A distinguishing feature among households is whether adult members work or not, since the occupational status of adults affects their available time for home activities. Using a survey method in two countries, Belgium and Germany, we provide household incomes that retain the level of well-being across different family types, distinguished by family size and occupational status of adults. Our tests support that childcare-time costs are important determinants of household well-being. Estimates of child costs relative to an adult are higher for households that are time-constrained (all adults in the household work). Moreover, we find supportive evidence for the hypothesis that, in two-adult households, there is a potential for within-household welfare gains from specialization in market- vs. domestic activities, especially childcare.

We employ a rich sample of individual tax returns data to simulate alternatives to the income tax reform introduced in Germany by the governmental coalition of Social Democrats and Greens in 1998. We characterize three reforms that would have been fiscally equivalent to the actual one: a distributionally neutral tax reform, one with a maximal basic allowance, and a flat tax. By comparing the individual tax burdens under each alternative, we simulate majority voting on the tax reform. The actual reform loses against both the distributionally neutral reform and the one with maximal basic allowance; however, it wins against the flat tax. The Condorcet winner turns out to be the reform with maximal basic allowance.

We examine the role of money in the policies of the ECB, using introductory statements of the ECB President at the monthly press conferences during 1999-2004. Over time, the relative amount of words devoted to the monetary analysis has decreased. Our analysis of indicators of the monetary policy stance suggests that developments in the monetary sector, while somewhat more important in the later half of the sample, only played a minor role most of the time. Our estimates of ECB interest rate decisions suggest that the ECB’s words (monetary-sector based policy intensions) are not an important determinant of its actions.

The paper analyzes how international outsourcing affected individual employment security. The analysis is carried out at the micro-level, combining monthly spell data from household panel data and industry-level outsourcing measures. By utilizing micro-level data, problems such as aggregation and potential endogeneity bias, as well as crude skill approximations that regularly hamper industry level displacement studies, can be reduced considerably. The main finding is that international outsourcing significantly lowers individual employment security. Interestingly, the effect does, however, not differ between high-, medium-, and low-skilled workers but only varies with job duration.

Different family types may have a fixed flow of consumption costs, related to subsistence needs. We use a survey method in order to identify and estimate such a fixed component of spending for different families. Our method involves making direct questions about the linkup between aggregate disposable family income and well-being for different family types. Conducting our survey in six countries, Germany, France, Cyprus, China, India and Botswana, we provide evidence that fixed costs of consumption are embedded in welfare evaluations of respondents. More precisely, we find that the formalized relationship between welfare-retaining aggregate family incomes across different family types, suggested by Donaldson and Pendakur (2005) and termed “Generalized Absolute Equivalence Scale Exactness,” is prevalent and robust in our data. We use this relationship to identify subsistence needs of different family types and to calculate income inequality.

Atypische Engelkurven–Verläufe zeigen, dass die in der Faktisch Anonymisierten Lohn– und Einkommensteuerstatistik 1998 (FAST) verzeichneten steuerrechtlich definierten Einkommensaggregate ein verzerrtes Bild vom Lebensstandard der Zensenten geben. Wir zeigen, dass für einen überwiegenden Teil der Beobachtungen in FAST ausreichende Informationen zur Konstruktion von Einkommen im ökonomischen Sinne verfügbar sind. Eine exemplarische Analyse der Progressionswirkung der Einkommensteuer ergibt, dass Verteilungsanalysen, die direkt steuerliche Einkommensdefinitionen nutzen, zu systematischen Fehleinschätzungen führen können.

This paper investigates the impact of changes in national border demarcation on economic integration. It treats the national breakups in Central Europe due to WWI as a natural experiment, which allows for evaluating the particular effect of new national borders. A gravity model of trade is used to analyze goods-specific trade among Central European regions. The main results are, first, that the treatment effect of new borders is large. Second, decomposing the border effect provides evidence of a “border before border” for parts of Germany that became separated even before WWI. Third, the analysis indicates a high level of economic integration before WWI among Polish regions that became politically unified only after the war.

