This thesis explores the determinants of tax evasion and their implications for tax policy, with a special focus on taxation in developing countries. Chapter 1 studies how the transition from self-employment to employee-jobs over the long run of development explains the rise of the modern tax system. I construct a new microdataset, covering 90 countries at all levels of development today and 140 years within the US between 1870 and 2010. Using these data, I provide new stylized facts: within country, the share of employees increases over the income distribution, and increases at all levels of income as a country develops; 2) the income tax exemption threshold moves down the income distribution as a country develops tracking employee growth. I provide a causal estimate of the impact of employee-share on the exemption threshold and on tax revenue, by studying a state-led development program which was implemented across US states in the 1950s-60s. I find that the exogenous increase in employee share is associated with a lower state income tax threshold and higher revenue. Chapter 2 studies individual and social motives in tax evasion. We build a dynamic model that incorporates these motives, their interactions, and where social motives underpin the role of norms. Our empirical analysis exploits the adoption in 1990 of a poll tax to fund local government in the UK, which led to widespread evasion, and a series of natural experiments due to narrow election outcomes, which induce shifts into single-majority local governments and lead to more vigorous enforcement of local taxes. The econometric results are consistent with the model’s main predictions on the dynamics of evasion. Chapter 3 studies the impact of access to formal finance and firm size on tax inspection and tax compliance. We use firm-level data on 108,000 firms across 79 countries in the World Bank Enterprise Surveys. We instrument for finance and firm size at the industry-level using an out of sample extrapolation strategy related. We find a large and positive effect of firm size on both tax inspection and sales tax compliance, but no overall significant impact of reliance on external finance.

My purpose is to build an explanation of production that takes time into account. Adam Smith and the English Classical economists approached the problem by studying the relation between profits and wages or wages and capital. they emphasise the time aspect of production by saying that capitalists "advance" wages to labour long before its final consumption product is ready. On the background of that conception they painted a rough picture of production through time. I follow the classical tradition both in the title of my work and in parts 2. and 3. of my work where I approached the problem of production by studying equilibrium between the rates of interest and wages. Some light is thrown on the nature of this equilibrium by the statistics of distribution of the national income. My main results are in part 4. which contains a fairly general theory of production that takes time into account, found the use of mathematics indispensable. The best known attempts to formulate such a theory are Bohm-Bawerk's, Professor Fisher's and J.B. Clarks's (which is exemplified by Dr. Hicks' Theory of Wages). As I show Bohm-Bawerk's famous doctrine of the "average period of production" is based on a mathematical mistake. Professor Fisher's analysis of the "output streams" while very instructive, contains a greater number of unknowns than equations to determine them. Dr Hicks assumes that capital is a homogeneous factor of production assisting the production of consumption goods which emerge wither instantaneously or after time lags. If there are time - lags, Dr. Hicks assumes it makes no difference what these lags are. This is an attempt to deal with the time aspect of production by means abstracting from it. In recent articles (Economica and the Economic Journal) a very distinguished economist, Professpr F. Knight, appears to think that the problem of capital is incomprehensible and that it is no use trying to understand it. All these difficulties of theory mean that the pronouncements of economists on every concrete question of production - such as wage policies - are necessarily surrounded by a penumbra of considerable doubt. And no substantial improvement can take place until matters of general principles are cleared up. I try to clear them up. The essence of my analysis in part 4 is this. Assuming for simplicity that each competing firm controls a vertically completely integrated process of production of a consumption good, and writing t=0 as "the present", and entrepreneur finds himself in possession of a set of goods c at t=0 and is aware of a large number of alternative production plans. Each plan provides for future investment at a rate f(t) in values terms and for output of the consumption good at a rate of u(t). For simplicity we can take the good as the "numeraire". As between all the alternatives plans the functions u(t), f(t) are different. I.e. they have certain fields of variation. the central idea of the analysis is this: for each particular input function f(t) the output function u(t) can be varied within a certain field by varying the methods of production. This is the "missing link" which the earlier theories failed to bring out. Given the interest rate p, the condition which determines which plan is chosen is that the present value of the collection of goods c is maximised. I.e. that the present value of future profits is maximised (and is zero under perfect competition). That means that for each possible input function f(t) such an output function u(t) has to be considered as maximises x. I.e. the first partial variation. As f(t) is varied, different output functions u(t) become possible, and for each f(t) an output function u(t) is segregated which maximises x i.e. satisfies (2). Thence, in (1) f(t) becomes the only independent variable, and the equilibrium condition is that x is maximised with respect to the input function f(t). This condition determines which plan is chosen i.e. determines the unknown functions f(t), u(t). From (1) (2) (3) i.e. the present value of the future marginal product equals the present value of the future marginal costs. In this way a marginal productivity theory is built up which takes time into account. Then the theory is extended: account is taken of uncertainty, of "vertical disintegration" etc., etc., until a fairly comprehensive picture is reach of the course of production through time.

