Essays in public Economics

Abstract

This dissertation consists of two essays of public economics. In the first essay, I build a new and rich quantitative model of unsecured and secured debt to study the impact of the 2005 bankruptcy reform law on the foreclosure crisis during the great recession. I find that the bankruptcy reform did not significantly affect the foreclosure rate, but it moderately lowered the foreclosure rate by raising the opportunity cost of a bad credit record, thereby making households less likely to default simultaneously on mortgage contracts and on unsecured credit contracts. In the second essay, I use a game theoretical model to show how political institutions shape prospects of economic growth. The study predicts that everything else equal, economies that are the most likely to grow are those with the strongest political institutions: the lowest probabilities of occurrence of a coup d'etat and the lowest probabilities of falling in an absorbing state of dictatorship. Consistently with empirical facts on growth, the relationship predicted between dictatorship and economic growth by the model is a non-linear one: given a probability of falling in the state of dictatorship, the occurrence of growth depends on the discount factor of citizens. The essay also shows that even when the economy is already growing as a dictatorship, a one-shot transition to democracy is still desirable to citizens as it reduces the payoffs that are necessary to provide dynamic incentives to politicians in power.