2021
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Overcoming History through Exit or Integration - Deep-Rooted Sources of Support for the European Union, American Political Science Review 115(1) (2021). Journal | PDF | SSRN
The origins of voter preferences about the vertical distribution of political power in federal systems are not well understood. I argue that negative historical experiences with higher- level governments can raise demands both for exit strategies and a decentralization of power, but also for upward integration. I specify conditions when delegating power upwards, e.g., from the nation-state to a supra-national level or international organization, can better serve the purpose of constraining nation-state actions to overcome history. Empirically, the quasi- random division of the French regions Alsace and Lorraine allows estimating differences in support for integration with a spatial regression discontinuity design. More negative exposure to nation-state actions causes persistently higher support for European integration in three referenda and less Euroscepticism in EU elections. Survey evidence supports exit and integration as two complementary alternatives. Both options can serve the purpose of moving power away from the government level associated with negative historical experiences.
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The Origins of Common Identity: Evidence from Alsace-Lorraine (with Sirus Dehdari), American Economic Journal: Applied Economics (2021). PDF | SSRN
The quasi-exogenous division of the French regions Alsace and Lorraine after the Franco- Prussian War allows us to provide evidence about group identity formation within historically homogeneous regions. Using several measures of stated and revealed preferences spanning over half a century, we show that being exposed to occupation and repression for many decades caused a persistently stronger regional identity. The geographical RDD results are robust across all specifications. We document two mechanisms using data on regional newspapers and regionalist parties. The differences are strongest for the first two age cohorts after WWII and associated with preferences for more regional decision-making.
2020
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Regional Resources and Democratic Secessionism (with Stephan A. Schneider), Journal of Public Economics 181 (2020). Journal | PDF | SSRN | Online Appendix
Although regional resources have been shown to influence secessionist conflicts in developing countries, their effect in established democracies has largely been neglected. We integrate resource value in a model on the optimal size of nations and show that regional wealth correlates positively with secessionist party success in a large panel of regions. To establish causality, our difference-in-differences and triple-differences designs exploit that Scotland and Wales both feature separatist parties, but only an independent Scotland would profit from oil discoveries off its coast. We document an economically and statistically significant positive effect of regional resources and rule out plausible alternative explanations.
Replication Files -
Stigma or Cushion?
IMF Programs and Sovereign Creditworthiness
(with Valentin Lang), Journal of Development Economics 146 (2020). Journal | PDF | SSRN | Online Appendix
Policymakers in crisis countries often hesitate to enter IMF programs out of the fear that they trigger adverse reactions on financial markets. We explain why credit ratings and investor assessments are reliable measures of creditworthiness during crises, and examine how IMF programs affect them with three distinct identification strategies. The first strategy exploits the differential effect of changes in IMF liquidity on loan allocation as an instrument, the second uses the exact timing of program agreements, and the third provides text-based evidence from rating agency statements. When accounting for endogenous selection, we find that IMF programs help countries regain their creditworthiness. Even though IMF programs tend to result in economic contractions, the agreement on a program is perceived as a positive signal on financial markets. Our text-based analysis supports this signaling effect and suggests that the content of programs matters for how they are perceived.
2019
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Crime, Incentives and Political Effort: Evidence for India (with T. Florian Kauffeldt and Krishna Chaitanya Vadlamannati), European Journal of Political Economy 59 (2019). Journal | PDF | SSRN | Online Appendix
The large share of politicians facing criminal accusations in India has sparked a public debate and an emerging literature that assesses its causes and effects. We develop a model of the incentives faced by members of parliament when deciding whether to engage in effort for their constituency to assess the effect of their having a criminal background on their decision. We use direct and clearly identifiable measures of effort in the 14 Lok Sabha over the 2004-2009 legislative period: attendance rates, parliamentary activity, and utilization rates of a local area development scheme. The findings suggest that criminal MPs exhibit on average about 5% lower attendance rates and lower utilization rates, but no difference in parliamentary activity. The results depend on the development level of the constituency, a proxy for rent-seeking possibilities and monitoring intensity, as well as on the measurement of criminal background. We use selection on observables, matching techniques, and treatment effect regressions to demonstrate why these negative relations should constitute an upper bound estimate for the causal effect of criminality and to show they are unlikely to be driven by selection on unobservabels.
2018
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Geopolitics, Aid and Growth (with Axel Dreher and Vera Eichenauer), World Bank Economic Review 31:2 (6/ 2018). Journal | PDF | SSRN | Online Appendix
We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Specifically, we test whether the effect of aid on economic growth is reduced by the share of years a country served on the United Nations Security Council (UNSC) in the period the aid is committed, which provides quasi-random variation in aid. Our results show that the effect of aid on growth is significantly lower when aid was committed during a country’s tenure on the UNSC. This holds when we restrict the sample to Africa, which follows the strictest norm of rotation on the UNSC and thus where UNSC membership can most reliably be regarded as exogenous. We derive two conclusions from this. First, short-term political favoritism reduces the effectiveness of aid. Second, results of studies using political interest variables as instruments for overall aid arguably estimate the effect of politically motivated aid and thus a lower bound for the effect of all aid.
Replication Files -
Towards the Greater Good? EU Commissioners’ Nationality and Budget Allocation in the European Union (with Stephan Schneider), American Economic Journal: Economic Policy 10:1 (2/ 2018). Journal | PDF | SSRN | Online Appendix
We demonstrate that the nationalities of EU Commissioners influence budget allocation decisions in favor of their country of origin. Our focus is on the Commissioners for Agriculture, who are exclusively responsible for a specific fund that accounts for the largest share of the overall EU budget. On average, providing the Commissioner causes a one percentage point increase in a country's share of the overall EU budget, which corresponds to 500 million Euros per year. There are no different pretreatment trends and the magnitude of the bias from selection-on-unobservables would have to be implausibly high to account for the estimated coefficient.
