how does government ownership affect firm performance a simple model of privatization in transition economies abstract we present a game theoretical model of privatization in transition economies we consider the costs and benefits of government ownership and derive the net effect of government ownership on firm performance model predictions are consistent with empirical evidence in the literature

why is corruption less harmful to income inequality in latin america summary conventional wisdom says corruption is bad for income inequality but recent research on latin america finds a trade off between corruption and inequality and suggests this is due to the large informal sector in the region using data on a large sample of countries we find that the informal sector impacts the link between corruption and inequality in particular the marginal impact of corruption becomes negative once the informal sector becomes large this is true in latin america and more generally corruption reducing policies should be accompanied by measures that help displaced informal sector workers

the enduring power of coase abstractby many measures ronald coase has been among the most influential economists of the past 60 years why is this so we suggest that coase s work has enduring appeal to and insight for social scientists in part because it addresses the biggest and most important social problems how do we solve governance and coordination problems when limited information common resource issues and public good issues produce conflicts among several people at once any scholar who works on issues of corporate or common pool governance pollution allocation of seats on legislative committees regulation of systemic risk in financial markets provision of military forces patent thickets creation of optimal communications networks regulation of decreasing cost industries or compensation of corporate officers can see his or her work stemming from several of coase s original insights just as john nash s work reshaped economic theory almost every field of economics and political science is shaped by coasean insights

chinese villages and townships as industrial corporations ownership governance and market discipline1 public firms in a reforming socialist economy face two problems the old soft budget constraint syndrome and new principal agent problems china s township village government owned enterprises tves outperform state owned enterprises soes in growth rate and productivity three explanations are proposed in the literature 1 tves represent informal or ambiguous private property rights which are most efficient in partial reform 2 the small size and scale of township village governments as industrial corporations allows officials to monitor tves directly and to limit their wherewithal for cross subsidizing 3 strict market disciplines facing tves render indirect market monitoring to mitigate agency problems effectively analyses of jiangyin data show that a while both superior to local soes village and township enterprises share similar productivity and b the scale of township village corporations slightly increases productivity i conclude that local state corporatism should be revised to inc

life is unfair in latin america but does it matter for growth summary i analyze the effect of inequality on economic growth in latin america where inequality is measured as the area of family farms as a percentage of the total area of agricultural holdings using data from 18 latin american countries during 1960 2004 i find that inequality has a nonlinear effect on economic growth overall for the countries included in this analysis the share of family farms has a positive significant effect on economic growth these findings are robust to controlling for several factors using a different indicator of inequality land gini and addressing for endogeneity

on the dynamics of ethnic fractionalization does fractionalization change over short periods of time if so are there any substantial implications for economic performance to answer such questions we construct a new panel data set with measures of ethnic linguistic and religious fractionalization for 26 former communist countries covering the period from 1989 to 2002 our fractionalization measures show that transition economies became more ethnically homogeneous over such a short period of time although the same did not happen for linguistic and religious diversity in line with the most recent literature there seems to be no effect of exogenous diversity on macroeconomic performance that is on per capita gdp growth however we find that dynamic endogenous ethnic diversity is negatively related to growth although this is still not the case for linguistic and religious diversity these findings are robust to different specifications polarization measures and instrument sets as well as to a composite index of ethnic linguistic religious fractionalization

fractionalization and the size of government i study the effect of voters with a group based social conscience voters care more about the well being of those belonging to their own group than the rest of the population within a model of political tax determination both fractionalization and group antagonism reduce the support for redistribution whereas within group inequality increases support for redistribution inequality between groups has the opposite effect these results hold even if a poor group forms a majority using a panel constructed from us micro data i find support for the hypothesis that within race inequality increases redistribution while between race inequality decreases redistribution

inequality democracy and the protection of property rights motivated by the observed relevance of institutional quality such as strong property rights for economic performance this research considers the emergence of property rights protection as a political outcome it argues that the support for such protection is greater the more equal income distribution and the smaller political bias when these conditions initially hold the politically influential rich elite may prefer to relinquish its power through democratisation in order to commit future policy makers to the enforcement of property rights thus ensuring larger investment and faster growth along the transition path in a very unequal economy however such democratisation will not take place

