nep-eec New Economics Papers
on European Economics
Issue of 2006‒03‒25
nineteen papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Determinants of business cycle synchronisation across euro area countries By Uwe Böwer; Catherine Guillemineau
  2. Investigating M3 Money Demand in the Euro Area : New Evidence Based on Standard Models By Christian Dreger; Jürgen Wolters
  3. Non-linear dynamics in the euro area demand for M1 By Alessandro Calza; Andrea Zaghini
  4. Rational inattention, inflation developments and perceptions after the euro cash changeover By Michael Ehrmann
  5. The Effect of Benefits on Single Motherhood in Europe By Libertad González
  6. The Cost Factor in Patent Systems. By Bruno van Pottelsberghe; Didier François
  7. Beans for Breakfast? How Exportable Is the British Workfare Model? By Olivier Bargain; Kristian Orsini
  8. The comparative effectiveness of public policies to fight motherhood-induced employment penalties and decreasing fertility in the former eu-15 By Jérôme de Henau; Danièle Meulders; Sile O'Dorchai
  9. Does Entrepreneurship create enough Jobs in Europe? A Note By Miltiades N. Georgiou
  10. Women in Managerial Positions in Europe : Focus on Germany By Elke Holst
  11. Import duty incidence By Paul Veenendaal
  12. Estonia’s Accession to the EMU By Mart Sõrg
  13. Does More Generous Student Aid Increase Enrolment Rates into Higher Education? : Evaluating the German Student Aid Reform of 2001 By Hans J. Baumgartner; Viktor Steiner
  14. Dutch households' perceptions of economic growth and inflation By Céline Christensen; Peter van Els; Maarten van Rooij
  15. Competition and Public School Efficiency in Sweden By Waldo, Staffan
  16. Productivity Differences and Agglomeration Across Districts of Great Britain By Lubomira Anastassova
  17. Income incentives to labour participation and home production; the contribution of the tax credits in the Netherlands. By Mauro Mastrogiacomo; Nicole Voskuilen-Bosch
  18. Ageing and the sustainability of Dutch public finances. By Casper van Ewijk; Nick Draper; Harry ter Rele; Ed Westerhout
  19. Banks and Innovation: Microeconometric Evidence on Italian Firms By Luigi Benfratello; Fabio Schiantarelli; Alessandro Sembenelli

  1. By: Uwe Böwer (University of Munich, Munich Graduate School of Economics, Kaulbachstr. 45, 80539 Munich, Germany.); Catherine Guillemineau (The Conference Board, 845 Third Avenue, New York, NY 10022-6679, USA)
    Abstract: We investigate the key factors underlying business cycle synchronisation in the euro area applying the extreme-bounds analysis. We examine both traditional determinants and new, EMU-specific policy and structural indicators over the past 25 years. Our evidence seems to support the endogeneity hypothesis of the optimum currency area criteria. The implementation of the single market intensified bilateral trade across euro area countries and contributed to higher business cycle symmetry. The introduction of the single currency led to an intensification of intra-industry trade which has become the main driving force ensuring the coherence of business cycles. In addition, the set of robust determinants of business cycle synchronisation has varied over time, depending on the difference phases of the European construction, with fiscal policy, in addition to industrial and financial structures, playing a greater role during the completion of the Single Market, while short-term interest rate differentials and cyclical services have become more determinant since Economic and Monetary Union.
    Keywords: business cycle synchronisation; extreme-bounds analysis; Economic and Monetary Union; trade.
    JEL: C21 E32 F15
    Date: 2006–02
  2. By: Christian Dreger; Jürgen Wolters
  3. By: Alessandro Calza (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.); Andrea Zaghini (Banca d’Italia, Servizio Studi, Via Nazionale 91, 00184 Rome, Italy.)
    Abstract: This paper investigates possible non-linearities in the dynamics of the euro area demand for the narrow aggregate M1. A long-run money demand relationship is firstly estimated over a sample period covering the last three decades. While the parameters of the relationship are jointly stable, there are indications of non-linearity in the residuals of the error-correction model. This non-linearity is explicitly modelled using a fairly general Markov switch- ing error-correction model with satisfactory results. The empirical findings of the paper are consistent with theoretical predictions stemming from "buffer stock" and "target-threshold" models and with analogous empirical evidence for European countries and the US.
    Keywords: Euro area; cointegration; non-linear error correction; demand for money.
