Work in Progress
Current Working Papers & Projects
This paper investigates a unique policy designed to maintain employment during the privatization of East German firms after the fall of the Iron Curtain. The policy required new owners of the firms to commit to employment targets, with penalties for non-compliance. Using a dynamic model, we highlight three channels through which employment targets impact firms: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and instrumental variable approach, confirms these findings. We estimate a 22% points higher annual employment growth rate, a 14% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment targets. Our calibrated model further demonstrates that without these targets, aggregate employment would have been 15% lower after 10 years. Additionally, an alternative policy of productivity investment subsidies proved costly and less effective in the short term.
Do Politicians Affect Firm Outcomes? Evidence from Connections to the German Federal Parliament, (joint with Laura Pohlan and Andrea Weber)
Do firms benefit from political connections and to what extent do connections between firms and politicians shape firm dynamics? This paper combines data on firm connections to German Bundestag politicians over the last two decades with the universe of German firms. We differentiate between hiring a politician and winning or losing access to political power through elections by comparing candidates who just won and just lost a seat in parliament. Based on an event-study design, hiring a politician causes firms to grow by 10 log points and reduces the exit probability by up to 8% points. Exploiting submitted party list seats in a fuzzy RDD with 254 discontinuities, winning access to parliament lowers market exit by 11% points. Our results provide evidence of a reallocation of resources due to firms seeking preferential treatments, measured in the form of public procurement contracts, economic subsidies, and access to credit.