News

In Ifo Working Paper No. 162 Christian Bjornskov and Niklas Potrafke investigate empirically how party ideology influenced size and scope of government as measured by the size of government, tax structure and labor market regulation in 49 US states over the 1993-2009 period. They employ data on the ideological mapping of US legislatures that considers spatial and temporal differences in Democratic and Republican Party ideology. The main result suggests that Republican governors have been more active in deregulating labor markets. Furthermore, they find that ideology induced policies were counteracted by certain types of divided government which occurs when government has a different party affiliation than the majority of at least one of the chambers (House and Senate). Details

How safe and sustainable is nuclear energy? These are the questions that Professor Andreas Pautz, Institute Director at the Ecole Polytechnique Federale of Lausanne, will focus on in the framework of the Munich Seminars. On Monday 27 May 2013, he is due to give a seminar entitled: “The Outlook for Nuclear Energy and Safety Research in the Context of the Energy Debate”. Pautz will explain that there are alternative concepts for reactors, which not only use uranium and thorium resources far more sparingly, but also largely avoid the generation of long-lived radiotoxic waste. The seminar will be given in German in the Ludwig-Erhard-Saal of the Ifo Institute and will be livestreamed via the internet on the CESifo web site. It is scheduled to begin at 6.00 p.m. Details

Contrary to standard microeconomic principles, it is by now well understood that income is not fungible. For example, the label of a government transfer can induce individuals to make expenditure decisions that are skewed towards the label. In Ifo Working Paper No. 163 Timo Hener shows that child benefits are disproportionately used for savings assignable to children. His results suggest a significant positive labeling effect on longterm savings. However the labeling effect is weak when looking at consumption goods. Details

Using firm-level survey data for the West German manufacturing sector, Rüdiger Bachmann and Peter Zorn in CESifo Working Paper No. 4218 revisit the technology-driven business cycle hypothesis for the case of aggregate investment. They construct a survey-based measure of technology shocks to gauge their contribution to short run investment fluctuations. They find evidence for technology shocks explaining a significant fraction of the fluctuations of aggregate investment growth. However, the larger part must be attributed to finance and demand shocks. Details

Heightened inflation uncertainty can have subsequent economic costs. Uncertainty distorts the signaling effect of price systems and makes stability-oriented monetary policy more difficult to implement. In CESifo Working Paper 4194 Steffen Henzel and Elisabeth Wieland look at the question of whether there is an international intertwining of inflation uncertainty in the G7 states. They show that inflation uncertainty is internationally synchronized and that the linkage grows even higher over time. Moreover, an international component can be identified that exercises a decisive influence over national inflation uncertainty in G7 states. Details

How does a country’s output change if the number of employed or net investments increases? And what impact does this have on other countries? In Ifo Working Paper 161 Sebastian Benz and Markus Zimmer as well as Ifo research professor Mario Larch develop a theoretical model that allows them to characterise the production structure of 11 countries in the European Union by taking into account trade in intermediate goods and internationally mobile capital. One of the conclusions reached by the authors is that all countries increase their output if the number of employed at every level of qualification rises in the country in question. At the same time, however, capital mobility and trade in intermediate input tends to lower the output in other countries. Details

Is the lawsuit filed by Hessen and Bavaria against the Länder fiscal scheme equalisation (Länderfinanzausgleich) an overdue step in protest at unfair distribution? This is the central question examined by politicians and academics in the latest ifo Schnelldienst 9/2013. According to Volker Bouffier, Minister President of the State of Hessen, the lawsuits is not against the Länder fiscal equalisation scheme per se but against the deficits of the existing scheme. Norbert Walter-Borjans, Finance Minister of North Rhine Westphalia, on the other hand, describes the behaviour of the plaintiffs as lacking in solidarity and stresses that the fiscal equalisation scheme has stood the test of time to date. The academics Rolf Peffekoven, Joachim Wieland, Thomas Lenk and Nathalie Behnke also give their views on the issue. Details

The Ifo World Economic Climate Indicator continued to rise, even if only slightly. Both assessments of the current economic situation and the six-month economic outlook improved slightly compared to the previous quarter. There are a growing number of signs that the world economy is stabilising. Details

As the fifth year of the crisis rolls on, Europe is facing a double challenge: to improve its competitiveness, and to stabilise the euro zone. Comprehensive reforms and deeper integration should lead to a new, stronger Europe. Under the title “Relaunching Europe”, the Summit will focus on how Europe can boost out of its low-flying phase. Three panels will address different aspects of such a programme: how Europe can solve its debt crisis (Panel 1: “Becoming Slimmer”); how Europe, despite the enormous differences amongst the individual economies, can develop a stronger, global dynamic (Panel 2: “Getting Fitter”); and, lastly, how much political and economic integration is good for this new Europe (Panel 3: “Growing Stronger”). Details

Last summer, the financier George Soros urged Germany to agree to the establishment of the European Stability Mechanism, calling on the country to “lead or leave”. Now he says that Germany should exit the euro if it continues to block the introduction of Eurobonds. Soros is playing with fire. Leaving the eurozone is precisely what the newly founded “Alternative for Germany” party, which draws support from a wide swath of society, is demanding. Crunch time is fast approaching. Cyprus is almost out of the euro, its banks’ collapse having been delayed by the European Central Bank’s provision of Emergency Liquidity Assistance, while euroskeptic parties led by Beppe Grillo and Silvio Berlusconi garnered a combined total of 55 per cent of the popular vote in the latest Italian general election. Details