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The Role of Preferences and Institutions in Economic Transitions

Mid-Term Report Summary 2 - TRANSITIONS (The Role of Preferences and Institutions in Economic Transitions)

The project “The Role of Preferences and Institutions in Economic Transitions“ analyzes how changes in institutions during transition periods shape not only the economic behavior, but also the preferences of people. It consists of several subprojects.

The first subproject analyzes the effect of the supply of child care centers on female labor force participation and fertility. We exploit regional variation in the closing of child care centers in East Germany after reunification, and use institutional details from the GDR to establish exogeneity of the closing of child care centers, thereby disentangling a supply effect of child care centers from a potential demand effect for child care.

The second subproject deals with endogenous preferences. While economic preferences have long been assumed to be constant, recent research has shown that they are shaped by individual experiences. We analyze whether this endogeneity of preferences also applies to the political realm, focusing on support for democracy in the context of Sub-Saharan Africa. We find that indeed support for democracy increases with an individual’s accumulated experience with democracy, which leads to important policy conclusions. Our identification comes from within-country and within-year variation, supporting a causal interpretation.

The next subproject deals with international differences in hours worked. We collect micro data sets from 20 OECD-countries over the last 30 years in order to analyze differences in levels and trends of hours worked across countries for different demographic subgroups, focusing on gender and marital status. We first document the development of hours worked over the last 30 years, in a pre-crisis cross-section, and during the great recession for different subgroups. Next, we build a model of joint hours worked decisions of married couples in order to analyze whether international differences in the tax treatment of married couples, in conjunction with gender wage gaps, can explain the observed cross-country differences in the labor supply of married couples, and especially married women. Last, we extend our analysis by collecting micro data sets from a large set of countries around the world in order to investigate the relationship between levels of development and hours worked.

A last subproject investigates long-lasting effects of socialist education on the labor market success of individuals in a capitalist labor market. Using a difference-in-differences design that exploits variation within a birth cohort, we find that an additional year of socialist education significantly decreases the probability of achieving a college degree, and has further negative long-term consequences on the labor market. The effects arise due to socialist teaching, as well as due to non-meritocratic access restrictions to high school and college.