nep-eec New Economics Papers
on European Economics
Issue of 2007‒08‒14
twenty-one papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Real Interest Parity in the EU and the Consequences for Euro Area Membership: Panel Data Evidence, 1979-2005 By Martin O'Brien
  2. Corporate Tax Policy and Unemployment in Europe: An Applied General Equilibrium Analysis By Leon Bettendorf; Albert van der Horst; Ruud A. de Mooij
  3. The 'Europeanisation' of Reference Groups: A reconsideration Using EU-SILC By Christopher T. Whelan; Bertrand Maître
  4. Inflation risk premia in the term structure of interest rates By Peter Hoerdahl; Oreste Tristani
  5. Credit growth in emerging Europe : a cause for stability concerns? By Sirtaine, Sophie; Skamnelos, Ilias
  6. The Dynamics of Economic Vulnerability: A Comparative European Analysis By Christopher T. Whelan; Bertrand Maître
  7. Sources of Productivity Slowdown in European Countries During 1990s By Enrico Saltari; Giuseppe Travaglini
  8. Regulation of Bank Capital and Behavior of Banks: Assessing the US and the EU-15 Region Banks in the 2000-2005 Period By Petr Teplý; Milan Matejašák
  9. Organic food marketing and distribution in the European Union By Maurizio Canavari; Roberta Centonze; Gianluca Nigro
  10. THE IMPACT OF INSTITUTIONS ON MOTHERHOOD AND WORK By Daniela Del Boca; Silvia Pasqua; Chiara Pronzato
  11. Are Ireland's Immigrants Integrating into its Labour Market? By Alan Barrett; David Duffy
  12. Education and wage differentials by gender in Italy By Tindara ADDABBO; Donata Favaro
  13. Measurement of Horizontal Inequity in Health Care Utilisation using European Panel Data By Teresa Bago d'Uva; Andrew M. Jones; Eddy van Doorslaer
  14. FEATURES AND EXPECTATIONS OF ILLEGAL IMMIGRANTS: results of a field survey in Italy By Maria Concetta Chiuri; Giuseppe De Arcangelis; Angela Maria D’Uggento; Giovanni Ferri
  15. Enhancing Incentives to Improve Performance in the Education System in France By Paul O'Brien
  16. Cost Liability and Residential Space Heating Expenditures of Welfare Recipients in Germany By Katrin Rehdanz; Sven Stoewhase
  17. Testing for competition in the Spanish banking industry: The Panzar-Rosse approach revisited By Luis Gutiérrez de Rozas
  18. Combating Poverty and Social Exclusion in France By Stéphanie Jamet
  19. Labour Market Effects of Polytechnic Education Reform: The Finnish Experience By Böckerman, Petri; Hämäläinen, Ulla; Uusitalo, Roope
  20. Labor supply responses of Italian women to minimum income policies. By Anna Laura Mancini

  1. By: Martin O'Brien (Economic and Social Research Institute (ESRI))
    Abstract: This paper examines whether macroeconomic convergence is an automatic outcome of forming a currency union by combining an analysis of real interest parity (RIP) in the EU with the argument for the endogeneity of the Optimum Currency Area (OCA) criteria. Using the DF-GLS and the CIPS* panel unit root test, RIP is tested for a sample of Euro area and non-Euro area EU member states with respect to Germany for key sub-periods covering 1979 M3 – 2005 M12. RIP is not found to hold for most of the sample between 1979 M3 and 1998 M12. There is evidence in favour of RIP for most of the Euro area sample during the 1999 M1 – 2005 M12 sub-period, exceptions being Ireland, Italy and Spain. RIP does not hold for any of the non-Euro area countries during the same period. This indicates some support for the endogeneity hypothesis, with the caveat that certain country-specific issues can seriously hinder the “automatic” integration process.
