Essays in macroeconomics and political economy

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Essays in macroeconomics and political economy

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2014-09

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The first chapter presents a dynamic game of imperfect information that encompasses previous analyses on political budget cycles (PBCs) and matches the following recently documented facts: first, PBCs mostly occur in developing countries and are financed with debt; second, PBCs have little correlation with incumbent's reelection probability in developing countries, and third, PBCs are negatively correlated with incumbent's reelection probability in developed countries. The set of sequential equilibria of the game is shown to be tightly bound to the size of political rents. In the unique equilibrium capable of matching the three facts above, PBCs arise exclusively from the behavior of unproductive incumbents who attempt to mimic competent governments by issuing debt. I introduce a set of costly signals that convey information about incumbents' performance and show that voters acquire signals of increasing quality as economies grow. The ensuing information asymmetry across income levels is shown to generate observed PBCs patterns. I discuss possible long term effects of initial unproductive politicians in office.

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University of Minnesota Ph.D. dissertaqtion. September 2014. Major: Economics. Advisor: Christopher Phelan. 1 computer file (PDF); vii, 61 pages, appendix A.

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Lorca, Jorge. (2014). Essays in macroeconomics and political economy. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/168268.

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