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on European Economics |
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Issue of 2008‒02‒23
fifteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Jacob Bikker en Laura Spierdijk |
| Abstract: | This paper is the first detailed and world-wide investigation of the developments in banking competition during the past fifteen years. Using the Panzar-Rosse approach, we establish significant changes over time in the competitiveness of the banking industry. The changes in competition over time are small on average, but substantial for several countries and regions. Various Western economies faced a significant decline in banking competition during recent years. In particular, the competitive climate in the euro area was subject to a major break around 2001 - 2002, initiating a period of less competition. Also for the United States and Japan we establish a break during this period. The part of Eastern Europe that now belongs to the European Union experienced a significant but modest decrease in competition during the past ten years. Furthermore, the banking industry in emerging markets became more competitive during the last decade. We attribute the predominantly downward trend in competition to increased bank size and the shift from traditional intermediation to off-balance sheet activities. |
| Keywords: | competition; banking industry; Panzar-Rosse model; structural breaks. |
| JEL: | C52 G21 L11 L13 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:167&r=eec |
| By: | Albert van der Horst (CPB, The Hague); Leon Bettendorf (Erasmus University Rotterdam); Hugo Rojas-Romagosa (CPB, The Hague) |
| Abstract: | The European Commission favours the introduction of a consolidated corporate tax base to overcome the distortions arising from the existing system of separate accounting. The blueprints for consolidation are simulated with the applied general equilibrium model CORTAX. We show that the benefits of a common consolidated tax base are limited due to two weaknesses. Formula apportionment, which is needed to allocate the consolidated taxable profits across jurisdictions, creates for MNEs new tax planning possibilities to exploit tax rate differentials in the European Union. In addition, it triggers tax competition as the incentives for member states to attract foreign investment by reducing their tax rates are enforced. The second weakness arises from the unlevel playing field, which is introduced if only part of the firms chooses to participate in the consolidation. The gains from consolidation can be fully grasped if it is obliged for all firms and accompanied by harmonisation of the tax rate. |
| Keywords: | corporate tax; consolidation; formula apportionment; European Union; applied general equilibrium model |
| JEL: | H87 H21 H25 F21 |
| Date: | 2007–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070076&r=eec |
| By: | Roberto Basile; Davide Castellani; Antonello Zanfei |
| Abstract: | In this paper we examine the determinants of location choices of multinational firms in Europe. In particular, we focus on the role of EU Cohesion Policy in attracting foreign investors from both within and outside Europe. Using data on 5,509 foreign subsidiaries established in 50 regions in 8 EU countries over the period 1991-1999, we estimate a mixed logit model of the determinants of MNFs’ location choices. We find that, after controlling for the role of agglomeration economies as well as a number of other regional and country characteristics and allowing for a very flexible correlation pattern among choices, Structural and Cohesion funds allocated by the EU to laggard regions have indeed contributed to attracting multinationals. These policies as well as other determinants play a different role in the case of European investors as opposed to non European ones. |
| Keywords: | Europe; Foreign Direct Investments; Location Choice; Mixed Logit Models |
| JEL: | F23 O52 R30 |
| Date: | 2007–04–31 |
| URL: | http://d.repec.org/n?u=RePEc:pia:wpaper:20070431&r=eec |
| By: | Hans van Kippersluis (Erasmus University Rotterdam); Tom Van Ourti (Erasmus Universiteit Rotterdam); Owen O'Donnell (University of Macedonia, Thessaloniki, Greece); Eddy van Doorslaer (Erasmus University Rotterdam) |
| Abstract: | An age-cohort decomposition applied to panel data identifies how the mean, overall inequality and income-related inequality of self-assessed health evolve over the life cycle and differ across generations in 11 EU countries. There is a moderate and steady decline in mean health until the age of 70 or so and a steep acceleration in the rate of health deterioration beyond that age. In southern European countries and in Ireland, which have experienced the greatest changes in economic and social development, the average health of younger generations is significantly better than that of older generations. This is not observed in the northern European countries. In almost all countries, health is more dispersed among older generations indicating that Europe has experienced a reduction in overall health inequality over time. Although there is no consistent evidence that health inequality increases as a given cohort ages, this is true in the three largest countries – Britain, France and Germany. In the former two countries and the Netherlands, at least for males, the income gradient in health peaks around retirement age, as has been found for the US, but this pattern is not observed in the other countries. In most European countries, unlike the US, there is no evidence that income-related health inequality is greater among younger than older generations. |