Replication Files -
Information Transmission within Federal Fiscal Architectures: Theory and Evidence (with Axel Dreher, Christos Kotsogiannis and Silvia Marchesi), Oxford Economic Papers 70(1) (1/ 2018). Journal | PDF | SSRN
This paper explores the role of information transmission and misaligned interests across levels of governments in explaining variation in the degree of decentralization across countries. We analyse two alternative policy-decision schemes—‘decentralization’ and ‘centralization’— within a two-sided incomplete information principal–agent framework. The quality of communication depends on the conflict of interests between the government levels and on which government level controls the degree of decentralization. We show that the extent of misaligned interests and the relative importance of local and central government knowledge affect the optimal choice of policy-decision schemes. Our empirical analysis confirms that countries’ choices depend on the relative importance of private information. In line with our theory the results differ significantly between unitary and federal countries.
Replication Files
2017
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The Home Bias in Sovereign Ratings (with Andreas Fuchs), Journal of the European Economic Association 15:6 (12/ 2017). Journal | PDF | SSRN | Online Appendix
Credit rating agencies are frequently criticized for producing biased sovereign ratings. This article discusses how the home country of rating agencies could affect rating decisions as a result of political economy influences and cultural distance. Using data from nine agencies based in six countries, we test whether agencies assign better ratings to their home countries, as well as to countries economically, geopolitically and culturally aligned with them. Our results show biases in favor of the respective home country, culturally more similar countries, and countries in which home‐country banks have a larger risk exposure. Linguistic similarity seems to be the main transmission channel that explains the advantage of the home country.
Replication Files -
Aid Fragmentation and Effectiveness:
What do we Really Know? (with Katja Michaelowa, Axel Dreher, and Franziska Spörri), World Development 99 (11/ 2017). Journal | PDF | SSRN | Online Appendix
Aid fragmentation is widely recognized as being detrimental to development outcomes. We re-investigate the impact of fragmentation in the context of growth, bureaucratic policy, and education, focusing on a number of conceptually different indicators of fragmentation, and paying attention to potentially heterogeneous effects across countries, sectors, and channels of influence. Our systematic and detailed reexamination of existing empirical studies shows that this differentiation is crucial. In some sectors—such as primary education—donor concentration or limiting donor numbers appears to be detrimental rather than beneficial for development outcomes. In other areas, we find the expected negative effect, but only when we conceptualize fragmentation as a lack of lead donors (too limited concentration), rather than in terms of donor numbers. In all cases, sufficient initial administrative capacity in recipient countries prevents the negative and reinforces the positive effects of fragmentation. This stresses the importance of questioning the sweeping conclusions drawn by much of the previous literature. Based on what we currently know, generalizing judgements about the effect of aid fragmentation may be misleading.
2015
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Gesture Politics or Real Commitment? Gender Inequality and the Allocation of Aid (with Axel Dreher and Stephan Klasen), World Development 70 (7/ 2015). Journal | PDF | SSRN
We investigate whether donors give more aid to countries with larger gender gaps in education, health, or women’s rights, and whether they reward improvements in those indicators. We find some evidence that high gender gaps in education and health are associated with higher allocation of aid in those sectors and aid overall. Greater female political representation also appears to come along with higher aid flows. While we find no systematic evidence that donors allocate funds with regard to merit, our results show that donors are more responsive to inequalities in countries that provide good legal rights for women.
Replication Files
2013
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Inequality and Happiness: When Perceived Social Mobility and Economic Reality do not Match. (with Christian Bjørnskov, Axel Dreher, Justina A.V. Fischer, Jan Schnellenbach), Journal of Economic Behavior & Organization 91 (3/ 2013). Journal | PDF | SSRN
We argue that perceived fairness of the income generation process affects the association between income inequality and subjective well-being, and that there are systematic differences in this regard between countries that are characterized by a high or , respectively, low level of actual fairness. Using a simple model of individual labor market particip ation under uncertainty, we predict that high levels of perceived fairness cause higher levels of i ndividual welfare, and lower support for income redistribution. Income inequality is predicted to have a more favorable impact on subjective well- being for individuals with high fa irness perceptions. This relationship is predicted to be stronger in societies that are characterized by low actual fairness. Using data on subjective well-being and a broad set of fairness measures from a pseudo micro-panel from the WVS over the 1990-2008 period, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the predicted differences in individual tolerance for income inequality, and the predicted influence of actual fairness.
Replication Files -
Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being, World Development 50 (10/ 2013). Journal | PDF | SSRN
Who benefits from economic freedom? Results from a panel of 86 countries over the 1990–2005 period suggest that overall economic freedom has a significant positive effect on subjective well-being. Its dimensions legal security and property rights, sound money, and regulation are in particular strong predictors of higher well-being. The overall positive effect is not affected by socio-demographics; the effects of individual dimensions vary, however. Developing countries profit more from higher economic freedom, in particular from reducing the regulatory burden. Culture moderates the effect: societies that are more tolerant and have a positive attitude toward the market economy profit the most.
2012
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Does Aid Buy (Economic) Freedom? (with Axel Dreher ), Economic Freedom of the World: 2012 Annual Report (2012). PDF