nep-eec New Economics Papers
on European Economics
Issue of 2007‒02‒17
23 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Fiscal Policy and Macroeconomic Performance in the Euro area - Lessons for the Future By Eckhard Hein; Achim Truger
  2. Instability of the Eurozone? On Monetary Policy, House Prices and Labor Market Reforms By Ansgar Belke; Daniel Gros
  3. Hysteresis and Nairu in the Euro Area By Camille Logeay; Silke Tober
  4. Inflation persistence in the euro-area, US, and new members of the EU: Evidence from time-varying coefficient models By Zsolt Darvas; Balázs Varga
  5. Inflation Persistence and Tax-Push Inflation in Germany and in the Euro Area: A Symptom of Macroeconomic Mismanagement? By Joerg Bibow
  6. REGIONAL INTEGRATION AND TRADE DIVERSION IN EUROPE By Kokko, Ari; Mathä, Thomas; Gustavsson Tingvall, Patrik
  7. National welfare effects of trade bloc enlargement By Thilo W. Glebe
  8. European consumers’ attitudes on services of general interest: accessibility, price and quality By Carlo Vittorio FIORIO; Massimo FLORIO; Silvia SALINI
  9. The Changing Nature of Manufacturing in OECD Economies By Dirk Pilat; Agnès Cimper; Karsten Bjerring Olsen; Colin Webb
  10. Distribution and growth reconsidered - empirical results for Austria, France, Germany, the Netherlands, the UK and the USA By Eckhard Hein; Lena Vogel
  11. Peer Effects in European Primary Schools: Evidence from PIRLS By Ammermüller, Andreas; Pischke, Jörn-Steffen
  12. EU Agri-environmental Programs and the "Restaurant Table Effect" By Thilo W. Glebe; Klaus Salhofer
  13. Efficiency Losses from Overlapping Economic Instruments in European Carbon Emissions Regulation By Böhringer, Christoph; Koschel, Henrike; Moslener, Ulf
  14. An assessment of the quality of life in the European Union based on the social indicators approach By Grasso, Marco; Canova, Luciano
  15. Public spending efficiency: institutional indicators in primary and secondary education By Frédéric Gonand; Isabelle Joumard; Robert Price
  16. German Exports to the Euro Area - A Cointegration Approach By Sabine Stephan
  17. The Role of Banks in the Transmission of Monetary Policy in the Baltics By Köhler, Matthias; Hommel, Judith; Grote, Matthias
  18. Italian Asset Managers’ Behavior: Evidence on Overconfidence, Risk Taking and Gender By Beckmann, Daniela; Lütje, Torben; Rebeggiani, Luca
  19. Rising Wage Inequality in Germany By Gernandt, Johannes; Pfeiffer, Friedhelm
  20. Economic Effects of VAT Reform in Germany By Boeters, Stefan; Böhringer, Christoph; Büttner, Thiess; Kraus, Margit
  21. The role of demographic variables in explaining financial returns in Italy By Marianna Brunetti; Costanza Torricelli
  22. Estimating Germany's Potential Output By Gustav Horn; Camille Logeay; Silke Tober
  23. Corporation Tax Revenue Growth in the UK:A Microsimulation Analysis By John Creedy; Norman Gemmell

  1. By: Eckhard Hein (IMK at the Hans Boeckler Foundation); Achim Truger (IMK at the Hans Boeckler Foundation)
    Abstract: Since the start of the European Monetary Union fiscal policy in the Euro area has been dominated by the Stability and Growth Pact (SGP). Quite obviously the SGP has been unsuccessful in fulfilling its goals, fiscal sustainability and supporting economic growth. More and more countries have exceeded the 3 percent of GDP limit for the budget deficit, while at the same time macroeconomic performance has been unsatisfactory. We analyse fiscal policy and its macroeconomic impact for the Euro area as a whole and for selected countries and compare it with US fiscal policy, with a special emphasis on the period 2001-2005. Whereas US fiscal policy has been strongly counter-cyclical, thus stabilising the economy, in the Euro area fiscal policy has been much more restrictive and has had pro-cyclical and therefore destabilising effects for many countries. However, one cannot put all the blame on fiscal policy. The ECB's restrictive monetary policy and divergent and destabilising wage developments across the Euro area are at least as important as fiscal policy in the explanation of the Euro area's weak economic performance. As a possible solution for the future, we suggest to replace the SGP by expenditure paths as coordination tool, and we discuss an important modification of the concept. Such expenditure paths could co-ordinate fiscal policies across the Euro area in a counter-cyclical way and at the same time ensure fiscal sustainability. Unfortunately, as long as monetary and wage policies remain un-coordinated and destabilising, any improvements in fiscal policy will not be very effective in enhancing economic performance.
