contagion during the greek sovereign debt crisis abstract we examine the impact of news about greece and news about a greek bailout on bank stock prices in 2010 using data for 48 european banks we identify the twenty days with extreme returns on greek sovereign bonds and categorise the news events during those days into news about greece and news about the prospects of a greek bailout we find that except for greek banks news about greece does not lead to abnormal returns while news about a bailout does even for banks without any exposure to greece or other highly indebted euro countries this finding suggests that markets consider news about the bailout to be a signal of european governments willingness in general to use public funds to combat the financial crisis sovereign bond prices of portugal ireland and spain respond to both news about greece and news about a greek bailout

does direct democracy reduce the size of government new evidence from historical data 1890 2000 using historical data for all swiss cantons from 1890 to 2000 we estimate the causal effect of direct democracy on government spending the main innovation in this paper is that we use fixed effects to control for unobserved heterogeneity and instrumental variables to address the potential endogeneity of institutions we find that the budget referendum and lower costs to launch a voter initiative are effective tools in reducing canton level spending however we find no evidence that the budget referendum results in more decentralized government or a larger local government our instrumental variable estimates suggest that a mandatory budget referendum reduces the size of canton spending between 13 and 19 percent a 1 percent lower signature requirement for the initiative reduces canton spending by up to 2 percent

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

what drives provincial canada yield spreads although recent research has led to a deeper understanding of the factors determining yields on long term canada bonds there has been little corresponding work on provincial bonds this is despite the fact that unlike the us state bond market provincial debt represents a significant part of the canadian bond market provincial and state debt are examples of sub national debt which are backed by taxing powers similar to that of the national government but without control of the money supply which leaves them open to the possibility of default or payment rescheduling this in turn makes them similar to corporate debt by using a carefully constructed new data set we establish two important results first provincial fiscal positions debt and deficits are an important factor in determining yield spreads between provincial and canada bonds second we show that provincial bonds are a substitute for corporate debt in that during recessionary flights to quality their yields react similar to those on corporate bonds

budget referendums and government spending evidence from swiss cantons vortrag im forschungsseminar der wirtschaftswissenschaftlichen fakultat der universitat basel schweiz am 20 november 2000

fiscal news state budget rules and tax exempt bond yields abstract this paper investigates how state fiscal institutions such as balanced budget rules and restrictions on state debt issuance mediate the bond market reaction to state fiscal news we analyze data on the yields of bonds issued by different states as reported in the chubb relative value survey along with data on state budget forecasts for the period 1988 1998 we find that unexpected deficits are correlated with higher state bond yields this effect is smaller for states with tight antideficit rules than for states without these fiscal rules unexpected deficits have a particularly large effect in raising bond yields of states with tax limits these results suggest that bond market participants view fiscal institutions as relevant in assessing the risk characteristics of tax exempt bonds and that the economic significance of these institutions depends on the state s economic and fiscal circumstances

on government centralization and fiscal referendums abstract several authors have argued that a centralization of fiscal powers in a federation is less likely to occur if citizens have to approve a change in the assignments of responsibilities by a popular referendum this outcome may be due to the fact that logrolling is more difficult under direct than under representative democracy it may also be caused by citizens fear that a centralization of fiscal authority facilitates the extraction of rents by the government or the legislature in this paper we test the hypothesis that centralization is less likely under referendum decision making in the unique institutional setting of switzerland using a panel of swiss cantons from 1980 to 1998 the empirical analysis provides evidence that referendums induce less centralization of fiscal activities

