does direct democracy reduce public debt evidence from swiss municipalities although some countries have managed toobtain balanced budgets or even budgetsurpluses in recent times public debts ofmany oecd countries remain at high levels since structural reforms of public spendinghave only infrequently taken place in mostcountries fiscal pressure will increaseagain in the future due to society s ageingand the accompanying increases in socialtransfer spending constitutionalrestrictions on debt levels and legal rulesof the budgetary process such as a strongrole of the minister of finance aresupposed to be helping against the debtbias inherent in political decision makingprocedures in addition to such top downbudgetary procedures this paperinvestigates the impact of referendumapproval of budget deficits by the voterson the level of public debt in a crosssection of the 134 largest swissmunicipalities in 1990

coordination and crisis in monetary unions we characterize fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets member country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently a common monetary authority chooses inflation for the union also without commitment we first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over borrow this externality rationalizes the imposition of debt ceilings in a monetary union we then investigate the impact of the composition of debt in a monetary union that is the fraction of high debt versus low debt members on the occurrence of self fulfilling debt crises we demonstrate that a high debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high and low debt members than one where all other members are low debt this contrasts with the conventional wisdom that all countries should prefer a union with low debt members as such a union can credibly deliver low inflation these findings shed new light on the criteria for an optimal currency area in the presence of rollover crises

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

the stability pact more than a minor nuisance stability pact more than a minor nuisance the stability and growth pact will lead member countries to aim for cyclically balanced budgets until this steady state is reached europe will continue its efforts at de cit cutting while so doing politicians are less likely to undertake the dif cult labour market reforms that are really needed is further scal retrenchment wise the paper reviews the reasons that have been advanced in favour of a stability pact and nds them wanting the most serious justi cations such as the systemic risk of bank crisis following a government s failure to service its debt can be better dealt with in other ways for example by prudential limits on banks exposure to public debts moreover our analysis reveals that the macroeconomic costs of the stability pact while sizeable are not as dangerous as often believed the costs will be barely visible once the steady state is reached the true macroeconomic costs are front loaded they concern the next few years after a decade already dominated by convergence efforts barry eichengreen and charles wyplosz

politicians as experts electoral control and fiscal restraints we propose an argument for fiscal restraints that is based on the premise that the services of politicians are credence goods politicians are experts who specialize in observing the true state of the economy budget maximizing politicians are better informed than the electorate about the level of public spending necessary to manage public affairs voters who are able to observe the size of the budget but not the necessary level of spending affect the government s spending behavior via electoral control a fiscal restraint limits the maximum spending a government can choose we identify conditions under which such a fiscal restraint improves voter welfare and discuss the role of the political opposition as a second expert in situations in which the state of the economy requires a level of spending which exceeds the fiscal restraint

state responses to fiscal crises the effects of budgetary institutions and politics this paper explores the dynamics of state taxes and spending during the late 1980s when regional economic downturns and increased expenditure demands led to substantial state budget deficits more restrictive state fiscal institutions such as no deficit carryover rules and tax and expenditure limitations are correlated with more rapid fiscal adjustment to unexpected deficits political factors are also important when a single party controls the state house and the governorship deficit adjustment is much faster than when party control is divided in gubernatorial election years tax increases and spending cuts are both significantly smaller than at other times

the value of quality product quality is probably undervalued by firms because there is little consensus about appropriate measures and methods to research quality we suggest that published ratings of a product s quality are a valid source of quality information with important strategic and financial impact we test this thesis by an event analysis of abnormal returns to stock prices of firms whose new products are evaluated in the wall street journal quality has a strong immediate effect on abnormal returns which is substantially higher than that for other marketing events assessed in prior studies moreover there are some important asymmetries in the effect we discuss the research managerial investing and policy implications

local fiscal policies default risk and municipal borrowing costs abstract this paper provides an empirical study of the effects that a local government s fiscal decisions exert on its cost of borrowing using a sample of new jersey municipalities the results are consistent with the view that current period fiscal decisions do impact the cost of borrowing a one standard deviation increase in the amount borrowed is associated with a 66 basis point increase in the annual yield furthermore that the standard approach of treating current period policy variables as exogenous regressors leads to a downward bias in the effect of additional borrowing on the interest rate

