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on European Economics |
| By: | Philipp Paulus |
| Abstract: | The continued debate on even the softened Stability and Growth Pact (SGP) highlights that the question of public debt in the European Monetary Union (EMU) needs further scrutiny. Both political economy models for emerging market sovereign debt and exchange rate regimes, as well as models on common pool and debt spillover problems in a monetary union point to an upward drift of public debt for countries joining EMU. In turn, this could lead to the expectation that, the more countries join EMU, the more pressure on an already battered SGP will develop. However, such models and first empirical research tend to focus only on the behaviour of governments – that is, the demand side on the market for government debt. Factors determining the supply side of government debt – i.e. capital markets – are most of the time left out of the analysis. This paper tries to fill this gap by analysing empirically the effects of both public debt demand and supply factors on the budget balances in the EMU candidate countries of Central and Eastern Europe (CEE) as well as in EMU and other OECD countries from 1994 to 2005. The results suggest that, although demand factors seem to have played a more important role than supply factors, some evidence for market conditions limiting new debt is found. More interestingly, despite the SGP disappointment, membership of EMU, as well as the time of the convergence to EMU, so far appears to coincide with more positive budget balances. Since most of the SGP literature assumes that EMU will cause a bias for higher debt due to spillover effects between EMU member countries, this could warrant a different theoretical approach to the impact of monetary unions on government debt. |
| Keywords: | monetary union, fiscal stability, government debt, EMU enlargement |
| JEL: | F33 G15 H62 H63 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:kln:owiwdp:dp_03_2006&r=eec |
| By: | Johan P. Olsen; Peter Maassen |
| Date: | 2007–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:erp:arenax:p0228&r=eec |
| By: | Agnes Benassy-Quere; Jacopo Cimadomo |
| Abstract: | This paper documents time variation in domestic fiscal policy multipliers in Germany, the UK and the US, and in cross-border fiscal spillovers from Germany to the seven largest European Union economies. We propose two VAR models which incorporate three “global factors” representing developments in the world economy, and we combine them with identification of fiscal shocks à la Blanchard and Perotti (2002) and Perotti (2005), to study the effects of net tax and government spending shocks on GDP, inflation and interest rates. By recursively estimating these models on different samples of data, we find that the domestic impact of tax shocks has been positive but vanishing for Germany and the US, stably not significant for the UK. Financial markets deregulations may play an important role in that since they allow households to be less dependent on disposable income and to smooth more easily consumption. Domestic government spending multipliers are found to be positive but feeble in the short-run and close to zero or slightly negative in the medium-run, implying that private consumption and investments might be crowded out. These results suggest that, in the European Monetary Union, discretionary fiscal policy “surprises” (i.e. unexpected tax cuts and government spending expansions) cannot be used by governments as substitutes for lost national monetary instruments, since they have shown to be progressively ineffective over time. Finally, we find that fiscal expansions in Germany have had beneficial (though declining) effects for neighboring countries, especially the smaller ones. This may indicate that the trade channel of transmission of fiscal policy dominates the interest rate one. |
| Keywords: | Fiscal policy effectiveness, fiscal shocks, spillovers, factor-augmented VAR, Great Moderation |
| JEL: | E30 E61 E62 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2006-24&r=eec |
| By: | Sylvain Champonnois (Economics Princeton University) |
| Abstract: | This paper investigates whether the financial markets are relatively more efficient than banks in the UK than in continental Europe. The UK channels a larger fraction of the financial flow to the firms through financial markets than continental Europe but this is explained by larger firms in the UK, not relatively more efficient markets. This conclusion is drawn from an industry-level structural estimation using data on the UK, France, Germany and Italy. The structural model is based on a novel theory of capital allocation and investment in which the decisions of heterogenous firms across financing instruments are aggregated in closed-form |
| Keywords: | Financial structure, bank finance, market finance, heterogenous firms, structural estimation, |
| JEL: | C51 E44 G31 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:520&r=eec |
| By: | John Quigley (University of California, Berkeley) |
