- Spring 2021
Syllabus Description:
Why are only a handful of countries wealthy while most are poor? Why are some countries more unequal than others? What is the effect of inequality on politics and of politics on the distribution of income? What explains the strong cross-country correlation between state capacity, the rule of law, and liberal democracy?
In order to answer these and similar questions, particular emphasis will be placed on:
1) The role of the state in developing & regulating markets for capital, labor, and raw materials.
2) How the resources produced through this process are distributed.
3) The willingness and ability of governments to tax income, wealth, and consumption.
4) How governments decide to use these revenues: whether to provide public goods, redistribute them, or steal them.
A general focus on institutions, and a particular focus on why suboptimal policies are often such a resilient equilibrium, despite their socially undesired outcomes, will shed considerable light on these puzzles. This means exploring how the incentives of economic agents and the government are aligned—or not aligned—through the creation and consolidation of the rules of the game.
These institutions include laws and regulations that govern property rights and contracts, as well as their enforcement mechanisms. They are often the outcome of a political process influenced by the persistent features of a society, be they geographical, historical, cultural, or economic.
These institutions are also the product of constitutional and legal structures that are more
amenable to change. In short, we will scrutinize the logical consistency and scope conditions of theories that give pride of place to institutions, and that argue that key differences in the incentive structures engendered by these explain differences in economic policies, efficiency, and distribution.
Because the theories we will explore provide falsifiable hypotheses that can be assessed against data or experiments, we will also evaluate the validity, reliability, and robustness of the evidence summoned to support them. Special emphasis will be placed on causal inference and mechanisms. The empirical scope will encompass both the developed and developing world, and we will exploit several sources of variation, including both changes over time and differences across place