Jan Kluge

Sectoral Diversification as Insurance against Economic Instability

This paper examines the extent to which sectoral diversification can act as an insurance mechanism against fluctuations in regional gross value added growth rates. I apply portfolio theory to the growth-instability properties of German districts. Furthermore, I define a comprehensive diversification measure and use Stochastic Frontier Analysis in order to estimate whether diversification allows regions to achieve more efficient growth-instability combinations, i.e., greater stability at given levels of economic growth. The results confirm that diversification does generate such effects. Spatial interactions do also play a role: The effects are less pronounced for regions whose economic performance is mainly driven by the surrounding regions.

Self-Preserving Leviathans - Evidence from Regional-Level Data

This paper investigates the impact of the intensity of political competition on the leviathan behavior by political incumbents. Using panel data from German municipalities, we test whether the relative political strength of parties in local councils influences the spending behavior of officeholders. We find only weak evidence that strong officeholders (with weak political opponents) exhibit leviathan behavior in total government spending. Additionally, we test for political budget cycles at the local level. Here, we find strong empirical evidence that the spending pattern during a legislative period depends on the distribution of power in local councils. In municipalities with weak political competition the public spending reaches a peak in election years. The political incumbents act as self-preserving leviathans. If officeholders face politically strong opponents, they do not initiate a political budget cycle.

Decomposing the German East–West wage gap†

We demonstrate that almost one half of the observed wage gap between East and West Germany reflects differences in worker, establishment, and regional characteristics rather than differences in productivity at the establishment level. Regional price and establishment size differentials alone account for one quarter of the overall East-West wage gap. Differences in employees? characteristics and in productivity deliver much smaller but still statistically significant contributions. We derive these results from an Oaxaca-Blinder decomposition using unusually rich linked employer-employee data. Our findings are quite stable over the period from 1996 to 2010 and over the wage distribution.