Fiscal rule compliance,poverty and social exclusion in the Eurozone

This paper develops a simple model of the effects of fiscal adjustments on poverty. Our theory suggests that in richer countries the effects of fiscal adjustment are stronger the more complex is the poverty measure. By examining a panel of 16 EU countries in the period 2005–2015, the paper finds that structural public balance adjustments may harm the welfare of poorer individuals. The empirical estimation hinges on a comprehensive index of poverty and social exclusion, the AROPE index. The results suggest that rigid fiscal rules require specific alternative policies to sustain the welfare of poorer individuals during downturns.     

Firm Size and Growth Rate Variance: The Effects of Data Truncation

This paper discusses the effects of the existence of natural and/or exogenously imposed thresholds in firm size distributions on estimations of the relation between firm size and the variance in firm growth rates. We argue that these estimations are upwardly biased whenever the threshold operates on the same proxy that is used to calculate the growth rates. We show the potential impact of the bias on simulated data, suggest a methodology to improve these estimations, and present an empirical analysis on Dutch firms. The only stable relation that emerges is the negative relationship between firm size and growth rate variance.     

Quantitative methods for the economic valuation of a cultural tourism destination: case study of the Pisa Charterhouse

Quality & Quantity - This paper aims to provide an economic valuation of the Pisa Charterhouse, a renowned monastic complex built in the fourteenth century, located in the Tuscany region of...     

Reconciling quantile autoregressions of firm size and variance–size scaling

The aim of this paper is to understand what economic mechanisms may cause the Law of Proportionate Effect to break down for fast-growing and shrinking firms. Recent evidence has highlighted that the first-order coefficients of quantile auto-regression of firm size decline across quantiles. Our theoretical results show that negative variance–size scaling is sufficient to yield a decline in quantile auto-regression coefficients if firm log-size is Laplace-distributed, conditional on size one period ahead. However, it is sufficient only for declining auto-regression coefficients for fast-growing firms under Asymmetric Laplace conditional log-size if skewness is decreasing with size. In other words, if the growth of large firms is less dispersed and more left-skewed, size is a disadvantage for the growth of fast-growers, but not necessarily an advantage for fast-decliners. Thus, size-related determinants of negative growth skewness, such as diseconomies of growth, market power, and managerial attention issues, impact on how the LPE is violated. Using data on Dutch manufacturing companies from the Business Register of Enterprises observed between 1994 and 2004, our empirical estimates of quantile regression models confirm the evidence of declining quantile regression coefficients for small–medium firms (20–199 employees) mainly in the right-most quantiles, and for the same subsample, we find that growth rates variance and skewness are decreasing with size. The theoretical propositions of the paper are thus corroborated.     

Sectoral co-movements of employment growth at regional level

This paper presents a comprehensive study of sectoral co-movements of employment growth in the entire Dutch economy. We construct different macro typologies according to manufacturing versus services, innovativeness, labour skills and position in the value chain, thus expanding the list of potential logics of sectoral interrelations. Using a vector autoregression model, we assess whether and how growth in a macro-sector, and in a given region, can predict growth in the same or other macro-sectors, in the same or in other regions. Our findings bring to light the inter-regional nature of intersectoral linkages, as well as the existence of complementarities between sectors. Supporting the growth of innovative firms could have positive externality effects, especially in the Knowledge-Intensive Business Services sector which is associated with the growth of the entire economy.     

Non‐Fundamentalness in Structural Econometric Models: A Review

Current economic theory typically assumes that all the macroeconomic variables belonging to a given economy are driven by a small number of structural shocks. As recently argued, apart from negligible cases, the structural shocks can be recovered if the information set contains current and past values of a large, potentially infinite, set of macroeconomic variables. However, the usual practice of estimating small size causal Vector AutoRegressions can be extremely misleading as in many cases such models could fully recover the structural shocks only if future values of the few variables considered were observable. In other words, the structural shocks may be non‐fundamental with respect to the small dimensional vector used in current macroeconomic practice. By reviewing a recent strand of econometric literature, we show that, as a solution, econometricians should enlarge the space of observations, and thus consider models able to handle very large panels of related time series. Among several alternatives, we review dynamic factor models together with their economic interpretation, and we show how non‐fundamentalness is non‐generic in this framework. Finally, using a factor model, we provide new empirical evidence on the effect of technology shocks on labour productivity and hours worked.     

The distribution of household consumption-expenditure budget shares

This paper explores the statistical properties of household consumption-expenditure budget share distributions – defined as the share of household total expenditure spent for purchasing a specific category of commodities – for a large sample of Italian households in the period 1989–2004. We find that household budget share distributions are fairly stable over time for each specific category, but profoundly heterogeneous across commodity categories. We then derive a parametric density that is able to satisfactorily characterize (from a univariate perspective) household budget share distributions and: (i) is consistent with the observed statistical properties of the underlying levels of household consumption-expenditure distributions; (ii) can accommodate the observed across-category heterogeneity in household budget-share distributions. Finally, we taxonomize commodity categories according to the estimated parameters of the proposed density. We show that the resulting classification is consistent with the traditional economic scheme that labels commodities as necessary, luxury or inferior.     

Financial Markets, Development and Economic Growth: Tales of Informational Asymmetries

Abstract.  The development of financial systems is very often characterised by the development of innovative financial contracts which allow a more efficient allocation of resources and a higher level of capital productivity and economic growth. By exploiting the microeconomic theory of the optimal financial contract under asymmetric information, economists have recently managed to shed new light on the well studied issue of the relationship between financial market development and economic growth. This paper reviews the most recent progress of this literature which shows that the amount of information asymmetry in the credit market and the degree of heterogeneity between borrowers (typically firms) and lenders (typically workers or savers) determine the nature of the financial system. Differences in endowments and in the level of information distribution can give rise to very different financial contracts which affect, and in turn are affected, by capital accumulation and growth.     

Equity-worthiness and equity-willingness: Key factors in private equity deals

While access to private equity funds (PEFs) provides a unique opportunity for firms to set up sturdy growth paths, how PEFs select companies is an unknown process to entrepreneurs and business owners. This study aims to offer insights regarding the private equity market to entrepreneurs searching for external capital. We analyzed a novel dataset of 240 pre-deal negotiations between small- and medium-sized Italian companies and a closed-end fund. Results indicate that the successful closing of a deal depends on more than just the target firm's equity-worthiness (i.e., the company's ability to meet the expectations of a private equity investor). In fact, there is another dimension: the target firm's equity-willingness (i.e., the company's motivations to accept an outside equity investor). We summarize the results of our study by building a 2x2 positioning matrix on the basis of the target firm's equity-worthiness and equity-willingness. This matrix enables entrepreneurs to grasp how private equity investors evaluate their firms.     

Financial Development, Financing Choice and Economic Growth

In an overlapping generations economy, households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether a household faces a single or double enforcement problem as a result of its own decision about whether or not to undertake costly information acquisition. The equilibrium choice of contract depends on the state of the economy which, in turn, depends on the contracting regime. Based on this analysis, the paper provides a theory of the joint determination of real and financial development, with the ability to explain both the endogenous emergence of stock markets and the complementarity between debt finance and equity finance.