    Keywords: Fiscal policy, consolidation strategies, macroeconomic policy mix, euro area
    JEL: E61 E62 E63 E65
    Date: 2006–05
  2. By: Ansgar Belke (University of Hohenheim and IZA); Daniel Gros (Centre for European Policy Studies, Brussels and San Paolo IMI Asset Management, Milan)
    Abstract: This paper deals with potential instabilities in the Eurozone stemming from an insufficient interplay between monetary policy and reform effort on the one hand and the emergence of intra-Euro area divergences on the other. As a first step, we assess the effect of EMU on structural reform and investigate this question by an examination of the relationship between fixed exchange rates and reform in two wider samples of countries. We also stress that loose monetary conditions, which prevailed until some months ago, can also manifest themselves in asset price inflation, notably in the housing market. When these bubbles burst (e.g., when housing prices stop rising) this often leads to a prolonged period of economic instability and weakness rather than consumer price inflation. As a second step, we point out that risks for EMU are not only increasing because longer-term disequilibria become evident in fiscal and monetary policy, but also because serious divergences are now appearing within the Euro area which threaten its long-term cohesiveness. The most manifest example of this threat comes from what promises to be a long-term divergence between Germany and Italy, which for the time being was offset by asynchronous developments of house prices in both countries. There are still large differences within the Euro area, with the small countries performing much better than the large ones on almost every indicator. This suggests that better policies can make a large difference even if monetary policy is the same for everybody.
    Keywords: asset prices, international competitiveness, EMU, instabilities, labor markets, monetary policy regime, structural reform
    JEL: D78 E52 E61
    Date: 2007–01
  3. By: Camille Logeay (IMK at the Hans Boeckler Foundation); Silke Tober (IMK at the Hans Boeckler Foundation)
    Abstract: This paper analyses the Nairu in the Euro Area and the influence that hysteresis had on its development. Using the Kalman-filter technique we find that the Nairu has varied considerably since the early seventies. The Kalman-filter technique is applied here using explicit exogenous variables. In order to test for hysteresis, the dependence of the Nairu on actual unemployment and long-term unemployment is estimated and found to be significant for the Euro Area and Germany respectively. The existence of hysteresis effects implies the possibility of a long-run non-superneutrality of monetary policy.