| Keywords: | Health; Health inequality; Life cycle; Cohort |
| JEL: | D30 D31 I10 I12 |
| Date: | 2008–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080009&r=eec |
| By: | Kari E. O. (ed.) Alho |
| Abstract: | ABSTRACT : The EU has ambitious goals in terms of economic performance. The goals are to be reached in combination with social cohesion and sustainable development in terms of environment. The key economic policy instruments to be used by the EU member states are comprised of taxes and benefits. The economic and political framework for carrying out measures in this field is currently delineated, both encouraged and constrained, by factors such as ageing, globalisation and more intense international system competition in tax and social policies. The aim of the project Tax/benefit systems and potential growth of the EU - TAXBEN (SCS8-CT-2004-502639), as outlined in SSP Priority 8 Topic 3.1. Task 4, has been to carry out an in-depth analysis of tax/benefit policies in five broad themes, where these policies play a crucial role in terms of the key EU goals : Employment; Corporate taxes under tax competition; Productivity growth and convergence; Macroeconomic policies under a single monetary policy; and Environment and climate change. The project was carried out by seven European economic policy research institutes within the ENEPRI (European Network of Economic Policy Research Institutes) network. The project team has used many novel approaches, especially in building new tools that rely on the approach of general equilibrium models so that both the direct and indirect effects of taxation can be analysed. Also new applications of existing large-scale multi-country models were carried out to evaluate the impact of tax policies. In addition, recourse was taken to econometric estimation of the relationships between key economic target variables, on the one hand, and tax/benefit and other fiscal policies and other labour market indicators, on the other, using large international data sets. A number of theoretical approaches on economic policies under the single currency were carried out, too. The analysis covered the EU-15 countries, the New Member States, in some cases other OECD countries as well, and some research efforts made had a global approach to policy making. Altogether, the project’s output was 24 working papers in the five Work packages, and five seminars held, in addition to the Final Conference. The project delivered, on the one hand, a large number of research insights on actual behaviour related to tax/benefit systems and, on the other hand, reached conclusions which should be taken into account while considering policy-making in, and reforms related to, tax/benefit policies in the EU. The project’s web site at www.taxben.org provides detailed information on the whole output and events arranged within the project. Contact person is Kari E.O. Alho : Kari.Alho@etla.fi, scientific co-ordinator of TAXBEN. |
| Keywords: | tax/benefit systems, EU, employment, tax competition, productivity, EMU, climate policies |
| Date: | 2008–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1122&r=eec |
| By: | Jonathan Crook (University of Edinburgh); Stefan Hochguertel (VU University Amsterdam) |
| Abstract: | This paper uses micro data from four OECD countries (the United States, Spain, Italy, and the Netherlands), to assess the determinants of household debt holding and to investigate whether or not credit constraints are important for household debt holding. We extend the existing literature in important ways. First, we present comparative evidence for four countries at the micro level, where we rely on household panel data for two countries; we are thus able to control for unobserved heterogeneity via individual household effects and to track changes in household behaviour over time. Second, by making data across countries as comparable as possible, we can explore the importance of the differences in institutional settings for debt incidence, debt outstanding and credit constraints. We also explore the implications for debt holding from consumption models, including a numerically solved precautionary savings model. We find that inter-country differences are substantial and remain even after controlling for a host of observable characteristics. This points to institutional differences between the countries being important. |
| Keywords: | debt and credit; borrowing constraints; permanent income; panel data; international comparison. |
| JEL: | C33 D12 D14 D91 G21 O57 |
| Date: | 2007–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070087&r=eec |
| By: | The International Study Group on Exports and Productivity; Mauro Pisu (National Bank of Belgium, Research Department) |