a note on the empirical effectiveness of formal fiscal restraints abstract an important agrument in the current debate over european monetary integration is that a monetary union requires formal fiscal restraints limiting individual member states budgetary powers to reduce the common monetary authority s risk of having to bail out insolvent member governments this note presents empirical evidence on the effectiveness of fiscal restraints on state budgets in the united states nonparametric tests reveal that fiscal restraints significantly affect the probability of fiscal choices and performance without however preventing extreme outcomes fiscal restraints induce substitution of nonrestricted for restricted debt instruments

federal taxation and the supply of state debt abstract this paper presents a model of debt finance at the sub national level from which municipal bond supply equations are derived federal tax considerations are shown to be important determinants of the price entering the bond supply equation using data on 40 state governments over a seven year period in the 1980s i show that federal tax rates have an important effect on the supply of municipal bonds independent of the demand side effect that is usually considered in the literature this has implications for the measurement of the tax expenditure associated with tax exempt debt

short and long run marginal cost pricing on their alleged equivalence abstract the equivalence between short run marginal cost srmc and long run marginal cost lrmc in a fully adjusted equilibrium has been proved over and over again in the literature dealing with public utility pricing this basic result has been taken to imply that it is optimal to set prices at lrmc important contributions to this literature are reviewed in this paper the equivalence however is valid only under the very restrictive assumption that the capacity can be varied continuously this means that indivisibilities irreversibilities and durability of investments are ignored where such phenomena exist as in electricity production and distribution pricing according to lrmc is neither theoretically valid nor applicable it is not surprising that it has been difficult for public utilities to define the lrmc concept operationally average cost concepts are used as approximations under these circumstances we find it advisable to dispense with the lrmc concept altogether and rely on pricing based on srmc

the impact of late budgets on state government borrowing costs abstract we analyze how a key component of fiscal governance the ability of governments to pass a budget on time affects government bond yield spreads based on a sample of 36 us states from 1988 to 1997 and using an original data set on budget enactment dates we estimate that a 30 day budget delay has a cumulative impact that is equivalent to a one time increase in the yield spread of around 10 basis points states with sufficient liquidity incur no costs from late budgets while unified governments face large penalties from not finishing a budget on time

the effect of fiscal performance on local government election results in israel 1989 1998 abstract we discuss the circumstances under which voters in local elections will reward fiscal responsibility and suggest that such circumstances evolved in israel in the mid 1990s we present empirical evidence that indeed fiscal performance of mayors substantially affected their reelection probability in the 1998 campaign but not in the 1989 and 1993 campaigns changes in the political environment enforcement of audit and financial reporting requirements tougher imposition of hard budget constraints and the development of local media are proposed as explanations the hypotheses that the fiscal variables reflect the income level at the locality or the mayor s success in extracting resources from the central government are tested and rejected

european monetary unification a tour d horizon this article takes stock of the literature and debate over european monetary unification in contrast to other papers where it is argued that the issues and prospects remain shrouded in uncertainty i argue that in a number of important areas a reasonable degree of consensus now exists as the result of a decade of scholarship the subsequent stock taking concentrates on areas where significant questions remain starting with the implications of surrendering the exchange rate and an independent national monetary policy as instruments of adjustment the conduct of fiscal policy under the excessive deficit procedure and the stability pact and how quickly the european union is likely to develop an eu wide system of fiscal federalism to accompany its monetary union turning from fiscal to monetary issues i ask whether the european central bank ecb will be as inflation averse as the bundesbank what exchange rate policy the ecb will pursue and whether the euro will be a leading reserve currency i conclude with what may be the most contentious issue of all namely whether europe s monetary union could collapse after it begins

bailing out expectations and public health expenditure we use a natural experiment the fiscal adjustment of italy in the 1990s to meet the maastricht criteria to test a simple model of soft budget constraint that closely resembles the intergovernmental relationships in the italian public health care sector we show that the link between the ex ante financing by the central government and the health expenditure by regions was stronger when regional expectations of future bailing outs were presumably lower confirming previous research we also prove that more fiscally autonomous regions were more financially responsible and that a political alignment effect was present with friendly regional governments controlling more expenditure than unfriendly ones our results suggest that at least in italy bailing out expectations by regions may be the missing variable emphasised by culyer a j 1988 health care expenditures in canada myth and reality canadian tax papers 82 for empirical models explaining health expenditure our results also raise some worries about the outcome of the current decentralization process in europe