    Keywords: Nairu, hysteresis, Kalman Filter, Phillips curve, superneutrality
    JEL: C32 E32 E52
    Date: 2005–07
  4. By: Zsolt Darvas (Corvinus University of Budapest); Balázs Varga (Corvinus University of Budapest)
    Abstract: This paper studies inflation persistence with time-varying-coefficient autoregressions in response to recently discovered structural breaks in historical inflation time series of the euro-area and the US. To this end, we compare the statistical properties of the well known ML estimation using the Kalman-filter and the less known Flexible Least Squares estimator by Monte Carlo simulation. We also suggest a procedure for selecting the weight for FLS based on an iterative Monte Carlo simulation technique calibrated to the time series in question. We apply the methods for the study of inflation persistence of the US, the euro-area and the new members of the EU
    Keywords: flexible least squares, inflation persistence, Kalman-filter, time-varying coefficient models
    JEL: C22 E31
    Date: 2007–02–02
  5. By: Joerg Bibow (Franklin College, Lugano, Switzerland)
    Abstract: This study challenges the widely held view that the persistence in Euro area inflation above two percent, which has been observed in the euro area since 2001 despite the economic slump, may have been foremost a reflection of “structural rigidities” in labour and product markets. Accordingly, structural reforms that eliminate these rigidities are presented as necessary and sufficient conditions for boosting growth and purging inflation persistence. This view misses the fact that series of hikes in indirect taxes and administered prices contributed significantly to price increases in the euro area. Governments’ consolidation efforts in view of stagnation-induced budgetary pressures thus caused “tax-push inflation”, i.e. a persistent and sizeable upward distortion in headline inflation. Since inflation above two percent has, in turn, forestalled more growth-supportive monetary policies, the euro area has become stuck in a vicious circle of protracted domestic demand stagnation and budgetary pressures that continue to nurture tax push.
    Date: 2006–01
  6. By: Kokko, Ari (European Institute of Japanese Studies); Mathä, Thomas (Central Bank of Luxembourg); Gustavsson Tingvall, Patrik (European Institute of Japanese Studies)
    Abstract: This paper re-examines the relation between regional integration and trade by using the framework suggested by Yeats [1998] to analyze the effects of European integration. We identify the industries that experienced the largest increases in regional trade orientation during three phases of European integration, and examine the simultaneous changes in revealed comparative advantages. Our main conclusion is that there are signs of trade diversion for the earliest phase of European integration (1962-1973), when intra-regional trade increased in industries with weak comparative advantages, but not for later time periods. The main reason is that regional integration has coincided with reductions in external trade barriers, improving market access also for outsiders. At the same time, integration has promoted economic growth and import demand, which has been beneficial for outside producers. We also argue that the static concept of trade diversion is not well suited for analyzing modern integration, which aims to raise the comparative advantage of regional producers by promoting scale economies and competition. If successful, it will reduce the market shares of outsiders, but it does not constitute trade diversion: more efficient outsiders are not replaced by less efficient insiders.
    Keywords: European integration; trade creation and diversion
    JEL: F12 F15
    Date: 2006–12–01
  7. By: Thilo W. Glebe (Environmental Economics and Agricultural Policy Group, Technical University of Munich)
    Abstract: This paper analyses how the enlargement of a trade bloc will affect national welfare. We establish a partial equilibrium model of a trade bloc either operating as a monopoly with a competitive fringe or facing a duopolistic game in production taxes/subsidies. Given this framework, we demonstrate how member countries' welfare effects depend on their trade flow and the market power of the trade bloc. A numerical estimation of the effects of EU enlargement on the major grain corp marktets suggests that welfare effects are negliglible. Economic reasons are therefore unlikely to be a motivating force for further enlargement.
    Keywords: trade bloc, trade liberalisation, game theory, European Union
    Date: 2006–02
  8. By: Carlo Vittorio FIORIO; Massimo FLORIO; Silvia SALINI
    Abstract: The research question addressed by this paper is a simple one: are European consumers happy with the services provided by the utilities after two decades of reforms? We focus on electricity, gas, water, telephone in the EU 15 Member States. The variables we analyse are consumers’ satisfaction with accessibility, price, and quality, as reported in three waves of Eurobarometer survey, 2000-2002-2004 , comprising around 47,000 observations. We use ordered logit models to analyze the impact of privatization and regulatory reforms, controlling for individual and country characteristics. Our results do not support a systematic association between consumers’ satisfaction and the standard reform package of privatization, vertical disintegration, liberalization
    Keywords: Consumers’ satisfaction, gas, electricity, telephone, water, Eurobarometer
    JEL: L94 L95 L96 L50
    Date: 2007–02
  9. By: Dirk Pilat; Agnès Cimper; Karsten Bjerring Olsen; Colin Webb
    Abstract: This paper provides empirical evidence on the changing nature of manufacturing in OECD countries, including the continued loss of employment in the manufacturing. It examines the extent to which manufacturing output and employment are declining in OECD countries and explores possible causes, including increased productivity, slow growth in demand for manufacturing products, loss of markets to imports, statistical and classification issues, and so on. The paper finds that the share of manufacturing in OECD economies is declining and argues that this is likely to continue. It also presents...
