An attempt to restore Wagner’s law of increasing state activity

According to Adolph Wagner’s “Law of Increasing State Activity” economic development is accompanied by an increasing role of state activities and functions. Unfortunately, this view has never been stated explicitly by Wagner and the lack of a precise mathematical formulation led researchers to use various and sometimes incomparable specifications. Moreover, in previous empirical studies state activity was almost always replaced by public spending, and hence Wagner’s Law was effectively narrowed down to the “Law of Increasing State Spending”. This paper is an attempt to restore Wagner’s Law. Contrary to previous studies, it examines whether Wagner’s Law in its original form held in Australia in the 1901–2008 period by studying the relationship between real per capita income and a composite variable of state activity that takes both financial and legislative activities of the federal government into account. Although this composite variable still falls short of capturing all levels and sorts of state or government activities, it is a far more comprehensive measure than any of its components used individually in earlier studies. The results based on this composite measure provide no empirical evidence in favour of Wagner’s Law in Australia.     

Reconsidering Wagner’s law: evidence from the functions of the government

We revisit Wagner’s law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure–income elasticities. We find that some functions of government spending for a few countries (e.g. Austria, France, the Netherlands and Portugal) validate Wagner’s law. For the Netherlands, expenditures with environment protection increase more than proportionately to economic growth, and for France that is the case of spending in housing and community amenities. In addition, Greece is the only country where two public spending items react more than one to one to growth.     

Did fiscal institutions affect Wagner’s law in Italy during 1951–2009 period? An empirical analysis

In this article, we test Wagner’s assumption of the one-sided directional flow moving from economic growth to public spending in Italy for the 1951–2009 period. We pay particular attention to the impact of certain regime shifts related to changes in Italian budget regulations and procedures and the relevance of fiscal institutions to the fiscal performance equation, i.e. the public spending–national income nexus. The Error Correction Model is estimated to measure short-run dynamic effects and the long-run equilibrium between the two time series. The empirical evidence suggests that Wagner’s law is supported. In regard to policy implications, we find that public spending reacted less to positive changes in economic growth when the strengthening of the Ministry of Finance occurred in 1997 (Ciampi’s reform). Some sensitivity analyses confirm our empirical evidence.     

Time variation in Okun’s law in Sweden

In this article we estimate an Okun’s law relationship for Sweden using a model with time-varying parameters. Employing quarterly data from 1982 to 2014, results indicate that the GDP growth needed to keep the unemployment rate unchanged in the long rung has fallen considerably over the last 10 years.     

Testing Okun’s law with Swiss industry data

Okun’s law postulates a stable relationship between quarterly output growth and changes in (un)employment. This proposition has so far been tested with macroeconomic data at the highest level of aggregation. The article goes beyond that in extending the analysis to industry data from Switzerland, applying a method suggested by the International Monetary Fund. Another focus is on whether expansions in production have become more ‘jobless’ over the most recent business cycle compared to earlier ones. This does not seem to be the case in Switzerland, except in the construction industry.     

The effects of inflation targeting on Okun’s law

This article provides the first empirical evidence that the adoption of inflation targeting (IT) matters for the extent of tradeoff between unemployment and output, that is Okun’s law. Our full sample results indicate that IT leads to a more negative Okun’s coefficient, suggesting that, for a given reduction of output, the introduction of IT is associated with a higher unemployment rate. Subsample analyses reveal that the whole sample results are mainly driven by the industrial subsample outcomes, not the developing counterparts. Our findings point out that IT not only influences macroeconomic variables per se but also affects the relationship between/among macroeconomic variables.     

Knowledge Diffusion and economic Growth based on Fourier’s law

Learning is the basic thing for a person’s growth, whenever in school or on the work. Also the economic growth of a country depends its technology and science. The knowledge diffusion in a firm dynamic system is important. Some former models have been given by Fernando E. Alvarez, Francisco J. Buera and Robert E. Lucas, Jr’s paper: “Models of Idea Flows” (Alvarez et al., 2008). Our model based on the earlier work but extend the definition of spread direction based on Fourier’s law, in which case can also explain the asymptotic equilibrium state. Solving the partial differential equation helps us to learn the solution well. A simulation is given using finite difference method to sketch the curve moving, also comparing with the realistic economic curves and they are fit. It can well explain the economic stable in the closed system of a single country and a “huge” change under some special outside “source” power.     

