FISCAL RULES AND GOVERNMENT BORROWING COSTS: INTERNATIONAL EVIDENCE

We find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985–2010. We apply a variety of propensity score matching methods to address the self‐selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets. The results are robust to changes in country sample and alternative estimation methodology, and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the “risk premium” on government debt that compensates lenders for this possibility. (JEL E43, G12, H60)     

A Closed Immigration Country: Revisiting Japan as a Negative Case

The Japanese government maintains that the country admits only skilled economic migrants. Its statistics tell a different story. Skilled and low‐skilled economic migrants are admitted in equal measure. The aim of this article is to explain the dissonance between the government's policy rhetoric and policy outcome by turning to policy output. To this end, I quantitatively analyse immigration admission channels for economic migrants, using Ruhs' Openness and Rights Indicators (2013). The main findings not only go against much of what we believe about Japan but helps us reach a more nuanced understanding of its immigration policies. I demonstrate that Japanese immigration admission policies have become more open towards de facto low‐skilled economic migrants over time and are more open to de facto low‐skilled economic migrants than to de jure skilled economic migrants. Instead of openness, the gains made by certain groups of de jure skilled economic migrants have been exclusive immigration privileges related to permanent residence and family sponsorship.     

Consumer bankruptcy and default: The role of individual social capital

In this paper, we empirically assess the role of individual social capital on personal bankruptcy and default outcomes in the consumer credit market. After controlling for a borrower’s risk score, debt, income, wealth, and legal and economic environments, we find that default/bankruptcy risk rises and then falls over the lifecycle, while a borrower who owns a home or is married has a lower risk of default/bankruptcy. Moreover, a borrower who migrates 190 miles from his “state of birth” is 17% more likely to default and 15% more likely to file for bankruptcy, while a borrower who continues to live in his state of birth is 14% and 10% less likely to default and file for bankruptcy, respectively. A borrower who moves to a rural area is 9% and 7% less likely to default and declare bankruptcy, respectively. We also find that measures of social networks, norms, and cooperation and trust (i.e., aggregate social capital) are inversely related to consumer bankruptcy.     

The other side of Malaysia’s enviable economic and multiethnic stability: the obstinate resilience of ‘money politics’

Many governments, in their zeal to progress and deliver the fruits of development, are caught in a web of unsavory habits and practices that impair not only their international image but also domestic legitimacy. One such perennially persistent and resilient disease is ‘money politics.’ Taking Malaysia as a case study, we note that despite sustaining a remarkable record of economic and multiethnic stability, the country has also been helpless in mitigating this obstinate issue. In this article, it is posited that the phenomenon is not a new or recent portent but has actually persisted even prior to independence. We shall then contend that unless the ruling Barisan Nasional (BN) coalition government attaches greater priority in stamping out this political bug, the country’s otherwise enviable development trajectory and the quest to reach a ‘developed nation’ status via its Vision 2020 declaration, even if fulfilled, are not cause for celebration, given its implications to the country’s economic sustainability and multiethnic stability.     

THE FRAGILE AMERICAN: Hardship and Financial Troubles in the 21st Century

Rising economic insecurity at the turn of the 21st century made Americans increasingly vulnerable to financial distress. Studies of bankruptcy records show that personal hardships like health problems, divorce, job loss, and income disruption are the major reasons Americans fall into financial ruin. This article uses nationally representative data from the Survey of Consumer Finances to study the relationship between hardship and a range of financial troubles including bankruptcy, default, and credit access. We differentiate this analysis by class, expecting that debt troubles fall especially hard on middle‐income families. Our results show that while the middle class is distinctly vulnerable, multiple financial troubles accompany hardship for all classes.     

Planning Until Death Do Us Part: Partnership Status and Financial Planning Horizon

Positive economic outcomes of marriage are often explained with a higher future orientation of married individuals who are assumed to plan their finances for a longer period than the nonmarried. Using data from the Household, Income and Labour Dynamics in Australia Survey (2001–2014; N = 4,819 individuals), the authors provide the first longitudinal test of whether individuals change their financial planning horizons when they change their partnership status using fixed and random effects regressions. Results show that the financial planning horizon increases as individuals enter cohabitation. No further changes in financial planning horizons are found when they transition into marriage. Changes in horizons are similar for women and men. These results indicate that longer financial planning horizons and marriage are likely outcomes of couples' long‐term commitment, which develops during cohabitation. The symbolic and legal institution of marriage is not additionally associated with individual financial planning as a dimension of future orientation.     

MORE MORTGAGES,LOWER GROWTH?

