nep-eec New Economics Papers
on European Economics
Issue of 2008‒01‒19
fifteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Fiscal harmonization in the presence of public inputs By Gonzalo Fernández-de-Córdoba; José L. Torres
  2. Disentangling the R+D shortfall of the EU vis-a-vis the US By Hugo Erken; Frank van Es
  3. EU-15 sovereign governments' cost of borrowing after seven years of Monetary Union By Marta Gómez-Puig
  4. Post-EMS exchange risk trends: A comparative perspective between Euro, British Pound and Japanese Yen excess returns against US Dollar By Yolanda Santana-Jiménez; Jorge V. Pérez-Rodríguez
  5. Growth Prospects of Emerging Market Economies in Europe - How Fast Will They Catch up with the Old West? By Ville Kaitila; Kari E. O. Alho; Nuutti Nikula
  6. Location and R&D alliances in the European ICT industry By Rajneesh Narula; Grazia D. Santangelo
  7. Skill-Biased Effects of Service Offshoring in Western Europe. By Rosario Crinò
  8. Higher education funding reforms in England: the distributional effects and the shifting balance of costs By Lorraine Dearden; Emla Fitzsimons; Alissa Goodman; Greg Kaplan
  9. Tax reform and retirement saving incentives: evidence from the introduction of stakeholder pensions in the UK By Richard Disney; Carl Emmerson; Matthew Wakefield
  10. Stock market performance and pension fund investment policy: rebalancing, free float, or market timing? By Jacob A. Bikker; Dirk W.G.A. Broeders; Jan de Dreu
  11. The Use of Knowledge Management by Innovators - Empirical Evidence for Germany By Uwe Cantner; Kristin Joel; Tobias Schmidt
  12. Welfare reform in the UK: 1997 - 2007 By Mike Brewer
  13. Performance of the Dutch non-life insurance industry: competition, efficiency and focus By Jacob Bikker; Janko Gorter
  14. A Rational Expectations Model for Simulation and Policy Evaluation of the Spanish Economy By J.E. Boscá; A. Díaz; R. Doménech; J. Ferri; E. Pérez; L. Puch
  15. The German Socio-Economic Panel Study (SOEP) : Scope, Evolution and Enhancements By Gert G. Wagner; Joachim R. Frick; Jürgen Schupp

  1. By: Gonzalo Fernández-de-Córdoba (Universidad de Salamanca); José L. Torres (Universidad de Málaga)
    Abstract: Fiscal harmonization for the European Union member states is a goal that encounters major difficulties for its implementation. Each country faces a particular trade-off between fiscal revenues generated by taxation and the productive efficiency loss induced by their respective tax code. Countries for which a particular harmonized tax code requires more taxation will have to face an increased efficiency loss, whereas those required to decrease their taxes will have to face a loss in fiscal revenue. This paper provides a quantitative measure of these trade-offs, for a number of taxes and for the European Union member states, using a DGE model with public inputs. Calibration of the model for the EU-15 member states gives us the following results: i) The maximum tax revenue level is not far away from the current tax levels for most countries, ii) The cases of Sweden, Denmark and Finland are anomalous, as productive efficiency can be gained by lowering tax rates without affecting fiscal revenues, iii) In general, countries would obtain efficiency gains without changing fiscal revenues by reducing the capital tax and increasing the labor tax and iv) Capital tax harmonization to the average capital tax rate can be done with quite small changes in both fiscal revenues and output for the majority of countries.
    Keywords: Fiscal harmonization, applied general equilibrium
    JEL: E43 E62
    Date: 2007–05
  2. By: Hugo Erken (Ministry of Economic Affairs and Erasmus University); Frank van Es (CPB Netherlands Bureau for Economics Policy Analysis)
    Abstract: This paper investigates the causes of the shortfall in private R+D expenditure of the EU compared to the US. It shows that differences in the structure of the two economies play only a minor role in explaining the R+D gap. Instead, the European R+D shortfall is mainly caused by a negative intrinsic effect, meaning that companies within European industries spend less on R+D than their US peers in the same sectors. In addition, this negative intrinsic effect is mainly due to institutional differences between the US and the EU15. Government funding of R+D and the internationalization of R+D provide significant explanation as well.
