Working papers results

In spite of ongoing dramatic changes in labor market structure, we present statistical evidence that transitional economies display rather low worker flows across sectors and occupations. Such low mobility can be explained by low returns to job changes as well as by market segmentation in the allocation of job offers. We develop an econometric model which enables us to characterize intertemporal changes in probabilities of dismissal, remuneration, and offer arrival rates on the basis of information on observed transitions and wage payments. The model is estimated using data from the Polish Labor Force Survey. Our results indicate a significant degree of segmentation in the allocation of job offers, more stability in public sector versus private sector jobs, and little, if any, rewards to tenure and age in the private sector. These findings support explanations for low mobility in transitional economies, which are based on informational failures, notably that fact that job offers do not reach those who are most prone to take up jobs, and that moving from public to private enterprises is costly, especially for those with high levels of job tenure and labor market experience in the public sector.

To the layman, the upward trend in European unemployment is related to the slowdown in economic growth. We argue that the laymans 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 high cost of labor. In Europe, labor costs have gone up for many reasons, but one is particularly easy to identify: higher taxes on labor. If wages are set by strong and centralized trade unions, an increase in labor taxes is shifted onto higher real wages. This has two effects. First, it reduces labor demand, and thus creates unemployment. Second, as firms substitute capital for labor, the marginal product of capital falls ; over long periods of time, this in turn diminishes the incentive to accumulate and thus to grow. Thus high unemployment is associated to low growth rates. The model also predicts that the effect of labor taxation differs sharply in countries with different labor market institutions. We test these predictions on data for 14 industrial countries between 1965 and 1991, and find striking support for them. In particular, labor taxes have a strong positive effect on unemployment only in Europe and not in other industrial countries. The observed rise of 9.4 percentage points in labor tax rates can account for a reduction of the EU growth rate of about 0.4 percentage points a year - about one third of the observed reduction in growth between 1965-75 and 1976-91 - and a rise in unemployment of about 4 percentage points.

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Handbook of Monetary Economics, Vol. III, Ed. by J. Taylor and M. Woodford, North Holland, 1998

This paper surveys the recent literature on the theory of macroeconomic policy. We study the effect of various incentive constraints on the policy making process, such as lack of credibility, political opportunism, political ideology, divided government. The survey is organized in three parts: Part I deals with monetary policy in a simple Phillips curve model, and focuses on credibility, political business cycles, and optimal design of monetary institutions. Part II deals with fiscal policy in a dynamic general equilibrium set up; the main topics covered in this section are credibility of tax policy, and political determinants of budget deficits. Part III studies economic growth in models with endogenous fiscal policy.

We analyse the optimal antitrust enforcement against collusion under asymmetric information with a continuum of types. We focus on prudential deterrence, by imposing that expected fines cannot induce losses even off the equilibrium path. Due to incentive compatibility, efficient cartels enjoy positive rents even when prosecution is costless, created through reduced fines and price cost margins. In equilibrium this distortion is lower for more efficient types, while full collusion can be tolerated for high cost cartels. Moreover, regulation with positive transfers is better than antitrust enforcement, which however allows to implement more efficient outcomes than price caps.

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European Economic Review, April 1998

Observed fiscal policy reflects the incentives embedded in political institutions. In this paper, we illustrate the effects of two general institutional features: separation of powers, which is common in Presidential-Congressional political systems, and legislative cohesion, which is typical of parliamentary systems. Compared to a simple legislative game, separation of powers brings about a smaller size of government and lower waste, whereas legislative cohesion induces a more equal distribution, but more waste and higher taxes.

This paper provides evidence on the behavior of public debt managers during fiscal stabilizations in OECD countries over the last two decades. We find that debt maturity tends to lengthen the more credible is the program, the lower is the long-term interest rate and the higher is the volatility of short-term interest rates. We show that this debt issuing strategy is consistent with optimal debt management if information bewteen the government and private investors is asymmetric, as it is usually the case at the outset of a stabilization attempt when private investors may lack full confidence in the announced budget cuts.

When financial markets are not fully developed large shareholders are an important feature of an efficient corporate governance system. Thanks to their (relative) financial strength, banks are good candidates to perform this leading role in the governance of firms. However, in the type of monitoring provided and in the strategies that they may choose, banks are affected by significant conflicts of interests: expecially when they exert power through proxy votes and they are important lenders of the firm.

We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, the theory of the firm, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non separable utility. Secondly, we show that contract renegotiation and non observable contracts have similar effects only in particular cases. We prove that all the equilibria obtained when renegotiation is excluded are implementable as renegotiation proof equilibria, provided that the side transfer technology implies a dead-weight loss increasing in the size of the transfer.

The broadcasting industry is still very concentrated all over the world, after 15 years in which new technologies and public policies allowed to overcome the constraint of limited availability of frequencies on the radio spectrum. We argue that the monopolistic competition set up, traditionally used to analyze the broadcasting industry, does not fit the empirical evidence. Instead we analyze the free entry equilibrium in a multistage game in which the decision on program quality (attractiveness) is crucial and the associated fixed costs are endogenously determined. We show that concentration might arise in the long run even in large markets despite entry is free.

We present a model of electoral accountability to compare the public finance outcomes under a presidential-congressional and a parliamentary system. In a presidential-congressional system, contrary to a parliamentary system, there are no endogenous incentives for legislative cohesion, but this allows for a clearer separation of powers. These features lead to clear differences in the public finance performance of the two systems. A Parliamentary system has redistribution towards a majority, less underprovision of public goods, more waste and a higher burden of taxation, whereas a presidential-congressional system has redistribution towards a minority, more underprovision of public goods, but less waste and a smaller size of government.