Three essays on macroeconomic policy, development economics and economic growth

The dissertation consists of three essays on macroeconomic policy, development economics and economic growth. The first chapter examines empirically the relationship between the cyclical pattern of fiscal policy in democratic developing countries and their quality of political institutions. This chapter uses updated data to analyse 63 developing countries from 1980 to 2013 and robustly shows that pro-cyclical fiscal policy exist in both democratic and non-democratic developing countries. The main contributions of this chapter are controlling the endogeneity issue by using the instrumental variable method and investigating the interactions between political institutions variables and the cyclicality of fiscal policy. The results suggest that an improvement in the level of institutional quality plays an important role to restrain pro-cyclical fiscal policy. These effects are larger in democratic countries than non-democratic ones. Additionally, the maturity and stability of a democratic regime influence in restraining the implementation of pro-cyclical fiscal policy. The second chapter studies the effects of demographic transition and unfunded pension system in affecting the economic growth of Thailand. The chapter adds the aspect of the informal sector and investments in children's education into the Overlapping Generation (OLG) model. We modify the model to allow individuals heterogeneity in their ages and exogenously assign to work either in the formal or informal sector. The results from our model suggest that the non-contribution pension system or old-age security schemes hinder the economic growth of the economy with a high share of the informal sector and low fertility rate like Thailand. An increase in the non-contribution pension payouts or the universal old-age allowance may temporarily increase investments in children's education. However, it comes with the costs to the young workers, whose proportion is shrinking due to a shift in the demographic transition. Ultimately, we may need to transfer the current regimes towards a fully funded pension system and social security schemes or expanding the tax base to the informal sector. The third chapter constructs the elderly labour force participation choices associated with their health-related human capital and elderly supportive government policies in the neoclassical growth model. This chapter studies the effects of elderly labour supply choices on economic growth. We extend the traditional OLG model in which the elderly have choices to either stay or leave the labour market after their retirement age. Our main contribution is that the model considers the role of supportive government policies which provide positive externalities and augment the elderly health stock. An increase in the health-related human capital stock allows the elderly to enter or continue working at older age. The model characterises the unique equilibrium and shows that the costs of working after retirement, the health stock of the elderly and balancing supportive government policies play an important role to the labour supply of the elderly and thus, economic growth.