The thesis contains three chapters. The first chapter studies optimal fiscal policy in a small open economy in the presence of sovereign default risk. In particular, it studies this topic in an environment characterized by asymmetric information where financial markets (lenders) do not have enough information about the creditworthiness of the government (borrower). The chapter investigates whether the asymmetric information environment justifies the implementation of fiscal austerity during a recession, as opposed to the standard countercyclical response. The main finding is that fiscal austerity is the optimal fiscal policy during a recession. Fiscal austerity, although detrimental to economic growth, benefits the economy providing a signal to financial markets about the creditworthiness of the government and reducing borrowing costs. When the inherited government debt-to-GDP ratio is high, this beneficial effect of fiscal austerity outweighs the costs of the policy even when fiscal austerity has a strong negative impact on economic activity, i.e. when the fiscal multiplier is larger than one. The findings of this chapter are useful to shed new light on the fiscal policy developments across Europe during the European debt crisis. The second chapter of the thesis, co-authored with Maria Grazia Attinasi (ECB), studies empirically the effect of fiscal consolidation on the debt-to-GDP ratio for the Euro area countries, using a quarterly panel fiscal VAR. The main finding of this chapter is that following a fiscal consolidation episode, the debt-to-GDP ratio increases initially, for a period up to four quarters, and then starts to decline. The size and length of the initial debt increase depend on the composition of consolidation. In the case of revenue-based consolidations the increase in the debt-to-GDP ratio tends to be larger and to last longer than in the case of spending-based consolidations. The composition also matters for the long term effects of fiscal consolidations. Spending-based consolidations tend to generate a durable reduction of the debt-to-GDP ratio compared to the pre-shock level, whereas revenue-based consolidations do not produce any lasting improvement in the sustainability prospects as the debt-to-GDP ratio tends to revert to the pre-shock level. The findings of this chapter are of particular policy relevance in the context of the ongoing debate about the merits of fiscal consolidation as the main tool to restore debt sustainability in the Euro area countries. They suggest that short term considerations related to the detrimental impact of consolidation on growth and on the debt-to-GDP ratio need to be weighed against the long term benefits of a rebound in output growth and a durable reduction in the debt-to-GDP ratio. The third chapter, co-authored with Daniela Bragoli (Catholic University) and Michele Modugno (Federal Reserve Board), compares the forecasting performance of GDP now-casting techniques through a dynamic factor model to the forecasts produced by the Central Bank of Brazil, which is the only central bank that collects predictions at a daily frequency. Results indicate that the Central Bank of Brazil forecasts perform as well as model based forecasts. The latter finding suggests that, on the one hand, judgemental forecasters do not have computational limitations and they are able to incorporate quickly new information in a way that is almost as efficient as a machine. On the other hand, it shows that a linear time invariant model does a slightly better job in now-casting Brazilian GDP and hence that eventual non linearities, time variations and soft information that could be incorporated by judgement, do not provide new important information.

This thesis evaluates different specifications of non-linear time series models applied to macroeconomic problems. The evaluations investigate whether linear models are a good representation of the data, and which non-linear specifications are comparatively better in three different applications. In addition, the implications of the evaluation to the understanding of macroeconomic problems and to economic predictions are analysed. The first evaluation concerns univariate non-linear time series models aimed at reproducing the asymmetries of the business cycles. Using business cycle stylised facts and conditional mean functions and surfaces, the results support the use of non-linear models that can generate a three-phase cycle as the specification that can reproduce all the business cycle features, including the asymmetries in the shape of the cycle. The second assessment is of models that characterise the non-linearities of the US term structure of interest rates. The forecast evaluation of different specifications of threshold vector equilibrium correction models, which are estimated for long- and short-term interest rates and their spread, shows that the inclusion of non-linearity improves short-horizon forecasts. However, when compared with AR models, the gains from nonlinearity only occur when the predictions for the spread are evaluated at long horizons. The third assessment concerns non-linear bivariate systems that account for the effect of non-linearities and/or structural breaks when the spread is employed as leading indicator. Different specifications are evaluated using their prediction of the probability of two definitions of recessions. Models with non-linearities and structural breaks perform better at predicting the probability of recession than linear models and models with only non-linearity or structural break. The results of the evaluation of univariate time series models improve the understanding of the connection between these models and business cycle asymmetries. The winner of the forecast competition of bivariate systems of interest rates and their spread indicates that the expectation theory of the term structure of interest only holds for the period in which the spread is negative, even though the spread can predict changes in the long-term rate in a specific state. In addition, the result that structural breaks and non-linearities are important to predict US recessions when the spread is the leading indicator changes the timing of a predicted recession for 2001.

