“Austerity: when it works and when it doesn't”
Book Presentation

April 2, 2019

EIEF, Rome

EIEF hosted the presentation of Carlo Favero and Francesco Giavazzi’s new book, written together with Alberto Alesina.
The book gathers and analyzes data from 16 countries whose government had carried out austerity programs, especially those adopted in Europe post 2010 Greek crisis, and one clear result has emerged: cutting expenditures is less damaging for growth than increasing taxes.
There was an open discussion between the writers and Ignazio Visco, Marco Pagano and Luigi Paciello. For further details please see the Program.


Highlights 2019

WP 19/09

In “(Macro) Prudential Taxation of Good News”, Facundo Piguillem, with Jean Flemming and Jean-Paul L’Huillier, analyzes the problem of macro-prudential regulation in the presence of shocks to income growth. Positive shocks to growth lead to optimal allowance for more private borrowing. However, when the cumulated amount of borrowing is high enough, taxation of debt is optimal in order to make agents internalize the systemic externality of their decisions.
Moreover, taxation of borrowing is pro-cyclical because there is little or no need for taxation in the case of negative shocks to growth. On the contrary, in the case usually analyzed in this literature so far as contemporaneous (level) shocks to income, the optimal taxation of borrowing is counter-cyclical, as it is optimal to tax debt in bad times, when agents need to borrow the most for precautionary savings motives. The main policy implication of the authors’ analysis is that regulators should pay special attention to debt accumulation in booming times and it is then, and only then, that borrowing should be regulated.

WP 19/08

In “Simple fiscal arithmetic of a dual currency regime” Francesco Lippi observes that there are several historic episodes of countries that resort to printing a fiat token parallel with the official currency when faced with fiscal difficulties. In order to understand the implications of such a policy, he presents a simple model to analyze the workings of equilibria where the parallel currency is valued in equilibrium and discusses its consequences for real allocations in terms of a simple equivalent fiscal policy. He shows that monetary injections amount to a real transfer from the whole population to the fraction of agents receiving the transfer. It is thus completely equivalent to a fiscal policy, implemented through ordinary taxation, in favor of the recipient group.

WP 19/07

In “Hurricanes, Climate Change Policies and Electoral Accountability”, Stefano Gagliarducci and Eleonora Patacchini, with M. Daniele Paserman, use data on the universe of federal disaster declarations between 1989 and 2014 to document that Congress members from districts hit by hurricanes are more likely to support bills promoting more environmental regulation and control the year after the disaster. The response to hurricanes does not seem to be driven by logrolling behavior or lobbyists' pressure, and it is associated with an electoral penalty in the following elections. Unlike voters' support which is only temporary and is prompted by the direct experience of the hurricane's damage, the change in the legislative agenda is persistent over time and mainly promoted by representatives in safe districts, those with more experience and those with strong pro-environment records. This evidence shows that extreme events can trigger a permanent change in politicians' beliefs. However, when the appropriate political response to the disaster is unpopular, only the politicians with sufficient electoral strength or with strong ideologies are willing to promote policies with short-run costs and long-run benefits. More broadly, these findings suggest that electoral accountability may be counter-productive when policy making needs to be forward-looking. This raises the question of whether some institutions, such as two-year legislatures, are appropriate under circumstances that require instead a less short-sighted approach.

WP 19/06

In “The Extensive Margin of Aggregate Consumption Demand”, Claudio Michelacci, Luigi Paciello and Andrea Pozzi use highly-disaggregated US data to decompose changes in aggregate non-durable consumption expenditure into intensive and extensive margins. The intensive margin reflects the amount spent on products already purchased by households in previous periods. The extensive margin reflects net additions of products to the consumption basket, given by the difference between additions of new products/varieties and removals of previously purchased products/varieties. The authors show that about half of the cyclical fluctuations of aggregate non-durable consumption expenditure is accounted for by net additions, driven mostly by the pro-cyclicality of the rate at which households add new varieties, while removals are comparatively acyclical. This result might be due to changes in firms’ marketing and/or pricing strategies rather than to household demand behavior. To address this issue the authors focus on the effects of the federal government's Economic Stimulus Payment (ESP) to households in 2008. Since the response is gauged by comparing households that receive the payment randomly over time, the estimated responses can be interpreted as characterizing household behavior in partial equilibrium. The authors show that the previous patterns are largely explained by the fact that households respond to income increases by adopting new product varieties in their consumption basket. They show that fluctuations in household adoption are a prominent determinant of the aggregate demand for new products and amplify the long-run welfare effects of aggregate shocks.

