Workings

Business investment has weakened across OECD economies in recent decades. Using firm-level data for 17 OECD countries over 2003–2022, this paper documents a marked decline in the responsiveness of tangible investment to firm productivity following the Global Financial Crisis, with only a partial recovery thereafter, pointing to a weakening of capital reallocation toward more productive firms. The decline is broad-based across countries and sectors, holds after accounting for intangible investment, and is confirmed under an instrumental-variables strategy. Both frontier and non-frontier firms experienced a reduction in responsiveness, though the decline is larger and more persistent among non-frontier firms, while frontier firms proved more resilient. Partial-equilibrium counterfactuals suggest that maintaining pre-crisis responsiveness would translate into substantially higher aggregate investment and measurable productivity gains. Policy and market conditions shape how strongly investment responds to productivity. Responsiveness is weaker in sectors where firms depend more on external finance and in countries with less efficient insolvency regimes, the latter most apparent at the frontier. More concentrated markets are associated with lower responsiveness, particularly among non-frontier firms, whereas greater trade openness is associated with stronger responsiveness across the productivity distribution.

This paper investigates how political alignment affects the implementation of punitive welfare measures in the UK. In particular, we examine whether a legislator’s party affiliation affects the rate of sanctions to unemployment benefits in the MP’s constituency. To address the endogeneity of winning party and constituency characteristics, we use a regression discontinuity design based on close elections to compare the sanction rates across constituencies that are marginally aligned or unaligned with the central government. We find that implementation of the sanction regime is significantly more lenient in constituencies won by the government-aligned parties. The RD estimate indicates a drop of .8 percentage points, implying on average 18 % lower sanction rates in central government controlled constituencies. Our findings show that legislators are able to influence local implementation of national, rule-based policies, even within a highly centralized system. Such political influence undermines institutions that should be neutral to local partisan considerations.

Amidst the COVID-19 lockdowns, it became obvious that migrants play a critical role in economic sectors that are essential to the functioning of everyday life. Are they over-represented in these sectors, and how is the use of migrant labour linked to structural factors in the provision of essential services? Using micro data from the EU Labour Force Survey (EU-LFS) 2011-2020 for 17 countries, this paper investigates the extent and the drivers of migrants’ over-representation in key sectors (e.g. health, long-term care, food supply) relative to the rest of the economy. We measure the difference in the probability of working in key sectors for various types of migrants to similar natives across countries of destination. Our results show that in most countries, migrants are over-represented with respect to native-born workers after accounting for individual characteristics. We also provide an overview of the correlation between this residual over-representation and potential structural factors. We find a strong and robust correlation between migrants’ relative employment probability in key sectors and precarious job conditions, the degree of autonomy and flexibility at work, as well as attitudes to migrants, both at the country-level and across sub-national regions.

This paper investigates the effects of the political distance between European Commissioners and heads of government on the allocation of funds flowing from the European Union to EU member states. The EU’s agricultural and regional budgets offer two particularly interesting case studies due to the discretion exerted in these domains by the Commissioner for Agriculture and the Commissioner for Regional Policy, respectively. Leveraging the difference in timing in the turnovers of Commissioners and heads of government, I test whether the political distance between EU commissioners and heads of administrations affects the share of agricultural and regional funds countries receive from 1979 to 2006. Results show that greater ideological distance is a strongly significant deterrent of funds being channelled. The effects are strongest in pre-election years, for countries providing the Commissioners in charge of the given portfolios, and for countries that are single-party ruled, as opposed to coalition ruled. These findings suggest the behavior of European Commissioners follows similar principles to nationally elected leaders and are important given the salience of agriculture and regional funding at the European level and ongoing debates surrounding EU integration and the political independence of the EU’s executive body.

The inflow of migrants can impact public spending through its effect on local preferences for redistribution and through changes in demand for local services brought about by migrants’ distinct characteristics. In this paper, we analyse the effects of the migration wave from Central and Eastern European countries following their EU accession in 2004 on local level redistribution in England, specifically disentangling these two channels. We apply a difference-in-differences estimation strategy and find that migrants did not have an effect on local authorities’ total service provision per capita. Once we zoom in on the different expenditure items, we find that local authorities experiencing relatively larger migration inflows saw their spending on means-tested social care services decrease in relative terms, while spending on education services increased. Analysing changes in local Council compositions and internal migration flows in response to the arrival of outsiders, we find no evidence that spending shifts are driven by a change in the local willingness to redistribute income. Rather, our results suggest that, due to migrants’ young age at the time of arrival, migration following the 2004 EU enlargement alleviated some of the pressure social care spending in England faces.