Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico

Abstract

This paper shows that introducing weak property rights in the standard real business cycle (RBC) model can help to explain economic fluctuations. This is motivated by the empirical observation that changes in institutions in emerging markets are related to the evolution of the main macroeconomic variables. In particular, in Mexico, the movements in productivity in the data are associated with changes in institutions, so that we can explain productivity shocks to a large extent as shocks to the quality of institutions. We find that the model with shocks to the degree of protection of property rights only -without technology shocks -can match the second moments in the data for Mexico well. In particular, the fit is better than that of the standard neoclassical model with full protection of property rights regarding the auto-correlations and cross-correlations in the data, especially those related to labor. Viewing productivity shocks as shocks to institutions is also consistent with the stylized fact of falling productivity and non-decreasing labor hours in Mexico over 1980Mexico over -1994 which is a feature that the neoclassical model cannot match.

Market and political power interactions in Greece: an empirical investigation

“…22 The results of this section complement the findings of other strands of the literature on the role of institutions for business cycles (see e.g., Gnocchi, et al (2016)) and TFP behavior (see e.g. Angelopoulos, et al (2009) andAngelopoulos, et al (2011)). 23 This is essentially the mechanism suggested by Kollintzas et al (2017), where WPR is a focal variable.…”

1979–2001: A Greek great depression through the lens of neoclassical growth theory

“…Introducing, for example, government as well as quality of institutions (as in e.g. Angelopoulos et al (2009) or Angelopoulos et al (2011)) could be fruitful candidates. .…”

VAT Evasion in Bulgaria: A General-Equilibrium Approach

“…The setup is a micro-founded framework populated by a unit mass of households and augmented with a revenue-extraction mechanism as in Vasilev (2017). Similarly to Angelopoulos et al (2009Angelopoulos et al ( , 2011, each one-member household can decide to spend working time on rent-seeking activities and try to hide (or equivalently, "extract") part of the VAT revenue from the government. The model was calibrated to Bulgaria, as one of the few countries in Europe (and the only one in the EU) with a non-differentiated consumption tax rate, and where VAT revenue makes almost half of total government tax revenue.…”

“…The "prize," or the rent, obtained as a result of the opportunistic behavior, R it , is represented by the following technology, which is akin to the one used in Angelopoulos et al (2009Angelopoulos et al ( , 2011:…”

“…It was estimated as the average depreciation rate over the period 1999-2014. Due to the lack of additional information, the share of working time used productively, η = 2/3, was set as in Angelopoulos et al (2011) from his study on Mexico. Alternatively, the share of working time used in the VAT evasion technology, 1 − η = 1/3, could be pinned down as the average hidden employment share as estimated by Center for the Study of Democracy (2015).…”