what determines the duration of a fiscal consolidation program abstract this paper assesses the determinants of the length of fiscal consolidation using annual data for 17 industrial countries over the period 1978 2009 relying on a narrative approach to identify fiscal consolidation episodes we show that fiscal variables such as the budget deficit and the level of public debt and economic factors such as the degree of openness the inflation rate the interest rate and per capita gdp are crucial for the fiscal consolidation process additionally we employ duration analysis over a set of consolidation spells and find that as time goes by the likelihood of a fiscal consolidation ending is higher however the hazard function is not monotonic indeed it increases until the eighth or ninth year and starts decreasing afterwards we also find that i spending driven consolidations are shorter than tax driven consolidations ii both types of consolidation are longer in non european countries than for european countries and iii the size of the consolidation program in percentage of gdp does not significantly affect duration all in all our results support the importance of cuts in government spending as a way of bringing economies into a sustainable path for public debt moreover they highlight the role played by a fiscal framework that imposes discipline in governments as a device to credibly shorten the length of fiscal consolidation episodes

the effects of cross border bank mergers on bank risk and value abstract this paper examines the effects of cross border bank mergers on the risk and abnormal returns of acquiring banks we find that overall the acquirers risk neither increases nor decreases in particular on average neither their total risk nor their systematic risk falls relative to banks in their home banking market the abnormal returns to acquirers are negative and significant but are somewhat higher when risk increases relative to banks in the acquirer s home country

executive constraint and sovereign debt quasi experimental evidence from argentina during the baring crisis the literature on whether executive constraint improves the credibility of sovereign debt takes the political regime as the unit of analysis typically computing an average yield or price for each

performance changes around bank mergers revenue enhancements versus cost reductions this paper examines operating performance around commercial bank mergers we find that industry adjusted operating performance of merged banks increases significantly after the merger large bank mergers produce greater performance gains than small bank mergers activity focusing mergers produce greater performance gains than activity diversifying mergers geographically focusing mergers produce greater performance gains than geographically diversifying mergers and performance gains are larger after the implementation of nationwide banking in 1997 further we find improved performance is the result of both revenue enhancements and cost reduction activities however revenue enhancements are most significant in those mergers that also experience reduced costs

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

dealing with debt abstract this paper explores the menu of options for renormalizing public debt levels relative to nominal activity in the long run should governments eventually decide to do so although debt ratios may need to rise further in some cases a vision of longer term options is key to weighing alternative medium term stabilization strategies orthodox ones the standard fare of officialdom include enhancing growth running primary budget surpluses and privatizing government assets heterodox polices include restructuring debt contracts generating unexpected inflation taxing wealth and repressing private finance advanced countries have relied far more on heterodox approaches than many observers choose to remember

real government size automatic feedback rules and the measured effectiveness of fiscal policy this paper argues that as intervention fiscal policy means more than simply any change in government spending and this requires of fiscal analysis a measure that separates the allocative from the counter cyclical activities of government defining intervention as an optimal policy rule that responds automatically to privately unanticipated variations in output a general equilibrium model is built to separate the supply side effects of desired changes in the size of government from demand side interventions designed to stimulate aggregate demand the model is tested using the results of a public choice investigation of the real size of government ferris and west 1996 that exercise produces a measure of desired size and through its residual an implicit measure of intervention the paper tests the prediction that increases in desired size increase aggregate supply and that ex post measures of fiscal intervention can be recovered and tested for their effect on aggregate output the test uses citibase

voters as fiscal conservatives voters penalize federal and state spending growth this is the central result of my analysis of voting behavior in presidential senatorial and gubernatorial elections from 1950 1988 the composition of federal spending growth seems irrelevant the vote loss to the president s party from an extra dollar of defense or nondefense spending is the same however in gubernatorial elections expansion of state welfare spending exacts a disproportionate political price deficit financing of federal or state spending does not appear to matter politically i conclude by discussing the obvious question of why government budgets have grown in the face of this voter hostility

the exchange rate and fiscal consolidation episodes in emerging market economies abstract an analysis of fiscal consolidations in emerging market economies during 1970 2004 suggests that exchange rate depreciation raises the probability of a fiscal consolidation being successful including when controlling for debt growth the composition of the consolidation and degree of democracy

