nep-eec New Economics Papers
on European Economics
Issue of 2007‒03‒24
23 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. IN GOOD TIMES AND BAD: LEGAL TRANSPOSITION IN THE EUROPEAN UNION. Assessing correlational and necessary/sufficient causation. By Michael Kaeding
  2. Inflation and Growth in the Euro Zone By Dino Martellato
  4. Gradualism, Transparency and Improved Operational Framework: A Look at the Overnight Volatility Transmission By Silvio Colarossi; Andrea Zaghini
  5. The Allocation of European Union Allowances: Lessons, Unifying Themes and General Principles By Carlo Carraro; Barbara Buchner; Denny Ellerman
  6. Is core money growth a good and stable inflation predictor in the euro area? By Kai Carstensen
  7. WP. n. 73 Undermining The Principle Of Concentration? Eu Development Policies And The Socio-Economic Disadvantage Of European Regions By Riccardo Crescenzi
  8. Lowering blood alcohol content levels to save lives: A European case study By Daniel Albalate
  9. How Does Demography affect Long-Term Care Expenditures Projections? By Adelina Comas-Herrera; Alessandra di Maio; Alessandro Pozzi; Concepció Patxot; Cristiano Gori; Heinz Rothgang; Joan Costa i Font; Linda Pickard; Raphael Wittenberg
  10. Overeducation and Wages in Europe: Evidence from Quantile Regression By Ana I Moro-Egido; Santiago Budría
  11. Network Effects in R&D Partnership Evidence from the European Collaborations in Micro and Nanotechnologies By Corinne Autant-Bernard; Pascal Billand; Christophe Bravard; Nadine Massard
  12. The Principles of European Tort Law: The Right Path to Harmonisation? By Roger Van den Bergh; Louis Visscher
  13. Residential Mobility and Labor Market Transitions: Relative Effects of Housing Tenure, Satisfaction and Other Variables By Namkee Ahn; Maite Blázquez
  14. Statut résidentiel et durée de chômage : une comparaison microéconométrique entre la Grande-Bretagne et la France By Carole Brunet; Andrew Clark; Jean-Yves Lesueur
  15. Estimating the Equilibrium Effective Exchange Rate for Potential EMU members By Nikolaos Giannellis; Athanasios Papadopoulos
  16. Reforming Federalism German Style - A First Step in the Right Direction By Thomas Döring; Stefan Voigt
  17. The Impact of the Recent Migration from Eastern Europe on the UK Economy* By David G. Blanchflower; Jumana Saleheen; Chris Shadforth
  18. The German Social Long-Term Care Insurance: Structure and Reform Options By Melanie Arntz; Ralf Sacchetto; Alexander Spermann; Susanne Steffes; Sarah Widmaier
  19. What Explains Germany's Rebounding Export Market Share? By Frederick L. Joutz; Stephan Danninger
  20. House prices and real interest rates in Spain By Juan Ayuso; Roberto Blanco; Fernando Restoy
  21. Benefit-Entitlement Effects and the Duration of Unemployment : An Ex-ante Evaluation of Recent Labour Market Reforms in Germany By Hendrik Schmitz; Viktor Steiner
  22. Notional Defined Contribution Accounts (NDCs): Solvency and Risk; Application to the Case of Spain By Carlos Vidal-Meliá; Inmaculada Domínguez-Fabián; María del Carmen Boado-Penas
  23. Moral hazard among the sick and unemployed: evidence from a Swedish social insurance reform By Larsson, Laura; Runeson, Caroline

  1. By: Michael Kaeding (Leiden University)
    Abstract: Using methods for assessing both correlational causation and necessary/sufficient causation, this article addresses a fundamental puzzle confronting those who seek to understand one important part of the EU policy cycle, namely to explain why member states of the EU differ in their transposition records of EU legislation. Exploring a rationalist framework to assess the transposition problematic in the EU the article treats theoretically and empirically determinants of transposition termination and duration. Using a comprehensive data set on large-scale transposition records in 9 member states (Germany, the UK, France, Italy, Spain, Greece, Ireland, the Netherlands and Sweden) covering the 1995-2004 period, they are tested by means of ordered multinomial logistic and hazard function regressions. Drawing on existing research and knowledge, calibrated measures further improve our understanding of widely acknowledged notions of necessary and sufficient conditions.
