the macroeconomic effects of government debt in a stochastic growth model abstract this paper studies how government liabilities affect macroeconomic aggregates in a standard general equilibrium growth model there are two principal results i though it is often thought that fiscal deficits crowd out investment this paper shows that deficit financed cuts in distortionary income taxation may stimulate investment even if agents expect future taxes on capital income to be higher this result is dependent on the values of two key parameters the elasticity of labor supply and the degree of persistence in the government debt process ii the economy s response to an increase in government expenditure depends on how it is financed distortionary tax finance may lead to a decline in output consumption and investment in contrast deficit finance may increase output and consumption

mexico and the brady plan mexico has throughout the 1980s been centre stage in the debates and events shaping the sovereign debt problem caught between a sudden collapse of its terms of trade and rising world interest rates mexico suspended debt service payments in august 1982 and ushered in what has since become known as the debt crisis in the following years lending to ldcs dried up and debtor countries were increasingly forced to run high trade surpluses to effect ever growing transfers from poor back to rich countries in the face of falling growth rates and rising inflation in the high debt countries then secretary of the treasury baker proposed the baker plan in return for economic reforms high debt countries would get new access to medium term new loans in addition to rolling over of amortization of old loans new loans had to come both from commercial creditors and the official lending institutions with access to capital markets restored the economic reforms would it was hoped allow the debtors to grow out of debt but experience in the high debt countries showed that the original hopes of the proponents of the baker plan went unfulfilled net transfers out of the borrowing countries went up rather than down as

why are corrupt countries less successful in consolidating their budgets following the financial crisis many countries introduced fiscal stimulus packages making budget consolidations in the future rather challenging using a data set for 28 oecd countries spanning the period 1978 2007 we contribute to the literature on success probabilities of consolidation attempts by exploring the impact of corruption and in particular the interplay of corruption and the choice of the policy instrument we find that corruption significantly reduces the success rate when controlling for the change in government expenditures however the impact of corruption is insignificant or at least becomes less pronounced we therefore relate the choice of the fiscal instrument to corruption and find that corrupt countries rely significantly less on expenditure cuts during periods of consolidation attempts we conclude that international organizations should be careful in observing what corrupt countries do when trying to consolidate their budgets

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

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

real sources of european currency policy sectoral interests and european monetary integration in the thirty years before economic and monetary union was achieved european currency policies varied widely among countries and over time in this article i argue that the sectoral impact of regional exchange rate arrangements in particular their expected real effects on european trade and investment exerted a powerful influence on the course of european monetary integration the principal benefit of fixing european exchange rates was facilitation of cross border trade and investment within the european union eu the principal cost of fixed rates was the loss of national governments ability to use currency policy to improve their producers competitive position empirical results indeed indicate that a stronger and more stable currency was associated with greater importance of manufactured exports to the eu s hard currency core while depreciations were associated with an increase in the net import competition faced by the country s producers this suggests a powerful impact of real factors related to trade and investment and of private interests concerned about these factors in determining national currency policies

cyclical effects of government s employment and goods purchases distinguishing between the goods purchase and employee compensation components of government spending is important shocks to government goods purchases and shocks to government employment have the opposite effects on private output private employment and private investment moreover with this distinction in place quantitative analysis reveals that government spending is no longer a significant driving source of the u s business cycle on the contrary the components of government spending are procyclical in the u s data primarily because of their positive responses to the output fluctuations generated by technology shocks copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

when does it take a nixon to go to china substantial policy changes like market oriented reforms by populist parties and steps towards peace by hawks are sometimes implemented by unlikely parties to account for such episodes this paper develops a framework in which incumbent politicians have better information about the state of the world than voters the incumbent is unable to credibly transmit all this information since voters are also imperfectly informed about his ideology the paper identifies conditions under which an incumbent party s electoral prospects increase the more atypical the policy it proposes popular support for a policy or its credibility depends on the policymaker policy pair copyright 1998 by american economic association

estimating endogenous switching regression model with a flexible parametric distribution function application to korean housing demand this study introduces johnson s su normal distribution which can accommodate the flexibility of true error distribution to obtain consistent estimates in an endogenous switching regression model simulation results indicate that the su normal model outperforms the normal model for the consistency of estimators when the error distribution is nonnormal korean housing demand model estimated by the su normal model also outperforms the normal model in terms of parameter estimates and graphical predictions

political credit cycles the case of the euro zone we study the mechanisms through which the adoption of the euro delayed rather than advanced economic reforms in the euro zone periphery and led to the deterioration of important institutions in these countries we show that the abandonment of the reform process and the institutional deterioration in turn not only reduced their growth prospects but also fed back into financial conditions prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident we analyze empirically the interrelation between the financial boom and the reform process in greece spain ireland and portugal and by way of contrast in germany a country that did experience a reform process after the creation of the euro

