The 2020 EAEPE-Kapp Prize went ex aequo to (1) Alberto Botta, Eugenio Caverzasi, Alberto Russo, Mauro Gallegati and Joseph E.Stiglitz for their article on Inequality and finance in a rent economy Journal of Economic Behavior and organization (2019), (2)  Claudius Gräbner, Philipp Heimberger, Jakob Kapeller and Bernhard Schütz Structural change in times of increasing openness: assessing path dependency in European economic integration, Journal of Evolutionary Economics (2019), and (3) Francesco Lamperti, Valentina Bosetti, Andrea Roventini and Massimo Tavoni for their article on The public costs of climate-induced financial instability, Nature Climate Change (2019) 9: 829–833.

Alberto Botta, Eugenio Caverzasi, Alberto Russo, Mauro Gallegati and Joseph E.Stiglitz

 

I am very honoured to be a co-recipient, along with my-coauthors Alberto Botta, Eugenio Caverzasi, Mauro Gallegati and Joseph E. Stiglitz, of the 2020 Kapp Prize for the article “Inequality and finance in a rent economy” published in the Journal of Economic Behavior and Organization. Previous versions of the papers have been presented in past conferences and have benefitted a lot from discussions, suggestions, and critics in the stimulating environment of the EAEPE community. In this paper we analyze the interplay between increasing inequality and expanding finance in modern economic systems through the lens of a hybrid Agent-Based Stock-Flow-Consistent macro model. We describe how growing inequality boosts the production of new financial products, where the endogenously created loans are the raw material for this process, to satisfy the appetite for rents. Model simulations show that the expansion of finance through “securitization” results in a more unstable and unequal system. A policy mix including a financial tax on profits and a more progressive tax on labour incomes (with unchanged fiscal stance) can mitigate financial instability and reduce inequality, thus boosting the macroeconomic performance.

 

Claudius Gräbner, Philipp Heimberger, Jakob Kapeller and Bernhard Schütz

We are grateful and honored for receiving this year’s Kapp prize. There are at least two reasons for why we are especially happy to receive a best paper award from the EAEPE. The first refers to the many intellectually stimulating and socially enjoyable discussions we had at EAEPE conferences over the last couple of years – without which we would not have been able to write the paper in the present form. The second reason is that we are proud about being part of a scientific organisation that not only stands for scientific excellence, but also social inclusiveness. The fact that at EAEPE people not only talk and write about issues of social segregation, polarisation, or discrimination, but that the council and the community take active steps to do something against these calamities is fantastic and makes us particularly proud about having received this award. In the future we will take it as yet another source of motivation to contribute to EAEPE’s exceptional scientific community.

 

The paper for which we have received the award analyses macroeconomic convergence and divergence patterns in the EU in the context of economic integration, where the latter refers to an increase in economic and financial openness that has triggered a path-dependent development process. Contributing to different strands of literature – including evolutionary economics and complexity economics as well as the emerging growth models literature –, we study the dynamic effects of socio-economic openness. In the process, we come up with a new country taxonomy consisting of core, periphery, finance hubs and catchup-countries. These four country groups have responded in a distinct way to economic integration, which has given rise to path dependent developmental trajectories. Finally, we investigate some of the mechanisms that are behind these trajectories. By highlighting the relevance of technological capabilities, we develop a new measure for the directedness of technological change, showing that one important determinant for the extent to which a country is able to benefit from European economic integration is the ability to accumulate technological capabilities. Given that the accumulation of these capabilities is a highly path dependent process, it is not surprising that in the absence of adequate policy interventions, technological leaders within the EU become stronger, and laggards relatively weaker over time. We conclude the paper with a discussion of what an adequate policy response could look like, and how the institutions in Europe could be made more inclusive, contributing to a much-needed convergence of living standards in the Union.