nep-eec New Economics Papers
on European Economics
Issue of 2006‒03‒11
fourteen papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Fiscal Policy Effects in the European Union By Andreas Thams
  2. Towards a new policy framework for the enlarged Europe: investing for growth and modernization By Robert PICCIOTTO
  3. Tax policy and European Union governance By Gareth D. MYLES
  4. Challenges of EU and new member states in financial perspective 2 007-2013: convergence and absorption of available cohesion resour ces By Mojmir MRAK; Vasja RANT
  5. "Monetary Policy Strategies of the European Central Bank and the Federal Reserve Bank of the U.S." By L. Randall Wray
  6. UN ESTUDIO EMPÍRICO DE TRANSMISIÓN MONETARIA EN EUROPA By Gloria M. Soto Pacheco; Mª Asunción Prats Albentosa
  7. Convergence of EU-Regions. A Literature Report By Hans-Friedrich Eckey; Matthias Türck
  8. The Future of Stock Exchanges in Europe By Jochen Moebert; Harald Deubener
  9. "Bad for Euroland, Worse for Germany: The ECB's Record" By Joerg Bibow
  10. Wages and the Bargaining Regime under Multi-level Bargaining: Belgium, Denmark and Spain By Robert Plasman; Michael Rusinek; François Rycx
  11. Venture Capital Industries and Policies: Some Cross-Country Comparisons By Morris Teubal; Terttu Luukkonen
  12. Monetary Policy Transparency:Lessons from Germany and the Eurozone By Iris Biefang-Frisancho Mariscal; Peter Howells
  13. Do special economic areas matter in attracting FDI? Evidence from Poland, Hungary and Czech Republic By Claudia Guagliano; Stefano Riela
  14. Retirement in the UK By Sarah Smith; James Banks

  1. By: Andreas Thams
    Abstract: This paper analyzes empirically the impact of fiscal policy on the price level for the cases of Germany and Spain. We investigate whether the fiscal theory of the price level (FTPL) is able to deliver a reasonable explanation for the different performances of the price level in these two countries during recent years. We apply two different approaches. The first is a Bayesian VAR model using sign restrictions to assess the relation between surpluses and public debt. Afterwards, we use a Bayesian regime-switching model to uncover changes in monetary and fiscal policy behavior. The analysis basically shows that in each of the two countries fiscal shocks have a significant impact on the price level. Nonetheless, the FTPL does not deliver a reasonable explanation for the differences in the pattern of inflation between the two countries.
    Keywords: Fiscal theory, policy interaction, monetary policy, public debt, price level, Euro area
    JEL: E30 E31 E42 E62 E63
    Date: 2006–02
  2. By: Robert PICCIOTTO
    Abstract: European leaders aim to turn the enlarged Union into “the most co mpetitive and dynamic knowledge-based economy in the world”. But without major increases in infrastructure investments, dynamic gr owth – the missing ingredient of the European model – will not ma terialize. Given extraordinarily tight fiscal prospects, policy r eform is imperative: (i) redeployment of resources from agricultu ral subsidies towards productive investment; (ii) selectivity and rigor in project screening; (iii) a larger role for the private sector and (iv) pricing policies designed to mobilize resources, manage demand and internalize environmental costs. Project fundin g should remain the instrument of choice for strategic infrastruc ture projects with regional integration features. Implementation performance must improve and, at country level, EU funding should be targeted to the poorest countries of the Union. Where policie s and institutions are weak, EU funding should be conditional and channeled through well-designed programs that emphasize sector w ide policy reforms, regional development and community-based init iatives.
    Keywords: Infrastructure; growth; cohesion; convergence; budget reform; regional policy.
  3. By: Gareth D. MYLES
    Abstract: The governance of tax policy is one of the key issues that must b e resolved by the new Constitution. Taxation is an area in which the tension between subsidiarity and coordination is acute. This paper reviews recent Union policy alongside an analysis of the un derlying economic issues. The provisions of the new Constitution are then assessed to determine whether they provide the powers th at the Union requires to ensure efficiency.
    Keywords: Tax policy, EU Governance, EU Constitution
  4. By: Mojmir MRAK; Vasja RANT
    Abstract: The recent agreement on financial perspective 2007-2013 provided new member states with substantial cohesion resources to speed up their real convergence process. The primary objective of the pap er is to explore key policy issues, faced by new member states, i f they want to successfully absorb available cohesion resources i n the next financial perspective and outline their key policy cho ices and possible outcomes in terms of convergence and stability. The secondary objective is to provide an overview of the financi al perspective deal achieved under the UK presidency in light of the main economic challenges of the EU. The main conclusions are: first, new member states need to focus on restructuring their na tional budget expenditure, if they want to implement cohesion pol icy in the next financial perspective without compromising fiscal stability and, second, the deal achieved under the UK presidency is a far cry from the original proposal by the European Commissi on and from proclaimed key economic challenges of the EU for the future (particularly competitiveness), however, it still provides significant convergence support for new member states for a 7-ye ar period.