    Date: 2007–03
  2. By: Leon Bettendorf (Erasmus Universiteit Rotterdam, and CPB); Albert van der Horst (CPB Netherlands Bureau for Economic Policy Analysis); Ruud A. de Mooij (Erasmus Universiteit Rotterdam, CPB, Netspar, and CESifo)
    Abstract: This paper analyzes the impact of corporate taxes on structural unemployment, using an applied general equilibrium model for the European Union. We find that the unemployment and welfare effects of corporate taxes differ considerably among European countries. The magnitude of these effects rise in particular in the broadness of the corporate tax base of a country, and the strength of international spillover effects through foreign direct investment. The effect on unemployment is smaller if the substitution elasticity between labour and capital is large, if international spillover effects operate primarily via multinational profit shifting, and if equilibrium forces on the labour market are strong. Although the effect of corporate taxes on unemployment may be smaller than the effect of labour and value-added taxes (e.g. under relatively strong real wage resistance), the welfare costs of corporate taxation are typically larger for most European countries under plausible parameters, especially under strong international spillovers.
    Keywords: Corporate Tax; Structural Unemployment; Applied General Equilibrium; European Union
    JEL: D58 H25 J64
    Date: 2007–07–23
  3. By: Christopher T. Whelan (Economic and Social Research Institute (ESRI)); Bertrand Maître (Economic and Social Research Institute (ESRI))
    Abstract: In this paper we address the question of the relative importance of within and between country differences in income and material deprivation in the European Union in the context of recent suggestions that insufficient attention has been paid to cross-national differences. In particular, we respond to the argument that the ‘state bounded’ relative income approach obscures the significance of EU-wide reference groups. Making use of EU-SILC 2004, we have sought to quantify the magnitude of relevant within and between country differences and their relative impact. Overall, our analysis supports the view that the predominant frame of reference is a national one. The limited impact of European reference groups observed in our analysis does not require explanation in terms of the emergence of a European social stratification system. Furthermore, the significance of such comparisons depends not only on the expectations of those affected by European inequalities but on the degree of legitimacy afforded to ensuing demands. While an EU-wide income-threshold can provide information regarding progress of the Union towards greater social cohesion, its usage for this purpose does not require a strong sense of European identity. Given, the current status of the European Social Model it would seem unwise to attribute an undue degree of policy relevance to the relatively modest evidence relating to the impact of EU-wide reference groups revealed in our analysis.
    Keywords: reference groups, income poverty, economic strain, economic stress
    Date: 2007–06
  4. By: Peter Hoerdahl; Oreste Tristani
    Abstract: This paper estimates the size and dynamics of inflation risk premia in the euro area, based on a joint model of macroeconomic and term structure dynamics. Information from both nominal and index-linked yields is used in the empirical analysis. Our results indicate that term premia in the euro area yield curve reflect predominantly real risks, i.e. risks which affect the returns on both nominal and index-linked bonds. On average, inflation risk premia were negligible during the EMU period but occasionally subject to statistically signifcant fluctuations in 2004-2006. Movements in the raw break-even rate appear to have mostly reflected such variations in inflation risk premia, while long-term inflation expectations have remained remarkably anchored from 1999 to date.
    Keywords: Term structure of interest rates, inflation risk premia, central bank credibility
    Date: 2007–05
  5. By: Sirtaine, Sophie; Skamnelos, Ilias
    Abstract: High credit growth in Emerging Europe, generally considered a sign of catching-up with the " old " Europe, has begun receiving considerable attention among investors and policymakers alike. Given heightened global risks and the demands under the European Union accession process, the need to better understand this high credit growth ' s drivers, riskiness, and the possible macroeconomic and financial stability consequences is strong. The authors adopt a holistic approach in reviewing the rapid credit growth experienced in the region, examining macroeconomic, financial sector, corporate sector, and asset market consequences and possible vulnerabilities. They consider three possible scenarios-a catching-up with older European countries, a soft landing as experienced by Portugal in the early 2000s, and a hard landing as experienced by Asia in 1997.
