DP7731 Stabilization and Growth under Dictatorship: The Experience of Franco's Spain
Author(s):	Leandro Prados de la Escosura, Joan R. Rosés, Isabel Sanz Villarroya
Programme Area: IM
Keyword(s): macroeconomic policy, stabilization, liberalization, growth, dictatorship, anti-market policies, Spain
Abstract: Stabilizing and liberalizing policies are key elements of the Washington Consensus. This paper adds a historical dimension to the ongoing debate by assessing the economic impact of market-oriented reforms undertaken during General Franco's dictatorship, the 1959 Stabilization and Liberalization Plan. Using an index of macroeconomic distortions (IMD) the relationship between economic policies and the growth record is examined. Although a gradual reduction in macroeconomic distortions was already in motion during the 1950s, the 1959 Plan opened the way to a new institutional design that favoured a free-market allocation of resources and allowed Spain to accelerating growth and catching up with Western Europe. Without the 1959 Plan, per capita GDP would have been significantly lower in 1975.
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DP7730 Welfare Analysis of Regulating Mobile Termination Rates in the UK (with an Application to the Orange/T-Mobile Merger)
Author(s):	David Harbord, Steffen Hoernig
Programme Area: IO
Keyword(s): mobile termination rates, network effects, regulation, simulations, telecommunications, welfare
Abstract: This paper presents results from a calibrated welfare model of the UK mobile telephony market which includes many mobile networks; calls to and from the fixed network; networkbased price discrimination; and call externalities. The analysis focuses on the short-run effects of adopting lower mobile termination rates (MTRs) on total welfare, consumer surplus and profits. Our simulations show that reducing MTRs broadly in line with the recent European Commission Recommendation to either "long-run incremental cost"; reciprocal termination charges with fixed networks; or "bill-and-keep" (i.e. zero termination rates), increases social welfare, consumer surplus and networks' profits. Depending on the strength of call externalities, social welfare may increase by as much as Ł360 million to Ł2.5 billion per year. The analysis thus lends support to a move away from fully-allocated cost pricing and towards much lower MTRs, with bill-and-keep frequently leading to the highest increase in welfare when call externalities matter. We also apply the model to estimate the welfare effects of the recently-approved merger between Orange and T-Mobile under two different scenarios concerning MTRs.
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DP7729 Platform Siphoning: Ad-Avoidance and Media Content
Author(s):	Simon P Anderson, Joshua Gans
Programme Area: IO
Keyword(s): dynamic model, optimal control, Optimal policy, target criterion
Abstract: Content providers rely on advertisers to pay for content. TiVo, remote controls, and pop-up ad blockers are examples of ad-avoidance technologies that allow consumers to view content without ads, and thereby siphon off the content without paying the 'price.' We examine the content provider's reaction to such technologies, demonstrating that their adoption increases advertising clutter (leading to a potential downward spiral), may reduce total welfare and content quality, and can lead to more mass-market content. We cast doubt on the profitability of using subscriptions to counter the impact of ad-avoidance
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DP7728 Unemployment Fiscal Multipliers
Author(s):	Tommaso Monacelli, Roberto Perotti, Antonella Trigari
Programme Area: IM
Keyword(s): fiscal policy, labor market, unemployment
Abstract: We estimate the effects of fiscal policy on the labor market in US data. An increase in government spending of 1 percent of GDP generates output and unemployment multipliers respectively of about 1.2 per cent (at one year) and 0.6 percentage points (at the peak). Each percentage point increase in GDP produces an increase in employment of about 1.3 million jobs. Total hours, employment and the job finding probability all rise, whereas the separation rate falls. A standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization. Extending the model to strengthen the complementarity in preferences, to include unemployment benefits, real wage rigidity and/or debt financing with distortionary taxation only worsens the picture. New Keynesian features only marginally magnify the size of the multipliers. When complementarity is coupled with price stickiness, however, the magnification effect can be large.
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DP7727 Monetary Policy and the Cyclicality of Risk
Author(s):	Christopher Gust, J David López-Salido
Programme Area: IM
Keyword(s): countercyclical equity premium, monetary policy, portfolio inertia, segmented markets
Abstract: We use a DSGE model that generates endogenous movements in risk premia to examine the positive and normative implications of alternative monetary policy rules. As emphasized by the microfinance literature, variation in risk arises because households face fixed costs of transferring cash across financial accounts, implying that some households rebalance their portfolios infrequently. We show that the model can account for the mean returns on equity and the risk-free rate, and in line with empirical evidence generates a decline in the equity premium following an unanticipated easing of monetary policy. An important result that emerges from our analysis is that countercyclical monetary policy generates higher average welfare than constant money growth or zero inflation policies.