economic determinants of land invasions this study estimates the effect of economic conditions on redistributive conflict we examine land invasions in brazil using a panel data set with over 50 000 municipality year observations adverse eco nomic shocks instrumented by rainfall cause the rural poor to invade and occupy large landholdings this effect exhibits substantial heterogeneity by land inequality and land tenure systems but not by other observable variables in highly unequal municipalities negative income shocks cause twice as many land invasions as in municipalities with average land inequality cross sectional estimates using fine within region variation also suggest the importance of land inequality in explaining redistributive conflict i introduction c onflict over land is endemic to many rural econo mies in environments marked by a highly skewed distribution of property incomplete land and credit markets poorly or unevenly enforced property rights and weak political institutions agents often resort to extralegal means to improve their economic positions the poor frequently invade private properties and occupy them until either forcibly expelled or granted official titles land conflict which is prevalent in many countries such as brazil south africa uganda and venezuela may distort the allocation of resources in the agricultural sector away from productive uses and thereby contribute to the persistence of rural poverty how do economic conditions affect this redistrib utive conflict this paper explores this question using a rich municipal level data set of 5 299 land invasions from 1988 to 2004 in brazil we follow miguel satyanath and sergenti 2004 by using rainfall as a source of exogenous variation to study the relationship between income and conflict and we find that adverse economic shocks cause the rural poor to invade large landholdings this effect exhibits considerable het erogeneity by land inequality and land tenure systems in highly unequal municipalities negative income shocks cause twice as many land invasions as in municipalities with average land inequality the effect of income shocks is even stronger in highly polarized municipalities as measured by the degree of bimodality in the land distribution cross sectional estimates using fine within region variation also suggest the importance of land inequality in explaining redistributive conflict we also find that income shocks cause significantly more land invasions in municipalities with a greater proportion of land under fixed rent contracts by contrast we find no evidence of heterogeneity on a range of other political and socioeconomic variables including political competition sharecropping police expenditures and social welfare spending recent microeconometric studies have examined two

income distribution political instability and investment abstract this paper successfully tests on a sample of 71 countries for the period 1960 85 the following hypotheses income inequality by fuelling social discontent increases sociopolitical instability the latter by creating uncertainty in the politico economic environment reduces investment as a consequence income inequality and investment are inversely related since investment is a primary engine of growth this paper identifies a channel for an inverse relationship between income inequality and growth we measure socio political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two equation model in which the endogenous variables are investment and an index of socio political instability our results are robust to sensitivity analysis on the specification of the model and the measure of political instability and are unchanged when the model is estimated using robust regression techniques

evaluation of three methods proposed for the computation of inter tso payments in the internal electricity market of the european union parties to the internal electricity market of the european union iem decided in 2001 to abolish the method of pancaking of transmission tariffs for cross border transactions that was originally in place instead they have agreed to implement a system whereby national transmission tariffs provide access to the entire iem this system is supplemented by a scheme of inter tso payments however conflict may arise if the compensation that a country must pay another one is not in accordance with the electrical usage that the former is making of the grid of the latter for instance inter tso compensation methods itc methods implicitly allocate the cost of any existing or new transmission line therefore the adoption of an inefficient method may be an obstacle for building some needed regional grid investments consequently one should give careful consideration to the selection of the itc method this paper analyzes both qualitatively and quantitatively the implementation of the most relevant itc methods that have been considered so far in the european debate when assessing each method from a conceptual point of view considerable attention is devoted to the critical examination of its main underlying assumptions

inequality democracy and institutions a critical review of recent research this paper surveys the theoretical and empirical literature on the effect of economic and political inequality on institutions the current understanding suggests that unequal societies develop exploitative and inefficient institutions empirical research which is scant and has mainly concentrated at cross national level supports to some extent the existence of an inverse relationship between inequality and institutions but more analysis is needed future empirical research should undertake country state and micro level analysis which are a necessary complement to aggregate level studies the effect of inequality could also take place indirectly through the influence of inequality on democratization

resource curse or not a question of appropriability this thesis presents three self contained essays focusing on empirical questions in growth and development economics each article addresses specific questions on why countries perform differently in particular i analyse the effect of democracy on economic development the relationship between natural resources and growth and the efficiency of foreign development assistance in the first essay democracy consolidation and growth i analyse the effect of democracy on economic growth in this context i argue that an important aspect to consider is how consolidated political systems are put simply i find that it is not only a question of how democratic countries are but also how long they have been democratic in other words economic performance tends to improve with the duration of uninterrupted democracy the performance of autocracies on the other hand tends to deteriorate over time however for newly established political systems there seems to be a cost of being democratic this implies that democracies only bear their fruit after some time the analysis has important policy implications to overcome initial straits international assistance focused on democratic consolidation may be important and a very good investment in fostering long run development the second essay resource curse or not a question of appropriability together with anne boschini and jesper roine is concerned with the relation between natural resources and economic development for most laymen as well as for most economists it would seem reasonable that countries richly endowed in natural resources also benefit from this wealth however a large literature has found a systematic negative effect of natural resource abundance on economic growth we suggest that this so called resource curse is not determined by resource endowments alone but rather by the interaction between the type of resources a country possesses and the quality of institutions in the country this combination of factors determines what we call the appropriability of a resource the concept of appropriability captures the likelihood of natural resources leading to rentseeking corruption or conflicts which in turn will harm economic development our results suggest that if institutions are good enough the curse may be turned into a blessing this may explain why some countries such as norway and botswana tend to benefit from their resources while others such as angola and sierra leone do not the third and final essay of this thesis foreign sectoral aid fungibility growth and poverty reduction is a contribution to the aid efficiency literature which is concerned with the question of whether aid helps or hinders economic development foreign development assistance is often targeted on specific public expenditure sectors if this aid is not used in the sector for which it was granted e g health education it is said to be fungible and donors may end up financing something completely different from what they intended e g military expenditures the major concern about sectoral fungibility is that the alternative use of aid may be less productive or less socially useful however measuring fungibility is not sufficient to determine whether foreign sectoral aid fungibility is actually harmful what is important is how the funds treated as fungible are used the essay starts by obtaining estimates of fungibility for 57 countries the results suggest that sectoral aid is indeed largely treated as fungible by recipient countries next to assess the economic and health effects of fungibility these estimates are incorporated into an empirical model of aid and growth as well as into a model of aid and infant mortality altogether i find no evidence of more fungible sectoral aid leading to worse performance

