Fiscal consolidation in the euro area: Long-run benefits and short-run costs

In this paper, we examine the macroeconomic effects of alternative fiscal consolidation policies in the New Area-Wide Model (NAWM), a two-country open-economy model of the euro area developed at the European Central Bank (cf. [Coenen, G., McAdam, P., Straub, R., in press. Tax reform and labour-market performance in the euro area: a simulation-based analysis using the New Area-Wide Model. Forthcoming in the Journal of Economic Dynamics and Control]). We model fiscal consolidation as a permanent reduction in the targeted government debt-to-output ratio and analyse both expenditure and revenue-based policies that are implemented by means of simple fiscal feedback rules. We find that fiscal consolidation has positive long-run effects on key macroeconomic aggregates such as output and consumption, notably when the resulting improvement in the budgetary position is used to lower distortionary taxes. At the same time, fiscal consolidation gives rise to noticeable short-run adjustment costs in contrast to what the literature on expansionary fiscal consolidations suggests. Moreover, depending on the fiscal instrument used, fiscal consolidation may have pronounced distributional effects.     

Does the Interactive Use of Headquarter Performance Measurement Systems in Foreign Subsidiaries Endanger the Potential to Profit from Local Relationships?

Managing distant subsidiaries is a challenge for headquarters of multinational companies. Performance measurement systems (PMS) can assist in this task. Taking a business network perspective, we study the moderating effect of the interactive use of PMS implemented by headquarters at subsidiaries on the relationship between subsidiary embeddedness and subsidiary performance. We test our hypotheses using survey data from 110 subsidiary managers in China. The results suggest that the multinational network surrounding the subsidiary affects overall headquarter control possibilities. Specifically, while interactive use may be helpful in situations of low local embeddedness of the subsidiary, it seems to have negative side effects on the subsidiaries’ ability to benefit from high local embeddedness.     

Broke,Ill, and Obese: Is There an Effect of Household Debt on Health?

We analyze the association between household indebtedness and different health outcomes using data from the German Socio‐Economic Panel from 1999 to 2009. We control for unobserved heterogeneity by applying fixed‐effects methods and furthermore use a subsample of constantly employed individuals plus lagged debt variables to reduce problems of reverse causality. We apply different measures of household indebtedness, such as the percentage shares of household income spent on consumer credit and home loan repayments (which indicate the severity of household indebtedness) and a binary variable of relative overindebtedness (which indicates a precarious debt situation). We find all debt measures to be strongly correlated with health satisfaction, mental health, and obesity. This relationship vanishes for obesity after controlling for unobserved heterogeneity while it stays significant with respect to worse physical and mental health.     

Tournaments with gaps

A standard tournament contract specifies only tournament prizes. If agents’ performance is measured on a cardinal scale, the principal can complement the tournament contract by a gap which defines the minimum distance by which the best performing agent must beat the second best to receive the winner prize. We analyze a tournament with two risk averse agents. Under unlimited liability, the principal strictly benefits from a gap by partially insuring the agents and thereby reducing labor costs. If the agents are protected by limited liability, the principal sticks to the standard tournament.     

Wie motiviert man Unternehmertum in Deutschland?

Zwischen der Zahl der Unternehmensneugründungen und dem Wirtschaftswachstum besteht in Industriel?ndern ein deutlich positiver Zusammenhang. Welche Funktionen haben die Unternehmen im Wachstumsprozess? Was hindert bzw. f?rdert Unternehmertum in Deutschland? Wie kann die Politik die Unternehmer motivieren? Prof. Dr. Norbert Berthold, 55, ist Inhaber des Lehrstuhls für Volkswirtschaftslehre, insbesondere Wirtschaftsordnung und Sozialpolitik an der Bayerischen Julius-Maximilians-Universit?t Würzburg; Matthias Kullas, 29, Dipl.-Volkswirt, ist wissenschaftlicher Mitarbeiter am selben Lehrstuhl; Dr. Michael Neumann, 34, ist Mitarbeiter am Institut der deutschen Wirtschaft K?ln.     