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

fiscal policy in unionized labor markets abstract this paper investigates the effects of fiscal policy on economic activity public finances welfare and income distribution in a dynamic general equilibrium model with a unionized labor market the paper shows that debt financed increases of public employment wages of public sector employees unemployment benefits and labor taxes put pressure on unions wage claims leading to higher private sector wages lower employment capital and output in addition increases of public employment public wages and unemployment benefits increase workers utility relative to the pre policy change equilibrium during the transition but not in the long run instead workers utility decreases at any time horizon when labor taxes increase capitalists always benefit from increases in taxes on labor but their welfare decreases when public spending goes up finally the paper investigates the extent to which the way the government balances its budget affects these results

trends in european real exchange rates we study a newly created panel data set of relative prices for a large number of consumer goods among 31 european countries over a 15 year period the data set includes eurozone members both before and after the inception of the euro floating exchange rate countries of western europe and emerging market economies of eastern and southern europe we find that there is a substantial and continuing deviation from purchasing power parity ppp at all levels of aggregation both for traded and non traded goods even among eurozone members real exchange rates rer exhibit two clear properties in the sample a they are closely tied to gross domestic product gdp per capita relative to the european average at all levels of aggregation and for both cross country time series variation b they are highly positively correlated with variation in the relative price of non traded goods we then construct a simple two sector endowment economy model of real exchange rate determination which exhibits these two properties calibrated to match the data simulating the model using the historical relative gdp per capita for each country we find that for most countries there is a close fit between the actual and simulated real exchange rate in terms of policy relevance the model can offer suggestions of the degree to which real exchange rates in europe both in and out of the eurozone have been overvalued by approximately 15 in greece and portugal and 6 in italy and spain martin berka and michael b devereux

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

exchange rate regime preferences of the international sector firm level evidence abstract this paper argues that fixed exchange rate regimes are preferred by the international sector only if they are adopted in economies endowed with anti inflationary policy making institutions i e independent central banks cross national firm level data gives strong support to this claim

public budgetary rules and gdp growth an empirical study on oecd and twelve european countries we study the long term effects of budgetary rules on gdp growth rate and analyse the determinants of the short term gdp growth dynamics for both a sample of 19 oecd and a subsample of 12 european countries we show that in the long run improvements in the cyclically adjusted budget balance as well as increases in the tax burden have negative effects on gdp growth the highest effect of fiscal policy on gdp growth would be obtained if the structural deficits were used to increase the market size by reducing the tax burden in line with barro 1990 a deficit financed reduction of tax burden has a stronger effect for european than for oecd countries because in europe the government size with respect to market size is too large therefore if gdp growth is a dominant policy objective in europe specific actions should redress the 2012 treaty toward a reduction of the tax burden

youth unemployment duration from the italian labour force survey accuracy issues and modelling attempts youth unemployment in the european economic community remains remarkably high and very unevenly distributed across countries in the eec area 16 7 of the labour force aged 14 29 were unemployed in 1986 among the five major member countries the youth unemployment rate varied markedly from 7 9 in federal republic of germany to 25 6 in italy and 38 4 in spain the level and variation in youth unemployment rates are of course related to the overall employment and unemployment situation however there is also clear evidence that in the various countries the burden of unemployment is shared very unequally among different age groups the ratio of youth to adult unemployment rates is 1 3 for germany but raises to 3 2 for spain and dramatically to 6 3 for italy from a slightly different perspective the uneven distribution of the risks of unemployment for young people across countries is documented by the share of long term unemployed defined as those continuously out of work for a year or more in 1986 the fraction of longterm unemployed in youth unemployment was below 40 in germany united kingdom and france but reached 59 7 in spain and up to 67 7 in italy the purpose of this paper is to investigate opportunities and problems in using microdata from the quarterly italian labour force survey in a

changes in labor force status among the unemployed i argue against the popular view that young black men experience more joblessness than their white counterparts because they have priced themselves out of the labor market the seemingly excessive reservation wages of jobless young black men what they