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We live in a world where resources are limited and how we invest them has an impact on the citizens’ wellbeing. The goal of this thesis is to provide, through the tools of economic analysis, some insights for the optimal allocation of our resources in three different areas: economics of crime, economics of education and economics of labour. First, societies aim at lowering crime rates and this is why a great amount of resources is spent in punishing offenders. How effective is punishment in lowering crime rates is still unclear: what are the forms of custody that deter lawbreakers from resuming their life of crime? Through a fuzzy regression discontinuity design, we show that keeping young offenders separate from their older peers and far from an overcrowded environment is beneficial only when rehabilitation is offered. Second, empowering women and enhancing children’s early childhood development are two important objectives that are often pursued by independent policy initiatives in developing countries. Understanding the consequences of exploiting potentially beneficial complementarities in pursuing both aims together can be relevant. Through a quasi-natural experiment we evaluate a program implemented in Quito, Ecuador, that targets both. We find that women who are involved in the education of their children are empowered in different dimensions, as reflected in their higher likelihood to find full-time employment in the formalsector and in their greater independence in intra-household decision-making. Children’s dropout rates decrease, while school grades and scores on cognitive tests increase, particularly for girls. Finally, governments can introduce and raise minimum wage levels in order to protect their workers. We want to understand the implications of minimum wages on informal markets in developing countries. By exploiting relative variation in minimum wages across labour market groups within countries we show that a higher minimum wage is associated with a larger selfemployment share.

This thesis contains three essays in evolutionary game theory. In the first chapter, we study the impact of switching costs on the long run outcome in 2X2 coordination games played in the circular city model of local interactions. We find that for low levels of switching costs, the risk dominant convention is the unique long run equilibrium. For intermediate levels of switching costs the set of long run equilibria contains the risk dominant convention but may also contain conventions that are not risk dominant. For high levels of switching costs also nonmonomorphic states will be included in the set of LRE. We study the impact of location heterogeneity on neighborhood segregation in the one-dimensional Schelling residential model in the second chapter. We model location heterogeneity by introducing an advantageous node, in which a player’s utility is impartial to the composition of her neighborhood. We find that when every player interacts with two neighbors, one advantageous node in the circular city will lead to a result that segregation is no longer the unique LRE. When players interact with more neighbors, more advantageous nodes are necessary to obtain the same result. In the third chapter, we consider a model of social coordination and network formation, where players of two groups play a 2X2 coordination game when connected. Players in one group actively decide on whom they play with and on the action in the game, while players in the other group decide on the action in the game only. We find that if either group’s population size is small in comparison to the linking restriction, all players will choose the risk dominant equilibrium, while when both groups are sufficiently large in population, the players of two groups will coordinate on the payoff dominant action.

In this thesis, I study the strategic foundations of oligopolies in general equilibrium by following the approach based on strategic market games. The thesis is organised as follows. In Chapter 1, I first survey some of the main contributions on imperfect competition in production economies and the main problems which arise in this framework. I then focus on the literature on imperfect competition in exchange economies by considering the Cournot-Walras approach and strategic market games. I finally discuss the main contributions on the foundations of oligopolies. In Chapter 2, I extend the non-cooperative analysis of oligopoly to exchange economies with infinitely many commodities and traders by using a strategic market game with trading posts. I prove the existence of a Cournot-Nash equilibrium with trade and show that the price vector and the allocation at the Cournot-Nash equilibrium converge to the Walras equilibrium when the number of traders increases. In a framework with infinitely many commodities, an oligopolist can be an "asymptotic oligopolist" if his market power is uniformly bounded away from zero on an infinite set of commodities, or an "asymptotic price-taker" if his market power converges to zero along the sequence of commodities. The former corresponds to the Cournotian idea of oligopolist. The latter describes an agent with a kind of mixed behaviour since his market power can be made arbitrary small by choosing an appropriate infinite set of commodities while it is greater than a positive constant on a finite set. In Chapter 3, I further study oligopolies in economies with infinitely many commodities and traders. By using the strategic market game called "all for sale model", I prove the existence of an asymptotic price-taker. Heuristically, an asymptotic price-taker exists if at least one trader makes positive bids on an infinite number of commodities and in all markets the quantities of commodities exchanged are non-negligible. In Chapter 4, I study if there is a non-empty intersection between the sets of Cournot-Nash and Walras allocations in mixed exchange economies, with oligopolists represented as atoms and small traders represented by a continuum. In a bilateral oligopoly setting, I show that a necessary and sufficient condition for a Cournot-Nash allocation to be a Walras allocation is that all atoms demand a null amount of one of the two commodities. I also provide four examples which show that this characterization holds non-vacuously.

