nep-eec New Economics Papers
on European Economics
Issue of 2008‒09‒13
29 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Why Doesn't Labor Flow from Poor to Rich Countries? Micro Evidence from the European Integration Experience By Catia Batista
  2. A Taxonomy of European Labour Markets Using Quality Indicators By Lucie Davoine; Christine Erhel; Mathilde Guergoat-Larivière
  3. Fiscal Adjustment in Southern Europe: the Limits of EMU Conditionality. By Spyros Blavoukos; George Pagoulatos
  4. New Labour? The Impact of Migration from Central and Eastern European Countries on the UK Labour Market By Sara Lemos; Jonathan Portes
  5. Money Velocity and Asset Prices in the Euro Area By Christian Dreger; Jürgen Wolters
  6. Local Social Capital and Geographical Mobility: Some Empirics and a Conjecture on the Nature of European Unemployment By David, Quentin; Janiak, Alexandre; Wasmer, Etienne
  7. The Brain Drain between Knowledge Based Economies: the European Human Capital Outflows to the US By Ahmed Tritah
  8. Vertical specialisation in Europe: Evidence from the import content of exports By Emanuele Breda; Rita Cappariello; Roberta Zizza
  9. Agenda Disputes and Strategic Venue Preferences: The Doha Crisis and Europe’s Flight to Regionalism By Toro, Francisco P.
  10. Are EU budgets stationary? By Mark J. Holmes; Theodore Panagiotidis; Jesus Otero
  11. Quo Vadis Southeast Europe? EU Accession, Regional Cooperation and the need for a Balkan Development Strategy. By Vassilis Monastiriotis
  12. The Formation of Inflation Perceptions – Some Empirical Facts for European Countries By Sarah M. Lein; Thomas Maag
  13. An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries By Herwig Immervoll; Henrik Jacobsen Kleven; Claus Thustrup Kreiner; Nicolaj Verdelin
  14. Balancing work and family in Italy: New mothersÂ’ employment decisions after childbirth By Piero Casadio; Martina Lo Conte; Andrea Neri
  15. The Emergence of Regional Policy in Bulgaria: regional problems, EU influences and domestic constraints By Vassilis Monastiriotis
  16. Commercio elettronico per la dinamica delle catene agro-alimentari internazionali: un’analisi del potenziale [E-commerce for the dynamics of international agri-food chains: an adoption potential analysis] By Melanie Fritz; Maurizio Canavari; Nicola Cantore; Jivka Deiters; Erika Pignatti
  17. Fairness of Public Pensions and Old-Age Poverty By Friedrich Breyer; Stefan Hupfeld
  18. The Immigrant Wage Gap in Germany By Alisher Aldashev; Johannes Gernandt; Stephan L. Thomsen
  19. Staying Together for the Sake of the Home? House Price Shocks and Partnership Dissolution in the UK By Helmut Rainer; Ian Smith
  20. Labor Supply Responses of Italian Women to Minimum Income Policies By Ana Laura Mancini
  21. Are Central Banks following a linear or nonlinear (augmented) Taylor rule? By Vítor Castro
  22. Does the US international debt affect the euro/dollar exchange rate? By Costas Karfakis
  23. Foreign Market Conditions and Export Performance: Evidence from Italian Firm-Level Data By Holger Breinlich; Alessandra Tucci
  24. The ageing population and the associated challenges of the Slovenian pension system By Verbic, Miroslav
  25. Employment Impacts of EU Biofuels Policy: Combining Bottom-up Technology Information and Sectoral Market Simulations in an Input-output Framework By Neuwahl, Frederik; Löschel, Andreas; Mongelli, Ignazio; Delgado, Luis
  26. Record rewards: the effect on risk factor monitoring of new financial incentives for UK general practices By Matt Sutton; Ross Elder; Bruce Guthrie; Graham Watt
  27. Credit risk mitigation and SMEs bank financing in Basel II : the case of the Loan Guarantee Associations By Clara Cardone Riportella; Antonio Trujillo Ponce; Maria Jose Casasola
  28. China and central and eastern European countries : regional networks, global supply chain, or international competitors? By Fung , K.C.; Korhonen, Iikka; Li, Ke; Ng, Francis
  29. The Two Faces of Informal Employment in Romania By Denis Drechsler; Theodora Xenogiani

  1. By: Catia Batista
    Abstract: Joining the EU is a natural experiment that drastically opens the borders of richer European countries to immigration. However, migration flows from southern Europe responded little to free migration after 1986, despite substantial differentials in real GDP per worker. The simple explanation we propose for this puzzle is migration costs. We explore the implications of our costly migration model by combining individual information from two household survey datasets (Luxembourg Income Study and European Community Household Panel). In estimating wage differentials, we account for observable characteristics, unobservable heterogeneity, and assimilation of immigrants. Based on our theoretical framework, we identify individual migration costs: they seem to be smaller for the young and educated. Nevertheless, we find a negative pattern of self-selection: less able workers appear to be more likely to leave. Our results point to the importance of micro characteristics of potential migrants in determining the effectiveness of free migration policies.
