Most recent papers:

• The Inherited Inequality: How Demographic Aging and Pension Reforms can Change the Intergenerational Transmission of Wealth.
  Justina Klimaviciute, Harun Onder, Pierre Pestieau.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e872-e891, November 2019. ", "\nAbstract\nThe role of inherited wealth in modern economies has increasingly come under scrutiny. This study presents one of the first attempts to shed light on how demographic aging could shape this role. It shows that, in the absence of retirement annuities, or for a given level of annuitization, both increasing longevity and decreasing fertility should reduce the inherited share of total wealth in a given economy. Thus, aging is not likely to explain a recent surge in this share in some advanced economies. Shrinking retirement annuities, however, could offset and potentially reverse these effects. The paper also shows that individual bequests will be more unequally distributed if aging is driven by a drop in fertility. In comparison, the effect of increasing longevity on their distribution is non‐monotonic.\n"]

  October 23, 2019   doi: 10.1111/geer.12193   open full text
• Codetermination, Price Competition and the Network Industry.
  Luciano Fanti, Luca Gori.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e795-e830, November 2019. ", "\nAbstract\nThis research develops a tractable two‐stage non‐cooperative game with complete information describing the behaviour of price‐setting firms that must choose to be profit maximisers or bargainers under codetermination in a network industry with horizontal product differentiation. The existing theoretical literature has already shown that codetermination might arise as the endogenous market outcome in a strategic competitive quantity‐setting duopoly. In sharp contrast with this result, the present article shows that codetermination does never emerge as a Nash equilibrium in a price‐setting non‐network duopoly. Then, it aims at highlighting the role of network externalities in determining changes of paradigm of the game and letting codetermination become a sub‐game perfect Nash equilibrium when prices are strategic substitutes or strategic complements. This equilibrium may be Pareto efficient. Results allow distinguishing between mandatory codetermination and voluntary codetermination. The article also proposes a model of endogenous codetermination according to which every firm may choose to bargain with its own corresponding union bargaining unit only whether the firm's bargaining strength is exactly the profit‐maximising one. The equilibrium outcomes emerging in this case range from a uniform Nash equilibrium, in which both firms are codetermined, to mixed Nash equilibria, in which only one of them chooses to be codetermined. These results are ‘network depending’ and do not hold in a non‐network duopoly.\n"]

  October 23, 2019   doi: 10.1111/geer.12190   open full text
• A Synthetic Control Assessment of the Green Paradox: The Role of Climate Action Plans.
  Arne Steinkraus.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e545-e570, November 2019. ", "\nAbstract\nThis paper extends the green paradox literature by providing empirical insights into its existence. To check the green paradox theory, I analyse the production of coal in four major coal‐producing US states that announced a greenhouse gas action plan. To form a statement on whether there is a treatment effect caused by the green policy, I employ Synthetic Control Methods to calculate counterfactual coal production trajectories. I find that Montana experienced a high and statistically significant increase in coal production that is supported by a set of validity indicators. However, there is no evidence for a paradox in Kentucky, Pennsylvania and Virginia.\n"]

  October 23, 2019   doi: 10.1111/geer.12176   open full text
• The Productivity Effects of Worker Mobility Between Heterogeneous Firms.
  Bastian Stockinger, Katja Wolf.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e492-e522, November 2019. ", "\nAbstract\nWe analyze the effect of worker inflows on establishments’ productivity, using German data. Previous studies for other countries have found positive effects of hiring workers from superior (more productive or higher paying) firms. Ranking establishments by their median wage, we find that inflows from inferior establishments seem to increase hiring establishments’ productivity. Further empirical analyses suggest our findings are due to a positive selection of such inflows from their sending establishments. These workers might have to find a better job match in order to advance their careers, an interpretation supported by the finding that the effect is driven by workers with short tenure at their previous employer. Our findings reflect the increasingly assortative pattern of worker mobility in Germany found in a related strand of literature.\n"]

  October 23, 2019   doi: 10.1111/geer.12175   open full text
• Predatory Short Sales and Bailouts.
  Sebastian Kranz, Gunter Löffler, Peter N. Posch.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e469-e491, November 2019. ", "\nAbstract\nThis paper extends the literature on predatory short selling and bailouts through a joint analysis of the two. We consider a model with informed short sales, as well as uninformed predatory short sales, which can trigger the inefficient liquidation of a firm. We obtain several novel results: A government commitment to bail out insolvent firms with positive probability can increase welfare because it selectively deters predatory short selling without hampering desirable informed short sales. Contrasting a common view, bailouts can be optimal ex ante but undesirable ex post. Furthermore, bailouts in our model are a better policy tool than short selling restrictions. Welfare gains from the bailout policy are unevenly distributed: shareholders gain while taxpayers lose. Bailout taxes allow ex ante Pareto improvements.\n"]

  October 23, 2019   doi: 10.1111/geer.12173   open full text
• Tax Composition and Growth: A Broad Cross‐country Perspective.
  Santiago Acosta‐Ormaechea, Sergio Sola, Jiae Yoo.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e70-e106, November 2019. ", "\nAbstract\n\nWe investigate how changes in the composition of tax revenue affect long‐run growth in a broad cross‐section of countries. To do this, we construct a new dataset that covers 70 countries (23 high‐, 23 middle‐ and 24 low‐income countries), with at least 20 years of observations during the period 1970–2009. In the context of revenue‐neutral reallocations, we find that increasing consumption and property taxes while reducing income taxes boosts long‐term growth. Among income taxes, we find that social security contributions and personal income taxes tend to have a stronger negative association with growth relative to corporate income taxes. Results, however, depend on countries' development levels, suggesting nonlinearities in the relation between taxes and growth even after controlling for convergence effects. Although results are robust for high‐ and middle‐income countries, these are generally not significant for low‐income countries.\n\n"]

  October 23, 2019   doi: 10.1111/geer.12156   open full text
• Why Did Income Inequality in Germany Not Increase Further After 2005?
  Martin Biewen, Martin Ungerer, Max Löffler.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page 471-504, November 2019. ", "\nAbstract\nWhile income inequality in Germany considerably increased in the years before 2005, this trend stopped after 2005. We address the question of what factors were responsible for the break in the inequality trend after 2005. Our analysis suggests that income inequality in Germany did not continue to rise after 2005 for the following reasons. First, we observe that the general rise in wage inequality that explained a lot of the inequality increase before 2005, became less steep (but did not stop) after 2005. Second, despite further increases in wage inequality after 2005, inequality in annual labour incomes did not increase further after 2005 because increased within‐year employment opportunities compensated otherwise rising inequality in annual labour incomes. Third, income inequality did not fall in a more marked way after 2005 because also the middle and the upper part of the distribution benefited from the employment boom after 2006. Finally, we provide evidence that the effect of a wide range of other factors that are often suspected to have influenced the distribution such as capital incomes, household structures, population ageing, changes in the tax and transfer system and the financial crisis of 2008 did not significantly alter the distribution after 2005.\n"]

  October 23, 2019   doi: 10.1111/geer.12153   open full text
• Where Does the Good Shepherd Go? Civic Virtue and Sorting into Public Sector Employment.
  Adam Ayaita, Filiz Gülal, Philip Yang.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e571-e599, November 2019. ", "\nAbstract\nSeveral studies have analyzed motives to work in the public versus private sector. However, research on prosocial motivation in the context of public sector employment has largely neglected civic virtue, the motive to contribute to society. This study considers civic virtue in addition to other possible motives, using a representative, longitudinal dataset of employees in Germany including 63,180 observations of 13,683 different individuals. We find that civic virtue relates positively to public sector employment beyond altruism, risk aversion, laziness and (low) financial motivation. The result holds within different branches and is explained by sorting into the sector.\n"]

  October 23, 2019   doi: 10.1111/geer.12180   open full text
• Interregional Migration of Human Capital and Unemployment Dynamics: Evidence from Italian Provinces.
  Roberto Basile, Alessandro Girardi, Marianna Mantuano, Giuseppe Russo.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e385-e414, November 2019. ", "\nAbstract\nSince the mid‐1990s interregional migration flows in Italy have dramatically increased, especially from the South to the North. These flows are characterized by a strong component of human capital, involving a large number of workers with secondary and tertiary education. Using longitudinal data for the period 2002–2011 at NUTS‐3 territorial level, we document that long‐distance (i.e., South‐North) net migration of high‐skill workers has increased the unemployment at origin and decreased it at destination, thus deepening North–South unemployment disparities. On the other hand, long‐distance net migration of low‐skill workers has had the opposite effect, by lowering the unemployment at origin and raising it at destination. Further evidence also suggests that the diverging effect of high‐skill migration dominates the converging effect of low‐skill migration. Thus, concerns for an ‘internal brain drain’ from Southern regions look not groundless.\n"]

  October 23, 2019   doi: 10.1111/geer.12172   open full text
• New Evidence on the Effects of the Shortened School Duration in the German States: An Evaluation of Post‐secondary Education Decisions.
  Tobias Meyer, Stephan L. Thomsen, Heidrun Schneider.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e201-e253, November 2019. ", "\nAbstract\nMost German states have recently reduced the duration of university preparatory schooling from 13 to 12 years without changing the graduation requirements. We use nationwide data on high school graduates and the different timing of reform introduction in the federal states to identify the effects on post‐secondary education decisions and to evaluate potential effect mechanisms. The results show that university enrolment of female students decreased in the first year after graduation in all analyzed states, whereas participation in voluntary service or staying abroad increased. Furthermore, students from non‐academic families are more affected than students from an academic family background.\n"]

  October 23, 2019   doi: 10.1111/geer.12162   open full text
• Should Forecasters Use Real‐Time Data to Evaluate Leading Indicator Models for GDP Prediction? German Evidence.
  Katja Heinisch, Rolf Scheufele.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e170-e200, November 2019. ", "\nAbstract\nIn this paper, we investigate whether differences exist among forecasts using real‐time or latest‐available data to predict gross domestic product (GDP). We employ mixed‐frequency models and real‐time data to reassess the role of surveys and financial data relative to industrial production and orders in Germany. Although we find evidence that forecast characteristics based on real‐time and final data releases differ, we also observe minimal impacts on the relative forecasting performance of indicator models. However, when obtaining the optimal combination of soft and hard data, the use of final release data may understate the role of survey information.\n"]

  October 23, 2019   doi: 10.1111/geer.12163   open full text
• Is There a Glass Ceiling over Germany?
  Matthias Collischon.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e329-e359, November 2019. ", "\nAbstract\nThis paper analyzes the gender wage gap across the wage distribution using 2010 data from the German Statistical Agency. I investigate East and West Germany and the public sector separately to account for potential heterogeneities in wage gaps. I apply unconditional and conditional quantile regression methods to investigate the differences between highly paid men and women in distributions conditional and unconditional on covariates. The results indicate increasing gender wage gaps in all estimations, suggesting that there is indeed a glass ceiling over Germany even after controlling for a large set of observable characteristics (including occupation and industry). This finding is even more pronounced when also taking bonus payments into account.\n"]

  October 23, 2019   doi: 10.1111/geer.12168   open full text
• Thoughts on a Fiscal Union in EMU.
  Niklas Gadatsch, Josef Hollmayr, Nikolai Stähler.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e360-e384, November 2019. ", "\nAbstract\nUsing an estimated large‐scale New Keynesian model, we assess the consequences of introducing a fiscal union within EMU. We differentiate between three different scenarios: public revenue equalisation, tax harmonisation and a centralised fiscal authority. Our results indicate that no country would significantly benefit from introducing any form of fiscal union. Comparing long‐term, that is, steady state, effects we have winners and losers depending on the scenario. Differences in terms of business cycle statistics as well as in terms of risk sharing of asymmetric shocks are minor. This also explains why welfare differences are small across the fiscal union scenarios. A counterfactual exercise indicates that with a fiscal union regime already installed at the start of EMU, key macroeconomic variables would have reacted very similarly while debt dynamics would have changed notably.\n"]

  October 23, 2019   doi: 10.1111/geer.12169   open full text
• Analyzing the Efficiency of County Road Production – Evidence from Eastern German Counties.
  Carolin Fritzsche.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e415-e435, November 2019. ", "\nAbstract\nThis study analyzes the efficiency of the road production by local governments using data envelopment analysis. The production of roads is a costly public service, which makes an efficiency analysis in this field an interesting subject. I enhance the previous literature, first, by examining the differences in the efficiencies of eastern German counties while considering the deformation of the pavement and foundation of roads, which previous studies have not included due to data limitations. Second, I use a unique dataset on road quality for my efficiency analysis and show that the efficiency levels differ from those in studies that apply proxies, such as the number of accidents, to capture the quality of roads. These findings indicate that there is a great need to develop reliable variables to describe government services. Additionally, I show that the correlations between efficiency levels and county characteristics vary greatly depending on the quality indicator used.\n"]

  October 23, 2019   doi: 10.1111/geer.12170   open full text
• Coaching, Counseling, Case‐Working: Do They Help the Older Unemployed Out of Benefit Receipt and Back Into the Labor Market?
  Bernhard Boockmann, Tobias Brändle.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e436-e468, November 2019. ", "\nAbstract\nIntensified counseling, job search assistance and related policies have been found to be effective for labor market integration of the unemployed by a large number of studies, but the evidence for older and hard‐to‐place unemployed is more mixed. In this paper, we present key results for a large‐scale active labor market program directed at the older unemployed in Germany. To identify the treatment effects, we exploit regional variation in program participation. We use a combination of different evaluation estimators to check the sensitivity of the results to selection, substitution and local labor market effects. We find positive effects of the program in the range of 5–10 percentage points on integration into unsubsidized employment. However, there are also substantial lock‐in effects, such that program participants have a higher probability of remaining on public welfare benefit receipt for up to 1 year after commencing the program.\n"]

  October 23, 2019   doi: 10.1111/geer.12174   open full text
• Goal Setting, Information, and Goal Revision: A Field Experiment.
  Max van Lent.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e949-e972, November 2019. ", "\nAbstract\nPeople typically set goals in settings where they cannot be sure of how they will perform, but where their performance is revealed to them in parts over time. When part of the uncertainty is resolved, initial goals may have turned out to be unrealistic and hence they no longer work as a motivation device. Revising goals may increase performance by making goals realistic, but may also adversely affect performance through reduced goal commitment. We study the effects of motivating university students to set goals and inviting them to revise their goals later, using a field experiment involving nearly 2,100 students. We use courses containing two midterms and a final exam, where midterms reduce uncertainty about students’ potential performance. We find that motivating students to set goals does not affect performance on average. Students with midterm grades lower than their goal, decrease their performance. This effect is driven by students who were motivated to set goals without being made aware that they can revise their goals later. This finding may help explain why the evidence of the effectiveness of goals on study performance is mixed.\n"]

  October 23, 2019   doi: 10.1111/geer.12199   open full text
• Wage Performance of Immigrants in Germany.
  Robert C. M. Beyer.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e141-e169, November 2019. ", "\nAbstract\nThis paper updates and deepens our understanding of the wage performance of immigrants in Germany. Using the German Socio‐Economic Panel, it documents that immigrant workers initially earn on average 20% less than native workers with otherwise identical characteristics. The gap is smaller for immigrants from advanced countries, with good German language skills, and with a German degree, and larger for others. The gap declines gradually over time but at a decreasing rate and much faster for more recent cohorts. Less success in obtaining jobs with higher occupational autonomy explains half of the wage gap.\n"]