| Abstract: | Consisting of teams working with firm level data, the International Study Group on Exports and Productivity has used comparable micro level panel data for 14 countries and a set of identically specified empirical models to investigate the relationship between exports and productivity. The overall results are in line with the big picture that is by now familiar from the literature: Exporters are more productive than non-exporters when observed and unobserved heterogeneity are controlled for, and these exporter productivity premia tend to increase with the share of exports in total sales; there is strong evidence in favour of self-selection of more productive firms into export markets, but nearly no evidence in favour of the learning-by-exporting hypothesis. The authors document that the exporter premia differ considerably across countries in identically specified empirical models. In a meta-analysis of the results they find that countries that are more open and have more effective government report higher productivity premia. However, the level of development per se does not appear to be an explanation for the observed cross-country differences. |
| Keywords: | exports, productivity, micro data, international comparison |
| JEL: | F14 D21 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:200802-13&r=eec |
| By: | Uwe A. Schneider (Research unit Sustainability and Global Change); Juraj Balkovic; Stephane de Cara; Oskar Franklin; Steffen Fritz; Petr Havlik; Ingo Huck; Kerstin Jantke; A. Maarit I. Kallio; Florian Klaxner; Alexander Moiseyev; Michael Obersteiner; Chrystalyn Ivie Ramos; Christine Schleupner; Erwin Schmid; Dagmar Schwab; Ratislav Skalsky |
| Abstract: | Land use is a key factor to social wellbeing and has become a major component in political negotiations. This paper describes the mathematical structure of the European Forest and Agricultural Sector Optimization Model. The model represents simultaneously observed resource and technological heterogeneity, global commodity markets, and multiple environmental qualities. Land scarcity and land competition between traditional agriculture, forests, nature reserves, pastures, and bioenergy plantations is explicitly captured. Environmental change, technological progress, and policies can be investigated in parallel. The model is well-suited to estimate competitive economic potentials of land based mitigation, leakage, and synergies and trade-offs between multiple environmental objectives. |
| Keywords: | Land Use Change Optimization, Resource Scarcity, Market Competition, Welfare Maximization, Bottom-up Partial Equilibrium Analysis, Agricultural Externality Mitigation, Forest Dynamics, Global Change Adaptation, Environmental Policy Simulation, Integrated Assessment, Mathematical Programming, GAMS |
| JEL: | Q10 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:sgc:wpaper:156&r=eec |
| By: | Jelle Brouwer; Richard Paap; Jean-Marie Viaene (Erasmus University Rotterdam) |
| Abstract: | This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the ten countries that obtained EU membership in 2004. Intuitively, the implementation of a single currency for these countries means replacing several fluctuating currencies by a common currency. This gives rise to both “level” and “risk” effects of reduced currency movements on trade and investment. Another factor is the nature of the link between trade and FDI. This is also important not only because cross-border factor flows are becoming increasingly important, but also the international trade literature has long recognized that cross-border factor flows and trade in goods and services can be substitutes or complements. Given this background, one-way and two-way error component gravity models are estimated to examine for these theoretical expectations within a dataset of unbalanced panel data that combines bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries (including the 10 new EU members). The data generally cover the period from 1990 to 2004. Our empirical results convincingly support: (i) a complementarity between trade and investment, (ii) a relationship between trade and exchange rate volatility that depends on the sign of bilateral trade balances, (iii) a positive effect of EU on trade and investment, and (iv) a positive effect of EMU on foreign investment. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5 percent for Poland and 30 percent for Hungary. |
| Keywords: | EMU; exchange rate volatility; foreign investment; trade diversion; vertical integration |
| JEL: | C33 F21 F31 F33 F36 |
| Date: | 2007–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070077&r=eec |
| By: | Marcello Signorelli; Enrico Marelli |
| Abstract: | The aim of this paper is to throw some light on the main differences/similarities and dynamics in institutional frameworks, regional/sectoral features and aggregate performances in the eight transition countries that became EU members in May 2004 (8-CEECs). In the second section, a partial review of the main theoretical and empirical literature on the "great transformation" (Kornai, 2006) is presented, with a particular attention to the researches focusing on the relationship between institutional change and economic/employment performance and to the studies considering some regional features of the transition processes. Some stylized facts for the eight CEECs are presented in the third section, by distinguishing (i) initial conditions, (ii) institutional changes and progress in transition and (iii) economic/employment performance (GDP growth, unemployment and employment rates, etc.). In the forth section, the empirical results on some regional (NUTS 3) features (convergence, concentration and specialisation) of the 8-CEECs are discussed. Finally, an attempt to econometrically investigate some determinants of regional income convergence and national GDP and employment dynamics is presented in the fifth section, by highlighting the role of institutional change and some regional features. The main policy implications, concerning both European and national economic policies, are presented in the conclusive section. |
