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on European Economics |
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Issue of 2008‒02‒09
seventeen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Ruud A. de Mooij; Gaëtan Nicodème |
| Abstract: | In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates ¯ possibly induced by tax competition ¯ will partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 12% and 21% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.25%-points since the early 1990s. |
| Keywords: | Corporate tax; Personal tax; Incorporation; Income shifting |
| JEL: | H25 L26 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:97&r=eec |
| By: | Grégory Levieuge (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Alexis Penot (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | Compared with the U.S., the amplitude of the European monetary policy rate cycle is strikingly narrow. Is it an evidence of a less reactive ECB? This observation can certainly reflect the preferences and then the strategy of the ECB. But its greater inertia must also be assessed in the light of the singularity of the European structure and of the shocks hitting it. From this perspective, several contributions assert that the nature, size and persistence of shocks mainly explain the different interest rate setting. Therefore, they rely on the idea that both areas share the same monetary policy rule and, more surprising, the same structure. This paper aims at examining this conclusions with an alternative modelling. The results confirm that the euro area and U.S. monetary policy rules are not fundamentally different. But we reject the differences of nature and amplitude of shocks. What is often interpreted as such is in fact the consequence of how distinctly both economies absorb shocks. So differences in the amplitude of the interest rate cycles in both areas are basically explained by structural dissimilarities. |
| Keywords: | interest rate; macroeconomic shocks; monetary policy rules ; policy activism; structural divergence |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00239381_v1&r=eec |
| By: | Rebekka Christopoulou (DG-Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Philip Vermeulen (DG-Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper provides estimates of price-marginal cost ratios or markups for 50 sectors in 8 euro area countries and the US over the period 1981-2004. The estimates are obtained applying the methodology developed by Roeger (1995) on the EU KLEMS March 2007 database. Five stylized facts are derived. First, perfect competition can be rejected for almost all sectors in all countries; markup ratios are generally larger than 1. Second, average markups are heterogenous across countries. Third, markups are heterogeneous across sectors, with services having higher markups on average than manufacturing. Fourth, services sectors generally have higher markups in the euro area than the US, whereas the pattern is the reverse for manufacturing. Fifth, there is no evidence that there is a broad range change in markups from the eighties to the nineties. JEL Classification: D43, L11. |
| Keywords: | Price, marginal cost, markup. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080856&r=eec |
| By: | Del Boca, Daniela (University of Turin); Pasqua, Silvia (University of Turin); Pronzato, Chiara (University of Essex) |
| Abstract: | In this paper, we explore the impact of social policies and labour market characteristics on women’s decisions regarding work and childbearing, using data from the European Community Household Panel (ECHP). We estimate the two decisions jointly and, in addition to personal characteristics, include variables related to the childcare system, parental leave arrangements, family allowances, 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, and that the environmental effects vary by educational level. While labour market arrangements, such as part-time opportunities (when well-paid and protected), have a larger impact on the outcomes of women with higher educational levels, childcare and optional parental leaves have a larger impact on the fertility and participation decisions of women at lower educational levels. |
| Keywords: | employment, fertility, childcare, parental leave |
| JEL: | J11 C3 D1 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3303&r=eec |
| By: | T. BERGER |
| Abstract: | This paper re-estimates potential output, the NAIRU, and the core inflation rate using aggregated euro area data. The empirical model consists of a Phillips curve linking inflation to unemployment. An Okun-type relationship is used to link the output gap to cyclical unemployment. Using recent developments in the field of New Keyenesian economics, the Phillips curve is forward-looking. The model further accounts for new developments in unobserved component models by allowing (i) for correlation between shocks to the trend and the cycle and (ii) structural breaks in the drift of potential output. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:08/498&r=eec |
| By: | Santiago Carbo-Valverde; Edward J. Kane; Francisco Rodriguez-Fernandez |
| Abstract: | EU financial safety nets are social contracts that assign uncertain benefits and burdens to taxpayers in different member countries. To help national officials to assess their taxpayers' exposures to loss from partner countries, this paper develops a way to estimate how well markets and regulators in 14 of the EU-15 countries have controlled deposit-institution risk-shifting in recent years. Our method traverses two steps. The first step estimates leverage, return volatility, and safety-net benefits for individual EU financial institutions. For stockholder-owned banks, input data feature 1993-2004 data on stock-market capitalization. Parallel accounting values are used to calculate enterprise value (albeit less precisely) for mutual savings institutions. The second step uses the output from the first step as input into regression models of safety-net benefits and interprets the results. Parameters of the second-step models express differences in the magnitude of safety-net subsidies and in the ability of financial markets and regulators in member countries to restrain the flow of safety-net subsidies to commercial banks and savings institutions. We conclude by showing that banks from high-subsidy and low-restraint countries have initiated and received the lion's share of cross-border M&A activity. The efficiency, stabilization, and distributional effects of allowing banks to and from differently subsidized environments to expand their operations in partner countries pose policy issues that the EU ought to address. |