    Keywords: International Migration, Economic Integration, Free Migration Policy, Wage Differentials, Migrant Self-Selection, Migration Costs, European Union
    JEL: F15 F22 J31 J61 O15 O24
    Date: 2008
  2. By: Lucie Davoine (Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I, CEE - Centre d'études de l'emploi - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); Christine Erhel (Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I, CEE - Centre d'études de l'emploi - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Mathilde Guergoat-Larivière (Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I, CEE - Centre d'études de l'emploi - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: The report proposes a critical approach of European job quality indicators. It relies on both theoreti-cal and empirical analysis, and shows the necessity to introduce complementary variables, such as wages, working conditions and training duration. Comparative results for the EU 27 confirm the heterogeneity of job quality across Europe. Besides, time series analysis shows an upward trend of job quality in Europe since 1994, with a few exceptions. On the whole empirical investigations do not reveal any trade off between quantitative performances and job quality levels.
    Keywords: Labour market comparisons, job quality, European Employment Strategy, training and education policies, working conditions, gender
    Date: 2008–05
  3. By: Spyros Blavoukos; George Pagoulatos
    Abstract: The EMU fiscal adjustment paths of the four Southern Europe members (Italy, Spain, Greece, and Portugal – SE-4) vary along two dimensions: a) cross-temporal (pre- and post-EMU accession) and b) cross-country. We account for the cross-temporal variation by distinguishing between the ‘hard’ and ‘softer’ EMU conditionality of the pre- and post-accession stage. External constraints in the form of the Maastricht eligibility criteria constituted a significant common ‘push’ factor in the fiscal stabilization process of EMU candidate countries throughout the 1990s. However, their potent does not necessarily lead to fiscal sustainability as demonstrated by the postaccession budgetary outlook of the SE-4. We account for the crosscountry variation by introducing additional ‘pull’ factors related to the reform content, context and capability (such as unemployment, the level of social concertation, and government effectiveness). Only in cases where such factors were at work did governments engage in structural reforms to consolidate public finances instead of the less controversial path of macroeconomic policy reform.
    Keywords: EMU, Southern Europe, Stability and Growth Pact, conditionality, fiscal policy.
    Date: 2008–03
  4. By: Sara Lemos; Jonathan Portes
    Abstract: The UK was one of only three countries that granted free movement of workers to accession nationals following the enlargement of the European Union in May 2004. The resulting large, rapid and concentrated migration inflow can be seen as a natural experiment that arguably corresponds closely to an exogenous supply shock. We evaluate the impact of this migration inflow – one of the largest in British history – on the UK labour market. We use new monthly micro level data and an empirical approach that ascertains which particular labour markets in the UK – with varying degrees of native's mobility and migrants' self-selection – might have been affected. Our results suggest modest effects throughout the labour market. Despite anecdotal evidence, we found little hard evidence that the inflow of accession migrants contributed to a fall in wages or a rise in claimant unemployment in the UK between 2004 and 2006.
    Keywords: migration; employment; wages; Central and Eastern Europe; UK
    JEL: J22
    Date: 2008–08
  5. By: Christian Dreger; Jürgen Wolters
    Abstract: Monetary growth in the euro area has exceeded its target since several years. At the same time, the money demand function seems to be increasingly unstable if more recent data are used. If the link between money balances and the macroeconomy is fragile, the rationale of monetary aggregates in the ECB strategy has to be doubted. In fact, a rise in the income elasticity after 2001 can be observed, and may reflect the exclusion of real and financial wealth in conventional specifications of money demand. This presumption is explored by means of a cointegration analysis. To separate income from wealth effects, the specification in terms of money velocity is preferred. Evidence for the presence of wealth in the long run relationship is provided. In particular, both stock and house prices have exerted a negative impact on velocity after 2001 and lead to almost identical equilibrium errors. The extended error correction model is stable over the entire sample period and survive a battery of specification tests.
