A supply-demand model of public sector size

We develop a supply-demand model for the public sector with a political equilibrium. The model considers the inefficiencies caused by taxes and includes costs associated with the provision of public goods to consumers. We show that the size of the public sector may depend on the median voter's income, population size, costs associated with paying tax, and quality of institutions, all of which reflect the costs of provisioning public goods. The estimates for the Organisation for Economic Co-operation and Development member countries are compatible with theoretical predictions; however, they do not confirm Wagner's law, which holds that the public sector share does not grow with an increase in income. A greater dependency ratio and the Gini coefficient increase demand for redistribution policies. Greater government effectiveness is a supply-side factor that increases the public sector's share in an economy.     

Population ageing and inflation with endogenous money creation

This paper models a mechanism through which population ageing may induce a deflationary process. We propose an overlapping-generations model (OLG) with money created by credits (inside money) and intergenerational trade. The model links demographic factors, such as fertility rates and longevity, to prices. We show that lower fertility rates lead to smaller demand for credit and lower money creation, which in turn cause a decline in prices. Changes in longevity affect prices through real savings and the capital market. Furthermore, a few links between interest rates and inflation are addressed; they arise in the general equilibrium and are not thoroughly discussed in literature. Long-run results are derived analytically; short-run dynamics are simulated numerically.     

Pension reform with migration and mobile capital: is a Pareto improvement possible?

This paper shows that in a two-country two-overlapping-generations model with migration, capital mobility and an immobile production factor (land), a locally welfare-improving pension reform at the cost of the neighboring country is possible if land plays a minor role in production. Furthermore, differences in the size of the PAYG pension schemes between the countries distort the international allocation of labour and capital. As a result, a Pareto-improving pension reform is possible if countries employ PAYG pension schemes of different size, provided that a federal government exists that redistributes benefits and losses of the reform both intergenerationally and internationally.     

Corporate labour share of income and the shadow economy: a cross-country analysis

This article addresses a link between the size of the shadow economy and the corporate labour share of income in the European Union. Fixed individual and time effects models suggest that there is a negative link between these two indicators. The coefficients are statistically significant if we control for other variables related to labour markets, such as unemployment rates or strictness of employment protection (regular contracts). Depending on the exact model specification, our estimates suggest that an increase in the shadow economy by 1% of GDP results in a 0.5–1% decline in the labour share of income in the corporate sector.     

The effects of public expenditures on labour productivity in Europe

Empirica - In this paper, we analyse the effects of public expenditures and their structure on productivity growth in industry and services in the European Union (EU) countries (1996–2017)....     

Pension Reform,Factor Mobility and Trade with Country-Specific Goods

This paper studies the effects of pension reform in a two-country model with country-specific goods. It shows that in the case of dynamic efficiency, a switch from a pay-as-you-go to a more-funded pension scheme leads to an inflow of labour to the reforming country. Reallocation of capital depends on the degree of substitutability between goods produced in the countries. If the goods produced in the countries are substitutes (complements), capital stock grows (declines) in the reformed country relative to the neighbouring country. Social security reform makes goods produced in the reformed country cheaper; this has an additional negative effect on the old generation in the reformed country, but compensates the old generation in the neighbouring country with cheaper imports due to a reduction in the tax base arising from emigration.     

Demographic Change,International Trade and Capital Flows

Trade in goods that are not perfect substitutes can considerably change the predictions of standard neoclassical models about the effects of demographic developments. This paper considers a relative decrease in the population size of one country, when countries specialize in the production of different intermediate goods. The degree of substitutability is crucial for the direction of capital flows between the countries and for the development of wages. The less those goods are substitutes, the stronger the long-run international spillover effects of a demographic shock will be. For the interest rate effects, also international differences in saving rates due to e.g., different pension schemes have to be taken into account.     

Crisis and Pension System Design in the EU: International Spillover Effects Via Factor Mobility and Trade

Many European Union states have adjusted pension benefits or reformed the pension system in reaction to the recent economic crisis, while other member states have postponed this type of adjustments. In this paper we study to what extent countries that responded quickly to the crisis are harmed by the lingering in other member states via international spillover effects caused by factor mobility and trade. We show that this depends crucially on the degree of labour mobility in the short run. In fact, countries with more flexible pensions can benefit from the inflexibility of pensions in other countries if they can temporarily limit immigration.