    Keywords: private R+D intensity, internationalization of R+D, economic structure, sector-composition effect, intrinsic effect
    JEL: O32 O38 F23 R39
    Date: 2007–12–20
  3. By: Marta Gómez-Puig (Universitat de Barcelona)
    Abstract: Yield spreads over 10-year German government securities of the EU-15 countries converged dramatically in the seven years after the beginning of Monetary Integration. In this paper, we investigate the relative influence of systemic and idiosyncratic risk factors on their behaviour. Our conclusions suggest that in EMU-countries the relative importance of domestic risk factors (both credit and liquidity risk factors) is higher than that of international factors, which appear to play a secondary but significant role in non-EMU countries.
    Keywords: Monetary integration, sovereign securities markets, systemic and idiosyncratic risk
    JEL: E44 F36 G15
    Date: 2007–06
  4. By: Yolanda Santana-Jiménez (Universidad de Las Palmas de Gran Canaria); Jorge V. Pérez-Rodríguez (Universidad de Las Palmas de Gran Canaria)
    Abstract: This paper studies the exchange rate risk of Euro, Pound and Yen against US Dollar before and after the EMU. The key question is to analyse the impact of the Euro to exchange rate risks. The risk is measured by estimating risk price coefficient (RPC) from an excess return equation. A conditional heteroskedastic variance model with time-varying mean is estimated for this purpose. Recursive estimates are used to examine the evolution of the parameters and to find out time-varying risk premia. Results show that after a period of adaptation following the introduction of the Euro, the Euro/US Dollar RPC decreased.
    Keywords: Exchange rate risk, GARCH-M, risk-price, times series, recursive estimation
    JEL: G15
    Date: 2007–10
  5. By: Ville Kaitila; Kari E. O. Alho; Nuutti Nikula
    Abstract: ABSTRACT : Using a neo-classical growth model, we analyse the real and nominal GDP per capita convergence of 21 emerging market economies (EMEs) of Central and Eastern Europe towards the EU15 average by 2050. We estimate the countries’ initial capital stocks and project future investment as a function of the GDP per capita gap, among other things, in order to have converging physical capital intensities in the long run. Due to standard-convergence in the model, catching up will continue at a decelerating speed. Also nominal convergence in prices that will lead to a real appreciation of the EME currencies with respect to the euro is projected as a function of the GDP-per-capita gap vis-à-vis the EU15. We also discuss whether the level of human capital in the EMEs is likely to allow for full catching up. We argue that the EU membership of most of the EMEs is likely to improve their economic, investment and business environments and lead to economic and other policies that support long-term convergence. According to the results, the EMEs will not quite catch up with the EU15 by 2050. However, our analysis of the uncertainty related to the growth rates and calculations of a confidence band for the results, as well as a qualitative assessment of other factors (politics, institutions, human capital) that have not been taken into account in the model explicitly lead us to conclude that some of the EMEs are likely to catch up with the EU15 average during the course of the next couple of decades.
    Keywords: productivity, growth, convergence, emerging markets, EU
    JEL: O47
    Date: 2007–12–30
  6. By: Rajneesh Narula (Department of Economics, University of Reading Business School); Grazia D. Santangelo (Facoltà di Scienze Politiche, Università degli Studi di Catania)
    Abstract: This paper shows empirically that in an intra-industry oligopolistic scenario the location of a firm’s innovative activities plays an important role in determining its partner selection in R&D alliances. Such a role is mainly attributed to a strategic use of R&D alliances as a means to limit knowledge flows and protect competences, rather than to promote knowledge flows. By drawing on a novel dataset matching alliances and patent data for the European ICT industry, the econometric analysis shows that partners’ prior co-location (at both national and sub-national regional level), previous ties and technological overlap matter in the choice of partner, while common nationality has a negative impact on alliance formation.
    Keywords: Alliances, R&D location, strategy, co-location, knowledge flows
    JEL: D23 F23 O18 O32 R3
    Date: 2007
  7. By: Rosario Crinò (CESPRI - Bocconi University, Milan, Italy.)
    Abstract: This paper studies the e¤ects of service offshoring on the skill composition of labor demand in Western Europe, using comparable data for nine economies during the 1990s. A short-run translog cost function allows derivation of demand elasticities for three labor inputs. Potential endogeneity and measurement error in service offshoring are accounted for by using instruments based on EBRD indexes of telecommunication reform in Eastern Europe. Results show that service offshoring is skill-biased, because it raises relative labor demand for high skilled workers.
