How Do Politics Affect the Rise of the Corporate Savings Glut?

In recent years, firms in many advanced economies have started to accumulate large amounts of corporate savings. This is not only economically puzzling, it has also been linked to issues like sluggish growth, financial fragilities and global imbalances. While economists ascribe the trend to macro developments in the global economy, research on how politics contribute to it remains scarce. I add to the debate by focusing on the distributional consequences of corporate savings. Firms that retain large parts of their profits act against the interests of their employees. The degree to which they are able to do so depends on political institutions that determine the influence of workers in decisions over the use of profits. The more such institutions erode, the stronger the rise of corporate savings. I test the argument cross-nationally by analysing panel data from 24 OECD countries and through a case study on Germany, where a discontinuity in the design of the law on co-determination allows me to causally identify the impact of labour power on savings. I find broad evidence for my argument. The paper thus also contributes more broadly to our understanding how domestic institutions drive global financial imbalances.