This document is organized around "political" and "economic" institutions. We begin with the former, with a discussion of the role of the judicial system and of the separation of power followed by the electoral law and structure of parliament; and a discussion of crime prevention and criminal justice system. We then move to economic institutions; we focus on those that have to do with the bureaucracy and provision of social services; monetary and fiscal institutions, namely the Central Bank, the budget process and, especially important, the local/central government relationships.
We investigate how the number and size of local political jurisdictions in an area is determined. Our model focuses on the tradeoff between the benefits of economies of scale and the costs of a heterogeneous population. We consider heterogeneity in income, race, ethnicity, and religion, and we test the model using American school districts, school attendance areas, municipalities, and special districts. Using both cross–sectional and panel analysis, we find evidence of a significant tradeoff between economies of scale and racial heterogeneity. We find weaker tradeoffs between economies of scale and income or ethnic heterogeneity. That is, it appears that people are willing to sacrifice the most, in terms of economies of scale, in order to avoid racial heterogeneity in their jurisdiction.
This paper studies the relationship between international conflict and the size distribution of countries in a model in which both peaceful bargaining and non–peaceful confrontations are possible. We show how the size distribution of countries depends on the likelihood, benefits and costs of conflict and war. We also study the role of international law and show how better defined international "property rights" may lead to country breakup and more numerous local conflicts.
Both individual experiences and community characteristics influence how much people trust each other. Using individual–level data drawn from US localities we find that the strongest factors associated with low trust are: i) a recent history of traumatic experiences; ii) belonging to a group that historically felt discriminated against, such as minorities (blacks in particular)and, to a lesser extent, women; iii) being economically unsuccessful in terms of income and education; iv) living in a racially mixed community and/or in one with a high degree of income disparity. Religious beliefs and ethnic origins do not significantly affect trust. The role of racial cleavages leading to low trust is confirmed when we explicitly account for individual preferences on inter–racial relationships: within the same community, individuals who express stronger feelings against racial integration trust relatively less the more racially heterogeneous the community is.
Critics of foreign aid programs argue that these funds often support corrupt governments and inefficient bureaucracies. Supporters argue that foreign aid can be used to reward good governments. This paper documents that there is no evidence that less corrupt governments receive more foreign aid. This result holds for the allocation aid as well as for debt relief and it is robust across different corruption measures and for different time periods. Thus, there is no evidence that the allocation of aid or debt relief was targeted to the less corrupt countries even in recent periods. As to the dynamics of the relationship between foreign aid and corruption we find some indication that increases in aid are associated with contemporaneous increases in corruption, a result that is supportive of the so called "voracity effect".
This paper examines the regional distribution of public employment in Italy. It documents two sets of facts. The first is the use of public employment as a subsidy from the North to the less wealthy South. We calculate that about half of the wage bill in the South of Italy can be identified as a subsidy. Both the size of public employment and the level of wages are used as a redistributive device. The second set of facts concerns the effects of a subsidized public employment on individuals? attitudes toward job search, education, "risk taking" activities etc. Public employment discourages the development of market activities in the South.
This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. We find a sizeable negative effect of public spending – and in particular of its wage component – on profits and on business investment. This result is consistent with models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than those of taxes. Our results can explain the so called "non–Keynesian" (i.e. expansionary) effects of fiscal adjustments.
This paper provides a formal model of endogenous border formation and of choice of defense spending in a world with international conflict. The model is consistent with three observations. First, break–up of countries should follow a reduction in the likelihood of international conflicts. Second, the number of regional conflicts between smaller countries may increase as a result of the break–up of larger countries. Third, the size of the peace dividend — i.e., the reduction in the defense spending in a more peaceful world — is limited by the process of country break–up.