Do not open this exam until told to do so. Final Exam, ECON*4830, Fall 2021 Department of Economics & Finance Lang School of Business and Economics K. Annen, Fall 2021 You have 2 hours to complete this exam. This is an open book exam. You can use all the class material. Please write short and concise answers that are straight to the point in the space provided. If you use more space than provided, points are taken off. This exam has 10 questions, for a total of 100 points. Name and Student ID:
ECON*4830 University of Guelph Final Exam, Fall 2021 1. (10 points) Consider a non-discriminatory government in the model by Besley and Pers- son (2009). Discuss the following claim: "The tax system in the non-discriminatory case equalizes incomes perfectly across people in equilibrium." Start your answer by stating whether you agree or disagree with this claim. 2. (10 points) Consider an aid agency designing an aid project that substantially lowers the cost for a government in the aid recipient country to invest in legal and fiscal capacity. Will legal and/or fiscal capacity increase in this country? Assess this question strictly within the model by Besley and Persson (2009). 3. (10 points) On page 1369, Acemoglu et al. (2001) point out: "Nevertheless, we lack reliable estimates of the effect of institutions on economic performance. It is quite likely that rich economies choose or can afford better institutions." Explain whether this conjecture is supported by the evidence reported in their paper. Page 2 of 5
ECON*4830 University of Guelph Final Exam, Fall 2021 4. (10 points) Acemoglu et al. (2001) are looking for the effect of institutions on economic performance. (a) Why do they need an instrumental variable? Explain. (b) Why do they choose settler mortality instead of a more immediate determinant like former institutions or settlements? Explain. 5. (10 points) Acemoglu, Naidu, Restrepo, and Robinson (2019) explain on page 50 related to Figure 1 that "the dip in GDP that precedes a democratization constitutes a clear violation of the parallel-trends assumption ..." Draw a graph below in the same dimen- sions as Figure 1 that would show that the GDP dynamics prior to democratization does not violate the parallel-trends assumption. Page 3 of 5
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