nep-eec New Economics Papers
on European Economics
Issue of 2007‒07‒13
thirteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Testing similarities of short-run inflation dynamics among EU countries after the Euro By Giulio PALOMBA; Alberto ZAZZARO; Emma SARNO
  2. Structural reforms in EMU and the role of monetary policy – a survey of the literature By Nadine Leiner-Killinger; Víctor López Pérez; Roger Stiegert; Giovanni Vitale
  3. Tacit Collusion, Firm Asymmetries and Numbers: Evidence from EC Merger Cases By Stephen Davies; Matthew Olczak; Heather Coles
  4. Integration of Immigrants in OECD Countries: Do Policies Matter? By Orsetta Causa; Sébastien Jean
  5. The unemployment impact of immigration in OECD countries By Sébastien Jean; Miguel Jimenez
  6. The Function of a European Basic Law: a Question of Legitimacy By Tor-Inge Harbo
  7. Migration in OECD countries: Labour market impact and integration issues By Sébastien Jean; Orsetta Causa; Miguel Jimenez; Isabelle Wanner
  8. Comparative analysis of the exchange market pressure in Central European countries with the Eurozone membership perspective By Stavarek, Daniel
  9. Is a Flat Tax politically feasible in a grown-up Welfare State? By Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
  10. Corporate Governance and Dividend Policy in Poland By Oskar Kowalewski; Ivan Stetsyuk; Oleksandr Talavera
  11. Exports and Productivity in Germany By Joachim Wagner
  12. The Localization of Entrepreneurship Capital - Evidence from Germany By David B. Audretsch; Max Keilbach

  1. By: Giulio PALOMBA ([n.a.]); Alberto ZAZZARO (Universita' Politecnica delle Marche, Dipartimento di Economia); Emma SARNO ([n.a.])
    Abstract: In this paper we introduce new definitions of pairwise and multivariate similarity between short-run dynamics of inflation rates in terms of equality of forecast functions and show that in the context of invertible ARIMA processes the Autoregressive distance introduced by Piccolo (1990) is a useful measure to evaluate such similarity. Then, we study the similarity of shortrun inflation dynamics across EU-15 area countries during the Euro period. Consistent with studies on inflation differentials and inflation persistence, our findings suggest that after seven years from the launch of the Euro the degree of similarity of short-run inflation dynamics across EU countries is still weak.
    Keywords: Euro, autoregressive metric, inflation dynamics
    JEL: C23 E31
    Date: 2007–06
  2. By: Nadine Leiner-Killinger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Víctor López Pérez; Roger Stiegert (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Giovanni Vitale (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: The need for structural reforms in the euro area has often been advocated. These reforms would improve the welfare of euro area citizens and also, as a welcome side-effect, facilitate the conduct of monetary policy. Against this background, a particularly relevant question that can be posed is whether monetary policy should help implement structural reforms. The objective of this paper is to provide a review of the existing literature on structural reforms in Economic and Monetary Union (EMU) and to discuss the possible ways in which monetary policy could support the structural reform process. In the context of EMU, the main conclusions that emerge are that the monetary policy for the euro area is not the appropriate tool for mitigating the potential and uncertain short-term costs of reforms or for providing incentives for structural reforms at the national level. However, credible monetary policy aimed at price stability can improve the functioning of the supply side of the economy and contribute to an environment which is conducive to welfare-enhancing structural changes. In addition, the ECB’s contribution to the implementation of structural reforms takes the form of analysis, assessment and communication.
    Date: 2007–07
  3. By: Stephen Davies (Centre for Competition Policy, University of East Anglia); Matthew Olczak (Centre for Competition Policy, University of East Anglia); Heather Coles
    Abstract: The purpose of this paper is to identify empirically the implicit structural model, especially the roles of size asymmetries and concentration, used by the European Commission to identify mergers with coordinated effects (i.e. collective dominance). Apart from its obvious policy-relevance, the paper is designed to shed empirical light on the condition under which tacit collusion is most likely. We construct a database relating to 62 candidate mergers and find that, in the eyes of the Commission, tacit collusion in this context virtually never involves more than two firms and requires close symmetry in the market shares of the two firms.