  October 23, 2019   doi: 10.1111/geer.12159   open full text
• Epstein–Zin Utility, Asset Prices, and the Business Cycle Revisited.
  Christopher Heiberger, Halvor Ruf.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e730-e758, November 2019. ", "\nAbstract\nThis paper discusses the advantages of Epstein and Zin (1989) (EZ) preferences when building dynamic stochastic general equilibrium (DSGE) models that are consistent with well‐known stylized facts of both the business cycle and asset markets. To this end, we combine EZ preferences with several building blocks from the DSGE literature that has tried to solve the equity premium puzzle and to replicate characteristic statistics of the labor market. Our goal is to guide researchers in this area to useful modeling devices and to discuss EZ preferences vis‐a‐vis the standard time‐additive expected utility function. EZ preferences separate the attitude toward risk from the attitude toward intertemporal substitution. We demonstrate that this additional degree of freedom allows us to closely match the empirical facts already in a frictionless production economy with endogenous labor supply. Our study follows Heer and Maußner (2013). We examine models that consider adjustment costs of capital accumulation, consumption habits, and frictions in the allocation of labor. Our empirical targets are estimated from German data.\n"]

  October 23, 2019   doi: 10.1111/geer.12186   open full text
• In Search of an Appropriate Lower Bound. The Zero Lower Bound vs. the Positive Lower Bound under Discretion and Commitment.
  Piotr Ciżkowicz, Andrzej Rzońca, Andrzej Torój.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e1028-e1053, November 2019. ", "\nAbstract\nUsing a standard New Keynesian model, we show that moderate side effects of zero lower bound (ZLB) policy suffice for positive lower bound (PLB) policy to pay off in terms of welfare, especially when central banks fail to commit. For given side effects of the ZLB, as the shock that makes the ZLB bind becomes larger and more persistent, the dominance of PLB policy over ZLB policy becomes more likely. The findings hold for flexible and rigid economies with both fast and slow potential output growth and low and high inflation targets.\n"]

  October 23, 2019   doi: 10.1111/geer.12203   open full text
• Sharing the Burden? Empirical Evidence on Corporate Tax Incidence.
  Nadja Dwenger, Pia Rattenhuber, Viktor Steiner.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e107-e140, November 2019. ", "\nAbstract\nThis study investigates the direct incidence of the corporate income tax (CIT) through wage bargaining, using an industry‐region level panel dataset on all corporations in Germany over the period 1998–2006. For the first time we account for employment effects which result from tax‐induced wage changes. Workers share in reductions of the CIT burden; yet, the net effect of wage bargaining on the corporate wage bill, after an exogenous €1 decrease in the CIT burden, is as little as 19–28 cents. This is about half of the effect obtained in prior literature focussing on wages alone.\n"]

  October 23, 2019   doi: 10.1111/geer.12157   open full text
• Let the Data Speak? On the Importance of Theory‐Based Instrumental Variable Estimations.
  Volker Grossmann, Aderonke Osikominu.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e831-e851, November 2019. ", "\nAbstract\nIn absence of randomized‐controlled experiments, identification is often aimed via instrumental variable (IV) strategies, typically two‐stage least squares estimations. According to Bayes’ rule, however, under a low ex ante probability that a hypothesis is true (e.g. that an excluded instrument is partially correlated with an endogenous regressor), the interpretation of the estimation results may be fundamentally flawed. This paper argues that rigorous theoretical reasoning is key to design credible identification strategies, the foremost, finding candidates for valid instruments. We discuss prominent IV analyses from the macro‐development literature to illustrate the potential benefit of structurally derived IV approaches.\n"]

  October 23, 2019   doi: 10.1111/geer.12192   open full text
• Regional Impact of the German Rent Brake.
  Lorenz Thomschke.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e892-e912, November 2019. ", "\nAbstract\nNew rental contracts have risen dramatically in many German places in recent years due to strong influxes and sluggish construction activity. The rent brake should put a stop to this development so that housing in prospering cities remains affordable for people on normal and low incomes. Although initial successes were attested to the rent brake, empirical findings are increasing, according to which the rent brake is not having the desired effect. This also applies to the findings determined here: the results of a difference‐in‐difference estimation show that the rent brake has reduced rents on offer in Hamburg, Berlin and Munich by up to 5%, while no effects are observed in Cologne and Düsseldorf. Nevertheless, the effects are lagging behind the expected effects almost everywhere. The results illustrate once again an implementation deficit and show that no general statements on the effectiveness of the rent brake are currently permissible. However, the rent brake is certainly having a price effect in some regions, even if not to the intended extent.\n"]

  October 23, 2019   doi: 10.1111/geer.12195   open full text
• Structural Changes in the Labor Market and the Rise of Early Retirement in France and Germany.
  Anna Batyra, David de la Croix, Olivier Pierrard, Henri R. Sneessens.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e38-e69, November 2019. ", "\nAbstract\nThe rise of early retirement in Europe is typically attributed to the European system of taxes and transfers. A model with an imperfectly competitive labor market allows us to consider also the effects of bargaining power and of matching efficiency on pre‐retirement. We find that lower bargaining power of workers and declining matching efficiency have been important determinants of early retirement in France and Germany. These structural changes, combined with early retirement transfers and population aging, are also consistent with the employment and unemployment rates, labor share and seniority premia.\n"]

  October 23, 2019   doi: 10.1111/geer.12150   open full text
• Accounting for Sustainable Development over the Long‐Run: Lessons from Germany.
  Matthias Blum, Eoin McLaughlin, Nick Hanley.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page 410-446, November 2019. ", "\nAbstract\nWe construct long‐run sustainability indicators based on changes in Comprehensive Wealth – which we refer to as Genuine Savings (GS) – for Germany over the period 1850–2000. We find that German sustainability indicators are positive for the most part, although they are negative during and after the two World Wars and also the Great Depression. We also test the relationship between these wealth changes and a number of measures of well‐being over the long‐run: changes in consumption as well as changes in average height and infant mortality rates. We find a positive relationship between GS and our well‐being indicators over different time horizons, however, the relationship breaks down during WWII. We also test if the GS/Comprehensive Wealth framework is able to cope with massive disinvestment at the end of the Second World War due to war‐related destructions and dismantlement. We find that negative rates of GS were by and large avoided due to the accumulation of technology and growth‐friendly institutions. We demonstrate the importance of broader measures of capital, including measures of technological progress, and its role in the process of economic development; and the limits of conventional measures of investment to understand why future German consumption did not collapse.\n"]

  October 23, 2019   doi: 10.1111/geer.12148   open full text
• Conservative Politicians and Voting on Same‐sex Marriage.
  Björn Kauder, Niklas Potrafke.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e600-e617, November 2019. ", "\nAbstract\nWe examine whether conservative politicians are less likely to support same‐sex marriage when they run for office in safe rather than in contested districts using new data based on a roll‐call vote in the national German parliament. The results show that the margin of the majority for the incumbent in the previous election was a strong predictor for supporting same‐sex marriage. When the majority increased by a 1 percentage point, the likelihood of voting in favour of same‐sex marriage decreased by around 1.3 percentage points. We conjecture that politicians are election‐motivated – even when submitting roll‐call votes on a matter of conscience.\n"]

  October 23, 2019   doi: 10.1111/geer.12183   open full text
• Competing for Good Immigrants.
  Zaruhi Sahakyan.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e852-e871, November 2019. ", "\nAbstract\nI analyze the competition among different countries for ‘desirable’ and ‘undesirable’ potential immigrants, using both an immigration quota and a level of (imperfect) ‘scrutiny’ that would‐be immigrants face. Scrutiny imposes costs on immigrants and therefore makes it less attractive to immigrate. The number of applying undesirable immigrants increases in immigration quota and decreases in the level of scrutiny. In contrast, the number of desirable applicants can go in either direction as scrutiny increases and is independent of the immigration quota, because an increase in the immigration quota is completely crowded out by more applications by undesirable immigrants.\n"]

  October 23, 2019   doi: 10.1111/geer.12194   open full text
• Optimal Social Insurance and Health Inequality.
  Volker Grossmann, Holger Strulik.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e913-e948, November 2019. ", "\nAbstract\nThis paper integrates into public economics a biologically founded, stochastic process of individual aging. The novel approach enables us to quantitatively characterize the optimal joint design of health and retirement policy behind the veil of ignorance for today and in response to future medical progress. Calibrating our model to Germany, our analysis suggests that the current social insurance policy instruments are set close to the (constrained) socially optimal levels, given proportional contribution rates for health and pension finance, the equivalence principle in the pension system, and a common statutory retirement age. Future progress in medical technology calls for a potentially drastic increase in health spending and a higher retirement age without lowering the pension contribution rate. Interestingly, from an ex ante point of view, medical progress and higher health spending are in conflict with the goal to reduce health inequality.\n"]

  October 23, 2019   doi: 10.1111/geer.12198   open full text
• Output Growth Decomposition in the Presence of Input Quality Effects: A Stochastic Frontier Approach.
  Yasmina Rim Limam, Stephen M. Miller, Giampaolo Garzarelli.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page 383-409, November 2019. ", "\nAbstract\nHow do physical capital accumulation and total factor productivity (TFP) individually add to economic growth? We approach this question from the perspective of the quality of physical capital and labor, namely the age of physical capital and human capital. We build a unique dataset by explicitly calculating the age of physical capital for each country and each year of our time frame and estimate a stochastic frontier production function incorporating input quality in five regions of countries (Africa, East Asia, Latin America, South Asia and West). Physical capital accumulation generally proves much more important than either the improved quality of factors or TFP growth in explaining output growth. The age of capital decreases growth in all regions except in Africa, while human capital increases growth in all regions except in East Asia.\n"]

  October 23, 2019   doi: 10.1111/geer.12147   open full text
• Public Preferences for Government Spending Priorities: Survey Evidence from Germany.
  Bernd Hayo, Florian Neumeier.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e1-e37, November 2019. ", "\nAbstract\nEmploying data from a representative survey conducted in Germany, this paper examines public preferences for the size and composition of government expenditure. We focus on public attitudes towards taxes, public debt incurrence and public spending in six different policy areas. Our findings suggest, first, that individual preferences for the use of additional tax money can be categorised as either capital‐oriented expenditure or public debt reduction. Second, we find that fiscal preferences differ along various dimensions. Specifically, personal economic well‐being, economic literacy, confidence in politicians, political ideology and time preference are significantly related to individual attitudes towards public spending, taxes and debt. The magnitude of the effects is particularly large for time preference, economic knowledge and party preference. Third, public preferences for public spending priorities are only marginally affected when considering a public budget constraint.\n"]

  October 23, 2019   doi: 10.1111/geer.12149   open full text
• Worker Personality: Another Skill Bias beyond Education in the Digital Age.
  Eckhardt Bode, Stephan Brunow, Ingrid Ott, Alina Sorgner.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e254-e294, November 2019. ", "\nAbstract\nWe present empirical evidence suggesting that technological progress in the digital age will be biased not only with respect to skills acquired through education but additionally with respect to non‐cognitive skills (personality). We measure the direction of technological change by estimated future digitalization probabilities of occupations, and non‐cognitive skills by the Big Five personality traits from four German worker surveys. Even though we control for education and work experience, we find that workers who are more open to experience, emotionally more stable and less agreeable will tend to be less susceptible to digitalization. We also find that future technological progress may not continue to hollow out the middle class as much as it did in the recent past. These results suggest that education and labor market policies should put more emphasis on children's and workers’ personalities to strengthen their labor market resilience in the digital age.\n"]

  October 23, 2019   doi: 10.1111/geer.12165   open full text
• Changes in Occupational Tasks and Their Association with Individual Wages and Occupational Mobility.
  Alexandra Fedorets.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e295-e328, November 2019. ", "\nAbstract\nThis study provides novel evidence on the relevance of task content changes between and within occupations to wage dynamics of occupational changers and stayers. I use individual‐level, cross‐sectional data featuring tasks performed on the job to compute a measure of proximity of job contents. Then, I merge this measure to a large‐scale panel survey to show that occupational changers experience a wage growth that is declining when the accompanying alterations in task contents are big. For occupational stayers, alterations in task contents generate a positive wage component, beyond tenure effect. However, the results are not robust with respect to the choice of proximity measure and over time.\n"]

  October 23, 2019   doi: 10.1111/geer.12166   open full text
• Cyber Technology and the Arms Race.
  Vesa Kanniainen.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e523-e544, November 2019. ", "\nAbstract\nCyber technology represents digital military capability with the purpose of causing damage to the military strength of a potential enemy. War using conventional weapons may be preceded by a strike using cyber technology. This paper introduces such technology into the theory of conflicts. The cost of war relative to the payoff from victory turns out to be crucial for the results on armament decisions. In the war game, two types of Nash equilibria may arise. One is subject to warfare while the other is not (‘equilibrium of terror’), depending on the perceived cost of war. In a symmetric war game, cyber capabilities are neutral with respect to the investments in conventional weapons, but they make wars more likely. Asymmetric access to cyber technology limits the international arms race with conventional weapons. A low success probability in the cyber programme encourages exercising the cyberattack option as the enemy may not have access to cyber capability. Uncertainty of the success of a cyber programme makes countries cautious when allocating resources not only to these programmes but also in conventional armament.\n"]

  October 23, 2019   doi: 10.1111/geer.12181   open full text
• Elementary Index Bias: Evidence for the Euro Area from a Large Scanner Dataset.
  Enikő Gábor‐Tóth, Philip Vermeulen.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e618-e656, November 2019. ", "\nAbstract\nWe provide evidence on the effect of elementary index choice on inflation measurement in the euro area. Using scanner data for 15,844 individual items from 42 product categories and 10 euro area countries, we compute product category level elementary price indexes using eight different elementary index formulas. Measured inflation outcomes of the different index formulas are compared with the Fisher ideal index to quantify elementary index bias. We have three main findings. First, elementary index bias is quite variable across product categories, countries and index formulas. Second, a comparison of elementary index formulas with and without expenditure weights shows that a shift from price only indexes to expenditure weighted indexes would entail at the product level multiple percentage points differences in measured price changes. And finally, we show that elementary index bias is quantitatively more important than upper level substitution bias.\n"]

  October 23, 2019   doi: 10.1111/geer.12182   open full text
• A Novel Housing Price Misalignment Indicator for Germany.
  Markus Hertrich.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e759-e794, November 2019. ", "\nAbstract\nFrom 2014 until present, housing prices in Germany have been rising faster than consumer prices in all quarters except one, raising concerns about an excessive overheating of the housing market. To assess the vulnerability of the German housing market to a future realignment of prices or even a housing bust, this paper develops a housing price misalignment indicator that is composed of seven indicators, which are commonly associated with the fundamental value of residential property. An empirical application to the most recent data suggests that the German housing market exhibits an overvaluation of approximately 11%, where interest rate risk and a relatively advanced stage of the housing cycle are identified as the main factors fueling these imbalances, while a rather solid debt‐servicing capacity mitigates these imbalances since end‐2009.\n"]

  October 23, 2019   doi: 10.1111/geer.12185   open full text
• Management Practices and Productivity in Germany.
  Sandra Broszeit, Marie‐Christine Laible, Ursula Fritsch, Holger Görg.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e657-e705, November 2019. ", "\nAbstract\nBased on a novel dataset, the ‘German Management and Organizational Practices’ (GMOP) Survey, we calculate establishment‐specific management scores following Bloom and van Reenen as indicators of management quality. We find substantial heterogeneity in management practices across establishments in Germany, with small establishments having lower scores than large establishments on average. We show a robust positive and economically important association between the management score and establishment level productivity in Germany. This association increases with establishment size. Comparison to a similar survey in the United States indicates that the average management score is lower in Germany than in the United States. Overall, our results point toward lower management quality being at least in part to blame for the differences in aggregate productivity between Germany and the United States.\n"]

