Research

Ben-Bassat, Avi, Momi Dahan, and Esteban F Klor. 2012. “The Impact of the Economic Costs of Conflict on Individuals' Political Attitudes”. Peace Economics, Peace Science and Public Policy 18 (2) : Article 4.Abstract

A large number of studies show that war and terrorism have a significant effect on individuals’ political attitudes.  Yet, this extensive literature does not inspect the mechanisms behind this effect.  This paper concentrates on one possible mechanism, by differentiating between the human toll of terror and war and the economic costs they cause.  For these purposes we focus on the Israeli-Palestinian conflict, and use variation in the level of violence across time and space together with localities’ different exposure to the tourism sector to estimate their respective effects on political attitudes.  Our results suggest that whereas fatalities from the conflict make Israelis more willing to grant territorial concessions to the Palestinians, the associated economic costs of conflict do not have a consistent significant effect on individuals’ political attitudes. 

Benmelech, Efraim, Claude Berrebi, and Esteban F Klor. 2010. “The Economic Cost of Harboring Terrorism”. Journal of Conflict Resolution 54 (2) : 331-353.Abstract

The literature on conflict and terrorism has paid little attention to the economic costs of terrorism for the perpetrators. This paper aims to fill that gap by examining the economic costs of harboring suicide terror attacks. Using data covering the universe of Palestinian suicide terrorists during the second Palestinian uprising, combined with data from the Palestinian Labor Force Survey, we identify and quantify the impact of a successful attack on unemployment and wages. We find robust evidence that terror attacks have important economic costs. The results suggest that a successful attack causes an increase of 5.3 percent in unemployment, increases the likelihood that the district’s average wages fall in the quarter following an attack by more than 20 percent, and reduces the number of Palestinians working in Israel by 6.7 percent relative to its mean. Importantly, these effects are persistent and last for at least six months after the attack.

Klor, Esteban F, and Moses Shayo. 2010. “Social Identity and Preferences over Redistribution”. Journal of Public Economics 94 (3-4) : 269-278.Abstract

We design an experiment to study the effects of social identity on preferences over redistribution. The experiment highlights the trade-off between social identity concerns and maximization of monetary payoffs. Subjects belonging to two distinct natural groups are randomly assigned gross incomes and vote over alternative redistributive tax regimes, where the regime is chosen by majority rule. We find that a significant subset of the subjects systematically deviate from monetary payoff maximisation towards the tax rate that benefits their group when the monetary cost of doing so is not too high. These deviations cannot be explained by efficiency concerns, inequality aversion, reciprocity, social learning or conformity. Finally, we show that behavior in the lab helps explain the relationship between reported income and stated preferences over redistribution observed in survey data.

Berrebi, Claude, and Esteban F Klor. 2010. “The Impact of Terrorism on the Defense Industry”. Economica 77 (307) : 518-543.Abstract

This paper analyzes the impact of terrorism on Israeli companies related to the defense, security or anti-terrorism industries, relative to its impact on the rest of the companies. We match every Israeli company to the American company with the closest expected return among all the companies that belong to the same industry and trade in the same market in order to isolate the effect of terrorism from other common industry shocks. The findings show that whereas terrorism had a significant negative impact of 5% on non defense-related companies, it had a significantly positive overall effect of 7% on defense-related companies.

Gould, Eric D, and Esteban F Klor. 2010. “Does Terrorism Work?”. Quarterly Journal of Economics 125 (4) : 1459-1510.Abstract

This paper examines whether terrorism is an effective tool to achieve political goals.  By exploiting geographic variation in terror attacks in Israel from 1988 to 2006, we show that local terror attacks cause Israelis to be more willing to grant territorial concessions to the Palestinians.  These effects are stronger for demographic groups that are traditionally right-wing in their political views.  However, terror attacks beyond a certain threshold cause Israelis to adopt a less-accommodating position. In addition, terror induces Israelis to vote increasingly for right-wing parties, as the right-wing parties move to the left in response to terror. Hence, terrorism appears to be an effective strategy in terms of shifting the entire political landscape to the left. 

Berrebi, Claude, and Esteban F Klor. 2008. “Are Voters Sensitive to Terrorism? Direct Evidence from the Israeli Electorate”. American Political Science Review 102 (3) : 279-301.Abstract

This paper relies on the variation of terror attacks across time and space as an instrument to identify the causal effects of terrorism on the preferences of the Israeli electorate. We find that the occurrence of a terror attack in a given locality within three months of the elections causes an increase of 1.35 percentage points on that locality’s support for the right bloc of political parties out of the two blocs vote. This effect is of a significant political magnitude because of the high level of terrorism in Israel and the fact that its electorate is closely split between the right and left blocs. Moreover, a terror fatality has important electoral effects beyond the locality where the attack is perpetrated, and its electoral impact is stronger the closer to the elections it occurs. Interestingly, in left-leaning localities, local terror fatalities cause an increase in the support for the right bloc whereas terror fatalities outside the locality increase the support for the left bloc of parties. Given that a relatively small number of localities suffer terror attacks we demonstrate that terrorism does cause the ideological polarization of the electorate. Overall, our analysis provides strong empirical support for the hypothesis that the electorate shows a highly sensitive reaction to terrorism.