    Keywords: new member states, absorption capacity, cohesion policy, financial perspectives, economic challenges of the EU
  5. By: L. Randall Wray
    Abstract: In the debate on monetary policy strategies on both sides of the Atlantic, it is now almost a commonplace to contrast the Fed and the ECB by pointing out the formerÕs flexibility and capacity to adjust rigidity, and the latterÕs extreme caution, and obsession with low inflation. In looking at the foundations of the two banksÕ strategies, however, we do not find differences that can provide a simple explanation for their divergent behavior, nor for the very different economic performance in the U.S. and Euroland in recent years. Not surprisingly, both central banks share the same conviction that money is neutral in the long period, and even their short-term policies are based on similar fundamental principles. The two policy approaches really differ only in terms of implementation, timing, competence, etc., but not in terms of the underlying theoretical orientation. We then draw the conclusion that monetary policy cannot represent a significant variable in the explanation of the different economic performances of Euroland and U.S. The two economic areasÕ differences must be explained by considering other factors among which the most important is fiscal policy.
    Date: 2005–11
  6. By: Gloria M. Soto Pacheco (Universidad de Murcia); Mª Asunción Prats Albentosa (Universidad de Murcia)
    Abstract: The aim of this paper is to determine whether there have been differences in the effectiveness of the transmission mechanism of monetary policy in Germany, France, Italy, Spain and the United Kingdom since Economic and Monetary Union (EMU) establishment. The analysis is based on the fulfilment of the Expectations Hypothesis under rational expectations and the methodology is implemented through a VAR model with ARCH disturbances.The evidence obtained shows that the analysed countries started from different monetary transmission structures and that these differences still remain at a larger extent. Also, the EMU seems not to have increased the power of the transmission mechanism in every single country. Its contribution is shown to be poor in the case of the Mediterranean countries (Spain and Italy). However, in Continental countries, Germany and especially in France, the effectiveness of monetary transmission is outstanding nowadays. Este trabajo analiza las diferencias en la efectividad del mecanismo de transmisión monetaria en Alemania, Francia, Italia, España y el Reino Unido en el periodo previo y posterior a la UEM. El análisis se centra en el estudio de la estructura temporal de los tipos de interés y emplea como marco analítico el contraste de la Teoría de las Expectativas bajo la hipótesis de racionalidad. La metodología econométrica se implementa mediante un modelo VAR con perturbaciones ARCH.Los resultados obtenidos muestran que los países analizados partían de estructuras de transmisión monetaria diferentes que aún permanecen en la actualidad. La UEM no parece haber aumentado significativamente la capacidad de transmisión monetaria en cada uno de ellos. En los países mediterráneos (España e Italia) los resultados muestran una transmisión débil, mientras que en los países continentales (Alemania y Francia) la evidencia es mucho mayor y hasta un horizonte de medio plazo.
    Keywords: Estructura temporal, transmisión monetaria , VAR, cointegración, expectativas Term structure, monetary transmission, VAR, cointegration, expectations hypothesis
    JEL: C22 E52
    Date: 2006–02
  7. By: Hans-Friedrich Eckey (Department of Economics, University of Kassel); Matthias Türck (Department of Economics, University of Kassel)
    Abstract: Convergence studies are concerned with the question of whether poor economies catch-up to wealthier economies over time. The regional convergence process in Europe has generated considerable interest in recent years. Because of financial straits regional convergence is a central question, since important funds aim at diminishing disparities. There are many studies published recently dealing with this issue using different empirical approaches. Especially the â-convergence framework, which was introduced by Barro and Sala-i-Martin, is often used. This paper provides a critical review of the different approaches and summarizes the results. Altogether it can be stated that most models find a slow convergence - global or only referring to some regions (convergence clubs).
    Keywords: Regional Convergence, Literature Report, Europe
    JEL: O41 R11 R12
    Date: 2006–02
  8. By: Jochen Moebert (Darmstadt University of Technology, Department of Economics); Harald Deubener
    Abstract: We survey the future development of stock exchanges in Europe. Experts and non-experts evaluated several scenarios regarding who would survives as an independent as well as alliances, mergers and acquisitions. Nearly all respondents agreed that the landscape will undergo change. However, on average the respondents did not assign high probabilities to one particular future scenario. We also asked for important microeconomic and macroeconomic variables which might have an impact on the success of a stock exchange. The results indicate that while both types of variables have a relatively small influence on the different scenarios, the respondents think macroeconomic variables are less important than microeconomic variables. The uncertainty of a specific future scenario is also expressed in the economical and statistical significance of characteristics exhibited by the interviewees.
