nep-eec New Economics Papers
on European Economics
Issue of 2008‒05‒10
nine papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Wage Flexibility or Wage Coordination? Economic Policy Implications of the Wage-Led Demand Regime in the Euro Area By Engelbert Stockhammer
  2. Searching New Ways of Financing the EU Budget: on the Proposal of a European Tax on Foreign Exchange Transactions By Sándor Richter
  3. Efficient Market Hypothesis in European Stock Markets By Maria Rosa Borges
  4. Territorial cooperation and regional economic development: a case study By M. Bruna Zolin; Matilde Cassin
  5. Business Cycles, Core and Periphery in Monetary Unions: Comparing Europe and North America By Alexandra Ferreira Lopes; Álvaro M. Pina
  6. Jobless Growth in the Central and Eastern European Countries By Özlem Onaran
  7. Intergenerational Time Transfers and Internal Migration: Accounting for Low Spatial Mobility in Southern Europe By Mendez, Ildefonso
  8. Breaking the Impediments to Budgetary Reforms: Evidence from Europe By Ashoka Mody; Stefania Fabrizio
  9. Testing a DSGE model of the EU using indirect inference By David Meenagh; Patrick Minford; Michael Wickensy

  1. By: Engelbert Stockhammer
    Abstract: <span>Wage shares have fallen substantially in Europe since the early 1980s. To some extent this is due to a macroeconomic policy package that encourages wage flexibility and wage competition. A system of wage coordination in the Euro area would facility a return to a productivity-oriented wage policy by reducing wage competition. In a recent study on the demand effects of changes in functional income distribution Stockhammer, Onaran und Ederer (2007) find that the Euro area is in a wage-led demand regime. According to their results a reduction of the wage share by 1%-point leads to a reduction of demand by around 0.2%-points of GDP. This finding has far reaching implications for economic policy. A stable wage share would help stabilize demand. The paper aims, first, at clarifying some conceptual issues in the design of a European system of productivity-oriented wage coordination and, second, it discusses the economic policy implications of wage coordination. The present policy package assigns wages the role of a shock absorber. However, as wage reductions do have negative demand effects in a wage-led demand regime, this policy has a deflationary bias. A system of wage coordination will thus have to be complemented by a more active nation fiscal policies and more fiscal redistribution within the EU. If so a regime of productivity oriented wage coordination will help to stabilize demand and it is consistent with price stability. </span><p class="MsoNormal"><span> </span></p>
    Keywords: macroeconomics, economic policy, policy mix, wage coordination, European Union
    JEL: E20 E24 E50 E60 J30 J50
    Date: 2008
  2. By: Sándor Richter (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The periodically returning debates and the disappointing bargaining on the financial perspectives for 2007-2013 have led to the proposal of a comprehensive review of the EU budget in 2008/2009. This provides an opportunity for initiating fundamental reforms of the revenue side of the EU budget. One course of reform relies on the principle that the 'own resources' should be collected through the introduction of a European tax. Several options for a European tax were discussed: income taxes, taxes on real economy transactions and finally a tax on financial transactions (tax on stock exchange transactions in shares and bonds, tax on foreign exchange transactions and a tax on 'all' financial transactions), discussed in more detail in the paper. The first proposal, a tax on traditional stock exchange transactions in stocks and bonds, has the disadvantage that the potentially available resources would ensure only a rather small proportion of the revenues of the EU budget. Moreover, the UK and to some extent also Spain would be contributing to the community resources far above the proportionate level reflecting their relative economic strength in the EU. The second proposal, the tax on foreign exchange transactions (the 'Tobin tax'), involves transactions in traditional foreign exchange markets (without financial derivatives). In the absence of experience, predictions about the effect of and revenues from a taxation of foreign exchange transactions are highly arbitrary. Even the most optimistic estimate reckons with revenues covering only about half of those required for financing the EU budget. The criterion of fair contribution across member states is not fulfilled. It turns out that the UK would deliver up to two thirds of the revenues from an EU-wide foreign exchange tax. Other big member states such as Germany, France and Italy would contribute to the common budget with 5%, 6% and less than 2% of the total, respectively. The third version of a financial transactions tax would be a charge on 'all' transactions, i.e. including transactions in financial derivatives. The potential tax base is enormous here by all standards. However, the problem of a fair sharing of burdens across member states would in this case be at least as severe as in the case of the tax on foreign exchange transactions. A financial transactions tax, in any of the three versions discussed in the paper, is thought to be introduced in the European Union only and not world-wide. In all cases the problem of relocation (from the EU generally, and from the leading market place, London, in particular) would emerge. The prospect of losing the benefits derived from London as one of the most eminent financial markets in the world would make any British government a strong opponent to an EU-wide financial transactions tax.
