Do self-committers mind commitment by others? An experiment on weak paternalism

Weak paternalism commits protégés to their own plans. This experiment addresses the question of whether protégés judge weakly paternalistic acts primarily by means of their consequences or on principle grounds. Subjects receive a reward for showing up to the laboratory early the next morning which decreases in time. Protégés can either self-commit to a planned time or self-liberate by preserving spontaneity. By making this binary choice protégés express their preference regarding liberty. Simultaneously, another subject is either paternalistic or liberal by making an analogous choice for them. We analyze protégés' attitudes toward both policy styles via costly reward choices. If only consequences matter, self-committers should appreciate paternalism while self-liberators should condemn it. A deontological aversion against paternalism would negate a difference between both groups. Differing judgments constitute a consequentialist pattern. However, this pattern is driven by self-liberators' clear judgments. For self-committers also a norm of non-interference into others' liberty can be identified

Challenging the intrapersonal empathy gap: An experiment with self-commitment power

Loewenstein (1996, 2005) identifies an intrapersonal empathy gap. In the respective experiments, subjects make choices with delayed consequences. When entering the state where these consequences would unfold, they get the possibility to revise their initial choice. Revisions are more substantial when these two choices are made in different emotional states. The concept of the empathy gap suggests that the initial choice represents a misprediction of future preferences. However, it might alternatively be based on a well understood disagreement with future preferences. In this sense, people would like to add: But don't ask me again! To disentangle both explanations, we induce two different emotional states in each subject and offer a self-commitment device in the first state. In one condition, subjects move from a cold state of reflection to a hot state of impulsiveness. In the other condition, this order is reversed. We find evidence for the hot-to-cold empathy gap, but not for the cold-to-hot empathy gap when subjects can self-commit to their initial choice

State Fiscal Policies and Regional Economic Activity

In this paper, I estimate a structural panel vector autoregression to study the consequences of changes in U.S. state government fiscal policies for local economic activity in the short-term. My main result is that the state-level spending multiplier is relatively small and the tax multiplier relatively large. After four years, the government spending multiplier is 0.6 and the tax multiplier -2.62. This conclusion is found to be robust across different model specifications. I also find that both state spending and state revenue shocks increase out of state output

Fiscal Policy and Economic Activity

Conventionally, macroeconomic consequences of economic policy have been researched in structural vector autoregressions (SVAR). Fiscal policy SVAR models estimated for the U.S. are usually supportive for large fiscal policy effects on output. In one prominent example, the tax multiplier is estimated as -1.33, and the spending multiplier as 1.29 (Blanchard and Perotti, 2002). SVAR models require untestable identification assumptions; thus, prompting the search for natural experiments as an alternative source of identification. In a particularly influential study, Romer and Romer (2010) construct a historical account of exogenous legislated U.S. tax changes and estimate a much larger tax multiplier of around -3. Applications of the SVAR methodology to Germany have generally found rather small effects of fiscal policy on output. In Hayo and Uhl (2014a), we use a natural experiment approach, closely following Romer and Romer (2010), and find strong effects of tax changes on output. Based on our evidence, one can conjecture that the tax multiplier in Germany might be as large as -2.4. The estimated tax multipliers are much larger than alternative estimates derived in fiscal policy VAR models for Germany. Implementing this study required intensive data collection processes; Uhl (2013) contains the documentation of these efforts. Most studies on the macroeconomic consequences of fiscal policy use aggregate nationwide data. In Hayo and Uhl (2014b), we estimate the consequences of federal tax policy actions for regional economic activity in the U.S. We find considerable variation in how regional output reacts to federal tax changes and that estimated state multipliers range between –0.2 in Utah and –3.7 in Hawaii. An econometric analysis of determinants behind these differences reveals that the size and composition of a state tax base is related to the strength of the local income reaction. These results improve our understanding of the precise transmission mechanism of fiscal policy shocks. In Uhl (2014), I estimate the consequences of U.S. state-level fiscal policies for local economic activity and conclude that state-level spending multipliers are relatively small, while tax multipliers are large. These results allow for assessing the consequences of subnational fiscal policies and provide stylized-facts on fiscal multipliers in a monetary union. It is interesting to note that estimated multipliers at the state level are comparable to estimates derived at the country level despite their different transmission mechanism. I also find that both increases in state spending and in state taxes improve out-of-state output which suggests that spillovers among states or countries are relevant. Inference on ‘fiscal multipliers’ in aggregate time series requires untestable identification assumptions. Asking economic agents directly about their responses to fiscal policy is an appealing non-standard alternative. Shapiro and Slemrod (1995), and follow-up papers, ask U.S. residents about their consumption responses to various tax changes. We extend on this research by directly asking the German population about their consumption and labor supply responses to a recent 2013 payroll tax change using a representative population survey (Hayo et al., 2014, Hayo and Uhl, 2014c, and Hayo and Uhl, 2014d). About 55 per cent of the respondents indicate that they have increased spending; suggesting that tax changes in Germany have a relatively large impact on consumption and, hence, on economic activity. Based on the evidence from this representative survey, the effects of tax changes on labor supply, however, are likely small. The relative dominance of consumption responses, vis-à-vis labor supply responses, is a conclusion that is also present in the aggregate time series evidence in Hayo and Uhl (2014a). One further noteworthy implication from our representative survey is that currently low interest rates reduce incentives to save as well as incentives for labor supply

A History of Tax Legislation in the Federal Republic of Germany

This paper presents a historical account of legislated tax changes in the Federal Republic of Germany from 1964 to 2010, thus establishing a database appropriate for the macroeconometric analysis of the fiscal policy transmission mechanism. Ninety-five quantitatively important pieces of tax legislation are identified and characterized along several dimensions: Tax changes are classified as “endogenous” or “exogenous” with regard to current macroeconomic conditions, and their revenue impact and timing is reported. The evolution of tax acts is described, capturing changes in tax measures and associated revenue impacts over the whole legislative process. The exposition is also a comprehensive qualitative description of major tax changes and the motivation behind them over the last four decades

Reuters Sentiment and Stock Returns

We examine the statistical power of fundamental and behavioural factors with regards to stock returns of the Dow Jones Industrials Index. With a novel sentiment dataset from over 3.6 million Reuters news articles, we find signifcant correlations between Reuters sentiment and stock returns. We show with vector autoregression and error correction models that sentiment can explain and predict changes in stock returns better than macroeconomic factors. Considering positive and negative sections of Reuters sentiment, we find that negative sentiment performs better in simple trading strategies to predict stock returns than positive sentiment, while the sentiment effect remains over months

State Fiscal Policies and Regional Economic Activity

In this paper, I estimate a structural panel vector autoregression to study the consequences of changes in U.S. state government fiscal policies for local economic activity in the short-term. My main result is that the state-level spending multiplier is relatively small and the tax multiplier relatively large. After four years, the government spending multiplier is 0.6 and the tax multiplier -2.62. This conclusion is found to be robust across different model specifications. I also find that both state spending and state revenue shocks increase out of state output