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Essays in Development and Political Economy by Mahvish Ifrah Shaukat M.S., Stanford University (2009) M.A., Stanford University (2008) B.A., University of California, Davis (2006) Submitted to the Department of Economics in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2019 @ 2019 Mahvish Shaukat. All rights reserved. The author hereby grants to Massachusetts Institute of Technology permission to reproduce and to distribute copies of this thesis document in whole or in part. Signature redacted A uthor .............. .............................. I v Department of Economics 2019 Signature redactE May 15, Certified by......... .......................... Benjamin Olken Professor of Economics Signature redact ed Thesis Supervisor C ertified by ............ ......................... Esther Duflo Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics Thesis Supervisor Signature redacted-- Accepted by......... .................... Ricardo Caballero Ford International Professor of Economics Chairman, Departmental Committee on Graduate Studies 2019 UN 14 LIBRAMtES ARCHIVES Essays in Development and Political Economy by Mahvish Ifrah Shaukat Submitted to the Department of Economics on May 15, 2019, in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics Abstract This thesis studies three questions in economic development and political economy. Chapter 1 presents empirical evidence on the causal effect of close elections on political selection and performance in India. An extensive literature in political economy predicts electoral competition improves governance. Empirical work testing this theory is scarce, however, due in large part to the difficulty in identifying the causal impact of competition, which is itself an equilibrium outcome shaped by politician behavior. To address this identification challenge, this paper proposes a shift-share instrument that uses variation in aggregate party popularity over time ("shifts") and local party preferences across space ("initial shares") to predict the vote-margin gap in local elections. Using data on Indian state constituency elections, I find political parties respond strategically to competition by selecting high quality (high valence) candidates to run for office, where quality is proxied by lower criminality, higher education, and higher wealth. Once in office, however, these politicians perform no better in facilitating economic growth or providing public goods. Instead, I find parties make temporary, and likely inefficient, reallocations in state-run resources such as electricity in the run up to competitive elections. Together, the results suggest that while the anticipation of close elections may lead politicians to take costly actions prior to an election, electoral competition does not necessarily result in improved economic outcomes. Chapter 2 studies how the spatial allocation of public goods within cities depends on politicians and bureaucrats. In many cities around the world, the bureaucrats and politicians that comprise local governments manage non-overlapping administrative and political units. Us- ing geo-referenced data on public goods, property characteristics, and residents in two major cities in Pakistan, I use a spatial regression discontinuity design to estimate discontinuities in public goods provision and property values across these boundaries. These discontinuities are used to construct measures of political and administrative unit "value-added," and to quantify the variation across each type of unit. I find that the delimitation of political and administrative boundaries results in large variation in public goods quality and self- reported property valuations within cities. Political unit quality is correlated with a number of politician and constituency observables, suggesting that political factors may be important determinants of internal city structure. Chapter 3, coauthored with Adnan Q. Khan, Asim Khwaja, and Benjamin Olken, investi- 3 gates whether strengthening the link between local taxation and urban services can revitalize the social compact between citizen and state. A significant challenge to the provision of local public services in developing economies is the inability to raise adequate resources, especially through local taxation. In many countries, the social compact, whereby citizens agree to pay taxes to fund their desired services, is broken. A low willingness to pay taxes leads to low revenue collection, and prevents adequate service provision, which in turn reduces willingness to pay and can even lead to citizen disengagement from the state. We investigate whether strengthening the link between local collections and urban services can increase citizen's willingness to pay for services, improve service delivery, and enhance local politics. We test this in major urban centers in Punjab, Pakistan via several interventions - including elicit- ing citizen preferences for specific services when taxes are collected, earmarking revenue for specific services, and enabling local politicians - that credibly strengthen the link between tax collection and urban service provision. This paper presents the experimental design and reports first year impacts on tax payments. We find strengthening the link between taxes and services increases tax payments: taxpayers who failed to make a full payment prior to the interventions increase property tax payments after the interventions are introduced. Thesis Supervisor: Benjamin Olken Title: Professor of Economics Thesis Supervisor: Esther Duflo Title: Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics 4 0111 - 111 11 1,11111111 1111 Acknowledgments I am indebted to many people for their help, support, and guidance during the writing of this thesis. First and foremost, I would like to express my immense gratitude to my advisors, Ben Olken, Esther Duflo, and Abhijit Banerjee. I cannot find enough words to thank Ben. To say that he has been critical to every stage of my professional development would be an understatement. It was Ben's investment and confidence in me that paved the way to so many opportunities, including this PhD. I consider it one of my greatest fortunes to have him as my advisor. His invaluable insights, constant support, and boundless generosity improved every part of this thesis. Esther inspired me to study development economics, and I am incredibly lucky to have had her unwavering support and guidance, from my time at J-PAL as her RA through these years of graduate school. More than anyone else, she pushed me forward and challenged me to do better, all while believing in me and supporting me. I cannot thank her enough. Abhijit opened his door to me time and time again, listened to my (often ill-defined) ideas, and guided me through the research process. His sharp insights, enthusiasm for my research, and generosity with his time helped me overcome many roadblocks. In addition to my advisors, I have benefited tremendously from working with Adnan Q. Khan and Asim Khwaja. Asim and Adnan provided me my first opportunity to do field work, and I have learned a great deal from them about the challenges and rewards of collaborating with government partners. I hope to continue learning from them in the future. I have also had the privilege of working with and benefiting from the advice of many faculty at MIT, including Daron Acemoglu, David Atkin, Dave Donaldson, Frank Schilbach, and Tavneet Suri. I would also like to thank Emily Oster, who, along with Ben, introduced me to research in development economics, and Nicholas Hope, who encouraged me to take this path. One of the best parts of the PhD has been the incredible group of classmates that accompanied me on this journey. I would like to thank my development and political economy colleagues - Josh Dean, Chishio Furukawa, Nick Hagerty, Reshma Hussam, Donghee Jo, Gabriel Kreindler, Matt Lowe, Benjamin Marx, Rachael Meager, Mateo Montenegro, Arianna Ornaghi, Otis Reid, Cory Smith, Marco Tabellini, Roman Andr6s Zarate, and Ariel Zucker - for their friendship and support. Special thanks are due to my office mates, Sydnee Caldwell, Daniel Clark, Josh Dean, and Ariel Zucker, who made the day-to-day of the PhD much more enjoyable. Cara Nickolaus left us all too soon. I am grateful for having known her kindness and brilliance. I would also like to thank the Center for Economic Research in Pakistan for hosting 5 me throughout many summers of field work. Working with the "tax team" has been a wonderful experience, and a large part of this thesis would not have been possible without their tireless effort. I thank Osman ul Haq and Omer Qasim for coordinating our team, and facilitating nearly every aspect of my field research. I was fortunate that my time in Lahore often overlapped with that of several other PhD students, resulting in many friendships. I thank Niharika Singh in particular for being a continuous source of encouragement, first in Lahore and then again in Cambridge. My aunt and uncle, Shahla and Javed Iqbal, provided a home away from home for me during each and every one of these summers. I am immensely grateful to them for their love and kindness. I owe more than words can express to my family. My extended family - aunts, uncles, and cousins - have cheered my every step forward, and never allowed me to become discouraged by any step back. My brother, Shahruz,

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