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

order of market entry established empirical generalizations emerging empirical generalizations and future research three established and four emerging empirical generalizations are identified below the first established generalization is that there is a negative relationship between order of market entry and market share second for consumer packaged goods and prescription anti ulcer drugs the entrant s market share divided by the first entrant s share roughly equals one divided by the square root of order of market entry third in mature markets market pioneer share advantages slowly decline over time while the emerging generalizations require additional research support the initial findings suggest 1 for consumer packaged goods order of market entry has a stronger negative relationship with trial penetration than with repeat purchase 2 market pioneers have broader product lines than late entrants 3 skill and resource profiles differ across market pioneers early followers and late entrants and 4 order of market entry is not related to long term survival rates future research topics are also dis

fiscal transparency political parties and debt in oecd countries abstract many believe and argue that fiscal or budgetary transparency has large positive effects on fiscal performance however the evidence linking transparency and fiscal policy outcomes is less compelling to analyze the effects of fiscal transparency on public debt accumulation we present a career concerns model with political parties this allows us to integrate as implications of a single model three hitherto separate results in the literature on deficit and debt accumulation that transparency decreases debt accumulation at least by reducing an electoral cycle in deficits that right wing governments at least for strategic reasons tend to have higher deficits than left wing governments and that increasing political polarization increases debt accumulation to test the predictions of the model we construct a replicable index of fiscal transparency on 19 country oecd data simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits independent of controls for explanatory variables from other approaches

vertical debt spillovers in emu countries abstract this article examines the extent to which subnational governments may drive sovereign risk premiums is subnational fiscal policy affecting the interest rates on central government bonds furthermore we focus on a number of causal mechanisms that may mitigate or reinforce these upstream vertical spillovers i e the presence of bailout expectations and subnational borrowing autonomy our findings indicate that debt accumulation by subnational governments sng spills over onto sovereign risk premiums when the restrictions on sng borrowing are weak and when investors believe that subsovereign debts are backed by the center the results suggest that spillovers may be reduced through a proper design of a country s fiscal and institutional framework countries should either bolster the sovereignty of subnational governments by increasing sng fiscal autonomy or tightening up sng borrowing constraints

evidence on the effect of bond covenants and management compensation contracts on the choice of accounting techniques the case of the depreciation switch back abstract provisions of bond indenture agreements and management compensation contracts are examined to derive testable implications concerning management s incentives to choose among alternative accounting techniques the hypotheses are subjected to empirical examination by investigating the voluntary change from accelerated to straight line depreciation for financial reporting purposes only the methodology utilized incorporates an expectations model of accounting earnings in an attempt to separate out of the effects of earnings announcements from accounting change announcements which are often concurrent the evidence from both price and non price data is not consistent with the general hypothesis that bond covenants and management compensation contracts are important determinants of the decision to change depreciation techniques five potential explanations for the results are offered

in search of a signaling effect the wealth effects of corporate name changes abstract we find that evidence of a positive stock price reaction to the announcement of a name change is very weak and is sensitive to sample selection we interpret the evidence as a caution against the popular opinion that corporate name changes have significant valuation effects we also find little evidence that corporate name changes correspond to changes in a firm s stock return covariability with its industry index or changes in the firm s earnings growth rate these results cast doubt on two purported motives for name changes that they convey information to the market about changes in the firm s line of business or that they signal management s private information about the firm s future performance corporate name changes may serve useful purposes but such purposes have small valuation effects or tend to be anticipated by investors

pricing cogenerated electricity and heat in local communities abstract this paper considers optimal pricing of cogenerated electricity and heat used for district heating in local communities the analysis shows that the price structure given on the national market for high voltage power will in most cases be reflected in the optimal price structure on the local market for electricity i e one price in peak periods and lower prices in off peak periods another result of great practical interest is that in some cases the optimal price structure on the district heating market will be the reverse the existing price structures do not conform to these findings the short run welfare gains of switching to optimal prices in a stylized local community are measured and found to be substantial

do state balanced budget requirements matter testing two explanatory frameworks balanced budget requirements bbrs affect all aspects of financial operations previous studies relied on characterizations that highlight a constitutional statutory distinction hou and smith public budgeting finance 26 3 22 45 2006 instead propose a political technical construct this article uses probit estimation six measures of balance and long panels to test which framework offers more explanatory power the findings suggest that bbrs matter to varying degrees technical requirements exert bigger effects than political ones the effects are more obvious on narrower than broader measures of balance and in the later phases of the budget cycle and the political technical construct offers more explanatory power than the constitutional statutory distinction