Was Germany ever united? Given the historical circumstances of Germany’s unification in the 19th century there is no obvious answer to this question. But such an answer can affect the prospects of the post-1989 unification process, and beyond this of European integration. We provide an econometric analysis of Germany’s economic integration across various internal borders from the foundation of the Kaiserreich until the end of the Weimar Republic. This analysis is based on a new comprehensive set of domestic tradeflow data on railways and waterways, covering all parts of Germany 1885-1933. First, the disintegration effects by the separation of Alsace-Lorraine and Western Poland from Germany after the Versailles treaty were somewhat limited by previous disintegration of these regions. Second, while there is broad support for increasing integration across old political, administrative, and confessional borders between 1885 and 1933, a geographical divide between eastern and western parts of Germany had a persistent trade diverting effect well into the 1930s.

This study explores the effects of market deregulation on employment growth. Empirical analysis of an OECD country panel (1990-2004) suggests that lower levels of product and labor market regulation foster employment growth, including through sizable interaction effects. A theoretical framework is developed for evaluating deregulation strategies in the presence of reform costs. Optimal deregulation takes various forms depending on the deregulation costs and the strength of reform interactions. Compared to the first best, decentralized decision-making can lead to excessive or insufficient deregulation. Securing the first best requires coordinating deregulation activities across sectors and overcoming the partial perspective of decision makers.

European economies are characterized by unionized labor markets and a pronounced governmental redistribution of income. This paper studies a model where those two fea- tures are combined with the possibility for individuals to make charitable contributions to the poor. The model exhibits equilibrium unemployment that increases with the de- gree of altruism. It is shown that a more progressive income tax can both reduce the unemployment rate and improve the public budget. These results are driven by charity increasing wage pressure and the altruistic rich failing to internalize the e¤ect of their donations on the wage setting behavior of the unions.

In recent years, fiscal performance in Central Europe has steadily deteriorated, in contrast to the improvement in the Baltics. This paper explores the determinants of such differences among countries on the path to EU accession. Regression estimates suggest that economic and institutional fundamentals do not provide a full explanation. An alternative explanation lies in the political economy of the accession process, and a game-theoretic model illustrates why a country with a stronger bargaining position might have an incentive to deviate from convergence to the Maastricht criteria. The model generates alternative fiscal policy regimes—allowing for regime shifts—depending on country characteristics and EU policies.

This paper shows that a firm prefers a process-based task assignment compared to a function based one if the tasks are from functional areas which are neither too complementary nor too substitutable. We consider several projects with contributions from several functional areas. The organization can be structured along processes like product lines (M-form) or along functional areas like marketing or production (U-form). The U-form enables cost savings due to specialization or scale economies. We show that the more effective incentives under the M-form might outweigh these savings if the functions are neither too complementary nor too substitutable.

The analysis of monetary policy rules has been confined to models not capable of examining situations where an economy is converging to a higher balanced growth path. For the small open economies having entered the European Union recently this is however a very relevant question. The main aim of their integration is convergence itself and most of the criteria they have to fulfil in order to become members of the euro zone are of monetary nature. It is thus of special interest for them whether and how the chosen strategy of monetary policy aiming at the fulfilment of the requirements they face affects the transition. In this paper a first attempt is made to compare monetary policy rules in a monetary model of small open economies, which builds essentially on the convergence literature. The results show that the economy behaves very differently in the transition under the different monetary policy rules examined.

The Group of Eight (G8) is an unofficial forum of the heads of state of the eight leading industrialized countries. In this paper, I examine the effect of the G8 (and its predecessor, the G7) on international trade. I use a gravity model of trade; the panel data set covers bilateral trade between 175 countries from 1948 through 1999. I find that membership in the G7/G8 is consistently associated with a strong positive effect on trade.

We develop a simple model that looks at the incentives of private banks to behave prudentially and undertake costly efforts to lower the probability of bankruptcy or having to be bailed out by a lender of last resort. Government regulators can force banks to increase efforts beyond the privately optimal level. We contrast the national case under autarky with the case of an integrated banking market with bank cross-holdings. Because banks will exert a greater overall effort to monitor their foreign activities, financial integration might lead to more rather than less prudential behavior. Neither needs financial integration lead to a regulatory race to the bottom. We use the framework to investigate the impact of regulatory coordination on bank efforts and discuss incentives for banks to organize their foreign holdings in the form or branches or subsidiaries. We show that the absence of a common lender of last resort can reduce the probability of a financial crisis.

Monetary policy in the euro area is conducted within a multi-country, multi- cultural, and multi-lingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the ECB? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking in the past. In large part this heterogeneity can be traced to differences in forecasting models. While some systematic differences between analysts have been transitional and are indicative of learning, others are more persistent.