    Keywords: Service Offshoring, Labor Demand, Instrumental Variable Estimation.
    JEL: F16 J23 J31
    Date: 2007–10
  8. By: Lorraine Dearden (Institute for Fiscal Studies and Bedford Group, Institute of Education, University of London); Emla Fitzsimons (Institute for Fiscal Studies); Alissa Goodman (Institute for Fiscal Studies); Greg Kaplan (Institute for Fiscal Studies)
    Abstract: <p><p>This paper undertakes a quantitative analysis of substantial reforms to the system of higher education (HE) finance in England, first announced in 2004 and revised in 2007. The reforms introduced deferred fees for HE, payable by graduates through the tax system via income-contingent repayments on loans subsidised by the government. The paper uses lifetime earnings simulated by the authors to consider the likely distributional consequences of the reforms for graduates. It also considers the costs of the reforms for taxpayers, and how the reforms are likely to shift the balance of funding for HE between the public and private sectors.</p></p>
    Date: 2007–10
  9. By: Richard Disney (Institute for Fiscal Studies and University of Nottingham); Carl Emmerson (Institute for Fiscal Studies); Matthew Wakefield (Institute for Fiscal Studies)
    Abstract: <p><p>Faced with ageing populations, OECD governments are seeking policies to increase individual retirement saving. In April 2001, the UK government introduced Stakeholder Pensions - a low cost retirement saving vehicle. The reform also changed the structure of tax-relieved contribution ceilings, increasing their generosity for lower earning individuals. We examine the impact of these changes on private pension coverage and on contributions to personal pension accounts using individual level micro data. </p></p>
    Date: 2007–11
  10. By: Jacob A. Bikker; Dirk W.G.A. Broeders; Jan de Dreu
    Abstract: This paper is the first that examines the impact of stock market performance on the investment policy of pension funds. We find that stock market prices influence the asset allocation of Dutch pension funds in two ways. In the short term, outperformance of equities over bonds and other investment categories automatically results in a higher actual equity allocation (and vice versa), as pension funds do not continuously rebalance their investment portfolios. Each quarter, pension funds rebalance, on average, around 39 percent of excess equity returns, leaving 61 percent for free floating. In the medium term, outperformance of equities induces pension funds to increase their strategic equity allocation (and vice versa). These findings suggest that the investment policies of pension funds are partially driven by the cyclical performance of the stock market. Pension funds respond asymmetrically to stock market shocks: rebalancing is much stronger after negative equity returns. On average, this strategy led to negative excess returns over the period under consideration. Investment policies of large funds deviate from that of small funds: they hold more equity and their equity allocation is much more strongly affected by actual equity returns, reflecting less rebalancing. The largest funds react highly asymmetrically to positive excess equity returns, adjusting their portfolios by significantly more than 100%, reflecting ‘overshooting’ of free floating, or positive feedback trading. Apparently, managers of large funds demonstrate great risk tolerance, particularly in bull markets.
    Keywords: Pension fund returns, portfolio choice, excess returns, strategic equity allocation, size effects, asymmetrical behavior
    JEL: G11 G23
    Date: 2007–11
  11. By: Uwe Cantner (Friedrich Schiller Universität Jena); Kristin Joel (Friedrich Schiller Universität Jena); Tobias Schmidt (Deutsche Bundesbank, Economic Research Centre)
    Abstract: In this paper we investigate factors that influence a firm's decision to implement knowledge management practices. Our focus is on knowledge management practices implemented to increase collaboration between actors within a firm on innovation activities. Using information on over 1,500 innovative German firms from the Mannheim Innovationpanel of 2003, we find that an innovation strategy targeted at consumers and continuous R+D activities is positively related to KM usage. In addition, more general firm characteristics like size and the industry of a firm do influence the decision to use knowledge management as well.