| JEL: | F02 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13782&r=eec |
| By: | Dimitrios Christelis (University of Salerno and CSEF); Dimitris Georgarakos (Goethe University Frankfurt and CFS); Michael Haliassos (Goethe University Frankfurt, CFS and MEA) |
| Abstract: | This paper documents and studies sources of international differences in participation and holdings in stocks, private businesses, and homes among households aged 50+ in the US, England, and eleven continental European countries, using new internationally comparable, household-level data. With greater integration of asset and labor markets and policies, households of given characteristics should be holding more similar portfolios for old age. We decompose observed differences across the Atlantic, within the US, and within Europe into those arising from differences: a) in the distribution of characteristics and b) in the influence of given characteristics. We find that US households are generally more likely to own these assets than their European counterparts. However, European asset owners tend to hold smaller real, PPP-adjusted amounts in stocks and larger in private businesses and primary residence than US owners at comparable points in the distribution of holdings, even controlling for differences in configuration of characteristics. Differences in characteristics often play minimal or no role. Differences in market conditions are much more pronounced among European countries than among US regions, suggesting significant potential for further integration. |
| Keywords: | Integration, aging, household portfolios, stockholding, private business, housing, counterfactual decompositions, quantile regression |
| Date: | 2008–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:194&r=eec |
| By: | Beckmann, Rainer |
| Abstract: | This paper analyses structural and cyclical determinants of banking profitability in 16 Western European countries. We find that financial structure matters, particularly through the beneficial effect of the capital market orientation in the respective national financial system. Furthermore, higher diversification regarding banks’ income sources shows a positive effect. The industry concentration of national banking systems, though, does not significantly affect aggregate profitability. Business cycle effects, in particular lagged GDP growth, display a substantial procyclical impact on bank profits. These results are obtained in a single equation panel framework using the Hausman-Taylor instrument variable estimator. The data set comprises aggregate annual country data and banking group data (commercial banks, cooperative banks and savings banks) over the period 1979-2003. |
| Keywords: | bank profits, financial structure, business cycle |
| JEL: | E32 G21 L11 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:6929&r=eec |
| By: | Jim Malley; Apostolis Philippopoulos; Ulrich Woitek |
| Abstract: | This paper develops a dynamic stochastic general equilibrium model to examine the quantitative macroeconomic implications of counter- cyclical fiscal policy for France, Germany and the UK. The model incorporates real wage rigidity which is the particular market failure justifying policy intervention. We subject the model to productivity shocks and use either government consumption or investment to react to the output gap or the public debt-to-output ratio. If the object of fiscal policy is purely to stabilize output or debt volatility, then our results suggest substantial reductions can be obtained, especially with respect to output. In stark contrast, however, a formal general equilibrium welfare assessment of the volatility implications of these alternative instrument/target combinations reveals the welfare gains from active policy, measured as a share of consumption, to be very modest. |
| Keywords: | Fiscal Policy, Welfare, Europe |
| JEL: | E6 H5 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:312&r=eec |
| By: | António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Davide Furceri (University of Illinois at Chicago, Department of Economics (M/C 144), 601 S. Morgan Street, Chicago, 60607, Illinois, USA.) |
| Abstract: | This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth. JEL Classification: E62, H50, O40. |
| Keywords: | Fiscal policy, government size, fiscal volatility, economic growth. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080849&r=eec |
| By: | Mirko Abbritti; Andreas Mueller |
| Abstract: | How do labor market institutions affect the volatility and persistence of inflation and unemployment in a monetary union? What are the implications for monetary policy? This paper sets up a DSGE currency union model with unemployment, hiring frictions and real wage rigidities. The model provides a rigorous but tractable framework for the analysis of the functioning of a currency union characterized by asymmetric labor market institutions. Positively, we find that inflation and unemployment differentials depend strongly on the underlying labor market structure: the hiring friction lowers the persistence and increases the volatility of the inflation differential whereas real wage rigidities imply more persistence and variability in output and unemployment differentials. Normatively, we find that macroeconomic stabilization is easier when labor market frictions are high and real wage rigidities are low. This has important implications for optimal monetary policy: The optimal inflation target should give a higher weight to regions with more sclerotic labor markets and more flexible real wages. |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp37&r=eec |
| By: | Marcelo Sánchez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper estimates a linearised DSGE model for the euro area. The model is New Keynesian and allows for a role for oil usage and endogenous price markups. We find that the price markup reacts positively to the ratio of expected discounted profits to current output, which is normally seen to give rise to a "countercyclical" markup. The importance of shocks to monetary policy and oil prices is estimated to have declined in the post-1990 period, in line with the higher predictability of policy and the fall in the persistence and - to a lesser extent - variability of oil disturbances. Counterfactual exercises show that oil efficiency gains would alleviate the inflationary and contractionary consequences of oil shocks, while higher wage flexibility would help ease the impact on real output at the expense of wider fluctuations in inflation. Finally, the rise in price markups induced by an oil disturbance is not found to considerably amplify the inflationary and contractionary effects of the shock. JEL Classification: C15, E31, E32, E37. |
