Abstract This study examines how populist political leadership conditions the relationship between fiscal rules and sovereign debt-crisis risk. Fiscal rules are designed to strengthen discipline by limiting discretionary policymaking, but their credibility depends on the political institutions that enforce them. We develop a signaling framework in which populist pressure increases expected circumvention and weakens the informational value of formal fiscal constraints. Using panel data from 59 advanced and developing economies over 1985–2017, we find a positive and statistically significant interaction between fiscal rules and populist incumbency. Populist incumbency is associated with lower crisis risk where fiscal rules are absent, but this negative association disappears or reverses where fiscal rules are present. The interaction remains positive and statistically significant in subsamples characterized by high macro-political uncertainty, fragmented party systems, weak checks and balances, concentrated executive power, low central bank independence, and a fragile rule of law. Fiscal rules therefore support sustainability only when the surrounding political institutions can preserve their credibility and enforce their constraints.
Abstract This study examines the implications of data revisions for the assessment of fiscal sustainability in the Euro area. Using vintage datasets from the OECD Economic Outlook , we define ex ante data as the latest available estimates at each point in time and ex post data as the final revised values. To capture heterogeneous fiscal behaviors between Greece and other Euro area countries, we develop a novel approach, panel regression kink model with heterogeneous unknown thresholds. This study yields three main findings. First, it provides the first evidence of substantial differences in estimated fiscal responses between ex ante and ex post data for Greece, consistent with the fiscal sustainability criteria, thereby revealing “hidden fiscal unsustainability.” Second, recursive estimates based on real-time vintage data indicate that the weakening of Greece’s estimated fiscal response reflects both revisions to pre-EMU data and the addition of post-EMU observations. Third, in the Euro area as a whole, excluding Greece, fiscal discipline tends to emerge when the public debt exceeds levels ranging from 60 to 70 percent of the GDP. This study contributes to the ongoing debate on the reform of the European fiscal framework towards the assessment of fiscal sustainability.
Abstract Non-linearities in the uncertainty-output relationship may help to explain pronounced business cycle fluctuations. We suggest that the level of uncertainty itself influences the reaction of real activity to a surprise increase in uncertainty. We base our analysis on a measure of business uncertainty of firms’ decision makers, which is derived from a large survey panel covering the time-span 1980–2018. To study differences in the response to an increase in uncertainty, we use an interacted VAR model, where coefficients depend on the level of uncertainty, and uncertainty enters as an endogenous variable. Surprise increases in uncertainty have particularly adverse effects when the level of uncertainty is low compared to periods in which firms are already highly uncertain. This non-linear effect occurs during recession and non-recession phases.
Abstract We develop an economic geography model that integrates the constructed capital framework by Baldwin (1999. “Agglomeration and Endogenous Capital.” European Economic Review 43 (2): 253–80) with a task-based approach to explore automation and spatial agglomeration. First, we show that automated firms have an incentive to agglomerate in locations with large market demand. Consequently, they tend to locate in the central region instead of the periphery when trade freeness is high. Second, as the number of automated tasks increases, the agglomeration strengthens due to capital accumulation and scale economies driven by an increased demand for capital. Finally, since our model features demand- and production-side circular causalities, we derive a critical substitution threshold to determine which forces dominate the other.
This study examines the payout policies of modern state-owned enterprises (SOEs) using unique official statistics on German SOEs from 2003 to 2014. The findings reveal that agency conflicts significantly influence SOEs' payout behavior, leading to payout smoothing over time. Vertical agency costs, arising from owner-manager conflicts, and horizontal agency costs, stemming from owner-owner conflicts, are shown to intensify this smoothing. In minority-controlled SOEs, higher ownership dispersion further amplifies payout smoothing due to free-rider in monitoring. Our results highlight payouts as a disciplinary mechanism to mitigate agency costs. Overall, SOEs' payout policies are comparable to dividend policies of private-sector firms.
