Thorsten Drautzburg

Fiscal Stimulus and Distortionary Taxation

We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (Smets and Wouters, 2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially.

Institutional Convergence of CIS Towards European Benchmarks

While the transformative power of EU accession is widely accepted, there seems to be widespread pessimism concerning the potential impact on institutional convergence through ENP, i.e. for neighboring countries without a membership perspective. This chapter analyzes external determinants of institutional change measured by the WBGI. An econometric panel analysis for 25 transition countries for the period of 1996–2005 reveals a considerable element of path-dependency. However, basic agreements with the EU and NATO and economic liberalization matter most. Hence, ENP can provide incentives for better governance if inconsistencies and shortcomings in action plans can be removed.

Entrepreneurial Tail Risk: Implications for Employment Dynamics

New businesses are important for job creation and have contributed more than proportionally to the expansion in the 1990s and the decline of employment after the 2007 recession. This paper provides a framework for analyzing determinants of business creation in a world where new business owners are exposed to idiosyncratic risk due to initial imperfect diversification. This paper uses this framework to analyze how entrepreneurial risk has changed over time and how this has affected employment in the US. Conditions are provided under which entrepreneurial risk can be identified using micro data on the size distribution of new businesses and their exit rates. The baseline model considers both upside and downside risk. Applied to US time series data, structural estimates suggest that higher upside risk explains much of the high job creation in the late 1990s. Time variation in risk explains around 40% of the variation in employment of new businesses. Reduced form results show that this relationship is strongest in IT-related industries. When restricting the model to a single risk factor, the explanatory power for employment drops by 25% to 50% compared to the baseline estimates.

Entrepreneurial tail risk: Implications for employment dynamics

Abstract New businesses are important for job creation and have contributed more than proportionally to the recent economic fluctuations. Given the risk exposure of entrepreneurs, this paper asks whether changing risk can explain the dynamics of new businesses. It makes two contributions. First, it provides a tractable, quantitative framework for analyzing business creation when entrants are exposed to idiosyncratic risk. Second, it provides conditions under which data on the size distribution of new businesses and their exit rates identifies entrepreneurial risk. According to the structural estimates, fluctuations in such risk explain around 40% of the employment fluctuations at new U.S. businesses.