politics institutions and fiscal performance in a federal system an analysis of the argentine provinces abstract we posit that the fiscal behavior of argentine provinces is determined by a common pool game at two levels within each province and across political units in the latter game the national government has a greater incentive than the provincial governments to internalize the negative externality of fiscal imprudence given relatively strong party discipline the president is able to induce governors from his party to internalize a portion of the externality to a greater extent than opposition governors in argentina party matters for fiscal behavior but it does so for reasons different from those identified in studies of oecd countries

cross sectional association between abnormal returns and firm specific variables abstract abnormal returns market model prediction errors are the subject of many event studies in accounting and finance literature conditional on the event of interest researchers have recently used cross sectional regressions to examine relations between abnormal returns and firm specific variables this paper demostrates that non constant variences and covariances in market model residuals across firms introduced bias in the estimated slope coefficients of the independent variables i e the expected signs of the estimated slope coefficients can be predicted a priori a method is develope to removed the bias in the estimated slope coefficiets and is found to be effective this method explicitly takes the dependence among abnormal returns across firms into account methods that assume abnormal returns across firms to be independent do not control for such bias

mandated accounting changes and debt covenants the case of oil and gas accounting abstract the relationships among mandated accounting changes bond covenants and security prices has been the focus of several studies these studies have provided mixed evidence on the existence of a bond covenant effect on security prices this paper suggests that inconclusive prior results are a consequence of inappropriately measuring the default risk of debt using an option pricing framework it is shown that the debt to equity alone is not an adequate measure of default risk in particular both the debt to equity ratio and the total risk of the firm are necessary to adequately model the bond covenant effects of an accounting change these theoretical propositions are supported by the empirical analysis of the security market reaction to changes in oil and gas accounting

a review of the pricing mechanisms for district heating systems heating represents the largest proportion of energy use as supplied to consumers across all end energy uses therefore there is huge potential for energy savings in the heating sector in order to reduce the emission of co2 district heating dh has been considered an efficient environmentally friendly and cost effective method for heating in buildings and is playing an important role in the mitigation of climate change in the interest of fairness and in the highly competitive market the dh companies operate there is a strong need to develop a novel heat pricing mechanism in order to promote sustainable development of dh systems in this paper existing methods and models regarding heat pricing have been reviewed the features of different pricing mechanisms have been analysed including advantages and disadvantages insights into developing an advanced pricing mechanism for dh systems have been offered

federalism fiscal restraints and european monetary union a prominent feature of the maastricht treaty on european union is the restrictions it places on fiscal policy under the provisions of the excessive deficit procedure or edp the success of member states in avoiding excessive deficits during the transition to economic and monetary union emu is one of four criteria governing admission to the monetary union once monetary union has begun member states are unconditionally required to avoid excessive deficits a state has an excessive deficit when it is so declared by the european council upon a report by the european commission and a judgment by the monetary committee the edp is set in motion if a country s deficit and general government debt respectively exceed 3 percent and 60 percent of gdp the justification for these procedures is that member states participating in the monetary union must be restrained from overborrowing to avoid destabilizing the common currency if excessive deficits cause a debt crisis the european central bank ecb will come under pressure to bail out the imperiled government the bailout could be ex post in which case the ecb would monetize the government s debt or ex ante in which case it would keep interest rates low to lighten the debt service burden either way unfettered fiscal policies could create inflationary pressures that the ecb will find difficult to resist

fiscal decentralization a political theory with latin american cases theories of fiscal federalism explain the efficiency and other economic gains from decentralization but do not explain its extent and nature in practice the authors develop a political theory of decentralization that focuses on the lines of political accountability between politicians at different levels of government the more accountable central level politicians presidents and legislators are to subnational politicians the greater the extent of decentralization and the more it will conform to the preferences of subnational politicians for example with respect to the degree of the center s discretion the model is tested on five latin american countries that although formally decentralized in fact exhibit wide differences in the distribution of spending and revenue responsibilities the theory also helps explain a number of problems governments have encountered in decentralizing including subnational debt crises and a mismatch between responsibilities and resources