    Date: 2006–10–27
  10. By: Eckhard Hein (IMK at the Hans Boeckler Foundation); Lena Vogel (University of Hamburg (Student))
    Abstract: The authors analyse the relationship between functional income distribution and economic growth in Austria, France, Germany, the Netherlands, the UK and the USA from 1960 until 2005. The analysis is based on a demand-driven distribution and growth model for an open economy inspired by Bhaduri/Marglin (1990), which allows for profit- or wage-led growth. We find that growth in France, Germany, the UK, and the USA has been wage-led, whereas Austria and the Netherlands have been profit-led. In the case of Austria a domestically wage-led economy is turned profit-led when including the effect of distribution on external trade. The Netherlands, however, are already profit-led without external trade. Our results so far only partially confirm Bhaduri/Marglin's (1990) theoretical conclusion that wage-led growth becomes less feasible when the effects of distribution on foreign trade are taken into account. We conclude that following a strategy of profit-led growth via the net export channel, and therefore relying on a kind of 'beggar thy neighbour' policy, is not only harmful for the trading partners and hence for the world economy in the long run, but also for the wage-led countries pursuing such a strategy in the short run.
    Keywords: Distribution, growth, demand-led accumulation regimes
    JEL: E12 E21 E22 E23 E25
    Date: 2007–01
  11. By: Ammermüller, Andreas; Pischke, Jörn-Steffen
    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.
    Date: 2006
  12. By: Thilo W. Glebe (Environmental Economics and Agricultural Policy Group, Technical University of Munich); Klaus Salhofer (Environmental Economics and Agricultural Policy Group, Technical University of Munich)
    Abstract: The share of agricultural area enrolled in EU agri-environmental programs varies significantly between EU member states. These national differences are explained, based on a model that reflects both, that these programs internalize externalities and the political decision making process. We identify six factors which affect the extent to which agri-environmental programs are implemented: environmental benefits, opportunity costs of participation, budgetary pressure, the share of program expenditures financed by the EU, the political weight attributed to farmers at the national, and the political influence of each country at the EU level. In addition, we demonstrate that if the policy decision making process is non-cooperatively at the EU level, countries which contribute less to the EU budget will ceteris paribus implement more programs. Using data for four years and feasible Generalised Least Square methods we are able to confirm our theoretical results and a non-cooperative behavior of EU member states.
    Keywords: agricultural policy, agri-environmental programs, European Union
    JEL: H23 Q18 C7
    Date: 2006–04
  13. By: Böhringer, Christoph; Koschel, Henrike; Moslener, Ulf
    Abstract: Energy markets and energy-intensive industries in all EU member states – especially in Germany – are subject to a diverse set of policies related to climate change. We analyse the potential efficiency losses from simultaneous application of emission taxes and emissions trading in qualitative and quantitative terms within a partial equilibrium framework for the EU. It turns out that those firms within the EU Emissions Trading Scheme (EU ETS) which at the same time are subject to domestic energy or carbon taxes will abate inefficiently much while other firms within the EU ETS will benefit from lower international emission permit prices. The same logic disproves the argument that additional national emission taxes will reduce inefficiencies in abatement supposed to be resulting from allowance (over-) allocation. In essence, unilateral emission taxes within the EU ETS are ecologically ineffective and subsidise net permit buyers. Thus, all firms that are subject to emissions trading and any CO2 emission taxes at the same time should be exempt from the latter. The foregone tax revenue could be generated by auctioning a small fraction of the permits instead. This would be cheaper for the emissions trading sectors as a whole and could be compatible even with the tight auctioning restrictions of the EU directive.