    Keywords: European Union, transposition, directives, fuzzy set, mixed methods,
    JEL: O19
  2. By: Dino Martellato (Department of Economics, University Of Venice Ca’ Foscari)
    Abstract: Although euro area-wide inflation was from 1999 to 2005 almost right, i.e. “close to balance, but below 2%”, and although it combined with real growth as predicted by the long-run money demand equation in the euro area, the picture that emerges at country level is more scattered. Inside a monetary union, inflation divergences could be destabilizing and an excessive dispersion could be a problem, thus the scattered performance of the single members in terms of HICP inflation and real growth is an issue that the euro area governance is illprepared to manage. It may be of interest, therefore, to understand whether observed differences come from the money market or from the costs side or from the interaction between supply and demand when agents are forward looking. The paper sets out to ascertain whether the patterns of inflation and growth data observed in the twelve members and Slovenia compare to what is predicted by the long-run money demand equation in the euro area, the Balassa-Samuelson construct or the New Keynesian model.
    Keywords: Inflation, stability, euro zone
    JEL: E12 E41 E52 E63
    Date: 2006
  3. By: Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: The European Commission and a number of its Member States have adopted a stringent long-term target for climate policy, namely that the global mean temperature should not rise more than 2°C above pre-industrial times. This target is supported by rather thin arguments, based on inadequate methods, sloppy reasoning, and selective citation. In the scientific literature on “dangerous interference with the climate system”, most studies discuss either methodological issues, or carefully lay out the arguments for or against a particular target. These studies do not make specific recommendations, with the exception of cost-benefit analyses which argue for less stringent policy targets. However, there are also a few studies that recommend a target without the supporting argumentation. Overall, the 2°C target of the EU seems unfounded.
    Keywords: Climate policy, Article 2, dangerous interference, European Union
    Date: 2005–09
  4. By: Silvio Colarossi (Banca d'Italia); Andrea Zaghini (Banca d'Italia and CFS)
    Abstract: This paper proposes a possible way of assessing the effect of interest rate dynamics on changes in the decision-making approach, communication strategy and operational framework of a Central bank. Through a GARCH specification we show that the USA and Euro area displayed a limited but significant spillover of volatility from money market to longer-term rates. We then checked the stability of this phenomenon in the most recent period of improved policymaking and found empirical evidence that the transmission of overnight volatility along the yield curve vanished soon after specific policy changes of the FED and ECB.
    Keywords: Monetary Policy, Yield Curve, GARCH
    JEL: E4 E5 G1
    Date: 2007–03–09
  5. By: Carlo Carraro (Department of Economics, University Of Venice Ca’ Foscari); Barbara Buchner (Fondazione Eni Enrico Mattei); Denny Ellerman (Senior Lecturer at MIT)
    Abstract: This paper is the concluding chapter of Rights, Rents and Fairness: Allocation in the European Emissions Trading Scheme, edited by the co-authors and forthcoming from Cambridge University Press. The main objective of this paper is to distill the lessons and general principles to be learnt from the allocation of allowances in the European Union Emission Trading Scheme (EU ETS), i.e. in the world’s first experience with allocating carbon allowances to sub-national entities. We discuss the lessons that emerge from this experience and make some comments on what seem to be more general principles informing the allocation process and on what are the global implications of the EU ETS. As has become obvious during the first allocation phase, the diversity of experience among the Member States is considerable, so that it must be understood that these lessons and unifying themes are drawn from the experience of most of the Member States, not necessarily from all. Lessons and unifying observations are grouped in three categories: those concerning the conditions encountered, the processes employed, and the actual choices.
    Keywords: Climate Change, Emission Trading, Allocation, Fairness, EU Policy
    JEL: C72 H23 Q25 Q28
    Date: 2006
  6. By: Kai Carstensen
    Abstract: In this paper, it is analyzed whether core money growth helps to predict future inflation in a useful and reliable way. Using an out-of-sample forecasting exercise and a stability analysis, it is shown that core money growth carries important information not contained in the inflation history, that its inclusion in a forecasting model can increase the forecasting accuracy, and that it has had a strong and stable long-run link to inflation over the last decades. A particularly promising forecasting model at all horizons is the one proposed by Gerlach (2004) that includes the inflation gap, the difference between core money growth and core inflation, and the output gap. This model has a very good track record, exhibits stable parameters over both the pre-EMU and the EMU era. What makes it appealing from a more theoretical perspective is that it relies on the stable long-run relationship between money growth and inflation.
