Mario Blejer, Piroska Nagy Mohacsi, 22 November 2017

Global politics of late has been marked by the rise of anti-elite political movements and anti-establishment leaders. This column analyses the tactics of such populists through the lens of the ‘time inconsistency’ problem – that what is considered a long-term optimal policy today may not be optimal when that future arrives. Populist leaders seek to gain and increase their power by undermining democratic institutions and conventional commitment devices. Several ‘second generation’ institutional commitment devices to counter this are proposed.

Gabriel Felbermayr, Marina Steininger, Erdal Yalcin, 22 November 2017

The Trump administration intends to restructure US international trade relations with its major trade partners to correct what it perceives to be unfair trade and establish a ‘level playing field’. This column uses a structurally estimated and simulated trade model to analyse three potential protectionist policies that have been discussed by the administration. The results suggest that the promise to create more jobs and investment in the US through such policies is a fallacy.

Emmanuel Saez, Benjamin Schoefer, David Seim, 22 November 2017

Cuts to the employer portion of payroll taxes are often discussed as a policy lever to reduce labour costs for firms. This column examines the effects of a Swedish experiment which dramatically cut employer payroll taxes for young workers between 2007 and 2015. The tax cut reduced youth unemployment by 2-3 percentage points, without any differential increase in wages of young workers. Firms used the tax windfall to expand employment and business activity, and firms with larger tax windfalls raised wages for workers – both young and old – collectively.

Jean-Pierre Danthine, 21 November 2017

There is little doubt that one of the main causes of the Global Crisis was excessive risk-taking by large international financial institutions. This column argues that the combination of very high leverage and limited liability continues to incentivise risky behaviour by bankers. Dealing with this problem requires the alignment of bankers’ incentives with those of society, rather than of shareholders. Deferred compensation in the form of contingent convertibles presents one promising strategy.

Ayako Kondo, 21 November 2017

Economists have studied extensively the direct impacts of natural disasters on local labour markets, but less is known about the knock-on consequences for wider markets. This column argues that although supply chain disruptions caused by the Great East Japan Earthquake increased job separation and geographical shifts, the effects on employment status were weak. The long-run impact of the earthquake on the labour markets outside of the directly affected areas appears to be limited, despite public concerns at the time.

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