Tushyanthan Baskaran/Lars P. Feld/Jan Schnellenbach: Fiscal Federalism, Decentralization and Economic Growth: A Meta-Analysis

The theoretical literature on fiscal federalism has identified several channels through which government decentralization could affect economic growth. Much of the literature focuses on the efficiency aspects of a decentralized provision of public services, but decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms. In contrast, some authors argue that decentralization increases corruption and government inefficiency, and thus may diminish growth. Given this theoretical ambiguity, several studies have attempted to identify the effect of decentralization on economic growth empirically over the last two decades. We review and conduct a meta-analysis of this empirical literature. Based on our analysis, we point out open questions and discuss possible ways to answer them.

Arash Molavi Vasséi: Recursive Utility, Increasing Impatience and Capital Deepening

This paper argues that F.A. Hayek anticipated the notion of ‘recursive utility’ and analytically reconstructs his informal exposition of the optimal saving process. The scope of analysis is restricted to Hayek’s largely unrecognised contribution in Utility Analysis and Interest in 1936, restated as chapters 17 and 18 in The Pure Theory of Capital, first published in 1941. It is shown that Hayek characterised efficient dynamic choice as an infinite series of two-period optimality conditions by transforming an infinite-horizon optimisation problem into a perpetual confrontation of current and prospective utility, that he hinted at the axiomatic base of stationary and weakly separable dynamic preferences, and that he endogenised the subjective discount rate to substantiate his claim that the interest-rate path in a perfect-foresight equilibrium is unidirectionally determined by the marginal productivity of investment (and not by thrift). Hayek’s vision of dynamic social efficiency and dynamic equilibrium is completely characterised.

Wolfgang Kerber: Soft Paternalism and Consumer Policy

Although the concept of soft paternalism succeeded in drawing attention to the importance of behavioral economics and the effects of “soft” policy instruments as default rules for influencing behavior, it is argued in this article that soft paternalism can make only a very limited new contribution to consumer policy. “Soft” policy (governance) instruments and behavioral economics insights can be used without soft paternalism. However, due to its normative vagueness, the concept of soft paternalism cannot offer anything new to the normative justification of paternalism in the case of trade offs with individual liberty, and under what circumstances “soft” policy instruments should be favored compared to hard ones. Therefore a serious normative discussion about paternalism is still missing.