Electoral cycles in MPs’ salaries: evidence from the German states

Members of parliament (MPs) often set their own salaries. Voters dislike self-serving politicians, and politicians are keen to please voters. In line with political business cycle theories, politicians thus may delay giving themselves a salary increase until after elections. We investigate electoral cycles in the salary increases of German state MPs. Using data for 15 states over the period 1980–2014, we find no evidence that increases in MP salaries are influenced by election cycles. Politicians can increase their salaries at any point during the legislative period without negative consequences. We posit that this may be because even those voters who are most disenchanted with politics likely understand that all politicians benefit from a salary increase and thus do not punish the governing party at the polls.     

Predicting the equity market with option-implied variables

We comprehensively analyze the predictive power of several option-implied variables for monthly S&P 500 excess returns and realized variance. The correlation risk premium (CRP) and the variance risk premium (VRP) emerge as strong predictors of both excess returns and realized variance. This is true both in- and out-of-sample. Our results also reveal that statistical evidence of predictability does not necessarily lead to economic gains. However, a timing strategy based on the CRP leads to utility gains of more than 5.03% per annum. Forecast combinations provide stable forecasts for both excess returns and realized variance, and add economic value.     

The economics of the Syrian refugee crisis in neighbouring countries: The case of Lebanon

In this article, we investigate the effects of a massive displacement of workers from a war‐torn economy on the economy of a neighbouring country. Applying a general equilibrium approach to the Lebanese economy, we explore effects from various components of the crisis on the labour market, the production apparatus and macroeconomic indicators. Along with previous literature, our findings suggest limited or no adverse effects on high‐skilled native workers, but a negative impact on the most vulnerable Lebanese workers. When aid takes the form of investment subsidies, significantly better growth and labour market prospects arise, recalling the necessity of complementing humanitarian aid with development aid to succeed in achieving long‐term objectives. This may however not be politically viable in a context where refugees are considered as temporary.     

Productive entrepreneurship and the effectiveness of insolvency legislation: a cross-country study

Small Business Economics - This paper studies the association between the effectiveness of insolvency regulations and entrepreneurship using multilevel modeling of about 300,000 individuals in 27...     

Starve all the lawyers: four theories of the just price

The only “sense in which we can meaningfully talk about just wages or just prices”, said Friedrich Hayek, is for wages and prices “determined in a free market without deception, fraud or violence”. Conversely, after reviewing three theories of the just price, this paper proposes a classical liberal theory of the just price, called the “catallactic” theory, according to which our understanding of just prices must account for the background institutions of markets. Some transactions could not happen in a market without a certain theory of just prices and such transactions will feed into our understanding of markets, hence making just prices a de facto reality.     

Interactions between Agriculture and Industry: Theoretical Analysis of the Consequences of Discriminating Agriculture in Sub–Saharan Africa

Many countries in sub–Saharan Africa discriminated against agriculture to promote industry after independence. The domestic terms of trade were turned against agriculture by the price fixing of monopoly marketing boards. This policy was assumed to reduce labor costs of industry and was combined with overvaluation of the currency, protectionism, and priority rationing of imported inputs to industry. The region got the worst of both worlds—stagnation in both agriculture and industry. What went wrong? In a dual model designed to represent characteristics of the region, discrimination of agriculture is shown to contract industry through trade linkages. Export–oriented agriculture has been held back, and import–dependent industries have suffered because of the foreign exchange constraint. In a dynamic extension assuming learning–by–doing in industry and catching–up in agriculture, it is shown that discrimination against agriculture may reduce the growth rate of the economy and the technological advantage of industry.     

The Role of the Exchange Rate as a Shock Absorber in a Small Open Economy

This paper analyses interactions between the real exchange rate and business cycles in a small open economy like Norway. Using a structural vector autoregression model, the role of different shocks are analysed, to investigate to what extent the real exchange rate is absorbing shocks, or a source of shocks itself. The results are ambiguous. Output and the real exchange rate are mainly explained by separate shocks, so that relinquishing exchange rate independence should come at little cost. However, the importance of nominal shocks in the business cycle emphasises that stabilisation is possible. Hence, remaining monetary independence may be attractive.