  October 23, 2019   doi: 10.1111/geer.12187   open full text
• Take Your Time to Grow: A Field Experiment on the Hiring of Youths.
  Dorothea Kübler, Julia Schmid, Robert Stüber.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e706-e729, November 2019. ", "\nAbstract\nWe investigate the effect of spells of no formal employment of young Germans on their chances of entering the labor market through an apprenticeship. We also study whether the potential negative effects of such spells can be mitigated by publicly provided training measures. In a field experiment, the fictitious applications of three young women were sent to firms advertising apprenticeships for the position of office manager. One application was from a fresh school‐leaver and two from applicants who had been out of school for two years, where one of them had participated in a training measure. We find that applicants who have been out of school for two years and have participated in the training are more successful than older applicants without additional training. We do not find a significant difference between older applicants with or without training and fresh school leavers. Our findings show that training measures increase the attractiveness of applicants and that the potential stigma of spells of no formal employment after school are compensated by informal work experience or age or a combination of both.\n"]

  October 23, 2019   doi: 10.1111/geer.12188   open full text
• State‐Dependent Forward Guidance and the Problem of Inconsistent Announcements.
  Julian A. Parra‐Polania.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e1019-e1027, November 2019. ", "\nAbstract\nForward guidance can be provided as an unconditional promise, i.e. commitment to a specific low policy rate. Alternatively, the promise may include an escape clause, i.e. a condition defining the state of the economy under which the central bank would not keep such a low rate and, instead, it would revert to setting policy under discretion. The escape clause can be expressed as a threshold in terms of a specific variable. The present paper shows that, when such a threshold is expressed in terms of an endogenous variable (e.g. output, inflation), there are cases where it becomes impossible for the central bank to act in a way that is consistent with its promise. Consistency imposes limits on the policy rate that can be set since reverting immediately to the optimal discretionary rate can be incompatible with exceeding the threshold.\n"]

  October 23, 2019   doi: 10.1111/geer.12201   open full text
• Capital adjustment cost and inconsistency in income‐based dynamic panel models with fixed effects.
  Parantap Basu, Keshab Bhattarai, Yoseph Getachew.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e1002-e1018, November 2019. ", "\nAbstract\nAfter the seminal work of Nickell (1981), a vast literature demonstrates the inconsistency of ‘conditional convergence’ estimator in income‐based dynamic panel models with fixed effects when the time horizon (T) is short but the sample of countries (N) is large. Less attention is given to the economic root of inconsistency of the fixed effects estimator when T is also large. Using a variant of the Ramsey growth model with long‐run adjustment cost of capital, we demonstrate that the fixed effects estimator of such models could be inconsistent when T is large. This inconsistency arises because of the long‐run adjustment cost of capital which gives rise to a negative moving average coefficient in the error term. Income convergence will be thus overestimated. We theoretically characterize the order of this inconsistency. Our Monte Carlo simulation demonstrates that the size of the bias is substantial and it is greater in economies with higher capital adjustment costs. We show that the use of instrumental variables that take into account the presence of the negative moving average term in the error will overcome this bias.\n"]

  October 23, 2019   doi: 10.1111/geer.12202   open full text
• The Impact of Direct Cash Payments on Whole Blood Supply.
  David M. Becker, Harald Klüter, Alexandra Niessen‐Ruenzi, Martin Weber.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page e973-e1001, November 2019. ", "\nAbstract\nThis paper investigates the impact of monetary incentives on whole blood donations. We take advantage of a quasi‐natural experiment in Germany, in which one blood donation site changes its payment scheme from remunerated to non‐remunerated. All other donation sites maintain their payment schemes. We show that donation volumes drop significantly after the pay drop and do not recuperate. At the same time, donation volumes increase at other paid donation sites, which is partly due to donor migration to these sites. We do not find any impact of the changed payment scheme on blood quality. Our results offer additional insight into the complex question whether it is efficient to ensure blood supply by paying donors a direct monetary compensation.\n"]

  October 23, 2019   doi: 10.1111/geer.12204   open full text
• Changes in US Monetary Policy and Its Transmission over the Last Century.
  Sebastian Breitfuß, Martin Feldkircher, Florian Huber.
  German Economic Review. October 23, 2019
  ["German Economic Review, Volume 20, Issue 4, Page 447-470, November 2019. ", "\nAbstract\nIn this paper, we investigate US monetary policy and its time‐varying effects over more than 130 years. For that purpose, we use a Bayesian time‐varying parameter vector autoregression that features modern shrinkage priors and stochastic volatility. Our results can be summarized as follows: First, we find that monetary policy transmits jointly through the interest rate, credit/bank lending and wealth channels. Second, we find evidence for changes of both responses to a monetary policy shock and volatility characterizing the macroeconomic environment. Effects on the macroeconomy are significantly lower in the period from 1960 to 2013 than in the early part of our sample, whereas responses of short‐ and long‐term interest rates are nearly unaltered throughout the sample. Changes in the way the Fed conducts monetary policy and different economic environments may account for that.\n"]

  October 23, 2019   doi: 10.1111/geer.12154   open full text
• The Handelsblatt Rankings 2.0: Research Rankings for the Economics Profession in Austria, Germany, and Switzerland.
  Jan‐Egbert Sturm, Heinrich W. Ursprung.
  German Economic Review. October 11, 2017
  The distinguishing feature of all Handelsblatt rankings published over the last ten years is that they could draw on premium quality bibliometric data. We present here the new method used by KOF and DICE to compile the 2017 Handelsblatt Rankings of university departments and individual economists. As in previous years, the rankings are based on quality weighted journal publications. We show that the benchmark results are robust to various changes in the employed method, in particular to changes in the convexity of the journal quality weighting scheme. In conclusion, we show how the collected data can be used to provide customized evaluations of entire academic careers of individual economists.

  October 11, 2017   doi: 10.1111/geer.12145   open full text
• Heterogeneity and Spatial Dependence of Regional Growth in the EU: A Recursive Partitioning Approach.
  Martin Wagner, Achim Zeileis.
  German Economic Review. October 03, 2017
  We use model‐based recursive partitioning to assess heterogeneity of growth and convergence processes based on economic growth regressions for 255 European Union NUTS2 regions from 1995 to 2005. Spatial dependencies are taken into account by augmenting the model‐based regression tree with a spatial lag. The starting point of the analysis is a human‐capital‐augmented Solow‐type growth equation similar in spirit to Mankiw et al. (1992, The Quarterly Journal of Economics, 107, 407–437). Initial GDP and the share of highly educated in the working age population are found to be important for explaining economic growth, whereas the investment share in physical capital is only significant for coastal regions in the PIIGS countries. For all considered spatial weight matrices recursive partitioning leads to a regression tree with four terminal nodes with partitioning according to (i) capital regions, (ii) non‐capital regions in or outside the so‐called PIIGS countries and (iii) inside the respective PIIGS regions furthermore between coastal and non‐coastal regions. The choice of the spatial weight matrix clearly influences the spatial lag parameter while the estimated slope parameters are very robust to it. This indicates that accounting for heterogeneity is an important aspect of modeling regional economic growth and convergence.

  October 03, 2017   doi: 10.1111/geer.12146   open full text
• Handelsblatt Ranking and Journal Quality: A Cautionary Note.
  Ali Sina Önder.
  German Economic Review. August 31, 2017
  I provide a brief discussion of the Handelsblatt ranking by focusing on its journal quality weights. I summarize the methodology underlying journals’ prestige measure, which is derived from their citation networks, and discuss its strengths and shortcomings. Although I agree that Handelsblatt ranking provides a great service to the profession, that same profession needs to be rather careful not to overemphasize the journal quality weights.

  August 31, 2017   doi: 10.1111/geer.12144   open full text
• The Demand for Index‐Based Flood Insurance in a High‐Income Country.
  Martin Achtnicht, Daniel Osberghaus.
  German Economic Review. August 07, 2017
  Increased flooding is expected to be one of the greatest threats caused by climate change. Flood insurance helps to cope with the risk of flooding, but take‐up rates are relatively low in many places. Mainly in developing countries, index‐based flood insurance – where the insurer's payout is based on pre‐agreed weather indices instead of actual loss – has been marketed recently. In this paper, we investigate whether the introduction of index‐based flood insurance with relatively low premiums is likely to attract new customers in a high‐income country, namely Germany. We use data from a discrete choice experiment combined with damage data for a major flood in 2013. We find index‐based flood insurance to attract similar customers as traditional damage‐based, while the latter is preferred on average. Our results suggest that not many new customers would enter the market, once index‐based flood insurance were available.

  August 07, 2017   doi: 10.1111/geer.12142   open full text
• Like Father, Like Son: Inheriting and Bequeathing.
  Carlos Bethencourt, Lars Kunze.
  German Economic Review. August 07, 2017
  This paper incorporates indirect reciprocal behavior in the context of bequeathing decisions into an otherwise standard OLG model. We provide conditions for the existence of a unique steady state with operative bequests. Contrary to standard OLG models, we show that taking into account such behavioral interactions allows one to rationalize both an increasing and U‐shaped pattern of the inheritance to GDP ratio over time, consistent with recent empirical evidence. Moreover, the model predicts a nonlinear (U‐shaped) relationship between the size of an unfunded social security program and the long‐run stock of per capita capital, which in turn provides a novel explanation of the inconclusive empirical findings on the relationship between social security, savings and long‐run growth. Ricardian equivalence is shown to hold in a special case of the model

  August 07, 2017   doi: 10.1111/geer.12143   open full text
• Factors Driving German Physicians’ Managed Care Participation.
  Andree Ehlert, Dirk Oberschachtsiek, Thomas Wein.
  German Economic Review. July 24, 2017
  Recent German health care reforms were intended to increase efficiency and quality of medical supply by introducing managed care (MC). Participation of physicians in MC contracts, however, is still limited. This study econometrically identifies factors determining physicians’ MC participation. The data has been obtained from a telephone survey among 500 German physicians. Economic implications of our results regarding future MC development in Germany are discussed.

  July 24, 2017   doi: 10.1111/geer.12141   open full text
• Economic Retirement Age and Lifelong Learning: A Theoretical Model With Heterogeneous Labor, Biased Technical Change and International Sourcing.
  Thomas Gries, Stefan Jungblut, Tim Krieger, Henning Meyer.
  German Economic Review. July 21, 2017
  The employability of an aging population in a world of continuous and biased technical change is top of the political agenda. Due to endogenous human capital depreciation the effective retirement age is often below statutory retirement age resulting in permanent non‐employability of older workers. We analyze this phenomenon in a putty‐putty human capital vintage model and focus on education and the speed of human capital depreciation. Introducing a two‐stage education system with initial schooling and lifelong learning, not even lifelong learning turns out to be capable of aligning economic and statutory retirement. However, well‐designed education programs will keep more workers in highly productive activities at the end of their working life, and hence will substitute for simple social transfers, or for an early switch towards very low paid jobs.

  July 21, 2017   doi: 10.1111/geer.12140   open full text
• Asymmetric Information in Simple Bargaining Games: An Experimental Study.
  Charlotte Klempt, Kerstin Pull, Manfred Stadler.
  German Economic Review. June 27, 2017
  Bilateral bargaining situations are often characterized by informational asymmetries concerning the size of what is at stake: in some cases, the proposer is better informed, in others, it is the responder. We analyze the effects of both types of asymmetric information on proposer behavior in two different situations which allow for a variation of responder veto power: the ultimatum and the dictator game. We find that the extent to which proposers demand less in the ultimatum as compared to the dictator game is (marginally) smaller when the proposer is in the superior information position. Further we find informed proposers to exploit their informational advantage by offering an amount that does not reveal the true size of the pie, with proposers in the ultimatum game exhibiting this behavioral pattern to a larger extent than those in the dictator game. Uninformed proposers risk imposed rejection when they ask for more than potentially is at stake, and ask for a risk premium in dictator games. We concentrate on proposers, but also explore responder behavior: We find uninformed responders to enable proposers’ hiding behavior, and we find proposer intentionality not to play an important role for informed responders when they decide whether to accept or reject an offer by an (uninformed) proposer.

  June 27, 2017   doi: 10.1111/geer.12138   open full text
• Public Input Provision in Asymmetric Regions with Labor Market Imperfections.
  Holger Gillet, Johannes Pauser.
  German Economic Review. June 07, 2017
  This paper examines efficiency in public input provision in two large regions with labor market imperfections. Because employment and pecuniary externalities are associated with public input provision, the provision level exceeds the optimal amount under the presence of wage rigidities in the capital‐exporting jurisdiction if only head taxes are used to finance government expenditures. Efficiency in public input provision will remain ambiguous in the capital‐importing jurisdiction unless a specific functional form is assumed for the production technology. The constrained efficient provision with public inputs can be restored with an additional tax (subsidy) on capital that is used to strategically influence the interest rate on the common capital market and to increase employment by attracting foreign capital.

  June 07, 2017   doi: 10.1111/geer.12139   open full text
• Investor Pessimism and the German Stock Market: Exploring Google Search Queries.
  Thomas Dimpfl, Vladislav Kleiman.
  German Economic Review. May 24, 2017
  We analyze the relationship of retail investor sentiment and the German stock market by introducing four distinct investor pessimism indices (IPIs) based on selected aggregate Google search queries. We assess the predictive power of weekly changes in sentiment captured by the IPIs for contemporaneous and future DAX returns, volatility and trading volume. The indices are found to have individually varying, but overall remarkably high explanatory power. An increase in retail investor pessimism is accompanied by decreasing contemporaneous market returns and an increase in volatility and trading volume. Future returns tend to increase while future volatility and trading volume decrease. The outcome is in line with the conjecture of correction effects. Overall, the results are well in line with modern investor sentiment theory.

  May 24, 2017   doi: 10.1111/geer.12137   open full text
• The Refined Best Reply Correspondence and Backward Induction.
  Dieter Balkenborg, Josef Hofbauer, Christoph Kuzmics.
  German Economic Review. May 24, 2017
  Fixed points of the (most) refined best reply correspondence, introduced in Balkenborg et al. (2013), in the agent normal form of extensive form games with perfect recall have a remarkable property. They induce fixed points of the same correspondence in the agent normal form of every subgame. Furthermore, in a well‐defined sense, fixed points of this correspondence refine even trembling hand perfect equilibria, while, on the other hand, reasonable equilibria that are not weak perfect Bayesian equilibria are fixed points of this correspondence.

  May 24, 2017   doi: 10.1111/geer.12136   open full text
• Revisiting the Employment Effects of Minimum Wages in Europe.
  Michael Christl, Monika Köppl‐Turyna, Dénes Kucsera.
  German Economic Review. May 04, 2017
  The aim of this study is to estimate the relationship between the minimum wage and the employment rate of young individuals, taking into account potential nonlinearity. In a cross‐country setup of European countries, we find a significant nonlinear relationship between the minimum wages and employment rate of young individuals. Theoretically, while low minimum wages can indeed be positively associated with employment, after a certain level of the minimum wage, the relationship turns negative. This implies that there is an optimal level of minimum wages that maximizes the employment rate of young individuals. We additionally show that the negative relationship between minimum wages and employment of young workers is stronger if labor markets are otherwise strictly regulated and when workers are relatively unproductive. Using these results, we are able to calculate country‐specific turning points and show that some European countries in our sample might in fact contribute to high unemployment rates among young individuals by setting minimum wages too high. However, in other European countries, especially the Eastern European countries, an increase in minimum wages (up to a certain level) might even lead to higher employment rates of young individuals.

