This paper analyzes the link between political factors and sovereign bond holdings of US investors in 60 countries over the 2003-2013 period. We find that, in general, US investors hold more bonds in countries with few political constraints on the government. Moreover, US investors respond to increased uncertainty around major elections by reducing government bond holdings. These effects are particularly significant in democratic regimes and countries with sound institutions, which enable effective implementation of fiscal consolidation measures or economic reforms. In countries characterized by high current default risk or a sovereign default history, US investors show a tendency towards favoring higher political constraints as this makes sovereign default more difficult for the government. Political instability, characterized by the fluctuation in political veto players, reduces US investment in government bonds. This effect is more pronounced in countries with low sovereign solvency.

In the wake of the 2008/2009 financial crisis, a number of policy reports (Vickers, Liikanen, Volcker) proposed to separate investment banking from commercial banking to increase financial stability. This paper empirically examines one theoretical justification for these proposals, namely attention distortion under multiple tasks as in Holmstrom and Milgrom (1991). Universal banks can be viewed as combining two different tasks (investment banking and commercial banking) in the same organization. We estimate pay-performance sensitivities for different segments within universal banks and for pure investment and commercial banks. We show that the pay-performance sensitivity is higher in investment banking than in commercial banking, no matter whether it is organized as part of a universal bank or in a separate institution. Next, the paper shows that relative pay-performance sensitivities of investment and commercial banking are negatively related to the quality of the loan portfolio in universal banks. Depending on the specification, we obtain a reduction in problem loans when investment banking is removed from commercial banks of up to 12 percent. We interpret the evidence to imply that the higher pay-performance sensitivity in investment banking directs the attention of managers away from commercial banking within universal banks, consistent with Holmstrom and Milgrom (1991). Separation of investment banking and commercial banking may indeed be associated with a reduction in risk in commercial banking.

Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills across different economies. International comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital, and evidence incorporating direct measures of cognitive skills is mostly restricted to early-career workers in the United States. Analysis of the new PIAAC survey of adult skills over the full lifecycle in 23 countries shows that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter. On average, a one-standard-deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Instrumental-variable models that use skill variation stemming from school attainment, parental education, or compulsory-schooling laws provide even higher estimates. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.

We study the impact of gender quotas on the acquisition of human capital. We assume that individuals’ formation of human capital is influenced by the prospect of landing high-pay top positions, and that these positions are regulated by gender-specific quotas. In the absence of quotas, women consider their chances of getting top positions to be lower than men’s. The lure of top positions induces even men of relatively low ability to engage in human capital formation, whereas women of relatively high ability do not expect to get top positions and do not therefore engage in human capital formation. Gender quotas discourage men who are less efficient in forming human capital, and encourage women who are more efficient in forming human capital. We provide a condition under which the net result of the institution of gender quotas is an increase in human capital in the economy as a whole.

Changes in labor market institutions and the increasing integration of the world economy may affect the volatility of capital and labor incomes. This article documents and analyzes changes in income volatility using data for 11 industrialized countries, 22 industries and 35 years (1970–2004). The article has four main findings. First, the unconditional volatility of labor income has declined in parallel to the decline in macroeconomic volatility. Second, the industry-specific, idiosyncratic component of labor income volatility has hardly changed. Third, cross-sectional heterogeneity is substantial. If anything, the labor incomes of high- and low-skilled workers have become more volatile relative to the volatility of capital incomes. Fourth, the volatility of labor income relative to the volatility of capital income declines in the labor share. Trade openness has no clear-cut impact.

The author discusses the role of competitions in urban development strategies based on the cooperation of higher education institutions. The experience with similar strategies in regional policy and in innovation policy is reflected upon. After the presentation of some cases, the advantages and disadvantages of development strategies based on competitions are compared.

The paper subjects seven structural DSGE models, all used heavily by policymaking institutions, to discretionary fiscal stimulus shocks using seven different fiscal instruments, and compares the results to those of two prominent academic DSGE models. There is considerable agreement across models on both the absolute and relative sizes of different types of fiscal multipliers. The size of many multipliers is large, particularly for spending and targeted transfers. Fiscal policy is most effective if it has moderate persistence and if monetary policy is accommodative. Permanently higher spending or deficits imply significantly lower initial multipliers.

The worldwide upswing has lost momentum, but it will overcome the present slowdown. Monetary policy is overall still accommodative, and growth dynamics continue to be high in emerging market countries. For the euro area, we expect GDP to grow by around 1.9% in 2011 and 1.7% in 2012, not enough to bring the unemployment rate back significantly below 10%. In fact, in a large core region of the euro area the upswing is well under way; this region includes, apart from Germany and some smaller economies, France, Belgium and the Netherlands. However, the crisis of confidence in the ability of EU institutions to master the fiscal crises is a major threat to the continuation of the upswing.

The focus of this paper is on the match between strategic motives of foreign investments into Central-Eastern Europe and locational advantages offered by these countries. Our analysis makes use of the IWH-FDI-Micro Database, a unique dataset that contains information from 2009 about the determinants of locational factors, technological activity of the subsidiaries, and the potentials for knowledge spillovers in the Czech Republic, Hungary, Poland, Romania, and Slovakia. The analysis suggests that investors in these countries are mainly interested in low (unit) labour costs coupled with a well-trained and educated workforce and an expanding market with the high growth rates in the purchasing power of potential buyers. It also suggests that the financial crisis reduced the attractiveness of the region as a source for localised knowledge and technology. There appears to be a match between investors’ expectations and the quantitative supply of unqualified labour, not however for the supply of medium qualified workers. But the analysis suggests that it is not technology-seeking investments that are particularly content with the capabilities of their host economies in terms of technological cooperation. Finally, technological cooperation within the local host economy is assessed more favourably with domestic firms than with local scientific institutions – an important message for domestic economic policy.

Institutions are common predictors of voter turnout. Most research in this field focuses on cross-country comparisons of voting systems, like the impact of compulsory voting or registration systems. Fewer efforts have been devoted to understand the role of local institutions and their impact on political participation. Especially the impact of divided competences in relation to public good provision and its impact on voter turnout has been widely ignored. In the present paper, we analyze the effects of different institutional settings for inter-municipal cooperation on voter turnout. We use data from local elections in Germany, held in 2003 and 2004. Overall, we analyze aggregate voter turnout of 1661 municipalities and find strong evidence for our hypothesis that local institutional settings are influential in this context. Further, our results indicate that the better competences correspond to the spatial dimension of local public goods, the higher should be the voter turnout.