effects of fiscal contractions the importance of preceding exchange rate movements we examine the importance of exchange rate and money supply movements for the macroeconomic outcome of fiscal contractions and find i contractions associated with a favorable macroeconomic outcome have been preceded by significantly higher real depreciations as compared to contractions associated with a less favorable macroeconomic outcome and ii contractions preceded by real depreciations improve expectations about future income and generate higher private consumption growth we discuss policy implications for countries both outside and inside the emu

fiscal policy and financial market movements abstract this paper estimates fiscal policy reaction function in order to investigate the links between financial market movements and fiscal policy outcomes an increase in asset prices affects in a positive and significant manner primary balances with the response reflecting both an increase in government revenues and a fall in government spending the most important impact on fiscal balances is due to changes in residential property prices changes in equity and commercial property prices are also important determinants of fiscal balances our findings suggest that the steepening of the slope of the yield curve contributes to expenditure based fiscal discipline

the political economy of the budget surplus in the united states n 1998 the federal government of the united states reached a budget surplus for the first time in 30 years even though many commentators have described this event as a rare and major success what is remarkable is not that the u s government has reached a surplus but that this result is perceived as so exceptional in fact given the strong expansion of the u s economy in the last eight years and the peace dividend due to the end of the cold war nobody should be overly surprised at the much improved fiscal balance the reason why a surplus for the federal government appears so unusual is that american citizens like those of many other industrial countries have become accustomed to large and persistent deficits from the mid 1970s onward in fact many european countries which have had much lower growth than the united states and higher interest rates are still struggling with this legacy of accumulated debts while current budget surpluses should be viewed as relatively normal the large budget deficits of the 1980s were exceptional according to the tax smoothing theory the budget balance should be used as a buffer to allow tax rates to be approximately constant at the level that keeps the budget in intertemporal balance 2 thus temporary deficits are expected to occur during recessions and

tales of fiscal adjustment fiscal adjustments why they can be expansionary this paper examines the evidence on fiscal adjustments in oecd countries from the early 1960s to today the results shed light on the recently observed phenomenon of fiscal tightening that produces non keynesian expansionary effects one interpretation is that a serious fiscal tightening increases demand wealth rises when future tax burdens decline and when interest rates decline credibility is restored and inflation or default risks abate both consumption and investment rise for this effect to produce an expansion the tightening must be sizeable and occur after a period of stress when the budget is quickly deteriorating and public debt is building up another interpretation emphasizes the supply side typically a fiscal consolidation based on tax increases is short lived to be long lasting it must include cuts in public employment transfers and government wages to be politically possible such a policy must be supported by trade unions these measures result in more efficient labour markets and boost the supply side based both on statistical evidence and on a detailed analysis of ten cases of major fiscal adjustment this article provides cautious support to the supply side view without denying a more limited role for the demand side channel alberto alesina and silvia ardagna

public sector debt dynamics the persistence and sources of shocks to debt in 10 eu countries this paper characterises the time series properties of debt gdp ratios in ten eu countries over the period 1982 2009 it establishes that shocks to debt ratios persist and measures the size and source of the permanent effects of shocks as they evolve over time the analysis shows that debt dynamics in the eu10 are complicated involving important inter country interactions and protracted adjustment periods of the order of ten years we find evidence of asymmetries in the effects of different forms of fiscal consolidation with unanticipated reductions in government spending having a more permanent effect than unanticipated increases in government revenue unanticipated business cycle fluctuations also have important long term effects on the ratio

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

keynes and the confidence faeries budgetary constraints were never the primary object of policy for john maynard keynes they were constraints not objectives however keynes identified the psychological channels through which budgetary discipline and other policy conventions might influence investment he even accepted that in rare circumstances the psychological factors might overwhelm direct policy interventions unfortunately the polarisation of the current debate means traditional keynesians are unlikely to search out this aspect of his work and the confidence faeries are unlikely to read any of keynes s work this article draws attention to this aspect of his work