does inequality drive the dutch disease theory and evidence in this paper we show that the dutch disease can arise solely from inequality in the distribution of natural resource rents given two otherwise identical countries that differ only in the ownership shares of the natural resource rents the country with the less equal distribution will have less production of manufacturing goods and less development of learning by doing in this sector as opposed to conventional models where income distribution has no effect on economic outcomes an unequal distribution of the resource wealth can generate the dutch disease dynamics even in countries with an initial comparative advantage in manufacturing we also provide a range of empirical tests of our model including both difference and system gmm estimators in a dynamic panel to disentangle the effects of inequality and institutional quality we purge our inequality measure of any linear or higher order correlations with institutional quality and repeat our system and difference gmm estimations our empirical analysis supports the hypothesis that inequality indeed plays a significant role in whether being resource rich is a blessing or a curse for a country the more unequal is the distribution of natural resource rents the stronger is the disease

transmission network cost allocation based on equivalent bilateral exchanges this paper presents a novel methodology for allocating the cost of a transmission network to its users based on the principle of equivalent bilateral exchanges which states that after all physical laws governing the flow of power have been met each demand is assigned a fraction of each generation and each generator is assigned a fraction of each demand in a uniform manner transmission cost allocation based on this principle presents several advantages namely independence from the choice of the slack bus recognition of counter flows and transmission use charges that are stable and always positive

communication in federal politics universalism policy uniformity and the optimal allocation of fiscal authority the paper presents a positive model of policy formation in federal legislatures when delegates engage in the strategic exchange of policy relevant information depending on the type of policy under consideration communication between delegates generally suffers from a bias that makes truthful communication difficult and sometimes impossible this generates inefficient federal policy choices that are often endogenously characterized by overspending universalism and uniformity building on these findings i develop a theory of fiscal de centralization which revisits the work of oates in a world of incomplete information and strategic communication empirical results from a cross section of us municipalities are consistent with the predicted pattern of spending

voting inequality and redistribution this paper surveys models of voting on redistribution under reason able assumptions the baseline model produces an equilibrium with the extent of redistributive taxation chosen by the median income earner if the median is poorer than average redistribution is from rich to poor and increasing inequality increases redistribution however under different assumptions about the economic environment redistribution may not be simply rich to poor and inequality need not increase redistribution several lines of argument are presented in particular political participation public provision of private goods public pensions and tax avoidance or evasion

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

allocation of transmission fixed charges an overview the application of marginal cost in pricing the transmission services has shown not effective mainly due to revenue reconciliation problems to overcome this a set of other methods derived from the mw mile rule has been suggested to allocate transmission fixed costs this paper compares such methods known as embedded cost methods in a centralized transmission network environment although these methods actually share the total cost and are very simple they are usually rejected due to the lack of a good economic reasoning the economic issue and the impact on the system expansion planning of such allocation are addressed in this paper some examples with the brazilian transmission system illustrate the results derived from this analysis

the origins of state capacity property rights taxation and politics economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes this paper develops a framework where policy choices in market regulation and taxation are constrained by past investments in legal and fiscal capacity it studies the economic and political determinants of such investments demonstrating that legal and fiscal capacity are typically complements the results show that among other things common interest public goods such as fighting external wars as well as political stability and inclusive political institutions are conducive to building state capacity some correlations in cross country data are consistent with the theory

environmental performance in socially fragmented countries social fragmentation is often associated with reduced co operative behaviour which undermines public goods provision such as environmental protection the few studies linking social fragmentation and environmental performance have been confined to using ethnic fractionalisation as the only measure of social heterogeneity in this paper we contribute to the literature in a twofold manner first we bring into the analysis alternative measures of social fragmentation i e religious fractionalisation ethnic religious polarisation that have received considerable attention in development economics in recent years second this is the first study to our knowledge that makes use of a large panel dataset of several environmental indicators to explore links between ethnic religious diversity and the environment we find that all indices of social fragmentation are negatively linked to measures of environmental quality although for some of them the size of the effect is larger in the case of polarisation

inward looking policies institutions autocrats and economic growth in latin america an empirical exploration this paper explores the institutionaldeterminants of economic growth in latinamerica by taking advantage of recentempirical research that employs subjectiveand objective measures to test for apossible northian explanation that linksinstitutional quality and economic growth we explore a simple framework that may helpbetter understand the policymakers choicesand persistence regarding inward lookingpolicies that were pursued between the1930s and the 1980s by arguing that in thelatin american case olson s 1982 idea ofencompassing interest should be expanded tocover not only the economic stakes of powerholders but in particular their psychicincome which includes their politicalstakes along the lines of recent work byrobinson 1997 coyne 2002 andothers