    Keywords: Cointegration analysis, error correction, money demand, financial wealth, monetary policy
    JEL: C22 C52 E41
    Date: 2008
  6. By: David, Quentin (ECARES, Free University of Brussels); Janiak, Alexandre (University of Chile); Wasmer, Etienne (Sciences Po, Paris)
    Abstract: European labor markets are characterized by the low geographical mobility of workers. The absence of mobility is a factor behind high unemployment when jobless people prefer to remain in their home region rather than to go prospecting in more dynamic areas. In this paper, we attempt to understand the determinants of mobility by introducing the concept of local social capital. Using data from a European household panel (ECHP), we provide various measures of social capital, which appears to be a strong factor of immobility. It is also a fairly large factor of unemployment when social capital is clearly local, while other types of social capital are found to have a positive effect on employability. We also find evidence of the reciprocal causality, that is, individuals born in another region have accumulated less local social capital. Finally, observing that individuals in the South of Europe appear to accumulate more local social capital, while in Northern Europe they tend to invest in more general types of social capital, we argue that part of the European unemployment puzzle can be better understood thanks to the concept of local social capital.
    Keywords: European unemployment, geographical mobility, social capital
    JEL: J2 J61 Z1
    Date: 2008–08
  7. By: Ahmed Tritah
    Abstract: This paper uses the 1980, 1990, 2000 and 2006 U.S. micro censuses data to document the magnitude and nature of European human capital outflow to the United States. I found that while emigration is about a small number of individuals, the share of Europeans who are leaving is increasing as one moves along the educational distribution and ladder of occupations that matter the most in the knowledge economy. Next, using productivity based brain drain indices it is found that aggregate human capital conveyed by emigrants has increased since the 1990s. Finally, as a better understanding on the nature of human capital embodied in European emigrants, I show that the Europeans earn a positive wage premium relative to the US natives. Moreover, this premium is higher for the most recent expatriates cohorts, providing further evidence that the quality of European emigrants has increased.
    Keywords: Emigration; brain-drain; human capital; knowledge economy; Europe-US
    JEL: F22 J24 O15
    Date: 2008–06
  8. By: Emanuele Breda (Bank of Italy, Economics and International Relations.); Rita Cappariello (Bank of Italy, Economics and International Relations.); Roberta Zizza (Bank of Italy, Economics and International Relations.)
    Abstract: We use input-output tables to estimate the import content (IC) of exports for several European countries, interpreting this as a measure of internationalisation. Between 1995 and 2000 the IC grew everywhere but in France; the transport equipment sector emerged as the most internationalised one. The change we detect for a set of EMU countries is remarkable when compared with previous estimates over the 20-year period between 1970 and 1990. Italy and Germany showed very different patterns, although both started from a very low level of IC. Italy experienced the weakest growth and Germany the most sizeable rise. We argue that Italian firms might have felt less pressured to transform their organisation due to the delayed effects of the 1992 and 1995 Lira crises.
    Keywords: external trade, outsourcing, import content, input-output analysis
    JEL: F14 C67
    Date: 2008–08
  9. By: Toro, Francisco P. (UNU-MERIT)
    Abstract: Agenda-setting disputes have become increasingly central to the conduct of multilateral trade negotiations. Introducing some simple concepts from Negotiations Theory, we focus on the dynamic interplay between the Doha Round’s agenda setting and bargaining stages, underlining their implications for the European Union’s evolving win-set in the negotiations. We argue that, by successful enshrining a narrow agenda, key developing countries reduced the set of possible final settlements that were both multilaterally viable and attractive from the point of view of key European interests. In an attempt to avoid imposing concentrated costs on those interests, the European Commission has responded by pursuing its best alternative to a multilateral agreement, shifting negotiating resources away from the multilateral table and towards regional FTA negotiations.
    Keywords: Trade Policy-making, Doha Round, EU, sectoral lobbying, trade negotiations
    JEL: F13
    Date: 2008
  10. By: Mark J. Holmes (Department of Economics, Waikato University Management School); Theodore Panagiotidis (Department of Economics, University of Macedonia); Jesus Otero (Facultad de Economia, Universidad del Rosario)
    Abstract: In this paper, we test for the stationarity of European Union budget deficits over the period 1971 to 2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the presence of cross-sectional dependence among the countries in the panel and (ii) the identification of potential structural break s that might have occurred at different points in time. To address these concerns, we employ an AR-based bootstrap approach that allows us to test the null hypothesis of joint stationarity with endogenously determined structural breaks. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal stationarity over the full sample period irrespective of us allowing for structural breaks. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.
    Keywords: Heterogeneous dynamic panels, fiscal sustainability, mean reversion, panel stationarity test.
    JEL: C33 F32 F41
    Date: 2008–09
  11. By: Vassilis Monastiriotis
    Abstract: In some sense there is a very simple answer to the title question: Southeast Europe is heading towards the EU, though a period of weak regional cooperation, asymmetric relations with the EU and a slow and discontinuous accession process. The speed and discontinuity of this process, together with the changing character and purpose of the process of regional cooperation, raise two crucial questions for the region. First, is there a need for regional cooperation and integration in SEE? Second, what type of cooperation is needed? The paper seeks to address these questions by discussing the challenges and opportunities resulting from recent developments in the region (‘EU distancing’, ‘regional ownership’, etc) and their implications for the perspective that the region can follow. In doing so, it attempts an analysis of the goals of regionalism in Southeast Europe and offers some policy proposals for its future.
