nep-eec New Economics Papers
on European Economics
Issue of 2006‒08‒12
sixteen papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Is public capital productive in Europe? By Jerome Creel; Gwenaëlle Poilon
  2. Tobacco Taxation in the European Union By Sybren Cnossen
  3. Global Bond Portfolios and EMU By Philip R. Lane
  4. Economies of Scope in European Railways: An Efficiency Analysis By Christian Growitsch; Heike Wetzel
  5. Electricity Internal Market in the European Union - What to do next? By Jean-Michel Glachant; François Lévêque
  6. Convergence of Regions from 23 EU Member States By Hans-Friedrich Eckey; Thomas Döring; Matthias Türck
  7. Higher education: Time for coordination on a European level? By Laura Thissen; Sjef Ederveen
  8. "How the Maastricht Regime Fosters Divergence as Well as Fragility" By Joerg Bibow
  9. Instability of the Eurozone? On Monetary Policy, House Prices and Structural Reforms By Ansgar Belke; Daniel Gros
  10. The Tax System Incidence on Unemployment: A Country-Specific Analysis for the OECD Economies By José Ramón García; Hector Sala
  11. Raising Economic Performance by Fostering Product Market Competition in Germany By Andrés Fuentes; Eckhard Wurzel; Andreas Reindl
  12. A Reappraisal of the Virtues of Private Sector Employment Programmes By Brian Krogh Graversen; Peter Jensen
  13. Reforming Federalism German Style - A First Step in the Right Direction By Thomas Döring; Stefan Voigt
  14. Capital Flows to Central and Eastern Europe By Philip R. Lane; Gian Maria Milesi-Ferretti
  16. Is There a Trade-off Between Job Security and Wages in Germany and the UK? By Dominik Hübler; Olaf Hübler

  1. By: Jerome Creel (Observatoire Français des Conjonctures Économiques); Gwenaëlle Poilon (Sciences Po)
    Abstract: This paper addresses the issue of whether and by how much public investment or public capital can enhance economic performance. In comparison with the literature on the subject, we apply many different methodologies to answer these questions. A VAR model (for France, Italy, Germany, the UK and the USA), a panel composed of 6 European countries (Austria, Belgium, France, Germany, Italy and the Netherlands) and a regional panel (French regions) are therefore estimated. Public investment is shown to be a significant determinant of output; this is also true for public capital but to a lesser extent than public investment with a VAR methodology. The size of the estimated coefficient is also more realistic than those obtained in the literature. This empirical result confirms that the focus of some economists on safeguarding the level of public investment is not misplaced. The debate on the introduction of a “golden rule of public finance” in EMU is legitimate.
    Keywords: public capital, VAR model, panel, European economies
    JEL: C32 E62 H54
    Date: 2006
  2. By: Sybren Cnossen
    Abstract: Later this year, the European Commission has to submit a report to the Council of Ministers and the European Parliament with its views on tobacco tax policy in the EU. A 2004 publication issued by the Commission expressed the beliefs that tobacco consumption should be controlled by increasing tobacco excises and that harmonisation should proceed on the basis of specific rates. This paper reviews and evaluates EU tobacco tax policies. It supports the move towards specific taxation, but notes that there are conceptual and empirical limits to excessively high tobacco taxes. Smokers appear to pay their way and cigarette smuggling is a growing menace to health and revenue objectives.
    Keywords: tobacco taxation; European Union
    JEL: H2 H8
    Date: 2006–07
  3. By: Philip R. Lane
    Abstract: We examine the bilateral composition of international bond portfolios for the euro area and the individual EMU member countries. We find considerable support for "euro area" bias: EMU member countries disproportionately invest in one another relative to other country pairs. Another striking pattern is the positive connection between trade linkages and financial linkages in explaining asymmetries across EMU member countries in terms of their outward bond investments vis-a-vis external counterparties. Our empirical results underline the impact of currency union on financial integration and support the notion that financial regionalization is the leading force underlying financial globalization.
