nep-eec New Economics Papers
on European Economics
Issue of 2006‒04‒22
fifteen papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. The Real Effects of EMU By Philip R. Lane;
  2. Ambition and Jealousy: Income Interactions in the "Old" Europe versus the "New" Europe and the United States By Claudia Senik
  3. A Dynamic Perspective for the Reform of the Stability and Growth Pact By Christian Deubner
  4. EU Legitimacy and Social Affiliation: A study of Engineers in Europe By Jan Gunnarsson
  5. How Far Are We From The Slippery Slope? The Laffer Curve Revisited By Mathias Trabandt; Harald Uhlig
  6. On the Segregation of Genetically Modified, Conventional, and Organic Products in European Agriculture: A Multi-market Equilibrium Analysis By GianCarlo Moschini; Harun Bulut; Luigi Cembalo
  7. Peer Effects in European Primary Schools: Evidence from PIRLS By Andreas Ammermueller; Jörn-Steffen Pischke
  8. Family policies and fertility in Europe: Fertility policies at the intersection of gender policies, employment policies and care policies By Gerda R. Neyer
  9. Flight-to-quality or Contagion? An EmpiricalAnalysis of Stock-bond correlations By Dirk Baur; Brian M. Lucey
  10. The Legal Regulation of Software Interoperability in the EU By Boris Rotenberg
  11. Can Tax Competition Lead to a Race to the Bottom in Europe? A Skeptical View By Thierry Warin; André Fourçans
  12. EU Enlargement and Technology Transfer to New Member States By Simla Tokgoz
  13. Impact of the European Enlargement and Common Agricultural Policy Reforms on Agricultural Markets: Much Ado about Nothing? The By Jacinto F. Fabiosa; John C. Beghin; Fengxia Dong; Amani Elobeid; Frank H. Fuller; Holger Matthey; Simla Tokgoz; Eric Wailes
  14. Following the yellow brick road? The Euro, the Czech Republic, Hungary and Poland. By Jesús Rodríguez López; José Luis Torres Chacón
  15. Understanding co-operative R&D activity: evidence from four European countries By Laura Abramovsky; Elisabeth Kremp; Alberto López; Tobias Schmidt; Helen Simpson

  1. By: Philip R. Lane;
    Abstract: We explore the impact of European monetary union (EMU) on the economies of the member countries. While the annual dispersion in inflation rates have not been much different to the variation across US regions, inflation differentials in the euro area have been much more persistent, such that cumulative intra-EMU real exchange rate movements have been quite substantial. EMU has indeed contributed to greater economic integration - however, economic linkages with the rest of the world have also been growing strongly, such that the relative importance of intra-EMU trade has not dramatically increased. In terms of future risks, a severe economic downturn or financial crisis in a member country will be the proving ground for the political viability of EMU.
    Date: 2006–04–05
  2. By: Claudia Senik (Paris-Jourdan Sciences Economiques (PSE) and IZA Bonn)
    Abstract: This paper asks how income distribution affects individual well-being and tries to explore the idea that this relation depends on the degree of mobility and uncertainty in the economy. It mostly concentrates on the relation between satisfaction and reference income (defined as the income of one’s professional peers), and hinges on the micro-econometric analysis of household survey data (mostly panel), including subjective attitudinal questions. Using over one million observations, it uncovers a divide between "old" -low mobility- European countries versus "new" European post-Transition countries and the United States. Whereas "jealousy" is dominant in the former, "ambition" is even stronger in the latter.
    Keywords: income distribution, comparison income, subjective well-being, Transition, European Union
    JEL: C23 D63 O57
    Date: 2006–04
  3. By: Christian Deubner
    Abstract: This paper explores the functioning of the EMU Stability and Growth Pact from 1999 to 2005, year of its first explicit reform. The causes and the principal axes of that reform are analysed, as well as the main arguments for defending or critizising it. As to the Pact’s prior functioning, for almost all small and medium Euro area states this is a success story and the reform appears apt to facilitate the Pact’s future implementation. As to the larger Member States, the Pact experience has been a history of non-observance which the Pact’s reform appears only to condone and abet. This contradictory experience leads to a negative judgement on the functioning of the SGP as a whole. But recognising the success of the compliers’ group, and not only the failure of the non-compliers, justifies the Pact’s basic logic, as against certain commonly heard indictments. It permits to sharpen the analysis. These points will be explored later in this paper.