WP 19/05

In: “Monetary Policy in a World of Cryptocurrencies”, Pierpaolo Benigno investigates whether the presence of multiple currencies, such as cryptocurrencies, can jeopardize the primary function of Central Banks – controlling prices and inflation – or eventually limit their operational tools –i.e. the interest rate. The short answer is: yes, it can. Starting from the benchmark single-currency model, where the Central Bank controls the rate of inflation by setting the nominal interest rate and the initial price level is instead determined by an appropriate real tax-policy, he extends the framework to allow for multiple currencies. In a two-currency world, the growth rate of the cryptocurrency sets an upper bound on the nominal interest rate and the attainable inflation rate, if the government currency is to retain its role as medium of exchange. In a world of multiple competing currencies issued by profit-maximizing agents, the nominal interest rate and inflation are both determined by structural factors, and thus not subject to manipulation, a result hailed by the proponents of currency competition. The paper also proposes some fixes for the classical problem of indeterminacy of exchange rates.

WP 19/04

In: “Tax Professionals: Tax-Evasion Facilitators or Information Hubs?”, Marco Battaglini, Luigi Guiso, Eleonora Patacchini, with Chiara Lacava, investigate whether tax professionals can significantly affect the nature of the relationship between tax authorities and taxpayers. To this aim they merge and analyze tax records of 2.5 million taxpayers in Italy with the respective audit files from the Italian revenue agency (IRA) for seven fiscal years. They show that tax professionals can facilitate tax evasion by helping evasion-prone taxpayers take advantage of the complexity of tax rules. The implication is the emergence of a market for tax professionals where some of them specialize in offering evasion advice to evasion-prone taxpayers. A smart tax authority should then invest resources to learn the accountants’ types, diverting attention from the taxpayers to their intermediaries and auditing with higher probability clients of more evasion-prone tax professionals. The authors find that the IRA policy function is sensitive to tax professionals’ observable characteristics, and significantly (economically and statistically) tilts audits towards tax professionals with a higher share of tax evaders in the past. Despite the IRA’s targeted action, there is strong evidence that evasion-prone taxpayers match with evasion prone-tax accountants, implying that indeed some accountants specialize as tax-evasion facilitators. In addition (or alternatively), tax professionals act as information hubs: taxpayers can learn about the tax authority’s policy because tax professionals can pool the audit experiences of many customers over many years and share this information with each of their clients. From the point of view of the taxpayer, this speeds up learning about the tax authority policy function, providing an additional incentive to rely on tax professionals. From the point of view of the tax authority, auditing one taxpayer can, through the information disseminated by the tax professionals, affect the compliance of the other clients. Indeed, the authors find evidence that reported income not only responds positively to a directly experienced audit but also to the audits of the other customers of one’s own tax professional.

WP 19/03

In “Weight, Reference Points, and the Onset of Eating Disorders”, Eleonora Patacchini, with T. Arduini and D. Iorio, investigates whether the development of eating disorders, in the form of purging, is influenced by peers' body size through interpersonal comparisons. Using detailed information on recent cohorts of U.S. teenagers, they document a sizeable and significant negative effect of high school peers' Body Mass Index on purging behavior during the adolescence for females, but not for males. Interpersonal comparisons among females operate through the formation of a distorted self-perception: teenage girls with relatively thin female peers perceive themselves heavier than they actually are. The girls who are more susceptible to this mechanism are those having peers who are thinner, more popular, more (verbally) able, and with more educated parents.

WP 19/02

In “Coalition Formation in Legislative Bargaining”, Marco Battaglini proposes a new model of multilateral bargaining to study how majorities are formed in legislatures when coalitions are heterogeneous in terms of the surplus they are expected to generate. In the model, a formateur picks a coalition and negotiates for the allocation of the surplus. While she is free to change coalition to seek better deals with other coalitions, she may lose her status if bargaining breaks down, in which case a new formateur is chosen. In this context, a formateur needs to reconcile the need to form the most productive coalition with the desire to maximize the share of output she can capture. The model provides a new perspective on legislative bargaining and helps explaining three well known empirical facts that have been hard to reconcile with non-cooperative models of multilateral bargaining: the absence of significant (or even positive) premia in ministerial allocations for formateurs and their parties; the occurrence of supermajorities; and delays in reaching agreements. While a number of important previous works have attempted to explain these facts individually, this model has the advantage of providing a unified and intuitive explanation for all of them.

WP 19/01

In “A nonlinear dynamic factor model of health and medical treatment” Franco Peracchi, with Claudio Rossetti, investigates the relationship between health and medical treatment and proposes a methodology which overcomes endogeneity problems. The authors set up and estimate a tractable dynamic factor model where observed health outcomes are driven by the individual's latent health stock. The dynamics of latent health reflects both exogenous health depreciation and endogenous health investments. The model allows for the investigation of the effect of medical treatment on current health, as well as on future medical treatment and health outcomes. The model is estimated by maximum simulated likelihood and minimum distance methods using a rich longitudinal data set from Italy. The data include detailed information on medical drug use, hospitalization, and mortality for a representative sample of elderly hypertensive patients. The results show that medical drug use significantly contributes to preventing future worsening of health. These findings suggest that policies aimed at increasing the awareness and the compliance of hypertensive patients help to reduce cardiovascular risks, consequent hospitalization and mortality.