    Date: 2006–08–02
  4. By: Christian Growitsch (Halle Institute for Economic Research); Heike Wetzel (Institute of Economics, University of Lüneburg)
    Abstract: In the course of railway reforms at the end of the last century, European national governments, as well the EU Commission, decided to open markets and to separate railway networks from train operations. Vertically integrated railway companies argue that such a separation of infrastructure and operations would diminish the advantages of vertical integration and would therefore not be suitable to raise economic welfare. In this paper, we conduct a pan-European analysis to investigate the performance of European railways with a particular focus on economies of scope associated with vertical integration. We test the hypothesis that integrated railways realize economies of joint production and, thus, produce railway services on a higher level of efficiency. To determine whether joint or separate production is more efficient we apply an innovative Data Employment. Analysis super-efficiency bootstrapping model which relates the efficiency for integrated production to a virtual reference set consisting of the separated production technology and which is applicable to other network industries as energy and telecommunication as well. Our findings are that for a majority of European Railway economies of scope exist.
    Keywords: Efficiency, Vertical Integraton, Railway Industry
    JEL: L22 L43 L92
    Date: 2006–07–24
  5. By: Jean-Michel Glachant; François Lévêque
    Abstract: The European Union’s “internal energy market” remains a work in progress. It is even possible its construction were to stall. Given current political, institutional and business conditions in Europe, there are no guarantees that the dynamics of this construction will not dissipate, as in the United States, or that the internal market will not fracture into “national blocks” that may be permanent or persist for a long time. This is exactly what this paper seeks to avoid. It suggests priority actions and secondary improvements to sustain the dynamics of construction of the internal market, from today to the few coming years. It tries too to explain the underlying rationale for these recommendations by describing several aspects of the present state of the construction of the internal market and what factors are blocking or unblocking its progress. A main constraint has guided our thinking and writing of this paper. We have excluded the issuance of a new package of European directives and regulations to push for stronger convergence in the construction of the EU internal energy market. In fact, such an event is low likely. By contrast, we have counted on two levers: the conscientious applying of the provisions of the second directive and companion regulations, and the promoting of reinforced regional cooperation agreements that will lead to the voluntary opening of some domestic markets to regional “mini internal markets”. We believe and try to demonstrate that thank to these levers a minimal but sufficient dynamics of construction can be fostered. The identified priority actions will allow to progress without precluding further policy changes at a later date. Then the length of the phase is defined by the expected life of the current College of European Union Commissioners, that is until 20091. The paper is divided into 5 sections. Each section corresponds to priorities to improve a critical factor: 1- national market designs, 2- EU internal market design, 3- industry structure, 4- TSOs, and 5- regulators. Each section will indicate what makes this factor a key for the building of the internal market and what are the priority or secondary actions which could be useful to keep constructing an EU electricity single market from 2005 to 2009. Note that this paper does not cover all the areas of the European energy policy. Other topics representing core interests of the European Union and the 25 Member States, such as “Security of Supply” and “Sustainability of European Energy Regime”, have not been treated in this paper. They deserve further investigation and analysis.
    Date: 2005–09
  6. By: Hans-Friedrich Eckey (Department of Economics, University of Kassel); Thomas Döring (Department of Economics, University of Kassel); Matthias Türck (Department of Economics, University of Kassel)
    Abstract: Convergence of EU regions is an often examined research question. However, there are no studies available which include in their analysis the New Member States from the former Eastern Bloc. We estimate several models of absolute convergence and of conditional convergence taking into account the different initial conditions of the regions from each country. First, we calculate convergence models with equal convergence rates of every region (stationary approaches). We prove a convergence process with nearly all models between 1995-2003. Only the spatial filtering approach in combination with the inclusion of country specific dummy variables shows a significant divergent development. Second, we calculate a geographically weighted regression (GWR) approach, which uses instationary regression coefficients. This model gives evidence for a convergence of most regions. However, some regions seem to move away from their steady state.
    Keywords: Regional Convergence, Spatial Econometrics, Europe
    JEL: C21 R11 R58
    Date: 2006–08
  7. By: Laura Thissen; Sjef Ederveen
    Abstract: Education has always been regarded as a national matter. According to the subsidiarity principle power may only be shifted to a higher level of coordination when solid arguments exist that this will improve welfare. This paper aims at answering the question if these arguments exist. We find no support for economies of scale, i.e. larger countries do not necessarily provide higher quality education; nor do larger schools. Empirical evidence for human capital externalities through student mobility is scarce. Concluding, we find little support for European coordination of higher education. However, there is evidence that student mobility is a precursor for labour migration. Uniformizing the structure of higher education in the EU, and making educational programs more transparent, may therefore be defended from this perspective. Quality does matter for students, and student mobility is increasing. This may be beneficial to labour mobility.