    Keywords: Southeast Europe, regionalism, developmental model, regional ownership, EU distancing.
    Date: 2008–01
  12. By: Sarah M. Lein (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Thomas Maag (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper presents some empirical facts on the dynamics of perceived inflation rates for EU countries. First, we find that perceptions are inefficient and highly heteroge- neous, yet contemporaneously related to the actual rate of inflation. Second, similar to studies on inflation expectations, we estimate how often European consumers up- date their inflation perceptions employing Carroll's (2003) epidemiological model. The advantage of employing perceived instead of expected inflation is that the value of the newest information can exactly be measured: the actual rate of inflation. Our findings indicate that the stickiness of perceptions is generally higher than the stick- iness of expectations. Unlike studies using expectations, however, we cannot confirm that a constant fraction of the population updates information every month. Also observed heterogeneity of perceptions is much higher than implied by the epidemio- logical model.
    Keywords: perceived inflation, sticky information, inattention, expectation formation
    JEL: E31 E50 D83
    Date: 2008–09
  13. By: Herwig Immervoll (OECD); Henrik Jacobsen Kleven (London School of Economics); Claus Thustrup Kreiner (Department of Economics, University of Copenhagen); Nicolaj Verdelin (Department of Economics, University of Copenhagen)
    Abstract: This paper presents an evaluation of the tax-transfer treatment of married couples in 15 EU countries using the EUROMOD microsimulation model. First, we show that many tax-transfer schemes in Europe feature negative jointness defined as a situation where the tax rate on one person depends negatively on the earnings of the spouse. This stands in contrast to the previous literature on this question, which has focused on a specific form of positive jointness. The presence of negative jointness is driven by family-based and means-tested transfer programs combined with tax systems that usually feature very little jointness. Second, we consider the labor supply distortion on secondary earners relative to primary earners implied by the current tax-transfer systems, and study the welfare effects of small reforms that change the relative taxation of spouses. By adopting a small-reform methodology, it is possible to set out a simple analysis based on more realistic labor supply models than those considered in the existing literature. We present microsimulations showing that simple revenue-neutral reforms that lower the tax burden on secondary earners are associated with substantial welfare gains in most countries. Finally, we consider the tax-transfer implications of marriage and estimate the so-called marriage penalty. For most countries, we find large marriage penalties at the bottom of the distribution driven primarily by features of the transfer system.
    Date: 2008–09
  14. By: Piero Casadio (Bank of Italy); Martina Lo Conte (Istat); Andrea Neri (Bank of Italy)
    Abstract: Compared with other European countries, the Italian labour market stands out for the low level of both female participation and fertility. In this paper we focus on the employment patterns of Italian mothers around the time of childbirth. Our hypothesis is that the difficulties involved in reconciling work and family when there are children are among the leading causes of the low female employment rate in Italy. Data from the 2002 Italian Birth Sample Survey show that about 20 per cent of mothers who were working before childbirth, stop working one and a half years after delivery and that about 14 per cent voluntarily decide to resign. The paper analyses the factors that most influence new mothersÂ’ unemployment risk after childbirth.
    Keywords: female employment, childbirth, childcare
    JEL: C2 E24 J13 J22 J23
    Date: 2008–08
  15. By: Vassilis Monastiriotis
    Abstract: In most of the European transition economies regional policy is a relatively new phenomenon, given the absence of a coherent framework for such policy during the Communist era. In Southeast Europe in particular, regional policy was slow to develop also in the transition period. This was in many respects due to the relative hysteresis of the transition process in the region but also to other particularities related to the ethnic conflicts and a generally slower European association process. Regional policy in Bulgaria has for all analytical purposes been notably absent in the 1990s and only started shaping up mainly as a response to EU pressures and requirements. This was despite the significant problems of disparity and backwardness faced by many regional and local economies of the country – and the trend of widening inequality associated with the processes of transition and fast economic growth. Nevertheless (or, as a consequence), the emerging regional policy framework in Bulgaria reflects strongly the EU influence and shows little sensitivity to, and appreciation of, the main regional and spatial problems that policy in the country should be addressing. This paper addresses the structure and effectiveness of the emerging regional policy in Bulgaria by evaluating the nature of regional disparities in the country, examining the development of regional policy, and discussing the role played by the EU (through its accession conditionality, its own regional policy and its pre-accession aid) for these developments. This analysis provides useful conclusions regarding the strengths and weaknesses of Bulgaria’s regional policy and helps highlight the main challenges for the future design of regional policy in the country, in its new phase of development as a full EU member.
