nep-eec New Economics Papers
on European Economics
Issue of 2008‒10‒07
28 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The monetary presentation of the euro area balance of payments By Louis Be Duc; Frank Mayerlen; Pierre Sola
  2. House Price Developments in Europe: A Comparison By Angana Banerji; Haiyan Shi; Paul Louis Ceriel Hilbers; Alexander W. Hoffmaister
  3. Integrating European retail payment systems: some economics of SEPA By Kemppainen, Kari
  4. European business cycles and economic policy, 1945-2007 By Stefano Battilossi; James Foreman-Peck; Gerhard Kling
  5. Perspectives of the European Natural Gas Markets until 2025 By Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
  6. Motives for parental money transfers in Europe By Javier Olivera
  7. Immigration and natives' attitudes towards the welfare state: Evidence from the European Social Survey By Claudia Senik; Holger Stichnoth; Karine Van der Straeten
  8. EU-ETS and Nordic Electricity: A CVAR Approach By Fell, Harrison
  9. Internet Banking in Europe: a comparative analysis. By Francesca Arnaboldi; Peter Claeys
  10. Returns to Scale for EU Regional Manufacturing By Alvaro Angeriz; John McCombie; Mark Roberts
  11. Inflation Differentials in EU New Member States: An Empirical Evidence By Roman Horváth; Kamila Koprnická
  12. Voting in the European Union - Central Europe’s lost voice By Ondřej Schneider
  13. Real convergence in Central and Eastern European EU member states - which role for exchange rate volatility? By Olga Arratibel; Reiner Martin; Davide Furceri
  14. Banking Structure and Credit Growth in Central and Eastern European Countries By Burcu Aydin
  15. EMU-related News and Financial Markets in the Czech Republic, Hungary, and Poland By David Büttner; Bernd Hayo
  16. EMU-related News and Financial Markets in the Czech Republic, Hungary, and Poland By Wolfgang Kerber; Jürgen-Peter Kretschmer; Georg von Wangenheim
  17. How Important Are Foreign Shocks in Small Open Economy? The Case of Slovakia By Roman Horváth; Marek Rusnák
  18. What Drives Household Borrowing and Credit Constraints? Evidence from Bosnia & Herzegovina By Mali Chivakul; Ke Chen Chen
  19. European Central Bank and Federal Reserve USA: monetary policy effects on the returns volatility of the Italian Stock Market Index Mibtel By Francesco, Guidi
  20. Will the Norwegian pension reform reach its goals? An integrated micro-macro assessment By Erling Holmøy and Kyrre Stensnes
  21. Welfare effects of alternative financing of social security. Some calculations for Belgium By Bart Capéau; André De coster; Kris De Swerdt; Kristian Orsini
  22. Zero Corporate Income Tax in Moldova: Tax Competition and Its Implications for Eastern Europe By Marcin Piatkowski; Mariusz Jarmuzek
  23. The Extension of Clusters: Differences-in-Difference Evidence from the Bavarian State-Wide Cluster Policy By Oliver Falck; Stephan Heblich; Stefan Kipar
  24. Evaluation of an In-work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers By Aaberge, Rolf; Flood, Lennart
  25. An exploration of local R&D spillovers in France By Jacques MAIRESSE (CREST-ENSAE, UNU-MERIT & NBER); Benoît MULKAY (LEREPS-GRES)
  26. A comparison of the health status and health care utilisation patterns between foreigners and the national population in Spain: new evidence from the Spanish National Health Survey By Hernández Quevedo, C; Jiménez Rubio, D
  27. A Belgian flat income tax: effects on labour supply and income distribution By André Decoster; Kris De Swerdt; Kristian Orsini
  28. Inequality in Opportunities in Health in France: A first pass. By Trannoy, A; Tubeuf, S; Jusot, F; Devaux, M

  1. By: Louis Be Duc (Banque de France, 39, rue Croix-des-Petits-Champs, 75049 Paris Cedex 01, France.); Frank Mayerlen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Pierre Sola (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This occasional paper describes the monetary presentation of the euro area balance of payments and its use. The monetary presentation is a tool for assessing the impact of balance of payments transactions involving non-bank residents on monetary developments. The paper explains in detail the principle underlying this approach, i.e. the link between the external counterpart of money, as reflected in the balance sheet of the banking sector, and the balance of payments. From a statistical perspective, it is shown that the monetary presentation of the balance of payments, which is based on international statistical standards, may be applied in any country or currency union. With regard to euro area statistics, the paper elaborates on the practical implementation of the monetary presentation, while also describing a few approximations and remaining statistical challenges. Finally, the paper assesses how the monetary presentation of the balance of payments has been used for analysing monetary developments in the euro area, and highlights the significant impact of balance of payments transactions on monetary dynamics in certain periods. JEL Classification: E51, F40
    Keywords: Monetary analysis, capital flows, balance of payments
    Date: 2008–09
  2. By: Angana Banerji; Haiyan Shi; Paul Louis Ceriel Hilbers; Alexander W. Hoffmaister
    Abstract: House prices in Europe have shown diverging trends, and this paper seeks to explain these differences by analyzing three groups of countries: the "fast lane", the average performers, and the slow movers. Price movements in the first two groups are found to be driven mostly by income and trends in user costs, and housing markets in these countries seem relatively more susceptible to adverse developments in fundamentals. Real house price declines among the slow movers are harder to explain, although ample supply, low home ownership, and less complete mortgage markets are likely factors. The impact of macroeconomic, prudential and structural policies on housing markets can be large and should be a factor in policy decisions.