    Keywords: Subsidiarity; European coordination; Higher education; Student migration
    JEL: F22 H87 I2 J61
    Date: 2006–07
  8. By: Joerg Bibow
    Abstract: This paper investigates the phenomenon of persistent macroeconomic divergence that has occurred across the eurozone in recent years. Optimal currency area theory would point toward asymmetric shocks and structural factors as the foremost candidate causes. The alternative hypothesis pursued here focuses on the working of the Maastricht regime itself, making it clear that the regime features powerful built-in destabilizers that foster divergence as well as fragility. Supposed adjustment mechanisms actually have turned out to undermine the operation of the currency union by making it less “optimal,” that is, less subject to a “one-size-fits-all” monetary policy and common nominal exchange rate, in view of the resulting business cycle desynchronization and related build-up of financial imbalances. The threats of fragility and divergence reinforce each other. Without regime reform these developments could potentially spiral out of control, threatening the long-term survival of EMU.
    Date: 2006–07
  9. By: Ansgar Belke; Daniel Gros
    Date: 2006
  10. By: José Ramón García (Universitat de València); Hector Sala (Universitat Autònoma de Barcelona and IZA Bonn)
    Abstract: This paper provides a detailed analysis on the incidence of the tax structure on the labor market. To do so it goes beyond the traditional examination of the ‘level’ effect of the fiscal wedge and considers a ‘composition’ effect defined as a payroll tax bias (PTB): the proportion of payroll taxes paid by employees with respect to the one paid by firms. We develop a right-to-manage model encompassing different wage bargaining systems and the incidence of different type of taxes. Controlling for demand-side and supply-side determinants of unemployment, we show that the PTB plays a significant role in explaining unemployment in the continental European countries, but not in the Nordic nor the Anglo- Saxon ones. We also show that there is no relationship between the incidence of the PTB and unemployment persistence, even though there is a positive one with respect to the level of the fiscal wedge.
    Keywords: unemployment, unemployment persistence, fiscal wedge, payroll tax bias
    JEL: E24 E62
    Date: 2006–07
  11. By: Andrés Fuentes; Eckhard Wurzel; Andreas Reindl
    Abstract: Much scope remains to make regulation of product markets more conducive to competition ? notwithstanding progress in recent years ? with substantial benefits for consumer welfare, productivity and employment. While the general competition legislation and enforcement framework is mostly effective, measures need to be taken to reduce administrative burdens on entrepreneurship and reduce the involvement of the government in business sector activities, notably through accelerated privatisation. Policies favouring small enterprises need to be revised, with a view to fully exposing them to competition and avoiding disincentives for small firms to grow. Substantial regulatory challenges exist in specific sectors, notably in the energy and railway industries where non-discriminatory access of market entrants to networks needs to be improved. Environmental objectives in energy market regulation could be achieved at lower cost. In the telecommunications industry, competition in the local loop can be strengthened. Regulation of the liberal professions is among the most restrictive in the OECD. Entry barriers need to be eliminated in crafts. and restrictions on large-scale retailing development could be eased. This paper relates to the 2006 Economic Survey of Germany ( <P>Améliorer la performance économique en stimulant la concurrence sur les marchés de produits en Allemagne <BR>En dépit des progrès accomplis ces dernières années, beaucoup reste à faire pour rendre la réglementation des marchés de produits plus propice à la concurrence, ce qui induira de substantiels avantages en termes de bien-être du consommateur, de productivité et d'emploi. Le droit commun de la concurrence et son cadre d'application sont dans l'ensemble efficaces, mais il faut alléger les charges administratives qui pèsent sur l'entrepreneuriat et réduire l'intervention de l'État dans les activités du secteur des entreprises, notamment par une privatisation accélérée. Il convient de réviser les dispositifs favorables aux petites entreprises, pour les exposer pleinement à la concurrence et éviter de les décourager de croître. De sérieux problèmes de réglementation persistent dans certains secteurs, notamment l'énergie et les chemins de fer, où l'accès non discriminatoire des entrants aux réseaux demande à être amélioré. Les objectifs environnementaux de la réglementation des marchés de l'énergie pourraient être réalisés à moindre coût. Dans l'industrie des télécommunications, la concurrence sur la boucle locale peut être renforcée. La réglementation des professions libérales est parmi les plus restrictives de la zone OCDE. Dans le secteur de l'artisanat, les obstacles à l'entrée doivent être supprimés, et il convient d'assouplir les restrictions qui limitent le développement des magasins de grande surface. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l’Allemagne 2006 (