    Keywords: Regional disparities and policy, Bulgaria, Transition, EU accession.
    Date: 2008–06
  16. By: Melanie Fritz (University of Bonn); Maurizio Canavari (Alma Mater Studiorum University of Bologna); Nicola Cantore (Alma Mater Studiorum University of Bologna); Jivka Deiters (University of Bonn); Erika Pignatti (Alma Mater Studiorum University of Bologna)
    Abstract: Business-to-business (B2B) e-commerce is an innovative use of information and communication technologies and refers to the exchange of goods and related information between companies supported by Internet-based tools such as electronic marketplaces (also called electronic trade platforms) or online shops. It provides opportunities for cost-efficiency in supply chain management processes and access to new markets. With regard to the food sector with its chain levels input – agriculture – industry – retail – consumer, B2B e-commerce would take place in the exchange of food products between all levels except retail to consumer (business-to-consumer e-commerce). It is evident and widely known that B2B e-commerce brings key advantages and potentials for European consumers and the European food sector: - The affordability of high quality, traceable food for European consumers is supported as the innovation potentials from e-commerce technologies for cost-efficient processes along the food chain. The healthy choice of quality food will become the easy and affordable choice for European consumers. - The competitiveness of the European food sector with the majority of SMEs increases as B2B e-commerce technologies support cost-efficient transaction processes in food supply chains. In recent years, the availability of sophisticated B2B e-commerce technology has improved tremendously. The “European e-Business Market Watch” initiative from the Directorate-General Enterprise and Industry from the European Commission has shown that only large multinationals exploit the potentials of B2B e-commerce in the food sector for their supply chain management with their business partners. SMEs however, which create the majority of turn over in the European food sector and therefore create jobs and welfare in Europe, are reluctant to take up existing B2B e-commerce technologies into their food supply of selling. The crucial barrier to adoption is that trust between companies is not mediated appropriately by existing e-commerce technology. Currently, the barrier for food sector SMEs towards B2B e-commerce come from - the difficulty to examine the quality and safety of food products. This refers to all kinds of transactions in the food sector, whether supported by e-commerce or not. However, when it comes to e-commerce, the difficulty of physical product examination plays a much larger role as physical product inspection is not possible; - the (perceived) risk of performing a transaction via e-commerce. This includes concerns regarding secure transfer of data, or the possibly unknown transaction partner. Elements for the generation of trust between companies in the food chain and therefore of trustworthy B2B e-commerce environments for the food sector include guaranties regarding food quality, multimedia food product presentations to signal their quality, secure e-commerce technology infrastructures, third-party quality signs to be provided. As trust is highly subjective and depends on culture, food chains in different European countries with a different cultural background require different combinations of trust generating elements regarding the quality and safety of food. Different food chain scenarios with their transaction processes and risks regarding food quality and food safety and related trust elements need to be analysed and differences in trust in different European food chains need to be considered. It is the objective of this paper to identify food chains with trans-European cross-border exchange of food and international food chains in order to analyse the transaction processes and typical risks regarding food quality and food safety. The analysis focuses on trans-European cross-border and international food chains with their chain levels (e.g. production to wholesale trade, wholesale trade to industry, or wholesale trade to retail). In particular, it regards the food categories meat, grains, fresh vegetables, and fresh fruits and the particular risks regarding food quality and safety along the chains.
    Keywords: e-commerce, B2B transactions, agri-food trade
    JEL: Q13
    Date: 2008–08
  17. By: Friedrich Breyer; Stefan Hupfeld
    Abstract: In several OECD countries, public pay-as-you-go financed pension systems have undergone major reforms in which future retirement benefit promises have been scaled down. A consequence of these reforms is that especially in countries with a tight tax-benefit linkage, the retirement benefit claims of low-income workers might not even exceed the minimum income guarantee which the government provides the aged. Recently, some German politicians have criticized this likely development because it was unjust that persons who have paid contributions over a long working life end up with no higher benefits than people who have never worked or paid any contributions. However, the government defended the current retirement benefit formula with the argument that every Euro paid as contributions had exactly the same value in generating future retirement benefits. But this logic has been questioned recently, e.g. by Breyer and Hupfeld (2007), since the value of a contributed Euro depends on the life expectancy of the individual, which is positively correlated with annual income. In that earlier paper, we introduced the concept of "distributive neutrality", which takes income-group-specific differences in life expectancy into account. The present paper estimates the relationship between annual earnings and life expectancy of German retirees empirically and shows how the formula that links benefits to contributions would have to be modified to achieve distributive neutrality. We compare the new formula to the benefit formulas in other OECD countries and analyze a data set provided by the German Pension Insurance Office on a large cohort of pensioners to find out how the old-age poverty rate would be affected by the proposed change of the benefit formula. Finally, we discuss other possible effects of a change in the benefit formula, especially on the labour supply of different earnings groups.