| Keywords: | Transition countries, institutional change, regional features, aggregate performance |
| JEL: | P52 R11 P25 P27 |
| Date: | 2007–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pia:wpaper:20070901&r=eec |
| By: | Vladimir Borgy; Xavier Chojnicki |
| Abstract: | In this paper, we assess the demographic and economic consequences of migrations in Europe and neighborhood countries. In order to do so, we rely on a multi-region world overlapping generations model (INGENUE2). The rich modeling framework of this multi-regions model allows us to put into connection migration with the "triangular" relationship between population aging, pension reforms and international capital markets. With this model, we are also able to quantify the demographic and economic consequences of migration flows on both the regions receiving and losing migrants. Our analysis is based on a very detailed migration scenario between Western Europe and the Neighborhood regions constructed by taking into account both the current situation and some prospective empirical scenarios. Our quantitative results shed some light on the long term consequences of migration on regions that are not at the same stage in the ageing process. Concerning the regions receiving migrants, despite some improvement of their public pension system, it appears that a realistic migration scenario does not offset the effect of ageing in these regions, leaving room for pension reforms. Concerning the regions losing migrants, the adverse economic consequences of emigration appear to be all the more important than the region is advanced in the ageing process (and is already suffering from a declining population). |
| Keywords: | CGEM; migration; international capital flows; neighborhood policy; INGENUE; capital movements; demoeconomics; demography |
| JEL: | F21 C68 J61 H55 J11 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2007-23&r=eec |
| By: | Roberto Basile |
| Abstract: | The regional distribution of labor productivity in Western Europe is characterised by a Core-Periphery spatial pattern: high (low) productivity regions are in a proximate relationship with other high (low) productivity regions. Over the last twenty years, intra-distribution dynamics has generated long-run multiple equilibria with the formation of two clubs of convergence. The observed dynamics can be only marginally explained by nonlinear effects in the accumulation of physical capital. In contrast, the joint effect of spatial dependence and nonlinearities in growth behavior plays a key role in determining multiple equilibria and reinforcing polarization of labor productivity. |
| Keywords: | distribution dynamics, convergence, spatial dependence, Europe |
| JEL: | R11 R12 C14 C21 |
| Date: | 2007–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:pia:wpaper:20070410&r=eec |
| By: | Lans Bovenberg (CentER, Tilburg University, and Netspar); Coen Teulings (CPB Netherlands Bureau for Economic Policy Analysis, and University of Amsterdam) |
| Abstract: | We argue in favour of the shareholder model of the firm for three main reasons. First, serving multiple stakeholders leads to ill-defined property rights. What sounds like a fair compromise between stakeholders can easily evolve in a permanent struggle between the stakeholders about the ultimate goal of the company. In many cases, the vague Rhineland principles no longer offer much protection to workers. Second, giving workers a claim on the surplus of the firm raises the cost of capital for investments in jobs, which harms the position of job seekers, including new entrants to the labour market. Third, and most importantly, making shareholders the ultimate owner of the firm provides the best possible diversification of firm-specific risks. Whereas globalisation has increased firm-specific risk by intensifying competition, globalisation of capital markets has also greatly increased the scope for diversification of firm-specific risk. Diversification of this risk on the capital market is an efficient form of social insurance. Reducing the claims of workers on the surplus of the firm can be seen as the next step in the emancipation of workers. Workers derive their security not from the firm that employs them but from the value of their own human capital. In such a world, global trade in corporate control, global competition and creative destruction associated with these developments are more legitimate. Coordination in wage bargaining and collective norms on what is proper compensation play an important role in reducing the claim of workers on the firm’s surplus, thereby protecting workers against firm-specific risks. Indeed, in