Strategic fiscal interaction among OECD countries

This paper investigates whether OECD countries compete with each other for mobile factors by using various fiscal (tax-spending) policy instruments. We use a panel dataset of 20 OECD countries over the 1982?C2000 period. Results reveal evidence that international capital inflows (FDI) are affected by fiscal policy at home and abroad. Also, there is evidence that domestic capital tax rates react: (i) positively to changes in capital tax rates in neighboring countries, and (ii) negatively to changes in public investment spending in neighboring countries. In contrast, strategic interdependence over public investment spending decisions is not established.     

Economic vulnerability and economic voting in 14 OECD countries

The economic voting literature shows that good economic performance bolsters the electoral prospects of incumbents. However, disagreement persists as to whether voters in vulnerable economic conditions are more likely to engage in economic voting. It is argued in this article that a crucial factor in explaining individual‐level variation in economic voting is the degree of exposure to economic risks, because risk exposure affects the saliency of the economy in voting decisions. In particular, the focus is on job insecurity and employability as key determinants of economic voting patterns. The article hypothesises that the extent of economic voting is greater in voters who are more vulnerable to unemployment and less employable in case of job loss. Support for these hypotheses is found in a test with a dataset that combines survey data on incumbent support with occupational unemployment rates and other measures of exposure to economic risks.     

Bureaucracy,altruism, and monetary policy

It has recently been argued that the fiscal relationship between the Federal Reserve and the Treasury, by which the Fed keeps a portion of its earnings, imparts an inflationary bias to monetary policy because that relationship gives the Fed an incentive to increase its earnings by increasing the monetary base. This hypothesis is tested within the framework of a Federal Reserve objective function incorporating bureaucratic and social goals, and no evidence is found to support it.     

The interaction of monetary policy and wages

This paper focuses on the interaction of monetary policy and wage formation in economies with strong labor unions. Government and unions are viewed as endogenous utility maximizers and the macroeconomic consequences of their strategic interaction are explored with the aid of some elements of simple game theory. Specifically, it is shown (a) how labor unions adjust wages to prices so as to maximize their utility following changes in monetary policy; (b) how the effectiveness of monetary policy is circumscribed without necessarily being nullified by the utility-maximizing reactions of unions; and (c) how the interplay of government and unions can create a persistent tendency towards inflation and unemployment simultaneously.     

Partisan politics,welfare states,and environmental policy outputs in the OECD countries, 1975–2005

Building on the burgeoning literature on the association between the welfare state and the environmental state, this study empirically examines how the politics of the former has affected the development of the latter. We suggest that the size of the welfare state shapes the calculus of environmental policy costs by partisan governments. A generous welfare state lowers the costs perceived by the left‐wing government, as large redistributive spending allows the government to mitigate the adverse impact of the new environmental policy on its core supporters, industrial workers. A generous welfare state also implies diminished marginal political returns from additional welfare commitment by the left‐wing government, which lowers the opportunity costs of environmental policy expansion. To the contrary, because of lower overall regulatory and taxation pressure, a small welfare state reduces the costs of environmental policy expansion as perceived by a right‐wing government. Our theoretical narrative is supported in a dynamic panel data analysis of environmental policy outputs in 25 Organisation for Economic Co‐operation and Development member states during the period 1975–2005.     

Time-consistent monetary policy under output persistence

This note merges the fact that real activity is persistent with a Barro-Gordon type model of endogenous monetary policy. It shows that persistence crucially affects policy choices. This applies in non-cooperative games with a finite horizon, and in games with an infinite horizon. Always, enforceable inflation announcements move higher when output persistence increases. Policymakers who discount future utility by 10% annually produce about ten times as much inflation under near-hysteresis as in a natural-rate scenario. A change in the policymaker's time preference may affect inflation both ways, depending on present time preference and persistence.     

European monetary policy and the ECB rotation model

This paper analyses the voting power of individual members of the ECB Governing Council and, in particular, that of the Executive Board in the light of recent information published by the ECB. Using the randomization scheme based on the multilinear extension of games, we modify the standard analysis in three ways. First, we include heterogeneous preferences of the Governing Council members. Second, we address the agenda-setting power of the ECB president. Third, we take into account the dynamic decision setting. We show that the rotation model is able to stabilize the position of the core countries of the euro area.     

Social policy in rich and poor countries

Nomination: Does politics matter? A perennial question! by Hans Keman, p.159
Reflections: Politics does indeed matter! by Manfred G. Schmidt, p.164     

Fiscal Rules and the Composition of Government Expenditures in OECD Countries

Since the 1990s many OECD countries have adopted fiscal rules. After the adoption of these rules, the ratio of social transfers to government consumption substantially declined, and it recovered following the global economic crisis. Using a sample of 22 OECD countries, we found a negative effect of fiscal rules on the ratio of social transfers to government consumption. This finding implies that fiscal rules are effective, but not necessarily binding. Our examination reveals that the negative effect of fiscal rules on the social transfers to government consumption ratio is particularly evident in countries with relatively weak legal protection to social rights.     

Social policy in rich and poor countries

European Journal of Political Research - To what extent can the dramatic differences in social policy efforts in rich and poor countries be accounted for by genuinely political explanations? The...     