  May 04, 2017   doi: 10.1111/geer.12135   open full text
• Do Private Utilities Outperform Local Government‐Owned Utilities? Evidence from German Retail Electricity.
  Caroline Stiel, Astrid Cullmann, Maria Nieswand.
  German Economic Review. April 21, 2017
  Against the background of remunicipalisation trends in European public service sectors, this paper estimates firm‐level productivity for German electricity retailers and tests whether the ownership type has a significant impact on productivity. We specify a production function for the retail sector with labour and external services as main inputs, which is estimated using a control function approach. Employing a newly constructed dataset on German utilities by the German Federal Statistical Office for the years 2003‐12, we find that firm‐level productivity generally increased until 2008 but not afterwards. We do not find any evidence for ownership having an impact on productivity.

  April 21, 2017   doi: 10.1111/geer.12134   open full text
• Does Immigration Affect Demand for Redistribution? – An Experimental Design.
  Petrik Runst.
  German Economic Review. April 04, 2017
  Does increasing immigration lower the electorate's demand for welfare state benefits? Results from a novel experiment suggest that such a shift in demand is unlikely to occur in the overall population. However, high income individuals lower their demand for redistribution when primed with information on immigration as they pay a large share of overall taxes. Taste effects, where voters do not desire transfer payments to ethnically different groups, seem to play a minor role. Low education individuals, on the other hand, demand more redistribution when primed. Immigration and demand for welfare are not correlated on average. However, if political systems are more responsive to highly educated voters, increased levels of immigration may lead to less redistribution.

  April 04, 2017   doi: 10.1111/geer.12133   open full text
• Means‐Tested Long‐Term Care and Family Transfers.
  Helmuth Cremer, Pierre Pestieau.
  German Economic Review. April 04, 2017
  One of the pervasive problems with means‐tested public long‐term care programs is their inability to prevent individuals who could afford private long‐term services from taking advantage of public care. They often manage to elude the means‐test net through ‘strategic impoverishment’. We show in a simple model how this problem comes about, how it affects welfare and how it can be mitigated.

  April 04, 2017   doi: 10.1111/geer.12132   open full text
• Last Minute Policies and the Incumbency Advantage.
  Elena Manzoni, Stefan P. Penczynski.
  German Economic Review. March 22, 2017
  This paper models a purely informational mechanism behind the incumbency advantage. In a two‐period electoral campaign with two policy issues, an incumbent and a possibly more competent challenger compete for election by voters who are heterogeneously informed about the state of the world. Due to the asymmetries in government responsibility between candidates, the incumbent's statement may convey information on the relevance of the issues to voters. In equilibrium, the incumbent sometimes strategically releases his statement early and thus signals the importance of his signature issue to the voters. We find that, since the incumbent's positioning on the issue reveals private information which the challenger can use in later statements, the incumbent's incentives to distort the campaign are decreasing in his quality, as previously documented by the empirical literature. The distortions arising in equilibrium are decreasing in the incumbent's true competence; however, the distortions may be increasing in the incumbent's expected competence on his signature issue.

  March 22, 2017   doi: 10.1111/geer.12130   open full text
• The Notional Defined Contribution Pension Scheme and the German ‘Point System’: A Comparison.
  Vera Gurtovaya, Sergio Nisticò.
  German Economic Review. February 16, 2017
  This paper examines the analytical properties of the German ‘points‐based’ pension system. These properties are compared with those of a canonical Notional Defined Contribution (NDC) pension scheme. The paper identifies the circumstances under which the German ‘points‐based’ system would mimic a Swedish‐type NDC scheme and verifies to what extent the German ‘points‐based’ scheme ensures uniformity of individual rates of return for some hypothetical careers. Finally, the paper proposes a set of new possible adjustment rules able to increase similarity between the German point system and the NDC scheme.

  February 16, 2017   doi: 10.1111/geer.12127   open full text
• Banks’ Interest Rate Risk and Search for Yield: A Theoretical Rationale and Some Empirical Evidence.
  Christoph Memmel, Atılım Seymen, Max Teichert.
  German Economic Review. February 08, 2017
  We investigate German banks’ exposure to interest rate risk. In finance, higher demand for a risky asset is typically associated with higher expected return. However, employing a utility function which implies both risk‐averse and risk‐seeking behavior depending on the level of profits, we show that this relationship may get weaker and even change its sign at low profit levels. For the period 2005–14, we find not only the common positive relationship of higher expected returns and rising interest rate exposure but also that this relationship does become weaker with falling operative income, its sign eventually changing.

  February 08, 2017   doi: 10.1111/geer.12131   open full text
• Benford and the Internal Capital Market: A Useful Indicator of Managerial Engagement.
  Florian El Mouaaouy, Jan Riepe.
  German Economic Review. February 08, 2017
  We propose the application of digit analysis using the Benford law to indicate managerial engagement in the capital allocation process. First, we motivate the potential of the Benford digit analysis to identify allocation outcomes that are shaped by human engagement instead of fixed decision rules. Second, we provide a case study to illustrate how the Benford digit analysis can be used to detect allocations affected by managerial interventions. We are unaware of any study applying the Benford test to internal capital markets, while this approach appears very useful in this context. It is commonly used in the auditing, financial accounting, and fraud detection literature.

  February 08, 2017   doi: 10.1111/geer.12129   open full text
• Home is Where You Know Your Volatility – Local Investor Sentiment and Stock Market Volatility.
  D. Schneller, S. Heiden, M. Heiden, A. Hamid.
  German Economic Review. February 08, 2017
  Using a new variable to measure investor sentiment we show that the sentiment of German and European investors matters for return volatility in local stock markets. A flexible empirical similarity (ES) approach is used to emulate the dynamics of the volatility process by a time‐varying parameter that is created via the similarity of realized volatility and investor sentiment. Out‐of‐sample results show that the ES model produces significantly better volatility forecasts than various benchmark models for DAX and EUROSTOXX. Regarding other international markets no significant difference between the forecasts can be observed.

  February 08, 2017   doi: 10.1111/geer.12125   open full text
• Sovereign Reputation and Yield Spreads: A Case Study on Retroactive Legislation.
  Otto Randl, Josef Zechner.
  German Economic Review. February 08, 2017
  This paper uses recent legislation in Austria to establish a link between sovereign reputation and yield spreads. In 2009, Hypo Alpe Adria International, a bank previously co‐owned by the regional government of Carinthia, had been nationalized by Austria's central government in order to avoid a default triggering multi‐billion Euro local government guarantees. In 2015, special legislation retroactively introduced collective action clauses allowing a haircut on both the bonds and the guarantees while avoiding formal default. We document that legislative and administrative action designed to partly abrogate the guarantees resulted in a loss of reputation, leading to higher yield spreads for sovereign debt. Our analysis of covered bonds uncovers an increase in yield spreads on the secondary market and a deterioration of primary market conditions.

  February 08, 2017   doi: 10.1111/geer.12128   open full text
• Fighting Terrorism: Empirics on Policy Harmonisation.
  Simplice Asongu, Jacinta Nwachukwu.
  German Economic Review. February 08, 2017
  This paper models the feasibility of common policy initiatives against global terrorism, as well as timelines for their enforcement. The empirical evidence is based on 78 developing countries for the period 1984–2008. Domestic, transnational, unclear and total terrorism variables are used. Absolute (or unconditional) and conditional catch‐ups are estimated using Generalised Method of Moments. We establish consistently that, the rate of catch‐up is higher in domestic terrorism relative to transnational terrorism. The time to full catch‐up required for the implementation of common policies without distinction of nationality is found to be in a horizon of 13–20 years for domestic terrorism and 24–28 years for transnational terrorism. Hence, from a projection date of 2009, in spite of decreasing cross‐country differences in terrorists’ attacks, there is still a long way to go before feasible common policy initiatives can be fully implemented without distinction of nationality. The paper is original by its contribution to the empirics of conflict resolution through decreasing cross‐country differences in terrorism tendencies. Policy implications are discussed.

  February 08, 2017   doi: 10.1111/geer.12126   open full text
• A Discriminatory Mechanism to Reduce Urban Congestion.
  Michel Mougeot, Sonia Schwartz.
  German Economic Review. January 24, 2017
  In this article, we propose an optimal mechanism to reduce congestion when information is asymmetric. Each car driver receives a quantity of traffic rights such that his adjusted marginal benefit is equal to the marginal cost of congestion and payments are based on willingness to pay. We show that the level of congestion achieved is lower and each car user can receive more or fewer rights than under complete information. With symmetric beliefs, the payment rule results from a second‐degree price discrimination. When beliefs are asymmetric, it results simultaneously from a second‐degree price discrimination and from a third‐degree price discrimination and high willingness‐to‐pay car users are discriminated against. The revenue raised can be used to reduce distortionary taxes, thereby gaining public acceptability.

  January 24, 2017   doi: 10.1111/geer.12124   open full text
• Evaluating the Effects of Product Innovation on the Performance of European Firms by Using the Generalised Propensity Score.
  Ida D'Attoma, Silvia Pacei.
  German Economic Review. November 22, 2016
  The relationship between product innovation intensities and the performance of European firms is assessed, assuming that the selection into different intensities is based on a set of observed covariates. Most studies only distinguish between the innovating and non‐innovating status of firms within a binary treatment framework. Instead, we use a generalised propensity score to estimate a dose–response function, which connects the product innovation intensities of the firms to their labour productivity and profitability growth rates, as measures of performance. The results indicate that high levels of product innovation intensity have significant positive effects on the profitability rate, whilst no significant effects are found on productivity rate.

  November 22, 2016   doi: 10.1111/geer.12122   open full text
• The Tax‐rate Elasticity of Local Business Profits.
  Frank M. Fossen, Viktor Steiner.
  German Economic Review. November 22, 2016
  Local business profits respond to local business tax (LBT) rates that vary across municipalities. We estimate that a 1% increase in the LBT rate decreases the LBT base by 0.45%, based on the universe of German LBT return files, which include corporations and unincorporated businesses. However, the fiscal equalization scheme largely compensates municipalities for the loss in the LBT base when they increase the LBT rate. Our estimates suggest that using tax revenue data instead of tax return data, as commonly done in the literature, results in a significant bias of the elasticity away from zero.

  November 22, 2016   doi: 10.1111/geer.12123   open full text
• Farmers’ Adoption of Irrigation Technologies: Experimental Evidence from a Coordination Game with Positive Network Externalities in India.
  Malte Müller, Jens Rommel, Christian Kimmich.
  German Economic Review. November 15, 2016
  Electric irrigation contributes to food security in rural India, but deteriorating electrical infrastructures threaten the functioning of farmers’ pump sets. This problem could be solved through investments in energy‐efficient technologies. However, network externalities create a coordination problem for farmers. We develop a framed field experiment to study the effects of group size, leading by example, and payoff structures on the ability to coordinate technology adoption investments. The experiment is based on a game that combines features of a step‐level public goods game and a critical mass game. Our findings show that smaller groups more frequently coordinate on payoff‐superior equilibria and that higher payoffs lead to more investments. Contrary to previous studies, leading by example reduces investments but has no effect on efficiency. Building on this analysis, we discuss possible bottom‐up solutions to the energy crisis in rural India.

  November 15, 2016   doi: 10.1111/geer.12117   open full text
• Advertising and Competition for Market Share between a New Good Producer and a Remanufacturer.
  Amitrajeet A. Batabyal, Hamid Beladi.
  German Economic Review. November 09, 2016
  We study the strategic interaction between a new good producer and a remanufacturer who use advertising campaigns to compete for a dominant share of the market for a certain good. Each firm chooses one of three possible strategies for running its advertising campaign. The two rival firms care only about capturing a dominant share of the relevant market. Hence, if a firm expects to capture dominant market share with probability p ∈ [0, 1], then its payoff in the game we study is also p. Our analysis leads to four results. First, we provide the normal form representation of the game between the new good producer and the remanufacturer. Second, we specify the game in matrix form. Third, we indicate what happens at each stage of the elimination of strictly dominated strategies. Finally, we show that the iterated elimination of strictly dominated strategies yields a clear and unique prediction about the outcome of the advertising game.

  November 09, 2016   doi: 10.1111/geer.12121   open full text
• Game Outcome Uncertainty and Television Audience Demand: New Evidence from German Football.
  Dominik Schreyer, Sascha L. Schmidt, Benno Torgler.
  German Economic Review. November 02, 2016
  Despite its prominence in the economic literature, our knowledge regarding the role of game outcome uncertainty (GOU) in spectator decision‐making is fairly limited. Even worse, studies testing the uncertainty of outcome hypothesis (UOH) by exploring TV demand for European football have further intensified the original ambiguity. In this paper, we revisit the role of GOU in spectator decision‐making by testing the UOH with regard to two different sporting products: (1) domestic league and (2) knockout tournament games. Analyzing TV demand for almost 1,500 German football games, we find support for the UOH in league, though not in knockout tournament games.

  November 02, 2016   doi: 10.1111/geer.12120   open full text
• How to Attract an Audience at a Conference: Paper, Person or Place?
  Isabel Günther, Melanie Grosse, Stephan Klasen.
  German Economic Review. September 13, 2016
  We analyze the drivers of audience size and the number of questions asked in parallel sessions at the annual conference of the German Economics Association. We find that the location of the presentation is at least as important for the number of academics attending a talk as the combined effect of the person presenting and the paper presented. Being a presenter in a late morning session on the second day of a conference, close to the place where coffee is served, significantly increases the size of the audience. When it comes to asking questions, location becomes less important, but smaller rooms lead to more questions being asked. Younger researchers and very senior researchers attract more questions and comments. There are also interesting gender effects. Women attend research sessions more diligently than men, but seem to ask fewer questions than men. Men are less likely to attend presentations on health, education, welfare and development economics than women. Our findings suggest that strategic scheduling of sessions could ensure better participation at conferences. Moreover, different behaviors of men and women at conferences might also contribute to the lack of women in senior scientist positions.

  September 13, 2016   doi: 10.1111/geer.12113   open full text
• Does Intelligence Affect Economic Diversification?
  Oasis Kodila‐Tedika, Simplice A. Asongu.
  German Economic Review. September 01, 2016
  This paper extends the growing literature on knowledge economy by investigating the effect of intelligence on economic diversification. Using a battery of estimation techniques that are robust to endogeneity, we find that human capital has positive correlations with export diversification, manufactured added value and export manufactures. This empirical evidence is based on a world sample of 170 countries for the year 2010. The findings have significant implications for the fight against the Dutch disease. In essence, investing in human capital could bring economic diversity and therefore dampen negative external shocks related to resource‐dependence. Other knowledge‐economy implications are discussed.

  September 01, 2016   doi: 10.1111/geer.12115   open full text
• Growth‐Friendly Tax Structures: An Indicator‐Based Approach.
  Florian Wöhlbier, Caterina Astarita, Gilles Mourre.
  German Economic Review. August 22, 2016
  This paper designs a horizontal indicator‐based assessment methodology aimed at identifying those EU countries presenting a potential need and scope for shifting taxation away from labour to other tax bases less detrimental to growth. The assessment methodology, as a first step, selects a set of indicators measuring specific aspects of tax policy. Subsequently, for each individual indicator, performance thresholds are calculated based on a benchmarking approach. Finally, a screening algorithm based on commonly accepted findings from the relevant economic literature is used to assess the overall performance of a country in two policy areas, namely the need for a tax shift and the scope for it. Various robustness checks are performed.