risk assessment of new pricing strategies in the district heating market a case study at sundsvall energi ab the price structure of district heating has been no major scientific issue for the last decades in energy related research however today trends in district heating pricing tend to move towards a more customer oriented approach with predetermined prices under a longer periods leading to a more complex price structure if a district heating supplier offers district heating with predetermined prices in order to compete with similar electricity offers the financial risk of the new price structure is significantly higher than the risk of an ordinary variable cost offer based on short run marginal cost in contrary to an electricity seller the district heating company cannot transfer all of the risk of predetermined prices to the financial market instead the company is thrown upon its own ability to handle the risk by e g hedging its own energy purchase however all uncertainties cannot be coped with in this manner thus there is a need for a methodology that can be used to estimate the financial risk of different price structures and to value different opportunities to reduce the risk in this article we propose a methodology implemented in prototype software to evaluate the risk associated with new price structures in district heating

what s in a name reputation as a tradeable asset the author develops a model in which a firm s only asset is its name which summarizes its reputation and studies the forces that cause names to be valuable tradable assets an adverse selection model in which shifts of ownership are not observable guarantees an active market for names with either finite or infinite horizons no equilibrium exists in which only good types buy good names the reputational dynamics that emerge from the model are more realistic than those in standard game theoretic reputation models and suggest that adverse selection plays a crucial role in understanding firm reputation

heat tariff and subsidy in china based on heat cost analysis abstract this paper addresses an important issue surrounding heating supply system reform and seeks to evaluate china s heat tariff and heating subsidy from the perspective of the heating cost in the thermoelectric industry in various provinces in china we present an algorithm for estimating environmental externality included heat tariff based on the analysis of heat cost in total thermoelectric cost the results show that during 1999 2014 the average proportion of heating cost in total thermoelectric cost in the north is higher than in the south which is 26 3 and 24 1 respectively generally subsidies hidden in the existing heat tariffs subsidize heat consumers specifically hidden subsidies subsidize residential consumer more than non residential consumer in china

do credit markets discipline sovereign borrowers evidence from u s states the degree to which credit markets discipline sovereign borrowers is investigated by estimating the supply curve for debt faced by u s states the results generally support an optimistic view of the market discipline hypothesis with credit markets providing incentives for sovereign borrowers to restrain borrowing while the risk premium on bond yields is estimated to increase only gradually at low levels of debt this effect appears to become much larger as debt rises there is also some evidence that credit markets may withhold access to credit at very high levels of debt copyright 1995 by ohio state university press

evidence of the impact of mandatory changes in accounting principles on corporate loan agreements abstract the theory in this paper predicts that mandatory changes in accounting princples can affect the measurement rules defined in restrictive covenants in firms lending agreements consequently those mandatory changes can have an impact on the value of a firm s equity even if the changes appear to be merely cosmetic this contracting cost theory is tested by examining of both event related and cross sectional abnormal performance of the equity of a sample of firms when the accounting princples board changes accounting princples for business combinations the theory provides at best in incomplete explanation of the observed abnormal performance

a rose by any other name are family firms named after their founding families rewarded more for their new product introductions the authors explore the relation between the way different family firms are named and the shareholder value impact of these firms new product introductions using an event study of 1 294 product introduction announcements of 107 publicly listed u s family firms the authors find that the presence of the founding family s name as part of a family firm s name acts as a valuable firm resource increasing the abnormal stock returns surrounding the firm s new product introductions superior returns to family named firms new product introductions are partially mediated by these firms history of ethical product related behavior family named firms particularly those with corporate branding and those wherein a founding family member holds the ceo or chairman position are more likely to exhibit a history of avoiding such product related controversies as product safety issues and deceptive advertising the authors highlight the managerial and theoretical contributions of this research

time inconsistency and free riding in a monetary union in monetary unions a time inconsistency problem in monetary policy leads to a novel type of free rider problem in the setting of non monetary policies the free rider problem leads union members to pursue lax non monetary policies that induce the monetary authority to generate high inflation free riding can be mitigated by imposing constraints on non monetary policies without a time inconsistency problem the union has no free rider problem then constraints on non monetary policies are unnecessary and possibly harmful this theory is here detailed and applied to several non monetary policies labor market policy fiscal policy and bank regulation

short run versus long run marginal cost pricing abstract this paper argues that given the economic and technological conditions in the us electric utility industry today priving based on short run marginal cost is more efficient than pricing based on long run marginal cost the historical justifications for pricing at long run marginal cost are considered and short run cost based solutions suggested

