A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Riem, Marina Research Report Essays on the Behavior of Firms and Politicians ifo Beiträge zur Wirtschaftsforschung, No. 73 Provided in Cooperation with: Ifo Institute – Leibniz Institute for Economic Research at the University of Munich Suggested Citation: Riem, Marina (2017) : Essays on the Behavior of Firms and Politicians, ifo Beiträge zur Wirtschaftsforschung, No. 73, ISBN 978-3-95942-023-5, ifo Institut - Leibniz-Institut für Wirtschaftsforschung an der Universität München, München This Version is available at: http://hdl.handle.net/10419/167370 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar ISBN-13: 978-3-95942-023-5 Alle Rechte, insbesondere das der Übersetzung in fremde Sprachen, vorbehalten. Ohne ausdrückliche Genehmigung des Verlags ist es auch nicht gestattet, dieses Buch oder Teile daraus auf photomechanischem Wege (Photokopie, Mikrokopie) oder auf andere Art zu vervielfältigen. © ifo Institut, München 2017 Druck: ifo Institut, München ifo Institut im Internet: http://www.cesifo-group.de Preface This volume was prepared by Marina Riem while she was working at the ifo Institute. It was completed in July 2016 and accepted as a doctoral thesis by the Department of Economics at the University of Munich in November 2016. This dissertation consists of six self-contained chapters that are related to the behavior of firms and politicians in a broader sense. After an introduction to the topic, the first part of the dissertation elaborates on how institutional and political framework conditions influence the behavior of firms. Chap- ter 2 examines the determinants of inter vivos transfers of ownership in German family firms. Survey evidence indicates that owners of larger firms, and firms with strong current business conditions, transfer ownership at higher rates than others. Chapter 3 investi- gates how political uncertainty influences corporate investment decisions employing data on firms’ self-reported investment realizations, plans and revisions. The results show that realized investment ratios decreased in years when state elections occurred relative to the average investment ratio in years with no state election. Firms however seem to anticipate electoral uncertainty already when making investment plans and hardly revise their plans. Chapter 4 examines whether political uncertainty influences how firm owners perceive their present state and future development of business. The results show that firm owners expect their business to develop better before state elections and worse after state elections. The second part of this dissertation investigates how partisanship and self-interest of politi- cians shape their ethos and behavior. Chapter 5 describes how partisanship shapes the attitudes and actions of politicians in Germany. The results show that German state politi- cians' and governments' words differed from actions regarding budget consolidation and the German debt brake. Chapter 6 examines whether parties punish politicians who vote against the party line in roll-call votes. The results do not show that parties account for the voting behavior by punishing politicians who have voted against the party line. Chapter 7 investigates how ideological positions of German economic research institutes influenced policy advice in the Joint Economic Forecast. Keywords: Inter vivos transfers, transfer taxes, family firms, firm-level investment, user cost of capital, political uncertainty, elections, survey data, panel data, business perceptions, government ideology, public debt, debt brake, balanced-budget rule, constitution, expressive rhetoric, voting against the party line, adherence to the party line, roll-call votes, proportional repre- sentation, party lists, selectorate, decision making in committees, minority voting, policy preferences, Joint Economic Forecast of German economic research institutes. JEL-Codes: C23, D22, D24, D31, D72, D81, D92, H24, H25, H32, H60, H70, H72, H73, I23. Essays on the Behavior of Firms and Politicians Inaugural-Dissertation zur Erlangung des Grades Doctor oeconomiae publicae (Dr. oec. publ.) an der Ludwig-Maximilians-Universit¨atM¨unchen 2016 vorgelegt von Marina Riem Referent: Prof. Dr. Niklas Potrafke Korreferent: Prof. Panu Poutvaara, Ph.D. Promotionsabschlussberatung: 16. November 2016 Acknowledgements First and foremost, I am sincerely grateful to Niklas Potrafke, the first supervisor of my dissertation, for his constant support and helpful comments throughout all stages of my dissertation. I learned much from his academic guidance, pragmatic approaches and the discussions of open questions provided inspiration and encouragement. I am also very thankful to Panu Poutvaara and Gebhard Flaig, who kindly agreed to join my thesis com- mittee as the second and third supervisor. Parts of this dissertation were developed with co-authors. I thank my co-authors James R. Hines Jr., Bj¨ornKauder, Ha Quyen Ngo, Niklas Potrafke, and Christoph Schinke for fruitful and inspiring cooperation. I would like to thank all former and current colleagues that stood by my side over the last years. In particular I thank Christian Breuer, Julian Dieler, Kai J¨ager,Bj¨ornKauder, Manuela Krause, Markus Reischmann, and Christoph Schinke, for their moral support, helpful discussions and daily coffee breaks. I enjoyed our joint conference visits and would not want to miss all the exciting activities we shared. I gratefully acknowledge the Ifo Institute for providing me with an optimal research en- vironment and financial support. Research assistants and many interns alleviated and supported research and project work. I benefited a great deal from comments and sugges- tions of participants at conferences and workshops. Finally, I also thank my family and loved ones, especially my parents, all of whom sup- ported and encouraged me during the whole time. Contents 1 Introduction 1 1.1 References 11 2 Inter Vivos Transfers of Ownership in Family Firms 17 2.1 Introduction 17 2.2 Inter Vivos Transfers and Family Firms 19 2.3 German Inheritance and Gift Taxes 21 2.4 Analytical Framework 23 2.5 Data and Descriptive Statistics 26 2.6 Empirical Analysis 32 2.7 Conclusion 41 2.8 References 43 2.9 Appendix A: Additional Tables 49 2.10 Appendix B: Sample Selection 53 3 Corporate Investment Decisions under Political Uncertainty 57 3.1 Introduction 57 3.2 Related Literature 59 3.3 Data and Descriptive Statistics 64 3.4 Empirical Analysis 67 3.5 Conclusion 78 3.6 References 80 3.7 Appendix A: Additional Tables 89 3.8 Appendix B: Calculation of the UCC 95 vi CONTENTS 4 Firm Owners' Business Perceptions and Political Uncertainty 99 4.1 Introduction 99 4.2 Institutional Backdrop 102 4.3 Data and Descriptive Statistics 103 4.4 Empirical Analysis 105 4.5 Conclusion 118 4.6 References 120 4.7 Appendix: Additional Tables 124 5 Debt Brakes in the German States 127 5.1 Introduction 127 5.2 Public Debt & Government Ideology 129 5.3 German Debt Brake 131 5.4 Governments' Rhetoric 136 5.5 Governments' Actions 138 5.6 Conclusion 149 5.7 References 150 5.8 Appendix: Additional Table 156 6 Do Parties Punish MPs for Voting Against the Party Line? 161 6.1 Introduction 161 6.2 Institutional Backdrop 164 6.3 Parties' Reaction to MPs Voting Against the Party Line 165 6.4 Conclusion 178 6.5 References 179 6.6 Appendix: Additional Table 184 7 Ideology and Dissent among Economists 185 7.1 Introduction 185 7.2 Joint Economic Forecast and German Economic Research Institutes 187 7.3 Data and Descriptive Analysis 191 7.4 Econometric Analysis 199 7.5 Conclusion 207 7.6 References 208 Contents vii 7.7 Appendix: Additional Table 214 8 Concluding Remarks 217 List of Figures 1.1 Risks for the economy in Germany 3 1.2 Public opinion of German politicians