This dissertation seeks to develop the subject of local public finance in a manner consistent with the political economy of local governments. For ease of description, each essay will be discussed briefly. The first essay is titled "The Provision of Generalized Local Public Goods Financed by Distortionary Taxation." This essay models the provision of a local public good that is simultaneously utilized as a public consumption good and a public intermediate good. Since the public good can simultaneously enter both utility and production functions, it is considered a "generalized public good." This is done to model the provision of infrastructure by sub-federal governments, which is financed with taxes on local residents. A theoretical analysis provides a cost-benefit rule for public good provision by a rent-maximizing local government facing mobile households. Illustrative calculations of the marginal cost of public funds are provided. Calibrated to U.S. data, the role of intergovernmental transfers on the provision of infrastructure by rent-maximizing local governments is analyzed. Theoretical evidence of the higher responsiveness of local governments to matching grants relative to lump-sum grants is provided. The second essay is titled "The Impact of Local Households' Housing Tenure on Local Public Debt Levels." This essay investigates the relation between local housing tenure and local public debt. It does this by establishing housing tenure as a theoretical basis for the potential differences in how households view public debt. Homeowners capitalize the burden of local public debt into their home value, while renters do not. A hypothesis is generated that an increase in the renter share of households in a locality leads to higher levels of local public debt, all else equal. Using an instrumental variable approach, the empirical evaluation shows an increase in the proportion of renters leads to higher levels of public debt in a panel data set of U.S. local governments. Specifically, a one percentage point increase in the percent of renters increases unfunded public debt per household by $400, or about 7% of the average local debt level, and 24% of the county with the median debt level. This relationship is robust across multiple specifications. The third essay is titled "A Spatial Econometric Analysis of Local Households' Housing Tenure on Local Public Debt Levels: Implications for Federalism." This essay extends the model of the second essay by measuring the spatial spillovers using a spatial autoregressive model with autoregressive disturbances. The existence and magnitude of local government spillovers related to local public debt levels are used to inform policy makers at higher levels of government. The analysis identifies possible geographic segmentation of the municipal bond markets and the role of special district debt as a key component of the spatial distribution of local public debt. Additionally, a positive spatial disturbance is found.

Argentina, throughout its history, has fallen prey to a unique brand of “exceptionalism.” While it is well-endowed with both the physical and demographic inputs to successful economic growth and development, its story has been defined by a consistent inability to reach its economic potential. This work examines how the nation’s political economy dynamics create an environment that is not conducive to long-term economic development. Through an analysis of both historical factors and the country’s present situation, it focuses on how the primacy of short-term factors has become entrenched in the economic policymaking process. The discussion is comprised of a fusion of economic, political, sociological, and psychological elements, which join together in attempting to explain the duration, magnitude, and repetitive nature of Argentina’s economic woes. This exploration of the past, the present, and their interaction offers insight into the specific factors that continue to keep Argentina from achieving a sustainable development path.

This thesis examines the conditions under which democratically elected policymakers are more likely to provide policies that compensate individuals that lose from international trade. It develops and empirically tests a theoretical framework of compensation in open economies that accounts for differences in the degree to which governments benefit losers from trade. It first develops a theory of preference formation based on economic geography, and then argues that electoral and legislative institutions jointly condition the supply of compensation. The theoretical analysis provides three sets of observable implications evaluated using micro- and macro-level data in Europe and Latin America. First, exposure to international competition increases demand for policy that compensates for the costs of trade, but this effect is more pronounced among those individuals in economically specialised and uncompetitive contexts where reemployment in the event of a shock is difficult. Second, policymakers in proportional electoral systems face weak incentives to target trade losers in geographically concentrated and uncompetitive regions. In contrast, majoritarian institutions generate incentives to increase compensation when trade losers are geographically concentrated. Another implication is that under some conditions, the presence of a strong upper house that represents regional interests dampens the provision of compensation, and the relative effect of electoral rules. The empirical implications of the argument are tested using a multi-method research strategy that combines cross-national and case study analyses and draws on quantitative and qualitative techniques. Chapter 3 tests the micro-level implications of the model using survey data for European regions over 2002-2006. The findings indicate that regional economic specialization and regional competitiveness jointly condition the impact of trade on preferences for compensation. Chapter 4 systematically tests the extent to which the geographical concentration of trade losers conditions the effect of electoral institutions on levels of compensation. It uses panel data from 14 European countries from 1980 to 2010. The findings indicate that where trade losers are concentrated, lower district magnitude leads to more compensation. Chapters 5 and 6 conduct case studies of compensation in Spain and Argentina, both countries that underwent deep liberalisation and offer significant variation at the regional and institutional level. Chapter 5 explores preferences over compensation in selected regions in Spain and Argentina, and shows that regional specialisation and competitiveness were important in shaping levels of support for compensation. Chapter 6 examines the role of electoral institutions and legislative veto bargaining in shaping the politics of compensation in Spain and Argentina.