    Keywords: Banks & Banking Reform,Financial Intermediation,Financial Crisis Management & Restructuring,Economic Theory & Research,Investment and Investment Climate
    Date: 2007–07–01
  6. By: Christopher T. Whelan (Economic and Social Research Institute (ESRI)); Bertrand Maître (Economic and Social Research Institute (ESRI))
    Abstract: The Dynamics of Economic Vulnerability: A Comparative European Analysis
    Abstract: A joint concern with multidimensionality and dynamics is a defining feature of the pervasive use of the terminology of social exclusion in the European Union. The notion of social exclusion focuses attention on economic vulnerability in the sense of exposure to risk and uncertainty. Sociological concern with these issues has been associated with the thesis that risk and uncertainty have become more pervasive and extends substantially beyond the working class. We combine features of recent approaches to explicit statistical modelling of poverty dynamics and multidimensional deprivation in order to develop our understanding of the dynamics of economic vulnerability. An analysis involving nine countries and covering the first five waves of the European Community Household Panel shows that, across nations and time, it is possible to identify an economically vulnerable class. This class is characterised by heightened risk of falling below a critical resource level, exposure to material deprivation and experience of subjective economic stress. The application of dynamic analysis shows that cross-national differentials in persistence of vulnerability are wider than in the case of income poverty and less affected by measurement error. Economic vulnerability profiles vary across welfare regimes in a manner broadly consistent with our expectations. Variation in the impact of social class within and across countries provides no support for the argument that its role in structuring such risk has become much less important.
    Keywords: social exclusion, dynamics, multidimensionality, vulnerability, latent class
    Date: 2007–06
  7. By: Enrico Saltari; Giuseppe Travaglini
    Abstract: In this paper we address the question whether the shift in labour supply curve is the only fundamental change capturing the negative correlation between the growth rates of productivity and employment in European countries in the last fifteen years. If this explanation is correct then the labour demand curve did not shift in recent times, keeping other features of the production function unchanged. This is obviously a problem of identification. Thus, in this study we provide some empirical evidence explaining the shifts in labour demand curve over the same period. Our main conclusion is that the sluggish performance of the European economy in the last fifteen years has a common root in the large changes occurred in the labour market. We refer to these changes as technological and non technological shocks. In our model, adverse technological shocks shift the labour demand curve, while positive non technological shocks shift the labour supply curve. These two shifts contribute simultaneously to rise employment and to decrease the growth rate of productivity. Our evidence shows that labour productivity does respond positively to labour demand (technological) shocks and negatively to labour supply (non technological) shocks. Hence, the main result of our study is that both shocks are necessary to provide a complete picture of the employment-productivity trade-off in European countries during the last fifteen years.
    Keywords: Productivity slowdown, labour market, SVAR
    JEL: E32 J60 E29
    Date: 2007–08
  8. By: Petr Teplý (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Milan Matejašák (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In recent years, regulators have increased their focus on the capital adequacy of banking institutions to enhance their stability, hence the stability of the whole financial system. The purpose of this paper is to assess and compare how American and European banks adjust their level of capital and portfolio risk under capital regulation, whether and how they react to constraints placed by the regulators. In order to do this, we estimate a modified version of the simultaneous equations model developed by Shrieves and Dahl. This model analyzes adjustments in capital and risk at banks when they approach the minimum regulatory capital level. The results indicate that regulatory requirements have the desired effect on bank behavior. Both American and European banks that are close to minimum requirements simultaneously increase their capital. In addition, the US banks decrease their portfolio risk taking.
    Keywords: banking regulation, Basel Capital Accord, capital adequacy, banks, simultaneous equations model
    JEL: C30 G18 G21
    Date: 2007–08
  9. By: Maurizio Canavari (Alma Mater Studiorum University of Bologna); Roberta Centonze (Alma Mater Studiorum University of Bologna); Gianluca Nigro (Alma Mater Studiorum University of Bologna)
    Abstract: The paper discusses the European organic agricultural sector from a socio-economical point of view and from a EU perspective. In the 1990s organic agriculture has known a strong development and today it is considered as a stable sector and with a certain economic importance inside agricultural sector. If originally organic food was the result of an ideological choice and was set inside the alternative culture in opposition to current models of economic development and social organisation, today it has the feature of an entrepreneurial phenomenon, belonging to a life style and to a finally acknowledged cultural model which is able to attract human and financial resources on its own, to produce profit and to satisfy a steadily increasing market. A description of the data obtained by the main available sources on organic food markets in Europe is provided, trying to analyse the present scenario for organic agriculture with the lenses of the 4Ps marketing management paradigm. The analysis may be useful to shed light on the several facets of the organic sector in Europe, and as a basis for further studies on the topic.