    Keywords: Social security, life expectancy, poverty, redistribution
    JEL: H55 I38
    Date: 2008
  18. By: Alisher Aldashev (centre for European Economic Research (ZEW)); Johannes Gernandt (centre for European Economic Research (ZEW)); Stephan L. Thomsen (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: Immigrants consist of foreigners and citizens with migration background. We analyze the wage gap between natives and these two groups in Germany. The estimates show a substantial gap for both groups with respect to natives. Discarding immigrants who completed education abroad reduces much of the immigrants’ wage gap. This implies educational attainment in Germany is an important component of economic integration and degrees obtained abroad are valued less.
    Keywords: Immigration, wage gap, decomposition, Germany
    JEL: J61 J31 J15
    Date: 2008–03
  19. By: Helmut Rainer; Ian Smith
    Abstract: This paper explores the importance of unanticipated house price shocks for marital dissolution in the UK using individual household data from the British Household Panel Survey (BHPS) and county-level house price data from the Halifax House Price Index (HHPI). Results suggest that positive and negative house price shocks have asymmetric eects on the probability of partnership dissolution. Negative house price shocks significantly increase the risk of partnership dissolution, while positive house price shocks do not have a significant eect in general. The destabilizing eect of negative house price shocks is particularly pronounced for couples with dependent children, low family income, and high mortgage debt. Results are robust to a wide variety of specifications.
    Keywords: House Price Shocks, Marital Dissolution.
    JEL: C23 D10 R31
    Date: 2008–08
  20. By: Ana Laura Mancini (Child - Collegio Carlo Alberto and University of Turin)
    Abstract: Minimum income policies are policies aimed at guarantee all citizens with a minimum level of income and at fighting social exclusion typically associated with extreme poverty. Theoretically, their main shortcoming is the disincentive effect on labour market participation they could generate in the bottom part of income distribution, due to the high effective marginal tax rate they impose around the threshold level. This paper employs a structural labor supply model under discrete choices to test the existence and the magnitude of this disincentive effect on Italian female labor supply. Our empirical results show that family structure is crucial in determining the existence of a disincentive effect: only married women experience it, while single women participation rates increase under all possible minimum income schemes. The magnitude of both the positive and the negative effect depend on the policy design
    Keywords: Labor supply, welfare transfers, tax-benefit system, microsimulation.
    JEL: J22 C25 H31 C25
    Date: 2008
  21. By: Vítor Castro (Universidade do Minho - NIPE)
    Abstract: The Taylor rule establishes a simple linear relation between the interest rate, inflation and output gap. However, this relation may not be so simple. To get a deeper understanding of central banks' behaviour, this paper asks whether central banks are indeed following a linear Taylor rule or, instead, a nonlinear rule. At the same time, it also analyses whether that rule can be augmented with a financial conditions index containing information from some asset prices and financial variables. A forward-looking monetary policy reaction function is employed in the estimation of the linear and nonlinear models. A smooth transition model is used to estimate the nonlinear rule. The results indicate that the European Central Bank and the Bank of England tend to follow a nonlinear Taylor rule, but not the Federal Reserve of the United States. In particularm those two central banks tend to react to inflation only when inflation is above or outside their targets. Moreover, our evidence suggests that the European Central Bank is targeting financial conditions, contrary to the other two central banks. This lack of attention to the financial conditions might have made the United States and the United Kingdom more vulnerable to the recent credit crunch than the Eurozone.
    Keywords: Taylor rule; ECB monetary policy; Financial Conditions Index; Nonlinearity; Smooth transition regression models.
    JEL: E43 E44 E52 E58
    Date: 2008
  22. By: Costas Karfakis (Department of Economics, University of Macedonia)
    Abstract: The impact of the US international debt on the euro/dollar exchange rate is examined in the context of an Error Correction monetary model with rational expectations. Overall, the relative real income is the most economically significant determinant, whereas the debt is the most statistically significant determinant..
