Below I give in chronological order and grouped under general headings some of the main lines of research that I have pursued over the years.
Economics of Resource Rich Economies (2008-..)
Since 2008 I have together with Tony Venables directed the Oxford Centre for the Analysis of Resource Rich Economies. My research has been on estimating the impact of natural resources on growth and development and on attracting FDI. This research is of special importance for investing to invest strategies in developing economies. Key findings of joint work with Steven Poelhekke are that volatility is a quintessential feature of the resource curse and that the boom in resource FDI is more than outweighed by the fall in non-resource FDI after a discovery. More recently, in joint work with Rabah Arezki and Fred Toscanini I have analysed the shift of the global frontier of natural resources and the role of resource-specific institutions in this. In ongoing work with Gerhard Toews detailed data on individual wells and fields are used to study the nature of contracts in the industry. In work with Tony Venables we have developed new insights into the management of natural resources in economies that suffer from capital scarcity and absorption constraints, which has led policy to move from sovereign wealth funds to invest in the domestic economy. This work has also extended the CAPM model to allow for volatility and subsoil resource wealth, which suggests that one should deleverage portfolios as subsoil wealth is depleted. Other work in this area has highlighted the political economy of natural resources and the economics of dynamic resource wars.
Climate Policy and the Political Economy of Green Paradoxes (2011-..)
During 2011-16 Cees Withagen and I have benefited from an Advanced Instigator Grant on this topic. This research explains how pricing carbon keeps more fossil fuel in the crust of the earth and stimulates green technological innovations within the context of a growing economy with endogenous transition times from using fossil fuel to renewable energy. This research highlights the role of stranded assets and expectations about future energy prices and climate policy. In work with Armon Rezai we have developed a fully-fledged integrated assessment model of climate change and growth to show that simple rules for the price of carbon that are easy to use and communicate and thus transparent yield negligible welfare losses compared with the first-best optimum. We also show the crucial importance of commitment in designing second-best policies, which have to rely on renewable energy subsidies when carbon taxation is politically infeasible. This research is also concerned with the political economy of dithering, which explains why carbon taxes are always put off. I have also put forward a theoretical general-equilibrium framework of multiple countries, which uses duality to conveniently reassess the welfare effects of the Green Paradox and carbon leakage and to derive second-best unilateral climate policies.
Public Finance and Environmental Economics (1986-..)
During the late 1990s I have written a string of papers with Lans Bovenberg on the double dividend hypothesis in second-best economies with labour markets distorted by search frictions, unions or efficiency wages. We show that in general that recycling revenue from pollution taxes to reduce the tax on labour does not necessarily improve environmental quality and boost employment, unless the burden of taxation can be shifted to immobile factors of production. We also under what circumstances greener policies reduce the marginal cost of public funds and thus boost the size of the public sector. Of course, if policies are initially far away from optimal, green reform can lead to double dividends. More recently, I have learned from work with Bas Jacobs that when optimal income redistribution policies are determined simultaneously with pollution taxes, the marginal cost of public funds is unity and double dividend issues do not arise. This is why my future efforts are directed at the political economy of environmental policies. In the late 1980s and early 1990s I also wrote papers on pollution control in context of Ramsey exogenous and endogenous growth and game-theoretic papers on international pollution control, restricted-access fisheries, and international arms races.
Economics of Higher Education and of Arts and Culture (1998-2004)
During my stint as State Secretary of Education, Culture and Science (1998-2002) and thereafter as member of the UNESCO World Heritage Committee (2002-07), I have analysed the economics of higher education with special emphasis on equity and efficiency aspects, and especially the potential merits of the Bologna reforms, the move towards more from market-oriented subsidies towards merit good finance, and the move from student grants to loans. I have also analysed the effects of different types of cultural policies such as arms-length committees, to bureaucratic selection and market-based policies on the diversity of the arts, both in terms of supply being offered and of the type of audiences. I have also investigated the merits/costs of fixed book prices.
Macroeconomics and Open Economy Macroeconomics (1986-..)
In work with the late Giancarlo Marini and with George Alogoskoufis I have studies the macroeconomics of government debt, fiscal policy and monetary policy and exogenous and endogenous growth in Blanchard-Yaari-Weil overlapping generations models. This work gives rise to a convenient framework for why a fiscal expansion increases government and foreign debt, but boosts growth in a small open economy. I have also investigated risk-sensitive policies that separate risk aversion and intertemporal substitution, which offers an alternative to the Epstein-Zin framework, and studied risk and chaos in financial markets. Much of my work in this period was to do with the credibility and time inconsistency of monetary and fiscal policies, and with how to calculate credible fiscal, tax and monetary policies. This line of research also extended to multiple countries, and I have completed a number of studies that deal with international policy coordination and the potential counter-productivity of such policies. In the run-up to the introduction of the Euro, I have written various studies that warned about the dangers of Europe not being an optimum currency area and that analyse issues to do with fiscal stabilisation and monetary integration. I have also written on target zones. A textbook with Ben Heijdra entitled the Foundations of Macroeconomics has gained a lot of traction in the teaching of graduate courses. With Ben I have also written on Keynesian multipliers under imperfect competition. More recently, I have applied macroeconomics to better understand climate policy and the economics of natural resources.
Post-Keynesian Economics (1982-87)
As a result of my spending my formative years in Cambridge U.K., I wrote during the 1980s a string of papers on the symbiotic contradictions of capitalism. These highlight the macroeconomic cycles around trend growth paths resulting from perpetual class struggle between capitalists and workers. This line of research emphasises the functional distribution of income and allows for induced technical innovation. It gives a different perspective to the neoclassical consensus that prevails in much of the literature.
Politics and the economy (1982-89)
In work with Vani Borooah we sought to use detailed election studies data to understand the role of housing, social class and economic conditions on voter outcomes with discrete-choice econometrics. We also used Gallup poll data to study election cycles and the role of ideology versus re-election efforts. This led me to study political cycles in macroeconomic models with rational expectations, and in particular to study the political economy of overvaluation.
National Accounts (1980-85)
During the early 1980s I wrote my first academic papers on inconsistencies in the national accounts inspired by the late Sir Richard Stone. These papers put the United Nations System of National Accounts in one big matrix, where accounts are balanced if they the row totals correspond to the column totals. The residuals in the income-expenditure, the net acquisition of financial assets and all other accounts should thus add up to zero. Statistical procedures were developed that use the reliability of different bits of data to ensure that the data satisfy all the accounting constraints. This made me realise that economics and econometrics are infeasible without sound understanding of underlying data. During this period I worked on the Cambridge Growth Project, which was organised around a large-scale multi-sectoral dynamic model.