cities constitutions and sovereign borrowing in europe 1274 1785 this article investigates the politics of sovereign borrowing in europe over the very long run i consider three alternative hypotheses regarding the sources of borrower credibility according to the first european states with constitutional checks on executive authority found it easier to obtain credit at low interest rates than did states that lacked such constraints my second hypothesis focuses on state type city state versus territorial state and the way in which this may have influ enced the balance of political power between owners of land and owners of capital in a society this hypothesis suggests that after controlling for other factors one should observe that city states in europe found it easier to borrow than did larger territorial states and that these city states paid lower interest rates on their debt finally my third hypothesis suggests that borrower credibility depended on the simultaneous presence of both constitutional checks and balances and a city state when one con siders a broad sample of cases over a long time span there is strong support for the proposition involving city states and merchant power but less support for the argu ment that constitutional checks influenced credibility regardless of state type city state or territorial state there is however some empirical evidence of an interaction effect whereby constitutional constraints on rulers made city states particularly cred ible as borrowers my results are robust to a number of controls for alternative deter minants for sample selection bias and for the endogeneity of city state development one of the most frequently cited recent arguments about european state develop ment involves the effect of constitutional checks and balances on economic per formance in areas where political institutions placed constraints on rulers scholars have argued that property rights were more secure which helped stimulate invest ment innovation and growth authors have suggested that checks and balances also facilitated long term borrowing by governments since creditors found it less likely that constrained rulers would default on loans easier access to loans at low interest rates gave some states an advantage in international competition the con trasting cases of great britain and france provide a popular illustration of the

safety net losses from abandoning glass steagall restrictions this paper evaluates the redistribution of gains surrounding regulatory relaxations in 1996 and 1997 and ultimate passage of the financial services modernization act fsma of 1999 gains in financial institution stocks may come from projected increases in efficiency increases in the bargaining power of financial institutions or greater access to the federal safety net for customers seeking improved access to capital markets gains in efficiency should result in increased benefits but increases in bank bargaining power could increase funding costs and or decrease capital market access customers may also lose as taxpayers who support the federal safety net this paper finds evidence of potential taxpayer losses and increased bank bargaining power especially vis a vis credit constrained customers for whom safety net subsidies are unlikely to be shifted forward the stock prices of credit constrained customers declined during fsma event windows and in event windows associated with regulatory relaxations

the resolution of failed banks during the crisis acquirer performance and fdic guarantees 2008 2013 abstract we find that winning bidders in fdic failed bank auctions from 2008 to 2013 experience substantial positive abnormal stock returns returns are inversely related to bid amounts after controlling for bid determinants consistent with wealth transfers from the fdic providing implicit subsidies to acquirers the results challenge arguments that wealth transfers in earlier crises stemmed from since eliminated bidding restrictions but support the prediction of cash in the market pricing theory that during crises resolution through acquisition requires subsidization winning bid amounts are related to proxies for cash in the market pricing fdic loss sharing not widely used before the recent failure wave is an important influence on bids

the consequences of fiscal stimulus on public debt a historical perspective the current policy agenda of neoclassical macroeconomics as expressed within conservative political circles in the uk and european union is that fiscal contraction is the lever that can bring about recovery from the current economic downturn allegedly the reason is that when business sees that the government balance sheet is improving and public debt declining there will be greater confidence in the country s economic prospects and this increased confidence will lead to higher investment this in turn will lead to growth and the road to economic recovery this study examines the impact of government stance on public debt for 11 oecd countries for which data on the relevant factors are available from 1881 to 2011 contrary to traditional predictions it turns out that over this long historical span fiscal contractions deteriorated rather than improved public debt as a percentage of gdp this implies that fiscal austerity exacerbates the lack of demand and deteriorates rather than enhances the prospects of economic recovery

the welfare state and competitiveness in all industrial countries fiscal policy is increasingly about redistribution in this paper the authors study redistribution across different types of agents in a world characterized by the presence of labor unions and distortionary taxation they show that an increase in transfers financed by distortionary taxation has nonlinear effects on unit labor costs relative to the other countries depending on the degree of centralization of the wage setting process in the labor market the authors find considerable empirical support for the model in a sample of fourteen oecd countries copyright 1997 by american economic association

