Do execution moratoriums increase homicide? Re-examining evidence from Illinois

This article revisits the event study by Cloninger and Marchesini (2006), who find that the declaration of the Illinois’ death penalty moratorium on 31 January 2000 had a homicide-promoting effect and resulted in 150 additional homicides over the period 2000–2003. We reassess the author’s identification strategy, which they refer to as ‘portfolio approach’ and which draws upon event studies in finance research. We argue that their methodology is not applicable in crime studies. Instead, we apply univariate time-series methods to test for a structural break at a known and unknown break date. We allow for unknown break points as the structural break might have occurred slightly earlier (criminals might have anticipated the moratorium) or later (due to persistence in criminal behaviour). In addition, we implement the synthetic control estimator which approximates the counterfactual homicide series by a weighted average of homicide outcomes in other US states. Based on various testing methods and two distinct data sets, we conclude that there is no empirical evidence to support the hypothesis that the Illinois’ execution moratorium significantly increased homicides.     

Testing the permanent-income hypothesis: new evidence from West-German states (Länder)

This paper investigates whether time-series data from 11 West-German states (L?nder) provide evidence in accord with the implication of the permanent-income hypothesis (PIH) for the stochastic relationship between consumption and income innovations. The empirical results do not support this hypothesis, in the sense that the response of consumption to income innovations is found to be much weaker than is predicted by the PIH. Moreover, for each individual state as well as for Germany as a whole, the response was found to be asymmetric, being stronger for negative than positive income innovations. This evidence of asymmetry is consistent with a model in which consumers are liquidity constrained.

Impulse response analysis and Orcutt’s hypothesis in trade: evidence from developing countries

Orcutt’s hypothesis in international economics implies that trade flows respond to exchange rate changes faster than to changes in relative prices. Most previous studies used import and export demand models and tested the hypothesis by imposing and comparing lag lengths on the exchange rate and relative prices. One recent study, however, employed impulse response of trade flows to one SD shock to the nominal exchange rate and one SD shock to relative prices and tested the Orcutt’s hypothesis for several industrial countries. In this article we follow this study and test the hypothesis for six developing countries using impulse response analysis. Like the other study for industrial countries, we do not find much support for the hypothesis.     

Comparing evidence on Wagner's hypothesis from conventional and ‘real’ data

Conventional and internationally comparable data for 34 countries are utilized to assess the relationship between general government expenditure and income. While the conventional data can be deemed as mildly supportive of Wagner's hypothesis, evidence from the ICP data suggests a decline in the share of general government as income per capita rises.     

Twin deficits: new evidence from a developing (oil vs. non-oil) countries’ perspective

We test the relationship between the current account and fiscal policy for a group of small open developing economies with fixed exchange rates some of which are oil exporters. Specifically, we test the viewpoint of a Ricardian infinite-horizon representative agent model in which lower public savings are met by equal increases in private savings, and as a result the current account does not respond to the changes in government spending, against a Keynesian’s conventional viewpoint in which a fall in public savings has an adverse effect on the current account balance. Unlike the evidence from flexible exchange rate economies provided by many authors such as Rosensweig and Tallman (Econ Inq 31(4):580–594, 1993), Erceg et al. (Int Finance 8(3):363–397, 2005) and Saleh et al. (South Asia Econ J 6(2):221–239, 2005), the evidence from a panel data analysis and Granger-causality test of these fixed exchange-based countries supports the conventional theory of positive relationship between fiscal and external balances, with causality running from the former to the latter, in oil countries, whereas it supports the Ricardian view for non-oil countries.     

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.     

On the incentive effects of monitoring: evidence from the lab and the field

Several experimental studies have shown that the crowding-out effect of monitoring may outweigh its disciplining effect through intrinsic motivation destruction, thereby reducing effort. However, most of these experiments use numeric effort tasks that subjects may not be intrinsically motivated to complete. This paper aims to analyze the incentive effects of monitoring using a real-effort task for which intrinsic motivation is more likely to exist. We conducted two similar experiments, in the lab in Montreal and in the field in Ouagadougou. In contrast to the lab, subjects in the field are unaware they are taking part in an experiment.     