    Keywords: Monetary model, US international debt, co-integration analysis, error correction model
    JEL: F31
    Date: 2008–09
  23. By: Holger Breinlich; Alessandra Tucci
    Abstract: A large body of literature in International Economics has analysed the impact of increased import competition on domestic firms. The link between firm-level exports and changes in the competitive environment on foreign markets is less well understood, however. This is despite the fact that exports make up a significant and growing share of total manufacturing production in most countries. We derive a theory-based econometric specification linking destination-specific exports to foreign demand and the degree of competitiveness or "crowdedness" of a foreign market. The latter is a summary measure of the number and productive efficiency of firms competing in a given market and the barriers impeding their access, such as tariffs or physical distance. We estimate this specification on a large sample of Italian manufacturing firms in 1992-2003 and use the results for a series of counterfactual experiments. Our findings indicate that increased numbers and efficiency of foreign firms and improvements in their access to destination markets have reduced Italian exports by around 0.2-0.4% per year. This is similar to the effects of tariff reductions for Italian firms (+0.3%/year) but smaller than the impact of higher unit labour costs (-1.4%/year) and less favourable exchange rates (-2.0%/year). By far the most important determinant of export performance was foreign demand growth, however, raising Italian exports by up to 5.3% per year or almost 60% over the sample period. Our results also indicate that China's impact on Italian export performance is small and if anything positive. Much more important in explaining the loss of export market shares in recent years has been the relatively slow demand growth in Italy's main export market, the EU15.
    Date: 2008–09–07
  24. By: Verbic, Miroslav
    Abstract: The article presents an analysis of welfare effects in Slovenia, an analysis of supplementary pension insurance in Slovenia and an analysis of effects of the pension fund deficit on sustainability of Slovenian public finances. Stress was layed upon varying the parameters of the current Slovenian pension system and introducing mandatory supplementary pension insurance in Slovenia. It has been established that while young generations and new generations will lose from the pension reform, even complete implementation of the reform might not be sufficient to compensate unfavourable demographic developments. The volume of supplementary pension saving is insufficient at present in Slovenia to compensate the deterioration of rights from the first pension pillar. Not only is the participation in the (voluntary) second pillar insufficient, but especially the premia are too low. The level of expected deficit of the PAYG-financed state pension fund seems to be worrying, though higher activity level among the elderly would subsequently increase the volume of contributions to the first pension pillar, thus also reducing the state pension fund deficit.
    Keywords: general equilibrium models; PAYG; pension system; supplementary pension saving; sustainability of public finances; Slovenia; welfare analysis
    JEL: H55 C68 G23 J32 D91 D58
    Date: 2008–04
  25. By: Neuwahl, Frederik; Löschel, Andreas; Mongelli, Ignazio; Delgado, Luis
    Abstract: This paper analyses the employment consequences of policies aimed to support biofuels in the European Union. The promotion of biofuel use has been advocated as a means to promote the sustainable use of natural resources and to reduce greenhouse gas emissions originating from transport activities on the one hand, and to reduce dependence on imported oil and thereby increase security of the European energy supply on the other hand. The employment impacts of increasing biofuels shares are calculated by taking into account a set of elements comprising the demand for capital goods required to produce biofuels, the additional demand for agricultural feedstock, higher fuel prices or reduced household budget in the case of price subsidisation, price effects ensuing from a hypothetical world oil price reduction linked to substitution in the EU market, and price impacts on agro-food commodities. The calculations refer to scenarios for the year 2020 targets as set out by the recent Renewable Energy Roadmap. Employment effects are assessed in an input-output framework taking into account bottom-up technology information to specify biofuels activities and linked to partial equilibrium models for the agricultural and energy sectors. The simulations suggest that biofuels targets on the order of 10-15% could be achieved without adverse net employment effects. In diesem Papier werden die Beschäftigungswirkungen der Förderung von Biokraftstoffen in der Europäischen Union untersucht. Die Förderung von Biokraftstoffen wird mit der nachhaltigen Nutzung natürlicher Ressourcen, der Reduktion von Treibhausgasemissionen im Transportsektor und der Verminderung der Erdölabhängigkeit und damit einhergehender erhöhter Energiesicherheit in Europa begründet. Bei der Quantifizierung der Beschäftigungseffekte der Biokraftstoffförderung in Europa wurden verschiedene Effekte berücksichtigt: gesteigerte Nachfrage nach Agrarerzeugnissen und Kapitalgütern zu Herstellung von Biokraftstoffen, höhere Kraftstoffpreise, Preisrückgänge auf dem Rohölmarkt infolge der Substitutionseffekte des Biokraftstoffeinsatzes und Preissteigerungen bei Agrarprodukten und Lebensmitteln. Dazu wird ein Input-Output Modell um die Biokraftstofferzeugung erweitert und mit Partialmodellen des Agrar- und Energiesektors gekoppelt. Als besonders wichtige Faktoren für potentielle Beschäftigungseffekte haben sich die Entwicklung einer auf den Weltmärkten führenden EU Biokraftstoffindustrie und der abschwächende Effekte der Biokraftstoffe auf den Ölpreis erwiesen. Die Simulationen legen nahe, dass sich die verschiedenen positiven und negativen Effekte weitgehend kompensieren und ein Biokraftstoffanteil von 10 – 15 Prozent ohne signifikant negative Beschäftigungseffekte erzielt werden kann.
