Local fiscal policy after a bailout: austerity or soft budget constraints?

Do higher-level governments enforce austerity after bailing out indebted subnational governments or are bailouts a free lunch for the recipients? Analyzing this question empirically is difficult because bailouts are not granted randomly. This paper suggests a method to evaluate the fiscal consequences of subnational bailouts that does not rely on institutional details to obtain quasi-exogenous variation. The main idea is to combine matching and difference-in-differences designs. In a second step, I apply this method to study how bailouts affect the fiscal policy of recipient municipalities in the German federal state of Hesse. Combining disaggregated budget data with data on bailout payments over more than a decade, I find that municipalities consolidate their budgets after they receive a bailout from the state government. While this finding is specific to the German federal context, the proposed methodology can be used, due to its flexibility, to study the fiscal consequences of bailouts in various other settings.     

Fiscal Rules and Financial Systems: Complements or Substitutes?

We study the effect of fiscal rules on a country's credit rating and their interaction with financial development. We build a rich set of panel data, which includes a novel index for the strength of fiscal rules. We find a positive and significant effect of fiscal rules on sovereign ratings. We also find that this effect is attenuated in economies with a more developed domestic financial system. Therefore, financial markets act as a substitute for fiscal rules in lowering the default risk assessed by credit rating agencies. This substitution effect between fiscal rules and financial development is mostly triggered through the monitoring and enforcement dimension of fiscal rules.     

Too big to fail? The dynamics of EU influence and fiscal consolidation in Italy and Spain (2008–2016)

ABSTRACT

The article studies the dynamics of fiscal consolidation and public sector reforms in Italy and Spain under the EU governance that took shape as a reaction to the Eurozone crisis. We show how three types of EU pressure – fiscal and economic coordination rules, conditionality, and back-room diplomacy have operated in conjunction. We also show that Italy was more willing than Spain to resist EU pressure. Based on a Two-Level Game framework, we argue that this can be explained by the greater opposition to European integration that has developed in Italy compared to Spain.     

Fiscal transfers in Turkey: Do politics matter?

Local fiscal transfer rules in Turkey were revised in 2008, such that, while a significant portion of transfers continued to be based on population size, the remainder was distributed based on other criteria such as the development index. In this paper, we investigate the extent of fiscal fairness in Turkey during the period 2008–2012. We define fiscal fairness by the degree of association of transfers and local spending with the structural and socioeconomic indicators, as opposed to political-party associations. Our empirical analysis reveals that while local fiscal transfers during the investigated period were significantly correlated with the socioeconomic and structural indicators, political factors also played a significant role. Particularly, we find robust evidence that cities where the incumbent party-AKP (Justice and Development Party), who won significantly more votes in the general elections than the main opposition party-CHP (Republican People's Party), received significantly more transfers and fiscal spending than the rest. The evidence also suggests that the metropolitan municipalities held by CHP received significantly more government expenditure than the rest; though less robust than the former. This observation also holds for the metropolitan municipalities held by AKP. Additionally, we observe that cities with metropolitan municipalities that were governed by either the incumbent or the main opposition party, were less fiscally independent than the rest. We also note, however, that given the increasing opacity in data reporting, this study does not account for the large amounts of public funds that are allocated in tenders with special invitees, via public–private partnerships or in the form of social assistance, although they are also likely to constitute a major component of politically-biased fiscal transfers during the study period.     

Stability or restructuring? Macroeconomic dynamics under soft budget constraint problems

In this paper, we examine how a decrease in firms’ productivity or the degree of financial market imperfection affects macroeconomic dynamics when the bank has an incentive to misallocate its credit. We develop a model that incorporates a soft budget constraint into a simplified version of Kiyotaki and Moore (1997) environment and show that soft budget constraint problems may arise if the economy becomes less productive or the financial market is less developed. Because of this shift in firms’ productivity, not only do more bad projects survive, but profitable new entrants are crowded out, so that, as in transition economies and Japan in the 1990s, the recession is not only prolonged, but also becomes more severe in the long term.     

Social Capital: One or Many? Definition and Measurement

Three families of social capital concepts are discussed: (fa1) trust, (fa2) ease of cooperation, and (fa3) network. In the language of game theory, social capital is the excess propensity to play cooperative solutions in prisoners' dilemma games. The three families lead to different definitions, and thus to different measurement methods. Some measures are theory-near, while others are easy-to-use proxies. It is shown that all definitions and measures are related. The 'social capital dream' is that all definitions try to catch aspects of the same phenomenon, so that all measures tap the same latent variable. It is discussed whether this dream is likely to come true.     

Fiscal decentralization and multinational firms’ ownership: evidence from China

China’s fiscal decentralization increases the incentive for local governments to maintain economic prosperity and improve institutional environments for multinational firms. This study investigates the impact of fiscal decentralization on the ownership shares of multinational firms in China. Multinational firms located in regions with higher degrees of fiscal decentralization are found to own larger shares of their foreign subsidiaries. This result is consistent under various robustness checks, including instrumental variables estimations. The finding suggests that multinational firms respond to local fiscal decentralization by increasing their participation in investment. This study therefore provides additional evidence for the beneficial effect of fiscal decentralization on China’s economic growth by highlighting the risk-mitigating role of fiscal decentralization.     

