Hans Peter Grüner

Individual preferences for political redistribution

What drives peoples support of governmental reduction of income inequality? We employ data from a large international survey in order to evaluate the explanatory power of three competing forces, referred to as the ‘homo oeconomicus effect’, the ‘public values effect’, and the ‘social rivalry effect’. The empirical analysis reveals that at the aggregate level all three effects play a significant role in shaping individual preferences for political redistribution. Attitudes of citizens in formerly socialist countries turn out to differ from those of western citizens in a systematic way.

How Will EMU Affect Inflation and Unemployment in Europe

This paper explores how European Monetary Union will change the wage setting behavior of national labor unions. The authors derive the impact of national inflation aversion and labor militancy on the performance of national labor markets under different monetary arrangements. A common central bank raises inflation and unemployment if it acts as conservatively as national central banks. However, unemployment falls in countries that previously tied their monetary policy to the Bundesbank. The authors also examine the composition of EMU and the influence of national labor market legislation. Copyright 1999 by The editors of the Scandinavian Journal of Economics.

How Much Should Central Banks Talk? A New Argument

The openness of central bank decision making has recently received new attention in the literature. It has been argued that more openness reduces uncertainty for players on financial markets and makes future decisions more transparent. In this Paper I argue that the opposite may be the case. The argument is based on a model that studies the interaction of major macroeconomic players with the central bank. In the Paper I make a distinction between (i) uncertainty about the central banks objectives and (ii) inflation uncertainty. This distinction turns out to be crucial. I assume that the disclosure of information affects the degree of uncertainty about central bank objectives. Actual inflation uncertainty is, however, affected by these objectives and by the actions of all macroeconomic players. More uncertainty about future monetary policy leads to more wage discipline, which in turn lowers average inflation. In equilibrium, the variance of inflation may be reduced as well.

Redistribution as a selection device

This paper studies the role of the wealth distribution for the market selection of entrepreneurs when agents differ in talent. It argues that the redistribution of initial endowments can increase an economys surplus because more talented individuals get credit for their risky investment projects. Moreover, the redistribution of initial endowments may lead to a Pareto-improvement although all agents are non-satiable. In my model an agents entrepreneurial ability is his private information. Moral hazard in production creates rents for entrepreneurs if they are believed to be both talented and willing to provide entrepreneurial effort. I find conditions such that unproductive rich entrepreneurs crowd out productive poor ones on the capital market. Then redistribution of initial endowments leads to the selection of better entrepreneurs, increases the economys surplus, and - in some cases - makes all agents better off.

Unemployment and Labor-Market Reform: A Contract Theoretic Approach

Why do many democracies fail to reform their labor-market institutions? To answer this question we study the feasibility of reforms that include compensation to insiders for the removal of labor-market regulations. Under asymmetric information, a reformer who wants to buy the approval of voters has to pay them an informational rent in addition to the pure costs of compensation that would arise under symmetric information. In this setting, unemployment may be constrained Pareto-efficient. Labor-market reforms may fail politically because none of the reform packages proposed wins the approval of a majority of voters. We also discuss the role of capital taxation in a reform program. Copyright 2002 by The editors of the Scandinavian Journal of Economics.

Unions, Wage Setting and Monetary Policy Uncertainty

Recent theoretical research has studied extensively the link between wage setting and monetary policymaking in unionized economies. This paper addresses the question of the role of monetary uncertainty from both a theoretical and empirical point of view. Our analysis is based on a simple model that derives the influence of monetary uncertainty on unionized wage setting. We construct an indicator of monetary policy uncertainty and test our model with data for the G5 countries. The central finding is that monetary policy uncertainty has a negative impact on nominal wage growth in countries where wage setting is relatively centralized.

Fiscal Policy and Growth: Do Financial Crises Make a Difference?

In this paper we assess to what extent in the existence of a financial crisis, government spending can contribute to mitigate economic downturns in the short run and whether such impact differs in crisis and non crisis times. We use panel analysis for a set of OECD and non-OECD countries for the period 1981-2007. The fiscal multiplier for the full sample for instrumented regular and crisis spending is about 0.6-0.8 considering the sample average government spending share of GDP of about one third. Altogether, we cannot reject the hypothesis that crisis spending and regular spending have the same impact using a variation of controls, sub-samples and specifications.

Speed and quality of collective decision making: Imperfect information processing

A group of P identical managers has to make a choice between N alternatives. They benefit from reaching the decision quickly. In order to learn which is the best option, the alternatives have to be compared. A manager is able to identify the better one of two alternatives only with a certain probability. This Paper compares three different hierarchy designs with respect to decision quality: two strictly balanced hierarchies and the fastest hierarchy, which is the skip-level reporting tree proposed by Radner (1993). The latter hierarchy design is found to outperform the two others not only in terms of speed and cost but also in terms of decision quality.

A Model of Stability and Persistence in a Democracy

Abstract We develop an intertemporal model of political competition which accounts for three stylized facts of political life in representative democracies: (i) political stability and the absence of discrimination, (ii) a limited degree of political competition, and (iii) the persistence of different political outcomes in otherwise similar economies. In our model political stability is desirable for risk-averse voters. Voters only vote for “decent” policy proposals which do not discriminate against single groups. We derive properties of the set of possible political outcomes and study the issue of robustness against renegotiation. Journal of Economic Literature Classification Numbers: C72, D70, D72.

Redistributive policy, inequality and growth

Does redistribution increase inequality? Is inequality harmful for growth? Both questions have recently been addressed in a number of single-tax models. In this paper, I examine the relationship between policy, growth and inequality when income and inherited wealth can be taxed at different rates. In the model, parents accumulate human capital and a return-bearing, storable good in order to increase the quality of their children. Inequality arises because the learning ability of children is stochastic. Redistributive labor income taxation has a negative impact on short- and long-run growth while taxation of inherited stocks increases growth. Effects of both taxes on income inequality are ambiguous. A switch from income to inheritance taxation may increase average utility of all generations involved. I calculate a structure-induced equilibrium of the political process by means of a stochastic simulation of the model. In the short run initial wealth-inequality can stimulate growth, while initial inequality of the endowment with human capital is harmful for growth.