transaction costs institutional arrangements and inequality outcomes potato marketing by small producers in rural peru summary we explore the distributional effects of lowering transaction costs to allow access to improved market opportunities for small farmers in the peruvian highlands we find that when new marketing opportunities arise those that have more land are better educated and are well organized are able to deal with the complexities that the new contractual arrangements entail although this on average implies an increase in net income for small farmers it also affects the distribution of earnings generating a more polarized small farmer economy to counteract this effect and reduce inequality in the opportunities of less endowed small farmers complementary policies need to be put in place

new ways of looking at old issues inequality and growth abstract the paper uses new cross country data on income and asset land distribution to show that i there is a strong negative relationship between initial inequality in the asset distribution and long term growth ii inequality reduces income growth for the poor but not for the rich and iii available longitudinal data provide little support for the kuznets hypothesis policies that increase aggregate investment and facilitate acquisition of assets by the poor might thus be doubly beneficial for growth and poverty reduction

the provision of public goods under alternative electoral incentives politicians who care about the spoils of office may underprovide a public good because its benefits cannot be targeted to voters as easily as pork barrel spending we compare a winner take all system where all the spoils go to the winner to a proportional system where the spoils of office are split among candidates proportionally to their share of the vote in a winner take all system the public good is provided less often than in a proportional system when the public good is particularly desirable we then consider the electoral college system and show that it is particularly subject to this inefficiency

are all democracies equally good the role of interactions between political environment and inequality for rule of law using cross country data we find evidence for a significant negative interaction effect between democracy and inequality in determining the quality of growth promoting institutions like rule of law democracy is associated with institutions of higher quality when inequality is lower

redistributing income under proportional representation although majoritarian decision rules are the norm in legislatures relatively few democracies use simple majority rule at the electoral stage adopting instead some form of multiparty proportional representation moreover aggregate data suggest that average income tax rates are higher and distributions of posttax income flatter in countries with proportional representation than in those with majority rule while there are other differences between these countries this paper explores how variations in the political system per se influence equilibrium redistributive tax rates and income distributions a three party proportional representation model is developed in which taxes are determined through legislative bargaining among successful electoral parties and the economic decision for individuals is occupational choice political economic equilibria for this model and for a two party winner take all majoritarian system are derived and compared

the size and scope of government comparative politics with rational politicians we try to demonstrate how economists may engage in research on comparative politics relating the size and composition of government spending to the political system a downsian model of electoral competition and forward looking voting indicates that majoritarian as opposed to proportional elections increase competition between parties by focusing it into some key marginal districts this leads to less public goods less rents for politicians more redistribution and larger government a model of legislative bargaining and backward looking voting indicates that presidential as opposed to parliamentary regimes increase competition between both politicians and voters this leads to less public goods less rents for politicians less redistribution and smaller government we confront these predictions with cross country data from around 1990 controlling for economic and social determinants of government spending we nd strong and robust support for the prediction that the size of government is smaller under presidential regimes and weaker support for the prediction that majoritarian elections are associated with less public goods

the economic effects of constitutions replicating and extending persson and tabellini persson and tabellini the economic effects of constitutions the mit press cambridge 2003 show that presidential regimes and majoritarian election systems have important economic effects here the number of countries is expanded and more recent data is used in replicating and extending their analyses we find that the effect of presidential regimes vanishes almost entirely with regard to electoral systems the original results are largely confirmed majoritarian as opposed to proportional electoral systems lead to lower government expenditure lower levels of rent seeking but also lower output per worker the institutional details such as the proportion of candidates that are not elected on party lists and district size are particularly important

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

electoral systems and public spending we study the effects of electoral institutions on the size and composition of public expenditure in oecd and latin american countries we emphasize the distinction between purchases of goods and services which are easier to target geographically and transfers which are easier to target across social groups we present a theoretical model in which voters anticipating government policymaking under different electoral systems have an incentive to elect representatives more prone to transfer public good spending in proportional majoritarian systems the model also predicts higher total primary spending in proportional majoritarian systems when the share of transfer spending is high low after dee ning rigorous measures of proportionality to be used in the empirical investigation we e nd considerable support for our predictions

constitutional rules and fiscal policy outcomes we investigate the effect of electoral rules and forms of government on fiscal policy outcomes in a large sample of democracies we rely on different estimation methods to address prospective problems of statistical inference due to non random selection of these constitutional rules the findings are consistent with our theoretical priors presidential regimes induce smaller governments than parliamentary democracies while majoritarian elections lead to smaller governments and smaller welfare programs than proportional elections

covering dominance and institution free properties of social change this paper shows that different institutional structures for aggregation of preferences under majority rule may generate social choices that are quite similar so that the actual social choice may be rather insensitive to the choice of institutional rules specifically in a multidimensional setting where all voters have strictly quasi concave preferences it is shown that the uncovered set contains the outcomes that would arise from equilibrium behavior under three different institutional settings the three institutional settings are two candidate competition in a large electorate cooperative behavior in small committees and sophisticated voting behavior in a legislative environment where the agenda is determined endogenously because of its apparent institution free properties the uncovered set may provide a useful generalization of the core when a core does not exist a general existence theorem for the uncovered set is proven and for the downsian case bounds for the uncovered set are computed these bounds show that the uncovered set is centered around a generalized median set whose size is a measure of the degree of symmetry of the voter ideal points