The Reliability of Certification: Quality Labels as a Consumer Policy Tool

Given the large number of certification systems in the food industry, it is surprising that there are only a few research approaches to the economics of certification. Certification schemes are used to ensure marketing claims for unobservable quality attributes. Under asymmetric information, process-oriented quality characteristics such as organic farming, animal welfare, or fair trade raise the question of mislabelling. In the long run, only a reliable control procedure can reduce the risk of food scandals. The article presents a model which includes several starting points to enhance the efficiency of certification systems and the corresponding labels. On the whole, tendencies towards price wars on the certification market and considerable differences in performance reveal the necessity of institutional changes. Strategies for reducing auditors dependence, intensifying liability, increasing reputation effects, and minimizing audit costs are suggested. Finally, policy implications for public and private monitoring are discussed.     

Verbesserung der Regierungsführung in den AKP-Ländern?

Die Europ?ische Union verhandelt zurzeit mit den AKP-L?ndern über so genannte Economic Partnership Agreements. Diese Abkommen haben vor allem die Entwicklung der AKP-L?nder als Ziel. Eine elementare Vorbedingung für Entwicklung ist die Qualit?t der Regierungsführung. Jedoch ist eine gute Regierungsführung in vielen AKP-L?ndern derzeit alles andere als selbstverst?ndlich. Wie kann die Europ?ische Union dazu beitragen, diese Missst?nde zu beheben und eine nachhaltige Entwicklung der betroffenen L?nder zu f?rdern? Sind die Economic Partnership Agreements überhaupt ein ad?quates Mittel, um diese Herausforderung zu bew?ltigen? PD Dr. Matthias Busse, 41, leitet den Kompetenzbereich Weltwirtschaft am Hamburgischen WeltWirtschaftsInstitut (HWWI); Steffen Gr?ning, 28, MA International Economics, ist Forschungsassistent am HWWI und promoviert an der Universit?t Hamburg. Dieser Artikel basiert auf einer Studie, die im Auftrag der Friedrich-Ebert-Stiftung durchgeführt wurde. Die vollst?ndige Studie kann von der Webseite des HWWI heruntergeladen werden: www.hwwi.org.     

Reform of the EU Sugar Market

After years of negotiations, the European Union finally reformed its sugar market in November 2005. Unilateral trade concessions, ongoing WTO negotiations and internal pressures were pushing the EU for a change. The following short article highlights some of the key features of the reform and the implications for EU member countries, world sugar markets and countries that currently enjoy preferential access to the EU market.      

How does(n't) Urban Shrinkage get onto the Agenda? Experiences from Leipzig,Liverpool, Genoa and Bytom

This article discusses the question of how urban shrinkage gets onto the agenda of public‐policy agencies. It is based on a comparison of the agenda‐setting histories of four European cities, Liverpool (UK), Leipzig (Germany), Genoa (Italy) and Bytom (Poland), which have all experienced severe population losses but show very different histories with respect to how local governments reacted to them. We use the political‐science concepts of ‘systemic vs. institutional agendas’ and ‘policy windows’ as a conceptual frame to compare these experiences. The article demonstrates that shrinkage is hardly ever responded to in a comprehensive manner but rather that policies are only implemented in a piecemeal way in selected fields. Moreover, it is argued that variations in institutional contexts and political dynamics lead to considerable differences with regard to the chances of making shrinkage a matter of public intervention. Against this background, the article takes issue with the idea that urban shrinkage only needs to be ‘accepted’ by policymakers who would need to overcome their growth‐oriented cultural perceptions, as has been suggested in a number of recent writings, and calls for a more differentiated, context‐sensitive view.     

The Effectiveness of aid in Improving Regulations: An Empirical Assessment

The paper empirically assesses the impact of foreign aid on the change in economic freedom, which is closely related to the quality of regulations. We build on a relatively large panel of 77 developing countries and examine the period 2002–2012 using different econometric methods. In addition to standard country fixed‐effects regressions as well as estimations in first differences, we apply the system Generalised Method of Moments estimator. We, therefore, control for the potential endogeneity of foreign aid. We find that highly targeted aid can be a driver of change: Sectorspecific Aid for Business has a significantly positive impact on regulations across developing countries, but we do not find any effects for overall aid or aid directed at broad governance areas. The result that Aid for Business drives improvements in regulatory quality is robust using different model specifications and country samples. The strongest results are found for low‐income countries and for subsamples that exclude outliers. This outcome could partly explain the inconclusive evidence from the previous literature and it confirms our hypothesis that targeted, sector‐specific aid matters.