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Ideologically-charged Terminology
Scholars have been active in investigating causes and consequences of austerity policies. We examine how economists use the term "austerity" in scientific studies and measure austerity in empirical analyses. The sample includes around 3,500 journal articles published in the top 400 journals (RePEc ranking) over the period 1990-2018. The results show that the term austerity is often used in heterodox journals. Papers published in mainstream journals use the term "fiscal consolidation" instead. The term austerity is ambiguous: scholars use manifold definitions of austerity and the empirical measures identify different country-year observations as periods of austerity. We employ panel data for 34 OECD countries over the period 1960-2014 and examine how austerity is associated with economic growth. The results show that depending on how austerity is measured, inferences change. Strategic selection of austerity measures allows scholars to arrive at any desired results about the economic effects of austerity periods.
A Contribution to the Empirics of Economic Development
Why are some nations rich and others poor? What are the sources of long-run economic development and growth? How can living standards be increased? In this book, Klaus Gründler empirically analyses these central economic questions and puts a particular emphasis on the role of technology, inequality, and political institutions. To substantiate his empirical studies, he introduces a new method to compute composite measures and indices that is based on mathematical algorithms from the field of machine learning.
Political Shocks and Inflation Expectations
How do global political shocks influence individuals' expectations about economic outcomes? We run a unique survey on inflation expectations among 145 tenured economics professors in Germany and exploit the 2022 Russian invasion in Ukraine as a natural experiment to identify the effect of a global political shock on expectations about national inflation rates. We find that the Russian invasion increased short-run inflation expectations for 2022 by 0.75 percentage points. Treatment effects are smaller regarding mid-term expectations for 2023 (0.47 percentage points) and are close to zero for longer periods. Text analysis of open questions shows that experts increase their inflation expectations because they expect supply-side effects to become increasingly important after the invasion. Moreover, experts in the treatment group are less likely to favour an immediate reaction of monetary policy to the increased inflation, which gives further evidence of the shock being interpreted primarily as a supply-side shock.
Political Stability and Economic Prosperity
We provide evidence that political instability deteriorates economic growth. We establish this result based on panel difference-in-differences strategies and dynamic panel data models using a large sample of 180 countries, a novel geocoded dataset for 2,660 regions, and micro data for about 250,000 households. We exploit coups d'état as a source of exogenous variation in political instability, as they are difficult to anticipate, mirror the political zeitgeist, and reduce measurement error. We use spatial variations and synthetic control methods for identification and find that periods of instability reduce growth by 2-3 percentage points, increase unemployment, and impair health and life satisfaction. The adverse effects are stronger for women than for men.
Economic Law as an Economic Good
Governments, or at least the clever ones among them, are aware of the factors guiding business activities. In the course of adopting and enforcing economic legislation, they seek to attract business activities in order to increase national income (and fiscal revenues), generate employment opportunities, and, very generally, please voters. Hence economic law may be considered an economic good, as suggested by the title of this book. That function, which most rules of economic law have in the competition of systems, was strengthened by the worldwide liberalization of trade. Today, it is of greater significance than ever before. Lawyers, economists, academics, and practitioners, from inside and outside Germany, have taken a look at the facts and have discussed approaches to conceptualizing them. The resulting 30 essays, collected in this volume, contribute to the interpretation of existing, and the making of new, economic law.
Fiscal Rules
We examine how fiscal rules influence economic growth. The results show that constitutional fiscal rules promoted growth from the Industrial Revolution until World War II (1789-1950) and also increased modern economic growth (1985-2015). To address selection on unobservables, we conduct a large-scale international survey among 1,224 economic experts in 109 countries. We exploit cross-country differences in expert preferences as an instrumental variable for the adoption of constitutional fiscal rules. The results show that the cumulative long-run effect of permanently adopting constitutional fiscal rules on real per capita GDP is 18%. As a complementary strategy to tackle unobservables, we examine sub-national fiscal rules, employing a newly collected dataset of 206 regional governments from 10 federal states (1992-2012). The results show that fiscal rules also increased economic growth at the sub-national level.
Political Leaders and Macroeconomic Expectations
Can one single political leader influence macroeconomic expectations on a global scale? We design a large-scale survey experiment among influential economic experts working in more than 100 countries and use the 2020 US presidential election as a quasi-natural experiment to identify the effect of the US incumbent change on global macroeconomic expectations. We find large effects of Joe Biden's election on growth expectations of international experts, working through more positive expectations about trade. The electoral outcome particularly affected the expectations of Western allies and increased global economic uncertainty. Our findings suggest important political spillover effects in the formation of macroeconomic expectations.
On the Empirics of Social Mobility
What are the causes of social mobility in a society? Whereas this question is of great interest for both researchers and policymakers, empirical studies concerning cross-country evidence usually suffer from small sample biases as intergenerational income elasticities are only available for a small number of countries. In this paper, we provide two measures based on widely available macro data enabling the estimation of social mobility for a large number of countries. Based on these measures we empirically explore the determinants of cross-country differences in mobility. It turns out that particularly less segregation, a good family environment, inspiring cognitive brain stimulation in early childhood education, high rates of employment, good opportunities to catch up to the average human capital endowment, low variations in school quality and a high amount of social capital foster social mobility. We further find that the "Great Gatsby Curve" is much less pronounced when analyzing the relationship between inequality and mobility in a large sample of countries.
Structural Reforms and Income Inequality
We examine how structural reforms relate to income inequality. We employ many indicators of structural reforms and use data for market and net income inequality. The dataset includes up to 135 countries since 1960. The results do not suggest that market-oriented structural reforms were associated with rising income inequality in the full sample. Trade and financial liberalization were positively associated with income inequality in high-income countries. An mportant question is whether structural reforms benefit individual groups. We employ macro and micro data to investigate whether the income of low-income citizens increased to a smaller extent than the income of high-income citizens. The results suggest quite the opposite: marketoriented reforms were positively correlated with income shares of low-income citizens. We also examine citizens’ support for structural reforms and show that low-income citizens are less likely to support market-oriented reforms than high-income citizens. It is conceivable that lowincome citizens have misperceptions about how they benefit from market-oriented reforms.
Should We Care (more) about Data Aggregation?
We compile data for 186 countries (1919 - 2016) and apply different aggregation methods to create new democracy indices. We observe that most of the available aggregation techniques produce indices that are often too favorable for autocratic regimes and too unfavorable for democratic regimes. The sole exception is a machine learning technique. Using a stylized model, we show that applying an index with implausibly low (high) scores for democracies (autocracies) in a regression analysis produces upward-biased OLS and 2SLS estimates. The results of an analysis of the effect of democracy on economic growth show that the distortions in the OLS and 2SLS estimates are substantial. Our findings imply that commonly used indices are not well suited for empirical purposes.