    Keywords: Forecasting, core money growth, stability, filter
    JEL: E47 E58
    Date: 2007–02
  7. By: Riccardo Crescenzi
    Abstract: A number of empirical analyses has found evidence that the impact of the EU structural funds on the growth performance of assisted regions is comparatively weak and has failed to promote the objective of economic and social cohesion. This literature explains this lack of convergence in terms of the policies implemented, which, from this perspective, should be considered as social (or redistributive) rather than as development policies. This paper puts forward a different explanation for the failure to deliver the expected cohesion, namely that the distribution of the funds to the regions may have been à priori distorted by either political equilibriums or inaccurate assumptions over the most cost-effective allocation of the funds. As a consequence the principle of concentration has been undermined, as, among the poorest regions in the EU there is little correlation between expenditure and socio-economic disadvantage. In order to assess this potential explanation the geographical distribution of both sources of socio-economic disadvantage and the regional allocation of structural funds are compared, by means of a Heckman two-step selection model. The results show that the sources of disadvantage are more spatially concentrated than the funds devoted to compensating such disadvantage and uncover a weak association between structural disadvantage and EU funding. Consequently, structural policies could prove helpful to promote development in the EU’s lagging regions provided that the necessary corrections are introduced in their allocation mechanism in order to increase the geographical concentration of the funds and by more adequately earmarking the available resources to the most disadvantaged regions, which the analysis indicates as having the best potential for convergence.
    Keywords: Regional Policy, Regional development, socio-economic
    JEL: C24 O18 R11 R58
    Date: 2007–03
  8. By: Daniel Albalate (Universitat de Barcelona)
    Abstract: Road safety has become an increasing concern in developed countries due to the significant amount of fatalities and the associated economic losses. Only in 2005 these losses rose to 200,000 million euros, a considerable sum approximately 2% of GDP that easily justifies any public intervention. One measure taken by governments to address this issue is to enact stricter policies and regulations. Since drunk driving is one of the greatest concerns among public authorities in this field, several European countries have lowered their illegal Blood Alcohol Content (BAC) levels to 0.5 mg/ml during the last decade. This study is the first evaluation of the effectiveness of this transition using European panel-based data (CARE) for the period 1991-2003 with the differences-in-differences method in a fixed effects estimation that allows for any pattern of correlation (Cluster-Robust). The results reveal a positive impact on certain groups of road users and on the whole population when the policy is accompanied by enforcement interventions. Moreover, positive results appeared after a time lag of over two years. Finally, I state the importance of controlling for serial correlation in the evaluation of this type of policy.
    Keywords: drunk driving;, road safety;, differences-in-differences;, policy evaluation;, illegal blood alcohol content levels (bac)
    JEL: K32 R41 H73 I18
    Date: 2007
  9. By: Adelina Comas-Herrera; Alessandra di Maio; Alessandro Pozzi; Concepció Patxot; Cristiano Gori; Heinz Rothgang; Joan Costa i Font; Linda Pickard; Raphael Wittenberg
    Abstract: This study examines the sensitivity of future long-term-care demand and expenditure estimates to "official" demographic projections in four selected European countries: Germany, Spain, Italy and the United Kingdom. It uses standardised methodology in the form of a macro-simulation exercise and finds evidence for significant differences in assumptions about demographic change and its effect on the demand for long-term care, and on relative and absolute long-term care expenditure. It concludes that mortality-rate assumptions can have a considerable influence on welfare policy planning. Relative dispersion between country-specific and Eurostat official estimates was found to be higher for the United Kingdom and Germany than for Italy and Spain, suggesting that demographic projections had a greater influence in those countries.
  10. By: Ana I Moro-Egido; Santiago Budría
    Abstract: The overeducation literature has typically assumed that the effect of overeducation on wages is constant across the conditional wage distribution. In this paper we use quantile regression and data from 12 European countries to show that differences across segments of the distribution are indeed large. Moreover, we investigate to what extent overeducation is related to (the lack of) unobserved skills. By differentiating between segments of the distribution, we discriminate between groups of workers with different skills. We find that the detrimental effects of overeducation among the high-skilled are even larger than among the low-skilled. This finding lends support to the view that overeducation is an event that reduces the worker’s potential productivity, regardless of his skills.
