Under-investment in state capacity: the role of inequality and political instability

Existing studies have shown that the state's ability to tax, also known as fiscal capacity, is positively related to economic development. In this paper, we analyze the determinants of the government's decision to invest in state capacity, which involves a trade-off between present consumption and the ability to collect more taxes in the future. Using a model, we highlight some political and economic dimensions of this decision and conclude that political stability, democracy, income inequality, as well as the valuation of public goods relative to private goods, are important variables to consider. We then test the main predictions of the model using cross-country data and find that state capacity is higher in more stable and equal societies, both in economic and political terms, and in countries where the chances of fighting an external war are high, which is a proxy for the value of public goods.

Essays in Labor and Political Economics

This dissertation consists of three chapters. The first chapter provides an overview of the dissertation by summarizing the two papers presented in the following chapters. The paper in the second chapter contributes to the labor-macro literature. More specifically, I develop a general equilibrium model with labor market search and matching frictions, endogenous labor force participation and on-the-job search, which can replicate the labor market dynamics observed in the U.S. data. Most existing real business cycle models with labor market frictions assume that all agents in the economy are part of the labor force, therefore these models allow for only two possible labor market states: employment and unemployment. This is a highly problematic and unrealistic assumption. Studies that extend the basic model by incorporating being out of the labor force as a third state, through allowing for a work-home production (or leisure) decision, find that the model generates counterfactual business cycle statistics: labor force participation is very volatile, while unemployment is weakly procyclical or acyclical, and has a high positive correlation with vacancies. The failure of this three-state model to replicate the labor market dynamics observed in the U.S. data is mainly due to the excessive responsiveness of labor force participation to labor market conditions determined by aggregate shocks to productivity. In order to dampen the movements along the labor market participation margin in the simple three-state model, I introduce an on-the-job search mechanism that serves as a second margin along which the household's labor market adjustments can take place. The proposed model successfully generates countercyclical unemployment and the Beveridge Curve relationship between unemployment and vacancies. Additionally, the business cycle statistics reproduced by the modified model are quantitatively more in line with their empirical counterparts. The third chapter presents a joint study with Mauricio Cardenas. We analyze the determinants of the government's decision to invest in fiscal state capacity, which refers to the state's power to raise tax revenue. Using a model we highlight some political and economic dimensions of this decision, and conclude that political stability, democracy, income inequality, as well as the valuation of public goods relative to private goods, are all important variables to consider. We then test the main predictions of the model using cross-country data and find that fiscal state capacity is higher in more stable and equal societies, both in economic and political terms, and in countries where the chances of fighting an external war are high, which is a proxy for the value of public goods

Network Effects in Risk Sharing and Credit Market Access: Evidence from Istanbul

It is a truism that households in developing countries that face idiosyncratic income/expenditure shocks may face difficulties in smoothing consumption through formal credit institutions, and hence rely, at least partially, on informal ties. While this issue has been explored extensively in the literature for rural areas, the picture reflecting the urban setting remains relatively uninvestigated. This paper aims to fill this gap by presenting an exclusively designed survey implemented in Istanbul. The results of a multi-stage logit estimation of the survey data indicate that monetary transfers from social networks and formal loans are complements, while general usage of network help implies an increased likelihood of asking for network help for easy and/or favorable access to credit. In addition, material security emerges as the key determinant of both eligibility for and use of a formal loan, and of having network help available in easing the loan approval process by banks.Social networks; risk sharing; credit market access; Turkey; household survey

Hospital Choice: Survey Evidence From Istanbul

This paper analyzes the patient characteristics that affect the choice between public and private health care providers in Istanbul, Turkey. In addition to socioeconomic variables, such as insurance status or income, which have often been considered in the previous literature, we also focus on another factor, the availability of social networks, which might determine ease of access to hospital services in developing countries. The analysis is based on data from a household survey conducted in Istanbul. The econometric results indicate that potential social ties play an important role in choosing public health care centers over private ones for minor health problems. As public facilities have long been characterized by long waiting lines even for appointments for medical exams, this finding indicates that households who possess higher levels of social networks might be using those in easing access to public facilities.Public vs. Private Health Care Providers; Hospital Choice; Social Networks; Household Survey; Turkey

Are exports and imports asymmetrically cointegrated? Evidence from the emerging and growth-leading economies

Knowing the possible presence of a long-term connection between exports and imports is important both for current and future macroeconomic policies and for the sustainability of the current account deficit. The existence of a long-term relationship between variables of interest implies that the countries are not in violation of their budget constraints. Moreover, it means that their macro policies are effective. In this context, this paper aims to investigate whether the long-term equilibrium relationship between exports and imports in the emerging and growth-leading economies (EAGLEs) is symmetric or asymmetric. The EAGLE is an acronym introduced by the Spanish bank BBVA in 2010. The members of the EAGLEs are Brazil, China, Egypt, India, Indonesia, Mexico, South Korea, Russia, Taiwan, and Turkey. The annual dataset covers the period from 1960 to 2017. For further comparison, on the one hand, I employed autoregressive distributed lag bound test (ARDL) for analysing symmetric long-term relation among the variables. On the other hand, asymmetric long run convergence is examined via nonlinear ARDL method. According to the results of the linear ARDL test, there exists a strong cointegration association between exports and imports for 3 out of 10 countries. However, the evidence from nonlinear ARDL test shows that the null hypothesis stating the lack of cointegration can be rejected for 8 out of 10 countries. The existence of the cointegration link amongst the series indicates that the trade imbalances are short-term phenomenon and are sustainable in the long-term. In other words, these countries are not in violation of their intertemporal budget constraint. © Baris-Tuzemen O. Text. 2019

Revisiting the role of renewable and non-renewable energy consumption on Turkey’s ecological footprint: Evidence from Quantile ARDL approach

The current study re-investigates the impact of renewable and non-renewable energy consumption on Turkey’s ecological footprint. This study applies Quantile Autoregressive Lagged (QARDL) approach for the period of 1965Q1-2017Q4. We further apply Granger-causality in Quantiles to check the causal relationship among the variables. The results of QARDL show that error correction parameter is statistically significant with the expected negative sign for all quantiles which confirm an existence of significant reversion to the long-term equilibrium connection between the related variables and ecological footprint in Turkey. In particular, the outcomes suggested that renewable energy decrease ecological footprint in long-run on each quantile. However, the results of economic growth and non-renewable energy impact positively to ecological footprint in long-short run period at all quantiles. Finally, we tested the Environmental Kuznets Curve (EKC) hypothesis and the results of QARDL confirmed the EKC in Turkey. Furthermore, the findings of causal investigation from Granger-causality in quantiles evident the presence of a bi-directional causal relationship between renewable energy consumption, energy consumption and economic growth with ecological footprint in the Turkish economy

Network Effects in Risk Sharing and Credit Market Access: Evidence from Istanbul

It is a truism that households in developing countries that face idiosyncratic income/expenditure shocks may face difficulties in smoothing consumption through formal credit institutions, and hence rely, at least partially, on informal ties. While this issue has been explored extensively in the literature for rural areas, the picture reflecting the urban setting remains relatively uninvestigated. This paper aims to fill this gap by presenting an exclusively designed survey implemented in Istanbul. The results of a multi-stage logit estimation of the survey data indicate that monetary transfers from social networks and formal loans are complements, while general usage of network help implies an increased likelihood of asking for network help for easy and/or favorable access to credit. In addition, material security emerges as the key determinant of both eligibility for and use of a formal loan, and of having network help available in easing the loan approval process by banks