In newly collected data on 46 economies over 1990–2011, we show that financial development since 1990 was mostly due to growth in credit to real estate and other asset markets, which has a negative growth coefficient. We also distinguish between growth effects of stocks and flows of credit. We find positive growth effects for credit flows to nonfinancial business but not for mortgage and other asset market credit flows. By accounting for the composition of credit stocks and for the effect of credit flows, we explain the insignificant or negative growth effects of financial development in recent times. What was true in the 1960s, 1970s, and 1980s when the field of empirical credit‐growth studies blossomed, is no longer true in the 1990s and 2000s. New bank lending is not primarily to nonfinancial business and financial development may no longer be good for growth. These trends predate the 2008 crisis. They prompt a rethink of the role of banks in the process of economic growth. (JEL E44, O16, O40, C33)     

Living on the Edge: Institutional Supports and Perceptions of Economic Insecurity Among People with Disabilities and Chronic Health Conditions

The growth of precarious employment coupled with declining social safety nets has increased economic insecurity among many households, leaving them without key resources to weather financial hardships like those brought on by the COVID-19 pandemic. This has been especially true for people whose disabilities, health statuses, and already precarious economic situations have made them extra vulnerable. We combine survey (N = 1,027) and interview (N = 50) data for Canadians with disabilities and chronic health conditions to explore how mobilizing four types of institutional supports connected to labor markets, financial markets, family, and government influenced perceptions of current and future insecurity during crisis. Because employment income was only available to about half of our respondents, many relied on a combination of savings, family supports, and government programs to make up the difference. This paper demonstrates how marginalized groups make use of different supports within liberal welfare states during times of crisis.     

FINANCIAL CONTAGION ON THE INTERNATIONAL TRADE NETWORK

We combine data on international trade linkages with a network approach to map the global trading system as an interdependent complex network. This enables us to obtain indicators of how well connected a country is into the global trading system. We use these network‐based measures of connectedness to explain stock market returns during recent episodes of financial crisis. We find that a crisis is amplified if the epicenter country is better integrated into the trade network. However, target countries affected by such a shock are in turn better able to dissipate the impact if they are well integrated into the network. A network approach can help explain why the Mexican, Asian, and Russian financial crises were highly contagious, while the crises that originated in Venezuela and Argentina did not have such a virulent effect. We suggest that a network approach incorporating the cascading and diffusion of interdependent ripples when a shock hits a specific part of the global trade network provides us with an improved explanation of financial contagion. (JEL F10, F36, F40, G15)     

FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH: THE GROWTH ACCOUNTING PERSPECTIVE

A positive relationship between FDI and economic growth under two economic conditions has been estimated: a sufficient level of human capital and well-developed financial markets, respectively. However, these two conditions can be fundamentally different catalysts for FDI to promote economic growth in the perspective of growth accounting. Using data from 69 countries over 1970–1989, we find that FDI promotes productivity growth only when the host country reaches a threshold level of human capital; and FDI promotes capital growth only when a certain level of financial development is achieved. ( JEL F21)     

Debt repayment problems: short-term and long-term implications for spending

The paper investigates the economic consequences of financial difficulties. A unique quarterly panel dataset from 2004–2011 from Estonia, a euro area country, makes it possible to estimate the quarterly spending response to debt repayment problems on top of the effect of income and indebtedness. The results imply that problems lead to a substantial short-term drop in spending. Although spending recovers after the debt repayment problems are resolved, the increase is smaller than the original decline and spending remains at a lower level than before the problems emerged. An important finding is that the longer the problems last, the more severe the decline in spending is. The results suggest that the experience of debt repayment problems has severe long-term economic implications, a cost that should be taken into account when the consequences of indebtedness are assessed.

     

One-dimensional times: a dialectical response to the Irish Times’ coverage of the global financial crisis

A growing literature claims that critique of neoliberal capitalism after the global financial crisis (GFC) has been ‘captured’ within the logic of capital. Such research argues that ‘capture’ is achieved through a process whereby critique of neoliberalism is transformed into arguments for more neoliberalism. This creates a one-dimensional ‘recovery’ discourse. Drawing on Marcuse’s theory outlining ‘one-dimensional society’ and critical discourse analysis, this study assesses the relevancy of such claims for an Irish medium, the Irish Times, through an examination of GFC-related discourse during 2009–2010. This study finds that economic discourse in the Irish Times is captured when organisational bias allows pro-neoliberal actors from business and government privileged access to discourse production. We engage a call from organisation studies for a dialectical reading of captured discourse. We end with a discussion of the limits of this reflexive approach to capitalism’s contradictions for disrupting its ongoing hegemony.     

WOMEN PREFER LARGER GOVERNMENTS: GROWTH,STRUCTURAL TRANSFORMATION,AND GOVERNMENT SIZE

The increase in income per capita is accompanied, in virtually all countries, by two changes in economic structure: the increase in the share of government spending in gross domestic product (GDP), and the increase in female labor force participation. We argue that these two changes are causally related. We develop a growth model based on Galor and Weil (1996) where female participation in market activities, fertility, and government size, in addition to consumption and saving, is endogenously determined. Rising incomes lead to a rise in female labor force participation as the opportunity cost of staying at home and caring for the children increases. In our model, higher government spending decreases the cost of performing household chores, including, but not limited to, child rearing and child care, as in Rosen (1996) . We also use a wide cross‐section of data for developed and developing countries and show that higher market participation by women is positively and robustly associated with government size. We then investigate the causal link between participation and government size using a novel unique data set that allows the use of the relative price of productive home appliances as an instrumental variable. We find strong evidence of a causal link between female market participation and government size. This effect is robust to the country sample, time period, and a set of controls in the spirit of Rodrik (1998) . (JEL O4, E62, H11)     

