Job Market Paper
Political Turnover, Taxes and the Shadow Economy (pdf)
Abstract:
Several cross-section empirical
studies argue that a higher tax burden or different indicators
of statutory tax rates are associated with a smaller informal economy. I show
that the
turnover of governments provides the key to understanding this relation. To this
end, I
present evidence that once political turnover is controlled for, the data shows
no association
between the tax burden and the size of the informal economy. This result is
empirically robust
in a panel data consisting of 80 countries and 5 years. To account for this
observation, I
develop a dynamic political economy model with two political parties alternating
in office.
In equilibrium, if the incumbent party faces a higher probability of staying in
office, it sets
a higher tax rate to invest more in productive public capital, while spending
less for current
office rent. I argue that public capital is mainly utilized by the formal sector
and this implies
that countries in which incumbent parties are more likely to stay in power, have
a higher
tax burden but a smaller informal sector. Finally, I compare the model against
the data and
present evidence that my theory is consistent with empirical observations.
Other Papers
Not-Quite Great Depressions of Turkey (pdf) (with Deniz Cicek) (under review)
Abstract:
Following the great depressions
methodology suggested by Kehoe and Prescott (2002, 2007),
we use growth accounting and a perfect foresight dynamic general equilibrium
model to
study growth performance of Turkey from 1968 to 2004. We calculate the TFP from
the
growth accounting exercise and obtain the consumption tax rate and the effective
marginal
tax rates on labor and capital income from the data and feed them into the
model. Our
model accounts for 60% of the observed decrease in hours worked per-working age
person and
75% of the change in GDP per-capita from 1968 to 2004. Also, we
identify that
the Turkish economy experienced a depression from 1977 to 1983 and the model
performs
remarkably well to account for the observed change in GDP per-capita
and hours
worked during this depression period. Our findings generally suggest that
rigidities affecting
capital accumulation and government policies using distortionary taxes have a
crucial role
in explaining the evolution of the selected variables of the Turkish economy
Presentation Slides:
Slides (pdf)
(as presented in SED Annual Meeting, July 2009 Istanbul)
A Theory of Economic Development with Endogenous Fertility (pdf) (submitted)
Abstract:
In this paper I integrate Hansen and
Prescott (2002) with Barro and Becker (1988, 1989) to
account for the time-series evolution of output, fertility and population in
transition through
the industrialization of an economy. Specifically, I extend a standard
two-sector overlapping
generations model with endogenous fertility and human capital decisions.
Initially, the aggregate
human capital and return to education are low and parents invest in quantity of
children. Once sufficient human capital is accumulated, with the activation of
the modern
human capital intensive sector, parents start to invest in quality of their
children. The simulation
of the model economy successfully captures the evolution of fertility,
population and
GDP of the British economy between 1750 and 2000.
Presentation Slides
Slides (pdf)
(as presented in the EEA-ESEM Joint Congress, August 2009, Barcelona)
Business Cycle Accounting for the Turkish Economy (pdf) (with Deniz Cicek) (coming soon!)
Abstract:
We conduct Business Cycle Accounting
for the Turkish economy to investigate sources
of economic fluctuations within the framework of a standard neoclassical growth
model
with time-varying wedges, using yearly data from 1968 to 2004 and quarterly data
from
1998 to 2007. We then compare the relative importance of different wedges: Labor
wedge,
efficiency wedge, investment wedge and income accounting wedge. The main finding
is that
the efficiency wedge accounts for most of the fluctuations in output,
consumption, investment
and hours of work. This finding suggests that the frictions affecting
productivity are very
important to understand the evolution of the Turkish business cycles. Our
results shed light
on several promising directions for future research on Turkey.
Work in Progress
Central Bank Independence and Inflation: Delegation vs. Seesaw Effects (with Deniz Cicek)
Abstract:
We investigate whether a reform in monetary policy can cause a deterioration in another
policy dimension, such as in fiscal policy. To this end we model a policy game between
monetary and fiscal authorities and consider the interaction between the monetary policy
of a central bank and the fiscal policy of a government when the central bank is partially
independent. A policy reform of increasing the central bank independence leads to a less
expansionary monetary policy but can cause a deterioration in fiscal policy. We call the first
effect the delegation effect and following Acemoglu et. al. (2008) the second one the seesaw
effect. Provided that the latter effect is stronger, increasing central bank independence even
leads to a higher inflation rate. We empirically present evidence in a panel data to support
the presence of these two effects that a change in the degree of independence can cause.
Informal Sector and Government Commitment (with Mario Solis-Garcia)
Abstract:
Why do some countries have an informal sector which is of significant
size, while others do not?In this paper, we argue that this phenomenon can
be explained by the ability of a country's government to commit to an announced tax policy.
Furthermore, we show that the size of theinformal sector shows persistence,
lagging the government's degree of commitment for some
periods.
Great Depression of South Africa
Abstract: (coming soon!)
coming soon