    Keywords: Housing prices , Europe , Economic indicators , Taxation , Interest rates , Monetary policy , Fiscal policy , Population , Demand , Supply , Economic models , Working Paper ,
    Date: 2008–09–05
  3. By: Kemppainen, Kari (Bank of Finland Research)
    Abstract: Using a spatial competition model of retail payment networks, this paper discusses the likely economic consequences associated with the formation of the Single Euro Payments Area (SEPA). The model considers an expansion of positive network externalities on the demand side and adjustment cost on the supply side and reveals that the introduction of SEPA may not lead to a fully competitive and integrated retail payment markets. This is especially the case when the markets are segments before the introduction of SEPA. In such a scenario, the post-integrated markets are likely to remain segmented or will be characterised by a kinked equilibrium where no significant price competition takes place. In both outcomes, SEPA leads to increased prices, larger network sizes (ie increased number of customers) and a higher consumer surplus. Additionally, if the SEPA-induced adjustment costs for payment networks are not prohibitively high, SEPA may also lead to an increase in both profits and social welfare.
    Keywords: integration; network effects; retail payments
    JEL: G21 L14 L15
    Date: 2008–09–24
  4. By: Stefano Battilossi; James Foreman-Peck; Gerhard Kling
    Abstract: In the first age of rapid economic growth after 1945, fluctuations of western European output and employment were so mild that the very notion of a cycle was transformed or even seemed obsolete. A second period of much slower average economic growth was marked by large and frequent oscillations, associated with the oil shocks and the Great Inflation of the 1970s and early 1980s. The last phase, characterized by smooth and ampie swings in output and inflation, has been dubbed the Great Moderation , reflecting the gradual reduction of inflationary trends. Different reasons have been proposed for these changing patterns but a common factor is that the conduct of economic policy was critical. In this paper we survey the evolution of basic features of cycles in Europe, such as volatility and synchronization; explain why changes in economic policy-making were a fundamental driver of changing patterns; and provide analytical narratives of the responses of national governments and central bankers to cyclical fluctuations. Finally we briefly look at the historical and recent experience of Eastern Europe, assessing the área s reintegration from 1989 after the long economic decoupling from the rest of the continent in 1945.
    Keywords: Business cycle, Inflation, Great moderation, Fiscal and monetary policies
    JEL: E32 E63 N14 N36
    Date: 2008–09
  5. By: Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
    Abstract: We apply the EMF 23 study design to simulate the effects of the reference case and the scenarios to European natural gas supplies to 2025. We use GASMOD, a strategic severallayer model of European gas supply, consisting of upstream natural gas producers, traders in each consuming European country (or region), and final demand. Our model results suggest rather modest changes in the overall supply situation of natural gas to Europe, indicating that current worries about energy supply security issues may be overrated. LNG will likely increase its share of European natural gas imports in the future, Russia will not dominate the European imports (~ share of 1/3), the Middle East will continue to be a rather modest supplier, the UK is successfully converting from being a natural gas exporter to become a transit node for LNG towards continental Europe, and congested pipeline infrastructure, and in some cases LNG terminals, will remain a feature of the European gas markets, but less than in the current situation.