Denmark, workers bear less firm-specific risk than workers in the United States do. Collective action thus has an important role to play. Politicians, however, also face the temptation to please voters and incumbent workers with short-run gains at the expense of exposing workers to firm-specific risks and reducing job creation. This is why corporate governance legislation that gives moral legitimacy to the claim of insiders on the surplus of the firm is damaging. The transition from the Rhineland model (in which management serves the interests of all stakeholders) towards the shareholder model is fraught with difficulties. While society reaps long-run gains in efficiency, in the short run a generation of insiders has to give up their rights without benefiting from increased job creation and higher starting wages. Whereas the claims of older workers on the surplus of a firm may thus have some legitimacy, younger cohorts should be denied such moral claims. These problems require extreme political skill to solve. In particular, they may require some grandfathering provisions or temporary explicit transfers from younger to older generations. |
| Keywords: | wagesetting; optimal risk sharing; employment protection; corporate governance |
| JEL: | E24 G32 G34 |
| Date: | 2007–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070101&r=eec |
| By: | Svetlana; Natalia Kulikova |
| Abstract: | Russia is shown to have every reason to seek special consideration of, as well as express its concerns over, the impact of the European Union¿s (EU) eastern enlargement. The latter relate, in particular, to the current and expected negative repercussions of the changes in the political and economic situation in Europe. Closer study of crucial EU enlargement issues arising as a result of the new member states (NMS) having shifted to the EU common customs tariffs and preferential systems, their adoption of the EU foreign trade regime and the standardization of cargo transit rules and regulations applicable across the EU-25 as a whole demonstrate the need for a comprehensive approach to EU enlargement. That would make for a better understanding of the multifaceted and controversial impact that enlargement will have on the economic transition and industrial restructuring processes in Russia. As the EU penetrates more deeply into the markets of the countries of Central and Eastern Europe, Russia's share in bilateral and multilateral trade as well as other joint economic activities could be reduced still further. Russia is trying to promote its own specific vision of European integration based on two pillars: the European Union in the West and Russia-initiated integration models in the East (e.g. a Single Economic Space). By taking that route, Russia could retain its political and economic influence in those post-Soviet European countries, where its strategic interests lie. The EU subscribes to a markedly different approach. In late 2002 it began pursuing its European Neighbourhood Policy (ENP) that was specifically aimed at the eastern neighbours of the enlarged EU. It has demonstrated its growing political and economic engagement with those CIS member states that are now part of the ENP. The ENP transmits a clear message to Russia; it clearly signals the European Union's specific interests and objectives in Eastern Europe. The policy is quite explicit; it reveals that the EU intends to discuss all issues directly with the counties concerned, while the mediation of Moscow is totally or mostly ignored. As a result, a conflict of interest is becoming increasingly apparent in Eastern Europe, with the EU adhering to its ENP and Russia promoting its integration model. Numerous indicators of the state of relations between Russia and the EU show that however important it may be, economic cooperation is increasingly fraught with ambiguity and competition, which, in the final analysis, can but have a negative impact on the efficiency of that joint relationship. |
| Keywords: | economic restructuring, trade integration, EU¿Russia relations, Russia, EU enlargement |
| JEL: | F14 F15 F59 L60 P52 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:wii:rpaper:rr:338&r=eec |
| By: | Frank A.G. den Butter (VU University Amsterdam); Raphie Hayat (KPMG Corporate Finance, Amsterdam) |
| Abstract: | During the last decades, the growth of trade between China and the Netherlands has been larger than the increase in bilateral trade flows between China and most other countries. Using a time series based gravity model, this paper investigates the main determinants of this increase. The empirical analysis indicates that, apart from GDP growth, Dutch in-house offshoring to China is a major determinant of Dutch import growth from China. Dutch firms tend to offshore production in-house when the asset specificity of the traded inputs is high and offshore via the market when this asset specificity is low. Controlling for these product types also reveals that transport costs are more important for trade in homogeneous and reference priced goods than for trade in differentiated goods |
| Keywords: | international trade; transaction costs; offshoring; foreign direct investments; asset specificity; gravity model |
| JEL: | F14 L16 L23 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080016&r=eec |