    Keywords: EU, cross member state redistribution, taxation, EU taxes, own resources, expenditures, EU policies, faire sharing of burdens, foreign exchange markets, derivatives, globalization
    JEL: F15 F21 F23 F31 F32 F36 F59 H23 H26 H61 H62 H77 H87
    Date: 2008–01
  3. By: Maria Rosa Borges
    Abstract: This paper reports the results of tests on the weak-form market efficiency applied to stock market indexes of France, Germany, UK, Greece, Portugal and Spain, from January 1993 to December 2007. We use a serial correlation test, a runs test, an augmented Dickey-Fuller test and the multiple variance ratio test proposed by Lo and MacKinlay (1988) for the hypothesis that the stock market index follows a random walk. The tests are performed using daily and monthly data for the whole period and for the period of the last five years, i.e., 2003 to 2007. Overall, we find convincing evidence that monthly prices and returns follow random walks in all six countries. Daily returns are not normally distributed, because they are negatively skewed and leptokurtic. France, Germany, UK and Spain meet most of the criteria for a random walk behavior with daily data, but that hypothesis is rejected for Greece and Portugal, due to serial positive correlation. However, the empirical tests show that these two countries have also been approaching a random walk behavior after 2003.
    JEL: G14 G15
    Date: 2008–04
  4. By: M. Bruna Zolin (Department of Economics, University Of Venice Cà Foscari); Matilde Cassin (Department of Economics, University Of Venice Cà Foscari)
    Abstract: Cooperation may be defined as the collaboration between two or more parties which fuels initiatives that have shared, or converging interests and objectives. In the European Union territorial cohesion has recently been included in the draft of the European Constitution and is complementary to the EU drive towards economic and social cohesion. This adds a new dimension to European integration which clearly recognises that considering things from a territorial dimension is a tool for reducing the territorial disparity currently present in the EU. In fact, well before its enlargement, significant disparities in prosperity levels existed both between and within member states: prosperity levels in the ten most dynamic regions of the EU, based on GDP per capita, were nearly three times higher than that of the ten least developed regions and regional differences have widened with enlargement. In this context, the territorial cooperation objective aims to: improve cross-border cooperation through joint, local and regional initiatives; strengthen trans-national cooperation by means of actions conducive to integrated territorial development linked to Community priorities as well as to strengthen interregional cooperation and the exchange of experience at the appropriate territorial level. Three different typologies of territorial cooperation have been identified with the European territory: cross-border cooperation, trans-national cooperation and Interregional cooperation. The paper focuses on the territorial cooperation objective and presents a case study with large and strong economic, social and environmental disparities. It includes EU members and non EU members. More specifically, the IPA (Instrument for Pre-Accession Assistance) Adriatic Cross Border Cooperation (CBC) Program, which includes three EU Member States, one Candidate Country, and three Potential Candidates Countries.
    Keywords: cooperation, regional disparities, european external instruments
    JEL: O2 P4 R1
    Date: 2008
  5. By: Alexandra Ferreira Lopes; Álvaro M. Pina
    Abstract: We compare Europe with the USA and Canada as regards business cycle synchronization and core-periphery patterns. A long sample (1950-2005) makes it possible to study how these aspects have evolved over time. Results support the economic viability of EMU. Average cyclical correlations among European countries have risen significantly, reaching levels close to, or even higher than, those of North American regions. Applying fuzzy clustering to the analysis of core-periphery issues, we find Europe to actually outperform North America: the core-periphery divide is milder, and peripheral status seems generally less protracted.