    Keywords: Natural gas, Europe, modeling, LNG, supply security
    JEL: L95 L13 F14
    Date: 2008
  6. By: Javier Olivera
    Abstract: We find a high prevalence of Europeans giving equal financial transfers to their adult children, regardless of siblings’ income differences. This behaviour is sharply different from previously documented for American counterparts and it is not predicted by any conventional model on family transfers. We build a model to explain the motives for European parental transfers which includes concern with fairness and leaves altruism as an additional motive. We show that, in contrast to the prediction of the pure altruism model, parents do not offset income inequality among their children but decide to give equal transfers in order to be “fair”. However, the parents might start to give larger transfers to poorer children if the siblings’ income inequality becomes unbearable from the parent’s view. We find evidence for this behaviour using simulations for parameter’s distributions and also microeconomic data of 9 European countries from the Survey of Health, Aging, and Retirement in Europe (SHARE).
    Keywords: intergenerational transfers, exchange, altruism, fairness.
    JEL: D19 D64 J18
    Date: 2008–09
  7. By: Claudia Senik; Holger Stichnoth; Karine Van der Straeten
    Abstract: Does immigration reduce natives' support for the welfare state? Evidence from the European Social Survey (2002/2003) suggests a more qualified relation. For Europe as a whole, there is only weak evidence of a negative association between the perceived presence of immigrants and natives' support for the welfare state. However, this weak average relationship masks considerable heterogeneity across countries. We distinguish two channels through which immigration could affect natives' support for the welfare state: a pure dislike of immigrants and concerns about the economic consequences of immigration. We find (1) that people who hold both negative views about immigrants generally tend to be less supportive of income redistribution, and (2) that they become even less supportive if they perceive a high share of immigrants in the population.
    Date: 2008
  8. By: Fell, Harrison (Resources for the Future)
    Abstract: A cointegrated vector autoregressive (CVAR) model is estimated to determine the dynamic relationship between Nordic wholesale electricity prices and EU emissions trading scheme (EU-ETS) CO2 allowance prices. An impulse response analysis reveals that electricity prices have large short-term responses to CO2 price shocks, but that this response dampens over time. Using hourly Nordic electricity spot market prices, I find that the value of short-term response of electricity prices to a shock in CO2 prices in off-peak hours is consistent with expected values for near complete pass-through of CO2 emission costs when coal-generated power is at the margin. Likewise, the estimates reveal that peak hour electricity price responses to CO2 price shocks are as expected for a market that has near complete passthrough of CO2 emission costs when natural gas-generated power is at the margin. These results further suggest the Nordic electricity market is pricing as a competitive market.
    Keywords: cointegrated vector autoregression, impulse response, electricity markets, CO2 cost pass-through, EU-ETS
    JEL: Q40 Q48 Q52 C32
    Date: 2008–08–15
  9. By: Francesca Arnaboldi (Dipartimento di Economia, Università di Milano); Peter Claeys (Faculty of Economics, University of Barcelona)
    Abstract: A key strategic issue for banks is the implementation of internet banking. The ‘click and mortar’ model that complements classical branch banking with online facilities is competing with pure internet banks. The objective of this paper is to compare the performance of these two models across countries, so as to examine the role of differences in the banking system and technological progress. A fuzzy cluster analysis on the performance of banks in Finland, Spain, Italy and the UK shows that internet banks are hard to distinguish from banks that follow a click and mortar strategy; country borders are more important. We therefore explain bank performance by a group of selected bank features, country-specific economic and IT indicators over the period 1995-2004. We find that the strategy of banking groups to incorporate internet banks reflects some competitive edge that these banks have in their business models. Extensive technological innovation boosts internet banking.
    Keywords: Banks, Internet, Innovation.
    Date: 2008–09
  10. By: Alvaro Angeriz; John McCombie; Mark Roberts
    Abstract: Recent theoretical advances have emphasised the importance of localised increasing returns to scale in understanding both the regional growth and agglomeration processes. However, considerable empirical controversy still exists over whether returns to scale are constant or increasing. Consequently, this study aims to provide some new estimates of the degree of returns to scale for EU regional manufacturing. It does so within the framework of the Verdoorn law. Unlike previous studies, issues of specification of fundamental importance to recent theoretical developments are brought to attention. Overall, the paper concludes that localised increasing returns in EU regional manufacturing are substantial.