    JEL: E41 C22
    Date: 2006–02
  4. By: Michael Ehrmann (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: This paper uses the euro cash changeover to test theories of finite informationprocessing capacities on the side of consumers. It argues that the denomination of prices in a new currency has increased the information-processing requirements for consumers by more than for sellers, a wedge that can lead to price increases. The size of the wedge should depend on the complexity of the currency conversion rates. In line with this theory, the paper finds that the evolution of prices for food products around the cash changeover varied across countries, depending on the complexity of conversion rates. These changeover effects are found in particular for goods with prices below one euro sold in mid-priced stores. The paper also finds that cross-country differences in the mismatch of perceived and actual inflation in the aftermath of the cash changeover are linked to differences in the complexity of conversion rates.
    Keywords: rational inattention; perceived inflation; euro cash changeover
    JEL: D84 E31 E58 L11
    Date: 2006–02
  5. By: Libertad González (Universitat Pompeu Fabra and IZA Bonn)
    Abstract: This paper uses data from the eight waves of the European Community Household Panel (1994-2001) to estimate the impact of welfare benefits on the incidence of single motherhood and headship among young women across European countries. The regressions include country fixed effects as well as time trends that are allowed to vary by country, to account for fixed and trending unmeasured factors that could influence both benefit levels and family formation. The analysis also accounts for individual characteristics and labor market conditions. The results suggest that benefit levels have a small but significant positive effect on the prevalence of single mothers. An increase in yearly benefits of 1,000 euros is estimated to increase the incidence of single mother families by about 2 percent.
    Keywords: single mothers, welfare benefits
    JEL: J12 J13 I38
    Date: 2006–03
  6. By: Bruno van Pottelsberghe (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles.); Didier François (Solvay Business School, Université Libre de Bruxelles, Brussels)
    Abstract: The objective of this paper is to assess whether and to what extent the cost of patenting affects the demand for patents. The empirical analysis, which focuses on the patent systems of the USA, Japan, and Europe during the year 2003, leads to the following methodological and empirical observations: i) after the grant, the translation, validation and transaction costs induced by an effective protection in several European countries witness a highly fragmented and very expensive European market for intellectual property; ii) for a proper international comparison, the size of the market and the average number of claims must be accounted for; iii) when the cost per claim per capita (the 3C-index) is considered, a negative linear relationship appears between the cost of patenting and the number of claims that are filed; iv) for a patent designating 13 European countries, the 3C-index is about six (two) times more expensive than in the US (Japanese) system; v) The European market being more than twice as large as the US market in terms of inhabitants, the 3C-index suggests that there would be a clear justification for higher nominal examination fees at the EPO, that would ensure a rigorous granting process.
    Keywords: patents; cost elasticity; cost per claim per capita, patent systems
    JEL: P14 P51 O34
    Date: 2006
  7. By: Olivier Bargain (IZA Bonn); Kristian Orsini (K.U. Leuven)
    Abstract: Social assistance and inactivity traps have long been considered amongst the main causes of the poor employment performance of EU countries. The success of New Labour has triggered a growing interest in instruments capable of combining the promotion of responsibility and self-sufficiency with solidarity with less skilled workers. Making-work-pay (MWP) policies, consisting of transfers to households with low earning capacity, have quickly emerged as the most politically acceptable instruments in tax-benefit reforms of many Anglo Saxon countries. This chapter explores the impact of introducing the British Working Families' Tax Credit in three EU countries with rather different labor market and welfare institutions: Finland, France and Germany. Simulating the reform reveals that, while first round effects on income distribution is considerable, the interaction of the new instrument with the structural characteristics of the economy and the population may lead to counterproductive second round effects (i.e. changes in economic behavior). The implementation of the reform, in this case, could only be justified if the social inclusion (i.e. transition into activity) of some specific household types (singles and single mothers) is valued more than a rise in the employment per se.