    Keywords: Tacit collusion, collective dominance, coordinated effects, European mergers, asymmetries
    JEL: L13 L41
    Date: 2007–03
  4. By: Orsetta Causa; Sébastien Jean
    Abstract: This working paper assesses the ease of immigrants' integration in OECD labour markets by estimating how an immigration background influences the probability of being active or employed and the expected hourly earnings, for given individual characteristics. Applying the same methodology to comparable data across twelve OECD countries, immigrants are shown to significantly lag behind natives in terms of employment and/or wages. The differences narrow as years since settlement elapse, especially as regards wages, reflecting progressive assimilation. Strong differences in immigrant-to-native gaps are also observed across countries, and the paper shows that they may, to a significant extent, be explained by differences in labour market policies, in particular unemployment benefits, the tax wedge and the minimum wage. In addition, immigrants are shown to be overrepresented among outsiders in the labour market and, as such, highly sensitive to the difference in employment protection legislation between temporary and permanent contracts. <P>L’intégration des immigrés dans les pays de l’OCDE : Les politiques sur le marché du travail comptent-elles ? <BR>Ce document de travail évalue la qualité de l’intégration des immigrés sur les marchés du travail des pays de l’OCDE en estimant de quelle façon le statut d’immigré influe sur la probabilité d’être actif ou employé et sur l’espérance de salaire, pour des caractéristiques individuelles données. En appliquant la même méthodologie à des données comparables pour douze pays de l’OCDE, les salaires et de probabilité d’emploi des immigrés s’avèrent significativement en deçà de ceux des autochtones partageant les mêmes caractéristiques. Ces différences s’amenuisent au fur et à mesure des années écoulées depuis l’installation, en particulier concernant les salaires, reflétant un processus d’assimilation progressive. De fortes différences entre immigrés et autochtones sont également observées entre pays et ce travail montre qu’elles peuvent dans une large mesure être expliquées par les différences de politiques sur le marché du travail, en particulier en termes d’allocations chômage, de coin fiscal et de salaire minimum. Les immigrés sont en outre surreprésentés parmi les outsiders sur le marché du travail et sont de ce fait plus sensibles aux différences de législation de protection de l’emploi entre contrats temporaires et permanents.
    Keywords: Aboriginal community
    JEL: J31 J61 J64
    Date: 2007–07–04
  5. By: Sébastien Jean; Miguel Jimenez
    Abstract: This paper assesses the consequences of immigration for natives' unemployment in OECD countries and investigates the role played by product and labour market policies in the economy's adjustment to immigration inflows. The estimations, combining a skill-level and an aggregate approach using data for males, cover eighteen OECD countries over the period 1984-2003. While no significant long-run impact is found, an increase in the share of immigrants in the labour force is estimated to raise temporarily natives' unemployment, over a period of approximately five to ten years. Anticompetitive product market regulations are found to increase both the magnitude and the persistence of this impact, while more stringent employment protection legislation magnifies its persistence, and a higher average replacement rate of unemployment benefits increases its magnitude. <P>L?impact de l?immigration sur le chômage dans les pays de l?OCDE <BR>Ce document de travail évalue les conséquences de l'immigration pour le chômage des autochtones dans les pays de l'OCDE, en s’intéressant particulièrement au rôle joué par les politiques sur les marchés des produits et du travail. Les estimations, combinant une approche par catégorie de qualification et une approche agrégée sur la base de données pour les hommes, couvrent dix-huit pays de l'OCDE sur la période 1984-2003. Aucun impact permanent significatif de la part des immigrés dans la population active sur le niveau de chômage parmi les autochtones n'est trouvé, mais une augmentation de cette part accroît temporairement le chômage des autochtones, pour une période de cinq à dix ans. Les régulations anticoncurrentielles sur le marché des produits augmentent l’ampleur et la persistance de cet impact, une législation plus stricte de protection de l’emploi accroît sa persistance, et un taux de remplacement moyen des allocations chômage plus élevé augmente son ampleur.
