Issue Emphasis & Opportunistic Redistribution in U.S. Presidential Elections

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1 Issue Emphasis & Opportunistic Redistribution in U.S. Presidential Elections Ioanna Grypari University of Minnesota PRELIMINARY & INCOMPLETE June 12, 2010 Abstract This paper examines how non-economic issues (such as national defense, abortion policy, etc.) are used by political candidates in order to attract votes and how they affect promised, and consequently implemented, economic policies of those candidates. To address this, I build a theory of political platforms, based on the probabilistic voting framework of Lindbeck and Weibull (1987), that endows politicians with tools to affect both economic and non-economic aspects of their platforms. Political candidates are able to make redistributive consumption promises and are also endowed with a unit of campaign time that they can spend across different issues, effectively emphasizing various dimensions of their platforms. Issue emphasis, can be thought of as a signal of a politician s commitment to enact her position on that dimension once in power. Empirically, I estimate the model to match over time changes in population preferences and demographic characteristics of U.S. constituents to changes in Presidential campaigns from 1960 to Using the structural estimates, I compare the quantitative predictions of my model to one with only one issue dimension, namely economic policy. I show that introducing the multi-dimensionality of a political platform, and endowing politicians with a richer set of instruments, improves our understanding of politicians tradeoffs and, consequently, of observed policy outcomes. I am grateful to Narayana Kocherlakota, Christopher Phelan and Aldo Rustichini for their help and encouragement. Thanks also go to Justin Barnette, Alan Drazen, Andy Glover, Yannis Ioannidis, Thomas Longwell, Stelios Michalopoulos, Ayca Ozdogan, Gina Pieters, Yuichiro Waki, Thomas Youle and Ker Zheng as well as to the participants of the Public Economics and Policy workshop at the University of Minnesota, for many helpful comments and suggestions. 1

2 1 Introduction Political economics has come a long way in explaining differences in economic policies across time and space, as the result of political competition. In standard pre-election models, opportunistic politicians set their economic platforms to target the preferences of voters in their quest to win an election. In fact, in most of the literature economic policy is the unique political tool of candidates. It is, however, the interaction of all aspects of a politician s agenda, both economic and other, that determine her election probability and, consequently, policy outcomes. In fact, we observe political candidates spending significant amounts of time and money campaigning on a variety of issues (tax policy, national defense, social issues, etc.). Setting economic policy for political targeting is relevant only to the extend that voters care about it with respect to other aspects of a politician s agenda. Theoretically, building upon the probabilistic voting framework of Lindbeck and Weibull (1987), I provide a theory of political platforms that endows political candidates with both economic and non-economic instruments for political targeting. In terms of non-economic issues, politicians positions are fixed by party affiliation, but they are endowed with campaign time that they are able to divide among these issues, and their economic policy campaigning, effectively emphasizing the various aspects of their agenda at different levels. Issue emphasis can be thought of as the importance a politician places on an issue or as a signal of her commitment to enforce her position on that issue, once in office. The effect of emphasis on voters payoffs is allowed to be different across politicians, issues and demographic groups of voters. Before the election, politicians are also able to make promises to redistribute amongst different income groups in the economy. It is the way voters trade off utility among different issues, their political power (in terms of sheer numbers) and their preferences for one politician over the other, on different issues, that determine (a) optimal consumption promises (b) issue emphasis and thus (c) observed policy out- 2