Presenting dynamics of social phenomena: should we use absolute,relative or time differences?

Empirical studies within social sciences face an important decision about how to express key findings to the target audience. Simplicity is an important selection criterion here, because the findings need to be conveyed in an efficient manner (i.e., briefly and concisely), but also because stakeholders (e.g., policy makers, the media, general public) are heterogeneous in their methodological backgrounds. The corresponding ways of measuring thus need to be not only exhaustive and message-delivering but also simple and intuitively understandable. This is particularly important when dynamics in time are discussed. There, most typically, either absolute or relative differences are used. This review paper critically elaborates these two popular measures and, in addition, discusses the alternatives of time distance and time step. The paper demonstrates that even in simple linear examples, the results of these four types of measures may sharply contradict. The empirical example of the digital divide is also elaborated, which illustrates many tempting possibilities for biased, one-sided interpretations that match the needs of certain stakeholders. Finally, the paper alerts users about possible misleading conclusions and suggests comprehensive treatments, using several measures simultaneously.     

Managers' interpretations of LCA: enlightenment and responsibility or confusion and denial?

Environmental life cycle assessment (LCA) and ‘life cycle thinking’ are popular approaches to evaluate and manage the environmental aspects of products. While LCA has been propagated as a decision‐making tool, the interest here is in LCA as a mental model, which managers may interpret and enact differently. If LCA and ‘life cycle thinking’ manage to infuse organizations with an extended sense of responsibility, this could counteract some of the ‘organized irresponsibility’ of modern markets. However, LCA use may also lead to confusion, doubt and denial. This article explores potential managerial interpretations of LCA with a small illustration from the wholesale trade, and through a conceptualization of the illustration in terms of Hatch's ( 1993 ) dynamic model of organizational culture. Copyright © 2000 John Wiley & Sons, Ltd.     

Employee involvement and the middle manager: saboteur or scapegoat?

This article reports on the results of a study of managers' attitudes to employee involvement. Contrary to a number of existing studies, this research found middle managers' attitudes to be no more negative than those of senior managers. As hypothesised, managers' intentions to support employee involvement were found to be inversely related to recent managerial job loss and positively related to managers' experience of employee involvement. Contrary to expectations, the study revealed a positive relationship between recent delayering and intentions to support the involvement of employees. The study also reveals a complex curvilinear relationship between managers' perceptions of their own empowerment and their attitudes to employee involvement. The article draws out a number of implications for practice.     

Just-in-time and stockless programs for hospitals: fad or trend?

The JIT and stockless approach to provider-supplier relationships has proven to be a win-win proposition for the partners that have implemented it in many manufacturing industries and health care organizations as well. This strategy will fundamentally impact the entire cost structure within the hospital supply distribution chain. rewards have proven attainable and more comprehensive than had been hoped in the health care applications. The sweeping changes the health care industry experienced during the 1980s are leading creative materiel managers to seize the initiative to improve the current operating costs of their hospitals. They do not want to be left behind "holding the inventory."     

Gross capital inflows and outflows: Twins or distant cousins?

We investigate the long-run relations and equilibrium correction mechanisms between gross capital inflows, outflows and global financial conditions for advanced (AE) and emerging market economies (EME). According to our results, the puzzling findings of the recent literature suggesting that domestic and foreign investors act as distant cousins, leading to capital inflows and outflows to act as twins, tend to be supported for the long run. The short-run relations, however, often appear to be consistent with the conventional theory suggesting that the behaviors of residents and non-residents do not systematically diverge from each other. Consistent with flight to safety concerns, capital outflows from EME and capital inflows to AE tend to increase in the long run in response to worsening global financial conditions. We find that these results essentially hold for the main components of capital flows as well.     

Environmental management certification and environmental performance: Greening or greenwashing?

This article analyzes the contribution of certifiable environmental management standards—such as ISO 14001 and the Eco‐Management and Audit Scheme (EMAS)—to corporate environmental performance. Based on a content analysis of 414 third‐party‐verified environmental statements from EMAS‐registered Spanish organizations, which included information for around 6,700 detailed indicators, a weak improvement in environmental performance was found. Less than half of the analyzed indicators—namely, 48.27%—revealed a net improvement. Similarly, analysis of the justifications of the registered companies for the lack of improvement points to a rather symbolical adoption of the certification, intended to do only the bare minimum. These findings call into question the prevailing opinion about the positive impact of voluntary certifiable environmental management standards on environmental greening. Implications for managers and public policy makers, as well as for other stakeholders, are discussed.     