On the link between fiscal decentralization and public debt in OECD countries

Excessive borrowing by subnational governments is considered to be one of the perils of fiscal decentralization. On the other hand, fiscal decentralization might ensure the fiscal stability of the public sector by constraining Leviathan governments. Since the impact of decentralized government on fiscal outcomes is therefore ambiguous from a theoretical perspective, we explore this question empirically with a panel of 17 OECD countries over the 1975–2001 period. Our findings suggest that expenditure decentralization significantly reduces public indebtedness, whereas tax decentralization and vertical fiscal imbalances are insignificant.     

Unconventional monetary policy spillovers: Evidence from India

Many of the studies on the unconventional monetary policy spillover effects concentrated primarily on the policy announcements of the U.S. Federal Reserve. Using a time series approach, with dummies in the event study framework, this study estimates the monetary policy spillover effects of the unconventional monetary policy announcements of the central banks of four major economic regions: the United States, the United Kingdom, European Central bank, and Japan on the asset prices in India. In addition to that, this study estimates the asymmetry in the responses to positive and negative surprise announcements. The study reveals that unconventional monetary surprises do not have any significant impact on the asset prices in India in a narrow time window.     

The disparate labor market impacts of monetary policy

Employing two widely used approaches to identify the effects of monetary policy, this paper explores the differential impact of policy on the labor market outcomes of teenagers, minorities, out‐of‐school youth, and less‐skilled individuals. Evidence from recursive vector autoregressions and autoregressive distributed lag models that use information on the Federal Reserve's contractionary initiatives indicate that the employment‐population ratio of minorities is more sensitive to contractionary monetary policy than that of whites. The ratio falls primarily because of an increase in unemployment and not because of a decline in labor force participation. Monetary policy appears to have a disproportionate effect on the unemployment rate of teenagers, particularly African American teenagers. Their employment‐population ratios fall because of increased difficulty in obtaining employment. The larger responses are not caused by their higher likelihood of having been employed in industries and occupations that are more sensitive to contractionary monetary policy. © 2004 by the Association for Public Policy Analysis and Management.     

From myth to reality: Globalisation and public spending in OECD countries revisited

The prevailing but not unchallenged 'conventional wisdom' in the literature dealing with the impact of globalisation on public spending is that the effects of increased openness can be compensated through the welfare state. Repeatedly, studies have found little evidence for a 'race to the bottom' in taxation or spending. This research note shows that it is premature to conclude that globalisation has no negative impact on public spending. By extending the period of observation into the 2000s, by looking at changes in openness and spending instead of their levels, and by disentangling the effects of openness in the cross-sectional and over-time dimensions of variation, this article shows that the association between increased openness and spending is clearly negative. Although the contribution of this research note is mainly empirical, some theoretical arguments are presented, emphasising the long-term nature and complexity of policy making in the politics of globalisation.     

Political ideology and vaccination willingness: implications for policy design

Policy Sciences - The COVID-19 pandemic has forced governments to impose major restrictions on individual freedom in order to stop the spread of the virus. With the successful development of a...     

Contesting Europeanisation: Agents,institutions and narratives in British monetary policy

This article investigates how Europeanisation can sometimes generate controversy at the domestic level by exploring British policy towards ERM in the 1980s and 1990s. It argues that existing approaches which point to the occurrence of ‘misfit’ between domestic and European institutions/policies only go part of the way to explaining the contentious nature of this process. Europeanisation was disputed in this instance because it produced competing narratives as the question of fit/misfit (as well as adaptational pressure) was discursively constructed in different ways by different groups with different normative positions. The article concludes by briefly considering the implications of this case study for future theories of Europeanisation.     

The Evolution and Convergence of the Government Expenditure Composition in the OECD Countries

In the light of models of composition ofgovernment expenditure and economic growthand the growing globalization process, weinfer that countries should tend to asimilar structure of government spendingover time. In fact, using Tukey box-plotsand σ-convergence we show evidenceof an approaching process in thecomposition of government expenditures inOECD countries for the period 1970–1997. Wealso identify by means of cluster analysisthat most countries are converging towardstwo different models: one including twelveEuropean and non-European countries and theother composed solely of eight countries ofthe European Union.     

Stagflationary bias and the interaction of monetary policy and wages in a unionized economy

Economics Research Centre, School of Economic and Social Studies, University of East Anglia, Norwich NR4 7TJ, U.K. The paper investigates the claim of Gylfason and Lindbeck (Public Choice, 1994) that a stagflationary bias arises from the interaction between monetary policymaking and wagesetting if, among other things, the government and unions share a concern for inflation. It uses a game theoretic model of this interaction, in which the government plays an economy-wide union. Though simple, this nests several other models as special cases. In that corresponding to Gylfason and Lindbeck's model, the factors which they identify are shown to be sufficient for stagflationary bias, in a specified sense. However, for the union to care about inflation is not a necessary condition. The main result of the paper concerns the more general model. It establishes a set of necessary and sufficient conditions for stagflationary bias, as previously defined. These conditions do not include a shared concern for inflation. The paper comments briefly on the significance of this result for stagflation and economic modelling.