fiscal policy expenditure composition and growth in low income countries abstract this paper assesses the effects of fiscal consolidation and expenditure composition on economic growth in a sample of 39 low income countries during the 1990s the paper finds that strong budgetary positions are generally associated with higher economic growth in both the short and long terms the composition of public outlays also matters countries where spending is concentrated on wages tend to have lower growth while those that allocate higher shares to capital and nonwage goods and services enjoy faster output expansion finally initial fiscal conditions also have a bearing on the nexus between fiscal deficits and growth

non keynesian effects of fiscal policy in oecd economies an empirical study this article explores the hypothesis that the propensity to consume out of income varies in a nonlinear fashion with fiscal variables and in particular with government debt per capita using panel data from 18 organization for economic cooperation and development oecd countries we examine whether there is any empirical evidence to support the hypothesis that households move from non ricardian to ricardian behaviour as government debt reaches high levels and as uncertainty about future taxes increases our results provide support for this hypothesis and also suggest that private and government consumption are complements in the household utility function

the confidence effects of fiscal consolidations we explore how fiscal consolidations affect private sector confidence a possible channel for the transmission of fiscal policy that has received particular attention recently as a result of governments embarking on austerity trajectories in the aftermath of the crisis panel regressions based on the annual action based datasets of devries et al 2011 and alesina et al 2014a show that consolidations and in particular their unanticipated components affect confidence negatively to obtain a more accurate picture of how consolidations affect confidence we construct a monthly dataset of consolidation announcements so that we can investigate the confidence effects in real time using an event study the results suggest that consumer confidence falls around announcements of consolidation measures an effect likely driven by revenue based measures moreover these effects are highly relevant for european countries with weak institutional arrangements as measured by the tightness of fiscal rules or budgetary transparency the effects on producer confidence are generally similar but weaker than for consumer confidence long term interest rates as a measure of confidence in the sovereign tend to fall around spending based consolidation announcements we have no evidence that the confidence effects of consolidation announcements are worse in slumps than in booms generally strengthening institutional arrangements may help in mitigating adverse confidence effects of consolidations

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

activist fiscal policy during and after the great recession that began in december 2007 the u s federal government enacted several rounds of activist fiscal policy in this paper we review the recent evolution of thinking and evidence regarding the effectiveness of activist fiscal policy although fiscal interventions aimed at stimulating and stabilizing the economy have returned to common use their efficacy remains controversial we review the debate about the traditional types of fiscal policy interventions such as broad based tax cuts and spending increases as well as more targeted policies while there have been improvements in estimates of the effects of broad based policies much of what has been learned recently concerns how such multipliers might vary with respect to economic conditions such as the credit market disruptions and very low interest rates that were central features of the great recession the eclectic and innovative interventions by the federal reserve and other central banks during this period highlight the imprecise divisions between monetary and fiscal policy and the many channels through which fiscal policies can be implemented

regulatory arbitrage in cross border banking mergers within the eu expanding the cross country footprint of an organization s profit making activities changes the geographic pattern of its exposure to loss in ways that are hard for regulators and supervisors to observe this paper tests and confirms the hypothesis that differences in the size and character of safety net benefits available to banks in individual eu countries help to account for cross border merger activity our results suggest that central bankers need to develop statistical procedures for assessing the consequences of differences in supervisory strength and weakness in partner countries we believe that the methods used here can help in this task

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

is ireland really the role model for austerity this paper describes the causes and consequences of ireland s economic crisis in the context of the policy solution implemented to contain that crisis protracted fiscal austerity i describe the causes of the recent crisis in ireland and look at the logic of austerity with a simple model i compare the current crisis to the crisis of the 1980s when fiscal austerity was touted as the trigger for the celtic tiger i discuss the measures implemented to date in the current crisis tracing their effects on sectors of ireland s macroeconomy i show that ireland is not the role model for austerity policies

fiscal consolidations quality economic conditions and success recent research has demonstrated theimportance of good quality of fiscaladjustments for the success of governmentbudget consolidations we extend thisapproach to analyze the importance of theeconomic conditions in which fiscalconsolidations are started for theirsuccess the cyclical positions of thedomestic and international economy theinitial debt level and the stance of fiscalpolicy in the oecd are all importantdeterminants of the likelihood of fiscalconsolidations they also affect thegovernment s choice of consolidationstrategy making them importantdeterminants of the success of fiscalconsolidations in contrast the monetarypolicy stance plays only a negligible rolefor fiscal consolidations we use theanalysis to test for any maastricht effectson the performance of european governmentsduring the 1990s such effects are weak atbest and occurred only during the firsthalf of the decade