The effect of a wife’s retirement on her husband’s mental health

This article examines the effect of wives’ retirement on their husband’s mental health in Australia. By exploiting the exogenous variations in women’s retirement induced by the age pension qualifying ages, we find that spousal retirement status has a positive impact on the mental health of older men. This beneficial impact is found to strengthen with wives’ time spent in retirement. We show that wife’s retirement affects the constituents of her husband’s mental well-being in different ways. We also have identified four channels for the positive linkage between older women’s retirement and the mental health of their spouse.     

Okun’s law revisited: a threshold in regression quantiles approach

This article proposes, for the first time, a threshold in regression quantiles approach to the analysis of Okun’s law. By applying to US data over the 1948Q1–2016Q4 period, we have three major findings. First, a single threshold is detected for both multiple and individual quantiles cases. However, the effect of threshold nonlinearity is only present in the middle to upper quantiles of the conditional unemployment distribution in the individual quantiles case. Second, the first-order autoregressive coefficients of unemployment are significantly larger in the lower-growth regime, indicating that shocks to unemployment appear to be more persistent during recessions. Finally, the Okun’s coefficients are all negative across the recessionary and expansionary regimes, confirming the validity of Okun’s law. Moreover, the Okun’s coefficients are smaller (more negative) in the lower-growth regime, suggesting that the effect of differenced output on differenced unemployment is asymmetric, and is more pronounced in recessions.     

Age effects in Okun’s law with different indicators of unemployment

We reassess the results from the literature on the relationship between the youth unemployment rate and GDP growth (Okun’s law), based on the concern that the unemployment rate is not an ideal indicator for teenagers and young adults. Using the unemployment ratio instead, we find that youth unemployment (15–24 years old) is not significantly more responsive to economic growth than prime-age (25–64) unemployment. However, compared to prime-age unemployment, teenagers’ unemployment (15–19) is relatively unresponsive, whereas young adult’s (20–24) unemployment is more strongly correlated with economic growth. These results are quite different than those obtained with the unemployment rate as the dependent variable.     

Unemployment and output dynamics in CIS countries: Okun’s law revisited

Okun’s law is a well-known relationship between the change in the unemployment rate and output growth. The main objective of this article is to provide a rigorous econometric analysis of Okun’s law for several CIS countries using different models and theoretically justified econometric methods. The traditional approach to Okun’s law estimation using OLS regressions does not account for possible endogeneity of regressors and the implied inconsistency of the estimates obtained. These problems point out to incorrectness of applications of the standard OLS estimation techniques. Our study addresses these issues by using econometrically justified instrumental variable regression methods. The article provides the results and discussions on practical use of Okun’s relationships for evaluation of average effects of economic growth on the unemployment rate, and vice versa; importance of accounting for confidence intervals in applications of Okun’s models to economic development analysis and cross-country comparisons and evaluation of effects of crises and other structural shocks on the economies considered. We also discuss in detail the results of formal econometric tests and economic motivation for validity of instrumental variables used in the study. The formal econometric tests, together with economic arguments, allow us to determine the most appropriate Okun-type models for each of the CIS countries under consideration.     

China’s regional rebound effect based on modelling multi-regional CGE

Improving energy efficiency has been regarded as an important measure to reduce energy consumption, yet the rebound effect has greatly shrunken the energy saving consequences of this measure. To investigate regional rebound effect in China, a multi-region computed general equilibrium (CGE) model is established in this paper. The results show that there are obvious regional differences in the rebound effect in China. The primary energy rebound effects are positive, whereas the production-side power rebounds are below zero in most regions. We also simulated the energy subsidy reform scenarios, which indicates that reducing or even eliminating coal and oil subsidies will increase the production-side rebounds. Finally, feasible policy recommendations are put forward based on the results.     

