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Interactions between Regulatory and Corporate Taxes: How Is Bank Leverage Affected?

Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction ...

Effectiveness of the ECB Programme of Asset Purchases: Where Do We Stand? In-Depth Analysis

The Signaling Role of Fiscal Austerity

I build a model where creditworthy countries may use fiscal austerity to communicate their ability to repay sovereign debt and show that the signaling channel is active only for high levels of asymmetric information. The model generates a negative association between the amount of public information, provided by the rating agencies, and fiscal tightness. Informed by the model predictions, I build a ...

Austerity, Inequality, and Private Debt Overhang

Using panel data of 17 OECD countries for 1980-2011, we find that the distributional consequences of fiscal consolidations depend significantly on the level of private indebtedness. Austerity leads to a strong and persistent increase in income inequality during periods of private debt overhang. In contrast, there are no discernible distributional effects when private debt is low. This result is robust ...

Credit Rating Agency Downgrades and the Eurozone Sovereign Debt Crises

This paper studies the reaction of the Euro's value against major currencies to sovereign rating announcements from Moody's, S&P and Fitch CRAs during the Eurozone debt crisis in 2010–2012 based on event study methodology combined with GARCH models. We also analyze how the yields of French, Italian, German and Spanish government long-term bonds were affected by CRA announcements. Our results reveal ...

Early Exit from ECB Bond Purchase Program Could Reduce GDP Growth and Inflation

The European Central Bank is planning a gradual reduction of government bond purchases under the asset purchase program it initiated in 2015. The present study by the German Institute for Economic Research analyzes the potential macroeconomic implications of different exit strategies. The authors examined the potential effects of a reduction in net purchase volume, an early exit, and a faster exit ...

Frühzeitiger Ausstieg der EZB aus dem Anleihekaufprogramm dürfte Wachstum und Inflation bremsen

Die Europäische Zentralbank will ihr 2015 gestartetes Ankaufprogramm von Staatsanleihen schrittweise zurückfahren. Welche gesamtwirtschaftlichen Auswirkungen die unterschiedlichen Ausstiegsmöglichkeiten haben könnten, zeigt eine Studie des DIW Berlin. Untersucht wird, wie sich eine Reduktion des Ankaufvolumens, ein frühzeitiger Ausstieg und ein schnellerer Ausstieg aus dem Ankaufprogramm auf das BIP-Wachstum ...

Effectiveness of the ECB Programme of Asset Purchases: Where Do We Stand?

The ECB has engaged in several forms of unconventional monetary policy since 2007. This report documents empirically that the implemented measures were effective. In a counterfactual analysis, the report simulates the effects of an unconventional monetary policy shock of -10 basis points to euro area sovereign yields, consistent with the effect of the first announcement of the Expanded Asset Purchase ...

"Rauswachsen" statt zwanghaft tilgen! Kommentar

Myopic Governments and Welfare-Enhancing Debt Limits

This paper studies welfare effects of a soft borrowing constraint on sovereign debt. The constraint is modeled as a proportional fine per unit of debt in excess of a specified reference value, resembling features of the Stability and Growth Pact. Sovereign debt is the result of myopic fiscal policy. It reduces welfare in the absence of lump-sum taxes. The paper shows that the borrowing constraint enhances ...