myopic governments and welfare enhancing debt limits abstract this paper studies welfare effects of a soft borrowing constraint on sovereign debt the constraint is modeled as a proportional fine per unit of debt in excess of a specified reference value resembling features of the stability and growth pact sovereign debt is the result of myopic fiscal policy it reduces welfare in the absence of lump sum taxes the paper shows that the borrowing constraint enhances welfare by reducing long run debt in an economy calibrated to a generic oecd country the maximum attainable welfare gain of debt consolidation which is induced by imposing the optimally parameterized constraint amounts to 0 5 in terms of consumption the short run welfare costs of the constraint which arise from restricting the use of debt to smooth taxes are quantitatively negligible

contingent deficit sanctions and moral hazard with a stability pact abstract we show how a stability pact based on deficit sanctions eliminates the exacerbation of debt accumulation that may arise from monetary unification moreover with sanctions contingent on the observed state of the economy the pact avoids aggravating the situation of a country in recession moral hazard problems arise if the state also depends on unobservable politically costly fiscal effort this could explain why sanctions under the actual stability and growth pact are only automatically waived in extreme recessions and why the procedure linking observed deficits and sanctions involves a long and detailed assessment of a country s situation

the six flaws of the eurozone when it was created it was reasonable to think that the architecture of the monetary union was not perfect it was also likely that the imperfections would lead to difficulties possibly even crises this article identifies six flaws most of which had been identified even before the launch of the euro it starts by pinpointing why the eurozone a bold and unprecedented experiment is inherently fragile it is not conducive to the convergence of national inflation rates it is not an optimum currency area and it is not a federal state taking these characteristics as given the article argues that the eurozone needs to address their implications it observes that it has not been the case so far hence the six flaws fiscal discipline has not been achieved the need for a banking union which has finally been recognized and only partly implemented the ecb is not a complete and fully independent central bank some member countries need a sovereign debt relief structural reforms are badly needed but intrusiveness cannot be the solution the governance of the eurozone is not designed for crisis management

output fluctuations and fiscal policy u s state and local governments 1978 1994 abstract we study the cyclical properties of u s state and local government fiscal policy the budget surpluses of both are procyclical over short and medium term horizons procyclical surpluses are the result of strongly procyclical revenue and weakly procyclical expenditure these results hold whether aggregate u s wide fluctuations are controlled for or not federal grants to state and local governments are procyclical but this is due to aggregate output fluctuations with respect to state level output fluctuations federal grants are countercyclical the budget surpluses of trust funds and utilities are also procyclical but there is no evidence that this effect is stronger in states where balanced budget rules are tighter the cyclical patterns of state and local budget surpluses are affected by various political institutions for example budget surpluses are less procyclical in conservative states in an election year that occurs in good times state governments refrain from accumulating a larger surplus in bad times no such asymmetry between election and non election years is apparent

law focal points and fiscal discipline in the united states and the european union many studies suggest that strict balanced budget rules can restrain sovereign debt and lower sovereign borrowing costs even if those rules are never enforced in court why might public officials adhere to a rule that is practically never enforced in court existing literature points to a legal deterrence logic in which the threat of judicial enforcement deters sovereigns from violating the rules in the first place by contrast we argue that balanced budget rules work by coordinating decentralized punishment of sovereigns by bond markets rather than by posing a credible threat of judicial enforcement therefore the clarity of the focal point provided by the rule rather than the strength of its judicial enforcement mechanisms determines its effectiveness we develop a formal model that captures the logic of our argument and we assess this model using data on u s states we then consider implications of our argument for the impact of the balanced budget rules recently imposed on eurozone states in the fiscal compact treaty

fiscal policy rules and the sustainability of public debt in europe the sustainability of public debt is interpreted as the result of the interaction of fiscal policy with the economic environment and not as a statistical concept as in most of the recent literature if debt is not to explode over time policymakers have to respond to the changing conditions in the macroeconomic environment this article defines the conditions that will ensure compliance of fiscal policy with the intertemporal budget constraint in the context of europe s fiscal policy rules the empirical part of the article reveals that european public debt is sustainable in this respect but questions regarding long run liquidity requirements remain unresolved

