High public deficit not only because of Corona - Medium-term options for action for the state
Andrej Drygalla, Oliver Holtemöller, Axel Lindner, Matthias Wieschemeyer, Götz Zeddies, Katja Heinisch
Konjunktur aktuell,
No. 4,
2020
Abstract
Nach der Mittelfristprojektion des IWH wird das Bruttoinlandsprodukt in Deutschland in den Jahren bis 2025 preisbereinigt um durchschnittlich ½% wachsen, und damit einen Prozentpunkt langsamer als im Zeitraum von 2013 bis 2019. Dies ist nicht nur auf den starken Einbruch im Jahr 2020 zurückzuführen, sondern auch darauf, dass die Erwerbsbevölkerung spürbar zurückgehen wird. Die Staatseinnahmen expandieren deutlich langsamer als in den vergangenen Jahren. Auch nach Überwindung der Pandemiekrise dürfte der Staatshaushalt im Fall unveränderter gesetzlicher Rahmenbedingungen ein strukturelles Defizit von etwa 2% relativ zum Bruttoinlandsprodukt aufweisen, und die Schuldenbremse würde weiter verletzt. Konsolidierungsmaßnahmen zur Rückführung dieser Defizitquote auf ½% würden die Produktion in Deutschland unter die Normalauslastung drücken. Mit Hilfe des finanzpolitischen Simulationsmodells des IWH kann gezeigt werden, dass dabei eine ausgabenseitige Konsolidierung die Produktion weniger belastet als eine einnahmenseitige. Es spricht, auch aus theoretischer Sicht, viel dafür, die Schuldenbremse zwar nicht abzuschaffen, aber ein Stück weit zu lockern.
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Evolvement of China-related Topics in Academic Accounting Research: Machine Learning Evidence
June Cao, Zhanzhong Gu, Iftekhar Hasan
China Accounting and Finance Review,
No. 4,
2020
Abstract
This study employs an unsupervised machine learning approach to explore the evolution of accounting research. We are particularly interested in exploring why international researchers and audiences are interested in China-related issues; what kinds of research topics related to China are mainly investigated in globally recognised journals; and what patterns and emerging topics can be explored by comprehensively analysing a big sample. Using a training sample of 23,220 articles from 46 accounting journals over the period 1980 to 2018, we first identify the optimal number of accounting research topics; the dynamic patterns of these accounting research topics are explored on the basis of 46 accounting journals to show changes in the focus of accounting research. Further, we collect articles related to Chinese accounting research from 18 accounting journals, eight finance journals, and eight management journals over the period 1980 to 2018. We objectively identify China-related accounting research topics and map them to the stages of China’s economic development. We attempt to identify the China-related issues global researchers are interested in and whether accounting research reflects the economic context. We use HistCite TM to generate a citation map along a timeline to illustrate the connections between topics. The citation clusters demonstrate “tribalism” phenomena in accounting research. The topics related to Chinese accounting research conducted by international accounting researchers reveal that accounting changes mirror economic reforms. Our findings indicate that accounting research is embedded in the economic context.
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Transactional and Relational Approaches to Political Connections and the Cost of Debt
Taufiq Arifin, Iftekhar Hasan, Rezaul Kabir
Journal of Corporate Finance,
December
2020
Abstract
This paper examines the economic effects of a firm's approach to developing and maintaining political connections. Specifically, we investigate whether lenders favor transactional connection as opposed to relational connection. By tracing firms in a politically volatile emerging democracy in Indonesia, we find that firms following a transactional political connection strategy experience a relatively lower cost of debt than those with a relational strategy. The effect is more pronounced for firms facing high financial distress. The finding is robust to cost of bank loans and a variety of regression methods. Overall, the evidence suggests that in times of frequently changing political regimes, firms benefit from a transactional relationship with politicians as it enables to update connection with the government in power. Relational connection is valuable for a firm only when the political regime connected with it gains power.
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Decentralisation of Collective Bargaining: A Path to Productivity?
Daniele Aglio, Filippo di Mauro
IWH-CompNet Discussion Papers,
No. 3,
2020
Abstract
Productivity developments have been rather divergent across EU countries and particularly between Central Eastern Europe (CEE) and elsewhere in the continent (non-CEE). How is such phenomenon related to wage bargaining institutions? Starting from the Great Financial Crisis (GFC) shock, we analyse whether the specific set-up of wage bargaining prevailing in non-CEE may have helped their respective firms to sustain productivity in the aftermath of the crisis. To tackle the issue, we merge the CompNet dataset – of firm-level based productivity indicators – with the Wage Dynamics Network (WDN) survey on wage bargaining institutions. We show that there is a substantial difference in the institutional set-up between the two above groups of countries. First, in CEE countries the bulk of the wage bargaining (some 60%) takes place outside collective bargaining schemes. Second, when a collective bargaining system is adopted in CEE countries, it is prevalently in the form of firm-level bargaining (i. e. the strongest form of decentralisation), while in non-CEE countries is mostly subject to multi-level bargaining (i. e. an intermediate regime, only moderately decentralised). On productivity impacts, we show that firms’ TFP in the non-CEE region appears to have benefitted from the chosen form of decentralisation, while no such effects are detectable in CEE countries. On the channels of transmission, we show that decentralisation in non-CEE countries is also negatively correlated with dismissals and with unit labour costs, suggesting that such collective bargaining structure may have helped to better match workers with firms’ needs.