| Keywords: | Estimated DSGE models, euro area, oil shocks, endogenous markup. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080860&r=eec |
| By: | Marzinotto Benedicta |
| Abstract: | Using theoretical models about the interaction between monetary policy-making and wage bargaining institutions, some researchers had been predicting an acceleration in wage growth under EMU (Iversen and Soskice 1998; Iversen et al 2000; Cukierman and Lippi 2001). However, the empirical evidence shows that, after the formation of the monetary union, wage growth has remained under control or even decelerated. Of the numerous explanations advanced to account for this trend, the most promising seems the one proposed by Posen and Gould (2006), who argue that behind the generalised shift towards wage restraint is enhanced monetary credibility in EMU. Whilst building on a similar argument, this paper adds to it in important respects. First, I show that the effects of a monetary union depend on labour market institutions. Second, and most originally, I argue that a strategic interaction between the ECB and non-atomistic labour unions is possible only in the case of large countries, whose price behaviour can potentially affect EU-13 inflation. This leads to the main finding behind this paper, namely that the relationship between wage growth and economy size is hump-shaped, with wage restraint more present in large and small countries, and less so in countries of intermediate size. Differently from a large country like Germany, small economies are free riders with respect to the monetary regime, but they care nonetheless for cost competitiveness, even if to different degrees. On the other hand, intermediate countries are trapped “inbetween” because neither do they believe capable of affecting euro-zone inflation, nor do they look at cost competitiveness as key to their economic survival. |
| Keywords: | Wage restraint, collective wage bargaining, EMU, openness, international trade |
| JEL: | J31 J51 E50 F15 F41 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0035&r=eec |
| By: | Costas Karfakis (Department of Economics, University of Macedonia) |
| Abstract: | This study examines the determinants of the forward exchange rate of the euro in the context of the “modern approach” for five currency combinations. The co-integration analysis suggests that speculation has played a minor role and arbitrage played a major role in determining the forward exchange rate of the euro. |
| Keywords: | Euro, Forward Exchange Rate, Arbitrage, Speculation, Co-integration |
| JEL: | F31 F37 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2008_02&r=eec |
| By: | Daniel Albalate (Faculty of Economics, University of Barcelona); Germa Bel (Faculty of Economics, University of Barcelona) |
| Abstract: | The use of tolls is being widespread around the world. Its ability to fund infrastructure projects and to solve budget constraints have been the main rationale behind its renewed interest. However, less attention has been payed to the safety effects derived from this policy in a moment of increasing concern on road fatalities. Pricing best infrastructures shifts some drivers onto worse alternative roads usually not prepared to receive high traffic in comparable safety standards. In this paper we provide evidence of the existence of this perverse consequence by using an international European panel in a two way fixed effects estimation. |
| Keywords: | Road Safety, Tolls, Motorways and Transportation. |
| JEL: | H23 I18 R48 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:200802&r=eec |
| By: | Francisco Azpitarte (Universidade de Vigo) |
| Abstract: | We analyse the distribution of household wealth in Spain using the first wave of the Spanish Survey of Household Finances, conducted by the Bank of Spain in 2002. We study the distribution of the different wealth components and, using inequality decomposition techniques, we assess the contribution of each element to overall wealth inequality. We find that wealth is more unequally distributed than income, while housing wealth is much more evenly distributed than financial wealth. Moreover, we identify two groups of wealth components: one disequalizing group, which includes financial wealth, whose value and portfolio share increase with household wealth; and a second more equalizing one, including housing wealth, whose value increases with wealth, but their share in the portfolio does not. Finally, we show that differences between age groups do not explain why wealth is much more unequally distributed than income. Instead, business and home ownership are factors that clearly contribute to explain this feature. |
| Keywords: | Wealth, income, distribution, inequality decomposition. |
| JEL: | D14 D31 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2008-83&r=eec |
| By: | Devereux, Paul (University College Dublin); Hart, Robert A. (University of Stirling) |
| Abstract: | Do students benefit from compulsory schooling? Researchers using changes in compulsory schooling laws as instruments have typically estimated very high returns to additional schooling that are greater than the corresponding OLS estimates and concluded that the group of individuals who are influenced by the law change have particularly high returns to education. That is, the Local Average Treatment Effect (LATE) is larger than the average treatment effect (ATE). However, studies of a 1947 British compulsory schooling law change that impacted about half the relevant population have also found very high instrumental variables returns to schooling (about 15%), suggesting that the ATE of schooling is also very high and higher than OLS estimates suggest. We utilize the New Earnings Survey Panel Data-set (NESPD), that has superior earnings information compared to the datasets previously used and find instrumental variable estimates that are small and much lower than OLS. In fact, there is no evidence of any positive return for women and the return for men is in the 4-7% range. These estimates provide no evidence that the ATE of schooling is very high. |
| Keywords: | compulsory schooling, return to education |
| JEL: | J01 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3305&r=eec |