    Keywords: stock exchanges, financial integration, alliances, acquisitions
    JEL: F36 G29
    Date: 2006–03
  9. By: Joerg Bibow
    Abstract: This paper assesses the contribution of the European Central Bank (ECB) to GermanyÕs ongoing economic crisis, a vicious circle of decline in which the country has become stuck since the early 1990s. It is argued that the ECB continues the Bundesbank tradition of asymmetric policymaking: the bank is quick to hike, but slow to ease. It thereby acts as a brake on growth. This approach has worked for the Bundesbank in the past because other banks behaved differently. Exporting the Bundesbank Òsuccess storyÓ to Euroland has undermined its working, however; given its sheer size, Euroland simply cannot freeload on external stimuli forever. While Euroland cannot do without proper demand management, the Maastricht regime and especially the ECB are firmly geared against it. The ECBÕs monetary policies have been biased against growth and have thus proved bad for Euroland as a whole. Meanwhile, the German disease of protracted domestic demand weakness has spread across much of Euroland. Yet, by pursuing its peculiar traditions of wage restraint and procyclical public thrift, the ECBÕs policies have had even worse results for Germany. Fragility and divergence undermine the euroÕs long-term survival.
    Date: 2005–11
  10. By: Robert Plasman (Free University of Brussels, DULBEA); Michael Rusinek (Free University of Brussels, DULBEA); François Rycx (Free University of Brussels, DULBEA and IZA Bonn)
    Abstract: Using a unique harmonized matched employer-employee dataset (European Structure of Earnings Survey, 1995), we study the impact of the regime of collective bargaining on wages in the manufacturing sector of three countries that are characterized by a multi-level system of bargaining: Belgium, Denmark and Spain. Our findings show that, compared to multiemployer bargaining, single-employer bargaining has a positive effect both on wage levels and on wage dispersion in Belgium and in Denmark. In Spain, single-employer bargaining also increases wage levels but reduces wage dispersion. Our interpretation is that in Belgium and Denmark, single-employer bargaining is used to adapt pay to the specific needs of the firm while, in Spain, it is mainly used by trade unions in order to compress the wage distribution.
    Keywords: collective bargaining, wage structure
    JEL: J31 J51 J52
    Date: 2006–03
  11. By: Morris Teubal; Terttu Luukkonen
    Abstract: The paper summarizes the findings obtained during the first year of the Venture Fun project, carried out in an EU Network of Excellence PRIME and funded from the Sixth Framework Programme. The paper defines the central concepts of the project, identifies questions for further elaboration and study, and finally provides a rough idea of the different profiles that the studied countries (Finland, Israel, France, Italy, and the UK) evidence in the organization of their VC industries. One of the conclusions of the paper is that Israel, and to a lesser extent, Finland, has succeeded in developing a specialized, independent VC industry oriented to the early phase finance and support of ICT start-ups. By contrast, though the UK has a strong Private Equity industry, it is, however, not focusing on early-stage or high tech areas. Italy and France showed a significant presence of Venture Capital and Private Equity industries (public/private organisations), but in Italy an early phase VC industry has almost disappeared after 2001. The paper further summarises factors that have influenced the development of VC industries in the studied countries.
    Keywords: venture capital, industry emergence, start-ups, venture capital -directed policy, innovation policy
    JEL: O16 O38
    Date: 2006–03–01
  12. By: Iris Biefang-Frisancho Mariscal (School of Economics, University of the West of England); Peter Howells (School of Economics, University of the West of England)
    Abstract: The conduct of monetary policy emphasises institutional arrangements which make monetary policy decision-making more ‘transparent’. Judged by these institutional features neither the Bundesbank, nor the ECB, score very highly. We test for (i) agents’ average ability to anticipate policy rate changes under the Bundesbank and the ECB and (ii) and agents’ forecasting unanimity of money market rates. Rising forecasting uncertainty may either be due to a lack of ECB transparency or to larger inflation and growth forecasting errors. Our results indicate that inflation forecast spreads widened amongst private agents and that inflation forecasting uncertainty increased the forecasting spread of money market rates
    Keywords: transparency, yield curve, forecasting uncertainty, Bundesbank, ECB
    JEL: E58
    Date: 2004–12
  13. By: Claudia Guagliano; Stefano Riela (ISLA, Universita' Bocconi, Milano)
    Abstract: Among the instruments aimed to attract internationally mobile investors, “special economic areas” can be considered as well-defined zones where usually offering low rates of taxation, and infrastructures and services accessible on preferential basis. Are those instruments effective in attracting FDI? The first empirical evidence based on Poland, Hungary and Czech Republic suggests a positive answer. However, according to a survey on research and development intensity in special economic areas in our sample countries, it is not possible to confirm clearly that scientific and technology parks were capable in attracting high-tech FDIs, even though due to global competition, international agreements and EU membership, fiscal incentives are nowadays not enough while technology and an “innovation-friendly” environment are emerging as competitive advantages.
    Keywords: foreign direct investment, location choice, transition countries
    JEL: F23 R38
    Date: 2005–11
  14. By: Sarah Smith; James Banks
    Abstract: Like other OECD countries, the UK experienced more than two decades of declining labour market activity among older men in the 1970s, 1980s and early 1990s. A number of measures to reverse this trend that are currently under discussion, or have already been introduced, include, an increase in the state pension age, abolition of mandatory early retirement ages, tighter eligibility for disability benefits, and in-work benefits and training incentives for those aged 50+. This paper considers the nature and timing of retirement in the UK today and makes an assessment of the likely effect of these measures and likely future trends in retirement.
    Keywords: Retirement, pensions.
    JEL: J26
    Date: 2006–01

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