“Studies have highlighted the role of electoral competition in directing the flow of public funds. Analysing data from India, this column finds lower income inequality and polarisation in tightly contested constituencies, implying that the poor gain more from electoral competition relative to the rich.
Accountability is central to the concept of democracy. Elected politicians are answerable to their constituencies. Moreover, they have the authority and wherewithal to affect the economic conditions of the citizens in the constituencies. This is because political power necessarily comes with some control of the purse strings: targeting of government schemes (be it welfare or employment generation or poverty alleviation), and provision of local public goods and services (health facilities, schools, road construction, public lighting, etc.). While the former can directly influence the economic prosperity of citizens, the latter does so in more indirect and subtle ways…”
A new discussion paper by Miguel León-Ledesma and Jaime Orrillo, KDPE 1610, October 2016
The cyclical behaviour of firm bankruptcy displays a clear counter-cyclical pattern: firms tend to go bankrupt in recessions. This leads to an amplification of business cycles and has important consequences to understand asset prices and the evolution of other macro variables like employment. However, macroeconomic models in which firms are allowed to go out of business are scarce. In this paper, we take a step in the direction of understanding the general equilibrium effects of default and bankruptcy.
A new discussion paper by Jean-Pascal Nganou, Juste Somé and Guy Tchuente, KDPE 1609, September 2016
This paper estimates government spending multiplier for natural resource-rich lowincome countries (LICs). The government spending multiplier is the ratio of a change in national income to any autonomous change in government spending.
A new discussion paper by Marine Carrasco and Guy Tchuente, KDPE 1608, September 2016
In many empirical works in economics, the aim of the researcher is to establish a causal or a noncausal relationship between two variables. Because unobserved variables affect most economics variables, identification and estimation of parameters of interest suffer from the endogeneity problem. In presence of endogeneity, identification of the causal parameter of interest is achieved using instrumental variables. The instrumental variables are assumed to be highly correlated with the right-hand side endogenous variables (strong) and uncorrelated with the structural error (valid or respecting the exclusion restriction).