Klor, Esteban F, and Eyal Winter. 2007. “The Welfare Effects of Public Opinion Polls”. International Journal of Game Theory 35 (3) : 379-394.Abstract

This paper presents an experimental study of the effects of polls on voters’ welfare. The analysis shows that polls have a different effect on closely divided and lopsided divided electorates. The data show that in closely divided electorates (and only for these electorates) the provision of information on the voters’ distribution of preferences significantly raises the participation of subjects supporting the slightly larger team relative to the smaller team. This causes a substantial increase on the frequency of electoral victories of the larger team. As a consequence, we observe a steep decrease in the welfare of the members of the smaller team because they vote more often and yet they loose the elections more frequently. Polls are detrimental to aggregate welfare in closely divided electorates because the decrease in the payoffs of the minority is stronger than the increase in the payoffs of the majority. In lopsided divided electorates polls don’t have a significant different effect on the voters’ turnout conditional on their team size. We do observe an increase on the frequency of electoral victories of the larger team after the provision of information, but this is in part due to smaller teams’ members voting less frequently and saving the participation costs. As a consequence, while polls have a negative effect on the relative payoffs of the minority for these electorates as well, they have a positive effect on total welfare.

Klor, Esteban F. 2006. “A Positive Model of Overlapping Income Taxation in a Federation of States”. Journal of Public Economics 90 (4-5) : 703-723.Abstract

This paper develops a positive theory of overlapping income taxation in a federation of states. The analysis provides a complete characterization of the equilibrium federal and states tax rates as functions of the level of total productivity dispersion between the states. The federal rate is increasing in the level of total productivity dispersion between the states, even if the income of the decisive voter at the federal level is above the mean income. Given that the individuals’ income is endogenously determined there exists a negative trade-off between the implemented federal tax rate and the resulting states’ tax rates, regardless of the pre-tax income of the decisive voter at the state level. Thus, high levels of productivity dispersion between the states cause a higher than optimal federal tax rate together with low states’ tax rates. It is also shown that a system of overlapping income taxation is not efficient. The resulting inefficiency might be exacerbated by the implementation of a federal matching grants program, contradicting previous results in the related normative literature.

Berrebi, Claude, and Esteban F Klor. 2006. “On Terrorism and Electoral Outcomes: Theory and Evidence from the Israeli-Palestinian Conflict”. Journal of Conflict Resolution 50 (6) : 899-925.Abstract

This article investigates the interaction between terror attacks and electoral outcomes in Israel. The authors analyze a dynamic model of reputation that captures the salient characteristics of this conflict. The equilibrium of the theoretical model generates two precise empirical predictions about the interaction between terrorism and electoral outcomes. First, the relative support for the right-wing party is expected to increase after periods with high levels of terrorism and to decrease after periods of relative calm. Second, the expected level of terrorism is higher when the left-wing party is in office than it is during the term of the right-wing party. The authors test these hypotheses by using a newly created data set on terrorist attacks in Israel between 1990 and 2003. The first hypothesis is strongly supported by data culled from public opinion polls about the Israeli electorate’s political preferences. The second theoretical hypothesis is strongly supported by the three Israeli governments to which the theory can be applied that served during the studied time period.

Carbonell-Nicolau, Oriol, and Esteban F Klor. 2003. “Representative Democracy and Marginal Rate Progressive Income Taxation”. Journal of Public Economics 87 (87) : 5-6.Abstract

This paper develops a political economy model that is consistent with the fact that democracies have a preference for increasing marginal tax rates on income. We present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules. This set contains virtually any increasing and piecewise linear continuous function. Each party decides whether or not to present a candidate for election. There is a fixed cost of running. The elected candidate implements one of her preferred tax policies. Our main results provide conditions under which a Strong Nash Equilibrium exists, and a tax schedule with increasing marginal tax rates is implemented in some Nash Equilibria and in any Strong Nash Equilibrium.

Klor, Esteban F. 2003. “On the Popular Support for Progressive Taxation”. Journal of Public Economic Theory 5 (4) : 593-604.Abstract

This paper develops a political economy model that is consistent with the fact that  democracies have a preference for increasing marginal tax rates on income. We present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules. This set contains virtually any increasing and piecewise linear continuous function. Each party decides whether or not to present a candidate for election. There is a fixed cost of running. The elected candidate implements one of her preferred tax policies. Our main results provide conditions under which a Strong Nash Equilibrium exists, and a tax schedule with increasing marginal tax rates is implemented in some Nash Equilibria and in any Strong Nash Equilibrium.

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