Working Papers

In Western Europe and North America, wealth and income disparities have increased. The effectiveness of policies to promote development in disadvantaged regions remains uncertain. Despite Germany's high-income status, regional disparities persist. Over the past three decades, governments at various levels have initiated the relocation of public institutions to underdeveloped areas in an effort to revitalize local economies. This paper examines the local labor market outcomes of the "Heimatstrategie 2015," a first-of-its-kind comprehensive public employment redistribution program designed to equalize living and working conditions in urban and rural areas of Bavaria. This strategy involved the decentralization of public sector jobs from large cities to less developed inland regions. Using a novel dataset, we assess the direct effects of these public sector relocations in Bavaria. Our analytical approach combines two causal inference methods: a long-differences variant of difference-in-differences (DiD) estimation and Mahalanobis distance matching. The latter is applied to a sample of treated Bavarian municipalities and control municipalities outside Bavaria. The data after 2019 show a statistically significant, albeit small, increase in the employment share attributable to this policy, ranging from 1.74% in 2019 to 2.14% in 2021. However, our analysis shows no significant impact on overall unemployment shares or sector-specific employment. We conduct event studies to analyze the time-varying effects of the policy and find similar results.

Populism and voters’ discontent are on the rise in many Western democracies, in particular in poorer regions. The success of targeted transfers from higher levels of government or other place-based policies to enhance economic development in structurally weak regions has, however, only found mixed empirical support. In our paper, we take a different angle and ask whether place-based policies matter at the poll. We exploit the largest public sector relocation program in recent decades in Germany to examine its effects on electoral outcomes. Exploiting the staggered roll-out of the policy in a difference-in-difference setting, we find a strong incumbency advantage of the Christian Conservative party which benefited greatly from the relocation program, while its coalition partner was punished at the polls. The public sector relocation program had also some success in containing the rise of the far-right populist AfD. 

The vote share of far-right, populist parties has almost doubled in Western countries in the last decade. This sudden increase led to a growing body of literature, especially in Economics and Political Science. Yet, due to disagreement among the disciplines, measurement, and identification issues, the main drivers of far-right populism remain unclear. It is also unclear if some of the determinants analyzed so far might have a non-linear relationship with the far-right, populist vote share. Against this backdrop, we create an extensive new dataset with over 26 determinants of far-right populism in over 30 countries between 1980 and 2019. We then employ Bayesian Model Averaging (BMA) to identify the most robust drivers of populism across all possible models. We move on to apply Bayesian Additive Regression Trees (BART) to determine non-linearities in those drivers’ relationship with far-right populism. We find that while the trade-to-GDP ratio decreases far-right populism, imports from China increases it, however, only after a threshold value. Regarding the effect of immigration on far-right populism, we find that higher migrant stock decreases far-right populist vote share, confirming the contact hypothesis. In contrast, we find a threshold effect regarding refugee migration. Regarding culture, we find a strong positive relationship between religiosity and far-right populism, confirming the idea that religion forms a group identity and plays into the cards of populist rhetoric of the division of society into the moral people and the corrupt elite. 

Xu (2022) estimates the causal impact of bank failures on the level of trades with a staggered difference-in-differences design and an IV strategy with Bartik instrument, using the 1866 banking crisis as a quasi-natural experiment. Findings, based on historical data on the trades and loans between London banks and banks around the world, show that countries exposed to bank failures in London immediately exported significantly less and did not recover their lost growth relative to unexposed places. Moreover, the effect lasted for decades. First, we reproduce the paper’s main findings by running the original code and uncover three issues, one of which that slightly affects the main estimates reported in the study. Second, we test the robustness of the results to (1) removing weights from the regressions, (2) using a spatial HAC correction for the standard errors, and (3) implementing a method for possibly heterogeneous treatment effects with a staggered difference-indifferences design. Overall, we conclude that the main findings are valid and robust. 

Work in Progress

Publications

This study evaluates a temporary tax reduction of fuel prices in Germany to curb inflation amid the Ukraine war. We utilize dynamic difference-in-differences to investigate the policy’s effectiveness in passing tax reductions to consumers. We compare the impact in Germany with similar policies in four other European countries. The results indicate that oil companies passed on the tax reduction to consumers, with variations in the extent of this pass-through effect in different countries over time.