3 comes. A demographic group that puts a lot of weight on traditional values issues and is biased towards a particular candidate will be treated differently by the two candidates. In fact, in general, platform divergence is the outcome of this game, in contrast to results from some of the related literature, allowing thus empirical testing of the model. Using data from U.S. Presidential elections from , I estimate the model to match over time changes in population preferences and demographic characteristics of US constituents to changes in issue emphasis and consumption promises by presidential candidates. I compare the quantitative predictions of my model to others and show that, in fact, introducing the multi-dimensionality of a political platform, and endowing politicians with a richer set of instruments, improves our understanding of politicians tradeoffs and, consequently, of observed policy outcomes. 1.1 What s the Matter with Virginia? Following is an example that illustrates the main mechanism of my model. In the 2009 Gubernatorial elections of the state of Virginia, Republican candidate Robert Bob McDonnell run against Democrat R. Creigh Deeds. McDonnell won the election with a 58.61% share of the vote. This came as a surprise to many seeing as the Senators and last two Governors of Virginia were Democrats and not only did Virginia vote for Pres. Obama in the 2008 race, but also recent polls indicate that the support for Pres. Obama has not significantly decreased since he took office. Moreover, even though he states that he is socially more moderate now than in the past, he had been an extreme social conservative for a significant part of his political career. 1 McDonnell s strategy for winning the election was to run with a moderate, for a Republican, economic platform (focusing on creating new jobs through public projects, etc) and to avoid all questions with regards to his conservative values. 1 His masters thesis being on why women should not be working. 3

4 When asked about them, he would answer that his views are still the same, but that the real focus should be on his economic policies. In the context of my model, it is exactly these tools, economic policy promises and issue emphasis, that politicians have at their disposal for political targeting. The presence of non-economic issues and the existence of these two kinds of tools affect which groups of voters will be targeted using economic policy (mostly the poor in this case) and which issue (economic instead of social) will be the focus of the campaign, thereby drawing the attention towards different aspects of a politician s platform, those that voters agree with. In the following, section 2 develops the theoretical model and section 3 estimates the model. Section 4 uses the structural estimates to compare the fit of my model to one without issue emphasis while section 5 concludes. 2 A Theory of Political Platforms Consider a static endowment economy with two politicians, j {A, B} and a continuum of voters, indexed by i, i [0, 1]. Each voter belongs to a group g G. g = (g 0,..., g N ) is a vector of demographic characteristics where g n {0, 1}, n. g 0 is the endowment level of voter (i, g) and g n, for 1 n N are the rest of the group characteristics of a voter. As an example, let N = 1, where n = 1 is the race of a voter. g 1 = 0 are the white voters in the population and g 1 = 1 the non-whites. In this case, there are four demographic groups in the population, (0, 0) poor whites, (0, 1) poor non-whites, (1, 0) rich whites and (1, 1) rich non-whites. π g is the fraction of the population in group g G. There are two payoff-relevant issues, d = 0 is the economic and d = 1 is noneconomic issue dimension, for example traditional values (i.e. anything with regards to abortion policy, gay marriage, etc.). 2 Politicians have two instruments available 2 The results of this section hold true with multiple, but finite, issue dimensions and in fact the model I take to the data allows for this as well. 4

5 for campaigning: consumption promises and campaign time. Definition 1 A campaign (c, t) C is (a) consumption promises c : {0, 1} R +, (GCC), such that g 0 π g0 c g0 = g 0 π g0 g 0, (RC), and (b) campaign time on issue dimensions t d [0, 1], d = 0, 1 such that t 0 + t 1 = 1, (T C) (GCC) is the group consumption constraint. It states that consumption promises can only depend on the income level of a voter g 0 {0, 1}. Consumption promises thus represent income taxes. In the last section of the paper, we will examine the quantitative effects of this instrument imperfection. (RC) is the resource constraint, so that consumption promises are redistributative, and (T C) is the campaign time constraint. I assume that the consumption promises of politicians are binding. 3 In the example discussed previously, a campaign would be a consumption promise for the poor (irrespective of race), a consumption promise for the rich, campaign time spent on economic policy and campaign time on the traditional values dimension. Voters choose to vote for one of the two politicians, v {A, B}. The timing of this game is as follows: (a) Politicians campaign, (c j, t j ), j {A, B} (b) Voters vote v i g {A, B}, i [0, 1], g G (c) The simple majority winner j {A, B} is elected (d) j takes office and implements c j. 3 Clearly, this is not the case in reality. However, according to the 2004 Annenberg survey, 35% of respondents believed Pres. Bush s campaign tax promises and 47% of the National Election studies responsdents strongly or somewhat believe that politicians keep their campaign promises. The full commitment assumption is, thus, not very restrictive in terms of how agents vote. In terms of the economic relevance of these promises, it is reasonable to believe that there is some persistence between promises and implemented policies, but it is not in the scope of this paper to study this. 5