  August 22, 2016   doi: 10.1111/geer.12116   open full text
• Bounded Rationality in Principal‐Agent Relationships.
  Mathias Erlei, Heike Schenk‐Mathes.
  German Economic Review. August 17, 2016
  We conducted six treatments of a standard moral hazard experiment with hidden action. The behavior in all treatments and periods was inconsistent with established agency theory. In the early periods, behavior differed significantly between treatments. This difference largely vanished in the final periods. We used logit agent quantal response equilibrium (LAQRE) as a device to grasp boundedly rational behavior and found the following: (1) LAQRE predictions are much closer to subjects' behavior in the laboratory; (2) LAQRE probabilities and experimental behavior show remarkably similar patterns; and (3) including social preferences in LAQRE does not better explain the experimental data; (4) LAQRE cannot explain the contract offers of some players who seem to choose some focal contract parameters.

  August 17, 2016   doi: 10.1111/geer.12111   open full text
• Parental Background Matters: Intergenerational Mobility and Assimilation of Italian Immigrants in Germany.
  Timm Bönke, Guido Neidhöfer.
  German Economic Review. August 08, 2016
  We investigate the hypothesis of failed integration and low social mobility of immigrants. An intergenerational assimilation model is tested empirically on household survey data and validated against registry data provided by the Italian Embassy in Germany. Although we confirm substantial disparities between educational achievements of immigrants and natives, we find that the children of Italian immigrants exhibit high intergenerational mobility and no less opportunity than natives to achieve high schooling degrees. These findings suggest a rejection of the failed assimilation hypothesis. Additionally, we evaluate different patterns by time of arrival, Italian region of origin and language spoken at home.

  August 08, 2016   doi: 10.1111/geer.12114   open full text
• Fiscal Equalization and Tax Enforcement.
  Timm Bönke, Beate Jochimsen, Carsten Schröder.
  German Economic Review. July 29, 2016
  In many countries organized as federations, fiscal equalization schemes have been implemented to mitigate vertical or horizontal imbalances. Such schemes usually imply that the member states of the federation can only partly internalize (marginal) tax revenue before redistribution. Aside from the internalized marginal revenue, referred to as the marginal tax‐back rate, the remainder is redistributed. We investigate the extent to which state‐level authorities in such federation under‐exploit their tax bases. By means of a stylized model, we show that the member states have an incentive to align the effective tax rates on their residents with the level of the marginal tax‐back rate. We empirically test the model using state‐level and micro‐level taxpayer data, OLS regressions and natural experiments. Our empirical findings support the results from our theoretical model. Particularly, we find that states with a higher marginal tax‐back rate exploit the tax base to a higher extent.

  July 29, 2016   doi: 10.1111/geer.12110   open full text
• Blindfolded vs. Informed Ultimatum Bargaining – A Theoretical and Experimental Analysis.
  Werner Güth, Kerstin Pull, Manfred Stadler, Alexandra K. Zaby.
  German Economic Review. July 26, 2016
  This paper analyzes blindfolded vs. informed ultimatum bargaining where proposer and responder are both either uninformed or informed about the size of the pie. Considering the transition from one information setting to another suggests that more information induces lower (higher) price offers and acceptance thresholds when the pie is small (large). While our experimental data confirm this transition effect, risk aversion leads to diverging results in blindfolded ultimatum bargaining where task‐independent strategies such as ‘equal sharing’ or the ‘golden mean’ are implemented more frequently.

  July 26, 2016   doi: 10.1111/geer.12112   open full text
• Children's Opportunities in Germany – An Application Using Multidimensional Measures.
  Charlotte Bartels, Maximilian Stockhausen.
  German Economic Review. July 19, 2016
  Single parents and unmarried couples are increasingly replacing the traditional nuclear family. This paper investigates if the greater variety in living arrangements contributes to increased resource disparities among children in Germany. Children in single parent families are disadvantaged in at least three dimensions decisive for their later achievements: material standard of living, parental education, and parental childcare time. We compute multidimensional inequality and poverty indices using SOEP data from 1991 to 2012. We distinguish between parental and publicly provided childcare, which is an increasingly important in‐kind benefit in Germany. We find that both multidimensional inequality and poverty declined as expanded public childcare strongly reduces resource disparities among children.

  July 19, 2016   doi: 10.1111/geer.12108   open full text
• Gender Quotas and Human Capital Formation: A Relative Deprivation Approach.
  Walter Hyll.
  German Economic Review. July 14, 2016
  We study a quota's effect on individual human capital investment incentives beyond merely altering individual's overall probability of being promoted. We assume that individuals sense relative deprivation from unfavorable (income) comparisons within their reference group and that comparisons take place within the same gender. The introduction of a female quota increases (decreases) the number of women (men) holding top positions. On one hand, the relative deprivation to which female individuals are subjected to increases. These female individuals respond to an increase in their relative deprivation by acquiring additional human capital which, because it enables them to increase their earnings, reduces their relative deprivation. On the other hand, male individuals invest less in human capital in response to a decrease in relative deprivation. We show that the human capital formed by women who are encouraged to do so by the quotas is larger than the human capital that men who are discouraged by the quotas refrain from forming. However, the positive human capital accumulation effect hinges on a certain level of ability by gender and on how much individuals perceive relative deprivation.

  July 14, 2016   doi: 10.1111/geer.12109   open full text
• Tax Evasion, Corruption and Tax Loopholes.
  Sugata Marjit, André Seidel, Marcel Thum.
  German Economic Review. July 14, 2016
  This paper addresses tax loopholes that allow firms to exploit borderline cases between legal tax avoidance and illegal tax evasion. In general, tax loopholes are detrimental to a revenue‐maximizing government. This may change in the presence of corruption in the tax administration. Tax loopholes may serve as a separating mechanism that helps governments maximize revenues and curb corruption, which may explain why developing countries only gradually close loopholes in their tax codes.

  July 14, 2016   doi: 10.1111/geer.12107   open full text
• Foreword: Special Issue in Honor of Reinhard Selten's 85th Birthday.
  Claudia Keser, Alexia Gaudeul.
  German Economic Review. July 08, 2016
  We summarize the career of Reinhard Selten, who received the Nobel Prize in Economics in 1994. We underline his contributions to several domains of the theory of games, to the study of bounded rationality and to the methodology of experimental economics. We finally present the papers in this special issue in honor of his 85th birthday.

  July 08, 2016   doi: 10.1111/geer.12106   open full text
• On the Value of Transparency and Information Acquisition in Bargaining.
  Thomas Gehrig, Werner Güth, René Levínský.
  German Economic Review. July 08, 2016
  We analyze how transparency affects information acquisition in a bargaining context where proposers may choose to purchase information about the unknown outside options of their bargaining partners. Although information acquisition is excessive in all scenarios, we find that bargaining outcomes depend crucially on the transparency of the bargaining environment. In transparent games, when responders can observe whether proposers have acquired information, acceptance rates are higher. Accordingly, in transparent bargaining environments, information is more valuable, both individually and socially.

  July 08, 2016   doi: 10.1111/geer.12101   open full text
• Population and Economic Growth Under Different Growth Engines.
  Alberto Bucci, Xavier Raurich.
  German Economic Review. June 15, 2016
  Using a growth model with physical capital accumulation, human capital investment and horizontal R&D activity, this paper proposes an alternative channel through which an increase in the population growth rate may yield a non‐uniform (i.e., a positive, negative, or neutral) impact on the long‐run growth rate of per‐capita GDP, as available empirical evidence seems mostly to suggest. The proposed mechanism relies on the nature of the process of economic growth (whether it is fully or semi‐endogenous), and the peculiar engine(s) driving economic growth (human capital investment, R&D activity, or both). The model also explains why in the long term the association between population growth and productivity growth may ultimately be negative when R&D is an engine of economic growth.

  June 15, 2016   doi: 10.1111/geer.12092   open full text
• The Residency Discount for Rents in Germany and the Tenancy Law Reform Act 2001: Evidence from Quantile Regressions.
  Bernd Fitzenberger, Benjamin Fuchs.
  German Economic Review. June 09, 2016
  Most countries show a residency discount in rents for sitting tenants. In the wake of strong rent increases and housing shortages, Germany implemented a reform in 2001 to curtail rent increases. Based on linked housing‐tenant data for Germany, this paper estimates panel OLS and quantile regressions of rents within tenancies. The results show that rents deflated by the CPI increase strongly from 1984 until the reform in 2001, and there is a reversal in the trend afterwards. Before the reform, there is a significant residence discount which decreases in absolute value with tenure. The reform reduces rents, in particular for expensive apartments and for new leases. There is no residency discount after the reform.

  June 09, 2016   doi: 10.1111/geer.12093   open full text
• Understanding Benign Liquidity Traps: The Case of Japan.
  Stefan Homburg.
  German Economic Review. May 27, 2016
  Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan's performance and resolves puzzles associated with liquidity traps. Possible conclusions for Anglo‐Saxon countries and eurozone members are also discussed.

  May 27, 2016   doi: 10.1111/geer.12105   open full text
• The Spending Multiplier in the Medium Run.
  Holger Strulik, Timo Trimborn.
  German Economic Review. May 17, 2016
  Most of the discussion about fiscal stimulus focuses on the multiplier of government spending on impact. In this paper we shift the focus to the multiplier at the end, i.e., to the period in which a deficit spending program terminates. We show that recent time‐series analyses and neoclassical as well new Keynesian business cycle models predict that the multiplier turns negative before spending expires. This means that aggregate output at the time of expiry of fiscal stimulus is lower than it could be without deficit spending. Here, we show why this phenomenon is a general outcome of mainstream business cycle theory and explain the underlying mechanism. Using phase diagram analysis, we prove that the aggregate capital stock at the time of expiry of fiscal stimulus is lower than it would be without a deficit spending program. This fact explains why aggregate output is below its laissez faire level as well.

  May 17, 2016   doi: 10.1111/geer.12090   open full text
• Public Statistics and Private Experience: Varying Feedback Information in a Take‐or‐Pass Game.
  David Danz, Steffen Huck, Philippe Jehiel.
  German Economic Review. May 17, 2016
  We study how subjects in an experiment use different forms of public information about their opponents' past behavior. In the absence of public information, subjects appear to use rather detailed statistics summarizing their private experiences. If they have additional public information, they make use of this information even if it is less precise than their own private statistics – except for very high stakes. Making public information more precise has two consequences: It is also used when the stakes are very high and it reduces the number of subjects who ignore any information – public and private. That is, precise public information crowds in the use of own information. Finally, our results shed some light on unraveling in centipede games.

  May 17, 2016   doi: 10.1111/geer.12098   open full text
• Discrimination Against Migrant Job Applicants in Austria: An Experimental Study.
  Doris Weichselbaumer.
  German Economic Review. May 16, 2016
  This paper presents the results of an experimental study that examined the employment opportunities of Austrians with and without a migration background when applying for job openings. Previous experiments used applicants’ names as indicators for different ethnicities, but this signal may not always be perceived as intended by the experimenters. In this study, a novel approach was applied that signals ethnic background using carefully matched photos as distinct visual cues. While the results document employment discrimination against all groups with a migration background, it is most pronounced for applicants with African heritage. To determine why and when discrimination occurs, an array of firm‐ and job‐specific characteristics were examined. However, they offer little help in explaining the level of employment discrimination in Austria.

  May 16, 2016   doi: 10.1111/geer.12104   open full text
• An Experiment on Forward vs. Backward Induction: How Fairness and Level k Reasoning Matter.
  Dieter Balkenborg, Rosemarie Nagel.
  German Economic Review. May 11, 2016
  We report the experimental results on a game with an outside option where forward induction contradicts with backward induction based on a focal, risk dominant equilibrium. The latter procedure yields the equilibrium selected by Harsanyi and Selten's (1988) theory, which is hence here in contradiction with strategic stability (Kohlberg and Mertens, 1986). We find the Harsanyi–Selten solution to be in much better agreement with our data. Since fairness and bounded rationality seem to matter we discuss whether recent behavioral theories, in particular fairness theories and learning, might explain our findings. The fairness theories by Bolton and Ockenfels (2000), Charness and Rabin (2002), or Fehr and Schmidt (1999), when calibrated using experimental data on dictator‐ and ultimatum games, indeed predict that forward induction should play no role for our experiment and that the outside option should be chosen by all sufficiently selfish players. However, there is a multiplicity of ‘fairness equilibria’, some of which seem to be rejected because they require too many levels of reasoning. We show that learning theories based on naive priors could alternatively explain our results, but not that of closely related experiments.

  May 11, 2016   doi: 10.1111/geer.12099   open full text
• Designing Institutions for Social Dilemmas.
  Bettina Rockenbach, Irenaeus Wolff.
  German Economic Review. May 11, 2016
  Considerable experimental evidence has been collected on rules enhancing contributions in public goods dilemmas. These studies either confront subjects with prespecified rules or have subjects choose between different rule environments. In this paper, we completely endogenize the institution design process by asking subjects to design and repeatedly improve rule sets for a public goods problem in order to investigate which rules social planners facing a social dilemma ‘invent’ and how these rules develop over time. We make several noteworthy observations, in particular the strong and successful use of framing, the concealment of individual contribution information and the decreasing use of punishment.

  May 11, 2016   doi: 10.1111/geer.12103   open full text
• Quantifying the Subjective Value of Certainty.
  Joseph G. Eisenhauer.
  German Economic Review. May 11, 2016
  Traditional measures of risk preference require that an agent's utility function be twice differentiable and that the risk be miniscule. We introduce a discrete index that requires no assumptions regarding the functional form of utility or the magnitude of the risk. The index quantifies the value of certainty by contrasting the relief that one experiences from the absence of a loss to the regret that (s)he feels at a foregone opportunity for gain. It exhibits a consistent range across different data types, and signals any economically irrational behavior. Empirical estimates are made with reservation price data and reservation probability data.

  May 11, 2016   doi: 10.1111/geer.12102   open full text
• Impulse Response Dynamics in Weakest Link Games.
  Sebastian J. Goerg, Tibor Neugebauer, Abdolkarim Sadrieh.
  German Economic Review. May 11, 2016
  In a recent paper, Croson et al. () experimentally study three weakest link games with multiple symmetric equilibria. They demonstrate that static concepts based on the Nash equilibrium (including multiple Nash equilibria, quantal response equilibria, and equilibrium selection by risk and payoff dominance) cannot successfully capture the observed treatment differences. Using Reinhard Selten's impulse response dynamics, we derive a proposition that provides a theoretical ranking of contribution levels in the weakest link games. We show that the predicted ranking of treatment outcomes is fully consistent with the observed data. In addition, we demonstrate that the impulse response dynamics perform well in tracking average contributions over time. We conclude that Reinhard Selten's impulse response dynamics provide an extremely valuable behavioral approach that is not only capable of resolving the indecisiveness of static approaches in games with many equilibria, but that can also be used to track the development of choices over time in games with repeated interaction.

  May 11, 2016   doi: 10.1111/geer.12100   open full text
• Refining Raiffa – Aspiration Adaptation within the Zone of Possible Agreements.
  Marlies Ahlert, Katharina Friederike Sträter.
  German Economic Review. May 11, 2016
  One of the most well‐known descriptive bargaining models is Raiffa's Zone of Possible Agreements (ZOPA). We reinterpret Raiffa's model of a price negotiation in the realm of bounded rationality by applying Simon's theory of Satisficing. Afterward we refine Raiffa's negotiation model using Aspiration Adaptation Theory as suggested by Sauermann, Selten, Tietz and others. We offer a model of a concession process that gives precision to the Dance of Concessions in Raiffa's model by applying axioms of bounded rationality. Raiffa suggests a solution point derived from equity in price dimension, whereas we propose an area solution defined by equity in aspiration levels.