Re-examining the threshold effects in the inflation–growth nexus with cross-sectionally dependent non-linear panel: Evidence from six industrialized economies

This paper analyzes the empirical relationship between inflation and output growth using a novel panel data estimation technique, Panel Smooth Transition Regression (PSTR) model, which takes account of the non-linearities in the data. By using a panel data set for 6 industrialized countries that enable us to control for unobserved heterogeneity at both country and time levels, we find that there exists a statistically significant negative relationship between inflation and growth for the inflation rates above the critical threshold level of 2.52%, which is endogenously determined. Furthermore, we also control cross-section dependency by using the CD test modified to non-linear context and remedy cross-section dependency with Seemingly Unrelated Regression Equations through Generalized Least Squares (SURE-GLS) and newly proposed Common Correlated Effects (CCE) estimation techniques. We find that these methods change the critical threshold value slightly. The estimated threshold values from these estimation methods are 3.18% and 2.42%, respectively.     

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.     

Redistribution in the age of austerity: evidence from Europe 2006–2013

We examine the relationship between changes in a country’s public sector fiscal position on inequality at the top and bottom of the income distribution during the age of austerity from 2006 to 2013. We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on Statistics of Income and Living Conditions (EU-SILC) and IMF data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggests a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies and likely produces increased incentives for rent-seeking while reducing incentives for workers to increase productivity.     

S-Curve at the industry level: evidence from US–UK commodity trade

Backus et al. in (Am Econ Rev 84(1): 84–103, 1994) found that the cross-correlation function between terms of trade and trade balance resembles the letter S and labeled it the S-curve. Support for S-curve is rather weak in some cases, most notably US when aggregate trade data are used. Empirical regularities based on aggregate trade data may suffer from a potential bias stemming from aggregation. Indeed, by employing US bilateral trade data excellent support for the S-curve is recovered. The support, however, was rather weak at the level of US–UK bilateral trade. Suspecting aggregation bias again, we employ US–UK trade data at the industry level and find overwhelming support for the S-curve. Furthermore, commodity attributes play no role. Valuable comments of an anonymous referee are greatly appreciated. Any error, however, is ours.     

Exploring the spatial determinants of children’s activities: evidence from India

This article investigates the choice of children’s activities in India and provides recommendations for areas where policy intervention to promote schooling and combat child labor would be most successful. First, we recognize that child schooling and labor are not the sole activities that children can engage in and include idleness as one of the choices. Second, we use a hierarchical model with spatially correlated random effects to analyze the determinants of the choice of children’s activities. Lastly, we recommend that pro-schooling intervention be implemented in districts with favorable attitudes toward schooling and unfavorable attitudes toward idleness, while anti-child-labor interventions be implemented in districts where attitudes toward child labor are less favorable. We thus identify two groups of Indian districts to target appropriate government interventions.     

A revisit on real interest rate parity hypothesis – simulation evidence from efficient unit root tests

A set of unit root tests are applied to test the existence of long-run real interest rate parity among the G-10 countries over the period 1971M1 to 2007M2. Rather than trusting the asymptotic distributions, this article uses simulation techniques to establish the small sample distributions of these tests, conditional on the stationary and nonstationary processes. The empirical results indicate that the tests have stable finite-sample sizes and higher size-adjusted powers such that the two estimated processes can be distinguished from each other. Thus, for six of the nine countries, their series are more likely to come from the estimated Autoregressive (AR) stationary process than from the nonstationary process. Noticeably, the testing results are rather different from those using the asymptotic distributions, in which only three countries support the real interest rate parity.     

Farmer education and the weather: evidence from Taiwan (1976–1992)

This paper uses farm household and weather data from 1976 to 1992 in Taiwan to measure the role of unusual weather conditions in explaining time and geographical variation of the return to education in farming. Based on a farm household model, we show that the effect of education measured from an income function is both technical and allocative. For a set of schooling variables, this effect is found to increase with adverse weather. It implies that education provides a higher relative advantage—and therefore has a higher economic value—when the environment is more unstable and more difficult to deal with. This gives empirical support to the notion that education improves the capacity to adapt to change and disequilibria, on top of its static technical effects.     

An extension of the Tiebout hypothesis of voting with one’s feet: the Medicaid magnet hypothesis

This study empirically extends the Tiebout hypothesis of ‘voting with one’s feet’ in two ways. First, it provides updated estimates using net migration data for the period 2000–2008. Second, in addition to investigating variables reflecting public education outlays, property taxation and income taxation, it investigates whether migrants are attracted to states with higher Medicaid benefits per recipient. The latter hypothesis is referred to as the ‘Medicaid magnet hypothesis’. The analysis includes three economic variables, three quality of life variables and three Tiebout-type factors in addition to Medicaid benefits. Results indicate that consumer voters were attracted to states with higher per pupil public school spending, lower property and income tax rates, and that certain consumer-voters may be attracted to states that offer higher levels of Medicaid benefits.     