voting on the budget deficit comment textabstractin this comment it is argued that a balanced budget rule may cause underinvestment as a consequence such a rule is not ex ante efficient in order to achieve the ex ante optimal outcome it would be necessary to add an extra rule for the level of public investment unfortunately however such an investment rule is likely to be very difficult to implement in practice when there are no rules to prevent underinvestment it is no longer clear whether a balanced budget rule is beneficial or not in some cases the cost of low levels of investment outweigh the benefits of a balanced budget

do substantial horizontal mergers generate significant price effects evidence from the banking industry this study examines the price effects of recent us bank mergers that substantially increased local market concentration using the deposit interest rates that banks offer their customers as our price measure we find that over the 1991 94 time period deposit rates offered by participants in substantial horizontal mergers and their local market rivals declined by a greater percentage than did deposit rates offered by banks not operating in markets in which such mergers took place we interpret our results as evidence that these mergers led to increased market power

monetary fiscal policy interactions and fiscal stimulus abstract increases in government spending trigger substitution effects both inter and intra temporal and a wealth effect the ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption higher future taxes create a strong negative wealth effect while the active monetary response increases the real interest rate this paper estimates markov switching policy rules for the united states and finds that monetary and fiscal policies fluctuate between active and passive behavior when the estimated joint policy process is imposed on a conventional new keynesian model government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized the paper reports the model s predictions of the macroeconomic impacts of the american recovery and reinvestment act s implied path for government spending under alternative monetary fiscal policy combinations

systemic risks and the too big to fail problem the financial crisis of 2007 9 resulted in state intervention in financial markets around the world and the state became a major shareholder in many banks while state bailouts were politically sensitive policy makers had little alternative but to supply funds to financial institutions that were viewed as too big to fail or tbtf in this paper i review the history of and the rationale for the tbtf policy i argue that from a policy perspective the most important costs of the tbtf problem are incurred ex ante in the form of distorted incentives that arise as a consequence of distortions to the capital markets and to the choice of banks scale and scope i argue that it is impossible credibly to withdraw the tbtf policy and hence that it should be managed so as to minimize the costs of these distortions in this context i discuss the role of policy in institutional design in the restriction of bank scope and in designing appropriate capital regulations

political institutions and sovereign borrowing evidence from nineteenth century argentina i study the relationship between political institutions and sovereign borrowing when constitutional constraints are systematically chosen to obtain better credit conditions i argue that the impact of institutional constraints on country risk premia depends on the gov ernment s concern with the country s creditworthiness and its willingness to repay two variables that are hardly observable to properly evaluate the relationship between political institutions and sovereign borrowing i focus on the link between institutional constraints and the risk premia of argentine bonds between 1822 and 1913 specifically i analyze whether a structural break in the government s cost of borrowing time series exists i use the perron volesang test for structural change with unknown break dates the statistical analysis indicates that the adoption of institutional constraints led to significant improve ments in borrowing terms the series has a single structural change and the distinctive break point is associated with the country s adoption of constitutional checks and balances time series regressions and instrumental variables iv estimation reinforce these findings

fiscal adjustments labour market flexibility and unemployment using a panel of 17 countries for 1978 2009 we find that tax driven consolidations increase unemployment by 0 25 percentage points labour market flexibility mitigates this a one point rise in the flexibility index reduces youth long term unemployment by 0 6 0 7 1 8 2 2 percentage points

searching for non linear effects of fiscal policy evidence from industrial and developing countries several recent studies suggest that the response of national saving to scal policy may be non linear in this paper we use two data sets to search for the circumstances in which such non linear response may arise a sample of oecd countries already used in previous studies and a sample of developing countries using more recent world bank data we nd that in both samples non linear e ects tend to be associated with large and persistent scal impulses in the oecd sample the non linearity of the response is stronger for scal contractions than for expansions an increase in net taxes has no e ect on national saving during large scal contractions while it has a positive e ect in less pronounced contractions high or rapidly growing public debt does not appear to be a good predictor of non linear e ects in the world bank sample of developing countries non linearities in the response national saving to scal policy are not limited to large scal contractions and also tend to occur in periods in which debt is accumulating rapidly regardless of its initial level 2000 elsevier science b v all rights reserved jel classixcation e21 e62 h31

