United States that interest rates (a) decline as elections approach when Republicans control the White House, but rise when Democrats do; and (b) are sensitive to the inflation rate (output gap) when Democrats (Republicans) are in the White House. Thus, the Federal Reserve is a conditional inflation hawk. Since the Fed became operationally independent in 1951, the Republicans have exhibited a decided electoral advantage in presidential politics.

What are the main causes of international terrorism? Despite the meticulous examination of various candidate explanations, existing estimates still diverge in sign, size, and significance. This article puts forward a novel explanation and supporting evidence. We argue that domestic political instability provides the learning environment needed to successfully execute international terror attacks. Using a yearly panel of 123 countries over 1973–2003, we find that the occurrence of civil wars increases fatalities and the number of international terrorist acts by 45%. These results hold for alternative indicators of political instability, estimators, subsamples, subperiods, and accounting for competing explanations.

The form of contests for a single fixed prize can be determined by a designer who maximizes the contestants' efforts. This article establishes that, under common knowledge of the two asymmetric contestants' prize valuations, a fair Tullock-type endogenously determined lottery is always superior to an all-pay-auction; it yields larger expected efforts (revenues) for the contest designer. If the contest can be unfair (structural discrimination is allowed), then the designer's payoff under the optimal lottery is equal to his expected payoff under the optimal all-pay auction.

This article shows that large outmigration of labor leads to finite changes in the structure of production at source. We argue that sectors may vanish as they cannot pay higher wages consequent to emigration. We also inquire whether emigration of one type of labor hurts the other non-emigrating type in this setup. Various situations when real incomes of the emigrating and the non-emigrating types do not move together are demonstrated. This generalizes some of the existing results in the literature. In particular, emigration can lead to a drastic change in the degree of inequality depending on which of the sectors survive in the postemigration regime.

Ascertaining whether local election results are driven by incumbents' performance while in office or mechanically reflect constituencies' ideological affiliation and macroeconomic conditions is crucial for evaluating the alleged accountability-enhancing property of decentralization. On the basis of a unique score of urban environmental performance and the results of all elections held in the major Italian cities over a decade, we investigate the role of local (fiscal and environmental) vs. national issues in municipal elections. Although the empirical evidence points to a strong ideological attachment and a somewhat weaker “fiscal conservatism,” it reveals that media reported environmental rankings have an impact on the popularity of city governments.

This article investigates economic factors and non-economic factors of individual attitudes toward free-trade agreements with different countries. Based on the Stolper–Samuelson theorem, highly skilled workers in Taiwan should be more supportive of free trade with China and less supportive of free trade with the United States than should unskilled workers in Taiwan. Using survey data from Taiwan, we find that highly educated people in Taiwan are more supportive of free trade with both the United States and China, and the effects of education are much stronger with respect to free trade with China. We also find that individual risk attitudes, national identity, and ethnicity play important roles in explaining trade preferences.

I investigate if political alignment between central and local governments brings financial benefit to local governments, using financial data from Portuguese municipalities (1992–2005). I use regression discontinuity design to determine the effect of political alignment per se on transfers to municipalities. Municipalities aligned with the central government receive 19% more targetable transfers than unaligned municipalities. I test for electoral motivation of this transfer bias: extra transfers increase the vote share of incumbents in local elections for one of the two Portuguese major parties; however, municipal incumbency does not lead to better results in national elections.