Giuseppe Ciccarone

UNIONS, FISCAL POLICY AND CENTRAL BANK TRANSPARENCY*

In a unionized economy with endogenous fiscal policy central bank transparency has two contrasting effects on wages, the relative strength of which determines the macroeconomic performance. This finding allows us to demonstrate that (i) if the central bank is populist the effect of transparency is negative, and (ii) if policy makers are sufficiently conservative and the government is active, transparency decreases inflation and unemployment, but opposite results apply if a populist government faces a tight fiscal constraint. Macroeconomic volatility disappears with full transparency and increases, in general, with opacity, but the relationship is hump-shaped when the central bank is strongly populist.

Cyclical downturn or structural disease? The decline of the Italian economy in the last twenty years

Italy is experiencing at present the most serious economic recession of the post-war period. Between 2008 and 2013 national income fell by 9 per cent, per capita incomes by 11 per cent, and industrial production by 25 per cent; and unemployment doubled. In this essay we argue that, while this dramatic situation has been made worse by the policies of ‘expansive austerity’, its origins can be traced back to changes that took place in the 1990s (notably globalization, competition for emerging new markets and the diffusion of new technologies – ICT) to which Italy failed to react speedily or effectively by reorganizing its entire productive system. Instead, many of the reforms that have been introduced with respect to the labour market, for example, have reduced costs but in ways that have encouraged firms to stay in traditional sectors where products are poorly differentiated and of low technology content. If the Italian economy is not to become even weaker, new reforms are urgently needed to encourage innovative investment and push through to completion a restructuring of the industrial system that can no longer be deferred.

Finance and the Cambridge equation

A profit-making financial system is introduced into the Pasinetti model of growth and distribution with the aim of showing that Pasinettis formulation implicitly incorporated a well-defined theory of finance. In a golden age, the financial sector must set the rates of interest below the rate of profit to compensate for the remuneration of risks of enterprise generated by expectations realized in the broad, but not at the level of individual firms. If there exists a relationship between investment and finance, intermediaries contribute to the determination of the rates of profit and growth. Their decisions may not allow a competitive economy to return to the golden age once pushed away from it.A profit‐making financial system is introduced into the Pasinetti model of growth and distribution with the aim of showing that Pasinettis formulation implicitly incorporated a well‐defined theory of finance. In a golden age, the financial sector must set the rates of interest below the rate of profit to compensate for the remuneration of risks of enterprise generated by expectations realized in the broad, but not at the level of individual firms. If there exists a relationship between investment and finance, intermediaries contribute to the determination of the rates of profit and growth. Their decisions may not allow a competitive economy to return to the golden age once pushed away from it.

Triangular Relations in Public Service Economics

This paper critically re-examines the restructuring of public services. Four main decision-making phases are identified: the public oversight to be guaranteed to socially sensitive economic activities; the ways of financing them; the economic organisation of the industry; and the production decisions. By focusing on organisation, the paper reinterprets the market structure in public service industries on the basis of the interactions among three main players: users/citizens, the government and the service supplier. It argues that the issue of public versus private ownership has been overemphasised, and that an effective increase in efficiency can be obtained by introducing appropriate incentives for both public and business players. Instead of using a single policy instrument, namely privatisation, public action ought to be informed by an array of organisational solutions.

The Effects of Monetary Policy Shocks in Credit and Labor Markets with Search and Matching Frictions

By introducing search and matching frictions in both the labor and the credit markets into a cash in advance New Keynesian DSGE model, we provide a novel explanation of the incomplete pass-through from policy rates to loan rates. We show that this phenomenon is ineradicable if banks possess some power in the bargaining over the loan rate of interest, if the cost of posting job vacancies is positive and if firms and bank sustain costs when searching for lines of credit and when posting credit vacancies, respectively. We also show that the presence of credit market frictions moderates the reactions of output and wages to a monetary shock, and that the transmission of monetary policy shocks to output and inflation is more relevant than suggested by the recent literature.