how have borrowers fared in banking mega mergers previous studies of event returns surrounding bank mergers show that banks gain value in megamergers and additional value when they absorb in market competitors a portion of these gains has been traced to the increased bargaining power of banks vis a vis regulators and other competitors we demonstrate that increased bargaining power of megabanks adversely affects loan customers of the acquired institution wealth losses are greater when loan customers are credit constrained the loan customer is smaller or the acquisition is an in market deal these findings reinforce complaints that the ongoing consolidation in banking has unfavorably affected the availability of credit for smaller firms and especially capitalconstrained firms

equilibrium and options on real assets in aggregate options on real and financial assets can have very different properties typically the good or service produced by a real asset has a finite elasticity of demand and developers have finite capacities also the supply of options can be limited and developers can be less than perfectly competitive in a subgame perfect nash equilibrium with these properties the optimal exercise policy and resulting values of developed and undeveloped assets are calculated explicitly the novel comparative statics are discussed in detail article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

fiscal stabilizations when do they work and why abstract this paper studies the determinants and channels through which fiscal contractions influence the dynamics of the debt to gdp ratio and gdp growth using data from a panel of oecd countries the paper shows that the success of fiscal adjustments in decreasing the debt to gdp ratio depends on the size of the fiscal contraction and less on its composition the rate of growth of output matters too but higher gdp growth does not drive the success of a fiscal stabilization in contrast whether a fiscal adjustment is expansionary depends largely on the composition of the fiscal maneuvre in particular stabilizations implemented by cutting public spending lead to higher gdp growth rates the effects of the composition on growth work mostly through the labor market rather than through agents expectations of future fiscal policy finally the evidence suggests that successful and expansionary fiscal contractions are not the result of accompanying expansionary monetary policy or exchange rate devaluations

fiscal policy profits and investment this paper evaluates the effects of fiscal policy on investment using a panel of oecd countries we find a sizeable negative effect of public spending and in particular of its wage component on profits and on business investment this result is consistent with different theoretical models in which government employment creates wage pressure for the private sector various types of taxes also have negative effects on profits but interestingly the effects of government spending on investment are larger than those of taxes our results can explain the so called non keynesian i e expansionary effects of fiscal adjustments jel e22 e62

a role model for the conduct of fiscal policy experiences from sweden abstract sweden was hit by a severe macroeconomic crisis in the early 1990s gdp fell for three consecutive years in 1991 1993 unemployment increased by 9 percentage points banks had to be nationalized and public budget deficits exceeded 10 percent of gdp the recovery was however quick gdp growth was around four percent in 1994 1995 and budget deficits had been eliminated by 1998 growth remained high in the subsequent decade and the government debt ratio was reduced by almost 50 percent of gdp this paper describes and analyzes the swedish crisis and the policy measures implemented in response to the crisis policy measures include abandoning the fixed exchange rate fiscal austerity a new stricter fiscal framework and several structural reforms in the 1990s these policies were appropriate for handling the swedish crisis but the swedish experiences have limited applicability for the current debt crisis in particular because currency depreciation in combination with strong growth on export markets was a key ingredient in the swedish recovery implementing fiscal austerity would have been more complicated absent this export led growth moreover the new fiscal framework has most likely contributed to strengthening public finances but i demonstrate that budget surpluses and high gdp growth only explain around a third of the reduction in the public debt ratio after 1997

fiscal crises and aggregate demand can high public debt reverse the effects of fiscal policy abstract this paper shows how the power of fiscal policy to affect consumption can vary depending on the level of public debt at moderate levels of debt fiscal policy has the traditional keynesian effects current generations of consumers discount future taxes because they may not be alive when taxes are raised or there will be a larger population available to pay the taxes but when debt reaches extreme values current generations of consumers know there is a high probability that they will have to pay extra taxes a fiscal deficit can have a contractionary effect in these situations

