Working papers results

Allocative and redistributive rules in the public sector are often less contingent on available information than normative theory would suggest. This paper offers a political economy explanation. Under different rules, even if the observable outcomes of policies remain the same, the informational content which can be extracted by these observations is different. Simpler rules are more transparent because they allow citizens to gain more information on politicians. Since there are limits to what voters can observe, this may be a relevant insight into the functioning of the political system.

We study a model with free migration between a rich and a poor region. Since there is congestion, the rich region has an incentive to give the poor region a transfer in order to reduce immigration. Faced with free migration, the rich region voluntarily chooses a transfer, which turns out to be equal to that a social planner would choose. Provided migration occurs in equilibrium, this conclusion holds even in the presence of moderate mobility costs. However, large migration costs will lead to suboptimal transfers in the market solution.

The relationship between wages, prices, productivity, inflation, and unemployment in Italy, Poland, and the UK between the 1960's and the early 1990's is modelled as a cointegrated vector autoregression subject to regime shifts. For each of these economies there is clear evidence of a change in the underlying equilibria of this sector of the economy. Hypotheses concerning the similarity of the transition from a rigid to a flexible labour market are tested.

We analyze the relation between the intensity of electoral competition and the dissipation of political rents. In a model with perfectly informed and heterogeneous voters, two candidates commit to electoral platforms under a majority voting and winner-takes-all rule. If the proposed tax revenues exceed the cost of the public good, the winning candidate retains the surplus (political rents). The candidates are uncertain about voters preferences. If they do not know them ean of voters distribution (aggregate uncertainty), competition is relaxed and rents are positive. We then consider some extensions, as ideological positioning, increasing the number of candidates and imperfect commitment to the annouced policies.

We show that the standard condition for MSFE encompassing is no longer valid when the forecasts to be compared are biased. We propose a simple modification of such a condition and of tests for its validity. The relationship between these tests, pooling regressions and tests for non-nested hypotheses is also analysed, together with their multivariate versions. The teoretical results are illustrated by an empirical example on inflation and deficit forecasts, key variables for the formulation of monetary and fiscal policy.

This paper analyses two features of concern to policy-makers in the countries of the prospective of the European Monetary Union: the solvency of their government finances; and the accuracy of fiscal forecasts. Extending the existing methodology of solvency tests, the paper finds that, with few exceptions, EU governments are insolvent, albeit debt/GDP ratios show signs of stabilizing. The accuracy of official short-term fiscal forecasts (those of the OECD) is analysed using conventional techniques and found to be reassuring.

In this paper we suggest a framework to assess the degree of reliability of provisional estimates as forecasts of final data, and we reexamine the question of the most appropriate way in which available data should be used for ex ante forecasting in the presence of a data revision process. Various desirable properties for provisional data are suggested, as well as procedures for testing them, taking into account the possible nonstationarity of economic variables. For illustration, the methodology is applied to assess the quality of the US M1 data production process and to derive a conditional model whose performance in forecasting is then tested against other alternatives based on simple transformations of provisional data or of past final data.

We study the effects globalization on wage inequality. Our global economy resembles Rosen (1981) Superstars economy, where a) innovations in production and communication technologies enable suppliers to reach a larger mass of consumers and to improve the (perceived) quality of their products and b) trade barriers fall.When transport costs fall, income is redistributed away from the non-exporting to the exporting sector of the economy. As the former turns out to employ workers of higher skill and pay, the effect is to raise wage inequality. Whether the least skilled are stand to lose or gain from improved production or communication technologies, in contrast, depends on wether technology is skill-complement or substitute. The model gives an intuitive explanation for the empirical regularities that skill intensity, market size and wages tend to be positively associated to exporting activity, across sectors and plants.

The literature pioneered by Krugman (1991a) now known as "New economic geography" has developed very insightful models to understand phenomena as the agglomeration of economic activity and the specialization of regions. Nevertheless I think that the emphasis on the process of specialization, has been somewhat misleading both at a theoretical and empirical level. The attention of the literature has been focused on decreasing transport costs as the unique engine of the process. I develop a modified version of such models in which technological knowledge and its growth and spillovers are important forces at work, once agglomeration has taken place. I obtain the interesting result that after the dramatic tendency to specialization, driven by decreasing transport costs, local technological growth generates a tendency towards de-specialization, in the most advanced regions. This pattern fits the stylized facts relative to the last 40 years in the U.S. There, after a strong tendency towards industrial concentration, there has been a tendency, towards de-concentration. A first look at the data for European countries, for the last 30 years also shows a tendency to constant or slightly decreasing concentration of industries and de-concentration of innovative activity.

In an empirical analysis, considering 236 U.S. cities in the period 1980-1990, we document a strong positive correlation between local supply of education skills and their return. In SMSA's where the average education of workers is high the education premium is also high. This is true both considering the levels of the variables in 1980, 1990 and considering their changes. Technical progress, as well as physical capital investments, may be driven by local pressures to enhance the productivity of factors which are locally abundant. Therefore we may interpret this regularity as a sign that in cities where educated workers are abundant, firms will invest in skill-complementary machines and techniques. Acemoglou (1998) claims that this idea could explain the time evolution of education premia in the 80's. Here I bring some compelling evidence that it may provide an explanation for the behavior of education premia across cities.