Finance and the Cambridge Equation: Again on the Rate of Profits of Financial Intermediaries

I owe Man-Seop Park (MSP) sincere thanks for at least two reasons. First, in spite of his critical opinion on Ciccarone (2004), he accepts what I reckon to be the most controversial aspect of that contribution, i.e. the incorporation of different risks of enterprise generated by expectations realized in the broad, but not at the level of individual firms, into a Cambridge model with a financial system. Second, MSP’s (2008) observations give me the opportunity to clarify some issues which remained implicit, and thus possibly obscure, in my article. At the same time, I do not agree with MSP’s critique and, in this rejoinder, I will counter his claim that my model contains a confusion – produced by an ‘incomplete understanding’ of the income of financial intermediaries – that generates a ‘monster’ rising over the surface to destroy the ‘monetary’ foundations of Post-Keynesian theory. I will also demonstrate that his own definition of the income of financial capitalists is not general, and that the assumptions that must be made to obtain it are difficult to accept and are unable to restore the ‘monetary’ characteristics of the Cambridge economy. Finally, I will show that my 2004 conclusions would be reached even if that definition were employed. It will follow that the problem singled out by MSP does not lie in the income of financial intermediaries, but in the exogeneity of the full employment rate of growth. This is consistent with my 2004 contribution, where I reached the following conclusions:

Relazioni triangolari nell'economia dei servizi pubblici

Relazioni triangolari nell’economia dei servizi pubblici (di Daniele Archibugi, Giuseppe Ciccarone, Mauro Mare, Bernardo Pizzetti e Flaminia Violati) - ABSTRACT: The restructuring of public services is critically re-examined in this paper. It is argued that the issue of public versus private ownership has been overemphasised, while an effective increase in efficiency can be obtained by introducing appropriate incentives for both public and business actors. Four main decision-making phases are identified: the protection to be guaranteed to socially-sensitive economic activities; the ways to finance them; the economic organisation of the industry and the actual production. The debate on the market structure in public service industries is then reinterpreted on the basis of the interactions among three main players: the users/citizens, the public operator and the supplier of the service. Rather than using a single policy instrument, namely privatisation, it is argued that public action should be informed by an array of organisational solutions.

Tackling undeclared work. Suggestions from a business cycle model with search frictions

The paper evaluates the relative effect of deterrence, prevention, curative and commitment policy measures on the size of undeclared work in a real business cycle model with undeclared work, tax evasion and search frictions in the labour market. A numerical application of the model to the European economy shows that all these approaches reduce the undeclared share of output, but that deterrence and commitment policies also produce a negative effect on stationary employment. The curative approach produces the sharper fall in undeclared work while stimulating stationary output and employment.

Underground labor, search frictions and macroeconomic fluctuations

We study the e¤ects of underground activities on labour market dynamics in a RBC model with search frictions in the labor market, bargained wage and quadratic hiring costs. Underground activities, which allow agents to (partially) evade taxes, are modelled through a moonlighting production scheme where both regular and underground labor use the same capital equipment inside the firm. Calibrating the model on the U.S. economy, we show that a higher relative size of underground production implies lower average employment and a lower job finding rate, together with higher volatility of employment and lower volatilities of hours worked and wages of regular labor services. The theoretical explanation we provide is that a higher level of the underground activity increases the ratio of the flow contribution of non-working to the flow contribution of a worker to a labour match.

Politiche di contrasto al lavoro non dichiarato: punire, curare o prevenire?

The aim of this paper is to evaluate the relative effects of deterrence, prevention, curative and commitment policy measures on the size of undeclared work in Italy. To this aim, we insert this type of work into a dynamic general equilibrium model with moonlighting production, tax evasion and search frictions in the labor market calibrated on the Italian economy. The first type of policies is represented by the sanction applied to the firm being caught employing undeclared work; the second approach is encapsulated in active labor market policies targeted at improving the efficiency of declared work; the curative measures are exemplified by cuts in the labor tax rate and the commitment policies by measures able to influence the social stigma on undeclared work. The main result we reach is that all these approaches reduce the average undeclared share of output, but that deterrence and commitment policies also produce a negative effect on stationary output and employment. The active labor market approach is the one to prefer, because it produces the sharper fall in average undeclared work while stimulating stationary output and employment.