    Keywords: increasing returns, Verdoorn law, manufacturing, productivity growth, spatial econometrics
    JEL: O18 O33 R11
    Date: 2008–08
  11. By: Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank); Kamila Koprnická (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank)
    Abstract: In this paper, we examine the determinants of inflation differentials in a panel of the new European Union member states vis-à-vis the euro area in 1997-2007. Our main results are as follows. Exchange rate appreciation and higher price level in the new EU members is associated with narrower inflation differential vis-à-vis the euro area, while fiscal deficit and positive output gap seem to contribute to higher inflation differential. Nevertheless, the effect of price convergence on inflation differentials is found to be dominating in these countries suggesting that a country with price level 20% below the euro area average is likely to exhibit inflation nearly one percentage point above the euro area. Overall, our results indicate that real convergence factors rather than cyclical variation are more important for inflation developments in the new EU members, as compared to the euro area.
    Keywords: inflation differentials, price convergence, exchange rate, New EU members, panel data
    JEL: E31 F41
    Date: 2008–10
  12. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; Georgetown University)
    Abstract: Ten Central European countries became members of the European Union in the years 2004 - 2007. They constitute 20% of the EU’s total population; and even though their economic output is much lower, it rises dynamically. New members’ impact on the EU policies has nevertheless been limited. This is due not only to the arcane voting rules within the EU, but also to the lack of a common agenda among the Central European countries. Our paper illustrates that the new members rarely vote together and that their influence is thus fairly limited. We argue that as the EU seemingly lacks energy to implement further reforms that would stimulate its economy, impetus for change may come from Central European countries. To that end, however, they have to coordinate their voting and become a more coherent voting group than they are now.
    Keywords: European Union, voting system, European Council, new member states
    JEL: J08 J51 K31
    Date: 2008–09
  13. By: Olga Arratibel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Reiner Martin (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Davide Furceri (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper analyzes the relation between exchange rate volatility and several macroeconomic variables, namely real per capita output growth, the credit cycle, the stock of inward foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU Member States. Using panel estimations for the period between 1995 and 2006, we find that lower exchange rate volatility is associated with higher growth (for relatively less financially developed economies), higher stocks of FDI (for relatively more open economies), higher current account deficits, and a more volatile development of the credit to GDP ratio. JEL Classification: F3, F4, F5.
    Keywords: EU, Exchange Rate Volatility, Growth, FDI, Credit, Current Account, Catching-up, Convergence.
    Date: 2008–09
  14. By: Burcu Aydin
    Abstract: Recent developments have increased questions about vulnerabilities in Central and Eastern European Countries (CEE) that are experiencing credit booms. This paper analyzes the role of foreign-owned banks in these credit booms. The results show that the CEE countries depend on foreign banks, and these foreign banks depend on interbank funding. Lending by foreign banks seems driven by economic growth and interest rate margins. This lending appears independent of economic but not financial conditions in the foreign bank's home country.
    Date: 2008–09–15
  15. By: David Büttner (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: We analyse the impact of news on five financial markets in the Czech Republic, Hungary and Poland using a newly-constructed data set in a GARCH framework. Macroeconomic shocks (on GDP, inflation rate, current account and trade balance) are constructed as deviations from expected values. EMU-related political and fiscal news is captured as news dummies. Macroeconomic shocks significantly affect short-term interest rates and - to a lesser extent - other financial variables. Political and fiscal news has an impact on long-term bond yields and exchange rates. News displayed prominently in our media sources has a larger impact on financial markets than other news, in addition the sources of news themselves matter. We also discover asymmetric effects of news within markets. Finally, using a pooled GARCH model we find that macroeconomic shocks have the strongest impact on financial markets in Hungary, while political news has the largest influence in Poland.
    Keywords: Financial markets, Czech Republic, Hungary, Poland, political news, macroeconomic shocks, European Monetary Union
    JEL: G12 G15 F30
    Date: 2008
  16. By: Wolfgang Kerber (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Jürgen-Peter Kretschmer (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Georg von Wangenheim (Departmentof Economics, Universitaet Kassel)
    Abstract: Although both in US antitrust and European competition law there is a clear evolution to a much broader application of "rule of reason" (instead of per-se rules), there is also an increasing awareness of the problems of a case-by-case approach. The "error costs approach" (minimizing the sum of welfare costs of decision errors and administrative costs) allows not only to decide between these two extremes, but also to design optimally differentiated rules (with an optimal depth of investigation) as intermediate solutions between simple per-se rules and a fullscale rule of reason. In this paper we present a decision-theoretic model that can be used as an instrument for deriving optimal rules for a sequential investigation process in competition law. Such a sequential investigation can be interpreted as a step-by-step sorting process into ever smaller subclasses of cases that help to discriminate better between pro- and anticompetitive cases. We analyze both the problem of optimal stopping of the investigation and optimal sequencing of the assessment criteria in an investigation. To illustrate, we show how a more differentiated rule on resale price maintenance could be derived after the rejection of its per-se prohibition by the US Supreme Court in the "Leegin" case 2007.