    Keywords: European Union, Canada, United States, Monetary Unions, Business Cycles, Fuzzy Clustering.
    JEL: C65 E32 E42 F33
    Date: 2008–03
  6. By: Özlem Onaran
    Abstract: This paper estimates a labor demand equation based on the panel data of manufacturing industry in the Central and Eastern European Countries (the Czech Republic, Hungary, Poland, Slovakia, Slovenia, Lithuania, Bulgaria, and Romania) in order to test the effect of domestic factors (wages and output) and international factors (exports, imports, and foreign direct investment) on employment during the era of post-transition recovery. The findings indicate that e<span>mployment does not respond to wages in more than half of the cases. The output elasticity of labor demand is mostly positive, but low, with a number of cases where employment is completely de-linked from output. An impressive speed of integration to the European economic sphere through FDI and international trade has not prevented job losses in the manufacturing industry. While there are very few cases of positive effects, insignificant effects of trade and FDI dominate the findings with some evidence of negative effects as well<span></span></span><p></p><b></b><div><div id="ftn1"><p class="MsoBodyText"><span> </span></p> <p class="MsoFootnoteText" style="line-height: 200%;"><span style="font-size: 12pt; line-height: 200%;"> </span></p> </div> </div>
    Keywords: Central and Eastern European Countries, employment, FDI, trade
    JEL: F16 F21 J23
    Date: 2008
  7. By: Mendez, Ildefonso
    Abstract: This paper examines the hypothesis that living close to grandparents is optimal for Southern European young couples with children in which the wife works given the combination of, on the one hand, substantial help ows in the form of grandparenting and, on the other hand, the shortage in the provision of formal childcare services in these countries. I develop a partial equilibrium job search model that incorporates these …ndings. Simulation results show that a reduction in the price of private childcare services is more e¤ective in increasing womens employment, fertility and inter-regional migration rates than an increase in the availability of publicly funded childcare slots. Using ECHP data I …nd that families with children in which the wife works move signi…cantly less than equivalent childless couples only if they live in a Southern European country. That e¤ect is found for both inter- and intra-regional migrations but is substantially larger in the former case.
    Keywords: Geographic labour mobility; Intergenerational transfers; Child care; Grandparenting; Labour Supply.
    JEL: J13 J22 J61
    Date: 2008–02
  8. By: Ashoka Mody; Stefania Fabrizio
    Abstract: Under what conditions are budget institutions likely to be strengthened? We find that fiscal deficits do not help in focusing policymakers on undertaking reforms. To the contrary, the larger the deficit, the lower is the likelihood of reforms. Large deficits apparently imply strong claims on the budget and, hence, generate unwillingness to impose self-discipline. As such, countries will tend to move either to small fiscal deficits and good institutions or large deficits and weak institutions. Economic shocks (if they are large enough) can help build a constituency for improving budget institutions. However, if forgiving markets accommodate economic shocks, even such pressure may be insufficient. Forwardlooking and credible leadership appears to be an important ingredient of the solution.
    Date: 2008–04–01
  9. By: David Meenagh; Patrick Minford; Michael Wickensy
    Abstract: We use the method of indirect inference, using the bootstrap, to test the Smets and Wouters model of the EU against a VAR auxiliary equation describing their data; the test is based on the Wald statistic. We find that their model generates excessive variance compared with the data. If the errors are scaled down, then the original model marginally passes the Wald test. We compare a New Classical version of the model which passes the test but generates a combination of excessive inflation variance and inadequate output variance. If the large consumption and investment errors are removed as possibly due to low frequency events, then the New Classical version passes easily while the original version is strongly rejected.
    Keywords: Bootstrap, DSGE Model, VAR model, Model of EU, indirect inference, Wald statistic.
    JEL: C12 C32
    Date: 2008–03

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