sub nationals risk premia in fiscal federations fiscal performance and institutional design the recent debt crisis in europe highlighted the importance of institutional design and in particular bail out clauses in determining states risk premia in fiscal or quasi fiscal federations this paper examines the determinants of sub national governments risk premia in fiscal federations using secondary market data for the usa canada australia and germany it finds that as for central governments fiscal fundamentals matter in the pricing of risk and sub national governments with higher public debt and larger deficits pay higher premia however this relationship is not uniform across federations and it differs with institutional arrangements in particular market pricing mechanisms are less effective in presence of explicit or implicit guarantees from the central government we show that when sub national governments depend on high transfers from the central government i e when there is some form of implicit guarantee from the center markets are less responsive to sub national governments fiscal fundamentals using primary market data the paper also shows that high transfer dependency lowers the probability of sub national governments to borrow on capital markets

sovereign bond yield spreads a time varying coefficient approach abstract we study the determinants of sovereign bond yield spreads across 10 emu countries between q1 1999 and q1 2010 we apply a semiparametric time varying coefficient model to identify to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing we find that at the beginning of emu the government debt level and the general investors risk aversion had a significant impact on interest differentials in the subsequent years however financial markets paid less attention to the fiscal position of a country and the safe haven status of germany diminished in importance by the end of 2006 two years before the fall of lehman brothers financial markets began to grant germany safe haven status again one year later when financial turmoil began the market reaction to fiscal loosening increased considerably the altering in risk pricing over time period confirms the need of time varying coefficient models in this context

the decision to raise firm value through a sports business exchange how much are real madrid s goals worth to its president s company s goals abstract global brands emerging from the world of sports are becoming commonplace and firms invest in the realm of sports usually through sponsorship initiatives to get a link with these global brands over and above just a mere business link what if a company makes a personal commitment to get into the core of a renowned celebrated sports team this article provides managers with a procedure to analyze in a weekly basis how valuable this type of decision is a conceptual model shows that the personal involvement of a firm s figurehead in a first class sports club can impact positively on firm value if the person is doing well in the task s he is entrusted with by the club the empirical application to the soccer club real madrid over 1 409 days and 215 matches finds that the club s performance on the field has a significant impact on the economic returns of its president s company with asymmetrical effects on firm value in a loss aversion pattern that is lost matches have a greater effect on firm value than games won

using capital markets as market intelligence evidence from the pharmaceutical industry financial theory posits that capital markets convey through stock prices their expectation of the firm s future performance we use concepts from principal agent theory and prospect theory to provide a theoretical explanation for the role stock price variation plays in managerial decision making we then empirically investigate what specific decisions managers undertake in response to stock price variation we perform our empirical analyses in the context of the pharmaceutical industry we find that drug firms whose stock underperformed the industry react differently than drug firms with high performing stocks specifically laggards tend to implement more changes to their current product portfolio and distribution than high performing firms the more laggards underperform the more they implement acquisitions aimed to produce immediate improvement in the firm s product portfolio in contrast drug firms whose stocks outperform the industry tend to make fewer changes to their current portfolio and distribution instead they focus more on long term research and development and marketing of existing products we interpret these findings in light of industry key success factors

on the need for fiscal constraints in a monetary union the desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to following its policies if it can commit then debt constraints can only impose costs if it cannot commit then fiscal policy has a free rider problem and debt constraints may be desirable this type of free rider problem is new and arises only because of a time inconsistency problem

political control and public sector savings evidence from the states the right to access and ultimately spend public sector savings is determined by the party which can control the politicaloutcome this implies that anticipatedfuture changes in the state s controllingpolitical party may systematicallyadversely affect current savings extendingthe life cycle permanent income model ishow that a representative legislator willopt to forgo current saving in favor ofspending when his prospects for futurepolitical control diminish estimating apanel data model of 39 states from1973 1995 i find that an actual futurechange in the controlling party of astate s lower house significantly reducescurrent saving

mobile capital domestic institutions and electorally induced monetary and fiscal policy the literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible similarly examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether we develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence we test the model using data from oecd countries we find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low preelectoral fiscal expansions occur when the exchange rate is fixed we then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in europe

the dynamic adjustment of local government budgets does spain behave differently the aim of this article is to analyse whether spanish municipalities adjust in response to budget shocks and if so which elements of the budget they are more likely to adjust the methodology we use to answer these questions is a vector error correction model vecm estimated with data from a panel of spanish municipalities during the period 1988 to 2006 our results confirm that spanish municipalities do indeed make adjustments in response to fiscal shocks i e the deficit is stationary in the long run we compare our results with those obtained for us and germany to evaluate if the viability of local finance depends on the institutional arrangement and to analyse how it affects the adjustment patterns we observe that grants have a more important role in the adjustment process in environments where either they have an equalization objective or where there is no clear rule that determines their distribution this fact can generate a moral hazard problem governments tend to spend more due to the exp

