Alberto Alesina

Who Gives Foreign Aid to Whom and Why

This paper studies the pattern of allocation of foreign aid from various donors to receiving countries. We find considerable evidence that the direction of foreign aid is dictated as much by political and strategic considerations, as by the economic needs and policy performance of the recipients. Colonial past and political alliances are major determinants of foreign aid. At the margin, however, countries that democratize receive more aid, ceteris paribus. While foreign aid flows respond to political variables, foreign direct investments are more sensitive to economic incentives, particularly “good policies” and protection of property rights in the receiving countries. We also uncover significant differences in the behavior of different donors.

Who Trusts Others

Both individual experiences and community characteristics influence how much people trust each other. Using individual level data drawn from US localities we find that the strongest factors associated with low trust are: i) a recent history of traumatic experiences; ii) belonging to a group that historically felt discriminated against, such as minorities (blacks in particular) and, to a lesser extent, women; iii) being economically unsuccessful in terms of income and education; iv) living in a racially mixed community and/or in one with a high degree of income disparity. Religious beliefs and ethnic origins do not significantly affect trust. The role of racial cleavages leading to low trust is confirmed when we explicitly account for individual preferences on inter-racial relationships: within the same community, individuals who express stronger feelings against racial integration trust relatively less the more racially heterogeneous the community is.

Ethnic Diversity and Economic Performance

We survey and assess the literature on the positive and negative effects of ethnic diversity on economic policies and outcomes. Our focus is on communities of different size and organizational structure, such as countries, cities in developed countries, and villages and groups in developing countries. We also consider the endogenous formation of political jurisdictions and highlight several open issues in need of further research, in particular the endogenous formation of ethnic identity and the measurement of ethnic diversity.

Participation in Heterogeneous Communities

This paper studies both theoretically and empirically the determinants of group formation and of the degree of participation when the population is heterogeneous, both in terms of income and race or ethnicity. We are especially interested in whether and how much the degree of heterogeneity in communities influences the amount of participation in different types of groups. Using survey data on group membership and data on US localities, we find that, after controlling for many individual characteristics, participation in social activities is significantly lower in more unequal and in more racially or ethnically fragmented localities. We also find that those individuals who express views against racial mixing are less prone to participate in the groups the more racially heterogeneous their community is.

Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence

This note uses information on a sample of sixteen OECD countries to assess the relationship between central bank independence and macroeconomic performance. As previous work suggests, politically controlled central banks are more likely to pursue policies that lead to high and variable inflation. However, the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth, unemployment, or the ex ante real interest rate. Copyright 1993 by Ohio State University Press.

Political Instability and Economic Growth

This paper investigates the relationship between political instability and per capita GDP growth in a sample of 113 countries for the period 1950 through 1982. We define political instability as the propensity of a government collapse, and we estimate a model in which such a measure of political instability and economic growth are jointly determined. The main result of this paper is that in countries and time periods with a high propensity of government collapse, growth is significantly lower than otherwise. We also discuss the effects of different types of government changes on growth.

A Positive Theory of Fiscal Deficits and Government Debt

This paper considers an economy in which policymakers with different preferences alternate in office as a result of elections. Government debt is used strategically by each policymaker to influence the choices of his successors. If different policymakers disagree about the desired composition of government spending between two public goods, the economy exhibits a deficits bias; that is, debt accumulation is higher than it would be with a social planner. The equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re-elected.

Fairness and Redistribution

Different beliefs about the fairness of social competition and what determines income inequality influence the redistributive policy chosen in a society. But the composition of income in equilibrium depends on tax policies. We show how the interaction between social beliefs and welfare policies may lead to multiple equilibria or multiple steady states. If a society believes that individual effort determines income, and that all have a right to enjoy the fruits of their effort, it will choose low redistribution and low taxes. In equilibrium, effort will be high and the role of luck will be limited, in which case market outcomes will be relatively fair and social beliefs will be self-fulfilled. If, instead, a society believes that luck, birth, connections, and/or corruption determine wealth, it will levy high taxes, thus distorting allocations and making these beliefs self-sustained as well. These insights may help explain the cross-country variation in perceptions about income inequality and choices of redistributive policies.

Openness, Country Size and Government

This paper shows that smaller countries have a larger share of public consumption in GDP, and are also more open to trade. These empirical observations are consistent with recent theoretical models explaining country formation and break up, and may account for the observed positive empirical relationship between trade openness and government size.

Why Doesn't the United States Have a European-Style Welfare State?

European countries are much more generous to the poor relative to the US level of generosity. Economic models suggest that redistribution is a function of the variance and skewness of the pre-tax income distribution, the volatility of income (perhaps because of trade shocks), the social costs of taxation and the expected income mobility of the median voter. None of these factors appear to explain the differences between the US and Europe. Instead, the differences appear to be the result of racial heterogeneity in the US and American political institutions. Racial animosity in the US makes redistribution to the poor, who are disproportionately black, unappealing to many voters. American political institutions limited the growth of a socialist party, and more generally limited the political power of the poor.