  11. By: Corinne Autant-Bernard (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne]); Pascal Billand (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne]); Christophe Bravard (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne]); Nadine Massard (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne])
    Abstract: Based on the research projects submitted to the 6th Framework Program of the European Union, this paper studies cooperative networks in micro and nanotechnologies. Our objective is twofold. First, using the statistical tools of the social network analysis, we characterise the structure of the R&D collaborations established between firms. Second, we investigate the determinants of this structure, by analysing the individual choices of cooperation. A binary choice model is used to put forward the existence of network effects alongside other microeconomic determinants of cooperation. Our findings suggest that network effects are present, so that probability of collaboration is influenced by each individual's position within the network. It seems that social distance matters more than geographical distance. We also provide some evidence that similar firms (in terms of research potential) are more likely to collaborate together
    Keywords: Network formation; R&D collaboration; Knowledge externalities; nanotechnologies
    Date: 2007–03–19
  12. By: Roger Van den Bergh (Erasmus University Rotterdam); Louis Visscher (Erasmus University Rotterdam)
    Abstract: The goal of the Principles of European Tort Law is to serve as a basis for the enhancement and harmonisation of tort law in Europe. This paper takes a critical look at these Principles from a Law and Economics perspective. The first part of the paper questions the traditional arguments in favour of harmonisation, such as the need to achieve a 'level playing field' for industry and the reduction of legal uncertainty which may hinder cross-border trade. There are several economic arguments in favour of diverging tort laws: the possibility to satisfy heterogeneous preferences and the learning processes generated by competition between legal orders. Economic arguments in favour of harmonisation are weak. There is no need for central rules to internalise externalities; a race to the bottom is unlikely and the amount of transaction cost savings may be low. The second part of the paper examines whether the Principles may contribute to 'better' tort law. Large parts of the Principles, such as the fault standard and some of the rules on causation, are in conformity with economic insights. According to Article 10:101, damages serve the goal of compensation but also the aim of preventing harm. However, it is shown that several provisions of the Principles are not in conformity with the goal of prevention. The analysis focuses on the limitation of damages to normal losses, the different levels of protection in function of the nature of the safeguarded interests, the narrow strict liability rule for harm caused by abnormally dangerous activities and rules for assessing damages. The concluding remarks provide an overall assessment of the Principles for the future development of tort law in Europe.
  13. By: Namkee Ahn; Maite Blázquez
    Abstract: This paper undertakes an investigation of the relationship between housing tenure, residential mobility and job mobility. The analysis is done for Spain, France and Denmark, using data from the European Community Household Panel (ECHP, 1995-2001). The econometric technique consists of a bivariate probit model that allows us to account for the simultaneity of behaviors in housing and labor markets. Our results confirm the Oswald hypothesis only in the case of Denmark, where homeowners are found to be less mobile on the labor market. In contrast, the effect of homeownership on job mobility is small in France and no effect is shown in Spain. Finally, our results reveal that, in all countries, mobility is satisfaction driven: Those less satisfied in their job (housing) are more likely to change job (house), and lower satisfaction in commuting time increases job mobility but not residential mobility.
  14. By: Carole Brunet (GATE CNRS); Andrew Clark (DELTA CNRS); Jean-Yves Lesueur (GATE CNRS)
    Abstract: The objective of this paper is to provide microeconomic evidence for the so called “Oswald’s hypothesis”, which is whether homeownership results in negative outcomes in the labour market. To estimate this effect we use two data base, comparing results from British Household Permanent Survey and French part of European Household Panel Survey. In a first step, a multinomial logit model for the choice of tenure status is estimated. Estimated probabilities of being either homeowner, public or private renter are then used to explain the length of an individual unemployment spell. This flexible method of estimation accounts for both censoring and selection bias, without constraining the shape of the hazard rate of leaving unemployment. Results suggested strong differences between French and British household behaviour. Home-ownership has a positive effect on unemployment duration in France but no significant effect is detected in Britain. However we find a positive impact of public renters on unemployment duration in Britain. These stylised facts seems to confirm the existence of a real spillover effect between labour market and housing market
    Keywords: unemployment duration, mobility, residential status
    JEL: C41 J6 R21
    Date: 2006–11
  15. By: Nikolaos Giannellis (Department of Economics, University of Crete, Greece); Athanasios Papadopoulos (Department of Economics, University of Crete, Greece)
    Abstract: In this study, we attempt to examine the possibility of emergence of significant fluctuations of the exchange rates in the future for the candidate EMU countries. In doing so, we estimate the equilibrium rate of the nominal effective exchange rate for Poland, Hungary, Slovak Republic and Malta through the BEER and PEER approaches. While the PEER-based estimation implies a large misalignment rate for the Hungarian forint, the BEER-based analysis shows that the present exchange rates of the countries considered do not deviate significantly from their equilibrium rates. As a consequence, based on BEER analysis, we do not expect large fluctuations in the effective exchange rates among the currencies considered. Hence, the relevant effective exchange rates are expected to be relatively stable. As a matter of fact, the entry of those countries into EMU is not expected to weaken the stability of Euro.
