Sources of Productivity Slowdown in European Countries During 1990s

In this paper we address the question whether the shift in labour supply curve is the only fundamental change capturing the negative correlation between the growth rates of productivity and employment in European countries in the last fifteen years. If this explanation is correct then the labour demand curve did not shift in recent times, keeping other features of the production function unchanged. This is obviously a problem of identification. Thus, in this study we provide some empirical evidence explaining the shifts in labour demand curve over the same period. Our main conclusion is that the sluggish performance of the European economy in the last fifteen years has a common root in the large changes occurred in the labour market. We refer to these changes as technological and non technological shocks. In our model, adverse technological shocks shift the labour demand curve, while positive non technological shocks shift the labour supply curve. These two shifts contribute simultaneously to rise employment and to decrease the growth rate of productivity. Our evidence shows that labour productivity does respond positively to labour demand (technological) shocks and negatively to labour supply (non technological) shocks. Hence, the main result of our study is that both shocks are necessary to provide a complete picture of the employment-productivity trade-off in European countries during the last fifteen years.Productivity slowdown, labour market, SVAR

Optimal capital stock and financing constraints

In this paper we show that financing constraints affect the optimal level of capital stock even when the financing constraint is ineffective. This happens when the firm rationally anticipates that access to external financing resources may be rationed in the future. We will show that with these expectations, the optimal investment policy is to invest less in any given period, thereby lowering the desired optimal capital stock in the long run.Investment; capital stock; constraints; uncertainty

The effect of debt tax benefits on firm investment decisions

In this paper we question the idea that the deduction of debt interest is always an effective policy instrument to spur firm investment. We analyze the investment decision in presence of a borrowing constraint on the amount of the debt that the firm can raise. We show that if the debt interest rate is decreasing in the firm capital accumulation and it is available another financial resource more expensive than debt (at least for levels of debt lower than the upper bound), then the deduction of the debt interest from taxes on capital income may reduce firm investment. This theoretical result should be considered when financial intermediaries are not willing to finance beyond a certain threshold but firms have access to other sources of finance.Corporate taxation; Financing constraints; Investment

Do labor market conditions affect the strictness of employment protection legislation?

We provide a theoretical microfoundation for the negative relationship between firing costs and labor market tightness and its effects on labor market performance. The optimal level of firing costs is chosen by the employed worker i.e. the insider by maximizing her human capital. Performing a comparative statics exercise, we analyze the effects of labor market tightness on the optimal choice of firing costs. The results are clear cut and allow to obtain a decreasing firing costs function in the labor market tightness. Moreover, we show that this negative relationship can give rise to a labor market configuration characterized by multiple equilibria: prolonged average duration of unemployment will produce a labor market with low flows and high strictness of employment protection, and vice versa.Matching Models

Firms’ Investment in the Presence of Labor and Financial Market Imperfections

This paper analyses how financial and labor market imperfections jointly influence investment. The contemporaneous presence of imperfections in both markets gives rise to a negative correlation between EPL and investment: firms facing negative shocks see their financial constraints worsen in countries with greater labor market rigidities. Internal funds have an overall positive impact on investment, notwithstanding the presence of labor market rigidities acts as a disincentive to the use internal funds for financing new projects. If capital is sunk and the legal environment favors ex-post profit appropriation by workers, firms use internal funds for ends alternative to fixed investment. Our results support the effort put forward by European institutions to reform both markets.Investment Models, Financing Constraints, Labor Protection Legislation, Panel Data Models

Financial Constraints and investment decisions.

none2openGiuseppe Travaglini; Enrico SaltariTravaglini, Giuseppe; Enrico, Saltar

The effects of future financing constraints on capital accumulation: some new results on the constrained investment problem

none2In this paper, we study the effects of future constraints on current investment decisions. Unlike the standard literature on this optimizing problem, we present a model in which firms are neither always constrained nor always unconstrained. We are concerned with those cases where a firm is free from constraints at the current time but expects to face an upper bound at some later date. Using the ‘no arbitrage principle’ in the constrained scenario, we show how to explicitly calculate the optimal investment path switching between regimes. The analytical result shows that the effects of future financing constraints are included in the market value of the firm, and thus are captured by marginal q.openEnrico Saltari; Giuseppe TravagliniEnrico, Saltari; Travaglini, Giusepp

Investment, Productivity and Employment in the Italian Economy

none3openTRAVAGLINI G.; E. Saltari; C. WymerTravaglini, Giuseppe; E., Saltari; C., Wyme

Risk-aversion and the investment-uncertainty relationship: a comment

This paper shows that the solution of Nakamura's Journal of Economic Behavior and Organization 38 (1999) 357 model is incorrect. We propose an alternative framework that allows us to obtain closed form results on the investment-uncertainty relationship