| Abstract: | Owner occupied housing facilitates household wealth accumulation and the stability of consumption in developed countries. It also contributes to other social goals. But owneroccupied housing is also a risky investment. This paper synthesizes existing knowledge about the riskiness of housing investment in European economies during the past quarter century. It also presents estimates of the potential gains to European consumers from investments in derivatives which may reduce risk at the individual level. We find that futures markets in house price indexes may increase portfolio returns for European investors by several percentage points at the same level of risk. We also consider practical steps to develop markets for these investments. |
| Date: | 2006–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:bphupl:1075&r=eec |
| By: | Flam, Harry (Institute for International Economic Studies, Stockholm University); Nordström, Håkan (Swedish Board of Trade) |
| Abstract: | We estimate that the euro has increased trade within the eurozone by about 26 per cent and trade between the eurozone and outsiders by about 12 per cent on average for the years 2002-2005 compared to 1995-1998. The percentage increases were maller for products that were exported every year during the sample period than for products that were not, indicating significant and substantial effects on the extensive margin of trade. The euro effects were concentrated to semi-finished and finished products, in particular to industries with highly processed products such as pharmaceuticals and machinery. |
| Keywords: | - |
| JEL: | F10 |
| Date: | 2006–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iiessp:0750&r=eec |
| By: | António Afonso; Davide Furceri |
| Abstract: | This paper analyses sectoral business cycle synchronization in an enlarged European Union using annual data for the period 1980-2005. In particular, we try to identify which sector for each country is driving the aggregate output business cycle synchronization. Overall, the sectors that provide the most relevant contribution are Industry, Building and Construction, and Agriculture, Fishery and Forestry. In contrast, the Services sector, the largest one in terms of valued added share, shows a relative low business cycle synchronization and volatility, implying that it contributes only marginally to the aggregate output business cycle synchronization. |
| Keywords: | EMU Enlargement; Stabilisation; Synchronization; Sectoral Business Cycle. |
| JEL: | E32 F15 F41 F42 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp22007&r=eec |
| By: | Stenkula, Mikael (Research Institute of Industrial Economics) |
| Abstract: | The policy debate in recent years has increasingly focused on issues concerning size distribution of firms and employment. It is often claimed that we are approaching a new economic era where large enterprises have lost their importance in developed economies. This raises the question of what we can say about the size distributions on the basis of currently available European data. How important are large enterprises and can we detect any changes with regard to their importance? How do countries of the European Union differ in this regard? How reliable is available data ? does it permit us to draw any conclusions? Examining the availability and quality of data on European firm size and employment, we find that the existing data is severely limited in a number of respects. Conclusions based on the currently available data must hence be interpreted with considerable caution. However, recent measures by for instance the European Union will greatly improve the availability and quality of firm size data in the future. |
| Keywords: | Business Structure; Industrial Structure; Size Distribution; Small and Medium Sized Enterprises |
| JEL: | L11 O52 |
| Date: | 2006–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0683&r=eec |
| By: | Lietz C; Mantovani D |
| Abstract: | By the mid 1990s the potential and usefulness of microsimulation models for researching tax benefit systems had found widespread acceptance. Nevertheless models were not widely available for independent or academic research in all countries of the European Union (EU). Even more important, carrying out consistent comparative tax-benefit microsimulation analysis was still an apparently impossible task. The time seemed ready for a European-Union-wide tax-benefit microsimulation model. This paper is devoted to explaining the reasons for building EUROMOD, its added value compared to existing models, the trade-offs faced by its builders and lessons that have been learnt from developing such an integrated model. Moreover, it aims to provide an insight into the wide range of possible applications of EUROMOD, underlined by summarising some indicative findings of studies, which have used the model. |
| Keywords: | European Union; Microsimulation; Model Building |
| JEL: | C8 I3 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em5/06&r=eec |
| By: | Alfredo Marvao Pereira; Maria De Fatima Pinho |