    Keywords: organic food, distribution, marketing, communication, brand
    JEL: Q13 Q17
    Date: 2007–01
  10. By: Daniela Del Boca; Silvia Pasqua; Chiara Pronzato
    Abstract: In this paper, we aim to explore the impact of social policies and labour market characteristics on women’s decisions regarding working and having children, using data from the European Community Household Panel (ECHP). We estimate the two decisions jointly, including in the analysis, beyond personal characteristics, variables related to the child care system, parental leave arrangements, and labour market flexibility. Our empirical results show that a non-negligible portion of the differences in participation and fertility rates for women from different European countries can be attributed to the characteristics of these institutions. Child care availability increases the likelihood of women‘s employment while the effect of part-time differs according to its characteristics and for women with different levels of education. Finally, the generosity of parental leave schemes positively and significantly affects the likelihood of having a child, especially for women with lower education.
    Keywords: Employment, Fertility, Child Care, Parental Leave
    JEL: J11 C3 D1
    Date: 2007–06
  11. By: Alan Barrett (Economic and Social Research Institute (ESRI)); David Duffy (Economic and Social Research Institute (ESRI))
    Abstract: Ireland has experienced a remarkable change in its migratory patterns in recent years and has moved from experiencing large-scale emigration to receiving significant inflows. In this paper, we use data from a nationally representative sample of immigrants and natives drawn in 2005 to assess the occupational attainment of immigrants in Ireland relative to natives. It is found that immigrants, on average, are less likely to be in high-level occupations controlling for factors such as age and education. When looked at by year of arrival, it appears as if immigrants who arrived more recently have lower occupational attainment relative to earlier arrivals, thereby suggesting a process of integration. However, a closer analysis shows that the observation of better occupational attainment for earlier arrivals can be explained by a change in the national origin mix of Ireland’s immigrants, with immigrants from the New Member States of the European Union having the lowest occupational attainment. Within national groups there is generally no clear evidence of improved occupational attainment over time.
    Keywords: Immigrants, labour market integration, Ireland
    JEL: J61
    Date: 2007–06
  12. By: Tindara ADDABBO; Donata Favaro
    Abstract: The most recent literature on wage differentials highlights the need to evaluate the wage gap at different points of the wage distribution rather than at the average value alone. In this work we use quantile regressions and an adaptation of the procedure suggested by Machado and Mata (2005) to derive the predicted and counterfactual female wage distributions and to evaluate the extension of the unexplained part of the wage gap. We use data from the last available cross-section of the European Community Household Panel (2001). We show that in Italy the wage gap due to gender differences in the rewards to productive characteristics is higher in correspondence with the extremes of the female wage distribution, suggesting the presence of strong glass ceiling and sticky floor patterns. Controlling for different educational levels, we find that low-educated women suffer a higher unexplained wage gap along the whole distribution. However, we detect a strong sticky floor effect among low-educated women and some evidence of a glass ceiling pattern among highly-educated female workers.
    Keywords: Human capital, Gender wage gap, Discrimination
    JEL: J71
    Date: 2007–03
  13. By: Teresa Bago d'Uva (Erasmus Universiteit Rotterdam); Andrew M. Jones (University of York); Eddy van Doorslaer (Erasmus Universiteit Rotterdam)
    Abstract: Measurement of inequity in health care delivery has focused on the extent to which health care utilization is or is not distributed according to need, irrespective of income. Studies using cross-sectional data have proposed various ways of measuring and standardizing for need, but inevitably much of the inter-individual variation in needs remains unobserved in cross-sections. This paper exploits panel data methods to improve the measurement by including the time-invariant part of unobserved heterogeneity into the need-standardization procedure. Using latent class hurdle models for GP and specialist visits estimated on 8 annual waves of the European Community Household Panel we compute indices of horizontal equity that partition total income-related variation in use into a need- and a non-need related part, not only for the observed but also for the unobserved but time-invariant component. We also propose and compare a more conservative index of horizontal inequity to the conventional statistic. We find that many of the cross-country comparative results appear fairly robust to the panel data test, although the panel based methods lead to higher estimates of horizontal inequity for most countries. This confirms that better estimation and control for need often reveals more pro-rich distributions of utilization.