    Keywords: Law Enforcement, Decision-Making, Competition Law, Antitrust Law
    JEL: K20 K21 K40 D81
    Date: 2008
  17. By: Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank); Marek Rusnák (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper, we provide evidence on the nature and the relative importance of domestic and foreign shocks in Slovak economy based on block-restriction vector autoregression model in 1999-2007. We document well-functioning monetary transmission mechanism in Slovakia. Subject to various sensitivity checks, we find that contractionary monetary policy shock has a temporary negative effect on the degree of economic activity and price level. We find that using output gap instead of GDP alleviates the price puzzle. In general, prices are driven mainly by foreign factors and the European Central Bank monetary policy shock on Slovak prices is more powerful than that of the National Bank of Slovakia. Slovak central bank interest rate policy seems to follow the ECB’s interest rates. On the other hand, spectacular Slovak economic growth is primarily driven by domestic factors suggesting the positive role of recently undertaken Slovak economic reforms.
    Keywords: small open economy, foreign shocks, monetary policy, Slovakia, euro area
    JEL: E58 F41 F42
    Date: 2008–09
  18. By: Mali Chivakul; Ke Chen Chen
    Abstract: Although Bosnia and Herzegovina (BiH) has experienced rapid growth in credit to households in recent years, most individuals are still credit constrained. This paper analyzes the determinants of household credit demand and credit constraints in BiH. To our knowledge, it is the first study on this topic employing household survey data (2001 and 2004) from Emerging Europe. Our results highlight the impact of the post-conflict and transitional nature of the country on the behavior of borrowers and lenders. As expected, age, income, wealth and education qualifications are the main factors driving credit market participation, while high income and high wealth lower credit constraints. In BiH, the probability of credit market participation peaks at 45 years old, considerably higher than in the advanced countries. At the same time, older individuals are significantly more constrained than their peers in the advanced countries. The results imply that the current credit boom may largely reflect the overall post-war demand, and indicate the worse-off position of the older generation in transition economy. Moreover, the results underscore the structural nature of unemployment as well as the mismatch between education qualifications and earning prospects in BiH. Education variables have no significant effect on the likelihood of being constrained, while, unlike in the advanced countries, being unemployed significantly increases the likelihood.
    Keywords: Bosnia and Herzegovina , Credit expansion , Credit restraint , Public debt , Education , Unemployment , Economic conditions , Interest rates , Inflation , Credit policy , Economic models , Working Paper ,
    Date: 2008–08–27
  19. By: Francesco, Guidi
    Abstract: What is the effect of either European Central Bank and Federal Reserve monetary policies on the Italian Index Mibtel? This paper aims to evaluate the impact of monetary policy announcements of the most important Central Banks on the volatility of returns which have been considered at both sectorial and sub-sectorial levels during the period 1999-2008. Using EGARCH models, this work shows that expansive monetary policies may influence stock market indexes much more than restrictive monetary policies. The difference among the two central bank monetary policies is that the ECB influences indexes much more than Fed monetary policy.
    Keywords: Monetary Policies; Stock Returns; Volatility; EGARCH; European Central Bank; Federal Reserve USA.
    JEL: E58 G10
    Date: 2008–09
  20. By: Erling Holmøy and Kyrre Stensnes (Statistics Norway)
    Abstract: The Norwegian pension reform of 2006 intends to (1) improve long run fiscal sustainability by reducing the growth in public old-age expenditures, (2) strengthen labour supply incentives, and (3) maintain the main redistributive features of the present system. We assess to what extent the reform is likely to achieve these three goals, using two empirical models iteratively: We combine a detailed dynamic micro simulation of individual benefits and government pension expenditures with a CGE-model, which captures behavioural effects and equilibrium repercussions. We find that the pension reform improves fiscal balances substantially. Compared to a no-reform scenario, the payroll tax rate can be cut by 10 percentage points in 2050. Increased employment contributes more to the fiscal improvement than the reduction in pension expenditures. However, these changes are basically level effects; the reform has a surprisingly small effect on the growth rate of the necessary tax burden starting in 2020. In particular, the growth rate of public pension expenditures is hardly affected. Stronger government finances and higher employment is obtained at the expense of a significant increase income inequality among old age pensioners.
