Essays on endogenous economic policy

Redistributive policies often seem to disregard public welfare and favor instead specific narrow interests. A frequent explanation is that policies can be influenced by the strategic activities of specific interest groups, or lobbies. These groups, remarkably diffuse in advanced economies, are undisputedly acknowledged to be important actors in the policymaking process of representative democracies. Along the years, the analysis has contributed to open the ‘black box’ of interest groups’ influence, which characterized early models, providing a micro-founded framework for the determinants of political power of interest groups. In particular, these groups have three main instruments to influence policymaking: information transfers, pressure, and voting. The essays presented here focus on the last two instruments of influence, namely pressure (through contributions) and voting. Lobbies can exert pressure through the use of ‘deeds’ generating opportunity costs related to the enforcement of various forms of threats − some legal (strikes, public gatherings, litigations) others not (terrorism or kidnapping) − or to the offer of positive rewards. The latter case is more frequent, an example of which being campaign contributions to candidates and parties. The influence of an interest group may also depend on its ability to guarantee to a candidate the votes of its members. Probabilistic voting models suggest that the homogeneity and organization of interest groups reduce the uncertainty of candidates about the voting behavior of their members. Clearly, the influence highlighted by the probabilistic voting models can be complementary to the influence that groups may have because of other activities such as information transmission or pressure. A different line of investigation expands the aims of lobbies allowing for their direct influence on more decisionmakers. Public policies are, in fact, shaped by the choices of more actors. They may interact at the same political or administrative tier – within one institutional body (as in the case of legislatures) or separately (e.g. different regions or states) – or across different tiers (e.g. central and local governments, legislators and bureaucrats). A plethora of decisionmakers obviously generates several different targets of influence for interest groups. On the contrary, most models arbitrarily restrict the influence of interest groups to a single agent. This assumption has some obvious shortcomings. Then, multi-target lobbying models seem particularly appropriate for the analysis of the separation of political powers and decisionmaking in hierarchical organizations and governments. The latter topic is addressed by the first two essays of this study that account for multiple channels of influence. Chapter 2 presents a political economic model of redistributive policy resulting by the combination of the separate and sequential decisions of two decisionmakers. In Chapter 3, the same model with two-tier influence is applied to the analysis of the effects of political centralization within the EU. The final essay addresses an issue often neglected in the literature, namely the dynamics in the composition of interest groups. Although most models assume a given size and organization of interest groups, they can be influenced by different forces, such as economic and/or demographic changes. This study investigates the impact of immigration on the political influence of interest groups in a two-country political economic model of income redistribution with internationally mobile labor.