the institutional foundations of inequality and growth abstract after a decade of research the effect of inequality on long run economic growth remains unresolved in part because researchers have treated omitted variable bias as an estimation problem rather than a deeper question of causality in this article we argue that the key omitted variable is the quality of economic institutions using both cross country and panel data specifications we find no direct effect of inequality on growth in the long run rather the protection of property rights simultaneously raises growth rates and reduces income inequality we interpret these findings as evidence that insecure property rights disproportionately disadvantage the poor

bureaucratic structure and bureaucratic performance in less developed countries abstract we argue that several easily identifiable structural features constitute the key ingredients of effective state bureaucracies and should help to predict ratings of bureaucratic performance competitive salaries internal promotion and career stability and meritocratic recruitment we collect a new dataset on these features for bureaucracies of 35 less developed countries controlling for country income level of education and ethnolinguistic diversity we find that our measure of meritocratic recruitment is a statistically significant determinant of ratings supplied by two of three country risk agencies the importance of competitive salaries and internal promotion and career stability could not be clearly established

social democracy christian democracy constitutional structure and the welfare state the literature on the determinants of welfare state effort displays many inconsistencies and contradictins this article takes imoprtant stepts toward resolving these issues with the use of pooled

polarization politics and property rights links between inequality and growth most efforts to trace the effects of income inequality on growth have focused on redistribution however empirical investigation has not substantiated either the positive association of income inequality with redistribution or the negative association of redistribution with economic growth the authors analyze the effects of inequality in the broader context of social polarization they argue that social polarization whether rooted in income inequality or in ethnic tension makes large changes in current policies including those guaranteeing the security of contract and property rights more likely under a wide range of institutional arrangements the resulting uncertainties in the policy and contractual environment hinder growth they find strong empirical support for both parts of this argument the policy implications of their argument are quite distinct from those of arguments that inequality reduces growth by increasing pressures for redistribution if redistributive policies per se were to blame for the low growth resulting from inequality governments that seek to mitigate income inequality must inevitably confront a tradeoff between equity and growth if on the other hand the insecurity of property rights slows growth in unequal or otherwise polarized societies governments that commit over the long run to particular redistributive policies incur less risk of slowing economic growth fiscal redistribution that reduces inequality may actually increase growth by reducing the risks of political uncertainty

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

vegetable spirits and energy policy this study investigates the extent to which the 2005 energy policy act specifically the ethanol mandate contributed to the rise in farmland values we use the location of new ethanol plants to identify the capitalization effect of the mandate by these spatially advantaged operations we use a difference in difference propensity score matching estimator to control for the non random selection of ethanol production facilities the empirical strategy uses farmland parcel values from the 2001 7 june agriculture survey we find that new ethanol facilities had no effect on nearby farmland values prior to the mandate but had statistically significant effects after the policy copyright 2013 oxford university press

dc power flow revisited linear mw only ldquodcrdquo network power flow models are in widespread and even increasing use particularly in congestion constrained market applications many versions of these approximate models are possible when their mw flows are reasonably correct and this is by no means assured they can often offer compelling advantages given their considerable importance in today s electric power industry dc models merit closer scrutiny this paper attempts such a re examination

is corruption really bad for inequality evidence from latin america this article presents new evidence on the relationship between corruption and income inequality using a panel data methodology we find that lower corruption is associated with higher income inequality in latin america this result is in contrast to other empirical studies but it makes sense in latin america for a number of reasons the finding of an inverse relationship between inequality and corruption suggests that institutional reform policies by themselves may be misguided

the relationship between corruption and income inequality in u s states evidence from a panel cointegration and error correction model we investigate the causality between corruption and income inequality within a multivariate framework using a panel data set of all 50 u s states over the period 1980 to 2004 the heterogeneous panel cointegration test by pedroni oxf bull econ stat 61 653 670 1999 econom theory 20 597 627 2004 indicates that in the long run corruption and the unemployment rate have a positive and statistically significant impact on income inequality while a negative impact is found for real personal income per capita education and unionization rate the granger causality results associated with a panel vector error correction model indicate both short run and long run bidirectional causality between corruption and income inequality

costs of taxation and the size of government existing theory on the form of government suggests that a parliamentary system promotes a larger size of government than does a presidential system this paper extends the existing theory by allowing for distortionary taxation a main result is that if taxation is sufficiently distortionary the parliamentary system may promote a smaller size of government than the presidential system the proposed mechanism appears consistent with several empirical patterns in the data that cannot be explained by other theories

constitutional political economy in the european union this article surveys recent research in constitutional political economy in europe although not all of theworks discussed necessarily focus only on european constitutional issues or are written by europeans european constitutional issues figure importantly in each area surveyed the article examines the literatures linking constitutional institutions to economic growth government size government deficits and corruption bicameralism direct democracy and federalism three exclusively european topics also are covered constitutional issues in the transition countries the structure of the european union and the draft constitution for the european union