    Keywords: Economic and monetary union; EMU; stability and growth pact; single european currency; reform of the stability and growth pact; surveillance and co-ordination of economic and budgetary policies in EMU
    JEL: E61 E62
    Date: 2006–03
  4. By: Jan Gunnarsson (Department of Economics, University of Copenhagen)
    Abstract: Analyses of European governance usually bring the member states into the fore placing the citizens in the background. By means of economic analysis, this paper brings explanations of EU legitimacy down to the level of individuals. A method will be suggested that combines explanations based on individual interests and a sociological approach to identity. The paper investigates how work organizations become levers for a European outlook that may release legitimizing from its national context. The individual level analysis will be carried out for one particular occupational group (engineers) and the research questions are elucidated by a small number of interviews with Danish engineers concerning their experience of policies and actions with technological knowledge.
    Keywords: legitimacy; social capital; transaction costs; social identity; multi-level governance
    JEL: H70 L50
  5. By: Mathias Trabandt; Harald Uhlig
    Abstract: The goal of this paper is to examine the shape of the Laffer curve quantitatively in a simple neoclassical growth model calibrated to the US as well as to the EU-15 economy. We show that the US and the EU-15 area are located on the left side of their labor and capital tax Laffer curves, but the EU-15 economy being much closer to the slippery slopes than the US. Our results indicate that since 1975 the EU-15 area has moved considerably closer to the peaks of their Laffer curves. We find that the slope of the Laffer curve in the EU-15 economy is much flatter than in the US which documents a much higher degree of distortions in the EU-15 area. A dynamic scoring analysis shows that more than one half of a labor tax cut and more than four fifth of a capital tax cut are self-financing in the EU-15 economy.
    Keywords: Laffer curve, US and EU-15 economy
    JEL: E0 E60 H0
    Date: 2006–04
  6. By: GianCarlo Moschini (Center for Agricultural and Rural Development (CARD)); Harun Bulut; Luigi Cembalo
    Abstract: Evaluating the possible benefits of the introduction of genetically modified (GM) crops must address the issue of consumer resistance as well as the complex regulation that has ensued. In the European Union (EU) this regulation envisions the "co-existence" of GM food with conventional and quality-enhanced products, mandates the labelling and traceability of GM products, and allows only a stringent adventitious presence of GM content in other products. All these elements are brought together within a partial equilibrium model of the EU agricultural food sector. The model comprises conventional, GM and organic food. Demand is modelled in a novel fashion, whereby organic and conventional products are treated as horizontally differentiated but GM products are vertically differentiated (weakly inferior) relative to conventional ones. Supply accounts explicitly for the land constraint at the sector level and for the need for additional resources to produce organic food. Model calibration and simulation allow insights into the qualitative and quantitative effects of the large-scale introduction of GM products in the EU market. We find that the introduction of GM food reduces overall EU welfare, mostly because of the associated need for costly segregation of non-GM products, but the producers of quality-enhanced products actually benefit.
    Keywords: biotechnology, differentiated demand, genetically modified crops, identity preservation, innovation, welfare.
    Date: 2005–10
  7. By: Andreas Ammermueller (ZEW, Mannheim); Jörn-Steffen Pischke (London School of Economics and IZA Bonn)
    Abstract: We estimate peer effects for fourth graders in six European countries. The identification relies on variation across classes within schools. We argue that classes within primary schools are formed roughly randomly with respect to family background. Similar to previous studies, we find sizeable estimates of peer effects in standard OLS specifications. The size of the estimate is much reduced within schools. This could be explained either by selection into schools or by measurement error in the peer background variable. When we correct for measurement error we find within school estimates close to the original OLS estimates. Our results suggest that the peer effect is modestly large, measurement error is important in our survey data, and selection plays little role in biasing peer effects estimates. We find no significant evidence of non-linear peer effects.