    Keywords: Biofuels, Input-output, Employment
    Date: 2008
  26. By: Matt Sutton; Ross Elder; Bruce Guthrie; Graham Watt
    Abstract: An innovative and expensive performance-related pay scheme was introduced for general practices across the UK in 2004. It was not piloted and baseline performance data were not collected prior to its introduction. We estimate the impact of this Quality and Outcomes Framework (QOF) by analysing annual rates of recording of blood pressure, smoking status, cholesterol, body mass index and alcohol consumption based on individual patient records from 315 general practices over the period 2000/1 to 2005/6. The recording of each risk factor is designated as incentivised or unincentivised for each individual based on whether they have one of the diagnoses targeted by the QOF. The estimated impact is sensitive to the dynamic specification of the recording process and was substantially larger on the targeted patient groups (+19.9 percentage points) than the untargeted groups (+5.3). We also find positive spillovers of (+10.9) for the targeted groups onto unincentivised factors. We propose that the intended rewards per additional record were under-estimated, because account was not taken of substantial multiple-payment for co-morbid patients, levels of pre-QOF recording and the additional rewards available for risk factor control that would be achieved by measurement alone. Based on naïve assumptions, we estimate the intended financial reward per additional risk factor record to be £4.40. Allowing for co-morbidity, pre-QOF performance and the additional ‘control’ rewards, increases this average reward eleven-fold, to £48.90. Taking account of the positive spillovers reduces this figure to £25.10, but it remains substantially larger than what appears to have been intended.
    Keywords: incentives, quality, primary care, payment systems, spillovers
    Date: 2008–08
  27. By: Clara Cardone Riportella; Antonio Trujillo Ponce; Maria Jose Casasola
    Abstract: The objective of this paper is to analyse the impact of the techniques foreseen in the Basel Agreement II (BII) for mitigating the risk of default on bank loans to small and medium enterprises (SMEs). In particular, we will conduct an analysis of the effect of the guarantees that the Loan Guarantee Association (LGA) offer to the SMEs on the assignment of capital requirements of the financial entities under BII. At the same time, the study will examine the effect of this guarantee on the credit risk premium that the financial entities should charge their clients, and whether this foreseeable decrease in the interest rates applicable to the SMEs is compensated by the cost of the guarantee. The results show that, considering that the cost of the LGA guarantee in Spain is around 0.68%, it will be advantageous for an SME with the annual sales of less than or equal to €5 million to request this guarantee whenever the probability of default (PD) of the LGA is <1.1%, if the approach utilised by the financial entity is the Internal Ratings-Based (IRB) and the SME is considered as corporate; however, if the SME is included in a regulatory retail portfolio, then the limit for the PD of the LGA decreases to 0.71%. On the other hand, when the approach utilised is the Standardised one, then will be profitable for an SME treated as retail to request this guarantee whenever the PD of the LGA is <3.35% (3.95% for corporate exposures).
    Keywords: Credit risk mitigation, Bank financing of SMEs, Basel II, Loan Guarantee Association
    JEL: G21 G28 G32
    Date: 2008–09
  28. By: Fung , K.C.; Korhonen, Iikka; Li, Ke; Ng, Francis
    Abstract: China has emerged as one of the top recipients of foreign direct investment in the world. Meanwhile, the successful transition experience of many Central and Eastern European countries has also allowed them to attract an increasing share of global foreign direct investment. In this paper, the authors use a panel data set to investigate whether foreign direct investment flows to these two regions are complements, substitutes, or independent of each other. Taking into account the role of host country characteristics - such as market size, degree of trade liberalization, and human capital - the authors find no evidence that foreign direct investment flows to one region are at the expense of those to the other. Instead, the results suggest that foreign direct investment flows are driven by distinct regional production networks (and thus are largely independent of each other) and the development of global supply chains (indicating that foreign direct investment flows are complementary).
    Keywords: Debt Markets,Foreign Direct Investment,Emerging Markets,Economic Theory&Research,Investment and Investment Climate
    Date: 2008–08–01
  29. By: Denis Drechsler; Theodora Xenogiani
    Abstract: Informal employment is a widespread phenomenon in Romania and a key challenge for the country’s development. Policies should target two distinct groups: those who voluntarily opt out of the formal system and those with no alternative. Transforming people’s attitudes towards the state and strengthening their trust in public institutions is key.
    Date: 2008–07

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