    Keywords: Inequality; inequity; health care utilisation; panel data; ECHP
    JEL: D30 I10
    Date: 2007–08–02
  14. By: Maria Concetta Chiuri; Giuseppe De Arcangelis; Angela Maria D’Uggento; Giovanni Ferri
    Abstract: The Survey on illegal migration in Italy (SIMI henceforth) aims to analyse the phenomenon of clandestines migrating to or through Italy. SIMI contains information concerning the main demographic, economic and social characteristics of a sample of 920 clandestines crossing Italian borders and apprehended during 2003. Individual motivations to migrate, migrants’ intentions to return, their expectations about income at destination and their intended remittance rates are collected within SIMI and discussed in this paper. Evidence generally corroborates the predictions of the pertinent literature on development economics with respect to the decision to migrate. Apprehended illegal migrants expected to earn about 8-10 times their income at home, had they reached final destination. The median cost of the trip is more than a yearly average income. One of the conclusions of the survey is that future migratory flows may be massive, as the interviewees (typically in the mid-20s and with family and friends at home that are ready to join in the future) perceive themselves as frontrunners among nationals in their age cohort.
    JEL: J1 J10 R23
    Date: 2007–01
  15. By: Paul O'Brien
    Abstract: The French education system has a mixed record. A generally very successful pre-school and primary school level contrasts with underfunded public universities with high dropout rates which exist alongside very successful higher education institutions for elites. Initial education, especially secondary education and the universities, along with labour market policies themselves, do not always succeed in improving labour market entry for a significant proportion of young people. Parts of the management of education have been decentralised, yet educational institutions themselves generally have a very restricted degree of autonomy. The system of performance measurement and incentives, at all levels of education, needs to be reviewed. This Working Paper relates to the 2007 OECD Economic Survey of France (, and is also available in French under the title “Renforcer les incitations à une meilleure performance du système éducatif en France”.
    Keywords: education, France
    JEL: H52 I2
    Date: 2007–08–01
  16. By: Katrin Rehdanz; Sven Stoewhase (Research unit Sustainability and Global Change, Hamburg)
    Abstract: Within the German welfare system, heating expenditures of recipients are in general fully covered by the government. This paper empirically tests for the hypothesis that households receiving welfare payments turn to over consumption of residential space heating. We use microdata from two different data sources to explore whether conditional heating expenditures of these households significantly differ from those of other households. Our empirical findings suggest that even when controlling for a range of other factors this is indeed the case as heating expenditures lie about 10 percent above those of other households. These results are fairly robust to sensitivity analyses. Our results imply that there is potential scope for cost savings if this policy is changed.
    Keywords: Social welfare; Germany; Space heating; Economic incentives
    JEL: H23 Q41 Q48
    Date: 2007–06
  17. By: Luis Gutiérrez de Rozas (Comisión Nacional de Energía (CNE))
    Abstract: The aim of this paper is to assess the level of competition prevailing in the Spanish banking system. The current analysis employs a widely used non-structural methodology put forward by Panzar and Rosse (1987) —the so-called H-statistic— and draws upon a comprehensive panel dataset of Spanish commercial and savings banks covering the period 1986-2005. Standard estimates characterize a hump-shaped profile for the H-statistic throughout the time span under consideration. Nevertheless, a weighted procedure is subsequently performed in order to control for firm size and the number of branches. The estimation outcome reveals a gradual rising path for the H-statistic, thus suggesting a more competitive environment among larger banks. In both settings, a noteworthy increase in the degree of competition is identified at the turn of the eighties, when several liberalization-oriented policy measures came into force. The aforementioned findings discredit the widespread hypothesis which states that concentration impairs competition.