recent two stage sample selection procedures with an application to the gender wage gap recently developed two stage estimation methods of sample selection models are used in the context of data from the 1989 labor market activity survey to examine labor supply decisions and wage outcomes for employed men and women recent hypothesis test procedures are used to test for no sample selection and to test for a parametric against a semiparametric selection correction procedure we conclude that selection is indeed an issue for the sample at hand and that the semiparametric specification is appropriate we also present the standard decomposition of the gender wage gap into its explained and unexplained portions

preferences for international redistribution the divide over the eurozone bailouts why do voters agree to bear the costs of bailing out other countries despite the prominence of public opinion in the ongoing debate over the eurozone bailouts voters preferences on the topic are poorly understood we conduct the first systematic analysis of this issue using observational and experimental survey data from germany the country shouldering the largest share of the eu s financial rescue fund testing a range of theoretical explanations we find that individuals own economic standing has limited explanatory power in accounting for their position on the bailouts in contrast social dispositions such as altruism and cosmopolitanism robustly correlate with support for the bailouts the results indicate that the divide in public opinion over the bailouts does not reflect distributive lines separating domestic winners and losers instead the bailout debate is better understood as a foreign policy issue that pits economic nationalist sentiments versus greater cosmopolitan affinity and other regarding concerns

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

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

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

conflicts interest groups and politics in structural reforms abstract the present study is to my knowledge the first to examine the balance of power among all players influencing the adoption of structural reforms politicians regulators and interest groups special attention is devoted to the effect of conflicts between regulators professional conflicts signal to politicians that there is a high level of risk in implementing a given reform thereby weakening their confidence in it conflicts also benefit interest groups increasing their effectiveness vis a vis politicians using a unique data set on 32 attempts to reform israel s financial market i find that the greater the extent of conflicts among regulators and the greater the intensity of the opposition of interest groups the lower the probability that a reform will be approved these conflicts together with the strength of interest groups have led to repeated attempts to introduce reforms so that it takes on average 10 years for a reform to be adopted

government deficits and aggregate demand abstract the evidence presented in this paper indicates that changes in government spending transfers and taxes can have substantial effects on aggregate demand the estimates also indicate that the promise of future social security benefits significantly reduces private saving each the basic implications of the so called ricardian equivalence theorem is contradicted by the data the results are consistent with the more general view of the effects of fiscal actions and fiscal expectations that is described in the paper

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

macroeconomic effects of fiscal adjustment a tale of two approaches abstract we investigate the short term effects of fiscal adjustment on economic activity in 20 oecd countries from 1970 to 2009 we compare two approaches the traditional approach based on changes in cyclically adjusted primary balance capb and the narrative approach based on historical records proponents of the latter argue that it captures discretionary fiscal adjustment more accurately than the traditional approach we propose a new definition of capb that takes account of fluctuations in asset prices and reflects idiosyncratic features of fiscal policy in individual countries using this new definition we find that fiscal adjustments always have contractionary effects on economic activity in the short term we find no evidence of expansionary non keynesian fiscal adjustments spending based fiscal adjustments lead to smaller output losses than tax based fiscal adjustment these results are in line with the literature using the narrative approach suggesting that the capb when correctly specified can be used as a measure of fiscal adjustments

explaining social policy preferences evidence from the great recession to what extent do personal circumstances as compared to ideological dispositions drive voters preferences on welfare policy addressing this question is difficult because a person s ideological position can be an outcome of material interest rather than an independent source of preferences the article deals with this empirical challenge using an original panel study carried out over four years tracking the labor market experiences and the political attitudes of a national sample of americans before and after the eruption of the financial crisis the analysis shows that the personal experience of economic hardship particularly the loss of a job had a major effect on increasing support for welfare spending this effect was appreciably larger among republicans than among democrats a result that was not simply due to a ceiling effect however the large attitudinal shift was short lived dissipating as individuals employment situations improved the results indicate that the personal experience of an economic shock has a sizable yet overall transient effect on voters social policy preferences

economic hardship and policy preferences in the eurozone periphery evidence from spain what is the impact of economic suffering on support for euro membership and austerity policies in the eurozone periphery this article uses original public opinion and firm surveys conducted in spain in the midst of the great recession to describe the structure of preferences toward the euro as a common currency and austerity policies focusing on the specific impact of crisis exposure we find that in spite of the depth and the duration of the economic crisis support for spain s membership in the eurozone is strong however while economic suffering divides the electorate on support for the euro and austerity it does not do so for firms surprisingly individuals who have suffered due to the crisis in terms of higher income loss are more skeptical of tax and spend programs but are more critical of the euro moreover individuals who are skeptical of the euro and austerity are demographically distinct groups of people one implication of our joint individual and firm level findings is that a coalition t