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DP7726 Factor-GMM Estimation with Large Sets of Possibly Weak Instruments
Author(s):	Massimiliano Marcellino, Alberto Musso
Programme Area: IM
Keyword(s): Factor models, GMM, Instrumental variables, Principal components, weak instruments, DSGE models
Abstract: This paper analyses the use of factor analysis for instrumental variable estimation when the number of instruments tends to infinity. In particular, we focus on situations where many weak instruments exist and/or the factor structure is weak. Theoretical results, simulation experiments and empirical applications highlight the relevance of Factor-GMM estimation, which is also easily implemented.
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DP7725 Public Support for Innovation, Intangible Investment and Productivity Growth in the UK Market Sector
Author(s):	Jonathan Haskel, Gavin Wallis
Programme Area: IO, PP
Keyword(s): intangible assets, productivity, R&D, spillovers
Abstract: Pressure on public finances has increased scrutiny of public support for innovation. We examine two particular issues. First, there have been many recent calls for the (relatively new) UK R&D subsidy to be extended to other "research" activities, such as software. Second, argument still rages about the efficacy of direct public spending on R&D via spending on academic research councils, universities, and government undertaken work on civil and military R&D. To evaluate these questions we use data on market sector productivity, R&D and non-R&D intangible assets, and public sector R&D spending. We look for evidence of market sector spillovers from intangible investment and from public R&D. We find (a) no evidence of spillover effects from intangible investment at the market sector level, including from R&D, (b) strong evidence of market sector spillovers from public R&D spend on research councils, and (c) no evidence of market sector spillovers from public spending on civil or defence R&D. Our findings tentatively suggest that for maximum market sector productivity impact government innovation policy should focus on direct spending on research councils.
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DP7724 Ideologues: Explaining Partisanship and Persistence in Politics (and Elsewhere)
Author(s):	Benno Buehler, Anke Kessler
Programme Area:	PP
Keyword(s): Ideology, Partisanship, Polarization, Policy Persistence, Political Competition
Abstract: This paper provides an explanation for why political leaders may want to adopt ideological positions and maintain them over time even in the face of conflicting evidence. We study a dynamic framework in which politicians are better informed than the voting public about an underlying state of nature that determines the desirability of a given policy measure. The issue itself is non-partisan (everybody has the same policy preferences) but voters attach ideological labels to both candidates and available policy alternatives. We show that both sides may be caught in an ideology trap: because voters expect the perceived ideology of office holders to determine their political actions, politicians are tempted to act according to their perceived ideology, resulting in political failure.
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DP7723 Economic growth and the rise of political extremism: theory and evidence
Author(s):	Markus Brückner, Hans Peter Grüner
Programme Area:	PP
Keyword(s): Economic Growth, Political Regimes
Abstract: In many western democracies, political parties with extreme platforms challenge more moderate incumbents. This paper analyses the impact of economic growth on the support for extreme political platforms. We provide a theoretical argument in favor of growth effects (as opposed to level effects) on the support for extremist parties and we empirically investigate the relationship between growth and extremist votes. A lower growth rate increases the support for extreme political platforms but our estimates also indicate that extreme platforms are unlikely to gain majorities in OECD countries, unless there is an extreme drop in the GDP per capita growth rate.
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DP7722 Vertical Merger, Collusion, and Disruptive Buyers
Author(s):	Volker Nocke, Lucy White
Programme Area:	IO
Keyword(s): vertical merger, vertical integration, collusion, merger guidelines, antitrust
Abstract: In a repeated game setting of a vertically related industry, we study the collusive effects of vertical mergers. We show that any vertical merger facilitates upstream collusion, no matter how large (in terms of capacity or size of product portfolio) the integrated downstream buyer. But a vertical merger with a larger buyer helps more to facilitate upstream collusion than a similar merger with a smaller buyer. This formalizes the idea expressed in the U.S. and EU non-horizontal merger guidelines that some downstream buyers may be more "disruptive" of collusive schemes than others.
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Total Papers listed: 10