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Essays on political economy of fiscal policy

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Katayama, Kentaro (2014) Essays on political economy of fiscal policy. PhD thesis, University of Warwick.

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Abstract

Chapter 2 analyzes the political economy of delayed agreements over fiscal reforms, in a setting where two interest groups can bargain over the allocation of the cost of the stabilization, using an alternating offers model. This contrasts with Alesina and Drazen (1991), where the group that concedes earlier bears a fixed disproportionate share of the burden. This allows a systematic comparison of expected delay in the bargaining game, i.e., "the coalition government" and in the concession game, i.e., "the divided government". When interest groups are sufficiently patient, or when shares in the concession game are highly unequal, agreement is reached more quickly on average under bargaining. Both games have the common feature that delay signals the "toughness" of interest groups.

Chapter 3 compares default incentives in competitive sovereign debt markets when leaders can be either democratically elected or dictators. When leaders can be replaced, the incentives for repayment are mainly the ego rents from office. In a dictatorship, the cost of defaulting is the permanent loss of reputation and the loss of future access to credit. There is a trade off between repayment and risk sharing under the state-contingent optimal contracts. We show that when ego rents are high and value of reputation to dictators is low, democracies have an incentive to repay more in good states and repay less in bad states. Thus the democratic leader defaults more often, improving risk-sharing.

Chapter 4 examines the political economy of sovereign debt crises, using newly established data from 81 countries between 1975 and 2010. The empirical results validate that political factors matter for debt sustainability. I find that in a democracy, the parliamentary system is less likely to reschedule their external debt than a presidency, while rescheduling propensity of a country is increased by political instability. Also results show that public creditors (The Paris Club) tend to give a "democratic advantage" as a foreign assistance to democratic countries, in contrast with private creditors (The London Club).

Item Type: Thesis or Dissertation (PhD)
Subjects: H Social Sciences > HB Economic Theory
Library of Congress Subject Headings (LCSH): Fiscal policy, Debts, Public
Official Date: January 2014
Dates:
DateEvent
January 2014Submitted
Institution: University of Warwick
Theses Department: Department of Economics
Thesis Type: PhD
Publication Status: Unpublished
Supervisor(s)/Advisor: Lockwood, Ben ; Dhillon, Amrita
Extent: viii, 146 leaves
Language: eng

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