Essays on political institutions and macroeconomics

This dissertation consists of three chapters on the interaction of political institutions and macroeconomic activity in dynamic environments. Chapter 1 studies the optimal management of taxes and debt in a framework which relaxes the standard assumption of a benevolent government. We assume instead the existence of a self-interested ruler who manages the government budget. Unlike in the standard economy, temporary economic shocks generate persistent changes in taxes and debt along the equilibrium path so as to optimally limit rent-seeking by the ruler. The presence of political economy distortions causes the debt market which is complete to behave as if it were incomplete. In contrast to an incomplete market economy, taxes are positive in the long run. A numerical exercise suggests that the welfare cost of political economy distortions is high if the government chooses suboptimal politically sustainable policies which do not respond persistently to shocks. This is because the government over-saves and resources are wasted on rents. Chapter 2 studies the dynamics of war and peace in an environment with two groups seeking resources from each other. Peaceful compromise is subject to limited commitment and informational frictions since groups cannot commit to concession-making and the private cost of concession-making can be extremely high.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2007

Author dc:creator

• Yared, Pierre

Advisor dc:contributor.advisor

• Daron Acemoglu.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/39722

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/39722