Can the baseline search and matching model quantitatively explain Okun’s law?

Okun’s Law is an empirically observed, negative relationship between changes in an economy’s unemployment rate and its growth rate of output. The baseline search and matching model with stochastic labour productivity fails to match the Okun’s coefficient, because it generates a too low unemployment volatility and a too high correlation between labour productivity and unemployment. The model is capable of matching the coefficient if it is extended with an addition of employment separation shocks plus a high calibrated value of nonmarket activities. This article also shows that changes in the stochastic properties of exogenous shocks could explain changes in the Okun’s coefficient in the Great Moderation (1984–2007).     

Endogenous product versus process innovation and a firm’s propensity to export

This article provides an empirical analysis of the effects of new product versus process innovations on export propensity at the firm level. Product innovation is a key factor for successful market entry in models of creative destruction and Schumpeterian growth. Process innovation helps securing a firm’s market position given the characteristics of its product supply. Both modes of innovation are expected to raise a firm’s propensity to export. According to new trade theory, we conjecture that product innovation is relatively more important in that regard. We investigate these hypotheses in a rich survey panel data set with information about new innovations of either type. With a set of indicators regarding innovation motives and impediments and continuous variables at the firm and industry level at hand, we may determine the probability of launching new innovations and their impact on export propensity at the firm level through a double treatment approach.     

What did China’s labor contract law do to its private manufacturing firms?

Well-intended employment protection legislation may have adverse consequences. This paper uses Chinese firm-level data to assess the impacts of China’s Labor Contract Law, effective on January 1, 2008. My results show that, relative to public firms, private firms as a whole were negatively affected in terms of firm-level year-to-year employment changes. The law had negligible effects on employment and wages in firms with high wages. At the same time, employment fell and wages rose in firms with low wages. Moreover, firms who did not train workers intensively to acquire firm-specific skills had more job turnover than firms who did. Finally, I study how labor demand responded to the law along the extensive margin. For regions that experienced abrupt declines in labor mobility, possibly due to stricter labor regulation enforcement following the enactment of the Labor Contract Law, firm exit rose significantly, suggesting large incidence of mass layoff.     

Empirical validation of Metcalfe’s law: How Internet usage patterns have changed over time

Few doubt that Digital Information Networks (DINs) such as the Internet constitute the basis of a new technology-driven economic era. A large body of literature tries to understand and quantify the value of DINs to help policy makers justify investments in new or improved infrastructures. The prevailing methodological approach is to depict DINs as an observable production input changing the uncertainty regarding the performance of an economic system. In such context, the value of DINs is typically measured with regression techniques between the penetration rate of DINs and economic growth. This approach provides too little insight on the actual causality between DINs and economic value. We recently developed a framework that identified 13 different ways (“capabilities”) how users convert information into economic value. In this article, we show how a simple quadratic relation (Metcalfe’s law) can be used to quantify how adequate these capabilities are in converting the ability to access information into economic value. To our knowledge, this is the first time that Metcalfe’s law is empirically validated as such.     

The effect of sample size on European Union’s renewable energy investment drivers

Macroeconomic modelling results based on relatively varying sample sizes may lead to incoherent results. Such effects have not been adequately understood in the renewable energy literature regarding the European Union (EU). This study focuses on the comparison of results obtained for renewable energy investment drivers (for solar and wind energy investments) on different samples of EU countries, including all EU-27, former EU-15 and 11 high renewable investment EU countries. The study used a random effect panel data modelling approach over the period 1995–2011 for studying the impact of the levelized cost, regulation perception, carbon emissions and climatic condition on wind and solar investments over the three samples. The results demonstrate the importance of trustable regulation schemes to ensure that regulation will not have a significant negative effect on investment, showing also the need to further extend the model to include support schemes as fundamental drivers for investment.