    Keywords: emissions trading, emission taxes, National Allocation Plans
    JEL: D61 H21 H22 Q58
    Date: 2006
  14. By: Grasso, Marco; Canova, Luciano
    Abstract: This article carries out a multidimensional analysis of welfare based on the social indicators approach aimed at assessing the quality of life in the 25 member countries of the European Union. It begins with description of the social indicators approach and provides some specifications on its most controversial points. It then specifies the principles on which the social indicators were selected, describes the indicators chosen, and details the methodology employed in the empirical analysis. Its results are subsequently explained, in terms of both quality of life as measured by the general and the partial Quality Of Life (QOL) Indexes, and their correlations with the two indicators commonly employed in the EU context for welfare analyses - GDP per capita and Unemployment Rate. The article also reports further information obtained by plotting the QOL Index against GDP per capita, the Unemployment Rate, and an indicator of subjective well-being.
    Keywords: quality of life; social indicators; welfare
    JEL: I31
    Date: 2007–03
  15. By: Frédéric Gonand; Isabelle Joumard; Robert Price
    Abstract: This paper presents composite indicators of the institutional and policy characteristics of educational systems, collated from the questionnaire responses of 26 Member countries. These indicators provide an overview of the institutional framework in the primary and secondary education sector and are constructed so as to be used for the analysis of international differences in spending efficiency. The key features of the institutional setting in the non-tertiary education sector are grouped under three headings: i) the ability to prioritise and allocate resources efficiently (through decentralisation and mechanisms matching resources to specific needs); ii) the efficiency in managing spending at the local level (through outcome-focused policies and managerial autonomy), and iii) the efficiency in service provision (through benchmarking and user choice). For each country, an intermediate indicator is computed for each of these six institutional properties. Composite indicators then combine the six intermediate indicators of spending efficiency into a single, aggregate measure. Results are presented and some of their implications are discussed. Overall, the characteristics of the institutional framework in the non-tertiary public education sector seem to be very favourable, compared to OECD average, in the United Kingdom, Australia, Norway, Denmark and the Netherlands, whereas results are less favourable for the Czech Republic, Greece, Luxembourg, Japan, Turkey, Hungary, Belgium (French speaking community), Switzerland and Austria. <P>Efficacité de la dépense publique : indicateurs institutionnels dans le secteur de l'éducation primaire et secondaire <BR>Ce document de travail présente sous forme d'indicateurs quantitatifs les réponses de 26 pays membres de l'OCDE à un questionnaire portant sur l'organisation institutionnelle du secteur public de l'éducation primaire et secondaire. Les indicateurs fournissent une vue d'ensemble des caractéristiques institutionnelles susceptibles de contribuer aux différences d'efficacité de la dépense publique entre les pays dans le secteur éducatif. Les caractéristiques institutionnelles prises en compte sont regroupées autour de trois dimensions : i) la capacité à allouer efficacement les ressources consacrées à l'éducation publique (décentralisation, prise en compte de besoins spécifiques), ii) l'efficacité de la gestion au niveau local (fixations d'objectifs, autonomie des écoles), et iii) l'efficacité de la fourniture de service éducatif au niveau local grâce à des mécanismes de marché (évaluation des performances, rôle du choix de l'usager). Pour chaque pays, un indicateur intermédiaire est calculé pour chacune de ces six caractéristiques institutionnelles. Un indicateur composite est alors construit qui fournit une mesure synthétique de la qualité des institutions du secteur public de l'éducation au regard de leur capacité à renforcer l'efficacité de la dépense publique. Les résultats montrent en particulier que les institutions éducatives sont relativement favorables à l'efficacité de la dépense publique au Royaume-Uni, en Australie, en Norvège, au Danemark et aux Pays-Bas ; et relativement défavorables en République Tchèque, en Grèce, au Luxembourg, au Japon, en Turquie, en Hongrie, en Belgique (communauté francophone), en Suisse et en Autriche.