    JEL: E24 J61 L43
    Date: 2007–07–04
  6. By: Tor-Inge Harbo
    Abstract: This paper addresses the function of a European basic law. The author argues that if the basis of the original legitimising act of a basic law is weak, or even nonexisting, a need arises for succeeding or continuous legitimising acts. The concept of continuous legitimation implies that the basic law has to be legitimised through the ongoing political consensus formation giving the basic law a dynamic nature. Furthermore, the need for continual legitimation juxtaposed with a dynamic nature of a basic law obstructs the idea of a disabling function of a basic law. The author concludes that the dynamic nature of the European basic law and its corresponding concept of legitimacy – ever forming and reforming overlapping consensuses among the decisionmaking actors in low as in high politics – can only underpin an enabling European basic law.
    Keywords: European law
    Date: 2007–07–10
  7. By: Sébastien Jean; Orsetta Causa; Miguel Jimenez; Isabelle Wanner
    Abstract: immigration for natives' labour market outcomes, as well as issues linked to immigrants' integration in the host country labour market. Changes in the share of immigrants in the labour force may have a distributive impact on natives' wages, and a temporary impact on unemployment. However, labour market integration of immigrants (as well as integration of second-generation immigrants - both in terms of educational attainments and of labour market outcomes) remains the main challenge facing host economies. In both cases, product and labour market policies have a significant role to play in easing the economy's adjustment to immigration. <P>Les migrations dans les pays de l'OCDE : Impact sur le marché du travail et intégration <BR>Les pays de l'OCDE connaissent une période de forte croissance des pressions migratoires. Cet article s'interroge sur les conséquences de ce phénomène d'une part sur le marché du travail domestique, d'autre part sur les trajectoires d'intégration propres aux immigrés dans les pays d'accueil. Des changements dans la proportion d'immigrés dans la force de travail peuvent avoir un impact distributif sur les salaires des natifs et un impact temporaire sur leur taux de chômage. Cependant, l'intégration des immigrés sur le marché du travail (de même que l'intégration des immigrés de seconde génération, aussi bien sur le plan de la réussite scolaire que sur celui de la performance sur le marché du travail) demeure l'enjeu principal auquel se doivent de faire face les économies d'accueil. Dans les deux cas, la régulation des marchés de produits et la politique du marché du travail ont un rôle important à jouer afin de favoriser les ajustements économiques associés à l'immigration.
    JEL: E24 J31 J61 J64 L43
    Date: 2007–07–04
  8. By: Stavarek, Daniel
    Abstract: This paper estimates the exchange market pressure (EMP) in four Central European countries (Czech Republic, Hungary, Poland, Slovakia) during the period 1993-2006. Therefore, it is one of very few studies focused on this region and the very first paper applying concurrently model-dependent as well as model-independent approach to the EMP estimation on these countries. The results obtained suggest that the approaches are not compatible and lead to absolutely inconsistent findings. They often differ in both identification of principal development trends and estimated magnitude and direction of the pressure. Therefore, any general conclusion on those issues is hard to draw. The paper provides evidence that a shift in the exchange rate regime towards the quasi-fixed ERM II should not lead to increasing EMP. However, it is highly probable that some episodes of the excessive EMP will make the fulfillment of the exchange rate stability criterion more difficult in all countries analyzed unless the criterion will have eased.
    Keywords: exchange market pressure; model-dependent approach; model-independent approach; EU New Member States; exchange rate stability criterion
    JEL: F36 E42 F31 C32
    Date: 2007–06–28
  9. By: Fuest, Clemens; Peichl, Andreas; Schaefer, Thilo
    Abstract: The introduction of a flat tax is supposed to have several advantages. Administration and compliance costs are reduced, as well as incentives for tax evasion. Furthermore, positive employment and growth effects are expected. Despite these advantages, a flat rate tax is not very popular in most Western European countries. The most important objection against a flat tax states that a flat rate tax would be inequitable and unfair. The present paper uses a simulation model based on a unique database of German micro data to provide empirical evidence for the analysis of the equity and efficiency effects as indicators for the political feasibility of flat rate tax reforms. Our analysis shows that the selection of the schedule and tax base parameters are crucial for the e¤ects of flat tax reforms in terms of equity and efficiency. A flat rate tax with a higher basic allowance and a higher single rate has less harmful distributional effects than a flat rate tax with low basic allowance and tax rate. Nevertheless, the scenario with the lowest parameter values for basic allowance and tax rate is the only alternative that leads to positive labour supply and significantly positive welfare effects. Both labour supply and static welfare e¤ects, however, are quite small. Although we have derived our results for the case of Germany, we do think that similar patterns would be observed in other countries of Western Europe. If this proves to be correct, it will be hard for ‡at tax reforms to invade the grown-up welfare states of "Old Europe".
