Three Empirical Essays Inspired by Major Political Economy Events

This thesis presents three empirical studies, each motivated by separate major political economy events that took place in the recent past, namely the 2014 Scottish independence referendum, 2016 EU referendum and the 2016 US presidential election.

This initial empirical chapter considers the causes of fiscal decentralization with a focus on the role of ethnic diversity. Using two new measures of decentralization that capture decision making autonomy and accounting for the depth of divisions between ethno-linguistic groups using the structure of language trees, I find that ethnic diversity has a positive effect on decentralization. It is the amount of fractionalization towards the leaves of the trees, where groups are more numerous and less distinct, that drives decentralization.

The subsequent chapter explores the causal effect of exposure to the government's mailshot on the 2016 EU referendum. I find that individuals who were exposed to the leaflet were less likely to vote to leave the EU in the referendum. I show that the effect is driven by certain groups who only read the leaflet as a source of information and Conservative supporters who were exposed to other sources of information. The evidence is consistent with the idea that voters vary in their susceptibility to persuasion bias, which allows for heterogeneous effects across demographic groups.

The final empirical chapter investigates the role of partisan alignment in the allocation of federal transfers using data from the US states. This chapter finds that the president shows a bias towards his co-partisans with federal transfers. The size of this manipulation is larger when accounting for electoral incentives. The results are in accordance with the theory that the president aims to increase his party's re-election probability by vertical performance spill-overs from lower tiers of governance.