  May 11, 2016   doi: 10.1111/geer.12096   open full text
• Social Interaction Promotes Risk Taking in a Stag Hunt Game.
  Gary E. Bolton, Christoph Feldhaus, Axel Ockenfels.
  German Economic Review. May 11, 2016
  We demonstrate that people are more willing to take risks in a stag hunt game when the agent of uncertainty is another person, thereby promoting cooperation. Recent social cognition research suggests an explanation for this pattern, which is based on the idea that games that align interests between subjects activate a trust mindset.

  May 11, 2016   doi: 10.1111/geer.12095   open full text
• On Estimating the Size of the Shadow Economy.
  Gebhard Kirchgässner.
  German Economic Review. April 07, 2016
  As long as it is employed cautiously enough, the model approach is a useful tool to estimate simultaneously the size and the development of the shadow economy in several countries. However, a second method is necessary to calibrate the model. The currency demand approach can lead to highly implausible results; the size of the shadow economy might be largely overestimated. An alternative is the survey method. For real tests of whether a variable has an impact, procedures are necessary that do not use the same variables as those used to construct the indicator. Thus, to make progress in analysing the shadow economy, the model approach has a role to play, but it has to be complemented by other methods employing different data. The currency demand approach cannot be used as long as it employs the same variables for its constructions.

  April 07, 2016   doi: 10.1111/geer.12094   open full text
• On the Incentive Effects of Sample Size in Monitoring Agents – A Theoretical and Experimental Analysis.
  Judith Avrahami, Werner Gueth, Yaakov Kareev, Tobias Uske.
  German Economic Review. March 31, 2016
  When agents compete for a bonus and their productivity in each of several possible occasions depends stochastically on (constant) effort, the number of times this is checked to assign the bonus affects the level of uncertainty in the selection process. Uncertainty, in turn, is expected to increase the effort made by competing agents (Cowen and Glazer, 1996; Dubey and Haimanko, 2003; Dubey and Wu, 2001). Theoretical predictions are derived and experimental evidence is collected for two competing agents, with the bonus awarded to that agent who outperforms the other. Sampling occasions (1 or 3), cost of production (high or low), cost symmetry (asymmetric or symmetric), and piece‐rate reward are manipulated factorially to test the robustness of the effects of uncertainty. For control, a single‐agent case is included. Results indicate that, for tournaments, greater uncertainty does indeed lead to greater than expected effort and lower average variable costs.

  March 31, 2016   doi: 10.1111/geer.12091   open full text
• von Thünen: Capital, Production Functions, Marginal Productivity Wages, and the Natural Wage.
  Bjarne S. Jensen.
  German Economic Review. March 23, 2016
  This paper puts seminal contributions to theory of production functions and maximization of explicit quantitative objective functions by Johann Heinrich von Thünen into a systematic historical perspective. We show that his comprehensive ‘Tableau Economiques’ do imply two exact parametric production functions. Moreover, the renowned ‘geometric mean wage’ formula is restated as an exact CES marginal labor productivity wage for σ = 2. We review four alternative modes of normative (natural) wage calculations without an explicit production function, and conclude that von Thünen's natural wage differentiation formulas are bona fide alternatives for deriving the natural wage formula.

  March 23, 2016   doi: 10.1111/geer.12085   open full text
• Debt Brakes in the German States: Governments’ Rhetoric and Actions.
  Niklas Potrafke, Marina Riem, Christoph Schinke.
  German Economic Review. March 18, 2016
  In 2009, a new law on German debt brakes was passed: state governments are not allowed to run structural deficits after 2020. Consolidation strategies initiated between 2009 and 2020 influence if a state can comply with the debt brake in 2020. We describe to what extent government ideology predicts if state governments consolidate budgets and which fiscal adjustment path they choose. Attitudes toward budget consolidation, as expressed by politicians’ rhetoric in the public debate, differed among parties. Anecdotal evidence and descriptive statistics indicate that leftwing governments ran on average higher structural deficits than rightwing governments between 2010 and 2014. Primary deficits, however, hardly differed under leftwing and rightwing governments. Revenues of federal taxes were much higher than expected and facilitated budget consolidation. Leftwing governments did not need to run deficits to design generous budgets. It is conceivable that parties confirmed their identity by using expressive rhetoric, but responded to shifts in public opinion after the financial crisis and pursued more sustainable fiscal policies when in office.

  March 18, 2016   doi: 10.1111/geer.12089   open full text
• Fiscal Competition and Higher Education Spending in Germany.
  Georg‐Benedikt Fischer, Berthold U. Wigger.
  German Economic Review. February 11, 2016
  The present paper studies the determinants of higher education spending by the German federal states with a focus on the interplay between higher education spending of neighboring states. More specifically, the paper asks whether the German federal states free‐ride on one another's higher educational spending or whether they employ higher education spending to attract university graduates. We identify a positive relationship between the states' higher education spending and conclude that the states compete for graduates rather than free‐ride. We also consider the effect of the recent introduction of tuition fees in some, but not all German states. We do not find evidence that tuition fees led to crowding out of public higher education funds.

  February 11, 2016   doi: 10.1111/geer.12088   open full text
• Heterogeneous Mortgage Markets: Implications for Business Cycles and Welfare in the EMU.
  Johannes Gareis, Eric Mayer.
  German Economic Review. January 22, 2016
  This paper evaluates business cycle effects of asymmetric cross‐country mortgage market developments in a monetary union. By employing a two‐country New Keynesian DSGE model with collateral constraints tied to housing values, we show that a change in institutional characteristics of mortgage markets, such as the loan‐to‐value (LTV) ratio, is an important driver of asymmetric developments in housing markets and economic activity. Our analysis suggests that the home country where credit standards are lax booms, while the rest of European Monetary Union faces a negative output gap. Overall welfare is lower if LTV ratios are higher.

  January 22, 2016   doi: 10.1111/geer.12087   open full text
• When a Door Closes, a Window Opens? Long‐Term Labor Market Effects of Involuntary Separations.
  Simone Balestra, Uschi Backes‐Gellner.
  German Economic Review. January 14, 2016
  This study estimates the earning losses of workers experiencing an involuntary job separation. We employ, for the first time in the earning losses literature, a Poisson pseudo‐maximum‐likelihood estimator with fixed effects that has several advantages with respect to conventional fixed effects models. The Poisson estimator allows considering the full set of involuntary separations, including those with zero labor market earnings because of unemployment. By including individuals with zero earnings and by using our new method, the loss in the year of separation becomes larger than in previous studies. The loss starts with roughly 30% and, although it quickly shrinks, it remains at around 15% in the following years. In addition, we find that compared to other reasons for separation, the earning loss pattern is unique for involuntary separations, because no other type of separation implies such permanent scarring. This latter finding makes us confident that the self‐reported involuntariness of a separation is a reliable source of information.

  January 14, 2016   doi: 10.1111/geer.12086   open full text
• Candidates’ Education and Turnout: Evidence from Italian Municipal Elections.
  Marco Alberto De Benedetto, Maria De Paola.
  German Economic Review. November 16, 2015
  We analyze the impact that the educational level of candidates running for the position of mayor has on electoral turnout by using a large dataset for Italian municipal elections held between 1993 and 2011. We firstly estimate a municipality fixed effects model and show that the median education of candidates standing in an election is positively correlated with turnout. To handle endogeneity issues arising from the unobservable time variant features of electoral races, we build on the literature which shows that politicians’ educational level is positively affected by their wage and apply a Fuzzy Regression Discontinuity Design on the basis of the fact that the wages of mayors in Italy increase non‐monotonically at different thresholds. Results show that an exogenous increase in the median educational level of candidates, induced by a higher wage, leads to an increase in turnout of about 1 percentage point.

  November 16, 2015   doi: 10.1111/geer.12084   open full text
• Semi‐Parametric Estimates of Taylor Rules for a Small, Open Economy – Evidence from Switzerland.
  Thomas Nitschka, Nikolay Markov.
  German Economic Review. September 24, 2015
  This article estimates the policy reaction function of the Swiss National Bank (SNB) using real‐time internal inflation forecasts and output gap estimates from 2000 to 2012. We analyze potential nonlinearities of policy rate responses to economic fundamentals using a novel semiparametric approach. We find a linear response of the SNB's policy rate to inflation forecasts but a strong nonlinear response of the policy rate to the output gap and exchange rate changes. This finding suggests that the SNB reacts to extreme movements of these variables if they become a concern for price stability and economic activity.

  September 24, 2015   doi: 10.1111/geer.12080   open full text
• Contagion of Self‐Interested Behavior: Evidence from Group Dictator Game Experiments.
  Takehiro Ito, Kazuhito Ogawa, Akihiro Suzuki, Hiromasa Takahashi, Toru Takemoto.
  German Economic Review. September 24, 2015
  We examine how group decision‐making affects other‐regarding behavior in experimental dictator games. In particular, we assess whether the effects of iterated games differ for group and individual decision‐making and whether the difference in decision‐making style (individual or group) changes the perception of social identity. We make two findings on group decision‐making. First, group decisions become more selfish when repeating the game after changing group members. Second, a dictator group donates more to a recipient group at the same university than to a recipient group at a different university. These findings are not true for individual decision‐making.

  September 24, 2015   doi: 10.1111/geer.12077   open full text
• The Impact of the German Child Benefit on Household Expenditures and Consumption.
  Christian Raschke.
  German Economic Review. September 22, 2015
  The German Child Benefit (‘Kindergeld’) is paid to legal guardians of children as a cash benefit. The benefit does not depend on household income or other household characteristics. I use exogenous variations in the amount of child benefit received by households in the German Socio‐Economic Panel to estimate the impact of a given change in the child benefit on food expenditures of households, the probability of owning a home, rent per square meter, measures of the size of the home, as well as parents’ smoking behavior and parents’ alcohol consumption. Households primarily increase per capita food expenditures in response to increases in child benefit, and they also improve housing conditions. The effect of child benefit on per capita food expenditures is larger for low‐income households compared to high‐income households. I do not find a significant effect of child benefit on parents’ smoking or drinking.

  September 22, 2015   doi: 10.1111/geer.12079   open full text
• The Impact of Regret on Exports.
  Udo Broll, Peter Welzel, Kit Pong Wong.
  German Economic Review. July 14, 2015
  We examine optimal production and export decisions of a firm facing exchange rate uncertainty, where the firm's management is not only risk averse but also regret averse, i.e., is characterized by a utility function that includes disutility from having chosen ex post suboptimal alternatives. Experimental and empirical results support the view that managers tend to be regret averse. Under regret aversion a negative risk premium need not preclude the firm from exporting which would be the case if the firm were only risk averse. Exporting creates an implicit hedge against the possibility of regret when the realized spot exchange rate turns out to be high. The regret‐averse firm as such has a greater ex ante incentive to export than the purely risk averse firm. Finally, we use a two‐state example to illustrate that the firm optimally exports more (less) to the foreign country than in the case of pure risk aversion if the low (high) spot exchange rate is more likely to prevail. Regret aversion as such plays a crucial role in determining the firm's optimal allocation between domestic sales and foreign exports.

  July 14, 2015   doi: 10.1111/geer.12076   open full text
• Moonlighting Politicians: Motivation Matters!
  Alessandro Fedele, Paolo Naticchioni.
  German Economic Review. April 20, 2015
  We study self‐selection into politics and effort once in office of citizens with different abilities and motivations in a framework where moonlighting is allowed. We find that high‐ability motivated (public‐fit) politicians exert higher effort in politics than high‐ability non‐motivated (market‐fit) politicians, and that high‐ability citizens, both public‐fit and market‐fit, may decide to enter politics. We test our predictions using a database of Italian parliamentarians for the period 1996–2006. We find evidence of advantageous selection of both market‐fit and public‐fit parliamentarians. We also show that public‐fit parliamentarians have higher voting attendance and that only voting attendance of market‐fit parliamentarians is negatively affected by income opportunities.

  April 20, 2015   doi: 10.1111/geer.12072   open full text
• Regional Inequality and Internal Conflict.
  Christian Lessmann.
  German Economic Review. April 20, 2015
  This paper studies the influence of regional inequality within countries on internal conflicts. Regional inequalities are measured by the population‐weighted coefficient of variation of regional GDP per capita. As the main innovation, I use a panel dataset of country‐level regional inequalities, which covers 56 countries (835 subnational regions) between 1980 and 2009. I also consider a broader cross section dataset for the year 2005, which covers 110 countries (1569 subnational regions). Conflict is measured by the incidence of civil war (UCDP/PRIO data) and a risk measure of internal conflict (war, terrorism and riots) provided by the PRS Group's International Country Risk Guide. Logit estimations are employed as well as OLS fixed effects panel regressions. I find that regional inequalities increase the risk of internal conflict.

  April 20, 2015   doi: 10.1111/geer.12073   open full text
• Rates of Return and Early Retirement Disincentives: Evidence from a German Pension Reform.
  Holger Lüthen.
  German Economic Review. February 13, 2015
  To counteract the financial pressure emerging in aging societies, statutory pension schemes are undergoing fundamental reforms in many Western countries. Starting with cohort 1937, Germany introduced permanent pension deductions for early retirement. This study examines the profitability of pension contributions against the background of this reform for cohorts 1935–1945. Internal rates of return (IRR) are used to measure the profitability. For men, the IRR declines from 2.4% to 1.2% and for women from 5.2% to 3.7%. The results suggest that the majority of the trend, about 75–80%, is caused by increased pension contributions and not by the reform.

  February 13, 2015   doi: 10.1111/geer.12070   open full text
• Mispricing of Risk in Sovereign Bond Markets with Asymmetric Information.
  Benedikt Mihm.
  German Economic Review. February 02, 2015
  The likelihood that a government will repay its sovereign debt depends both on the amount of debt it issues and on the government's future ability to repay. Whilst the former is publicly observable, the government may have more information about the latter than investors. This paper shows that this asymmetric information problem impairs the market's ability to differentiate economies according to their fiscal sustainability, and can lead to a disconnect between bond prices and default risk. The model can help rationalise the behaviour of Eurozone bond prices prior to the recent European sovereign debt crisis.

  February 02, 2015   doi: 10.1111/geer.12068   open full text
• Is Crowdfunding Different? Evidence on the Relation between Gender and Funding Success from a German Peer‐to‐Peer Lending Platform.
  Nataliya Barasinska, Dorothea Schäfer.
  German Economic Review. May 06, 2014
  According to the literature on traditional banking, lenders often discriminate against female borrowers. However, studies of Peer‐to‐Peer lending in the United States find that female borrowers have better chances of obtaining funds than do males. We provide evidence on the success of female borrowers at a large German peer‐to‐peer lending platform. Our results show that there is no effect of gender on the individual borrower's chance to receive funds on this platform, ceteris paribus. Several robustness checks confirm this finding. Hence, female discrimination seems to be eased by the ‘wisdom of the lending crowd’.

  May 06, 2014   doi: 10.1111/geer.12052   open full text
• Don't Tax Me? Determinants of Individual Attitudes Toward Progressive Taxation.
  Tanja Hennighausen, Friedrich Heinemann.
  German Economic Review. April 02, 2014
  This contribution empirically analyzes the individual determinants of tax rate preferences. For that purpose, we use representative survey data from the German General Social Survey, which offers information on attitudes toward progressive, proportional and regressive taxation. On the basis of theoretical considerations, we explore the factors which, beyond an individual's financial interest, should drive preferences for progressive taxation. Our empirical results confirm that the narrow redistributive self‐interest does not offer the sole explanation of the heterogeneity in individual attitudes. Rather, we show that the choice of the favored tax rate is also driven by fairness considerations and beliefs on the role of effort for economic success.

