Working papers results

The currently available empirical evidence shows remarkable differences between various estimates of the effects on U.S output of an exogenous shift in Federal tax liabilities. Shocks identified via the narrative method, imply a multiplier of about three over . an horizon of three years. Tax shocks identified in fiscal VAR models deliver a much smaller multipier of about one. Is this heterogeneity real, or is it simply the result of different approaches to the identification of exogenous shifts in taxes? Or of different specifications of the empirical model used to estimate the tax multiplier? In this paper we reconcile this apparently contradictory evidence by showing that the large multiplier obtained via the narrative identification methods are generated by the choice of a limited information approach in their estimation and not by the different nature of the shocks. Using the shocks identified by a Narrative methods in a multivariate dynamic model delivers estimates of the tax multiplier very much in line with those obtained in the traditional fiscal VAR approach.

This paper documents the existence of a slowly evolving trend in the dividendprice ratio, dpt , determined by a demographic variable, MY : the middle-aged to young ratio. Deviations of dpt from this long-run component explain transitory but persistent fluctuations in stock market returns. The relation between MY and dpt is a prediction of an overlapping generation model. The joint significance of MY and dpt in longhorizon forecasting regressions for market returns explain the mixed evidence on the ability of dpt to predict stock returns and provide a model-based interpretation of statistical corrections for breaks in the mean of this financial ratio.

We characterize the boundaries of the set of transfers implementing a given allocation rule without imposing any assumptions on the agent's type space or utility function besides quasi-linearity. In particular, we characterize the pointwise largest and the pointwise smallest transfer that implement a given allocation rule and are equal to zero at some prespecied type (extremal transfers). Exploiting the concept of extremal transfers allows us to obtain an exact characterization of the set of all implementable allocation rules (the set of transfers is non-empty) and the set of allocation rules satisfying Revenue Equivalence (the extremal transfers coincide).

Furthermore, we show how the extremal transfers can be put to use in mechanism design problems where Revenue Equivalence does not hold. To this end we rst explore the role of extremal transfers when the agents with type dependent outside options are free to participate in the mechanism. Finally, we consider the question of budget balanced implementation. We show that an allocation rule can be implemented in an incentive compatible, individually rational and ex post budget balanced mechanism if and only if there exists an individually rational extremal transfer scheme that delivers an ex ante budget surplus.

This paper uses a quasi-experimental strategy to disclose utterly political reasons behind the allocation of intergovernmental transfers in a federal state. We apply a regression discontinuity design in close elections to identify the effect of political alignment on federal transfers to municipal governments in Brazil. We find that municipalities where the mayor is affiliated with the coalition of the Brazilian President receive larger (discretionary) infrastructure transfers by about 40% in preelection years. This effect is mainly driven by the fact that the federal government penalizes municipalities run by mayors from the opposition coalition who won by a narrow margin, thereby tying their hands for the next election.

How to sustain cooperation is a key challenge for any society. Different social organizations have evolved in the course of history to cope with this challenge by relying on different combinations of external (formal and informal) enforcement institutions and intrinsic motivation. Some societies rely more on informal enforcement and moral obligations within their constituting groups. Others rely more on formal enforcement and general moral obligations towards society at large. How do culture and institutions interact in generating different evolutionary trajectories of societal organizations? Do contemporary attitudes, institutions and behavior reflect distinct pre-modern trajectories?

The paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a version of the career concerns model of political agency with endogenous entry of political candidates. The evidence refers to municipalities in Brazil, where federal transfers to municipal governments change exogenously according to given population thresholds. We exploit a regression discontinuity design to test the implications of the theory and identify the causal effect of larger federal transfers on political corruption and the observed features of political candidates at the municipal level. In accordance with the predictions of the theory, we find that larger transfers increase political corruption and reduce the quality of candidates for mayor.

This paper uses German micro data and a quasi-natural experiment to provide new evidence on the empirical importance of precautionary savings. Our quasi-natural experiment draws on a sharp increase in uncertainty (as reported in a survey of German citizens) observed in the run-up to the 1998 general election. Our estimates are obtained from a diff-in-diff estimator and thus overcome the identification problem that often aects measures of precautionary savings. We find that household saving increases significantly following the increase in uncertainty about the future path of income, suggesting a significant precautionary savings motive. We also analyze households'response in terms of labor market choices: we find evidence of a labor supply response by workers who can use the margin offered by part-time employment. While independent of the reasons why uncertainty increased in the run-up to the election, our results are suggestive of the economic effects of "wars of attrition", i.e. situations in which reforms are delayed because political parties are unable to agree on how the burden of a reform should be shared between various groups in society. Delays in adopting a reform, or the possibilty that a reform, after it has been adopted by one government might be revoked by another, raise uncertainty and induce households to save more: consumption may fall and the economy might slow down for no other reason than political uncertainty.

University tuition typically remains constant throughout years of enrollment while delayed degree completion is an increasing problem for many academic institutions around the world. Theory suggests that if continuation tuition were raised the probability of late graduation would be reduced. Using a Regression Discontinuity Design on data from Bocconi University in Italy, we show that an increase of 1,000 euro in continuation tuition reduces the probability of late graduation by 9.9 percentage points with respect to a benchmark average probability of 80%. We conclude suggesting that an upward sloping tuition profile would be desirable when effort is sub-optimally supplied, for instance in the presence of public subsidies to education, congestion externalities and/or peer effects.

We study whether cultural attitudes towards gender, the young, and leisure are significant determinants of the evolution over time of the employment rates of women and of the young, and of hours worked in OECD countries. Beyond controlling for a larger menu of policies, institutions and structural characteristics of the economy than has been done so far, our analysis improves upon existing studies of the role of "culture" for labor market outcomes by dealing explicitly with the endogeneity of attitudes, policies and institutions, and by allowing for the persistent nature of labor market outcomes. When we do all this we find that culture still matters for women employment rates and for hours worked. However, policies and other institutional or structural characteristics are also important. Attitudes towards youth independence, however, do not appear to be important in explaining the employment rate of the young. In the case of women employment rates, the policy variable that is significant along with attitudes, is the OECD index of employment protection legislation. For hours worked the policy variables that play a role, along with attitudes, are the tax wedge and unemployment benefits. The quantitative impact of these policy variables is such that changes in policies have at least the potential to undo the eect of variations in cultural traits on labor market outcomes.

We use a transparent statistical methodology for data-driven case studies-synthetic control methods-to investigate the impact of economic liberalization episodes on the pattern of real per capita GDP in a worldwide sample of countries. Economic liberalizations are measured by a widely used indicator that captures the scope of the market in the economy, mainly in terms of openness to international trade. The applied methodology compares the post- liberalization growth of treated (open) economies with the growth of a convex combination of similar but untreated (closed) economies, controlling for time-varying unobservables. We find that opening up the economy had a positive effect in most regions that we can analyze in our framework, but we note that more recent liberalizations (after 1990), mainly in Africa, had no significant impact on growth, indicating an early bird gain from globalization.