the importance of composition of fiscal policy evidence from different exchange rate regimes abstract we study the macroeconomic effects of fiscal policies in an open economy we emphasize two transmission mechanisms the cost channel by which wage government spending and labor taxes raise the real wage firms must pay and the exchange rate channel by which the nominal exchange rate shifts induced by fiscal policy have real effects if some prices and wages are sticky the latter channel implies that changes in wage government spending or in labor taxation should have different effects under flexible than under fixed exchange rates in a 1964 93 panel of oecd countries we find significant evidence for both channels moreover we find that the real product wage and profitability are more responsive than quantities employment and output to fiscal policy innovations

incentives for banking megamergers what motives might regulators infer from event study evidence methodologically this paper frames the opportunity cost of any merger as the value of the alternative deals it precludes or defers this challenges the standard event study hypothesis that stock markets benchmark the value of a merger deal by the profits the partners would have earned in stand alone activity substantively the paper finds that megamergers in banking show two size related exceptions to the prototypical result that acquirer stock value tends to be unaffected or to fall when a merger is announced giant u s banking organizations gain value from becoming more gigantic and gain additional value when they absorb an in state competitor

returns to scale and input substitution for large u s banks the united states commercial banking industry has experienced significant changes in recent years the recent wave of mergers and the near term prospects of interstate banking suggests that the industry is moving toward much larger average banking organizations rhoades 1985 will a more concentrated banking industry result in lower costs due to scale economies we address this question by examining the cost function for large banks numerous studies of economies of scale in banking exist generally tracing their roots to the classic papers by benston 1965 and bell and murphy 1968 a good review of the most recent studies can be found in clark 1988 the majority of the papers uses samples of smaller banks that is under 1 billion in deposits finding generally that economies of scale are quickly exhausted and that further increases in bank size occur at constant or possibly increasing cost the extrapolation of previous findings for samples of smaller banks to large banks may be problematic especially in the current environment first large banks service a different mix of markets and customers than small banks suggesting that large and small banks probably face different cost structures second the process of deregulation may have rendered the results of prior studies moot since the data pertain to periods before significant deregulation since we

the effects of fiscal consolidations on the composition of government spending abstractin response to increasing debt paths governments often implement fiscal consolidation programs this paper studies the impact of these programs on the composition of government spending s

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

systemic risk and bank consolidation international evidence abstract this paper analyzes the systemic risk effects of bank mergers to test the concentration fragility hypothesis we use the marginal expected shortfall as well as the lower tail dependence between a bank s stock returns and a relevant bank sector index to capture the merger related change in an acquirer s contribution to systemic risk in our empirical analysis of a dataset of international domestic and cross border mergers we find clear evidence for a significant increase in the merging banks the combined banks as well as their competitors contribution to systemic risk following mergers thus confirming the concentration fragility hypothesis

uncertain fiscal consolidations the paper explores the macroeconomic consequences of fiscal consolidations whose timing and composition are uncertain drawing on the evidence in alesina and ardagna 2010 we emphasize whether or not the fiscal consolidation is driven by tax rises or expenditure cuts we find that the composition of the fiscal consolidation its duration the monetary policy stance the level of government debt and expectations over the likelihood and composition of fiscal consolidations all matter in determining the extent to which a given consolidation is expansionary and or successful in stabilizing government debt

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

the output effect of fiscal consolidation plans abstract we show that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of a multi year fiscal plan rather than of individual fiscal shocks simulation of fiscal plans adopted by 16 oecd countries over a 30 year period supports the hypothesis that the effects of consolidations depend on their design fiscal adjustments based upon spending cuts are much less costly in terms of output losses than tax based ones and have especially low output costs when they consist of permanent rather than stop and go changes in taxes and spending the difference between tax based and spending based adjustments appears not to be explained by accompanying policies including monetary policy it is mainly due to the different responses of business confidence and private investment