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

what should fiscal councils do fiscal watchdogs so called fiscal councils have been proposed as a method to counter deficit bias of fiscal policy the paper analyses theoretically what role fiscal councils could play and surve

the importance of the electoral rule evidence from italy abstract we test the effect of an important electoral reform implemented in italy from 1993 to 2001 that moved the system for electing the parliament from purely proportional to a plurality rule for 75 of the seats we do not find any effect on either the number of parties or the stability of governments the two main objectives of the reform that remained unchanged at their pre reform level

inequality and growth uncovering the main conclusions from the empirics abstractthis paper is a critical survey of the empirical literature on the effects of inequality on economic growth we conclude that it is most likely that the disparities found in the results are due to differences in the type of countries and time periods included in the samples the variable used to measure inequality the structure of the data and the estimation techniques these findings suggest that the mechanisms that link inequality to growth are likely to operate differently in different circumstances an element that may offer important guidelines for both policy makers and researchers

political self serving bias and redistribution we explore the impact of the self serving bias on the supply and demand for redistribution we present results from an experiment in which participants decide on redistribution after performing a real effort task dependent on individual performance participants are divided into two groups successful and unsuccessful participants success is exogenously determined because they are randomly assigned to either a hard or easy task however because participants are not told which task they were assigned to there is ambiguity as to whether success or failure should be attributed to internal or external factors participants take two redistribution decisions first they choose a supply of redistribution in a situation where no personal interests are at stake second they choose a redistributive system behind a veil of ignorance our results confirm and expand previous findings on the self serving bias successful participants are more likely to attribute their success to their effort rather than luck and they opt for less redistribution unsuccessful participants tend to attribute their failure to external factors and opt for more redistribution we demonstrate that the self serving bias contributes to a polarization of the views on redistribution

the effects of party competition on budget outcomes empirical evidence from local governments in spain this paper investigates the link between local budget outcomes and the intensity of party competition measured as the margin of victory obtained by the incumbent in the previous local election i e the difference between the vote share and 50 two competing hypotheses are tested in the paper on the one hand the leviathan government hypothesis suggests that the lower the intensity of party competition is the greater is the increase in the size of the local public sector irrespective of the ideology of the party in power on the other hand the partisan government hypothesis suggests that the incumbent will find it easier to advance its platform when intensity of competition is low i e parties on the left right will increase decrease the size of the local public sector when the intensity of the challenge from the opposition is low these hypotheses are tested with information on spending own revenues and deficit for more than 500 spanish local governments over 8 years 1992 1999 and information on the results of two local electoral contests 1991 and 1995 the evidence favors the partisan hypothesis over the leviathan one we found that for left wing governments spending taxes and deficits increased as the electoral margin increases whereas for right wing governments a greater margin of victory led to reductions in all these variables

political regimes and income inequality abstract we construct a theoretically motivated model of income inequality through a pooled regression on an international panel we demonstrate that political regime whether extractive redistributive or reinvestment oriented correlates with within country income inequality

the political economy of intergovernmental grants evidence from a maturing democracy we evaluate the impact of political forces in the allocation of intergovernmental grants in portugal as it matured from a young to an established democracy using a large and unexplored dataset we show that political variables condition the granting system and that their importance changed over time while tactical manipulation in the distribution of grants among municipalities seems to exist only in the early years of democracy opportunistic effects are stronger in the latter years we argue that the latter effect is due to a change in the political environment and to the electorate s lack of information on intergovernmental grants

land inequality and economic growth a dynamic panel data approach the growing body of literature devoted to studying the impact of inequality on economic growth has centered its attention on the income distribution effect even though the theoretical relationships are more related to assets distribution while some recent studies have tried to overcome this limitation by introducing asset indicators they meet new constraints when dealing only with time invariant measurements for this explanatory variable this article provides a theoretical discussion and some novel empirical tests to better understand the relationships between assets distribution and economic growth we assembled a new panel database that includes observations for more than 30 countries over the last three decades the data include a time varying variable for changes in the land gini index over this period that enables us to overcome the limitations of previous studies a system general method of moments gmm estimator is used to generate truly unbiased and consistent estimates for the parameters of interest we explore some of the likely channels through which asset distribution and economic growth may be linked paying particular attention to the role of secure property rights and the relations between land ownership and education we find robust and significant negative signs for land inequality in the growth regressions indicating that changes in asset distribution are an important factor for economic development

the debt crisis structural explanations of country performance abstract this paper develops a cross country statistical model of debt rescheduling and the secondary market valuation of ldc debt which links these variables to key structural characteristics of developing countries such as the trade regime the degree of income inequality and the share of agriculture in gnp our most striking finding is that higher income inequality is a significant predictor of a higher probability of debt rescheduling in a cross section of middle income countries we attribute this correlation to various difficulties of political management in economies with extreme inequality we also find that outward orientation of the trade regime is a significant predictor of a reduced probability of debt rescheduling

inequality and political violence revisited in their 1987 article in this review muller and seligson used logged ordinary least squares lols to estimate the effect of income inequality on cross national levels of deaths by political violence t y wang challenges the robustness of the main conclusion and argues for the application of a maximum likelihood approach the exponential poisson regression epr model rather than lols he concludes that the widely used lols approach yields misleading conclusions when applied to event count data dixon muller and seligson replicate previous work using both lols and epr approaches and conclude that in most but not all respects the two approaches yield similar results supporting the effect of inequality when the specifications are identical they also argue in response to concerns expressed by brockett 1992 that the inequality results are robust when account is taken systematically of the best information on underreporting of deaths

