European integration and the Feldstein-Horioka Puzzle

We estimate the Feldstein-Horioka equation for the period 1960-2012 and find structural breaks that coincide with the introduction of the European single market in 1993, the introduction of the euro in 1999 and the financial crisis in 2008. The results suggest that the correlation between investment and savings depends on institutions, exchange rate risk and credit risk. Furthermore, we find that the pattern of capital flows within the euro zone reflect differences in output per capita, the rate of growth of output per capita and budget balances

Public Investment and Re-election Prospects in Developed Countries

A growing body of literature suggests that office-motivated politicians manipulate fiscal policy instruments to enhance their reelection prospects. This article directly examines the impact of fiscal policy on incumbents’ reelection prospects by focusing on the impact of public investment. This impact is estimated using a panel of 20 countries belonging in Organisation for Economic Co-operation and Development over the period 1972–1999. We find that the level of public investment in the earlier years of an incumbent's term in office improves their reelection prospects, whereas election year manipulation of public investment is neither rewarded nor punished. Our evidence also suggests that, after controlling for the level of deficit and public investment, the level of government revenue both in the election and nonelection years does not seem to affect reelection prospects. Moreover, we find that deficit creation during elections and in nonelection years are not rewarded by voters

Investment, current account, and the long swings of unemployment

We estimate the relationship between investment and unemployment over the time period 1960-2015 in 20 OECD countries. While neoclassical growth theory typically assumes full employment – with no effect of investment on unemployment – we find that over our sample period covering more than five decades, a statistically significant negative relationship does exist: when investment fell, unemployment increased. When the time period is broken down into two sub-periods to take account of the Great Recession, we find that the estimated coefficient of investment is slightly smaller when the period 2001-2015 is added to the 1960-2000 period. We also find a positive effect of the current account surplus on unemployment that very likely works through investment. A non-monetary model shows how an increase in policy uncertainty that sharply contracts investment and raises unemployment can lead to an increase in current account surplus

Export pricing at the firm level with panel data

This chapter reviews the growing empirical literature that explores the determinants of export prices at the firm level. It first presents evidence from empirical studies that link firm export pricing to destination characteristics (‘gravity-type’ models). The main implications of channels that can generate price differentiation, namely quality customization, variable markups and exchange rate pass-through, and financial frictions are then explored. A newly compiled panel dataset from Greek exporting firms is used to present evidence from regressions with export price as the dependent variable and show how the main economic hypotheses derived in theoretical models are nested in empirical specifications

Fiscal redistribution around elections when democracy is not "the only game in town"

This paper seeks to examine the implications of policy intervention around elections on income inequality and fiscal redistribution. We first develop a simplified theoretical framework that allows us to examine election-cycle fiscal redistribution programs in the presence of a revolutionary threat from some groups of agents, i.e., when democracy is not “the only game in town”. According to our theoretical analysis, when democracy is not “the only game in town”, incumbents implement redistributive policies not only as a means of improving their reelection prospects, but also in order to signal that “democracy works”, thereby preventing a reversion to an autocratic status quo ante at a time of the current regime’s extreme vulnerability. Subsequently, focusing on 65 developed and developing countries over the 1975–2010 period, we report robust empirical evidence of pre-electoral budgetary manipulation in new democracies. Consistent with our theory, this finding is driven by political instability that induces incumbents to redistribute income—through tax and spending policies—in a relatively broader coalition of voters with the aim of consolidating the vulnerable newly established democratic regime