Governance and economic growth

Because protection of property rights cannot be appropriated by any individual, it is widely recognized as being the state's responsibility. Moreover, recent empirical evidence suggests that protection of property rights leads to higher investment levels and faster growth. The extent of property rights protection differs significantly across countries. The author integrates the emergence of property rights within a simple growth framework. Drawing on North (1990), he presents a model where economic performance and enforcement of property rights may reinforce each other.Initial conditions determine the economy's convergence to a high-income or a low-income steady state. Existing empirical evidence offers tentative support for this theory.Judicial System Reform,Labor Policies,Economic Theory&Research,Environmental Economics&Policies,Common Property Resource Development,Economic Theory&Research,Inequality,Common Property Resource Development,Environmental Economics&Policies,Governance Indicators

Endogenous Reversals of Fortune

The phenomenon of systemic changes in the fortunes of social groups is hard to reconcile with traditional macroeconomic models of intergenerational mobility. This paper, therefore, proposes a theory of endogenous reversal of fortune, whereby instilling strict work norms is an instrument to address moral hazard in poor families more so than in rich families, which is consistent with empirical regularities pertaining to work attitudes. The mechanism implies that hard-working children of the poor may eventually overtake leisure-prone children of the rich. This evolution, in particular, of work norms, is endogenously determined and is, therefore a better explanation of the rise and the fall of population groups than existing theories that rely on exogenous ability variations.work norms, intergenerational income mobility

The Political Economy of Sustainable Federations

This paper studies a constitutional framework that enables sustainable federative agreements. In the model, districts decide on local policies and envision the possibility of entering a federation. Focusing on rules for legislative bargaining in the federation, I find that a non-egalitarian bargaining rule, which assigns policy making power to one of the district's representatives is welfare inferior to the decentralized status quo. In contrast, under an egalitarian bargaining procedure, federation yields a welfare superior outcome. The analysis indicates the desirability of making such egalitarian bargaining rules credible.

The political economy of public spending on education, inequality, and growth

Public provision of education has often been perceived as universal and egalitarian, but in reality it is not. Political pressure typically results in incidence bias in favor of the rich. The author argues that the bias in political influence resulting from extreme income inequalities is particularly likely to generate an incidence bias, which we call social exclusion. This may then lead to a feedback mechanism whereby inequality in the incidence of public spending on education breeds higher income inequality, thus generating multiple equilibria: with social exclusion and high inequality; and with social inclusion and relatively low inequality. The author also shows that the latter equilibrium leads to higher long-run growth than the former. An extension of the basic model reveals that spillover effects among members of social groups differentiated by race or ethnicity may reinforce the support for social exclusion.Public Health Promotion,Environmental Economics&Policies,Decentralization,Economic Theory&Research,Health Monitoring&Evaluation,Inequality,Poverty Assessment,Governance Indicators,Achieving Shared Growth,Economic Theory&Research

Sobre los determinantes y efectos de la influencia de politica (On the Determinants and Effects of Political Influence)

En este trabajo se emplea una encuesta de gran alcance entre empresas de varios países para evaluar su influencia en las políticas oficiales. Se halló que la influencia guarda una relación con empresas más grandes propiedad del Estado que tienen un alto grado de concentración de la propiedad. Por el contrario, la tenencia foránea tiene escasa importancia. También se descubrió que la medida en que se considera que las políticas gubernamentales y la legislación entorpecen el crecimiento de las empresas disminuye junto con la influencia política e, independientemente, junto con el nivel de calidad institucional del país. (Disponible en inglés)

Appropriation, Human Capital, and Mandatory Schooling

Reduced inequality in human capital may reduce appropriationfrom the rich. They may therefore favor policies such as incometransfers and mandatory schooling which equalize human capital.Comparing several such policies, we find that mandatory schooling leads to higher incomes for both the rich and the poor, and increases the welfare of all. Moreover, it is the optimal policyfor the rich, even when they fully pay for the education.

Is the World Flat? Or Do Countries Still Matter?

This paper revisits the effects of a countrys institutional framework on individual firms behavior, in particular focusing on their propensity to comply with legal rules. The theoretical model presented here suggests that these effects may be of paramount significancecontrary to the recently popularized paradigm arguing that differences across countries have ceased to matter much. This papers empirical strategy consists of explaining the variation in measures of non-compliance with legal rules and employs a rich dataset based on thousands of firms from dozens of countries. We find that most of the variation emanates from country-wide differences in institutional quality, although some firm characteristics play a role as well. Our conclusion is that countries still matter in providing institutional infrastructure, which determines to a large extent the context within which firms operate.

Educational expansion : evidence and interpretation

The authors document the vast expansion of schooling over the past several decades, as well as convergence in schooling measures across countries. They make the observation that poor countries today have higher average education levels than countries at the same level of economic development had in the past. They propose a simple model that suggests that these trends can be attributed to the intertemporal expansion of the world technological frontier, which enhances the demand for schooling. Their empirical analysis supports the view that educational expansion has occurred because of the increase in demand, especially in open economies, and not because of cost-reducing improvements in the education sector.Teaching and Learning,Decentralization,Labor Policies,Economic Theory&Research,Environmental Economics&Policies,Environmental Economics&Policies,Achieving Shared Growth,Economic Theory&Research,Teaching and Learning,Inequality

Does Liberté = Egalité? A Survey of the Empirical Evidence on the Links between Political Democracy and Income Inequality

The relationship between the distribution of political rights and that of economic resources has been studied both theoretically and empirically. This paper reviews the existing literature and, in particular, the available empirical evidence.Our reading of the literature suggests that formal exclusion from the political process through restrictions on voting franchise appears to have caused a high degree of economic inequality, and democratization in the form of franchise expansion has typically led to an expansion in redistribution, at least in the small sample of episodes studied. Similarly, and more emphatically compared to the ambiguous results of the earlier research, more recent evidence indicates an inverse relationship between other measures of democracy, based on civil liberties and political rights, and inequality. The transition experience of the East European countries, however, seems to some extent to go against these conclusions. This, in turn, opens possible new vistas for research, namely the need to incorporate the length of democratic experience and the role played by ideology and social values.Democracy, freedom, inequality, redistribution

Who's Afraid of Foreign Aid? The Donors' Perspective

Since efforts by industrial countries to increase the amount of foreign aid they provide have been on the rise recently, it is important to understand the determinants involved. This paper examines the factors affecting support for foreign aid among voters in donor countries. The theoretical model, which considers an endogenous determination of official and private aid flows, suggests that government efficiency is an important factor in this regard, and also ties individual income to aid support through the elasticity of substitution. An empirical analysis of individual attitudes, based on the World Values Surveys, reveals that two factors are positively related to an individual`s willingness to support foreign aid: satisfaction with own government performance and individual relative income. Furthermore, when using donor country data, we find that aid is negatively tied to inequality, corruption and taxes. These results are quite consistent with the analytical framework.