Judicial review and the power of the executive and legislative branches

The legal system can affect what policies a government can implement. In particular, when there is separation of powers, the strength of the judiciary to review and overturn actions of the executive and legislative branches can affect such things as how much redistribution these policy-making branches can do. Surprisingly, having judicial review helps the policy-making branches—the stronger is the judiciary, the more redistribution they are able to do. This occurs because the policy-making branches must make promises on and off the equilibrium path to individuals in order to make redistribution possible. However, in many circumstances, the government wants to renege on these promises, either to do more redistribution than promised or to not carry out severe threats against any individuals who lied. Judicial review can prevent reneging on these promises, thus making them credible.We develop this in the context of an optimal income tax model with a finite number of individuals where the government knows the exact distribution of types but not which individual is of which type. In this finite model, the government can detect misrevelation by even a single individual so that an individual׳s taxes can depend not just on one׳s own actions but also on others’ actions. Piketty (JET, 1993) showed that the government could implement any full-information Pareto optimal allocation if the government could commit to its announcements, even to infeasible allocations in circumstances after some individuals misreveal. We derive the sequential equilibrium allocations when individuals reveal their types by simple announcements when feasibility on and off the equilibrium path is imposed. Increasing the degree of judicial review expands the set of achievable allocations on the full-information utility possibility frontier. We also relate the different possible legal rules to different solution concepts in game theory.     

A model of Chinese central government

Why was the Chinese State able to promote economic growth during the reform era, yet has been unable to do so over the previous 30 years? In this article, we focus on a specific aspect of the question, which will contribute to the development of a more comprehensive explanation: the specific institutional arrangement that may induce the autocratic government to adopt growth‐enhancing policies. We consider a standard political‐agency model (Besley, 2006) where the incumbent leader may or may not be congruent, and where, to maintain power, both leader types need the support of the selectorate, an elite group having a say in selecting the leader, as well as associated access to special privileges. Primarily, we find that in autocracies, without electoral discipline to restrain the opportunistic behaviour of a leader, the size of the selectorate should be intermediate; if it is too small, the selectorate is captured by the leader and has no disciplinary role, but if too big, the leader's incentives are diluted.     

Regime security and taxation in autocracies: Who is taxed and how?

We study taxation by autocratic rulers. Using a detailed dataset on government finances in 105 autocracies from 1950 to 2004, we find that despotic autocrats, who are defined as personally concentrating all decision-making power and as not relying on elites for regime support, tend, with a middle class absent, to use lower personal income taxes in face of a threat of rebellion from the population-at-large and to use higher land and property taxes to financially repress elites. When the threat to the regime is from elites, taxation is the converse, with the tax burden on elites is relaxed. Our empirical results show how autocratic rulers choose forms of taxation with awareness of elites and the population-at-large as groups that can threaten regime security.     

转型社会中财政对收入分配的影响——基于我国不同发展阶段的理论实证

财政对收入分配的影响不仅限于再分配更在于初次分配环节。文章借助数理模型分析了我国不同阶段财政对收入分配的作用机制,研究表明:(1)财政制度安排影响要素分配和分配基本格局。初次分配格局确定后,再分配调节作用有限。长期中,财政将通过居民要素结构影响收入分配;(2)我国不同阶段的分配状况是财政体制和发展战略目标的必然结果;(3)构建和谐社会条件下,财政支出结构将有利于人力资本积累、提高收入水平、缩小收入差距。     

Labor policies and capital mobility in theory and in EMU

Europe׳s Economic and Monetary Union (EMU) was characterized by large international imbalances and uneven national labor market reforms. In this paper׳s model, labor policies that aim to increase the welfare of capital-poor individuals within each country are influenced by financial integration across differently capital-abundant countries. The model predicts that capital outflows should be associated with labor market deregulation, as was the case in EMU, and helps interpret inequality developments and policy tensions in that experience.     

Coups,regime transitions,and institutional consequences

Coups and regime transitions are events that typically are intended to change the basic institutional framework of a country. Which specific institutions change and the consequences of these changes nevertheless remains largely unknown. Change after a coup or transition implies that some form of political or judiciary barrier has been erected or removed. We therefore focus on what happens to the quality of judicial institutions and political corruption around coup attempts and other types of regime transitions. We hypothesize that when coups are conducted by members of the incumbent political elite, they are likely to remove barriers to change while coup makers outside of the ruling elite are more likely to do the opposite and thus protect themselves from what remains of the elite in the political system. Using the new Bjørnskov-Rode coup dataset, our results suggest that successful coups are associated with degradation of institutions, with successful military coups in particular having a significant negative effect. Results are more varied for civilian coups where we find indications of differences depending on whether the coup makers are part of a political elite or not. We also explore whether the incumbent regime influences the effect of coup attempts on institutional change.     