  April 02, 2014   doi: 10.1111/geer.12050   open full text
• Hooliganism and Demand for Football in Italy: Attendance and Counterviolence Policy Evaluation.
  Marco Di Domizio, Raul Caruso.
  German Economic Review. March 28, 2014
  This paper empirically investigates the relationship between stadium attendance, hooliganism and counter‐violence policy measures in Italian Serie A. In particular, this paper analyses the impact of counter‐hooliganism policies adopted in 2007 on the quantity of game tickets sold. The counter‐hooliganism measures, grounded on an entry card, namely a ‘fidelity card’, were designed to keep out hooligans from stadiums so favouring the attendance of either occasional spectators or uncommitted fans. According to our econometric investigation the expected substitution between committed fans and uncommitted fans did not take shape. In sum, the ‘fidelity card’ did not turn to be successful if evaluated on the average attendance perspective.

  March 28, 2014   doi: 10.1111/geer.12051   open full text
• Financial System Leverage and the Shortage of Safe Assets: Exploring the Policy Options.
  Dirk Bleich, Andreas Dombret.
  German Economic Review. March 24, 2014
  In this article, we provide a simple supply and demand framework in which the build‐up of an excessive level of leverage can result in a shortage of safe assets. On the basis of this, we discuss various policy options. First, we address the question of what policy‐makers should do if shortages of safe assets arise. Second, we discuss what has to be done to prevent potential shortages of safe assets. Our main finding is that a smoother leverage cycle – which, in particular, implies less leverage in booms – is a major condition for preventing shortages of safe assets.

  March 24, 2014   doi: 10.1111/geer.12049   open full text
• Federalism with Bicameralism.
  Lisa Grazzini, Alessandro Petretto.
  German Economic Review. March 24, 2014
  We analyse how bicameralism can affect national fiscal policies in a federal country when vertical and horizontal externalities interact. Conditions are provided to show when, at equilibrium, the two chambers agree or disagree on the choice of a national capital tax rate, depending on whether or not the pivotal voter in the two chambers is the same.

  March 24, 2014   doi: 10.1111/geer.12046   open full text
• Same Same But Different: Dialects and Trade.
  Alfred Lameli, Volker Nitsch, Jens Südekum, Nikolaus Wolf.
  German Economic Review. March 24, 2014
  Language is a strong and robust determinant of international trade patterns: Countries sharing a common language trade significantly more with each other than countries using different languages, holding other factors constant. In this article we present the first analysis of the effect of language on trade in an intra‐national context. Analyzing unique data for a single‐language country, Germany, we find that similarities in the local dialect have a significantly positive impact on regional trade. We interpret this finding as evidence for the trade‐promoting effect of culture, because linguistic similarities likely reflect cultural ties across regions, rather than lower costs of communication or similar institutions.

  March 24, 2014   doi: 10.1111/geer.12047   open full text
• Much Ado about Nothing? The Role of Primary School Catchment Areas For Ethnic School Segregation: Evidence From a Policy Reform.
  Anna Makles, Kerstin Schneider.
  German Economic Review. March 24, 2014
  By the 2008/09 school year the federal state of North Rhine‐Westphalia (Germany) abolished binding school catchment areas in all municipalities. The reform has been controversial and it was feared that school choice would increase ethnic segregation. Using data on all primary schools we contribute to this debate by analyzing ethnic segregation before and after the reform. We discuss drawbacks of commonly used segregation indices and their interpretation as well as causality issues. Although there is an increase in segregation over the time period studied, our results show that segregation has not been affected by the policy reform.

  March 24, 2014   doi: 10.1111/geer.12048   open full text
• Explaining European Emission Allowance Price Dynamics: Evidence from Phase II.
  Wilfried Rickels, Dennis Görlich, Sonja Peterson.
  German Economic Review. February 15, 2014
  We empirically investigate potential determinants of the allowance price dynamics in the European Union Emission Trading Scheme during Phase II. In contrast to previous studies, we place particular emphasis on the fuel price selection. We show that results are extremely sensitive to choosing different price series of potential determinants, such as coal and gas prices. In general, only the influence of economic activity in Europe and hydropower provision in Norway is robustly explaining allowance price dynamics. The influence of fuel switching on allowance prices and, therefore, equalization of marginal abatement costs – in particular in the long run – is still rather small.

  February 15, 2014   doi: 10.1111/geer.12045   open full text
• Within‐Subject Intra‐ and Inter‐Method Consistency of Two Experimental Risk Attitude Elicitation Methods.
  Uwe Dulleck, Jonas Fooken, Jacob Fell.
  German Economic Review. November 27, 2013
  We compare the consistency of choices in two methods used to elicit risk preferences on an aggregate as well as on an individual level. We ask subjects to choose twice from a list of nine decisions between two lotteries, as introduced by Holt and Laury ) alternating with nine decisions using the budget approach introduced by Andreoni and Harbaugh (). We find that, while on an aggregate (subject pool) level the results are consistent, on an individual (within‐subject) level, behaviour is far from consistent. Within each method as well as across methods we observe low (simple and rank) correlations.

  November 27, 2013   doi: 10.1111/geer.12043   open full text
• Are We Spending Too Many Years in School? Causal Evidence of the Impact of Shortening Secondary School Duration.
  Bettina Büttner, Stephan L. Thomsen.
  German Economic Review. November 16, 2013
  During the last decade, most of the German states have abolished the final year of higher secondary schooling while keeping academic content almost unaltered. We evaluate the effects of the reform in Saxony‐Anhalt for the double cohort of graduates in 2007. In 2003, the 13th year of schooling was eliminated for students in grade 9, while tenth grade students were unaffected. This provides a natural experiment for analyzing the impact on schooling achievements and educational choice. We find negative effects on grades in mathematics, but no effects in German literature. Moreover, a significant share of females were found to delay university enrollment.

  November 16, 2013   doi: 10.1111/geer.12038   open full text
• Forecasting GDP at the Regional Level with Many Predictors.
  Robert Lehmann, Klaus Wohlrabe.
  German Economic Review. November 14, 2013
  In this study, we assess the accuracy of macroeconomic forecasts at the regional level using a large data set at quarterly frequency. We forecast gross domestic product (GDP) for two German states (Free State of Saxony and Baden‐Württemberg) and Eastern Germany. We overcome the problem of a ‘data‐poor environment’ at the sub‐national level by complementing various regional indicators with more than 200 national and international indicators. We calculate single‐indicator, multi‐indicator, pooled and factor forecasts in a ‘pseudo‐real‐time’ setting. Our results show that we can significantly increase forecast accuracy compared with an autoregressive benchmark model, both for short‐ and long‐term predictions. Furthermore, regional indicators play a crucial role for forecasting regional GDP.

  November 14, 2013   doi: 10.1111/geer.12042   open full text
• Looks Good, You're Hired? Evidence from Extra‐Parliamentary Activities of German Parliamentarians.
  Benny Geys.
  German Economic Review. November 13, 2013
  Politicians have been shown to benefit electorally from an attractive physical appearance. Employing data on 614 German MPs, this note explores whether it also affects their success/failure in the market for extra‐parliamentary activities. An attractive physical appearance is found to mainly benefit female MPs, especially for private‐sector jobs. This is particularly driven by MPs’ perceived likability. While MP's perceived beauty is shown to have no direct effects for extra‐parliamentary activities, our findings suggest important indirect effects.

  November 13, 2013   doi: 10.1111/geer.12041   open full text
• Price Convergence and Information Efficiency in German Natural Gas Markets.
  Christian Growitsch, Marcus Stronzik, Rabindra Nepal.
  German Economic Review. October 18, 2013
  In 2007, Germany changed network access regulation in the natural gas sector and introduced a so‐called entry–exit system. The spot market effects of the reregulation remain to be examined. We use cointegration analysis and a state space model with time‐varying coefficients to study the development of natural gas spot prices in the two major trading hubs in Germany and the interlinked spot market in the Netherlands. To analyse information efficiency in more detail, the state space model is extended to an error correction model. Overall, our results suggest a reasonable degree of price convergence between the corresponding hubs. Market efficiency in terms of information processing has increased considerably among Germany and the Netherlands.

  October 18, 2013   doi: 10.1111/geer.12034   open full text
• Do Long‐Term Unemployed Workers Benefit from Targeted Wage Subsidies?
  Benjamin Schünemann, Michael Lechner, Conny Wunsch.
  German Economic Review. October 18, 2013
  We evaluate a wage subsidy program that is targeted at long‐term unemployed workers in Germany. We use an alternative identification procedure compared to empirical studies conducted so far. Exploiting the particular program regulations and large administrative data we estimate the impact of program availability using a regression discontinuity framework. Our results suggest no significant impact of the availability of the subsidy on labor market outcomes of the target group. Even though our analysis lacks some statistical power, our findings do not support the substantial positive effects obtained from matching studies. As our approach does not require observability of all drivers of selection, previous empirical studies justifying government expenditures on wage subsidies based on matching methods should be reconsidered.

  October 18, 2013   doi: 10.1111/geer.12040   open full text
• Fiscal Policy, Public Debt and the World Crisis.
  Gauti B. Eggertsson.
  German Economic Review. October 11, 2013
  This study summarizes a theory of the origin of the current world economic crisis and the role of fiscal policy in mitigating its effect. The perspective is dynamic stochastic general equilibrium analysis. Overall, the model analysis suggests a strong case for fiscal policy if the monetary authority is unable/unwilling to close the output gap. This remains the case, even when explicitly taking into account public debt dynamics.

  October 11, 2013   doi: 10.1111/geer.12037   open full text
• The Politics of Public Debt: Neoliberalism, Capitalist Development and the Restructuring of the State.
  Wolfgang Streeck.
  German Economic Review. August 02, 2013
  Rising public debt has been widespread in democratic‐capitalist political economies since the 1970s, generally accompanied among other things by weak economic growth, rising unemployment, increasing inequality, growing tax resistance, and declining political participation. Following an initial period of fiscal consolidation in the 1990s, public debt took an unprecedented leap in reponse to the Great Recession. Renewed consolidation efforts, under the pressure of ‘financial markets’, point to a general decline in state expenditure, particularly discretionary and investment expenditure, and of extensive retrenchment and privatization of state functions.

  August 02, 2013   doi: 10.1111/geer.12032   open full text
• Fiscal Multipliers and Their Relevance in a Currency Union – A Survey.
  Gerhard Illing, Sebastian Watzka.
  German Economic Review. August 01, 2013
  The article reviews the debate on government spending multiplier and provides a detailed discussion of the underlying economic mechanisms, focusing on the role of the state of the business cycle and the monetary policy reaction. Special emphasis is on the effects of fiscal policy within a currency union and its implications for the euro crisis.

  August 01, 2013   doi: 10.1111/geer.12027   open full text
• On the Political Economy of Public Deficits and Debt.
  Gebhard Kirchgässner.
  German Economic Review. August 01, 2013
  In OECD countries, we have observed a considerable increase in public debt over recent decades caused by large and lasting deficits. What is the reason for this development and why is it rather different by country? There are two approaches to explain this. Traditional economic theory explains why it makes sense to allow deficits of public budgets in certain situations, which might result in a limited amount of public debt. It also shows the conditions for the sustainability of public finances namely that public debt stays below certain limits and, in particular, does not – in the long run – increase faster than GDP. Following the recommendations of this approach, public budget surpluses should be run in economic upswings to compensate for deficits in recessions. By contrast, politico‐economic approaches explain why democratic governments have incentives to allow deficits even in periods of economic upswings. In the long run, this can lead to ever‐increasing public debt. To prevent this, institutional provisions are necessary. In this respect, Swiss debt brakes at the national and cantonal levels as well as the new German rules are of particular interest.

  August 01, 2013   doi: 10.1111/geer.12029   open full text
• Fiscal Stability of High‐Debt Nations under Volatile Economic Conditions.
  Robert E. Hall.
  German Economic Review. July 19, 2013
  Using a recursive empirical model of the real interest rate, GDP growth and the primary government deficit in the United States, I solve for the ergodic distribution of the debt/GDP ratio. If such a distribution exists, the government is satisfying its intertemporal budget constraint. One key finding is that historical fiscal policy would bring the current high‐debt ratio back to its normal level of 0.35 over the coming decade. Forecasts of continuing increases in the ratio over the decade make the implicit assumption that fiscal policy has shifted dramatically. In the variant of the model that matches the forecast, the government would not satisfy its intertemporal budget constraint if the policy was permanent. The willingness of investors to hold US government debt implies a belief that the high‐deficit policy is transitory.

  July 19, 2013   doi: 10.1111/geer.12025   open full text
• Life Satisfaction and Longevity: Longitudinal Evidence from the German Socio‐Economic Panel.
  Cahit Guven, Rudy Saloumidis.
  German Economic Review. July 12, 2013
  We investigate the relationship between life satisfaction and mortality using the German Socio‐Economic Panel, which allows us to follow around 15,000 people for more than two decades. Seventeen per cent of the respondents surveyed in 1984 died between 1984 and 2007. After controlling for initial health conditions, we find that people's life satisfaction at the beginning of the survey is deeply linked to their life expectancy: a ten per cent increase in life satisfaction is connected to a four per cent decline in the probability of death in the period studied. The relationship between life satisfaction and mortality is stronger for the married and the men but life satisfaction does not matter for the women. We find some suggestive evidence that links between life satisfaction and mortality could be operating via accidents and mental health. Finally, we show that the life satisfaction measured in 1984 extends to the rest of life: people who were happier in 1984 more frequently experienced high levels of happiness in the rest of their lives. These results suggest that life satisfaction is a powerful risk‐factor for later mortality and is more predictive of mortality than a host of other variables.

  July 12, 2013   doi: 10.1111/geer.12024   open full text
• Budget Rules and Fiscal Policy: Ten Lessons from Theory and Evidence.
  Alan J. Auerbach.
  German Economic Review. July 01, 2013
  There has been considerable research and discussion over the years about the potential role of fiscal rules in supporting better economic outcomes; the design, implementation and enforcement, of such rules; and the prospects for alternative fiscal and political institutions to promote the objectives to which fiscal rules are typically targeted. This paper provides an overview of some of the findings that this research and unfolding events have brought forward, organized in the form of ten lessons that can be learned from accumulating theory and evidence.

  July 01, 2013   doi: 10.1111/geer.12023   open full text
• What Is the Value of Sovereign Ratings?
  Norbert Gaillard.
  German Economic Review. June 27, 2013
  This article gives a fresh analysis of sovereign ratings, including the recent default of Greece. Section 1 studies the evolution of the sovereign rating business, and Section 2 explains how credit ratings are assigned. Section 3 focuses on sovereign rating methodologies and identifies the key determinants of sovereign ratings. Section 4 measures the accuracy of these ratings between 1 January 2001 and 1 January 2013. Section 5 compares credit ratings to market‐based indicators, and Section 6 concludes.

  June 27, 2013   doi: 10.1111/geer.12018   open full text
• Should Welfare Administration be Centralized or Decentralized? Evidence from a Policy Experiment.
  Bernhard Boockmann, Stephan L. Thomsen, Thomas Walter, Christian Göbel, Martin Huber.
  German Economic Review. June 27, 2013
  The 2005 reform of the German welfare system introduced two competing organizational models for welfare administration. In most districts, a centralized organization was established where local welfare agencies are bound to central directives. At the same time, 69 districts were allowed to opt for a decentralized organization. We evaluate the relative success of both types in terms of integrating welfare recipients into employment. Compared to centralized organization, decentralized organization has a negative effect on employment chances of males. For women, no significant effect is found. These findings are robust to the inclusion of aspects of internal organization common to both types of agencies.