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The Economic Record of the Government and Sovereign Bond and Stock Returns Around National Elections
Stefan Eichler, Timo Plaga
Journal of Banking and Finance,
September
2020
Abstract
This paper investigates the role of the fiscal and economic record of the incumbent government in shaping the price response of sovereign bonds and stocks to the election outcome in emerging markets and developed countries. For sovereign bonds in emerging markets, we find robust evidence for higher cumulative abnormal returns (CARs) if a government associated with a relatively low primary fiscal balance is voted out of office compared to elections where the fiscal balance was relatively high. This effect of the incumbent government's fiscal record is significantly more pronounced in the presence of high sovereign default risk and strong political veto players, whereas the quality of institutions does not explain differences in effects for different events. We do not find robust effects of the government's fiscal record for developed countries and stocks.
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Cross-country Evidence on the Relationship between Regulations and the Development of the Life Insurance Sector
Chrysovalantis Gaganis, Iftekhar Hasan, Fotios Pasiouras
Economic Modelling,
July
2020
Abstract
Using a global sample, this study sketches the impact of insurance regulations on the life insurance sector, revealing a significant negative association between supervisory control on policy conditions of life annuities as well as pension products and the development of the industry. A similar inverse relation is observed between the index of capital requirements and insurance development. These results hold when we control for demographic factors, economic factors, religious inclination, culture, as well as for other relevant regulations. We also find some evidence that while the overall supervisory power does not matter, the ability to intervene at an early stage could have a positive effect on insurance development. Additionally, the impact of some regulations appears to differ between advanced and developing countries.
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Employment Effects of Introducing a Minimum Wage: The Case of Germany
Oliver Holtemöller, Felix Pohle
Economic Modelling,
July
2020
Abstract
Income inequality has been a major concern of economic policy makers for several years. Can minimum wages help to mitigate inequality? In 2015, the German government introduced a nationwide statutory minimum wage to reduce income inequality by improving the labour income of low-wage employees. However, the employment effects of wage increases depend on time and region specific conditions and, hence, they cannot be known in advance. Because negative employment effects may offset the income gains for low-wage employees, it is important to evaluate minimum-wage policies empirically. We estimate the employment effects of the German minimum-wage introduction using panel regressions on the state-industry-level. We find a robust negative effect of the minimum wage on marginal and a robust positive effect on regular employment. In terms of the number of jobs, our results imply a negative overall effect. Hence, low-wage employees who are still employed are better off at the expense of those who have lost their jobs due to the minimum wage.
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01.07.2020 • 11/2020
New Horizon 2020 project: The Challenge of the Social Impact of Energy Transitions
Funded by the European Commission’s Framework Programme Horizon 2020, the ENTRANCES project recently closed its kick-off meeting with a high scientific and institutional participation, and taking on the challenge of modeling the social impact of the energy transition.
Oliver Holtemöller
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Transmitting Fiscal Covid-19 Counterstrikes Effectively: Mind the Banks!
Reint E. Gropp, Michael Koetter, William McShane
IWH Online,
No. 2,
2020
Abstract
The German government launched an unprecedented range of support programmes to mitigate the economic fallout from the Covid-19 pandemic for employees, self-employed, and firms. Fiscal transfers and guarantees amount to approximately €1.2 billion by now and are supplemented by similarly impressive measures taken at the European level. We argue in this note that the pandemic poses, however, also important challenges to financial stability in general and bank resilience in particular. A stable banking system is, in turn, crucial to ensure that support measures are transmitted to the real economy and that credit markets function seamlessly. Our analysis shows that banks are exposed rather differently to deteriorated business outlooks due to marked differences in their lending specialisation to different economic sectors. Moreover, a number of the banks that were hit hardest by bleak growth prospects of their borrowers were already relatively thinly capitalised at the outset of the pandemic. This coincidence can impair the ability and willingness of selected banks to continue lending to their mostly small and medium sized entrepreneurial customers. Therefore, ensuring financial stability is an important pre-requisite to also ensure the effectiveness of fiscal support measures. We estimate that contracting business prospects during the first quarter of 2020 could lead to an additional volume of non-performing loans (NPL) among the 40 most stressed banks ‒ mostly small, regional relationship lenders ‒ on the order of around €200 million. Given an initial stock of NPL of €650 million, this estimate thus suggests a potential level of NPL at year-end of €1.45 billion for this fairly small group of banks already. We further show that 17 regional banking markets are particularly exposed to an undesirable coincidence of starkly deteriorating borrower prospects and weakly capitalised local banks. Since these regions are home to around 6.8% of total employment in Germany, we argue that ensuring financial stability in the form of healthy bank balance sheets should be an important element of the policy strategy to contain the adverse real economic effects of the pandemic.
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Democracy and Credit
Manthos D. Delis, Iftekhar Hasan, Steven Ongena
Journal of Financial Economics,
No. 2,
2020
Abstract
Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we find that democratization has a sizable negative effect on loan spreads: a 1-point increase in the zero-to-ten Polity IV index of democracy shaves at least 19 basis points off spreads, but likely more. Reversals to autocracy hike spreads more strongly. Our findings are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of other sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization can affect economic development.
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