    Keywords: peer effects, measurement error
    JEL: I21 J24
    Date: 2006–04
  8. By: Gerda R. Neyer (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: This article explores the relationship between family policies, fertility, employment and care. It suggests that similar family policies are likely to exert different effects in different contexts. It argues that a proper assessment of effects of family policies needs to take the combined spectrum of gender relations, welfare-state structures, and labor-market development into account.
    Keywords: Europe, family policies, fertility
    JEL: J1 Z0
    Date: 2006–03
  9. By: Dirk Baur; Brian M. Lucey
    Abstract: This paper analyzes the existence of flight-to-quality from stocks to bonds and contagion between the two asset classes. Flight-to-quality is present if correlations between stocks and bonds strongly decrease in falling stock markets since this constitutes a movement of the asset classes in opposite directions. A movement in the same direction characterized by strongly increasing correlations in falling stock markets implies contagion across asset classes. We estimate dynamic conditional correlations and analyze normal and extreme changes of these correlations through time without an a priori specification of any crisis period. Daily MSCI stock and government bond returns are analyzed for a selection of European countries and the US. Our findings show that the correlation between the asset classes is characterized by large fluctuations and negative on average for the whole sample period. Extreme negative and positive correlation changes explained with flight-to-quality and contagion are relatively frequent phenomena. Examples of flight-to-quality are in the Asian and Russian crisis 1997 and 1998 and contagion is found after September 11. Controlling for the regime of correlations further shows that stock market volatility contributes to flight-to-quality and bond volatility to contagion.
    Keywords: flight-to-quality, contagion, multivariate GARCH
    JEL: F36 G11 G14 G15
    Date: 2006–04–05
  10. By: Boris Rotenberg
    Abstract: Abstract: The primary aim of this paper is to point to the need for a European debate on the tension between the fundamental right to freedom of expression and the fundamental right to property in European software regulation. The analysis reveals that the analogous application of existing fundamental rights case law of the European Court of Human Rights as in Chassagnou and Appleby would probably unduly favour private property rights in software over other individual and societal interests in the form of software expression. Courts will need more guidance to find the right balance, in view of the unique nature of software, particularly so with regard to the foundational concept of software interoperability.
    Keywords: European law; media; networks; standardisation; fundamental/human rights
    Date: 2005–11–18
  11. By: Thierry Warin; André Fourçans
    Abstract: This paper addresses the question of the likelihood of a race to the bottom in a monetary union, like the Euro-zone, that could result from tax competition between countries. This fear of a race to the bottom is used both in the economic literature and the political arena to promote tax harmonization. Using a game theoretical approach with the costs of changing tax policies to analyze the conditions of a race to the bottom, this paper shows that countries may not choose such an extreme strategy. In other words, the extreme case scenario of a race to the bottom is unlikely, and proponents of tax harmonization should base their reasoning upon other assumptions.
    Keywords: Monetary union, Economic integration, Tax competition, Tax harmonization, Fiscal competition
    JEL: H20 H26 H77 H87
    Date: 2006–04
  12. By: Simla Tokgoz (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: The European Union (EU) accomplished its biggest enlargement process in 2004 in terms of the number of countries, area, and population. This study focuses on the impact of enlargement, the resulting technology transfer on the grain sectors of the New Member States (NMS), and the consequent welfare implications. The study finds that EU enlargement has important implications for the EU and the NMS, but its impact on the world grain markets is minimal. The results show that producers in the NMS gain from accession because of higher prices, whereas consumers in most NMS face a welfare loss. Incorporating technology transfer into the accession increases the welfare gain of producers despite falling prices because of the larger supply shift. The loss of welfare for consumers in most NMS is lower in this case because of the decline in grain prices.
    Keywords: EU enlargement, technology transfer, welfare.