    Keywords: user choice, choix de l'usager, decentralisation, décentralisation, benchmarks, Public education, Institutional indicators, Public spending efficiency, Outcome-focused public policies, Managerial autonomy in the public sector, Education nationale, Indicateurs institutionnels, Efficacité de la dépense publique, Evaluation des performances, Management par objectif
    JEL: H11 H77 H83 I20 I28
    Date: 2007–01–30
  16. By: Sabine Stephan (IMK at the Hans Boeckler Foundation)
    Abstract: This paper analyses the determinants of German exports to the euro area, which is by far the biggest market for German products. Four conditional error-correction models based on regionally disaggregated data are developed. One specification includes EMU industrial production and a real external value based on consumer prices, the other three use different EMU investment aggregates, the corresponding real external values and a proxy for European market integration to explain exports. The models perform equally well in a number of diagnostic tests. For short-term forecasts, however, the model using industrial production seems to be the best, since it outperforms the other models in terms of one-step ahead out-of-sample forecasts. Furthermore, the explanatory variables of this equation (industrial production and consumer prices) are easier to forecast than investment aggregates and the corresponding prices.
    Keywords: Export Function, Income and Price Elasticity of Exports, Intra-EMU Trade, Error Correction Model, Forecasting
    JEL: C22 C52 F47
    Date: 2005–09
  17. By: Köhler, Matthias; Hommel, Judith; Grote, Matthias
    Abstract: The paper empirically investigates the monetary transmission mechanism in the Baltic States. The analysis of the transmission channels through which monetary policy shocks are transmitted is particularly important for the European Central Bank that makes monetary policy in an enlarged European Monetary Union. The paper focuses on the bank lending channel of monetary transmission due to the importance of banks in the financial system of the Baltic countries. The existence of this transmission channel is tested by using a panel structural approach that distinguishes banks according to size, capitalization, liquidity and ownership structure. The results indicate that a bank lending channel is present in the Baltic States and mainly caused by differences in liquidity.
    Keywords: Monetary Transmission, Bank Lending Channel, Transition Countries
    JEL: E43 E44 G15 G21
    Date: 2006
  18. By: Beckmann, Daniela; Lütje, Torben; Rebeggiani, Luca
    Abstract: This paper offers new insights into the Italian mutual fund industry. Surveying Italian professionals, we do not only reveal typical gender differences but also detect divergence to their German counterparts. While disclosing Italian professionals’ overly positive self-assessment in general, we find evidence for male overconfidence in particular though without being accompanied by excessive control illusion of the own information level. Asset managers’ risk taking reveals further differences: Italian female professionals do not only assess themselves as more risk averse than their male colleagues, they also prefer a more passive portfolio management compared to the level they are allowed to. Moreover, in a tournament scenario near the end of the investment period female asset managers do not try to become the ultimate top performer when they have outperformed their peer group so far. However, in case of underperformance, the risk of deviating from the benchmark makes especially female professionals willing to seize a chance of catching up. Overall, compared to their German counterparts, we find Italian asset managers to be slightly more risk averse. Matching bounded former results on Italian mutual funds, we discuss interdependencies as well as impact of our findings at the individual asset managers’ level on trading activity, management style and performance.
    Keywords: Institutional investors, Gender, Overconfidence, Risk taking, Tournament behavior
    JEL: G23 G14 J16
    Date: 2007–02
  19. By: Gernandt, Johannes; Pfeiffer, Friedhelm
    Abstract: This paper investigates the evolution of wages and the recent tendency to rising wage inequality in Germany, based on the German Socio-Economic Panel (GSOEP) for 1984 to 2004. Between 1984 and 1994 the wage distribution was fairly stable. Wage inequality started to increase around 1994 in Germany for all workers and for prime age dependent male workers as well. Rising inequality is not the result of the recent rise in self-employment. In West Germany rising inequality occurred in the lower part of the wage distribution, in East Germany in the upper part of the wage distribution. While residual wage inequality accounted for two-thirds of rising wage inequality in West Germany, in East Germany price effects dominated. In West Germany the group of workers with low tenure experienced higher inequality.