Political regimes and financial crises

This study investigates how democratic or autocratic regimes, their transitions, and durations, affect the probability of experiencing financial crises. The empirical strategy employs novel instruments and Lewbel's method to address potential endogeneity concerns. The results reveal that democratic transition reduces the probability of crises by around seven percent, whereas autocratic switchovers enhance the crises likelihood by twelve percent. The findings remain robust in presence of a number of heterogeneity checks, with alternative measures of crises indicators, and employing different proxy for democratic transition. Thus, institutions in transition countries could play important role in managing such financial upheavals.     

Technology adoption in autocratic economies: The role of fiscal capacity

What determines technology in autocratic regimes? In this paper, I assume that a rent-extracting regime can adopt technology from the global technology frontier, tax-paying citizens can oust the regime, and technology can decrease the ousting cost. I show that a lack of fiscal capacity can increase technology by preventing the ousting constraint from binding. Consistent with this prediction, tax collections and total factor productivity are negatively related in autocratic regimes. Extensions show that natural resources can divorce fiscal revenues from technology, which can encourage technology blocking. However, if technology adoption is socially costly, autocratic regimes can adopt too much technology.     

TIME UNDER AUTOCRATIC RULE AND ECONOMIC GROWTH

We investigate how the length of time a country's regime was autocratic between 1920 and 2000 is correlated with economic growth and per capita income. We find that the longer a country was within an autocracy, the lower is the country's economic performance, even after controlling for other factors. We also find the length of time a country is not autocratic is positively related to growth and income. We claim this evidence is consistent with the thesis that one reason why some countries have had difficulty adjusting to life after autocracy is that the human and social capital necessary to make markets “work” eroded under autocratic regimes and take time to develop afterward. (JEL O17, O43, P0)     

Biased managers as strategic commitment: The relative profit approach

This paper analyzes a duopolistic model wherein each firm׳s owner can hire a biased manager for strategic reasons. We focus on the situation wherein each firm׳s owner evaluates the performance of her/his manager on the basis of her/his relative profit, which is equal to the weighted sum of her/his absolute profit and the absolute profit of her/his opponent firm. We show that in both price-setting and quantity-setting competitions, the owners of the two private firms employ aggressive managers rather than absolute profit maximizing managers regardless of the degree of importance of each firm׳s relative performance. Furthermore, in both the price competition and the quantity competition, as the degree of importance of each firm׳s relative performance increases, we show that the firms׳ owners tend to hire more aggressive managers when the degree of importance of each firm׳s relative performance is sufficiently low, whereas in both the price competition and the quantity competition, the firms׳ owners tend to hire less aggressive managers otherwise. Thus, in both the price competition and the quantity competition, the type of each firm׳s manager is not monotone with respect to the degree of each firm׳s relative performance. Thus, in both the price competition and the quantity competition, we find that the change in the optimal type of manager hired by each firm is non-monotone against the change of competitiveness in the market with the increase in the degree of importance of each firm׳s relative performance.     

Revisiting the redistribution effects of intergovernmental fiscal transfers: evidence from Taiwan

This paper employs a panel of 23 local governments in Taiwan over 1998–2010 to re-estimate the redistribution effects of intergovernmental fiscal transfers by considering a self-financing resources of local government as the transition variable in panel smooth transition regression models. Empirical results show that the income (or tax revenues) redistribution effects of fiscal transfer policies are nonlinear and vary with time and across local governments. The grants from central government can improve income and tax revenues distribution of local governments; however, the centrally allotted tax revenues have inverse effects and the total fiscal transfers have ambiguous effects. The total fiscal transfer is a proper policy instrument for improving income redistribution, and the grants for improving tax revenues redistribution. However, high self-financing resources ratios are harmful for these redistribution effects.     

Regime change and critical junctures

In this paper we study how a society can transition between different economic and political regimes. When the current regime is elitism, the society is modeled as a collection of units of land where at each of these units there is a member of the elite and a peasant. Under the democratic regime, at each of the units of land there is a citizen whose role is to work the land and enjoy the full output he produces. At every period with some small probability a critical juncture arrives, giving a chance for a regime change. Among others, we find that a wider output gap can increase the number of different institutions that are possible after a critical juncture and that lower land profitability makes equilibria where an extractive regime continues less likely.     

Rents, military elites, and political democracy

In autocratic regimes the military elite is in a position to extract rents, because without the support of the military the government is in general not able to sustain itself. In this paper, we empirically confirm the negative relation between transfers to the military and the degree of democracy for developing countries. We use an instrumental variable approach to account for the simultaneity that arises since the degree of democracy is itself a function of transfers to the military.     

