Determinants of discretionary fiscal policy in Central and Eastern Europe

This paper explores economic, political and institutional determinants of discretionary fiscal policy in 11 Central and Eastern European (CEE) countries from 2000 to 2013 and compares discretionary fiscal reactions before and during the global economic crisis. We find that fiscal policy was procyclical to the output gap both before and during the crisis, while no fiscal reaction to the absorption gap was captured. Our results also indicate a negative relationship between the level of public debt and deficits over the entire period and the pre-crisis period, suggesting that rising public debt represented a brake on future deficits. We also find that election cycles affect the fiscal deficit, but only during the pre-crisis period, while no evidence of a relationship between fiscal policy and government fragmentation was captured. We find some evidence that in the pre-crisis period the CEE countries with a fixed exchange rate regime ran lower deficits than those with a floating regime, whereas during the crisis no impact of the exchange rate regime on the fiscal deficit was found. There is also some evidence that an arrangement with the IMF was associated with lower deficits for the entire sample period. However, no impact of EU accession on the fiscal stance was identified.     

Money secrets: How does trade secret legal protection affect firm market value? Evidence from the uniform trade secret act

Research summary : We investigate the impact of trade secret legal protection on firm market value in the context of acquisitions. On one hand, market value may increase because trade secret assets become better protected from rivals. On the other hand, market value may decrease because trade secret protection reduces information about the target and its competitors available to potential buyers, increasing uncertainty about its value. Buyers will discount their offers in expectation of being compensated for riskier deals. Using a sample of private equity investments in the United States, we find that trade secret protection has a positive effect in industries with high mobility of knowledge workers, but a negative effect in industries with (1) high resource–value uncertainty and (2) high poor‐investment risk. Managerial summary : We argue that an increase in trade secret legal protection might not unequivocally benefit firm owners when selling their business. A stronger trade secret protection increases the market value of firms in industries with high workers' mobility, but it decreases the market value of firms in industries with uncertain resource value and/or high risk of poor‐acquisition investments. Based on the contingent effect of trade secret protection, companies may want to adjust their strategic decisions, including where to locate or relocate, based in part on whether they will derive benefits or suffer losses when trade secrets are better protected. Finally, our study should help policymakers understand more fully the economic impact of government policies associated with trade secrets. Copyright © 2016 John Wiley & Sons, Ltd.     

Location factors of FDI and the growing services economy1

Foreign direct investment (FDI) has increasingly shifted toward the service sector. This change in the industrial composition of FDI and the non‐tradable nature of services may have altered the importance of location factors for investment decisions. To capture potential changes in FDI determinants, a contrasting sectoral analysis is performed. Based on FDI stock data from eight new EU member states for the period 1998–2004, we implement a dynamic panel approach allowing the speed of adjustment to the equilibrium investment level to vary across sectors. Results support our assumption that investment into the service sector, which is characterized by low installation costs, adjusts much faster to its desired level than manufacturing FDI. Thus, government interventions to attract FDI are likely to boost the service sector immediately while having a slower impact on manufacturing FDI. Furthermore, as services are mostly non‐tradable, FDI into this sector is largely based on market‐seeking motives while FDI in the manufacturing sector is also driven by international price competitiveness measured by real unit labour costs.     

Input versus output taxation in an experimental international economy

This paper presents the results of a policy oriented macroeconomic experiment involving an ‘international’ economy with a relatively small ‘home’ country and a large ‘foreign’ country. It compares the economic performance of two alternative tax systems: a wage tax system and a sales-tax-cum-labor-subsidy system. The two systems are applied to the small country, while the wage tax system always obtains in the large country. The main result is that the sales tax system outperforms the wage tax system, using standard economic indicators. Moreover, it turns out that under the sales tax system economic activities appear to be moving toward the ‘better’ of two theoretical equilibria. It is argued that producers’ reluctance to incur costs up-front while being uncertain about product prices can explain these results. Several pieces of evidence are provided to support this claim. The results strongly suggest that behavioral aspects should be taken into account also in applied macroeconomic models.     

Competitive rivalry,social disposition,and subjective well-being: An experiment

This paper experimentally studies the effects of competitive rivalry in a social dilemma where people's actions cannot be contractually fixed. We find that, in comparison with no rivalry, the presence of rivalry does neither increase efficiency nor does it yield any gains in earnings for the short side of the exchange relation. Moreover, rivalry has a clearly negative impact on the disposition towards others and on the experienced well-being of those on the long side. Since subjective well-being improves only for those on the short side rivalry contributes to larger inequalities in experienced well-being. All in all rivalry does not show up as a positive force in our environment.     

What Determines Export Diversification in the Development Process? Empirical Assessment

This paper assesses the role played by country‐specific factors as determinants of relative export diversification. Using a panel data set for 60 countries and 20 years (1985–2004), we confirm that even after clearing out differences in income per capita, cross‐country variability in the degree of export diversification is significant. In general, apart from per capita income, features influencing the size of accessible markets (domestic and foreign) are the most relevant and robust determinants of the export diversification process. Diversification opportunities grow if countries are large and not located far from economic core areas and when barriers to trade are restricted.     

An experimental investigation of wage taxation and unemployment in closed and open economies

We investigate experimentally the economic effects of wage taxation to finance unemployment benefits for a closed economy and an international economy. The main findings are the following. (i) There is clear evidence of a vicious circle in the dynamic interaction between the wage tax and unemployment. (ii) Employment is boosted by budget deficits but subsequent tax rate adjustments to balance the budget lead to employment levels substantially lower than theoretically predicted. (iii) A sales risk for producers due to price uncertainty on output markets appears to cause a downward pressure on factor employment. For labor the wage tax exacerbates this adverse effect.     

External Monitoring of Property Appraisal Estimates and Information Asymmetry

Finance theory proposes that firms' cost of capital increases when market makers set wider spreads due to perceived higher information asymmetry across traders. Using a sample of UK investment property firms and controlling for firms' non-random selection of external monitors, we find evidence that market makers perceive information asymmetry across traders to be lower for firms employing external appraisers versus those employing internal appraisers. This evidence is consistent with liquidity-motivated traders being unable to overcome such reliability differences using asset value information from sources other than accounting. We fail to find a similar difference for firms employing Big 6 versus non-Big 6 auditors. Our findings contribute to the debate over the recognition of fair value estimates for long-lived tangible assets by documenting that reliability differences attributable to differential monitoring by appraisers can affect information asymmetry, and therefore firms' cost of capital.     

Efficiency of the Warsaw Stock Exchange: Analysis of Selected Properties

The Warsaw Stock Exchange (WSE) has been operating in present form for 15 years. WSE is regarded as an “emerging market”. We can observe that it is still developing (in order to become “developed market”). The level of development is often analyzed with reference to the efficiency of the market. We can say that the capital market is efficient if the prices at the market fully reflect all available information. The aim of the presented research is to analyze the current situation at the Warsaw Stock Exchange. Particularly we investigate the weak form of efficiency using selected statistical tests. The research is based on actual data concerning daily observations of shares at the Warsaw Stock Exchange transformed to the logarithmic rates of return, considering the period 2000–2006 and subperiods: the bear market, stagnation and the bull market.