seat vote curves loyalty effects and the provincial distribution of canadian government spending federal government spending in the canadian provinces for 1962 2002 is examined with emphasis on the role of seat vote elasticities in majoritarian electoral systems fixed effects regressions establish that per capita federal spending in a province increases with political competition as measured by provincial seat vote elasticities and with loyalty to the federal government as measured by the degree of provincial support for the federal government however too much loyalty can be counter productive because very loyal provinces are uncompetitive with low seat vote elasticities

ideology and the size of us state government this paper theorizes that the impact of ideology on the size of us state governments increases with state income this idea is tested using state level ideology data derived from the voting behavior of state congressional representatives empirically the interaction of ideology and mean income is a key determinant of state government size at 1960s levels of income the impact of ideology is negligible at 1997 levels of income a one standard deviation move towards the left of the ideology spectrum increases state government size by about half a standard deviation estimated income elasticities differentiated by state and time are found to be increasing with ideology and diminishing with income as predicted by the theory

is there a trade off between income inequality and corruption evidence from latin america abstract in contrast to other research lower corruption is associated with higher income inequality this result is consistent with the idea that the corruption inequality relationship may be different where there is a large informal sector as in latin america

inequality and insurgency maldistribution of land in agrarian societies is commonly thought to be an important precondition of mass political violence and revolution others argue that because of the difficulty of mobilizing rural populations for political protest land maldistribution is irrelevant except as part of an inegalitarian distribution of income nationwide these rival inequality hypotheses have significant implications with respect to the kinds of reforms likely to reduce the potential for insurgency in a society they are tested using the most comprehensive cross national compilation of data currently available on land inequality landlessness and income inequality support is found for the argument that attributes the greater causal import to income inequality moreover the effect of income inequality on political violence is found to hold in the context of a causal model that takes into account the repressiveness of the regime governmental acts of coercion intensity of separatism and level of economic development

hold your nose and vote corruption and public decisions in a representative democracy this paper analyzes how corruption alters policy decisions in democracy and examines whether this distortion can result in a long term persistence of corruption even when the voters are well informed and rational by applying a citizen candidate model of representative democracy the paper analyzes how corruption distorts the allocation of resources between public and private consumption altering the policy preferences of elected and nonelected citizens in opposite directions the outcome is a reduction in real public expenditure and if the median voter s demand for public goods is sufficiently elastic a reduction in taxes in this case some citizens benefit indirectly from corruption the paper also presents some empirical evidence that in democratic countries corruption results in lower tax revenue and proceeds to show that when this occurs citizens anticipating a shift in preferences in favor of public expenditure may support institutions that favor corruption this result complements the findings of other studies that have attributed the persistence of corruption in democracy to some failure on the part of the voters or the electoral system it also bears implications for developing effective anticorruption strategies and for redefining the role that can be played by the international community

institutional quality thresholds and the finance growth nexus using an innovative threshold estimation technique this study examines whether the growth effect of financial development in countries with distinct levels of institutional development differs the results demonstrate that there is a threshold effect in the finance growth relationship specifically we found that the impact of finance on growth is positive and significant only after a certain threshold level of institutional development has been attained until then the effect of finance on growth is nonexistent this finding suggests that the financial development growth nexus is contingent on the level of institutional quality thus supporting the idea that better finance i e financial markets embedded within a sound institutional framework is potent in delivering long run economic development

the size and composition of government expenditure abstract this paper tests several leading hypotheses on determinants of government expenditure the purpose is to avoid omitted variables bias by testing the prominent theories in a comprehensive specification to identify persistent puzzles for the current set of theories and to explore those puzzles in greater depth by looking at the composition of government expenditure and the level of government at which it takes place as well as its magnitude using government financial statistics data from the imf covering over 100 countries from 1970 2000 i look at cross sectional and inter temporal variation in government expenditure and both individual categories of expenditure such as defense education health care and different levels of government central and local among other results i find a new explanation for wagner s law widespread evidence that preference heterogeneity leads to decentralization rather than outright decreases in expenditures that a great deal of the expenditure associated with increased trade openness is not in categories that explicitly insure for risk and evidence that both political access and income inequality affect the extent of social insurance

globalisation institutional reforms and financial development in east asian economies this study investigates the dynamic effects of globalisation on institutions and financial development in east asian economies using panel data tests our empirical results demonstrate that globalisation has a significant influence on institutional quality and that institutional reforms in turn facilitate and support financial development in particular the development of the banking sector in east asia globalisation is also found to have a favourable direct impact on stock market development without passing through an institutional quality channel

capital account liberalisation and poverty how close is the link the literature on the theoretical and empirical aspects of the relationship between finance and economic growth is both substantial and extensive the same cannot be said on the relationship between financial development and poverty reduction an equally important aspect in this study we visit the theoretical arguments and conduct an empirical analysis of the relationship between the capital account dimension of financial liberalisation and poverty for developing countries for the period 1985 2005 in particular we employ the system gmm technique to test whether capital account liberalisation has helped alleviate poverty and also whether the extent to which capital account liberalisation affects poverty depends on the quality of institutions we also use ols and iv techniques to verify our findings our findings indicate that there is no statistically significant relationship between the degree of capital account liberalisation during the period and the poverty rate developing countries with higher institutional quality have lower poverty rates but the effect has low statistical significance a higher degree of capital account liberalisation is associated with a lower income share for the poor

