Open issues in happiness research

Happiness research is one of the most vivid and fruitful parts of modern economics. The focus is on empirical findings. In contrast, theoretical work has been rather neglected. The paper deals with three areas needing more analytical work: the choice or imposition of comparison or reference groups; and the extent, speed and symmetry of adaptation to positive and negative shocks on happiness. In both areas, theoretical propositions are derived which can in the future be empirically tested. The third area relates to the political economy of happiness. Many governments intend to take the happiness index as a criterion of how successful their policies are. As a consequence, survey respondents get an incentive to misrepresent their happiness level, and governments to manipulate the aggregate happiness indicator in their favor. A country’s constitution must induce governments to carefully observe human rights, democracy, the decentralization of political decision making, and market institutions and provide people with the possibility to acquire a good education and find a suitable job.     

The trade-off between fertility and education: evidence from before the demographic transition

The trade-off between child quantity and quality is a crucial ingredient of unified growth models that explain the transition from Malthusian stagnation to modern growth. We present first evidence that such a trade-off indeed existed already in the nineteenth century, exploiting a unique census-based dataset of 334 Prussian counties in 1849. Furthermore, we find that causation between fertility and education runs both ways, based on separate instrumental-variable models that instrument fertility by sex ratios and education by landownership inequality and distance to Wittenberg. Education in 1849 also predicts the fertility transition in 1880–1905.     

EU regional policy and tax competition

The European Union (EU) provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU member states and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyze these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-level regional policy that supports the development of intra-union infrastructure.     

SMEs and regional economic growth in Brazil

This paper examines the relationship between the small and medium-sized enterprise (SME) sector and economic growth for an annual panel of Brazilian states for the period 1985–2004. We investigate the importance of the relative size of the SME sector measured by the share of SME employment in total formal employment and the level of human capital in SMEs measured by the average years of schooling of SME employees. The empirical results indicate that the relative importance of SMEs is negatively correlated with economic growth, a result that is consistent with previous studies examining developing countries. In addition, our results show that the human capital embodied in SMEs may be more important for economic growth than the relative size of the SME sector.     

Künftige Finanzplanung der EU — neue Prioritäten,höhere Effizienz?

On May 2, 2018, the European Commission proposed a limited and realistic increase for the EU’s next multi-annual financial framework 2021–2027. The draft implies a roughly constant common budget for the EU with a focus on European stabilisation policy and the provision of centralised public goods provision rather than agriculture and cohesion. This shift mirrors the priorities spelled out by Emanuel Macron. However, the Commission combined this pragmatism with its interest in improving budgetary flexibility and autonomy. There is no doubt that the EU27 faces difficult negotiations. EU Member States’ initial reactions to the European Commision’s recent proposals were dominated by juste retour considerations reminiscent of past negotiations. Strengthening EU expenditure through European added value and fundamentally reforming their own resource system, including the introduction of tax-based own resources, will end the deadlock surrounding net position thinking. A more fundamental view on the fiscal policy of the European Union is given in the last paper, which states that the EU requires a complete overhaul of the economic governance structure. It offers a tentative approach that avoids moral hazard problems as well as fallacies about conditional backstops during times of crisis.     

The existence of core allocations in a one sector model of capital accumulation

The existence of core allocations in a one sector model of capital accumulation with heterogeneous households is demonstrated. The result follows as an application of Scarf's Theorem on the core of a balanced game.     

Bond restructuring and moral hazard: are collective action clauses costly?

Recent emerging market crises have prompted debate over the costs and benefits of collective action clauses (CACs) in bond contracts. CACs may facilitate the restructuring of repayment terms in the event of financial distress. Proponents of CACs argue they should lower borrowing costs, while opponents contend that they lead to moral hazard and increased borrowing costs. This paper examines the pricing of bonds with and without CACs using data for both primary and secondary market yields and finds no evidence that the presence of CACs has increased yields for either higher- or lower-rated issuers.