    Keywords: network industries, industrie de réseau, competition, privatisation, Germany, Allemagne, concurrence, privatisation, competition law, productivity and growth, droit de la concurrence, productivité et croissance, regulatory policies, politique de réglementation
    JEL: K21 K23 L16 L40 L43 L51 L53 O52 Q3
    Date: 2006–08–04
  12. By: Brian Krogh Graversen (Danish National Institute of Social Research); Peter Jensen (Aarhus School of Business and IZA Bonn)
    Abstract: In this paper, we evaluate the employment effects of Danish active labour market programmes aimed at welfare benefit recipients. We estimate an econometric model with treatment effects and discrete outcomes and we allow the responses to treatment to vary among observationally identical persons. The empirical analysis is based on a register-based dataset that gives information on participation in labour market programmes and subsequent employment. Using a latent variable model, we estimate commonly defined treatment effects, and in particular, the distribution of treatment effects. We do not find any significant mean effects of participation in private sector employment programmes compared to participation in other programmes, but we find evidence of heterogeneity in the treatment effects.
    Keywords: heterogeneous treatment effects, active labour market programmes, welfare dependence, employment
    JEL: I38 J64 J68
    Date: 2006–07
  13. By: Thomas Döring (Department of Economics, University of Kassel); Stefan Voigt (Department of Economics, University of Kassel)
    Abstract: The German version of federalism, often called "cooperative federalism", has been identified by many as one of the root causes for Germany becoming Europe’s new sick man. Now, a number of changes in the institutions defining the relationship between the federal, the state and the local level have been passed. This contribution describes the most important changes and evaluates them from the point of view of fiscal federalism. It concludes that the changes are only a first step in the right direction, but a number of important steps have yet to follow.
    Date: 2006–08
  14. By: Philip R. Lane; Gian Maria Milesi-Ferretti
    Abstract: We examine the evolution of the external position in CEE countries over the past decade, with a strong emphasis on the composition of the international balance sheet. We assess the extent of their international financial integration, in comparison to the advanced economies and other emerging markets, and highlight the most salient features of their external capital structure in terms of the relative importance of FDI, portfolio equity, and external debt. In addition, we briefly describe the bilateral and currency composition of their external liabilities. Finally, we explore the implications of the accumulated stock of external liabilities for future trade and current account balances.
    Date: 2006–08–02
  15. By: Javier Ruiz-Castillo
    Abstract: This paper is a review of the literature on the ranking of centers of excellence in economics according to the papers published in specialized journals that have an anonymous evaluation procedure. There are two objectives: (1) to examine the evolution during the 1990’s of certain features of economic research, such as the gap that exists between the United States and the rest of the world, the dominant position of the United Kingdom within Europe, and the low productivity of economic scholars everywhere; and (2) to document the tremendous progress that Spanish research centers underwent during this period.
    Date: 2006–05
  16. By: Dominik Hübler (University of Oxford); Olaf Hübler (University of Hannover, IAB Nürnberg and IZA Bonn)
    Abstract: This paper looks at the wage effects of perceived and objective insecurity in Germany and the UK using the GSOEP and BHPS panels. The distinction between perceived worry about job loss and economic indicators such as regional unemployment rates and the share of temporary contracts is established. The bargaining hypothesis that job security and wages are complements because of union bargaining power and preference is derived from a variant of the right to manage model. This hypothesis is contrasted with Rosen’s theory of equalising differences where security and wages are substitutes. The empirical literature surveyed finds evidence for both sides. When addressing a number of econometric issues in earlier studies of the bargaining hypothesis this paper finds strong evidence in favour of the former. Accounting for simultaneous determination of job insecurity and wages significantly negative level effects are found for Germany with some evidence for those in the UK. There is also some evidence for growth rate effects (especially for perceived insecurity), but it does not appear robust. Job insecurity, both perceived and objective is found to have influenced wage development in both countries.
    Keywords: job security, wages, Germany, UK
    JEL: J28 J31 J63 J81
    Date: 2006–08

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