Quality of institutions and macroeconomic performance

Abstract

This thesis studies the importance of institutional quality on macroeconomic performance. To do so, we augment the standard real business cycle (RBC) 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. At first, our analysis considers alternative contestable prizes like government transfers, total tax revenue, economy-wide output and economy-wide income in a homogeneous agents RBC model. Then, we extend our analysis to a heterogeneous agents model (capitalists and workers), where we consider the contestable prize to be the "income of the others", i.e the contestable prize for workers is the income of capitalists and the contestable prize of capitalists is the income of workers.