fiscal space and sovereign risk pricing in a currency union abstract we examine how membership in a currency union affects public debt sustainability and market assessments of default risk in eurozone countries we argue that there exist offsetting effects expectations of bailouts tend to make a given level of debt more sustainable lowering bond yields and cds rates but constraints on the use of monetary policy would tend to have the opposite effect pushing rates up especially as room for fiscal maneuver gets exhausted we develop a formal concept of fiscal space which takes account of the notion of fiscal fatigue under which there are limits to the government s ability to raise the primary surplus in response to higher debt and apply it to the eurozone countries investigating in particular how currency union membership affects cds and bond rates during both quiet and turbulent times for a given amount of fiscal space we find that in quiet times cds and bond rates for eurozone members were below what would be expected given their fiscal space a bonus from currency union membership but when the crisis erupted cds and bond yields rose more sharply for eurozone members than would be predicted based on their available fiscal space our interpretation is that sovereign bailouts did not occur with the hoped for alacrity in euro crisis countries generating sharper penalties for sovereigns that belong to a currency union

how do official bailouts affect the risk of investing in emerging markets we analyze the effects of bailout expectations on sovereign bond spreads in emerging markets the non bailout of russia in august 1998 is interpreted as an event that decreased the perceived probability of future crisis lending to emerging markets if official rescues are expected to mitigate the losses of investors in the event of a crisis such an event should raise the cross country dispersion of spreads because investors pay more attention to differences in risk characteristics across countries we find strong evidence for such an effect this is consistent with the existence of investor moral hazard at least prior to 1998

what drives spreads in the euro area government bond market spreads between euro area government bond yields are related to short term interest rates which are in turn related to market liquidity to cyclical conditions and to investors incentives to take risk in theory lower interest rates are associated with lower degrees of risk aversion and smaller government bond spreads empirically the eurosystem s short term interest rates are positively related to those spreads which our econometric model finds to include significant and policy relevant default risk and liquidity risk components simone manganelli and guido wolswijk

union membership in the united states 1973 1981 this paper reports estimates of union membership gathered from may current population surveys from 1973 to 1981 the authors present data by occupation industry selected states and smsas race gender and educational attainment the paper both extends and differs from that by freeman and medoff which presents unionism estimates for the private sector for 1968 75 to facilitate longitudinal analysis this paper reports three year moving averages of occupational and industry data and annual estimates of demographic classifications the data include public sector as well as private sector workers and they exclude workers not covered by the national labor relations act also the authors provide only union membership estimates not estimates on workers covered by union contracts this paper suggests that the percentage of all workers that are unionized in the united states remained fairly constant over the 1973 81 period

unions and nonunion wage dispersion previous research has found that union standard rate policies lower the dispersion of union wages and that unions indirectly raise nonunion wage levels as firms weigh the probability of unionizing and wage costs these two findings imply that unions lower the dispersion of nonunion wages since for a given payroll a nonunion firm can achieve the greatest reduction in the probability of unionism by giving raises to those who would benefit most from a union this hypothesis is confirmed on current population survey data taking into account the endogeneity of unionism ceteris paribus nonunion wage dispersion is lower in more highly unionized industries copyright 1987 by mit press

sovereign risk premia the link between fiscal rules and stability culture abstract there is a growing empirical literature studying whether permanent constraints on fiscal policy such as fiscal rules reduce sovereign risk premia nevertheless it remains an open question whether these rules are effective genuinely or just because they mirror fiscal preferences of politicians and voters in our analysis of european bond spreads before the financial crisis we shed light on this issue by employing several types of stability preference related proxies these proxies refer to a country s past stability performance government characteristics and survey results related to general trust we find evidence that these preference indicators affect sovereign bond spreads and dampen the measurable impact of fiscal rules yet the interaction of stability preferences and rules points to a particular potential of fiscal rules to restore market confidence in countries with a historical lack of stability culture

the gender gap in pensions and wages this study provides rationale for the underrepresentation of women in the pension sector and examines the consequences for the gender wage gap for a given set of observed characteristics a woman is 11 19 percent less likely than a man to have a pension of the unexplained portion of the gender wage gap 10 38 percent is due to unexplained differences in pension coverage finally consistent with a screening effect of pensions women are paid more equally in the pension sector copyright 1990 by mit press

understanding the soft budget constraint we propose a clarification of the notion of a soft budget constraint a concept widely used in the analysis of socialist transitional and market economies our interpretation is broad enough to embrace most existing approaches to soft budget constraint phenomena and provides a classification of their causes and consequences in light of this interpretation we then review the theoretical literature on the subject and compare it with those on other dynamic commitment problems in economics