    Keywords: Flat Tax reform, equity, efficiency, distribution, welfare
    JEL: D31 D60 H20
    Date: 2007
  10. By: Oskar Kowalewski; Ivan Stetsyuk; Oleksandr Talavera
    Abstract: This study examines the relation between corporate governance practices measured by Transparency Disclosure Index (TDI) and dividend policy in Poland. Our empirical approach, constructs measures of the quality of the corporate governance for 110 non-financial companies listed on Warsaw Stock Exchange between 1998 and 2004. We find evidence that an increase in the TDI or its subindices leads to an increase in the dividend-to-cash-flow ratio. These results support the hypothesis that companies with weak shareholder rights pay dividends less generously than do firms with high corporate governance standards. Therefore, minority shareholders often use power to extract dividends. We also find that large and more profitable companies have a higher dividend payout ratio, while riskier and more indebted firms prefer to pay lower dividends.
    Keywords: Corporate governance, dividend policy, agency theory
    JEL: G30 G32 G35
    Date: 2007
  11. By: Joachim Wagner (University of Lueneburg, Institute of Economics; Institute for the Study of Labor (IZA), Bonn; Max Planck Institute of Economics, Jena)
    Abstract: Using unique recently released nationally representative high-quality longitudinal data at the plant level, this paper presents the first comprehensive evidence on the relationship between exports and productivity for Germany, a leading actor on the world market for manufactured goods. It applies and extends the now standard approach from the international literature to document that the positive productivity differential of exporters compared to non-exporters is statistically significant, and substantial, even when observed firm characteristics and unobserved firm specific effects are controlled for. For West German plants (but not for East German plants) some empirical evidence for self-selection of more productive firms into export markets is found. There is no evidence for the hypothesis that plants which start to export perform better in the three years after the start than their counterparts which do not start to sell their products on the world market. Results for West Germany support the hypothesis that the productivity differential between exporters and non-exporters is at least in part the result of a market driven selection process in which those export starters that have low productivity at starting time fail as a successful exporter in the years after the start, and only those that were more productive at starting time continue to export.
    Keywords: Exports, productivity, micro data, Germany
    JEL: F14 D21
    Date: 2007–07–02
  12. By: David B. Audretsch (Max Planck Institute of Economics, Jena, Germany; Indiana University, USA); Max Keilbach (Max Planck Institute of Economics, Jena, Germany)
    Abstract: Whereas initially physical capital and later, knowledge capital were viewed as crucial for growth, more recently a very different factor, entrepreneurship capital, has emerged as a driving force of economic growth. In this paper, we define a region's capacity to create new firms start-ups as the region's entrepreneurship capital. We then investigate the local embeddedness of this variable and which variables have an impact on this variable. Using data for Germany, we find that knowledge-based entrepreneurship capital is driven by local levels of knowledge creation and the acceptance of new ideas, indicating that local knowledge flows play an important role. Low-tech entrepreneurship capital is rather increased by regional unemployment and driven by direct incentives such as subsidies. All three measures are locally clustered, indicating that indeed, entrepreneurship capital is a phenomenon that is driven by local culture, and is therefore locally bounded.
    Keywords: Entrepreneurship capital, Local Clusters, Knowledge Spillovers, Spatial Econometrics
    JEL: L60 O30 G30
    Date: 2007–07–02
  13. By: Jan P.A.M. Jacobs; Kenneth F. Wallis
    Abstract: Cointegration ideas as introduced by Granger (1981) are commonly embodied in empirical macroeconomic modelling through the vector error correction model (VECM). It has also become common practice in these models to treat some variables as weakly exogenous, resulting in conditional VECMs. This paper studies the consequences of different approaches to weak exogeneity for the dynamic properties of such models, in the context of two models of the UK economy, one a national-economy model, the other the UK submodel of a global model. Impulse response and common trend analyses are shown to be sensitive to these assumptions and other specification choices.
    JEL: C32 C51 C52
    Date: 2007–06

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