6 Note that a politician does not take an action with regards to the non-economic policy dimensions once in office. In another version of the model, campaign time is translated into time spent on this issue in office, affecting thus implemented policies, but I abstract from this for now. Politicians are opportunistic and they seek to maximize the fraction of votes they get, F j : F j = g G π g 1 U i (g,j) U i (g, j)di, j j where U i (g, j) is the payoff of voter (i, g) if politician j wins the election. For notational convenience I have dropped the dependence on campaigns, but it is implicit through the payoff dependence on j and j. 2.1 Relative Issue Emphasis This subsection discusses the effect of campaign time on voters preferences. As discussed in the introduction, the effect of campaign time is to emphasize the various issue dimensions at different levels. To incorporate this mapping, for group g, let r j dg be the relative emphasis created on issue d by politician j. r j dg = α(tj d, mj dg ) where m j dg R ++ is the technology that differentiates the influence effect of campaign time amongst demographic groups, politicians and issues. I incorporate this level of heterogeneity to account for differential access to campaigns by groups (e.g. exposure to media), issue ownership (the idea that when Democrats talk about health reform voters listen whereas when Republicans do, voters do not 4 ) and differences in credibility. The influence function α is assumed to be strictly increasing and strictly concave in t, so that the more time a politician spends on an issue the more the emphasis on it, but with a ceiling effect, as documented in the campaign literature. In the 4 The idea of issue ownership was first formulated by Petrocik (1996). 6

7 estimation of the model, I allow for the possibility that campaigns have no effect on voters preferences. 2.2 Voters Payoffs Voter i s payoff depends on the group she is in, g, the winner of the election, j, and the campaign she run with. In particular, if politician A wins the election voter (i, g) receives whereas if politician B wins, she receives u(g, c A g 0, r0g A ) }{{} u from econ, A wins u(g, c B g 0, r0g B ) }{{} u from econ, B wins + ε i g }{{} u from all else, B over A where r j dg = α(tj d, mj dg ) and εi g is the only source of intra-group heterogeneity among voters of the same group, is private information to the voter and is distributed according to F g (r A 1g, r B 1g ), which is known. In other words, the utility agents receive through the non-economic dimension, if B wins and A loses, ε i g, is represented by a private shock whose distribution depends on the campaign time both politicians spend on that dimension and the group voters as in. 5 Inter-group heterogeneity of preferences comes from four sources: (a) the fraction of voters within a group, π g, (b) voters economic issue preference parameters (dependence of u on g), (c) noneconomic issue preference distribution F g and (d) the effect of campaign time arising through differences in relative issue emphasis. It is the interaction of all these that determine equilibrium campaigns and thus outcomes of these game. The assumption below is the only added structure imposed on voters payoffs for 5 One can think of this shock being private as representing the fact that non-economic preferences are harder to measure. 7

8 the theoretical part of this paper. Assumption 1 (a) u C 2 (b) u > 0, 2 u c c 2 < 0, u c c=0 =, u c c= = 0, (c) F g has full support and is C 2, g 2.3 Equilibrium Given campaigns (c j, t j ) j=a,b and shock realizations ε i g, i, g, the swing voter of group g is voter i such that: ( ) ( ) ε g ε i g = u g, c A g 0, r0g A u g, c B g 0, r0g B In other words, the swing voter is the voter who is indifferent between voting for either of the two politicians. 6 Note that in group g, all ε i g ε g will vote for A, and the rest will vote for B. Thus, the fraction of voters in the population that vote for A, F A is F A (c A, c B, t A, t B ) = g ( ) ( ) ) π g F g (u g, c A g 0, r0g A u g, c B g 0, r0g B, r1g, A r1g B with F B = 1 F A. To sum up, given political campaigns voters vote for the politician that will give them the highest payoff, once in power. Voters care about economic and noneconomic issues and the relative emphasis they put on each depends (but is not fully determined 7 ) on the time politicians spent campaigning on that issue. 8 Politicians 6 Since there is a continuum of voters, this is a measure zero event and I do not have to worry about a tie-breaking rule. 7 In the estimation, a variable s dg will represent the exogenous salience voters of group g put on issue dimension d. 8 Note that politicians positions on the non-economic dimension are not explicitly modeled, but will be taken into consideration in the estimation through the distribution of shocks F g. 8

