Matakos, Konstantinos and Xefteris, Dimitrios (2011) The politics of unemployment and electoral fractionalization : empirical evidence from OECD countries on the "hostage voter" effect. In: 10th Conference on Research on Economic Theory & Econometrics, Milos, 10-14 Jul 2011 (Unpublished)

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Abstract

The impact of unemployment on electoral outcomes has always been of interest for both researchers and politicians. In this paper, we study the e¤ect of unemployment on electoral fractionalization employing a multi-party model with two dimensions of choice (policy and ideology). We show that electoral fractionalization decreases as unemployment increases. In equilibrium, unemployed voters have stronger incentives to vote for the parties making the most popular policy promises (high public spending), despite potential ideological divergence. That is, they are held "hostages". We also test our hypothesis in a sample of OECD economies, from 1960-2007, using oil price shocks as an instrument for unemployment. The results yield statistically significant support for the "Hostage-voter" hypothesis. We find that an 1% increase in the unemployment rate is associated with a 2% decrease in fractionalization. Moreover, results are robust under many alternative specifications. This documented negative relationship between unemployment and electoral fractionalization, hints the possibility that dominant parties might have a stronger preferecne for policies aiming at fiscal discipline over unemployment reduction.

Item Type:	Conference Item (Paper)
Subjects:	H Social Sciences > HB Economic Theory J Political Science > JZ International relations
Divisions:	Faculty of Social Sciences > Economics
Date:	14 July 2011
Status:	Not Peer Reviewed
Publication Status:	Unpublished
Funder:	A.G. Leventis Foundation
Version or Related Resource:	Matakosy, Konstantinos and Xefteris, Dimitrios (2011). The politics of unemployment and electoral fractionalization : empirical evidence from OECD countries on the "hostage voter" effect. In: 2011 Summer School : Market Failure and Market Design. Louvain-la-Neuve, 23-26 May 2011.
Conference Paper Type:	Paper
Title of Event:	10th Conference on Research on Economic Theory & Econometrics
Type of Event:	Conference
Location of Event:	Milos
Date(s) of Event:	10-14 Jul 2011
Related URLs:	Organisation Other
URI:	http://wrap.warwick.ac.uk/id/eprint/45784

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