Regime switching and the (in)stability of the price–rent relationship: evidence from the US

Present value models of house prices assert that in the absence of self-fulfilling bubbles, a house price is equal to the present discount value of all future rents, which implies a linear relationship between house price and rent, and hence a stable price-to-rent ratio. Using a Markov switching error correction model, we re-examine this relationship in the US housing market and find two distinctive regimes: one with a long-run relation between house price and rent predicted by the present value models and the other in which the relation is nonlinear. Furthermore, we find evidence that deviations of house prices from the present value models’ predictions are caused by the overreaction of house prices to movements in rents rather than speculative bubbles attributable to extraneous factors.     

Revisiting the long memory dynamics of the implied–realized volatility relationship: New evidence from the wavelet regression

The literature studying stock index options confirms severe biases and inefficiencies in using implied volatility as a forecast of future volatility. In this paper, we revisit the implied–realized volatility relationship with wavelet band least squares (WBLS) exploring the long memory of volatility, a possible cause of the bias. Using the S&P 500 and DAX monthly and bi-weekly option prices covering the recent financial crisis, we conclude that the implied–realized volatility relation is driven solely by the lower frequencies of the spectra representing long investment horizons. The findings enable improvement of future volatility forecasts as they support unbiasedness of implied volatility as a good proxy for future volatility in the long run.     

“Twin deficits” in Greece: in search of causality

Abstract:

The paper discusses the trajectories of the Greek public deficit and sovereign debt between 1980 and 2010 and its connection to the political and economic environment of the same period. We pay special attention to the causality between the public and the external deficits in the period after 1995, the post–Maastricht Treaty period. We argue that, due to the European monetary unification process and the adoption of the common currency, causality ran from the external deficit to the public deficit. This hypothesis is tested econometrically using both Granger causality and cointegration analyses. We find empirical support for this hypothesis.     

Financialization and the rentier income share – evidence from the USA and Germany

During the past two decades, there has been a shift of significance from the real to the financial sector. In the course of (financial) globalization, measures of liberalization and deregulation have contributed to a strengthening of financial capital. The concept of shareholder value orientation has become more powerful, capital income has increased tremendously, while real wages have stagnated. Most industrial countries have experienced a decline in the share of labor income. Based on a review of empirics and literature, this paper seeks to determine who gained from the fall in the labor share of income in the USA and Germany, respectively. If financialization is indeed responsible for the decline, rentiers should be the beneficiaries. In order to identify the relevant effects, the profit share of the two countries under observation is split between the share of retained earnings and the share of net property income (= rentiers’ income) using a modification of the approach chosen by Epstein and Jayadev (2005 Epstein, G. and Jayadev, A. 2005. “The rise of rentier incomes in OECD countries: Financialization, central bank policy and labor solidarity”. In Financialization and the world economy, Edited by: Epstein, G. Cheltenham: Edward Elgar.  [Google Scholar]). The evidence presented shows that the development of the rentier income share indeed corresponds quite well with the stages of development of financialization in the two different countries: in the US, where the important shift towards financialization occurred in the early 1980s, the rentiers’ share of income shows a corresponding leap upwards exactly at that time and remains on a higher level until the end of the observation period. In Germany, the process of financialization started much later – in the beginning of the 1990s – and followed a much more gradual transition, which is perfectly mirrored by the development of income shares: from the 1990s onwards, the rentiers’ income share gradually increased over time.     

Does the Lucas critique apply during hyperinflation?: empirical evidence from four hyperinflationary episodes

Farmer (Review of Economic Studies, 58, 321–32, 1991) suggests that in a model in which there are multiple rational expectations equilibria agents may find it useful to coordinate their expectations in a unique rational expectations equilibrium which is supported by a self-fulfilling forecast rule having the property of being immune to the Lucas Critique. In this paper, Farmer's hypothesis is tested using data from hyperinflationary episodes. It is believed that those episodes are suitable for testing this hypothesis because an agent who lives in a hyperinflationary environment usually faces frequent changes in policy regime. The agent may thus choose a selffulfilling forecast rule which is immune to the Lucas Critique as a way of hedging against unanticipated policy regime switches. The empirical results show mixed evidence on Farmer's hypothesis during the hyperinflationary episodes studied.