Research & Publications

Borrowing Costs after Sovereign Debt Relief

with David Mihalyi and Andrea Presbitero

R&R: American Economic Journal: Economic Policy

Can debt moratoria help countries weather negative shocks? We exploit the Debt Service Suspension Initiative (DSSI) to study the bond market effects of deferring official debt repayments. Using daily data on sovereign bond spreads and synthetic control methods, we show that countries eligible for official debt relief experience a larger decline in borrowing costs compared to similar, ineligible countries. This decline is stronger for countries that receive a larger relief, suggesting that the effect works through liquidity provision. By contrast, the results do not support the concern that official debt relief could generate stigma on financial markets.

Bilateral or Multilateral? International Financial Flows and the Dirty- Work Hypothesis

with Axel Dreher, B. Peter Rosendorff, and James Raymond Vreeland

Conditionally Accepted: Journal of Politics

How do governments choose between bilateral and multilateral foreign policy? We argue that powerful governments can exploit their influence over multilateral organizations to hide contentious foreign policies from domestic audiences. Applying this argument to international financial flows, we formulate hypotheses on the choice between bilateral and multilateral financing for political purposes. We test them by examining how the United States incentivizes support for decisions on United Nations Security Council resolutions. Introducing a new dataset on 2,530 Security Council decisions between 1946 and 2015, the results show that temporary Security Council members receive more bilateral and multilateral financing only when they support the positions of the United States. The United States uses bilateral aid to incentivize the support of allies and uses its power over the World Bank and the International Monetary Fund to channel multilateral finance to countries that its domestic audience views more negatively.

The Economics of the Democratic Deficit: The Effect of IMF Programs on Inequality

Review of International Organizations 16(3): 599-623 (2021)

Does the International Monetary Fund (IMF) increase inequality? To answer this question, this article introduces a new empirical strategy for determining the effects of IMF programs that exploits the heterogeneous effect of IMF liquidity on loan allocation based on a difference-in-differences logic. The results show that IMF programs increase income inequality. An analysis of decile-specific income data shows that this effect is driven by absolute income losses for the poor and not by income gains for the rich. The effect persists for up to 5 years, and is stronger for IMF programs in democracies, and when policy conditions, particularly those that demand social-spending cuts and labor-market reforms, are more extensive. These results suggest that IMF programs can constrain government responsiveness to domestic distributional preferences.

Stigma or Cushion? IMF Programs and Sovereign Creditworthiness

with Kai Gehring

Journal of Development Economics 147: 102507 (2020)

Policymakers in crisis countries often hesitate to enter IMF programs out of the fear that they trigger adverse reactions on financial markets. We explain why credit ratings and investor assessments are reliable measures of creditworthiness during crises, and examine how IMF programs affect them with three distinct identification strategies. The first strategy exploits the differential effect of changes in IMF liquidity on loan allocation as an instrument, the second uses the exact timing of program agreements, and the third provides text-based evidence from rating agency statements. When accounting for endogenous selection, we find that IMF programs help countries regain their creditworthiness. Even though IMF programs tend to result in economic contractions, the agreement on a program is perceived as a positive signal on financial markets. Our text-based analysis supports this signaling effect and suggests that the content of programs matters for how they are perceived.

The Political Economy of International Finance Corporation Lending

with Axel Dreher and Katharina Richert

Journal of Development Economics 140: 242-254 (2019)

Much of the International Finance Corporation's (IFC) lending benefits private companies from rich countries and supports projects in middle-income countries. Large corporations such as Lidl or M€ovenpick have received its loans for highly profitable investments. This contrasts to some extent with the IFC's official mandate, which is to finance poverty-reducing projects for which private capital is not available on reasonable terms. Investigating a potential driver of this mismatch, we argue that some governments can influence the allocation of IFC loans to the benefit of private companies in their countries. Using new data for more than 3000 IFC projects over the 1995–2015 period we show that (joint) IFC Board membership of countries where borrowing companies are based and of countries where the projects are implemented increases the likelihood that these countries receive IFC loans. This has implications for the debate on leveraging private-sector investments for development.

Room for Discretion? Biased Decision-Making in International Financial Institutions

with Andrea Presbitero

Journal of Development Economics 130: 1-16 (2018)

We exploit the degree of discretion embedded in the World Bank-IMF Debt Sustainability Framework (DSF) to understand the decision-making process of international financial institutions. The unique, internal dataset we use covers the universe of debt sustainability analyses conducted between December 2006 and January 2015 for low- income countries. These data allow us to identify cases where the risk rating implied by the application of the DSF's mechanical rules was overridden to assign a different official rating. Our results show that both political interests and bureaucratic incentives influence the decision to intervene in the mechanical decision-making process. Countries that are politically aligned with the institutions' major shareholders are more likely to receive an improved rating; especially in election years and when the mechanical assessment is not clear-cut. These results suggest that the room for discretion international financial institutions have can be a channel for informal governance and a source of biased decision-making.