fiscal consolidations and heterogeneous expectations abstract we analyze fiscal consolidations using a new keynesian model where agents have heterogeneous expectations and are uncertain about the composition of consolidations we look at spending based and tax based consolidations and analyze their effects separately we find that the effects of consolidations and the output multipliers are sensitive to heterogeneity in expectations before and after implementation of a specific fiscal plan depending on the beliefs about the type of consolidation prior to implementation we show that heterogeneity in expectations may lead to optimism in the economy improving thus the performance of a specific fiscal plan or can work towards the opposite direction leading to pessimism amplifying the contractionary effects of the consolidation in general we find that spending based consolidations last longer and lead to deeper recessions when agents are boundedly rational compared to the rational expectations benchmark while the opposite holds for tax based consolidations

keeping time an analysis of errors in the measurement of unemployment duration this study uses longitudinal microdata from the current population survey to examine the consistency with which unemployment duration is reported an estimate of measurement error is proposed and analyzed a significant negative relationship is found between the initial month s unemployment duration and the reported change between surveys on average persons who begin spells of unemployment in the second month report durations greater than the actual time elapsed overall the average duration of unemployment in this sample may be overstated by at least two weeks a brief discussion of some implications for empirical labor market research concludes the article

fragmented fiscal policy abstract this paper explores on a panel of 19 oecd countries the role of fragmentation in determining fiscal outcomes over the 1970 95 period we first define the notion of fragmentation of fiscal policy making as the degree to which the costs of a dollar of aggregate expenditure are internalized by individual decision makers empirically this notion has two key logical components the number of decision makers and the rules of the game or the budget process in turn the number of decision makers can refer to the number of parties in a coalition or the number of ministers in the cabinet we test all these determinants against each other and against perhaps the oldest explanation of all ideology we show that cabinet size and to a lesser degree coalition size and ideology are significant and robust determinants of fiscal outcomes in particular transfers are the budget items most affected by these factors

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

when do fiscal consolidations lead to consumption booms lessons from a laboratory experiment according to the expectations channel a fiscal consolidation may give rise to less contractionary or even expansionary effects on consumption despite a decline in current disposable income intuitively people may accumulate a stock of savings in anticipation of the consolidation and may start to reduce their savings to support consumption once it occurs we design a laboratory experiment to study the conditions under which the expectations channel operates our results indicate that fiscal contractions that occur in an unsustainable fiscal environment exert less contractionary effects on consumption which supports the expectations channel we also find that the expectations channel is more pronounced if the fiscal authority can convincingly commit to abstain from tax increases in the future whereas increasing subjects level of awareness by running a transparent policy has only little influence on the outcomes

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 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

crisis politics in europe why austerity is easier to implement in some countries than in others when countries face balance of payments crises their policy responses vary widely this article argues that the choice between the two main options of internal adjustment i e austerity and stru

fiscal policy in good times and bad in the 1980s several countries with large government debt or deficit implemented substantial and in some cases drastic deficit cuts contrary to widespread expectations in many cases private consumption boomed rather than contracted this paper shows that in times of fiscal stress shocks to government revenues and especially expenditure have very different effects on private consumption than in normal times

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

the effects of cognitive ability and high school quality on college entry decisions nonparametric estimation of parameters of interest the decisions to attend college are analysed and nonparametric predictions compared to those obtained from the widely used logit model the impacts of measured cognitive ability and proxies for high school quality on the decisions to attend college are examined for a sample of white and black males and females from the usa two different parameters of interest which isolate the effects of ability and high school quality on college entry decisions are described and estimated by integrating out the effect of other covariates it is found that measured cognitive ability is an extremely important determinant of college entry for all race and gender groups at the same point in the ability distribution blacks are more likely to select into college than whites and females more likely than males of the same racial group proxies for high school quality such as teacher education student teacher ratios school enrolment and library size are shown to have little or no effects on the likelihood of college entry

tax multipliers pitfalls in measurement and identification abstract to analyze the pitfalls in measuring and identifying tax shocks we build a novel value added tax rate dataset for the period 1980 2009 the problem of identification i e changes in tax policy not triggered by output fluctuations is clearly disentangled from the problem of measurement i e finding a tax policy variable under the direct control of policymakers on the identification front our results favor the use of narratives a la romer and romer 2010 on the measurement front our findings support the use of tax rates as the true measure of tax policy as opposed to revenue based measures such as cyclically adjusted revenues

