Semester

Summer

Date of Graduation

2003

Document Type

Dissertation

Degree Type

PhD

College

Chambers College of Business and Economics

Department

Economics

Committee Chair

Russell S. Sobel.

Abstract

This dissertation is a collection of essays that focus on the effects of government intervention on economic outcomes. The work is empirical in nature and incorporates cross-country comparisons to highlight the effect governments potentially have in influencing the working of markets. The essays in this dissertation ask what governments actually do and why, what governments should avoid doing, and finally, what governments should undertake to foster economic progress. Chapter one is a short introduction to the role governments play in modern societies. Chapter two considers what governments do and why, focusing on fiscal illusion. Contrary to the fiscal illusion hypothesis, this study finds that an increase in the share of indirect taxes actually decreases the size of government as a share of GDP. It is hypothesized that this result could stem from politicians' desire to design such tax structures that minimize the political resistance for tax increases. As with fiscal illusion, there is no guarantee that this outcome would be optimal in terms of excess burden of taxation. Chapter three analyzes the effectiveness of international development aid. The results of this chapter indicate that development aid does not seem to improve economic growth. It is hypothesized that this result may emanate, among other things, from the harmful incentive aid imposes upon work effort, and from tied aid that may lead to misallocation of recipient countries' scarce resources. Chapter four concentrates on governments' role in post-socialist economies in fostering entrepreneurial activity, looking at the policies and institutions that appear to be the most highly correlated with a country's success (or failure) in promoting entrepreneurial activity. The results of this essay indicate that to be successful, the presence of enabling environment, i.e., economic freedom and "good" policies---such as low taxes, low regulations, and secure private property rights---is of crucial importance. Chapter five provides a summary of the results of the dissertation and discusses potential directions of future research investigating fiscal illusion, international development aid and entrepreneurship in transition economies.

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