    Keywords: knowledge management, innovation, Mannheim Innovation Panel
    JEL: D23 O31 O32
    Date: 2008–01–11
  12. By: Mike Brewer (Institute for Fiscal Studies)
    Abstract: <p><p><p><p>This paper, written at the request of the Economic Council of Sweden, presents a tour of welfare reform in the UK since the last change of government, summarising the most important changes in active labour market policies, and in measures intended to strengthen financial incentives to work. It argues that developments in the UK's active labour market policies occurred in two broad phases: first, the Government sought to strengthen ALMPs for those individuals deemed to be unemployed, through the New Deal programme. Second, the Government has reformed benefits for individuals traditionally viewed as inactive and thus excused job search activity, such as lone parents, and the sick and disabled. Accompanying these have been changes to direct taxes, tax credits and welfare benefits aiming to strengthen financial work incentives. However, financial work incentives have been strengthened by less than might be expected given the early rhetoric: the expansion in family-based tax credits have weakened the financial work incentives of (potential) second earners in families with children, many more workers now face combined marginal tax and tax credit withdrawal rates in excess of 60% than a decade ago, and a desire to achieve broad reductions in relative child poverty has led the Government to increase substantially income available to non-working families with children. We also summarise evaluations of three important UK welfare-to-work reforms (WFTC, NDYP and Pathways to Work), but without comparing their efficacy.</p></p></p></p>
    Date: 2007–05
  13. By: Jacob Bikker; Janko Gorter
    Abstract: This paper investigates competition in the Dutch non-life insurance industry indirectly by measuring scale economies and X-inefficiency, assuming that strong competition would force insurance firms to exploit unused scale economies and to push down inefficiencies. We observe substantial economies of scale (on average 11%) that are larger for smaller firms. Despite considerable consolidation in the industry over the last decade, scale economies have increased, as the optimal scale has outgrown the actual one. Comparing estimates across aggregation levels, we find that scale economies are smaller for groups and lines of business than they are for firms. Besides scale, focus and organizational form are important cost determinants as well: generally, specialized insurers have lower costs and face greater economies of scale. Estimates of thick frontier efficiency point to huge cost differences across firms and within lines of business.Overall, our results suggest that there is a lack of competitive pressure in the Dutch non-life insurance industry.
    Keywords: Non-life insurance; economies of scale; market structure; concentration; competition; X-efficiency; total cost function; aggregation: insurance groups; firms and lines of business;
    JEL: D4 D61 G22 L1
    Date: 2008–01
  14. By: J.E. Boscá (University of Valencia, Spain); A. Díaz (Ministry of Economics and Finance, Spain); R. Doménech (Economic Bureau of the Prime Minister, Spain. University of Valencia, Spain); J. Ferri (University of Valencia, Spain); E. Pérez (Ministry of Economics and Finance, Spain); L. Puch (FEDEA, Universidad Complutense and ICAE, Spain)
    Abstract: This paper describes a Rational Expectations Model of the Spanish economy, REMS, which is in the tradition of small open economy dynamic general equilibrium models, with a strongly microfounded system of equations. The model is built on standard elements, but incorporates some distinctive features to provide an accurate description of the Spanish economy. We contribute to the existing models of the Spanish economy by adding search and matching rigidities to a small open economy framework. Our model also incorporates habits in consumption and rule-of-thumb households. As Spain is a member of EMU, we model the interaction between a small open economy and monetary policy in a monetary union. The model is primarily constructed to serve as a simulation tool at the Spanish Ministry of Economic Affairs and Finance. As such, it provides a great deal of information regarding the transmission of policy shocks to economic outcomes. The paper describes the structure of the model in detail, as well as the estimation and calibration technique and some examples of simulations.
    Keywords: general equilibrium, rigidities, policy simulations
    JEL: E24 E32 E62
    Date: 2007–12
  15. By: Gert G. Wagner; Joachim R. Frick; Jürgen Schupp
    Abstract: After the introduction in Section 2, we very briefly sketch out current theoretical and empirical developments in the social sciences. In our view, they all point in the same direction: toward the acute and increasing need for multidisciplinary longitudinal data covering a wide range of living conditions and based on a multitude of variables from the social sciences for both theoretical investigation and the evaluation of policy measures. Cohort and panel studies are therefore called upon to become truly interdisciplinary tools. In Section 3, we describe the German Socio-Economic Panel Study (SOEP), in which we discuss recent improvements of that study which approach this ideal and point out existing shortcomings. Section 4 concludes with a discussion of potential future issues and developments for SOEP and other household panel studies.
    Keywords: SOEP, household panel studies, survey design
    JEL: C81 C91 D10 D31 D63 D80 I0 J0 N34 P36 R23 Z13
    Date: 2007

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