  June 27, 2013   doi: 10.1111/geer.12021   open full text
• Democracy, Elections and Government Budget Deficits.
  Jakob Haan.
  German Economic Review. June 20, 2013
  I review research on the relationship between democracy and government indebtedness. I first discuss whether the extent to which politicians use fiscal policy for reelection purposes is conditioned by a country's experience with democracy. Political budget cycles are not confined to young democracies, but evidence suggests that in younger democracies such cycles are more likely and also stronger than in more mature democracies. Next, I discuss whether the use of fiscal policy by the incumbent increases his/her chances for reelection. Research discussed suggests that political parties in government benefit to some extent if fiscal policy turns expansionary before elections occur.

  June 20, 2013   doi: 10.1111/geer.12022   open full text
• Do Economists Have a Fatherland? How Global and National Efficiency Considerations Influence Economists’ Policy Judgements.
  Robert Jacob, Detlef Fetchenhauer, Fabian Christandl.
  German Economic Review. June 12, 2013
  This study evaluates whether economists support economic policies such as free trade because they deem them to be good for their home country or because they increase global welfare. In a telephone survey, 100 German economists were asked to judge different policy proposals dealing with immigration, military exports and climate policy. Our results show that the acceptance of the policy proposals is strongly influenced by national efficiency judgements. In contrast, global efficiency judgements exert no significant positive effect on policy proposal acceptance. These effects even hold for economists who self‐reported a global perspective in the assessment of the policy proposals. These judgements might be based on the potentially erroneous assumption that their policy judgements, taken from a national perspective, are consistent with global interests.

  June 12, 2013   doi: 10.1111/geer.12017   open full text
• Fiscal Austerity and the Multiplier in Times of Crisis.
  Gernot J. Müller.
  German Economic Review. June 07, 2013
  To address concerns about the sustainability of public debt, most industrialized countries shifted towards fiscal austerity after 2010. A popular concern is that austerity is self‐defeating, because fiscal multipliers can be large. Specifically, a number of recent studies find that multipliers tend to be large during financial crises and/or if monetary policy is constrained by the zero lower bound. However, public debt crises tend to have an offsetting effect by making multipliers smaller than during normal times. Consequently, while austerity is no cure for all, it is unlikely to be literally self‐defeating when sovereign risk is high.

  June 07, 2013   doi: 10.1111/geer.12020   open full text
• Turning the Switch: An Evaluation of the Minimum Wage in the German Electrical Trade Using Repeated Natural Experiments.
  Bernhard Boockmann, Raimund Krumm, Michael Neumann, Pia Rattenhuber.
  German Economic Review. April 19, 2013
  The introduction, abolition and subsequent re‐introduction of the minimum wage in the German electrical trade gave rise to series of natural experiments, which are used to study minimum wage effects. We find similar impacts in all three cases on wages, employment and the receipt of public welfare benefits. Average wages are raised by the minimum wage in East Germany, but there is almost no evidence for employment effects. The results also show that the wage effect is quickly undone after the abolition of the minimum wage.

  April 19, 2013   doi: 10.1111/geer.12016   open full text
• Heterogeneity in the Relationship between Happiness and Age: Evidence from the German Socio‐Economic Panel.
  Gregori Baetschmann.
  German Economic Review. April 09, 2013
  This paper studies the evolution of life satisfaction over the life course in Germany. It clarifies the causal interpretation of the econometric model by discussing the choice of control variables and the underidentification between age, cohort and time effects. The empirical part analyzes the distribution of life satisfaction over the life course at the aggregated, subgroup and individual level. To the findings: On average, life satisfaction is mildly decreasing up to age 55 followed by a hump shape with a maximum at 70. The analysis at the lower levels suggests that people differ in their life satisfaction trends, whereas the hump shape after age 55 is robust. No important differences between men and women are found. In contrast, education groups differ in their trends: highly educated people become happier over the life cycle, where life satisfaction decreases for less‐educated people.

  April 09, 2013   doi: 10.1111/geer.12015   open full text
• The Minimum Wage Affects Them All: Evidence on Employment Spillovers in the Roofing Sector.
  Bodo Aretz, Melanie Arntz, Terry Gregory.
  German Economic Review. March 29, 2013
  This study contributes to the sparse literature on employment spillovers on minimum wages. We exploit the minimum wage introduction and subsequent increases in the German roofing sector that gave rise to an internationally unprecedented hard bite of a minimum wage. We look at the chances of remaining employed in the roofing sector for workers with and without a binding minimum wage and use the plumbing sector that is not subject to a minimum wage as a suitable benchmark sector. By estimating the counterfactual wage that plumbers would receive in the roofing sector given their characteristics, we are able to identify employment effects along the entire wage distribution. The results indicate that the chances for roofers to remain employed in the sector in eastern Germany deteriorated along the entire wage distribution. Such employment spillovers to workers without a binding minimum wage may result from scale effects and/or capital–labour substitution.

  March 29, 2013   doi: 10.1111/geer.12012   open full text
• Reciprocity and Giving in a Consecutive Three‐Person Dictator Game with Social Interaction.
  Gunter Bahr, Till Requate.
  German Economic Review. March 27, 2013
  We study pure indirect reciprocity by setting up a modified dictator game with three players A, B, and C acting sequentially. Subject A takes a share of a pie and passes the rest to subject B, while B divides the rest between herself and C. We find that this consecutive three‐person dictator game increases generosity compared with the traditional two‐person dictator game. We analyze the influence of social interaction and uncertainty. In treatments with certainty we observe pure indirect reciprocity: B indirectly reciprocates for A's behavior in the decision on how generous to be to C.

  March 27, 2013   doi: 10.1111/geer.12013   open full text
• Fixing the Leak: Unemployment Incidence before and after a Major Reform of Unemployment Benefits in Germany.
  Stephan Dlugosz, Gesine Stephan, Ralf A. Wilke.
  German Economic Review. March 26, 2013
  We present first empirical results on the effects of a large scale reduction in unemployment benefit entitlement lengths on unemployment inflows in Germany. We show that this highly disputed element of the Hartz‐Reforms in 2006 induced a rush of workers and firms to take advantage of the previous legislation in its last days. Furthermore, we find a considerable decline in transitions to unemployment and an increase in employment rates among older workers after the reform. Our results provide new evidence for the importance of changes in unemployment inflows for the analysis of changes in unemployment outflows.

  March 26, 2013   doi: 10.1111/geer.12014   open full text
• The Determinants of Sticky Prices and Sticky Plans: Evidence from German Business Survey Data.
  Heike Schenkelberg.
  German Economic Review. March 21, 2013
  So far, there is no consensus on the price adjustment determinants in the empirical literature. Analyzing a novel firm‐level business survey data set, we provide new insights on the price setting behavior of German retailers during a low inflation period. Relating the probability of both price and pricing plan adjustment to time‐ and state‐dependent variables, we find that state‐dependence is important; the macroeconomic environment as well as the firm‐specific condition significantly determines the timing of both actual price changes and pricing plan adjustments. Moreover, input cost changes are important determinants of price setting. Finally, price increases respond more strongly to cost shocks compared to price decreases.

  March 21, 2013   doi: 10.1111/geer.12011   open full text
• Up or Out: Research Incentives and Career Prospects of Postdocs in Germany.
  Bernd Fitzenberger, Ute Schulze.
  German Economic Review. February 22, 2013
  Academic careers in Germany have been under debate for a while. We conduct a survey among postdocs in Germany to analyze the perceptions and attitudes of postdocs regarding their research incentives, their working conditions, and their career prospects. We conceptualize the career prospects of a postdoc in a life‐cycle perspective of transitions from academic training to academic or non‐academic jobs. Only about half of the postdocs sees strong incentives for academic research, but there is quite a strong confidence to succeed in an academic career. Furthermore, postdocs who attended a PhD program show better career prospects and higher research incentives compared to others. Academic career prospects and motivation are strongest for assistant professors. Apart from this small group, however, postdocs report only a small impact of the university reforms of the last decade. Female postdocs show significantly higher research incentives but otherwise we find little gender differences. Finally, good prospects in non‐academic jobs are not associated with a reduction in the motivation for research.

  February 22, 2013   doi: 10.1111/geer.12010   open full text
• Labour Market Segmentation: Standard and Non‐Standard Employment in Germany.
  Marcel Garz.
  German Economic Review. January 21, 2013
  Data from the German Socio‐Economic Panel provide insight into the relationship between standard and non‐standard work, from the perspective of dual labour market theory. We identify two segments that largely correspond to the common distinction between these forms of employment and find substantial differences in the determination of wages, as well as the composition of worker and job characteristics. These differences tend to increase after the Hartz reforms. The estimates also indicate the existence of a primary sector wage premium and job rationing, as well as specific patterns of labour mobility due to (partly non‐economic) barriers between segments.

  January 21, 2013   doi: 10.1111/geer.12008   open full text
• The Employment Effect of Industry‐Specific, Collectively Bargained Minimum Wages.
  Hanna Frings.
  German Economic Review. January 21, 2013
  This study estimates the employment effects of industry‐specific, collectively bargained minimum wages in Germany for two occupations associated with the construction sector. I propose a truly exogenous control group in contrast to the control group design used in the literature. Further, a difference‐in‐differences‐in‐differences estimator is presented as a robustness test for occupation‐specific and/or industry‐specific, time‐varying, unobserved heterogeneity. I do not find a significantly negative employment effect, even though the minimum wage is binding in (East) Germany. Possible explanations include substitution effects, non‐compliance and models of monopsonic competition.

  January 21, 2013   doi: 10.1111/geer.12009   open full text
• Strategic Tax Collection and Fiscal Decentralization: The Case of Russia.
  Alexander Libman, Lars P. Feld.
  German Economic Review. January 12, 2013
  In a centralized federation, in which tax rates and taxation rules are set by the federal government, manipulating the thoroughness of tax auditing and the effectiveness of tax collection could be attractive for regional authorities. In this article, we test for strategic tax collection empirically using data of the Russian Federation. Russia's regional authorities in the 1990s have always been suspected of tax auditing manipulations in their favour. However, in the 2000s, increasing bargaining power of the centre seems to induce tax collection bodies in the regions to manipulate tax auditing in favour of the federal centre. Our findings confirm the existence of strategic tax collection for the Yeltsin period; the results for the Putin period are however ambiguous.

  January 12, 2013   doi: 10.1111/geer.12004   open full text
• Asset Returns, the Business Cycle and the Labor Market.
  Burkhard Heer, Alfred Maußner.
  German Economic Review. October 01, 2012
  We review the labor market implications of recent real‐business cycle and New Keynesian models that successfully replicate the empirical equity premium. We document the fact that all models reviewed in this article that do not feature either sticky wages or immobile labor between two production sectors as in Boldrin et al. (2001) imply a negative correlation of working hours and output that is not observed empirically. Within the class of Neo‐Keynesian models, sticky prices alone are demonstrated to be less successful than rigid nominal wages with respect to the modeling of the labor market stylized facts. In addition, monetary shocks in these models are required to be much more volatile than productivity shocks to match statistics from both the asset and labor market.

  October 01, 2012   doi: 10.1111/j.1468-0475.2012.00582.x   open full text
• Bequest Motives and the Demand for Life Insurance in East Germany.
  Nicolas Sauter.
  German Economic Review. August 08, 2012
  Empirical studies of household saving remain inconclusive about the role of bequest motives. This may be due to the diluting effect of different tax regimes across countries and time on estimates of bequest motives. Relative to market‐based economies, the former German Democratic Republic can be viewed as an experimental institutional setting where life‐insurance demand was not influenced by tax considerations. This allows isolating bequest motives from other life‐cycle and precautionary savings motives. Analyzing the demand for life insurance, we find a significantly higher ownership probability among households with children and a high regard for the family, confirming bequest motives in life‐insurance demand.

  August 08, 2012   doi: 10.1111/j.1468-0475.2012.00579.x   open full text
• Inequality Perceptions, Distributional Norms, and Redistributive Preferences in East and West Germany.
  Andreas Kuhn.
  German Economic Review. July 18, 2012
  This paper analyzes differences in inequality perceptions, distributional norms, and redistributive preferences between East and West Germany. As expected, there are substantial differences with respect to all three of these measures. Surprisingly, however, differences in distributional norms are much smaller than differences with respect to inequality perceptions or redistributive preferences. Moreover, individuals from East Germany tend to be more supportive of state redistribution and progressive taxation and they are less likely to have a conservative political orientation. I finally show that a substantial part of these differences in political preferences can be explained by underlying differences in redistributive preferences.

  July 18, 2012   doi: 10.1111/j.1468-0475.2012.00577.x   open full text
• Has Labor Income Become More Volatile? Evidence from International Industry‐Level Data.
  Claudia M. Buch.
  German Economic Review. July 03, 2012
  Changes in labor market institutions and the increasing integration of the world economy may affect the volatility of capital and labor incomes. This article documents and analyzes changes in income volatility using data for 11 industrialized countries, 22 industries and 35 years (1970–2004). The article has four main findings. First, the unconditional volatility of labor income has declined in parallel to the decline in macroeconomic volatility. Second, the industry‐specific, idiosyncratic component of labor income volatility has hardly changed. Third, cross‐sectional heterogeneity is substantial. If anything, the labor incomes of high‐ and low‐skilled workers have become more volatile relative to the volatility of capital incomes. Fourth, the volatility of labor income relative to the volatility of capital income declines in the labor share. Trade openness has no clear‐cut impact.

  July 03, 2012   doi: 10.1111/j.1468-0475.2012.00575.x   open full text
• A Simple Model of Health Insurance Competition.
  Alexander Kemnitz.
  German Economic Review. June 07, 2012
  This study investigates competition between health insurance companies under different financing regulations. We consider two alternatives advanced in recent German healthcare reform discussions: competition by contribution rates (health contributions) and by fees (health premia). We find that contribution rate competition yields lower company profits and higher consumer welfare than premia competition when switching between insurance companies is costly.

  June 07, 2012   doi: 10.1111/j.1468-0475.2012.00573.x   open full text
• Market Liberalization, Regulatory Uncertainty, and Firm Investment.
  Florian Baumann, Tim Friehe.
  German Economic Review. March 08, 2012
  This paper analyzes the effects of regulatory uncertainty regarding labor costs on investment in a liberalized market. We distinguish between the external investment margin (market entry) and the internal investment margin (technology), and establish that regulatory uncertainty affects these margins differently, encouraging market entry, but discouraging technological investment. As a consequence, the impact of regulatory uncertainty on competition in liberalized markets is a combination of these two countervailing forces.

  March 08, 2012   doi: 10.1111/j.1468-0475.2012.0564.x   open full text
• Banks, Financial Markets and International Consumption Risk Sharing.
  Markus Leibrecht, Johann Scharler.
  German Economic Review. January 27, 2012
  In this article, we explore how characteristics of the domestic financial system influence the international allocation of consumption risk in a sample of OECD countries. Our results show that the extent of risk sharing achieved does not depend on the overall development of the domestic financial system per se. Rather, it depends on how the financial system is organized. Countries characterized by developed financial markets are less exposed to idiosyncratic risk, whereas the development of the banking sector contributes little to the international diversification of consumption risk.

  January 27, 2012   doi: 10.1111/j.1468-0475.2011.0560.x   open full text