yield spreads on emu government bonds government bond spreads we provide evidence that the movements in yield differentials between euro zone government bonds explained by changes in international risk factors as measured by banking and corporate risk premiums in the united states are more pronounced for bonds issued by italy and spain liquidity factors play a smaller role so policies meant to increase financial market efficiency do not appear sufficient to deliver a seamless bond market in the euro area the risk of default is a small but important component of yield differentials movements which signal market perceptions of fiscal vulnerability impose market discipline on national fiscal policies and may be reduced only by further convergence in debt ratios lorenzo codogno carlo favero and alessandro missale

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

solvency of counter cyclical policy rules abstract if an accelerationist phillips curve derived from the behaviour of wage and price setters is combined with an aggregate demand curve perpetual battles about the distribution of income and never ending cycles in inflation and unemployment emerge as a result of demand or supply shocks an optimal counter cyclical rule for monetary growth stabilises these conflict cycles but violates principles of sound public finance this paper derives policy rules that ensure solvency of the public sector a larger public sector temporary budgetary expansions and adverse supply shocks push up long run unemployment and inflation attention is also paid to the effects of tax erosion and the effects of nominal anchors on credibility and macroeconomic policy

political economy of monetary and budgetary policy even though all debt and wage contracts are indexed there is an incentive to levy a surprise inflation tax as this erodes the real value of debt service permits a cut in the tax rate and boosts private consumption with rules it is optimal to smooth tax and seigniorage revenues however with discretion associated with the markov perfect equilibrium the government finances an increase in spending through additional interest income paid on assets that are generated through a temporary bout of inflation and taxation the electorate prefers to appoint a central banker more concerned with inflation than the median voter copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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

nominal and real union wage differentials and the effects of industry and smsa density 1973 83 many studies have examined the influence of union density union members as a percentage of all workers on earnings in the private sector but few such studies have looked at the public sector using data from the 1991 current population survey this

sovereign bond market reactions to no bailout clauses and fiscal rules the swiss experience abstract we analyse the effects of a credible no bailout policy and stringent sub national fiscal rules on the risk premia of swiss sub national government bonds in the period from 1981 to 2007 in july 2003 the swiss supreme court decided that the canton of valais is not liable for municipal debt this landmark decision reduced cantonal risk premia by about 26 basis points and cut the link between cantonal risk premia and the financial situation of the municipalities that existed before the result demonstrates that a not fully credible no bailout commitment can entail high costs for the potential guarantor additionally strong and credible balanced budget rules reduce risk premia

the impact of corporate and personal income taxes on the location of firms and on employment some panel evidence for the swiss cantons abstract the impact of corporate income taxes on location decisions of firms is widely debated in the tax competition literature tax rate differences across jurisdictions may lead to distortions of firms investment decisions empirical evidence on tax induced relocation and subsequent economic development in the us and europe is still inconclusive much the same applies to switzerland while there is some evidence on personal income tax competition between swiss cantons evidence on the impact of intercantonal corporate income tax differences on the location of business within switzerland is missing in this paper we present econometric evidence on the influence of corporate and personal income taxes on the regional distribution of firms in 1981 and 1991 and on cantonal employment using a panel data set of the 26 swiss cantons from 1985 to 1997 the results show that corporate and personal income taxes deter firms to locate in a canton and subsequently reduce cantonal employment

the impact of the threat of bankruptcy on the structure of compensation this article builds and tests a model of the impact of a firm s bank ruptcy probability on its propensity to offer deferred compensation schemes using 1983 current population survey data we find that ceteris paribus lower failure rates raise the incidence of pensions for nonunion workers outside manufacturing further we find some evidence that among those workers with a pension a higher industry failure rate steepens tenure earnings profiles jointly controlling for union nonunion and pension no pension selectivity such a result suggests that workers discount implicit promises of future earnings increases by the likelihood that the firm will not survive