Working papers results

Do fiscal policy variables - overall spending, revenue, deficits and
welfare-state spending - display systematic patterns in the vicinity of
elections? And do such electoral cycles differ among political systems?
We investigate these questions in a data set encompassing sixty democracies
from 1960-98. Without conditioning on the political system, we find
that taxes are cut before elections, painful fiscal adjustments are postponed
until after the elections, while welfare-state spending displays no
electoral cycle. Our subsequent results show that the pre-election tax cuts
is a universal phenomenon. The post-election fiscal adjustments (spending
cuts, tax hikes and rises in surplus) are, however, only present in
presidential democracies. Moreover, majoritarian electoral rules alone are
associated with pre-electoral spending cuts, while proportional electoral
rules are associated with expansions of welfare spending both before and
after elections.

We construct and numerically solve a dynamic Heckscher-Ohlin model which, depending
on the distribution of production factors in the world and parameter values, allows for
worldwide factor price equalization or complete specialization. We explore the dynamics
of the model under different parameter values, and relate our theoretical results to the
empirical literature that studies the determinants of countries' income per capita growth
and levels. In general, the model is capable of generating predictions in accordance with
the most important ndings in the empirical growth literature. At the same time, it
avoids some of the most serious problems of the (autarkic) neoclassical growth model.

In this paper we review the recent liberalization process in energy markets promoted by the European Commission in the late Nineties and implemented in all the member countries. The electricity and gas industries are characterized by a predominant role of network infrastructures, and by upstream and downstream segments that can be opened to competition. The key issues that must be addressed to design a liberalization plan include the horizontal and vertical structure of the industry, the access to the transport facilities, the organization of a wholesale market and the development of competition in the liberalized segments. We analyze the liberalization policies in the EU as a two step approach: the Directives and the national liberalization plans have focussed so far on the goal of creating a level playing field for new comers through Third Party Access to the network infrastructure, the unbundling of monopolized from competitive activities of the incumbent and the opening of demand. Today, within a heterogeneous picture, all the member countries are implementing this phase. The second step refers to the development of a competitive environment in the liberalized markets, a goal that requires, but is not implied by, the creation of fair entry conditions to new comers. The reduction of market power of the incumbent through divestitures and the entry process, and the design of the market rules are the crucial issues, and neither the Directives not the national plans have been in most cases very effective on this issue. As a result, while we can start appreciating the entry of new operators in both the electricity and the gas industry, the effects on consumers choice and final prices are rather limited, in particular in the gas industry. In the second part of the paper we move our attention to the Italian case, describing the national liberalization plans and the policy issues still opened. Both the electricity and the gas reforms are more advanced than the minimum standards required by the Directives, and include in some cases interesting innovations. In particular, the Bersani Decree on electricity requires capacity divestitures in the generation plans and adopts a proprietary unbundling of the transport network, while the Letta Decree on gas introduces antitrust ceilings and a very quick schedule towards complete demand opening. Among the more relevant open issues, in the electricity industry the incumbent firm can maintain a market share of 50% in generation, with likely distortions in the wholesale market. There are two possible ways out of this central problem: a "market solution" that requires further reductions in the generation capacity of the dominant firm and an improvement in transborder interconnection capacity together with the start up of the wholesale market; an "administrative solution" that tries to limit the effects of the incumbent market power on prices by assigning the foreign low cost energy to some categories of (large) customers and introducing bid caps on prices, while delaying the opening of the wholesale market. It is not clear which choice has been made by the Government, even if the latter emerges from many recent decisions. In the gas industry the insufficient unbundling of the dominant firm is the most serious obstacle to developing competition. The antitrust ceilings may even determine perverse effects, with the new firms acting as (upstream) customers and (downstream) competitors of the dominant firm. Moreover, the access to international transmission capacity seems a crucial issue. Finally, the nature of competition with take-or-pay contracts suggests that a wholesale market for gas would be necessary. The last open issues are institutional: we argue that the recent assignment of the energy policy at the regional level and the prospected reduction of independence of the energy authority are two institutional reforms with a very negative impact on the liberalization process.

We propose a theory of international agreements on product standards. The key feature of the model is that agreements are viewed as incomplete contracts. In particular, these do not specify standards for products that may arise in the future. One potential remedy to contractual incompleteness is a dispute settlement procedure (DSP) that provides arbitration in states of the world that are not covered by the ex ante agreement. We identify conditions under which a DSP can provide ex-ante efficiency gains, and examine how these gains depend on the fundamentals of the problem. Another potential remedy to contractual incompleteness is given by rigid rules, i.e. rules that are not product-specific. We argue that the nondiscrimination rule is the only rule of this kind that increases ex-ante efficiency for any probability distribution over potential products. Finally we show that, under relatively weak conditions, the optimal ex-ante agreement is structured in three parts: (i) a set of clauses that specify standards for existing products; (ii) a rigid nondiscrimination rule, and (iii) a dispute settlement procedure. Although the model focuses on the case of product standards, the analysis suggests a more general incomplete-contracting theory of trade agreements.

We study the effects on the optimal monetary policy design problem of allowing for deviations from the law of one price in import goods prices. We reach three basic results. First, we show that incomplete pass-through renders the analysis of monetary policy of an open economy fundamentally different from the one of a closed economy, unlike canonical models with perfect pass-through which emphasize a type of isomorphism. Second, and in response to efficient productivity shocks, incomplete pass-through has the effect of generating endogenously a short-run tradeoff between the stabilization of inflation and of the output gap. This holds independently of the measure of inflation being targeted by the monetary authority. Third, in studying the optimal program under commitment relative to discretion, we show that the former entails a smoothing of the deviations from the law of one price, in stark contrast with the established empirical evidence. In addition, an optimal commitment policy always requires, relative to discretion, more stable nominal and real exchange rates.

The extraordinary success of the U.S. economy and the parallel growth slowdown of the large European countries and Japan in the 1990s bear a simple rationale. The United States has eventually benefited from the effective adoption of information technologies. The introduction of the newly installed IT capital has not instead enhanced aggregate capital accumulation and TFP growth in Europe and Japan. At least on impact, IT capital has mainly displaced existing capital and methods of production rather than supplementing them. The limited growth-enhancing effects from information technologies in countries other than the United States have occurred in the IT-producing sectors, while the IT-using industries havecontributed the bulk of productivity gains in the United States.