Do bank bondholders price banks’ ability to manage risk/return?

In this paper, we empirically investigate whether bank bondholders value risk management, measured as risk-return efficiency (RRE), when pricing bond spreads. Based on a sample of 2,452 bonds issued by 78 European listed banks, for the period 2001–2015, we find evidence that the ability of banks to manage risk affects bond spreads: banks with more capable managers obtain a lower cost of debt. In particular our results show that bank bondholders are even more sensitive to RRE during the crisis period, for relatively poorly rated bonds, for unsecured/subordinated debt, and for long maturity debt. Our findings highlight that bondholders’ monitoring of banks is effective and takes into account the efficiency of risk management during financial and economic downturns, but during sound periods bank bondholders should strengthen their monitoring of risk management.     

The marginal cost of public funds and tax reform in Africa

In this paper we propose estimates of the marginal cost of public funds (MCF) in 38 African countries. We develop a simple general equilibrium model that can handle taxes on five major tax classes, and can be calibrated with little more than national accounts data. A key feature of our model is the explicit recognition of the informal economy. Our base case estimate of the average MCF from marginal increases in all five tax instruments is 1.2. Focusing on the lowest cost tax instruments in each country, commonly the VAT but not always, the average MCF is 1.1. Finally extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low MCF source of public funds, and a lowering of MCFs on other tax instruments.     

A Repeated Interactions Model of Tax Competition

Models of tax competition usually assume a single-period framework. This paper sets up a repeated interactions model of tax competition and establishes conditions under which fiscal policy harmonization can result from repeated interactions between governments. It is shown that fiscal policy harmonization cannot prevail when regional asymmetries are too strong. In such a case, the only way to achieve fiscal policy harmonization is to set up a central fiscal authority.     

Comparing Lead Users to Emergent‐Nature Consumers as Sources of Innovation at Early Stages of New Product Development

The large potential of lead users (LUs) in developing innovative and radically new product concepts is well established in the literature. However, in a widely acknowledged study, Hoffman et al. introduced the new concept of emergent‐nature consumers (ENCs) and showed the superiority of this group of individuals over LUs in developing new product concepts. Consequently, they postulated ENCs to be “the right consumers” to be integrated in new product development processes. In this article, we critically reflect and build on Hoffman et al.'s study and further investigate the promise of the ENC concept as compared to the LU concept. In a pilot study, we replicated the study by Hoffman and colleagues: We conducted a crowdsourcing competition and asked for concepts for new services; those concepts had been generated collectively by the participants and had been assessed by a consumer crowd. In the main study, the participants of a crowdsourcing competition submitted individually generated concepts for products, which were evaluated by industry experts. Across both studies, using different empirical methods in two different contexts, and in contrast to Hoffman et al.'s work, we find support for LUs outperforming ENCs (as well as average users) in generating the commercially most promising concepts. Thus, our insights reinforce the existing user innovation literature and the notion of LUs being the primary source of new product/service concepts.     

The expansion of services in European banking: Implications for loan pricing and interest margins

Our study of 602 European banks over 1996–2002 investigates how the banks’ expansion into fee-based services has affected their interest margins and loan pricing. We find that higher income share from commissions and fees is associated with lower margins and loan spreads. The higher the commission and fee income share, moreover, the weaker the link between bank loan spreads and loan risk. The latter result is consistent with the conjecture that banks price (or misprice) loans to increase sales of other services. That loss leader (or cross selling) hypothesis has implications for bank regulation and competition with (non-bank) lenders.     

Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons

Abstract. Tax competition is discussed as a source of inefficiency in international taxation and in fiscal federalism. Two preconditions for the existence of such effects of tax competition are that mobile factors locate or reside in jurisdictions with – ceteris paribus – lower tax rates, and that taxes are actually set strategically in order to attract mobile production factors. It is well known from studies about Swiss cantonal and local income tax competition that Swiss taxpayers reside where income taxes are low. In this paper, empirical results on strategic tax setting by cantonal governments are presented for a panel of the Swiss cantons from 1984 to 1999. Completing the evidence on Swiss tax competition, income tax rates in cantons are the lower, the lower the tax rates of their neighbors.     

The empire strikes back: French‐African trade after independence

This paper studies the effects of foreign influence on trade, focusing on the close relations between France and its former colonies in sub‐Saharan Africa (SSA). It shows that between 1960 and 1989—the golden age of French‐African relations—France exported more to its former SSA colonies than to any comparable countries, while they did not export more to France. This excess of French exports concerned a large variety of products, and particularly luxury goods and products in which France was least competitive. An investigation of the underlying mechanisms shows that migration explains most of this additional trade.     

International trade and face-to-face diplomacy

Review of World Economics - This paper examines the effects of foreign visits by public officials on international trade. Using an original database that gathers more than 13,000 visits of French...     

Business cycle fluctuations and learning-by-doing externalities in a one-sector model

We consider a one-sector Ramsey-type growth model with inelastic labor and learning-by-doing externalities based on cumulative gross investment (cumulative production of capital goods), which is assumed, in accordance with Arrow (1962), to be a better index of experience than the average capital stock. We prove that a slight memory effect characterizing the learning-by-doing process is enough to generate business cycle fluctuations through a Hopf bifurcation leading to stable periodic orbits. This is obtained for reasonable parameter values, notably for both the amount of externalities and the elasticity of intertemporal substitution. Hence, contrary to all the results available in the literature on aggregate models, we show that endogenous fluctuations are compatible with a low (in actual fact, zero) wage elasticity of the labor supply.     

Bank income structure and risk: An empirical analysis of European banks

The purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the European banking industry. Based on a broad set of European banks for the period 1996–2002, our study first shows that banks expanding into non-interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans. However, considering size effects and splitting non-interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities. A higher share of trading activities is never associated with higher risk and for small banks it implies, in some cases, lower asset and default risks.