Life Satisfaction, Household Income and Personality Traits

We show that personality traits mediate the e ect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income
does not have significant effect on his own.

To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from the gap between aspired and realized income, and this is modulated by Neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increase with aspirations. From the estimation of this model we argue that poorer tend to overshoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.

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Strategic Budgeteering and Debt Allocation

This paper analyzes how opportunistic governments choose between alternative fiscal policies in order to increases their chances of re-election. To increase the provision of public goods shortly before elections – and thus, to generate a fiscal political business cycles – governments may either increase deficits or redistribute governmental resources from longterm efficient sources to short-term efficient public programs. We argue that incumbents who face highly competed elections principally have an incentive to spend more on public goods even though these investments are not efficient in the long term. In principal, they would do so by increasing the deficits (with re-balancing the budget after the election). However, our model demonstrates that incumbents would even electioneer at the cost of long-term investments if the extent of fiscal transparency does not allow them to finance the provision of public goods with higher deficits. In other words, if elections are close and voters may observe the governmental deficit, then governments tend to increase the provision of public goods – and consequently, their electoral prospects – by a redistribution of budget resources from long-term efficient investment to a short-term provision of public goods. We test the predictions with new data on the composition of government consumption for 17 OECD countries over 35 years. The preliminary findings suggest that governments indeed reshuffle resources from long-term efficient investment to short-term public goods before electionsespecially if elections are contested.

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De Facto Capital Mobility, Equality, and Tax Policy in Open Economies

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Tax Competition and Income Inequality: Why did the Welfare State Survive

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Monetary Policy Flixibility in floating Exchange Rate Regimes: Currency Denomination and Import Shares

This paper argues that the degree of monetary flexibility a government enjoys does not only depend on the implemented monetary institutions such as exchange rate arrangements and central bank independence but also on the economic and financial relationships with key currency areas. I develop a formal theoretical framework explaining the degree of monetary independence in open economies under flexible exchange rate regimes by trading relations and financial integration. The model suggests that a) higher import shares from the key currency area increase the imported inflation when monetary authorities try to offset an exogenous shock by cutting back the interest rate while the base country does not encounter a similar shock, and b) the more cross border assets of a country are denominated in the base currency the higher the exchange rate effects of interest rate differences to the interest rate of the key currency area. The presented empirical evidence largely supports the theoretical predictions.

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India and The Great Divergenace: An Anglo-Indian Comparison of GDP per capita, 1600 -1871

This paper provides estimates of Indian GDP constructed from the output side for the pre-1871 period, and combines them with population estimates to track changes in living standards. Indian per capita GDP declined steadily during the seventeenth and eighteenth centuries before stabilising during the nineteenth century. As British living standards increased from the mid-seventeenth century, India fell increasingly behind. Whereas in 1600, Indian per capita GDP was over 60 per cent of the British level, by 1871 it had fallen to less than 15 per cent. As well as placing the origins of the Great Divergence firmly in the early modern period, the estimates suggest a relatively prosperous India at the height of the Mughal Empire, with living standards well above bare bones subsistence.