Work in progress

Helping the Left Behind? Place-Based Policies and Regional Inequality

with Daniel Bischof and Nils Redeker

Against the backdrop of rising inequality across regions, place-based policies have become an increasingly popular tool to support “left-behind” regions. While existing research provides evidence for average growth effect of such policies, little is known about their distributional effects within regions. We compile a new panel data set on income inequality across and within Euro-pean Union (EU) regions based on household data from more than 2.4 million respondents of national surveys, covering a maximum of 231 European regions in the 1989-2017 period. The data shows that inequality within these regions is substantial and contributes more to European in-equality than inequality across regions. We then study the distributional effects of the world’s most voluminous placed-based policy, the EU Cohesion Policy, on household incomes within regions. For causal identification we leverage, first, a discontinuity in disbursed amounts that results from EU eligibility criteria and, second, a difference-in-differences design. We find an economically substantial, positive effect of EU funds on household incomes that is larger at the lower end of regional income distributions than at the top; the place-based policy reduces inequality within regions. In regards to mechanisms, these effects are driven by job creation and rising wages in multiple sectors and are larger under conditions of local economic slack and higher levels of education. The policy increases household income derived from labor rather than from capital. In sum, these results challenge the view that place-based policies are ineffective for achieving distributional goals.

The Global Distribution of Gains from Globalization

with Marina M. Tavares

IMF Working Paper 18/54

Over the past decades, incomes converged across countries yet diverged within countries, changing the structure of global inequality. We provide theory and evidence suggesting that economic globalization promotes this dual global trend. A simple model predicts diminishing marginal gains of globalization across countries and increasing inequality within countries. Our empirical analysis uses global panel data at the country-decile level and exploits geographic diffusion of liberalization policies for identification. Globalization since 1970 has led to a) income convergence across countries, because marginal gains from globalizing diminish and ultimately disappear for highly globalized countries, and b) income divergence within countries, because gains are largest for the richest ten percent of national income distributions.

Migration and the Far Right: Short and Long-Run Evidence from a Natural Experiment

with Stephan Schneider

Empirical research documents strong links between immigration waves and far-right voting, but also points to important heterogeneities in this relationship. We examine whether past experience with immigration shapes voter reactions to current immigration waves. We use a natural experiment from Germany, where a short-term and demonstrably arbitrary drawing of occupation zones created a discontinuous distribution of expellees after World War II. Combining historical migration and election data for a 1949-2019 panel at the municipality level, we exploit these differences in a spatial fuzzy regression discontinuity design. Our results show a substantially weaker political backlash against current immigration in municipalities that received more expellees in the past. This effect persists for at least 70 years.

Abstiegsangst. Social Identity Shocks and Political Discontent

with Lukas Haffert

Expressions of political discontent are often interpreted as responses to perceived threats to people’s social status or social identity. While the literature finds associations between status threat and political discontent, evidence is scarce on whether this is due to a causal effect. In this paper, we leverage the relegation of local football teams as an exogenous shock to social identity in order to study the effect of identity shocks on political behavior. In many European countries, including Germany, local football teams are an important part of people’s social identity. The decline of such teams can thus constitute a powerful threat to this identity. We use Google search data to identify municipalities affected by the relegation of a popular football team and match these data to a panel of municipality-level federal election results since 1994. Using cross-sectional regressions, panel regressions with two-dimensional fixed effects, and a regression discontinuity design, we find that citizens in municipalities affected by such shocks are less likely to support established mainstream parties and more likely to support fringe parties on the left and on the right. We thus demonstrate that football can affect political outcomes through its effect on social identity. More generally, we provide evidence for a link between social status threat and electoral outcomes.

The Power of International Bureaucrats. Individual-Level Evidence from IMF Mission Chiefs

with Lukas Wellner


Other publications

  • The Political Economy of International Organizations (with Axel Dreher), in: Congleton Roger, Bernard Grofman, Stefan Voigt (eds.), The Oxford Handbook of Public Choice, Oxford: Oxford University Press (2018).

Link to publication, link to ungated PDF.


  • Foreign Aid in Areas of Limited Statehood (with Axel Dreher and Sebastian Ziaja), in: Risse, Thomas, Tanja Börzel, Anke Draude (eds.), The Oxford Handbook on Governance and Limited Statehood, Oxford: Oxford University Press (2018).

Link to publication, link to ungated PDF.


  • ​Defining and Measuring Poverty and Inequality Post-2015 (with Hildegard Lingnau), Journal of International Development 27(3): 399-414 (2015).

Link to publication, link to ungated PDF.