    Keywords: Education, tenure, skill composition, wage inequality, wage rigidity
    JEL: J21 J24 J31
    Date: 2006
  20. By: Boeters, Stefan; Böhringer, Christoph; Büttner, Thiess; Kraus, Margit
    Abstract: In the tax policy debate, differentiation of value-added taxes is often justified by distributional concerns. Our quantitative analysis for Germany indicates that such concerns are misplaced. We find that the abolition of VAT differentiation has only negligible redistributive effects. Instead, reduced VAT are found to act as industry-specific subsidies. Whereas the overall welfare effects of pure VAT reforms are very small, a revenue-neutral introduction of a harmonised VAT combined with reductions in the marginal income tax rates or social security contributions turns out to produce substantial welfare gains for all households.
    Keywords: VAT, tax reforms, distribution, efficiency, applied general equilibrium
    JEL: D58 H22 H24
    Date: 2006
  21. By: Marianna Brunetti; Costanza Torricelli
    Abstract: This paper contributes to the ongoing debate on the relationship between asset returns and age-structure by investigating the case of Italy, which is experiencing one of the most pronounced ageing in the world. To this end, time-series regressions are run, in which real returns on different financial assets (stocks, long- and short-term government bonds) are used as dependent variables. The dataset contains annual observations spanning over the period 1958-2004. First, as in Poterba (2001, 2004) only demographic variables are used as explanatory ones. Then, following Davis and Li (2003) the regression specifications are completed with a set of financial variables which have finance-theoretical underpinnings. Results point towards a major effect of demographic dynamics on financial asset returns which appear significantly higher in magnitude than what Poterba (2001, 2004) and Davis and Li (2003) report for US, especially in the stock market.
    Keywords: population ageing, financial returns, stocks, bonds
    JEL: D91 G12 J11
    Date: 2007–01
  22. By: Gustav Horn (IMK at the Hans Boeckler Foundation); Camille Logeay (IMK at the Hans Boeckler Foundation); Silke Tober (IMK at the Hans Boeckler Foundation)
    Abstract: Potential output measures a country's attainable aggregate living standard and is thus one of the most important categories of economics. It is also a key indicator for monetary and fiscal policy. Despite its prominence, however, potential output is a difficult concept to pinpoint both theoretically and even more so empirically. The article discusses the reasons for the marked revisions of potential output estimates by major international organisations. The authors then present the results of our attempts to quantify Germany's potential output based on a production function approach coupled with the Kalman-filter technique to estimate the NAIRU. The authors find that potential output and potential output growth greatly depend on how the NAIRU and potential total factor productivity are modelled. Given the difficulties involved in robustly estimating potential output, especially in real time, economic policy makers need to learn to pursue their policy objectives without reference to this variable.
    Keywords: Potential Output, Nairu, Kalman-filter, revisions
    JEL: C5 E32 E52 O11
    Date: 2007–01
  23. By: John Creedy; Norman Gemmell
    Abstract: This paper examines the built-in flexibility properties — as measured by the elasticity of revenue with respect to profits — of the UK corporation tax system. Emphasis is placed on determining some of the major influences on the extent to which total corporation tax revenue changes when profits change over the economic cycle. A microsimulation model, CorpSim, is constructed and used to obtain numerical results. In the model, corporations use group relief, capital allowances and losses in a tax-minimising manner. The growth of aggregate corporation tax revenue in practice in the UK appears to be highly volatile in relation to the growth of profits. High volatility in revenue elasticities is found to be especially associated with economic downturns. In mild economic downturns, corporation tax revenue elasticities may rise (because tax growth falls less than profit growth), but in more severe downturns, large but temporary decreases in revenue elasticities (and even negative elasticities) can be expected.
    Date: 2007

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