Exploiting the Bare Necessities: Unemployment, Redistribution and Party-System Fragmentation

83 Pages Posted: 8 Aug 2013

See all articles by Konstantinos Matakos

Konstantinos Matakos

King's College London, Dept. of Political Economy

Dimitrios Xefteris

University of Cyprus

Date Written: 2013

Abstract

Previous literature has studied the effect of political institutions on economic outcomes. We construct a multi-party model of redistributive politics with office and policy motivated parties that compete in two dimensions (economic and social policies) to explore the opposite direction of this relationship: the economic origins of party-system and electoral fragmentation (distribution of electoral power among parties). We uncover a U-shaped relationship between unemployment and fragmentation. We show that when institutional arrangements that restrict electorally motivate redistribution are absent, large parties can capitalize on this electorally and woo the unemployed, who are relatively more willing to switch their votes in response to generous redistribution. Hence, in contrast to protest or retrospective voting theories, fragmentation initially decreases in unemployment. By highlighting the electoral motivations (special interest politics) for redistribution, we show the limitations of inclusive economic and political institutions: they can lead to either less power-sharing or increased support for extremists.

Keywords: electoral fragmentation, unemployment, redistributive politics, taxation, public spending, economic voting, instrumental variables, institutional constraints

JEL Classification: C23, D72, H23

Suggested Citation

Matakos, Konstantinos and Xefteris, Dimitrios, Exploiting the Bare Necessities: Unemployment, Redistribution and Party-System Fragmentation (2013). APSA 2013 Annual Meeting Paper; American Political Science Association 2013 Annual Meeting. Available at SSRN: https://ssrn.com/abstract=2302127

Konstantinos Matakos (Contact Author)

King's College London, Dept. of Political Economy ( email )

Strand Campus
London, WC2R 2LS
United Kingdom

HOME PAGE: http://https://sites.google.com/site/kostasmatakos/

Dimitrios Xefteris

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus

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