Autocratic family policy

Families produce people. This presents a problem for autocratic regimes. On the one hand, familial production benefits the autocrat by augmenting the future productivity of the labor force. On the other hand, familial production threatens the autocrat by drawing current resources and loyalty away from the collective. This paper presents a theory of autocratic family policy in which the deciding factor is how much present control over resources an autocrat is willing to forego for future control. I apply this theory to the Soviet Union, arguing that the somersault of Soviet family policies (1917–1944) was a response to this tradeoff under different conditions.

     

Rent extraction,revolutionary threat,and coups in non-democracies

This paper studies the political turnover process in autocracies due to coup d’états. We present a model in which autocratic rulers are politically constrained both by the elite and by the street. These political constraints are inter-related such that when leaders extract rent from the economy on behalf of the elite they increase the probability of facing a revolt in the street. We suppose that rulers differ in the efficiency with which they extract rents and citizens make inferences about the ruler’s type when idiosyncratic shocks occur. Equilibria are characterized in which elite-led coups serve to reset citizens’ beliefs about the leader’s type and pre-empt revolutions during periods of popular unrest. We then investigate the empirical implications using panel data on popular unrest and coups in sub-Saharan Africa. OLS and IV estimates support the causal mechanism highlighted in our theory. The magnitude of the effect is substantial – a one standard deviation increase in protest intensity increases the probability a coup occurs by a factor of almost three in our baseline IV specification.     

Democracy,inequality and the environment when citizens can mitigate health consequences of pollution privately or act collectively

We study the political economy of the environment in autocratic, weak and strong democracies when individuals can mitigate the health consequences of domestic pollution privately as well as control pollution collectively through public policies. We consider a small open economy with comparative advantage in dirty goods. With costly private mitigation, income inequality leads to an unequal distribution of the burdens of pollution (in accordance with the evidence). We show that the eco-friendliness ranking of political regime types varies with the cost of private mitigation and that increased inequality has non-monotonous effects on equilibrium pollution levels. In weak democracies, the political equilibrium may be characterized by low environmental standards but highly restricted trade, thus leading to ambiguous outcomes regarding pollution levels.     

Let׳s talk it over: Coordination via preplay communication with level-k thinking

This paper reconsiders Farrell׳s (1987) and Rabin׳s (1994) analyses of coordination via preplay communication, focusing on Farrell׳s analysis of Battle of the Sexes. Replacing their equilibrium and rationalizability assumptions with a structural non-equilibrium model based on level-k thinking, I reevaluate Farrell and Rabin׳s assumptions on how players use language and their conclusions on the limits of communication in bringing about coordination. The analysis partly supports their assumptions about how players use language, but suggests that their “agreements” do not reflect a full meeting of the minds. A level-k analysis also yields very different conclusions about the effectiveness of communication.     

社区精英与社会成本:对苏南乡镇企业改制的一个解释

苏南乡镇企业崛起的核心在于社区集体,但是社区精英的意志在后续发展中愈发独裁,作为名义所有者的社区集体逐渐失去话语权,最终导致社区企业的"去社区化"。其中,社区精英扮演了重要的角色,在推动乡镇企业改制的同时,实现了社会成本的转移,使苏南地区三大差别扩大。     

Team production,endogenous learning about abilities and career concerns

This paper studies career concerns in teams where the support a worker receives depends on fellow team members׳ efforts and abilities. In this setting, by exerting effort and providing support, a worker can influence her own and her teammates׳ project outputs in order to bias the learning process in her favor. To manipulate the market׳s assessment, we argue that in equilibrium, a worker has incentives to help or even sabotage her colleagues in order to signal that she is of higher ability. In a multiperiod stationary framework, we show that the stationary level of work effort is above and help effort is below their efficient levels.     

Oil dependency and exchange rate regimes in Arab oil economies: time to rethink the paradigm

This study examines implications of the current exchange rate regimes on the macroeconomic and growth performance of five Arab oil-producing countries: Saudi Arabia, the UAE, Sudan, Algeria and Yemen. The study evaluates alternative exchange rate regime policy options towards exploring an optimal exit strategy to ensure successful transition to more sustainable exchange rate regime, especially in the fixed regime economies of Saudi Arabia and the UAE. This study proposes the adoption of a transparent broad basket, band and crawl (BBC) regime by the Arab oil economies in order to provide a better alternative to the existing fixed pegs or dirty floats. However, it is imperative to note that, the timing of the exit from the current regime and the extent of institutional development and market sophistications are very critical to successful transition to more sustainable regime that would provide a larger scope for counter-cyclical policies and diversification in these economies.