    Keywords: Exchange rate - cointegration - BEER - PEER
    JEL: C32 C51 C52 E52
    Date: 2005–12–01
  16. By: Thomas Döring (University of Kassel); Stefan Voigt (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.
    Keywords: German Federalism Reform, Fiscal Federalism,
  17. By: David G. Blanchflower (Dartmouth College, NBER, Bank of England and IZA); Jumana Saleheen (Bank of England); Chris Shadforth (Bank of England)
    Abstract: UK population growth over the last thirty-five years has been remarkably low in comparison with other countries; the population grew by just 7% between 1971 and 2004, less than all the other EU15 countries except Germany. The UK population has grown at a faster pace since the turn of the millennium driven primarily by changes in net migration, and in particular from an influx of migrants from eight East European (A8) countries. There appears to be consistent evidence from the Worker Registration Scheme and National Insurance Number applications that approximately 500,000 migrants from the A8 countries had come to work in the UK between May 2004 and late 2006. But other sources suggest approximately half of these workers have likely returned to their country of origin. We argue that, at present, it appears that A8 immigration has tended to increase supply by more than it has increased demand in the UK (in the short run). This migration flow, we argue, has acted to reduce inflationary pressures and to lower the natural rate of unemployment.
    Keywords: migration, UK
    JEL: J61 J11 J21
    Date: 2007–02
  18. By: Melanie Arntz (ZEW Mannheim); Ralf Sacchetto (ZEW Mannheim); Alexander Spermann (ZEW Mannheim, University of Freiburg and IZA Bonn); Susanne Steffes (ZEW Mannheim); Sarah Widmaier (ZEW Mannheim)
    Abstract: Regarding social needs in Germany long-term care is an important issue due to an ageing population. Shrinking social networks are leading to a greater need for a public long-term care system. In 1995 the social long-term care insurance was introduced in Germany. In recent years some drawbacks of the social long-term care insurance structure turned out to be in need of reform: While health insurance is a fully comprehensive system, long-term care insurance only provides limited cover. Therefore, insurance funds have an incentive to shift some services from health care to long-term care insurance. Additionally, there is no free competition on the long-term care market because care packages included in the in-kind transfers are negotiated (with respect to services and prices) between insurance funds and professional care providers. Finally, the financial situation of the German social long-term care insurance is tight. While in the first years after introduction the net results of revenues and expenditures were positive they have been negative since 1999 which is due to an increasing number of benefit recipients. Therefore, we discuss several reform options which have been proposed in order to overcome the financial and structural problems. Suggestions for the income side include the introduction of fixed premiums, a fully funded system, a private insurance, or a citizens’ insurance. The introduction of individual budgets is the most popular option for the outcome side. A social experiment is under way in order to evaluate the impact of so-called matching transfers.
    Keywords: long-term care, cash transfers, in-kind transfers, social experiments
    JEL: I10 I12 I18
    Date: 2007–02
  19. By: Frederick L. Joutz; Stephan Danninger
    Abstract: Germany's export market share increased since 2000, while most industrial countries experienced declines. This study explores four explanations and evaluates their empirical contributions: (i) improved cost competitiveness, (ii) ties to fast growing trading partners, (iii) increased demand for capital goods, and (iv) regionalized production of goods (e.g. offshoring). An export model is estimated covering the period 1993-2005. The dominant factors explaining the increase in market share are trade relationships with fast growing countries and regionalized production in the export sector. Improved cost competitiveness had a comparatively smaller impact. There is no conclusive evidence of increased demand for capital goods.