What causes post-conflict violence to occur in some places emerging from extended violent conflict and not in others? Why does episodic post-conflict violence take different forms? And what causes episodic violence to escalate into larger renewed extended violence? This thesis contributes towards answers to these questions by examining the experience of Indonesia. Six provinces saw civil war or large-scale inter-communal unrest around the turn of the century. In each, war ended. Yet levels and forms of post-conflict violence vary significantly between areas. The Indonesian cases are used to build a theory of the sources of spatial and temporal variance in post-conflict violence. Multiple methods are employed. A new dataset, containing over 158,000 coded incidents, maps patterns of extended and post-conflict violence. Six districts in three provinces are then studied in depth. Comparative analysis of districts and provinces—drawing on over 300 field interviews—identifies the determinants of variations in post-conflict violence levels and forms. Adopting a political economy approach, the thesis develops a novel actor-based theory of post-conflict violence. Violence is not the result of failed elite bargains, dysfunctional inter-group relations, enduring grievances, or weak states. Instead, it flows from the incentives that three sets of actors—local elites, local violence specialists, and national elites—have to use violence for accumulation. Violence is used when it is beneficial, non-costly, and when other opportunities for getting ahead do not exist. How post-conflict resources are deployed, the degree to which those who use violence face sanctions, and the availability of peaceful means to achieve goals shape incentives and hence patterns of violence. Where only violence specialists support violence, post-conflict violence will take small-scale forms. Where local elites also support violence, escalation to frequent large episodic violence occurs. Extended violence only occurs where national elites also have reason to use violence for purposes of accumulation.

In July 2014, Argentina entered selective default, even as the country remained financially solvent. The default stemmed not from economic woes, but rather from protracted international litigation between Argentina and a group of hedge funds who, for years, refused to negotiate with Argentina over their bond holdings in the wake of the country’s first default in 2001. These holdouts stalled negotiations and locked Argentina out of international credit markets, damaging the country’s economy and financially harming other creditors and Argentinian citizens alike. Argentina ended up in such a dilemma because of the current sovereign debt restructuring process. No international arbitrator of sovereign debt currently exists. Instead, a country must negotiate with creditors on an ad-hoc basis, gathering support from 100% of creditors before it can restructure its debt and reenter international credit markets, an extremely inefficient system. This paper will assess the current system of sovereign default renegotiations, identifying inefficiencies in the current system, reviewing past proposals for improvements to the system, and ultimately proposing an international arbitrator for default negotiations. This text uses the development of the US Federal Municipal Bankruptcy Act of 1934 as a guide for an international bankruptcy court. Prior to the passage of the law, municipalities faced many of the same challenges faced by defaulted nations today, including powerful holdouts and a lack of structure in the negotiation system. Given the similarities between the two cases, the Federal Municipal Bankruptcy Act serves as an ideal framework for sovereign default arbitration internationally.

