Working Papers and Projects
Globalization and the income distribution
Changes in the distribution of income are one of the main challenges to social cohesion in OECD countries. Empirical evidence points to a large share of growth accruing to the top 1% in the income distribution during the last three decades. The role of globalization in this process is hotly debated. As my contribution to this debate I present a theoretical mechanism of how globalization affects the income distribution which has not been studied extensively yet. I build my argument on the Melitz model which I augment by a banking sector to replace the implicit complete financial market in the original paper. The generated rents thus become income-relevant and accrue by assumption to firms' top managers. That allows to assess globalization's effect on the top end of the income distribution. I find globalization having a strong effect on income distribution but do not conclude that reversing globalization is the solution for the challenge to social cohesion.
Structural change and the economic consequences of expectation errors (with F. Brugger)
In the Kreisky era (1970–1983), Austrian government debts increased strongly. Kreisky’s ideological debt policy has become a narrative that has strongly influenced Austrian fiscal policy until today. While this explanation for the strong increase in public debt during the Kreisky era is widely accepted, it is not necessarily true. In this paper, we assess a different explanation: the deficits might simply have resulted from forecast errors of GDP growth in those turbulent times. We find that about one-third of the increase in the debt-over-GDP ratio is directly explained by short-run forecast errors, i.e., the difference between the approved and the realized budget, and an additional one-fifth is the lower bound of forecast error regarding the long-run growth rate.
Organizational capital explaining the huge differences in firm-level TFP.
Financial sector in macroeconomic models
I present a macroeconomic model with a financial market with different assets. Interest rates differ for different assets, yet they are not independent from each other because the financial assets are imperfect substitutes from the viewpoint of a saver who wants to shift consumption into the future. Introducing different assets that are not perfect substitutes has at least three advantages. The presented model structure: (i) allows for studying diverting developments in different segments of the financial market, (ii) allows to add financial institutions like commercial and investment banks or even bank systems in the model and, (iii) when opened to other countries, the model allows to separate net from gross capital flows. The perfect arbitrage condition does not apply because various market frictions, which are perceived by the saver, prevent trade in financial assets to fully equalize returns. That frees assets' returns in different sectors from each other.