Essays in political economy in development countries [electronic resource]
Keywords: Economics.

This dissertation explores how the nexus between the government and the private sector can generate misallocation of resources in the economy, and how government tools used to reduce this problem can impact the private sector. In the first chapter joint with Felipe González we notice that political transitions are associated with significant economic changes, but little is known about how firms fare across regimes. We study Chile's transition to democracy and show that firms in the dictator's network make critical investments in physical capital before the transition takes place. These investments are made possible by government banks during the dictatorship and allow them to improve their market position in the new regime. Our results show how market distortions can be transferred across regimes and suggest limited changes in the distribution of economic power after a democratization. The second chapter joint with Emanuele Colonnelli investigates the impact of anti-corruption audits on the private sector. In particular, we study whether firms are affected by the disclosure of information about corporate misconduct. We focus on a natural experiment given by a large Brazilian anti-corruption audit program, and we estimate both a difference-in-difference and an event study model that rely on the random timing of the audits for identification. Exploiting a special feature of the auditors' instruction manual, we are able to manually construct a dataset on more than 20,000 corruption cases. This dataset is then linked to matched employer-employee data, to the universe of federal procurement contracts and government loans, as well as to in-court prosecutions. We first show that government anti-corruption audits have significant real effects on the local economy. We then find that corrupt firms suffer a drop in employment and total wages after the information about their misconduct is revealed to the public. Concurrently, the probability that the corrupt firm fires the managers or CEO increases, leading to a restructuring at the top of the organization. We conclude by discussing the channels and mechanisms at play, and the potential policy implications. Finally in the third chapter joint with Emanuele Colonnelli and Edoardo Teso, we ask how the political career of politicians affects their labor market returns. We collect data on the labor market history of Brazilian local candidates, leveraging close elections to obtain exogenous variation in political power. We find no evidence of a return to office in the labor market outside of politics. On the contrary, we show that losers obtain substantial gains following their unsuccessful race, which come in the form of better employment opportunities in the public sector. These benefits exist only for unelected candidates aligned with the mayor in power, are increasing in a candidate's electoral performance, and are strictly tied to the fortunes of a candidate's party. These findings are consistent with an insurance mechanism in which parties and coalitions reward candidates for their electoral efforts in the negative state in which they fail to be elected. We provide evidence suggesting that this system creates incentives to increase the size of public sector employment and leads to misallocation of skills in the public sector.