    Keywords: tax-benefit systems, in-work benefits, microsimulation, household labor supply
    JEL: C25 C52 H31 J22
    Date: 2006–03
  8. By: Jérôme de Henau (DULBEA, Université libre de Bruxelles, Brussels); Danièle Meulders (DULBEA, Université libre de Bruxelles, Brussels); Sile O'Dorchai (DULBEA, Université libre de Bruxelles, Brussels)
    Abstract: In this paper we aim to study and compare the countries of the former EU-15 in terms of the difference in labour market conditions between mothers and non-mothers and we look at how public policies can be designed in order to minimise the employment penalties associated with the presence of young children and thus promote parenthood by working women. As women choose to take part in paid employment, fertility rates will depend on their possibilities to combine employment and motherhood. As a result, the motherhood-induced employment penalties discussed in this paper as well as the role of public policies should be given priority attention by politicians and policy-makers. Firstly, in this paper we start out from a multinomial logit model to analyse motherhood-induced employment gaps in the EU-15. Then, various decomposition techniques (the method of recycled prediction and the Oaxaca (1973) and Blinder (1973) technique adapted to the non-linear case) are applied to the computed gross FTE employment gaps between mothers and non-mothers to isolate the net employment effect associated with the presence of children from that of differences in characteristics between mothers and non-mothers. Special attention is also given to the specific role of education to contain the negative labour market consequences that derive from the presence of young children. It seems that differences in characteristics such as age, education and non labour personal income do not influence a lot the difference in employment status. Secondly, we use an OLS regression to confront motherhood-induced employment penalties with selfconstructed country-specific indicators of child policies, used as explanatory variables, in order to test the impact and effectiveness of policies of different design and generosity on these employment gaps that separate mothers of young children from non-mothers and mothers with grown up children. We round off our analysis by presenting a new typology and country-specific overview of the adjustment mechanisms applied by career-pursuing mothers on the labour market as well as of the supportiveness of different child policies. In the conclusion, we carefully review the main results of this research, advance a number of policy recommendations and suggest interesting avenues for future research.
    Keywords: labour market conditions, social policies, fertility, postponement of maternity, dual-earner couples, welfare states, synthetic indicators.
    JEL: C43 J13 J21
    Date: 2006–02
  9. By: Miltiades N. Georgiou
    Abstract: In the present note an effort will be made for a contribution to economic theory by extending the discussion paper "Entrepreneurship, Regional Development and Job Creation: The Case of Portugal" by R. Baptista, V. Escarta and P. Madruga, MPI, # 0605, in which the authors conclude (among others) that entrepreneurship creates jobs and reduces unemployment. This extension will be feasible by estimating the total economy´s entrepreneurship reward for Western European countries and relating it with the total economy's unemployment rate. A regression based on the estimation of total economy´s entrepreneurship reward will yield the same main results with the above article not only for Portugal but also for all Western European countries, that in any Western European country entrepreneurship creates enough jobs to reduce unemployment. This generalization with panel data econometric analysis is based on the discussion paper "A Practical Method to Measure Entrepreneurship's Reward: A Note" by M. N. Georgiou, MPI, #3805.
    Keywords: entrepreneurship, unemployment
    JEL: M13 E24
    Date: 2006–03
  10. By: Elke Holst
  11. By: Paul Veenendaal
    Abstract: Using National Accounts data and static input-output analysis we assess the extent of shifting the incidence of Dutch import duties to foreign customers and global tariff incidence on final demands. About 70% of the tariffs collected in the Netherlands are paid by foreign customers, mainly those in other EU-countries. While the Dutch export the incidence of most of the import duties that they collect, they also import duties levied elsewhere in the EU. Assessing tariff incidence globally we conclude that Dutch tariff incidence is in line with the incidence in the other member states of the European Union. We extensively explain the computational procedures followed.
    Keywords: import duties; tax incidence; input-output analysis
    JEL: C67 F1 H22
    Date: 2005–11
  12. By: Mart Sõrg (Institute of Finance and Accounting, University of Tartu)
    Abstract: CEE countries have passed the process of transition to market economy and eight of them, including Estonia, joined the European Union in 2004. Estonia has been very successful in the transition process, mainly owing to the currency board-based monetary system, which serves as a signal of commitment to prudent monetary policy and as a guarantee of sound money during the transition period. The current paper discusses the thirteen years of experience in operating the currency board-based monetary system in Estonia. Estonia’s accession to the European Union will soon be accompanied by membership of the Economic and Monetary Union (EMU). Here it is also explained why Estonia wants to join the EMU as fast as possible and what the prospects are to do it on time, at the beginning of 2007.
    Keywords: monetary systems, monetary policy, Economic and Monetary Union
    JEL: E42 E5 F33
    Date: 2005
  13. By: Hans J. Baumgartner; Viktor Steiner
  14. By: Céline Christensen; Peter van Els; Maarten van Rooij
    Abstract: This paper analysis the results of a survey on qualitative and quantitative perceptions and expectations of past, current and future macroeconomic developments among a representative household panel (DNB Household Survey). Perceptions of economic growth and inflation show a large dispersion. For the median respondents, however, the quantitative perceptions were found to be quite accurate. There is some evidence that the concept of economic growth is a more abstract notion for the general public than inflation. The results on qualitative and quantitative perceptions of current inflation could be interpreted as the Dutch public having a high level of inflation aversion. Those who have declared themselves more knowledgeable are also more actively involved in dealing with financial issues. The empirical evidence seems to corroborate that individuals with higher self-assessed knowledge levels are better informed indeed and have more accurate quantitative perceptions of economic growth and inflation. The survey also provides further insights on the connection between perceptions of current and past economic developments on the one hand, and expectations of future developments on the other. At the individual level there is a strong and robust correlation between expected growth and inflation for the next year and the perceptions of the current situation (rule of thumb behavior). But short-term expectations are also influenced by the views individuals hold on longer-term developments. Moreover, the results confirm the observed persistence in annual acroeconomic growth and inflation figures.