    Keywords: banking, competition, Panzar-Rosse, market structure
    JEL: G21 L13 L10
    Date: 2007–08
  18. By: Stéphanie Jamet
    Abstract: Reducing poverty and social exclusion is an important objective for all French governments. Even though conventionally measured poverty is in fact lower than in most other countries, it is still higher than can be easily accepted. The current policy approach involves a large number of measures tailored to different circumstances. Some policies have unwanted side effects on labour market performance, and their cost-effectiveness could be improved to obtain better outcomes with the same resources. Concentrations of poverty and social exclusion in certain geographic areas and among certain groups of the population provide one of the most difficult challenges, for which contributions from education, labour market, housing, urban planning and anti-discrimination policies, as well as from the social services, are necessary. This Working Paper relates to the 2007 OECD Economic Survey of France (, and is also available in French under the title “Lutter contre la pauvreté et l’exclusion sociale en France”.
    Keywords: unemployment, France, labour markets, poverty
    JEL: H50 I32 I38 J30 R31
    Date: 2007–08–01
  19. By: Böckerman, Petri; Hämäläinen, Ulla; Uusitalo, Roope
    Abstract: This paper evaluates the labour market effects of the introduction of the polytechnic education system in Finland. The reform transformed former vocational colleges gradually into polytechnics. Since the timing of the reform differed across schools, we can control for macroeconomic changes by comparing the performance of the polytechnic graduates to the performance of vocational college graduates who graduated at the same time, and to control for both time and the school fixed effects at the same time. We discover that both employment levels and earnings of post-reform graduates are significantly higher when compared to pre-reform graduates from the same schools. The effects of the polytechnic reform differ between the three largest fields. In the field of business and administration the effects from the reform have been overwhelmingly positive. This is in accordance with the fact that the polytechnic reform extended the length of education mostly in this field.
    Keywords: educational economics; human capital; salary wage differentials
    JEL: I21 I23
    Date: 2007–08–09
  20. By: Anna Laura Mancini
    Abstract: Minimum income policies are means-tested policies aimed at guarantee all citizens with a minimum level of income and at fighting social exclusion typically associated with extreme poverty. Their main shortcoming relies on the theoretical disincentive e¤ect on labour market participation they could generate in the bottom part of income distribution, due to the high e¤ective marginal tax rate they impose around the threshold level. This paper employs a structural labor supply model under discrete choices to examine labor supply responses of Italian women to the introduction of a minimum income policy. Different thresholds levels and earnings exemption ratios (exemption of part of labour earnings from relevant family income) have been tested to assess the existence and the magnitude of the disincentive effect. The results show that the level of the eligibility threshold is crucial in determing the existence of a poverty trap mechanism while the earnings exemption mecanism seems not to play any role. Moreover, family structure is crucial: only married women experience a disincetive effect, that tends to vanishes the hgher the income thresholds, while single women participation rates increase under all possibilities.
    Keywords: Labor supply, welfare transfers, tax-bene?t system, microsimulation
    JEL: J22 C25 H31 C25
    Date: 2007–07
  21. By: Daniele Fabbri; Chiara Monfardini
    Abstract: In this paper we assess the relative effectiveness of user charges and administrative waiting times as a tool for rationing public healthcare in Italy. We measure demand elasticities by estimating a simultaneous equation model of GP primary care visits, public specialist consultations and private specialist consultations, as if they were part of an incomplete system of demand. We find that own price elasticity of the demand for public specialist consultation is about -0.3, while administrative waiting time plays a less important role. No substitution exists between the demand for public and private specialists, so that user charges act as a net deterrent for ver-consumption. The public provision of healthcare does not induce the wealthy to opt out. Moreover our evidence suggests that user charges and waiting lists do not serve redistributive purposes.
    Keywords: healthcare demand elasticities, user charges, waiting lists, multivariate count data model
    JEL: C34 C35 C51 D12 I11
    Date: 2006–12

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