Trade liberalization and political separatism go hand in hand. In a world of trade restrictions, large countries enjoy economic benefits because political boundaries determine the size of the market. In a world of free trade and global markets even relatively small cultural, linguistic or ethnic...

This paper shows that smaller countries have larger public sectors as a share of GDP, and are also more open to trade. These empirical observations are consistent with recent theoretical models explaining country formation and break up

This paper analyzes a model in which different rational individuals vote over the composition and time profile of public spending. Potential disagreement between current and future majorities generates instability in the social choice function that aggregates individual preferences. In...

This paper considers an economy in which policymakers with different preferences concerning fiscal policy alternate in office as a result of democratic elections. It is shown that in this situation government debt becomes a strategic variable used by each policymaker to influence the choices of...

Many countries, especially developing ones, follow procyclical fiscal polices, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for...

Opportunistic politicians maximize the probability of reelection and rents from office holding. Can it be optimal from their point of view to delegate policy choices to independent bureaucracies? The answer is yes: politicians will delegate some policy tasks, though in general not those that...

We survey and assess the literature on the positive and negative effects of ethnic diversity on economic policies and outcomes. Our focus is on both focus both cities in developed countries (the US) and villages in developing countries. We also consider the endogenous formation of political...