    Keywords: individual consumer perceptions and expectations; empirical knowledge of inflation and economic growth; rule of thumb behavior; DNB Household survey
    JEL: D12 D84 E30
    Date: 2006–03
  15. By: Waldo, Staffan (Swedish Institute for Food and Agricultural Economics)
    Abstract: The focus in this study is on how efficiency in public education is affected by competition from private schools. The Swedish educational system is used, since the Swedish large scale voucher program implies that private and public schools compete on similar terms. In 2002 approximately 5% of the Swedish children attended private schools, and the share is rapidly increasing. Public school efficiency is estimated using Data Envelopment Analysis (DEA). Modelling education is difficult since educational production is not only dependent on factors under control of the school management, but also on the students’ socio-economic backgrounds. A number of approaches have been proposed concerning how to model this in a DEA setting. In this study, four different approaches are used and compared. Special focus is put on a second stage regression, where the efficiency estimates are regressed on competition and other explanatory variables. We can not show that the share of children attending private schools is related to public school performance.
    Keywords: Data Envelopment Analysis; competition; education
    JEL: H73 I21
    Date: 2006–03–23
  16. By: Lubomira Anastassova
    Abstract: This paper examines the impact of employment density (agglomeration) on the hourly earnings of workers across districts of Great Britain. The potentially two-way causality between agglomeration and productivity is dealt with using two instruments: the total land area of a district and its population density. The estimated agglomeration effect is similar across different levels of territorial aggregation; however, the effect is stronger when looking only across Metropolitan areas. There is evidence of endogeneity only when the sample is split into Metropolitan and Non-Metropolitan areas and even so endogeneity has only little effect on the estimates.
    Keywords: Agglomeration, Productivity, Multiple Instruments.
    JEL: C31 O18 R12
    Date: 2006–02
  17. By: Mauro Mastrogiacomo; Nicole Voskuilen-Bosch
    Abstract: We set up a reduced form model of labour-market participation for young women who have to balance their career with motherhood. The model accounts for the occurrence of future uncertain events, like child birth and early retirement, and includes time spent in home production; however it does not require the estimation of a dynamic programming model. We claim that the careful implementation of institutions can return optimal life patterns of participation without the need of a structural approach. The weaker theoretical framework is more than compensated by the rich spectrum in policy simulations that may be performed. As illustrations, we simulate the effect of two policy options regarding tax credits on the hazard rate out of work.
    Keywords: home production; hazard model; tax credits
    JEL: J13 J22 J26
    Date: 2006–03
  18. By: Casper van Ewijk; Nick Draper; Harry ter Rele; Ed Westerhout
    Abstract: The ageing of the population jeopardises the sustainability of public finances in the Netherlands. The doubling of the ratio between the number of retirees and the number of workers destroys the balance between future public expenditure and tax revenues. Indeed, the increase in expenditure on public pensions and health and long-term care will outweigh the increase in tax revenues. Budgetary reforms are therefore necessary in order to avoid that future generations will have to raise taxes or economize on public expenditure. <P> Reforms in the field of social security of the last few years are a step in the right direction, but are insufficient. In particular, the decline of interest rates and the reduced wealth of pension funds have worsened the sustainability of public finances. The effects of reforms on the intergenerational balance are important for the question which further reforms are most attractive.
    Keywords: Ageing; public finances; intergenerational balance
    JEL: H62 J11
    Date: 2006–03
  19. By: Luigi Benfratello (University of Turin); Fabio Schiantarelli (Boston College and IZA Bonn); Alessandro Sembenelli (University of Turin)
    Abstract: In this paper we investigate the effect of local banking development on firms’ innovative activities, using a rich data set on innovation for a large number of Italian firms over the 1990’s. There is evidence that banking development affects the probability of process innovation, particularly for small firms and for firms in high(er) tech sectors and in sectors more dependent upon external finance. The evidence for product innovation is weaker. There is also some evidence that banking development reduces the cash flow sensitivity of fixed investment spending, particularly for small firms, and that it increases the probability they will engage in R&D.
    Keywords: banks, financial development, innovation, R&D, investment
    JEL: D24 G21 G38 O31 O33
    Date: 2006–03

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