Working papers results

The Importance of innovation for the economic performance of industrialized countries has been largely stressed recently by the theoretical and empirical literature. Very few studies have carefully considered the determinants of European innovation, the productivity of its R&D and the existence of knowledge spillovers across regional boundaries. Here we develop a model which, emphasizing "the demand pull" as a key exogenous determinant of long-run innovation across regions, allows us to estimate the returns to regional R&D as a generator of innovation. We find that most of the cross-regional differences in innovation rates can be explained by own R&D, even after correcting for the endogeneity bias. Moreover, significant spillovers are found among geographically close regions, especially if they are technologically similar.

Returns to scale to capital and the strength of capital externalities play a key role for the empirical predictions and policy implications of different growth theories. We show that both can be identified with individual wage data and implement our approach at the city-level using US Census data on individuals in 173 cities for 1970, 1980, and 1990. Estimation takes into account fixed effects, endogeneity of capital accumulation, and measurement error. We find no evidence for human or physical capital externalities and decreasing aggregate returns to capital. Returns to scale to physical and human capital are around 80 percent. We also find strong complementarities between human capital and labor and substantial total employment externalities.

This paper studies both theoretically and empirically the determinants of group formation and of the degree of participation when the population is heterogeneous, both in terms of income and race or ethncity. We are especially interested in whether and how much the degree of heterogeneity in communities infuences the amount of participation in different types of groups. Using survey data on group membership and data on US localities, we find that, after controlling for many individual characteristics, participation in social activities is significatively lower in more unequal and in more racially or ethnically fragmented localities. We also find that those individuals who express views against racial mixing are less prone to participate in groups the more racially heterogeneous their community is.

We study the enforcement of competition policy against collusion under Leniency Programs, which give reduced fines to firms revealing information to the Antitrust Authority. Such programs give firms an incentive to break collusion, but may also have a pro-collusive effect, since they decrease the expected cost of misbehaviour. We analyze the optimal policy under alternative rules and with homogeneous and heterogeneous cartels, obtaining a ranking of the different schemes and showing when the use of reduced fines may improve antitrust enforcement.

Observed fiscal policy varies greatly across time and countries. How can we explain this variation across time and countries? This paper surveys the recent literature that has tried to answer this question. We adopt a unified approach in portraying public policy as the equilibrium outcome of an explicitly specified political process. We divide the material into three parts. In Part I, we focus on median-voter equilibria that apply to policy issues where disagreement between voters is likely to be one-dimensional. We thus study the general redistributive programs, which are typical of the modern welfare state: redistribution between rich and poor, young and old, employed and unemployed, resident of different regions, and labor and capital. In Part II we study special interest politics. Here the policy problem is multi-dimensional and we focus on specific political mechanisms: we study legislative bargaining, lobbying, and electoral competition, as well as the possible interactions between these different forms of political activity. Finally, Part III deals with a set of questions that can be brought under the label of comparative politics, as we deal with policy choice under alternative political constitutions: we model some styilized features of congressional and parliamentary political systems, focusing on their implications for rent extraction by politicians, redistribution and public goods provision.

In this paper we propose an approach to identify indipendently the parameters describing the structure of the economy from the parameters describing central bank preferences. We first estimate the parameters describing the structure of the US economy by considering a parsimonious specification for inflation, the output-gap and the commodity price index. We then proceed to the identification of central bank preferences by estimating by GMM the Euler equations for the solution of the intertemporal optimization problem relevant to the central banker. We then compare optimal and actual interest rate behavior to select a structure of central banks preferences. Our main results are as follows. First, persistence in interest rates could be explained by the structure of the economy. Second, "strict" inflation targeting dominates "flexible" inflation targeting. Third, the actual behavior of the policy rates cannot be described by the pure "strict" inflation targeting model, which would imply a much more aggressive monetary policy than the observed one. Fourth, when the inflation targeting model is extended to consider Brainard-type uncertainty and real interest rates smoothing, the latter is preferred hypothesis to reconcile actual and optimal interest rates behavior.

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.