Shrinking the state or the Big Society? Public service employment relations in an era of austerity

The Big Society is an integral part of the coalition's plans for public service retrenchment, but it is premature to dismiss it as exclusively concerned with expenditure cuts and privatisation. The Big Society signals the government's ambition to transform public services and it is the rubric that is being used to shrink the state and undermine long‐standing systems of public service employment relations. This article considers the origins and meaning of the Big Society and then assesses its consequences for public service provision and the workforce. The Big Society is integrally connected to deficit reduction with the voluntary sector and an increased emphasis on volunteering promoted as a more user‐centred and cost‐effective way of delivering public services in tough times. For the workforce, more competition between diverse providers in conjunction with budget cuts is placing downward pressure on terms and conditions and encouraging employers to question the continuation of national pay determination in many parts of the public sector.     

College Football and Student Quality: An Advertising Effect or Culture and Tradition?

Intercollegiate sports are said to generate positive advertising that produces many benefits to the host school. Donations, applications, and the academic quality of the student body are some of the mission outcomes thought to rise with the fortunes of the football team. The present study tests these claims for three measures of the academic quality of the entering classes on a 12-year panel of the 233 colleges and universities competing at the highest levels of football. Results show clear positive effects attributable to the football program, though those effects are more the result of the football culture and tradition at the school than the on-field performance of the team. Any sports advertising effects of the football program are minimal when compared to the effects of nonathletic institutional characteristics on the quality of students enrolling at the school.     

Job Evaluation and High Performance Work Practices: Compatible or Conflictual?

It can be argued that job evaluation and a high performance work strategy are either conflictual or compatible. On the one hand, job evaluation might be expected to introduce a greater degree of rigidity and top-down orientation to the pay and job structure, potentially yielding a conflict with the flexibility and employee involvement inherent in the high performance approach. On the other hand, job evaluation can be important in generating a feeling of equity in the workplace and thereby in promoting the high level of trust and commitment on which the success of the high performance strategy is seen to depend.     

Intergovernmental Organisations and Economic Freedom: Wise Technocrats or Black Helicopters?

This article explores the relationship between country membership in major intergovernmental organisations and economic freedom. While it makes no claims to have found any broad theoretically bound, robust causal mechanism, baseline fixed effects models establish relationships amongst economic freedom and membership in the EU, NATO, WTO, UN, OECD, World Bank, and IMF. Though the results are not simple, the strongest findings are negative relationships with the UN, IMF, and WTO, and positive relationships with the World Bank and possibly the EU.     

Governance Restructuring in Los Angeles and Toronto: Amalgamation or Secession?

Towards the end of the 1990s, a perplexing situation occurred in two large North American cities. In Toronto, Ontario, and Los Angeles, California, conservative political forces undertook to restructure the system of urban governance. While initiated by conservatives in both cases, in Toronto the result was consolidation; in Los Angeles secessionism is rampant. In both cases the political debate on amalgamation and secession is tied in with discourses on size, efficiency and form of urban government. In both cases, also, the shift from government to governance has been a central theme. This article investigates how local governance has changed in these two cities by comparing historical traditions of governance. Each city has a specific set of external relationships with other geographical and political scales and a set of characteristic internal contradictions. Internally, Los Angeles' tradition of splintered governance stands in contrast to Toronto's metropolitan governance model. Amalgamation and secession have been introduced as strategic options of governance restructuring in both cities in the late 1990s. Both (projected and realized) scalar changes of governance processes and institutions have been accompanied and characterized by social struggles and widespread political debate. The article outlines these debates and discusses the respective political alliances which have formed in both urban regions on the issue of amalgamation/secession. Vers la fin des années 1990, une situation troublante se produisit dans deux grandes villes d'Amérique du Nord: Toronto, en Ontario, et Los Angeles, en Californie. Les conservateurs y avaient entrepris de restructurer le système de gouvernance urbaine. Bien que l'initiative revienne aux mêmes forces politiques dans les deux cas, le résultat fut à Toronto une unification et à Los Angeles un sécessionnisme rampant. Dans les deux villes, le débat politique sur l'amalgamation et la sécession est lié aux discours sur la taille, l'efficacité et la forme d'un gouvernement urbain. De même, dans les deux villes, le passage de gouvernement à gouvernance s'est trouvé au centre des propos. Cet article recherche comment la gouvernance locale a évolué dans ces deux villes en comparant les traditions historiques. Chaque ville présente, d'une part, un ensemble particulier de relations extérieures avec d'autres échelles géographiques et politiques et, d'autre part, un ensemble de contradictions intérieures caractéristiques. Sur le plan intérieur, la tradition de gouvernance éclatée de Los Angeles s'oppose au modèle de gouvernance métropolitaine de Toronto. Vers la fin des années 1990, amalgamation et sécession ont été présentées dans les deux villes comme des options stratégiques pour la restructuration de la gouvernance. Les changements d'échelle –à la fois prévus et réalisés – concernant les processus et institutions de gouvernance ont été accompagnés et caractérisés par des conflits sociaux et un débat politique général. L'article expose ces discussions et aborde les alliances politiques respectives qui se sont formées dans les deux zones urbaines sur la question d'amalgamation/sécession.