The theoretical and empirical fragilities of the expansionary austerity theory

Criticism to expansionary austerity theory has extensively addressed the methodological problems affecting the econometric techniques that underpin it; however, few efforts have formally analyzed its theoretical strictures. In this article, the authors develop a more general and comprehensive critique, both from a theoretical and from an empirical perspective. They first present a short-run model that formally describes the theoretical background of specific policy measures advocated by expansionary austerity supporters. They show how these measures might only have expansionary outcomes under extreme and unrealistic conditions. The authors then move to the data and provide an econometric analysis of the key variables that leave the results of our theoretical model undetermined; their findings reinforce the validity of our theoretical critique. Since 2007, when an important opportunity to test expansionary austerity presented itself with the recession, the core mechanisms of expansionary austerity theory seem to not have been working, to say the least. In fact, austerity measures delivered perverse results precisely in the countries where they were expected to be most effective.     

CAPITAL CONTROLS AND CONFLICT OF INTERESTS

This paper is a normative analysis of the legal restrictions on international financial movements based on a formal model which analyzes the empirical observation that the degree of financial protectionism is associated with changes in the distribution of welfare among agents. The strategic interactions among four types of agents (a trade union, a firm manager, a financial investor and a government) are analyzed, and the optimal amount of capital control is derived as a Nash perfect equilibrium of a non-cooperative game with imperfect information. I conclude that a financial liberalization proposal can be supported by different coalitions of agents, according to the covariance of domestic and foreign returns and the degree of profitability of domestic industrial projects.     

Is a European Recovery Possible Without High-Tech Public Corporations?

Intereconomics - Pervasive new technologies associated with information and communication technologies and software are dominated by a restricted oligopoly of US-based corporations. The challengers...     

Understanding gross worker flows across U.S. states

The main cross-sectional and time-series properties of state-level gross and net worker flows, wages, and rents are characterized using micro-data from the U.S. Census. A dynamic general equilibrium model of worker migration is introduced to explain the stylized facts. In the model, a location may experience simultaneous inflows and outflows of workers. Recent migrants choose to migrate more often than incumbent workers. Thus, locations that attract high numbers of migrants also tend to experience high outflow rates. This pattern is a robust feature of the data and cannot be explained by models of net flows only.