This dissertation studies the intersection between the sharing of individual specific risks and business cycle risks. Individual specific or idiosyncratic risk sharing is typically hampered by moral hazard, and in Chapter 2 we propose a new theory of debt finance as an effective mechanism for sharing idiosyncratic risks. But business cycle or systemic risk sharing is also affected by the means of idiosyncratic risk sharing. Departures from full systemic risk sharing can dampen the incentive compatibility constraint allowing a greater degree of idiosyncratic risk sharing (Chapter 1). Entrepreneurs’ productive risk can quickly transform into low employment, as wages fall below marginal revenue products of labour (Chapter 3). Market prices for systemic risk insurance do not necessarily internalise balance sheet externalities, resulting in excessive swings in leverage and factor market wedges of inefficiency (Chap- ter 4). Sometimes, agents have private information about the risks faced by their projects, and how they correlate with the broader economy. When this is the case, optimal systemic risk sharing arrangements must allocate business systemic risk in a way that deters entrepreneurs from herding among their peers (Chapter 5).

The behavior of economic agents is characterized by interdependencies that arise from common shocks, strategic interactions or spill-over effects. Developing new econometric methodologies for inference in panel data with cross-sectional dependence is a common theme of this thesis. Another theme is econometric models that allow for heterogeneity across individual observations. Each chapter takes a different approach towards modeling and estimating panels with cross-sectional dependence and heterogeneity. In all chapters, the perspective is one where both the time series and the cross-sectional dimension are large. The first chapter develops a methodology for semiparametric panel data models with heterogeneous nonparametric covariate effects as well as unobserved time and individual-specific effects that may depend on the covariates in an arbitrary way. To model the covariate effects parsimoniously, we impose a dimensionality reducing common component structure on them. In the theoretical part of the chapter, we derive the asymptotic theory of the proposed procedure. In particular, we provide the convergence rates and the asymptotic distribution of our estimators. The asymptotic analysis is complemented by a Monte Carlo experiment that documents the small sample properties of our estimator. The second chapter investigates the effects of fragmentation in equity markets on the quality of trading outcomes. It uses a unique data set that reports the location and volume of trading on the FTSE 100 and 250 companies from 2008 to 2011 at the weekly frequency. This period coincided with a great deal of turbulence in the UK equity markets which had multiple causes that need to be controlled for. To achieve this, we use the common correlated effects estimator for large heterogeneous panels that approximates the unobserved factors with cross-sectional averages. We extend this estimator to quantile regression to analyze the whole conditional distribution of market quality. We find that both fragmentation in visible order books and dark trading that is offered outside the visible order book lower volatility. But dark trading increases the variability of volatility and trading volumes. Visible fragmentation has the opposite effect on the variability of volatility, in particular at the upper quantiles of the conditional distribution. The third chapter develops an estimator for heterogeneous panels with discrete outcomes in a setting where the individual units are subject to unobserved common shocks. Like the estimator in chapter 2, the proposed estimator belongs to the class of common correlated effects estimators and it assumes that the unobserved factors are contained in the span of the observed factors and the cross-sectional averages of the regressors. The proposed estimator can be computed by estimating binary response models applied to regression that is augmented with the crosssectional averages of the individual-specific regressors. The asymptotic properties of this approach are documented as both the time series and the cross-section tend to infinity. In particular, I show that both the estimators of the individual-specific coefficients and the mean group estimator are consistent and asymptotically normal. The small-sample behavior of the mean group estimator is assessed in a Monte Carlo experiment. The methodology is applied to the question of how funding costs in corporate bond markets affect the conditional probability of issuing a corporate bond.