9 affect the economic utility of agents through the consumption promises they make and the relative emphasis they put on economic policy. Moreover, note that given political campaigns there is no aggregate uncertainty (since the distributions F g are known) and thus politicians are able to predict election outcomes. The definition of equilibrium follows: Definition 2 A Nash Equilibrium (NE) in this economy is campaigns for both candidates (ĉ j, ˆt j ) j=a,b such that: Given (ĉ B, ˆt B ), politician A chooses (ĉ A, ˆt A ) argmax (c,t) C F A ( c A, ĉ B, t A, ˆt B ) Given (ĉ A, ˆt A ), politician B chooses (ĉ B, ˆt B ) argmax (c,t) C F A ( ĉ A, c B, ˆt A, t B ) 2.4 Platform Divergence In the standard probabilistic voting framework of Lindbeck and Weibull (1987), 9 economic policy convergence is the outcome of the game. In this setup, the following lemma is true. Lemma 2.1 (Platform Convergence) If 2 u r c = 0, then in equilibrium we have 9 No issue emphasis, F g s given exogenously. c A = c B. 9

10 The proof follows directly from the first order conditions. The intuition is that if there is no interaction between the two instruments, i.e. voters economic utility is separable between consumption promises and time spend talking about these promises, then both politicians face exactly the same tradeoffs when choosing consumption promises, as they are identical to the eyes of the voters. In general, however, 2 u r c outcome and in this setup platform divergence will be the equilibrium This result improves on the intuitive and technical appeal of standard probabilistic voting by allowing me to take the model to the data Existence and Comparative Statics To be completed. 3 Estimation In this section of the paper, I impose more structure on the theory presented previously and estimate the structural parameters of the model to match over time changes in population preferences and demographic characteristics of U.S. constituents to changes in political platforms by Presidential candidates. I examine different forms of u, the utility from economic outcomes, and α, the campaign influence function, as well as different distributional assumptions for F g to find the specification that best fits the data. Following is a description of the data as well as the structural estimation strategy and results. 10 The assumption of non-separability, i.e. that different levels of campaign intensity for the same economic policy, lead to different preferences of voters for a politician in terms of that policy, seems natural. 11 Clearly, consumption promises by US Presidential candidates vary across time and are in general not identical to one another. 10

11 3.1 Data Following is a description of my main sources of data, although others will be used for verification and robustness checks. I use data from the National Election Studies to estimate voter preferences and demographic characteristics, and data collected by John G. Geer on Presidential TV ads, that lasted less than sixty seconds from , as the campaign time on different issues. Lastly, I use income tax data to proxy for the consumption promises of the winner of the election. To be completed. 3.2 Structural Estimation The richer version of the model that is taken to the data will allow for: no campaign influence, multiple non-economic issue dimensions, an incumbency effect, a non perfectly balanced resource constraint for the consumption promises, a term effect (first vs. second) and a partisan bias effect. I start by running a random effects Logit regression to estimate the demand for a politician. To be completed. 4 Comparison - Counterfactual To be completed. 5 Conclusion This paper takes a novel approach to the examination of the effects political competition on economic outcomes by introducing a theory of political platforms that 11

12 endows politicians with tools to affect both their economic and non-economic dimensions of their agendas. By estimating the model I show that, in doing so, I improve our understanding of politician s tradeoffs and thus of observed policy outcomes. 12

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