The quality of governance and institutions is increasingly seen as a fundamental factor in shaping the development prospects of poor countries. As a consequence, donor agencies have increasingly allocated resources to providing technical assistance for improving governance standards in such countries, with mixed results. This thesis investigates the domestic and external factors affecting the outcomes of reforms aimed at improving the quality of government budget institutions across a sample of 16 aid-dependent countries. It provides a new definition of the quality of budget institutions, and develops an analytical framework that identifies the key factors at play in the political economy of budget reforms. The analysis starts with a medium-N ‘pattern finding’ approach, based on a new dataset tracking changes in the quality of budget institutions over the period 2001 to 2007. This is followed by a small-N ‘process tracing’ approach, with in-depth case studies of Mozambique and Burkina Faso (with additional evidence from Tanzania), looking at both overall reform trajectories and four specific budget reform areas. The results show that among domestic factors, economic and political stability are preconditions for successful budget reforms. A minimum degree of government leadership and commitment to reforms is also a very important factor shaping budget reform outcomes, alongside the centralisation of budget institutions. Surprisingly, among external factors, the level of technical assistance and the use of so-called programme aid modalities were less important than the overall fragmentation of aid flows and the ways in which technical assistance is delivered in influencing budget reform outcomes. Donors’ hopes of ‘buying’ better budget governance, therefore, are more likely to be enhanced not by additional resources, but by better behaviour. Moreover, such strategy is likely to work only in countries with enough capacity and interest in reforms.

For the most part, formal economic integration between African states can be characterised as ‘theatre regionalism’: governments sign regional economic agreements with no intention to implement them. Yet amidst widespread theatre there have been a few instances of actual integration. This thesis sets out to explain this variance: under what conditions do African governments implement – and not just sign – formal agreements on regional economic integration? To answer this question the dominant Eurocentric literature on comparative regionalism is amended with insights from the third worldist literature on African states to develop a new approach for comparative analysis, the ‘Regionalism as Policy Space’ (RPS) framework. This framework models African regionalism as a two-stage game. At the first stage, governments’ interests in regionalism are determined by perceptions of the existence of structural cross-issue linkages connecting implementation of regional agreements with the widening of government policy space. Given such linkages, at the second stage, governments of a region engage in a coordination game to establish the distribution of benefits from integration. Variance in the implementation of regional agreements, then, is explained by variance in the existence of perceived cross-issue linkages (the Benefits Existence Condition) and the ability of participating governments to ease distributional tensions (the Benefits Distribution Condition). Four African customs union case studies - the East African customs union of the 1960s and 70s, the customs union of the East African Community in the 2000s, the customs union of the Economic Community of West African States and the Southern African Customs Union – lend strong empirical support to the RPS framework. The thesis ends with a discussion of the role of hegemons and proposes a series of policy measures aiming to reduce the likelihood of theatre regionalism in Africa.