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

nonlinearities and the sustainability of the government s intertemporal budget constraint i introduction fiscal policy sustainability is an important issue for european union eu countries which are subject to some forms of monitoring of their public finances the european stability and growth pact esgp constrains the fiscal policy of member states by limiting their autonomy in creating excessive deficits 1 this because fiscal disequilibria in one state create negative externalities for the other member countries and in the case of european monetary union emu countries can endanger the overall credibility of the euro currency on the other hand given the common monetary policy the correction of idiosyncratic shocks is assigned to the fiscal instrument alone imposing further pressure on the fiscal policy of member countries while the issue of sustainability of the public finances of the eu emu countries has received an increasing attention less attention has been paid to the issue of how the sustainability is achieved that is how budgetary authorities adjust fiscal policies to achieve maintain a sustainable path of public debt focusing on this adjustment by applying linear and nonlinear error correction models is the main purpose of this paper our empirical analysis is based on italy which provides an interesting case as it joined the emu in 1999 in spite of a stock of public debt of around 113 of nominal gdp against the 60 level required by the maastricht treaty and whose public accounts are often under scrutiny for struggling to comply with the esgp 2 as well as for subsequent downgradings of its sovereign debt by the main credit rating agencies 3 in this paper we address three main relevant policy questions first are the italian public finances sustainable second is the process of fiscal adjustment equally shared by changes in revenues and changes in government spending third does fiscal adjustment vary with the sign and magnitude of disequilibria and or with the state of the economy these are important questions for policy making purposes although our methodology is only applied to italy we feel our work should be of definite interest to other european countries and beyond bearing in mind that italy enjoys membership of the g7 economies and accounts for around 17 of eurozone s gdp a better understanding of how its public finances operate in practice is extremely important for monitoring the fiscal health of eurozone countries and minimizing at an early stage possible threats to eurozone s stability as well as limiting any spill over effects to the rest of the world further loans from the european financial stability facility 4 efsf can only meet the approval of policymakers if they feel confident they have a deep understanding of how individual member states pursue their own fiscal policies toward sustainability verifiability and credibility of sustainable fiscal policies would also condition the availability of the european stability mechanism consisting in a permanent bail out fund for eurozone member states bofinger et al 2010 that is expected to become operational from 2013 at the expiry of the efsf at the same time proposals for independent monitoring of public finances of member states as well as stricter sanctions such as the temporary suspension of voting rights for eurozone members that break the region s rules on public finances are put forward by the european central bank trichet 2010 all these recent policy developments confirm the importance of our research in providing a comprehensive framework for empirically testing the sustainability of fiscal policy our proposed approach provides a number of interesting findings the italian government s intertemporal budget constraint ibc is formally respected in spite of the high levels of public debt nevertheless the burden of correcting budgetary disequilibria is entirely carried out via changes in the average tax rate rather than changes in government spending or policy mixes

the time for austerity estimating the average treatment effect of fiscal policy after the global financial crisis a controversial rush to fiscal austerity followed in many countries yet research on the effects of austerity on macroeconomic aggregates was and still is unsettled mired by the difficulty of identifying multipliers from observational data this article reconciles seemingly disparate estimates of multipliers within a unified and state contingent framework we achieve identification of causal effects with new propensity score based methods for time series data using this novel approach we show that austerity is always a drag on growth and especially so in depressed economies a 1 of gdp fiscal consolidation translates into a loss of 3 5 of real gdp over five years when implemented in a slump rather than just 1 8 in a boom

the demand for housing in spain an endogenous switching regression analysis housing demand in spain has been studied by using data disaggregated into primary and secondary housing demands it is found that demand for both types of housing area indeed related and that they are both considered necessities thus suggesting that their consumption ought to be modelled as a joint decision moreover it is found that traditional determinants of housing demand affect primary and secondary home demands differently these differences are attributable to the following economic rationales need for asset holdings diversifications relative high cost of home ownership versus rental in choice locations and differences in land demand intensity across regions in sum the findings suggest that policy makers in spain contrary to popular beliefs must consider secondary homes an integral part of households accommodation need

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