| Abstract: | In an period of heightened concern about fiscal consolidation in the Euro zone, a politically expedient way of dealing with the situation is to cut public investment. A critical question, however, is whether or not political expediency comes at a cost, in terms of both long-term economic performance and future budgetary consolidation efforts. In fact, one would expect any type of investment, including public investment, to improve the long-term economic performance. Moreover, to the extent that public investment increases output in the long-term, it also expands the tax base and, therefore, tax revenues in the long term. It is conceivable that public investment has such strong effects on output, that over time it generates enough additional tax revenues to pay for itself. It is equally plausible that the effects on output although positive are not strong enough for the public investment to pay for itself. In the first case, cuts in public investment hurt long-term growth and make the future budgetary situation worse. In the second case, cuts in public investment hurt the long-term economic performance without hurting the future budgetary situation. In this paper we investigate this question empirically in the context of a number of countries in the Euro zone using a vector auto-regressive/error correction mechanism approach to determine the effects of aggregated public investment on output, employment and private investment. Our ultimate objective is to determine in which regime do the different countries seem to fit and determine to what extent cuts in public investment may turn out to be counter-productive in the long-term from a budgetary perspective. JEL Classification: C32, E62, H54, O52 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa06p122&r=eec |
| By: | Lars Ljungqvist (DEPT OF ECONOMICS STOCKHOLM SCHOOL OF ECONOMICS); Thomas J. Sargent |
| Abstract: | We first scrutinize and challenge Prescott's (2002, 2004) quantitative analysis of the role of differences in taxes in explaining cross-country differences in labor market outcomes, and then defend an alternative model that assigns an important role to cross-country differences in social unemployment insurance institutions that Prescott argues can be safely ignored. In the process, we explore how the assumption of indivisible labor interacts with assumptions regarding the (in)completeness of financial markets and any frictions in the labor market, to determine the labor supply elasticity. |
| Keywords: | Employment lotteries, indivisible labor, labor supply elasticity, taxation, unemployment, unemployment insurance |
| JEL: | E24 J64 |
| Date: | 2006–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed006:734&r=eec |
| By: | Hermanes Henricus Kleizen |
| Abstract: | A novel method is presented to describe population entities. It consists of 2 steps. First the structure of a population entity is described in terms of sub entities using a logarithmic distribution. This allows the uniform description of the World in continents, continents in countries, countries in provinces, provinces in cities, etc. Secondly the logarithmic distribution is simplified. This reveals the main structural differences and similarities at a certain level (countries in terms of provinces for example) and opens a window to study scale effects (comparing the description a province in cities and the world in terms of countries for example). The novel method is applied to the description of the European countries in terms of regions. The results are commented, focussing on the differences and similarities between Southern, Middle and Northern Europe. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa06p2&r=eec |
| By: | Davis, Steven J. (The University of Chicago Graduate School of Business); Henrekson, Magnus (Research Institute of Industrial Economics) |
| Abstract: | Following a severe contraction in the early 1990s, the Swedish economy accumulated a strong record of output growth coupled with a disappointing performance in the labor market. As of 2005, hours worked per person 20–64 years of age are 10.5 percent below the 1990 peak and a mere one percent above the 1993 trough. Employment rates tell a similar story. Our explanation for Sweden’s weak performance with respect to market work activity highlights the role of high tax rates on labor income and consumption expenditures, wage-setting arrangements that compress relative wages, business tax policies that disfavor labor-intensive industries and technologies, and a variety of policies and institutional arrangements that disadvantage younger and smaller businesses. This last category includes tax policies that penalize wealth accumulation in the form of owner-operated businesses, a pension system that steers equity capital and loanable funds to large incumbent corporations, and legally mandated job-security provisions that weigh more heavily on smaller and younger businesses. We describe these features of the Swedish institutional setup and provide evidence of their consequences based largely on international comparisons. |
| Keywords: | Business taxation; Industry structure; Swedish economic performance; Tax effects; Time allocation; Wage-setting institutions; Work activity |
| JEL: | D13 H30 J20 L52 O52 |
| Date: | 2007–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0687&r=eec |
| By: | Iris Biefang-Frisancho Mariscal; Peter Howells (School of Economics, University of the West of England) |
| Abstract: | It is widely believed that institutional arrangements influence the quality of monetary policy outcomes. Judged on its ‘transparency’ characteristics, therefore the Bank of England should do better than both the Bundesbank and ECB. However, studies based on market evidence show that on average, agents anticipate policy moves by both banks equally well. Since benefits from transparency should also show in a narrowing of the diversity in cross sectional forecasts, this paper extends the existing literature in an attempt to reconcile the contradictory evidence on ‘transparency’ of both banks. We show that the diversity in interest rate forecasts is greater under the Bundesbank/ECB than the Bank of England. Other factors than ‘transparency’ do not seem to affect interest rate uncertainty in Germany. Increasing difficulty in forecasting inflation appears to explain in part UK interest rate forecast dispersion. |