Andrea Polo

Andrea Polo


Assistant Professor of Finance, LUISS
Research Affiliate, Einaudi Institute for Economics and Finance.
Assistant Professor of Finance, Universitat Pompeu Fabra (on leave)
Associate Research Professor, Barcelona GSE (on leave)
Research Member, European Corporate Governance Institute (ECGI)
Research Affiliate, CEPR


University of Oxford, Ph.D., 2012


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Research Interests

Corporate Finance, Banking, Macro Finance, Corporate Governance

Selected Publications

“Regulatory Sanctions and Reputational Damage in Financial Markets” (with J. Armour and C. Mayer), Journal of Financial and Quantitative Analysis, 52(4): 1-20, 2017.

“Does Mandatory Shareholder Voting Prevent Bad Acquisitions?” (with M. Becht and S. Rossi), Review of Financial Studies, 29 (11): 3035-3067, 2016.

“Double Bank Runs and Liquidity Risk Management” (with F. Ippolito, J. L. Peydro and E. Sette), Journal of Financial Economics, 122 (1): 135-154, 2016.

Honors, Awards and Fellowships

Spanish Ministry of Economy and Competitiveness, Juan de la Cierva Fellowship, 2016

AXA Post-doctoral Fellowship, 2014

Stanford University, Rock Center for Corporate Governance, Fellowship 2013


Phone: +39.06.4792.98914
Fax: +39.06.4792.4872
E-mail: andrea.polo[at]eief.it
Web: https://sites.google.com/site/andreapolo/

Papers 2019

WP 19/01
A nonlinear dynamic factor model of health and medical treatment

Franco Peracchi - Claudio Rossetti

WP 19/02
Coalition Formation in Legislative Bargaining

Marco Battaglini

WP 19/03
Weight, Reference Points, and the Onset of Eating Disorders

Tiziano Arduini - Daniela Iorio - Eleonora Patacchini

WP 19/04
Tax Professionals: Tax-Evasion Facilitators or Information Hubs?

Marco Battaglini - Luigi Guiso - Chiara Lacava - Eleonora Patacchini

WP 19/05
Monetary Policy in a World of Cryptocurrencies

Pierpaolo Benigno

WP 19/06
The Extensive Margin of Aggregate Consumption Demand

Claudio Michelacci - Luigi Paciello - Andrea Pozzi

WP 19/07
Hurricanes, Climate Change Policies and Electoral Accountability

Stefano Gagliarducci - M. Daniele Paserman - Eleonora Patacchini

WP 19/08
Simple Fiscal Arithmetic of a Dual Currency Regime

Francesco Lippi

WP 19/09
(Macro) Prudential Taxation of Good News

Jean Flemming - Jean-Paul L’Huillier - Facundo Piguillem

Fabrizio Mattesini

Mattesini Fabrizio


Full Professor, University of Rome “Tor Vergata”
Chairman of the Department of Economics and Finance, University of Rome “Tor Vergata”
 Einaudi Institute for Economics and Finance


New York University, Ph.D., 1986
University of Siena, BA, 1979


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Research Interests

Monetary Theory, Banking, Macroeconomics.

Selected Publications

"Liquidity and Asset Prices in a Monetary Model with OTC Asset Markets" (with E. Nosal), Journal of Economic Theory, 2016, Volume 164, pages 187-217.

“Money and Credit Redux” (with C. Gu and R. Wright), Econometrica, 2016, Volume 84, Issue 1, pages 1–32.

“Limited Commitment and the Legal Restrictions Theory of the Demand for Money” (with L. Ferraris), Journal of Economic Theory, 2014, Volume 151, pages 196-215.

“Endogenous Credit Cycles” (with C. Gu, C. Monnet and R. Wright), Journal of Political Economy, 2013, Volume 121, Issue 5, pages 940-965.

"Banking: a New Monetarist Approach" (with C. Gu, C. Monnet and R. Wright), The Review of Economic Studies, 2013, Volume 80, Issue 2, pages 636-662.

Working Papers

“Inflation and Welfare in a Competitive Search Equilibrium with Asymmetric Information” (with L. Carbonari and R. Waldmann), University of Rome “Tor Vergata”, mimeo, 2018.

“Money and Collateral” (with L. Ferraris), University of Rome “Tor Vergata”, mimeo, 2018.

“Optimal Monetary Policy in a Pure Currency Economy with Heterogeneous Agents” (with N. Amendola and L. Ferraris), University of Rome “Tor Vergata”, mimeo, 2017


Phone: +39.06.4792.4735
Fax: +39.06.4792.4872
E-mail: fabri.mattesini[at]gmail.com
Department of Economics and Finance University of Rome "Tor Vergata"
Phone: +39.06.7259.5723
Web: https://sites.google.com/site/mattesinifabrizio/

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