    Keywords: International trade , export , Export markets , Germany , International trade , Economic models ,
    Date: 2007–02–06
  20. By: Juan Ayuso (Banco de España); Roberto Blanco (Banco de España); Fernando Restoy (Banco de España)
    Abstract: This paper analyses the contribution of interest rates to explain recent house price developments in Spain trying to reconcile different pieces of evidence. On the one hand, empirical evidence supports the view that interest rates are a key variable to explain house price developments. As a matter of fact, using simple asset pricing relations recent changes in house prices could be fully explained by movements in ex-post real interest rates. However, more refined asset pricing models show that the changes in the discount factor cannot fully explain the recent course of house prices in Spain. To resolve this puzzle we provide evidence that shows that the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.
    Keywords: house prices, real interest rates, intertemporal marginal rate of substitution, stochastic discount factor
    JEL: E43 G12
    Date: 2006–12
  21. By: Hendrik Schmitz; Viktor Steiner
    Abstract: Abstract: We analyse benefit-entitlement effects and the likely impact of the recent reform of the unemployment compensation system on the duration of unemployment in Germany on the basis of a flexible discrete-time hazard rate model estimated on pre-reform data from the German Socioeconomic Panel (SOEP). We find (i) relatively strong benefit-entitlement effects for the unemployed who are eligible to means-tested unemployment assistance after the exhaustion of unemployment benefit, but not for those without such entitlement; (ii) non-monotonic benefit-entitlement effects on hazard rates with pronounce spikes around the month of benefit-exhaustion, and (iii) relatively small marginal effects of the amount of unemployment compensation on the duration of unemployment. Our simulation results show that the recent labour market reform is unlikely to have a major impact on the average duration of unemployment in the population as a whole, but will significantly reduce the level of long-term unemployment among older workers.
    Keywords: unemployment duration, unemployment insurance, benefit-entitlement effects, German labour market reforms, ex-ante evaluation, hazard rate model
    JEL: J64 J65 H31
    Date: 2007
  22. By: Carlos Vidal-Meliá; Inmaculada Domínguez-Fabián; María del Carmen Boado-Penas
    Abstract: The aim of this work is twofold, on the one hand, to demonstrate the actuarial imbalance of the Spanish pension system in its current configuration, and on the other, to measure the aggregate economic risk to which the pensioner would be exposed if it were decided to apply ten formulas for the calculation of the retirement pension based on notional accounts. Given the uncertainty involved in working with a long term horizon, a model of generation of multi-periodic scenarios is used, based on the predictions of mean values of Alonso and Herce (2003) for the period 2006-2050. This provides up to ten thousand trajectories of the macroeconomic indices needed to calculate such parameters as the initial pension, the replacement rate (RR) or the internal rate of return (IRR), and the value-at-risk (VaR) of the pensioner. The results obtained are analyzed in both objective and subjective terms. The main conclusions are that, applying the notional philosophy, the expected average RR and IRR would be much lower than those obtained under the current rules of the pay-as-you-go system. If the projections used were slightly probable, the pension system would build up such a large additional financial imbalance in the future that it would require either a considerable reduction in the initial pension or a severe combination of parameter adjustments. From the risk perspective, the preferred formulas for a beneficiary most averse would be those based on future variations in salaries with a pension constant in real terms, whereas those beneficiaries less averse to risk would prefer formulas supplying a lower initial pension which grows in real terms in line with future variations in salaries.
  23. By: Larsson, Laura (IFAU - Institute for Labour Market Policy Evaluation); Runeson, Caroline (Institute for Labour Market Policy Evaluation)
    Abstract: This paper looks at a specific type of moral hazard that arises in the interplay between two large public insurance systems in Sweden, namely the sickness insurance (SI) and the unemployment insurance (UI). Moral hazard can arise from the benefit size structure as for some unemployed persons, benefits from the SI are higher than benefits from the UI. We use a reform of the SI system that came in force 1 July, 2003, to identify the effect of economic incentives arising from the different benefit sizes. Our results from a duration analysis show clearly that the higher the benefits, the larger the probability of reporting sick.
    Keywords: Unemployment insurance; sickness insurance; health; duration analysis; discrete hazard models
    JEL: C41 H55 I18 J64 J65
    Date: 2007–03–14

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