Title: Modeling rent seeking activities: Quality of institutions, macroeconomic performance and the economic crisis
Authors: Tryfonas Christou - Athens University of Economics and Business (Greece) [presenting]
Vanghelis Vassilatos - Research Centre of the Athens University of Economics and Business (RC/AUEB) (Greece)
Apostolis Apostolis Philippopoulos - Athens University of Economics and Business (Greece)
Abstract: The implications of institutional quality on macroeconomic performance is studied by augmenting the standard real business cycle model with rent-seeking competition. The idea is that agents allocate a part of their effort time competing with each other for a fraction of a contestable prize. We consider alternative contestable prizes like government transfers, tax revenues and firms' output, evaluate their ability to match the data and compare second-moment properties in the data vis-a-vis each model. Motivated by changes in government policy instruments after the 2007-8 world crisis, we investigate how this affected macroeconomic performance and institutional quality. Main findings: first, the repercussions of the crisis have been milder in countries with better institutional quality and second, countries with poor institutional quality pre-crisis, suffered further deterioration. All models perform in a similar way; however qualitative and quantitative differences arise in second-moment properties among core and periphery countries.