Seminar 5 (Oct 30)

I. Complementary institutions (partially based on the Exam 2011)

1. What do Barth and Moene (2015) mean by complementary institutions?
2. Explain the mechanisms through which a larger welfare state leads to higher wage compression
3. Explain the mechanisms through which wage compression leads to increased support for welfare spending. To what extent can this mechanism be combined with the fact that richer voters are less inclined to support the welfare state?
4. What challenges do we encounter if we want to take this model to the data? How do Barth and Moene solv them?
5. What does it mean that the equality multiplier is 1.8?

II. State capacity

1. Besley and Persson (2009) consider two facets of state capacity, legal capacity and fiscal capacity. Explain:
   1. What each of these really mean
   2. What it means to invest in each of these and how it can be done
2. In their model, there are two groups, A and B. What would change in the model if there was only one group? How would you interpret this change to the model?
3. Explain why high political stability may enhance a state's ability to expand its capacity.
4. What empirically testable pedictions does the model give?
5. To what extent can S¨¢nchez de la Sierra's (2015) paper be seen as a test of Besley and Persson's model?