the effect of development aid unpredictability and migrants remittances on fiscal consolidation in developing countries summary we use panel data on 74 developing countries for the period 1980 2007 to examine the effects of aid unpredictability and migrants remittances on fiscal consolidation in these countries using two definitions of fiscal adjustment and a conditional logit model to perform our analysis evidence is shown that except for the case of low income countries especially gradual fiscal retrenchment remittances increase the likelihood of fiscal consolidation be the latter gradual or rapid surprisingly we observe that aid unpredictability does not affect the adoption of fiscal consolidation measures in all the groups considered

fiscal policy and occupational employment dynamics we document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the united states employment rises most strongly in service sales and office pink collar occupations by contrast employment in blue collar occupations is hardly affected by fiscal policy we provide evidence that occupation specific changes in labor demand are key for understanding these findings we develop a business cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation specific within industry employment shifts due to differences in the short run substitutability between labor and capital services across occupations

austerity and gender inequalities in europe in times of crisis the post 2008 recession and the countercyclical responses by european governments that followed triggered an extensive wave of fiscal adjustments although underpinned by widespread consensus the implementation of such measures has also been severely criticised while their effect on output and employment has been extensively investigated their impact on wage inequality has received less attention in this paper we focus on the consequences of fiscal consolidation measures for gender inequality after describing the literature based conceptual framework of our analysis we provide empirical evidence of the effect of fiscal consolidation on i the adjusted gender wage gap and ii the patterns of gender horizontal segregation the analysis covers eu 28 countries in the years 2010 13 results show that austerity measures both tax based and expenditure based impacted significantly on various aspects of gender wage inequality putting at risk the relatively little progress achieved in europe so far

trigger points and budget cuts explaining the effects of fiscal austerity we propose and solve an optimizing model which explains counterintuitive effects of fiscal policy in terms of expectations if government spending follows an upward trending stochastic process which the public believes may fall sharply when it reaches specific trigger points then optimizing consumption behavior and simple budget constraint arithmetic imply a nonlinear relationship between private consumption and government spending this theoretical relation is consistent with the experience of several countries jel e62 e21 textbook aggregate demand models suggest simple relationships between the government budget and economic activity a cut in the government deficit for example depressing consumption and output though such models heavily influence the design of stabilization policies their micro foundations are unclear and their sharp predictions are not always consistent with reality in many countries large cuts in government spending carried out as part of stabilization programs have led to expansions rather than contractions in economic activity the absence of simple relationships be

fiscal adjustments do labor and product market institutions matter this paper investigates the role played by labor and product market institutions in determining the likelihood of initiating and of successfully concluding a fiscal adjustment using data for 16 oecd countries over the period 1970 to 2000 we find that a less generous unemployment benefit system rather than temporary caps on spending e g wage freezes contributes to the success of fiscal consolidation weaker forms of bargaining coordination and centralization facilitate the fiscal adjustment effort on the other hand product market deregulation and more flexible employment protection legislation do not contribute positively to fiscal consolidation

deposit insurance and wealth effects the value of being too big to fail this paper investigates the effect on bank equity values of the comptroller of the currency s announcement that some banks were too big to fail and that for those banks total deposit insurance would be provided using an event study methodology we find positive wealth effects accruing to tbtf banks with corresponding negative effects accruing to non included banks we demonstrate that the magnitude of these effects differed with bank solvency and size we also show that the policy to which the market reacted was that suggested by the wall street journal and not that actually intended by the comptroller the role of deposit insurance has become a topic of increasing debate advocates argue that by removing the incentive to run deposit insurance protects individual financial institutions from instability in the intermediation process thereby providing stability to the financial system as a whole 1 the recent rise in bank failures and the concomitant crises in the s l industry however demonstrate that this stability is not guaranteed moreover critics note that deposit insurance may introduce incentive problems and wealth effects into the financial system both of which can impede the effective functioning of any deposit insurance system these problems have prompted concern about the structure of the current deposit insurance system and have led to numerous proposals regarding its restructuring 2 this paper investigates one aspect of this debate by analyzing the effect on bank equity values of the policy decision to insure completely some banks but not others specifically in september 1984 the comptroller of the currency testified before congress that some banks were simply too big to fail tbtf and that for those banks total deposit insurance would be provided while not explicitly naming the banks the comptroller admitted that this policy would apply to the eleven largest banks using an event study methodology we analyze