    JEL: F15 Q17 D6
    Date: 2005–11
  13. By: Jacinto F. Fabiosa (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); John C. Beghin (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Fengxia Dong (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Amani Elobeid (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Frank H. Fuller (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI); Midwest Agribusiness Trade Research and Information Center (MATRIC)); Holger Matthey; Simla Tokgoz (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Eric Wailes
    Abstract: Following a historical agreement on the EU enlargement, 10 new member states (NMS) acceded to the European Union on May 1, 2004. Although the European Union has expanded its membership in the past, this enlargement is unique in terms of its scope and diversity of the countries, area, and population involved. Thus, the effects of the EU enlargement on current and future member countries and on world commodity markets require careful consideration as the European Union is a major player in these markets. We analyze the effects of the Common Agricultural Policy (CAP) reform and enlargement on the EU-15, the NMS, and world agricultural markets. We compare three 10-year comprehensive agricultural outlook scenarios. In a "pre-enlargement" scenario, all pre-enlargement policies of the EU-15 are held in place and the 10 NMS maintain their independent economic policies and older technologies as if nothing happens. The second scenario considers the CAP reform in the EU-15. The third scenario is the 2004 Food and Agricultural Policy Research Institute (FAPRI) baseline projection, which incorporates both the CAP reforms and accession of the 10 NMS with the associated domestic and trade policy reforms and some convergence in technology within the EU-25. With prices in most commodities in the acceding countries historically below EU-15 prices, accession leads to a moderate decrease in the EU-15 prices, whereas for the 10 NMS, domestic prices of many commodities increase substantially. Holding income levels constant, consumption levels of agricultural products in these countries decrease in most instances because of higher food prices, while production levels rise. The impact of the two reforms on world markets is moderate to negligible. The CAP reform has a moderate impact on the EU-15.
    Keywords: CAP reform, Common Agricultural Policy, EU enlargement, European agriculture, New Member States.
    Date: 2005–02
  14. By: Jesús Rodríguez López (Department of Economics, Universidad Pablo de Olavide); José Luis Torres Chacón (Departamento de Teoría e Historia Económica, Universidad de Málaga)
    Abstract: This paper uses a combination of VAR and bootstrapping techniques to analyze whether the exchange rates of some New Member States of the EU have been used as output stabilizers (those of the Czech Republic, Hungary and Poland), during 1993-2004. This question is important because it provides a prior evaluation on the costs and benefits involved in entering the European Monetary Union (EMU). Joining the EMU is not optional for these countries but mandatory, although there is no definite deadline. Therefore, if the exchange rate works as a shock absorber, monetary independence could be retained for a longer period. Our main finding is that the exchange rate could be a stabilizing tool in Poland and the Czech Republic, although in Hungary it appears to act as a propagator of shocks. In addition, in these three countries, demand and monetary shocks account for most of the variability in both nominal and real exchange rates.
    Keywords: EMU, exchange rate, Structural VAR, stationary bootstraps.
    JEL: C31 F31 F33
    Date: 2006–04
  15. By: Laura Abramovsky (Institute for Fiscal Studies); Elisabeth Kremp; Alberto López; Tobias Schmidt; Helen Simpson (Institute for Fiscal Studies)
    Abstract: This paper investigates co-operative research activity by firms using data from the 3rd Community Innovation Survey for four countries, France, Germany, Spain and the UK. We build on the Cassiman and Veugelers (CV) (2002) study of Belgian manufacturing firms, by incorporating information on the service sector, and considering the role of public support in affecting firms’ decisions to co-operate. Our results support those in CV, in that we find a positive relationship between the likelihood of undertaking co-operative R&D and both incoming knowledge spillovers and the extent to which firms find strategic methods important in appropriating the returns to innovative activity. We find that public support is positively related to the probability of undertaking co-operative agreements particularly with regard to the likelihood of co-operation with the research base. We find some evidence, in particular for Spain, that firms carry out co-operative R&D to overcome excessive perceived risks and financial constraints.
    Keywords: R&D co-operation, spillovers, joint ventures, CIS
    JEL: O31 O32 L24
    Date: 2005–10

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