does it pay to change your company s name a stock market perspective a company s name is commonly considered to be an integral part of its image just like the quality of its products or the quality of its technical services changing a company s name is a major policy decision contemplated by many firms and actually implemented by some each year this paper attempts to examine albeit indirectly whether a name change can improve the profit performance of a firm and what type of firm is more likely to succeed in doing so we use the event study methodology developed in finance to examine the above questions with respect to 58 corporations that changed their names in 1981 1985 our findings are that for most of the firms name changes are associated with improved performance and that the greatest improvement tends to occur in firms that produce industrial goods and whose performance prior to the change was relatively poor evidence that industrial good producers are also heavy users of corporate advertising lends further credence to this finding our findings do not support however the contention that the new name per se will enhance demand for the firm s products rather it seems that the act of a name change serves as a signal that other measures to improve performance such as changes in product offerings and organizational changes will be seriously and successfully undertaken the rationale behind why such a signal is sent and why it is believed is discussed

fiscal rules and government borrowing costs international evidence we find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985 2010 we apply a variety of propensity score matching methods to address the self selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets the results are robust to changes in country sample and alternative estimation methodology and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the risk premium on government debt that compensates lenders for this possibility jel e43 g12 h60

announcements of ecb unconventional programs implications for the sovereign spreads of stressed euro area countries abstract this paper studies the effects of ecb communications about unconventional monetary policy operations on the sovereign spreads of greece ireland italy portugal and spain relative to germany between 2008 and 2012 more than fifty events concerning non standard operations are identified and classified with respect to the specific ecb program the empirical results suggest that the ecb announcements about unconventional monetary policies substantially reduced long term government bond yield spreads relative to german counterparts in all countries except greece particularly among the different types of measures news about the securities markets programme strongly affected the perceived sovereign risk of the five stressed euro area countries while the announcements of the outright monetary transactions seem to have a significant impact only in italy and spain

interest yields credit ratings and economic characteristics of state bonds an empirical analysis note carosio giovanni and ignazio visco nota sulla costruzione di un tasso di interesse reale estratto dal bollettino della banca d italia 32 ottobre dicembre 1977 797 811 fama eugene f short term interest rates as predictors of inflation american economic review 65 june 1975 269 82 fama eugene f and andre farber money bonds and foreign exchange american economic review 69 september 1979 639 49 fischer stanley the demand for index bonds journal of political economy 83 june 1975 509 34 hartman richard and john h makin inflation uncertainty and interest rates theory and empirical tests national bureau of economic research working paper no 906 june 1982 hess patrick j and james l bicksler capital asset prices vs time series models as predictors of inflation journal of financial economics 2 december 1975 341 60 mundell robert a inflation and real interest journal of political economy 71 june 1963 280 83 nelson charles r and william g schwert short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant american economic review 67 june 1977 478 86 papadia francesco forward exchange rates as predictors of future spot rates and the efficiency of the foreign exchange market journal of banking and finance s june 1981 217 40 papadia francesco and vittorio basano eec dg ii inflationary expectations surveybased inflationary expectations for the eec countries economic papers of the commission of the european communities directorate general for economic and firlancial affairs no 1 may 1981 pearce douglas k comparing survey and rational measures of expected inflation forecast performance and interest rate effects journal of money credit and banking 11 november 1979 447 56 visco ignazio the measurement and analysis of inflation expectations the case of italy economic papers barik of italy research department june 1979 149 242

balanced budget rules and fiscal outcomes evidence from historical constitutions this paper studies the long run fiscal consequences of balanced budget rules bbr that are enshrined in a country s constitution using historical data dating back to the 19th century and applying a difference in difference approach we find that the introduction of a constitutional bbr reduces government debt to gdp and expenditure to gdp ratios on average by around 11 and 3 percentage points respectively we do not find evidence that bbrs affect tax revenues our analysis indicates that such rules reduce the probability of experiencing a debt crisis and that the effective enforcement of bbrs can be conditional on the quality of democratic institutions in addition we implement an instrumental variable approach by instrumenting the probability of having budget rules on de jure constraints on changing the constitution this and other tests suggest that the relations we find are largely causal going from bbrs to fiscal outcomes