INFORMATION,INSTITUTIONS, AND BANKING SECTOR DEVELOPMENT IN WEST AFRICA

Using a new West African panel data set, we provide evidence on the determinants of individual banks' loans and assets in some of the poorest countries in the world. Higher loan default rates reduce both the loans to assets ratio and the volume of assets. However, the size of these effects is sensitive to bank age and ownership structure. Younger, private, domestically owned banks are most affected, suggesting that such banks face the most severe informational disadvantages. Very old government‐owned banks benefit from high default rates. We also explore how the quality of governance impacts on loans and assets. (JEL G21, O16)     

Migrant transnationalism and the choice of transfer channels for remittances: the case of Moldova

Migrant remittances, particularly when transferred through the banking system, may contribute to financial development in migrants' home countries. We analyse the determinants of the choice of transfer channel (formal services versus informal operators or personal transfers) by Moldovan migrants in 2006. We estimate a multinomial logit model from household survey data. Our explanatory variables include socio‐economic characteristics of the migrant and other household members, the pattern of migration (destination country, legal status, duration), and financial information (average amount and frequency of payments). Key reasons not to use a formal transfer channel are a migrant's emphasis on low transfer cost (rather than speed, convenience or security), irregular legal status in the host country, and short migration spells. Our findings demonstrate that migrants' transnational capacities and activities in their entirety bear upon the choice of transfer channel; any policy interventions to promote the use of formal channels should reflect this.     

HOUSEHOLD FINANCES,INCOME SHOCKS,AND FAMILY SEPARATION IN BRITAIN

We examine the effect of household financial indebtedness on the incidence of partnership dissolution using a large survey of families with children in Britain. We use detailed data on household finances to provide a robust statistical analysis of the relationship between indebtedness and partnership dissolution and to avoid the potential simultaneity of financial and psychological health responses that arise when using self‐reported data on the extent of household “financial problems.” We examine whether the data provide any support for the “economic” models of divorce and separation developed by Gary Becker and his colleagues. (JEL J12, D12)     

The Case for Countercyclical Fiscal Capacity

A growing literature has sought to demonstrate when and howgovernment capacity links to performance. This article examinesthose questions in the area of financial management. A basicchallenge for state governments is to maintain budgetary stabilityand program predictability in face of economic downturns. Stategovernments can best meet this challenge by developing whatwe call countercyclical fiscal capacity (CCFC). We present theconcept of CCFC as the creation and use of financial tools thathelp state governments maintain countercyclical spending andprogram stability during revenue shocks. We operationalize theconcept in terms of fiscal reserves that are used to mitigateemergency-spending cuts and tax increases and analyze the operationof such reserves over a period that includes recessions in 1991and 2001. We find evidence of the efficacy of CCFC and arguefor greater investments in this aspect of government capacity.     

Financial Responsibility for the Family: The Case of Southeast Asian Refugees in Canada

Although respondents (n = 647) came from collectivist societies (Vietnam and Laos) where they were expected to provide for the family, they have been living in a setting (Canada) where individualism is emphasized and public sources of assistance are available. The effect of this transition on their beliefs and behaviors regarding financial responsibility for family was assessed. With the exception of new situations (government assistance for the elderly or poor, and money sent to relatives in the home country), respondents endorsed traditional beliefs. Lower English ability and favorable views toward multiculturalism were associated with traditional views. They relied on non-family as well as family for financial assistance. Ethnic differences, reflective of their resettlement experiences, were evident.     

MONETARY AND FISCAL POLICY DESIGN AT THE ZERO LOWER BOUND: EVIDENCE FROM THE LAB

The global economic crisis of 2007–2008 has pushed many advanced economies into a liquidity trap. We design a laboratory experiment on the effectiveness of policy measures to avoid expectation‐driven liquidity traps. Monetary policy alone is not sufficient to avoid liquidity traps, even if it preventively cuts the interest rate when inflation falls below a threshold. However, monetary policy augmented with a fiscal switching rule succeeds in escaping liquidity trap episodes. We measure the effect of fiscal policy on expectations, and report larger‐than‐unity fiscal multipliers at the zero lower bound. Experimental results in different treatments are well explained by adaptive learning. (JEL E70, C92, D83, D84, E52, E62)     

Government Subsidies and Household Debt Burden After the Great Recession

During the recent Great Recession, US households, especially those with low incomes, faced severe financial distress. Households experiencing economic hardship may turn to receiving government assistance to alleviate the hardship or distress. Receiving government assistance may improve a household’s financial situation as it could be decreasing its reliance on debt or even improving a household’s ability to repay their current debt. We investigated how households’ financial debt obligations were affected by receiving government assistance, as has not been previously analyzed. Given the focus of this research, we included households under 185 % of poverty threshold released by the 2012 US Census Bureau. Results from the 2010 and 2013 Survey of Consumer Finances indicate that government assistance was positively related to the odds of meeting debt-to-income ratio guidelines, implying that government assistance plays an important role in financial security of low-income households. This study provides important insights for researchers and policymakers in the areas of poverty and household finance.