| Keywords: | transparency, yield curve, forecasting uncertainty, Bank of England, Bundesbank, ECB |
| JEL: | E58 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0613&r=eec |
| By: | Kenza Benhima; Olena Havrylchyk |
| Abstract: | In our study we investigate the evolution of short-term and long-term external positions in the CEECs and make an attempt at predicting their future paths. First, we analyze the long term relationship between net foreign assets and a set of explanatory variables and construct a measure of imbalances which equals the deviation of net foreign assets from their equilibrium level. Later we incorporate this measure in our prediction of current account reversals and compare the forecasts of this model with the baseline model that does not account for this disequilibrium measure. We show that the inclusion of stock disequilibrium measures improves the model’s performance in and out-of-sample. By doing this, we fill the gap in the literature on external sustainability, which despite the recent emphasis on stock adjustment (Calderon et al., 2000, Lane and Milesi-Ferretti, 2001), has not yet assessed the effectiveness of stocks in predicting sudden current account reversals. Finally, we apply this methodology to the CEECs. We find that net foreign assets lie below their long-term equilibrium level in all countries except Slovenia and Baltic States, but we predict current account reversals only for Hungary and Estonia. |
| Keywords: | Current account deficits, current account reversals, net foreign assets |
| JEL: | F21 F32 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2006-27&r=eec |
| By: | Charles Grant; Christos Koulovatianos; Alexander Michaelides; Mario Padula |
| Abstract: | A distinguishing feature among households is whether adult members work or not, since the occupational status of adults affects their available time for home activities. Using a survey method in two countries, Belgium and Germany, we provide household incomes that retain the level of well-being across different family types, distinguished by family size and occupational status of adults. Our tests support that childcare-time costs are important determinants of household well-being. Estimates of child costs relative to an adult are higher for households that are time-constrained (all adults in the household work). Moreover, we find supportive evidence for the hypothesis that, in two-adult households, there is a potential for within-household welfare gains from specialization in market- vs. domestic activities, especially childcare. |
| JEL: | D13 J22 D31 I31 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1206&r=eec |
| By: | Christine Dwane; Philip R. Lane; Tara McIndoe |
| Abstract: | Ireland has participated in two currency unions - a bilateral union with the United Kingdom that lasted until 1979 and as a founder member of European Monetary Union that began in 1999. This paper investigates whether currency unions have influenced Irish trade patterns. |
| Date: | 2007–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp189&r=eec |
| By: | António Afonso |
| Abstract: | This paper provides a succinct overview of long-run developments regarding public finances in Portugal with an emphasis on the spending side. Issues addressed are the excessive deficit experiences of Portugal, the past experience with fiscal consolidations, and labour cost competitiveness. It is fair to stay that public spending control has been a problem in Portugal, and fiscal consolidations in the 1980s and 1990s have been shorttermed and mostly not successful. Additionally, the compensation of general government employees diverged vis-à-vis the EU15 after EU entry. |
| Keywords: | public finances; Portugal; fiscal consolidations; compensation of employees. |
| JEL: | E62 E65 H6 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp12007&r=eec |
| By: | Taryn Ann Galloway (Statistics Norway) |
| Abstract: | In light of the riots and unrest among immigrants in France during the fall of 2005, the question of how immigrants are faring with respect to a certain minimum in society is both a timely and pertinent question for a number of European countries. In Norway, the prevalence of poverty is alarmingly high among immigrants and stands in stark contrast to the very low poverty rates for the native Norwegian population. Thus, unless the high poverty rates in the immigrant population are just a temporary feature of the immigrants' initial period of adjustment in the host country, poverty among immigrants is a cause for concern in Norway, too. This paper wishes to serve as a complement or extension of previous studies of immigrant adjustment; the study also aims to provide insights on the substantial heterogeneity -- observed, unobserved and unobservable -- in the immigrant population in Norway. |
| Keywords: | Immigration; Integration; Assimilation |
| JEL: | I32 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:482&r=eec |