The Choice of Institutions

Verfassung, Wahlsystem, Politische Partei, Constitution, Electoral system , Political party

The Size of Countries: Does it Matter?

Borders are a man made institution, and as such their shape cannot be taken as part of the physical landscape. The size of countries is endogenous to politico economic forces. This paper discusses recent efforts by economists to study three related question: what determines the evolution of the size of countries? Does size matter for economic success? Given the trend toward decentralization and of creation of supernational unions like the EU, is the meaning of national borders evolving?

Welfare Policies in the UNECE Region: Why so Different?

This paper provides the text of the Gunnar Myrdal Lecture presented at the U.N. Palais des Nations in 2006. It provides an analysis of why different countries in the western world have chosen different models of the welfare state. It discusses why the American welfare system is less generous than the typical European system, emphasizing the causes and implications of these differences. The variations in welfare systems within western Europe -- the Nordic system, the Anglo-Saxon system, and the Continental and Mediterranean systems -- are compared in terms of their effectiveness, successes and failures.Welfare, Europe, Myrdal

Bureaucrats or Politicians?

politics, delegation, bureaucracies

Why is Fiscal Policy often Procyclical?

Many countries, especially developing ones, follow procyclical fiscal policies, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.

External Debt, Capital Flight and Political Risk

This paper provides an explanation of the simultaneous occurrence of large accumulation of external debt, private capital outflow and relatively low domestic capital formation in developing countries. We consider a general equilibrium model in which two types of government with conflicting distributional goals randomly alternate in office. Uncertainty over the fiscal policies of future governments generates private capital flight and small domestic investment. This political uncertainty also provides the incentives for the current government to over accumulate external debt. The model also predicts that left wing governments are more inclined to impose restrictions on capital outflows than right wing governments. Finally, we examine how political uncertainty affects the risk premium charged by lenders and how debt repudiation may occur after a change of political regime.

Distributive Politics and Economic Growth

This paper studies the relationship between political conflict and economic growth in a simple model of endogenous growth with distributive conflicts. We study both the case of two "classes" (workers and capitalists) and the case of a continuum distribution of agents, characterized by different capital/labor shares. We establish several results concerning the relationship between the political influence of the two groups and the level of taxation, public investment, redistribution of income and growth. For example, it is shown that policies which maximize growth are optimal only for a government that cares only about the "capitalists." Also, we show that in a democracy (where the "median voter theorem' applies) the rate of taxation is higher and the rate of growth lower, the more unequal is the distribution of wealth We present empirical results consistent with these implications of the model.

Bureaucrats or Politicians?

Policies are typically chosen by politicians and bureaucrats. This paper investigates the e fficiency criteria for allocating policy tasks to elected policymakers (politicians) or non elected bureaucrats. Politicians are more efficient for tasks that do not involve too much specific technical ability relative to effort; there is uncertainty about ex post preferences of the public and flexibility is valuable; time inconsistency is not an issue; small but powerful vested interests do not have large stakes in the policy outcome; effective decisions over policies require taking into account policy complementarities and compensating the losers. We then compare this benchmark with the case in which politicians choose when to delegate and we show that the two generally differ.

Segregation and the Quality of Government in a Cross-Section of Countries

This paper has three goals. The first, and perhaps the most important, is to provide a new compilation of data on ethnic, linguistic and religious composition at the sub-national level for a large number of countries. This data set allows us to measure segregation of di¤erent ethnic, religious and linguistic groups within the same country. The second goal is to correlate measures of segregation with measures of quality of the polity and policymaking. The third is to construct an instrument that helps to overcome the endogeneity problem that arises because groups move within country borders, partly in response to policies. Our results suggest that more ethnically and linguistically segregated countries, i.e., those where groups live more spatially separately, have a substantially lower quality of government. In contrast, we find no relationship between religious segregation and the quality of government.