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

poverty targeting resource degradation and heterogeneous endowments a micro simulation analysis of a less favored ethiopian village persistent and widespread poverty in less favored areas lfas is attributed to fragile natural resources and poor markets limited assets may keep households outside the reach of poverty policies targeted at lfas we explored in a stylized manner the role of heterogeneous household assets for 1 policies aimed at poverty reduction 2 within village income inequality and 3 soil erosion with a farm household micro simulation model we analyzed for each household in a remote ethiopian village three sets of policies technology improvement infrastructure investment and off farm employment through migration or cash for work cfw programs combating poverty with a single policy migratory off farm employment reduces the poverty headcount most because of self selection cfw programs performed best in terms of reaching the poorest of the poor cfw also reduced within village income inequality most while a price band reduction increased income inequality only technology improvements resulted in a trade off between poverty and soil erosion price band and off farm employment policies reduced erosion while outperforming technology improvements in terms of poverty reduction we found that combining two policies was most helpful in assisting poorer households to overcome the limitations of their asset endowments a cfw program combined with reduced price bands yielded most in terms of poverty reduction and income inequality this policy complementarity is however less important for better endowed households reducing the reliance of households on agriculture offered a win win situation of reducing poverty and maintaining natural resources combining policies helped to overcome asset limitations to target policies to the poorest households and to reduce income inequalities

policy volatility institutions and economic growth abstract in this paper we present evidence that policy volatility exerts a strong and direct negative impact on growth using data for 93 countries we construct measures of policy volatility based on the standard deviation of the residuals from country specific regressions of government consumption on output undisciplined governments that implement frequent and large changes in government spending unrelated to the state of the business cycle generate lower economic growth we employ both instrumental variables and panel estimation to address concerns of omitted variables and endogeneity a 1 standard deviation increase in policy volatility reduces long term economic growth by about 0 74 in the panel regressions and by more than 1 percentage point in the cross section

external sector and income inequality in interdependent economies using a dynamic panel data approach abstract by using a panel of countries for 1960 1995 we show that the intensity of capital controls the exchange rate the type of exports and the volume of trade appear to affect the long run distribution of income

transmission loss allocation i single energy market this paper presents a new methodology for allocating transmission losses to the participants of a single energy market the proposed approach is based on the incremental transmission loss concept and is implemented through two models basic and extended in the basic model the total system losses are estimated through the linear dc load flow equations while the extended model uses the exact ac formulation the concept of center of losses is used a fictitious bus in the system network where all transactions are compensated for transmission losses both models provide a sharing of transmission losses among generators and loads based on a predefined proportion for instance 50 50 for each participant class some important aspects related with the allocation fairness and transparency are illustrated by numerical applications with the ieee reliability test system the extension of this methodology to interconnected energy markets is treated in a companion paper

inequality and institutions abstract this paper presents theory and evidence on the relationship between inequality and institutional quality we exhibit a model in which the two may dynamically reinforce each other and set to test this relationship with a broad array of institutional measures the double causality between institutional strength and a more equal distribution of income is empirically established using dynamic panel and linear feedback analysis

the political economy of fiscal deficits a survey this paper surveys recent literature both theoretical and empirical regarding political explanations for fiscal deficits political economy suggests conflicts of interest may lie behind the emergence of deficits 1 opportunistic politicians generate deficits to win elections even in conflict with general welfare 2 conflicts of interests between politicians partisan preferences create incentives for at least some incumbents to run deficits and 3 conflicts of interest between different social groups or regions generate tensions in the allocation of government resources leading to overspending this paper reviews these different strands of the literature it also covers contributions that highlight the crucial role of budget institutions in determining the extent to which the political motivations to generate deficits are indeed translated into poor fiscal outcomes promising avenues for future research are highlighted

a new methodology for cost allocation of transmission systems in interconnected energy markets this paper presents a new methodology for allocating transmission system costs in single or interconnected energy markets initially the proposed method allows the decomposition of the total transmission cost into two components the first corresponds to the utilized network capacity estimated at a specified operating condition and the second refers to the transmission capacity available but not used in the system a technique for decomposing nodal tariffs per subsystem guarantees the applicability of the method to interconnected markets from the proposed procedure it is possible to determine the responsibility of each participant or group of participants in the use of any specified set of transmission elements the flexibility of this method allows the establishment of criteria based on economic and technical aspects for cost allocation of internal circuits of each subsystem as well as of the tie elements between the subsystems important characteristics of the proposed methodology such as transparency impartiality and flexibility are analyzed and illustrated based on numerical applications with the ieee reliability test system experience with the brazilian transmission network is also discussed