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This Ph.D thesis is made up of six chapters: together with Introduction and Concluding Remarks, there are one extensive literature review and three main essays. The theme of this thesis is "The Political Economy of Public Sector Governance" and I explore it by analysing the two main actors in the interaction between citizens and politicians: Mass Media and Bureaucracy. The World Bank in several publications since early 2000 has brought to the attention of politicians, public servants, social scientists and, as far as an institution like the World Bank can do, the general public that what really is important and does make a difference in the economic growth and social development of nations are not policies but (political and social) institutional quality. In order to make institutions work well, so they are able to promote the greatest welfare for all the citizens, it is necessary to have good governance. One of the ingredients of an optimal governance arrangement is the possibility for the citizens to make their government accountable for what it does (not) and responsive to their needs. Therefore, in order to have good political institutions citizens have, on one hand, to control their government and, on the other hand, to voice their needs, preferences and ideas, also when the ballot box is not ready at hand. Mass Media has at least these two functions in the relationship between the citizens and the (incumbent) politicians. In the first essay I analyse citizens' voting decisions and collusion between media and politicians and how this phenomenon affects the behaviour of citizens towards disciplining and selecting the incumbent politician, when citizens have at their hands two sources of information about the quality of the incumbents and their performance: the quantity of a good publicly supplied by the government and a signal coming from the mass media on politician honesty. The setting comprises a two period game, where voters, in the first period, have to decide, observing the information available through media and good publicly produced, whether to vote off or reelect the incumbent politician to the second period electorate mandate. By employing both two signals, citizens manage to sort out honest politicians from dishonest ones more often than if they were relying on media information only. Moreover the existence of both signals makes collusion harder to achieve than in the case of one signal only. Furthermore, the welfare analysis reveals that, contrary to previous findings, the presence of media is not always welfare improving. The usefulness of media for citizens depends critically on the time discount factor between the two periods: when the time discount factor is larger than a certain threshold, it is optimal for the citizens to receive information from media; when the time discount factor is lower than the threshold, their optimal decision is not to get any information. Finally, I argue that when rules at the constitutional level are not possible and citizens cannot commit to have less information, then collusion between media and politician can be welfare improving for citizens, contrary to previous results in the literature. In the second essay I investigate the role of Mass Media as a bottom-up way of communicating dispersed information from citizens to incumbent. Citizens transmit useful information thanks to the newspapers they buy and read. However, these newspapers are produced by a third party (a Media Tycoon) that has his own incentives. In particular the Media Tycoon has to decide whether to produce a newspaper that allows the citizens to participate in the public debate (Broadsheet) or does not (Tabloid). Given the fact that this instrument can be bought but not directly produced by the citizens, there exists a tension between the benefit of using a newspaper to express citizens'views and the possibility that this newspaper can be actually produced. Results show that producing a Broadsheet always improves the quality of policy decision making on part of the incumbent. A notable result is that in order to enhance the quality of the public decision making it is better to have any Broadsheet than not having one, whatever is the public stance the newspaper takes about the issue at stake. In this essay I first assume that there is only one group of citizens which is interested in having the optimal policy adopted, i.e. the Middle Class and I assume the Middle Class citizens are the only one who read newspapers. Subsequently I analyse how the results change when citizens from the other classes read newspapers as well. I show how the "partisan readers", committed to buy the Broadsheet supporting the policy they prefer, can ease the production of the Broadsheet. In this case the existence of partisanship and of ideological readers make the implementation of optimal policy easier, not harder, contrary to conventional wisdom. In the work of the World Bank, and in all the scientific production about how to establish and foster the development of good governance, corruption is one of the main diseases that can affect the correct relationship between citizens and public officials. So it is important to study how good institutional quality can fight corruption in several different fields of the political and economic environment. The third essay evaluates the effect of corruption on the regulation of business entry. A theoretical agency model of bribes is introduced, with strategic interaction between the firm, the corruptible public sector employee and the government. This model allows the evaluation of reforms targeting business startup procedures with regards to the incentives of the various actors involved in this process. Findings show that corruption in equilibrium between entrant firms and public servants could be self-sustained in the absence of government intervention. When deriving the equilibrium outcomes of some reforms like performance wages, privatisation and full liberalisation of entry, results show that transaction costs related to bribes are central in determining the optimal reform strategy. Although liberalisation is the preferred reform option for firms, government fiscal revenues and overall social welfare, firms surprisingly would prefer performance wages implemented in public registry service rather than the privatisation of this service. This holds despite the additional tax burden on firms necessary to finance higher civil servants'wages.

What explains institutional change in authoritarian regimes presiding over fragmented societies? A popular assumption is that, because the state is so powerful, major institutional change takes place only when certain actors within the state system see such change as beneficial for their personal or collective interests. In other words, institutional changes are necessarily top-down and elitist in nature. Challenging that position, this thesis articulates a theory of gradual institutional change in authoritarian regimes, arguing that authoritarian institutions, as distributional instruments laden with power implications, are likely to be unstable and ambiguous, allowing social actors to advance their personal or collective interests through gradual institutional modifications. As these resistances accumulate, the costs for state actors to maintain their increasingly ineffective institutions rise to an unsustainable level, incentivising them to revise their core practices—and, by extension, sometimes expand existing rights or extend new ones to their citizens. This argument is supported by a systematic examination of the Chinese state’s historic attempts to promote the use of a standardised language form—putonghua—and simplified Chinese characters on a national scale, and a range of popular resistance efforts against them. Drawing upon newly available archival materials, survey data, and in-depth interviews, I conduct process-tracing case studies of three successive language management regimes—namely, top-down (from the 1950s to 1980s), incentivising (from the 1990s to mid-2000s), and selective (from the mid-2000s), demonstrating how they were challenged and gradually modified by their subjects. From this position I argue that the deployment of official language policy in the PRC is determined endogenously by the ambiguities of existing language institutions as well as exogenously by levels of economic development and communication technology. The casual arguments are then evaluated in light of evidence from the history of language management in the former Soviet Union and Tawian.