This paper examines the effects of political determinants on the allocation of public expenditures. Analyzing an OECD panel from 1990 to 2004, a SURE model controls for the contemporaneous correlation between the different expenditure categories (COFOG). I find that left governments set other...

This paper discusses the type of trajectory a country's public debt path follows. In particular, a Markov switching ADF model is used to assess the sustainability of public debt by testing whether a government's present value borrowing constraint holds. Building on the work of Raybaudi et al....

With the 2008 reform of business taxation (Unternehmensteuerreform 2008) a preferential treatment of retained earnings for non-incorporated companies was introduced: Earnings may be retained at a preferential tax rate (29.8%) and will be subjected to supplementary tax (26.4%) when they will be...

We examine optimal taxation and social insurance if insurance markets are imperfect. This requires the development of a theory of labor supply under uncertainty. We show that the case for social insurance is not generally reinforced by adverse selection in insurance markets as social insurance...

I test if parties matter with respect to the allocation of public expenditures in Germany. Considering the allocation of rights and duties due to the federal structure, two econometric models are estimated. First, a SURE model analyses spending at the federal level for the period from 1950 to...

This paper examines how policy affects social expenditures. Analyzing an OECD panel from 1980 to 2003, five political variables are tested: Election- and pre-election years, the ideological party composition of the governments, the number of coalition partners and the fact, if the ruling...

After the global financial crisis, some governments in the EU experienced serious debt financing problems, while others were less affected. This paper seeks to shed light on the divergent fiscal performance by assessing the fiscal conduct in the EU countries before and after the outbreak of the...

This paper explores the long run relationship between public and private investment in the euro area in terms of capital stocks and gross investment flows. Panel techniques accounting for international spillovers are employed. While private and public capital stocks are cointegrated, the...

Can a growing welfare state induce a regime switch in the growth rate of an econ-omy? This paper constructs a dynamic political economy model of economic growth and the welfare state in which both variables are non-linearly related and jointly en-dogenous. Using a Markov switching framework over...

We present a model of optimal government policy when policy choices may exacerbate socio-political instability (SPI). We show that optimal policy that takes into account SPI transforms a standard concave growth model into a model with both a poverty trap and endogenous growth. The resulting...