THE GOVERNMENT SPENDING MULTIPLIER IN A MODEL WITH THE COST CHANNEL

This paper studies the government spending multiplier in the presence of the cost channel of the nominal interest rate. I find that the spending multiplier of normal times declines markedly when this channel is introduced. The rise in government spending leads to a rise in the nominal interest rate and, with the cost channel, to a rise in the marginal cost and inflation. In turn, this leads to a bigger rise in the nominal interest rate and the expected real interest rate, hence a lower multiplier, than in a model that abstracts from the cost channel. On the other hand, in a liquidity trap, the cost channel makes the spending multiplier larger. Therefore, by ignoring the cost channel, the spending multiplier is overestimated in normal times and underestimated during liquidity trap episodes. Since liquidity traps are rare, however, the spending multiplier is mostly lower than in previous estimates.

Does Occupational Deregulation Affect In-Company Vocational Training? – Evidence from the 2004 Reform of the German Trade and Crafts Code

The European Commission actively evaluates occupational entry restrictions in all member states. This has attracted a growing interest among scholars of the German crafts sector as it is governed by an idiosyncratic national set of rules. We estimate the effects of the deregulation of the German Trade and Crafts Code in 2004 on the overall vocational training levels in affected crafts trades. We employ Difference-in-Differences regressions as well as Synthetic Control Methods on data for the entire population of the German crafts sector. We provide evidence that the overall effect of the reform on vocational training levels was negative. While we cannot comprehensively rule out all potential confounding factors, we address competing explanations related to demand shocks, recession effect, and migration. In addition, there is evidence that the overall deregulation effects can be decomposed into a sunk-cost-channel and a firm size channel.