    Keywords: Pension reforms; Fiscal sustainability; Income distribution; Computable general equilibrium model; Dynamic micro simulation
    JEL: H30 H55 H62 H68 O15
    Date: 2008–09
  21. By: Bart Capéau; André De coster; Kris De Swerdt; Kristian Orsini
    Abstract: We analyse the distributional impact of lowering social security contributions and compensating the revenue loss by an increase in indirect taxes. We empirically assess the distributional consequences of this shift by using two Belgian microsimulation models: MODÉTÉ for the tax benefit system, and aster for the indirect tax part. Since the underlying micro database of the tax benefit system does not contain expenditures, we first impute detailed expenditures in the income data survey, by means of semiparametric Engelcurves. The currently living generation of pensioners belongs to the losers by such a reform: They do not profit from the reduced tax on labour income, but pay higher consumption prices. Less obvious, also part of the working population loses. Even not all those who leave unemployment after the reform are gainers. We also investigate the sensitivity of the results w.r.t. the choice of welfare measure to assess the combined change in disposable income, consumer prices and - in the case of flexible labour supply - leisure. We show how the specific choice and parameters of the welfare measure will influence the conclusions, possibly even more than the predictive model for assessing the behavioural reactions in labour supply.
    Keywords: microsimulation, social security contributions, demand system, indirect taxes, labour supply
    JEL: D12 H31 H55 J22
    Date: 2008–04
  22. By: Marcin Piatkowski; Mariusz Jarmuzek
    Abstract: Global economic integration intensified tax competition and raised concerns about the resulting "race to the bottom", which could undermine public investment and social spending. The aim of this paper is to test predictions that (i) there is interdependence in CIT rate setting in Eastern Europe and that (ii) the recent CIT cut in Moldova may intensify tax competition in the region. It finds that there is indeed evidence that during 1995-2006 countries in Eastern Europe strategically responded to changes in CIT rates in the region and that Moldovan zero CIT is likely to encourage further cuts in CIT. The paper also discusses implications of tax competition for Eastern Europe and finds that FDI flows will not be much affected, tax revenues are likely to decline, the shift in the composition in tax revenue may increase economic efficiency, but decrease equity. Tax coordination, while difficult politically, could help stem further decline in corporate taxation, but any gains might be modest and not certain to exceed the costs of tax coordination. Without tax coordination, however, it is unclear what exactly could stop corporate taxes from falling further.
    Keywords: Moldova , Corporate taxes , Tax policy , Competition , Economic integration , Public investment , Tax revenues , Foreign direct investment , Social policy , Working Paper ,
    Date: 2008–08–28
  23. By: Oliver Falck (Ifo Institute for Economic Research); Stephan Heblich (Max Planck Institute of Economics); Stefan Kipar (Ifo Institute for Economic Research)
    Abstract: If one cluster increases local competitiveness, can politicians, by interlinking clusters, achieve an even better effect at the state level? To answer this question, the paper analyzes the "Cluster Initiative" introduced in 1999 by the Bavarian State Government. The purpose of the initiative was to create a Bavarian-wide innovation network in support of state-wide knowledge flows. Using a difference- in-differences approach, we find that introducing the Bavarian-wide cluster policy increased the likelihood of innovation by a firm in the targeted industry by 4 to 7 percentage points. However, this effect is mainly driven by large firms' increased likelihood to innovate.
    Keywords: Difference-in Difference, Cluster Policy, Regional Policy
    JEL: R38 R11 O32
    Date: 2008–09–25
  24. By: Aaberge, Rolf (Research Department, Statistics Norway); Flood, Lennart (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The purpose of this paper is to evaluate a recent Swedish in-work tax credit reform where we pay particular attention to labor market exclusion; i.e. individuals in as well as outside the labor force are included in the analysis. To highlight the importance of the joint effects from the tax and the benefit systems it appears particular relevant to analyze the labor supply behavior of single mothers. To this end, we estimate a structural microeconometric model of labor supply and welfare participation. The model accounts for heterogeneity in consumption-leisure preferences as well as for constraints in job opportunities. The results of the evaluation show that the reform generates welfare-gains for virtually every single mother, and moreover benefits low-income households. Finally, due to increased labor supply and decline in welfare participation we find that this reform is almost self-financing.<p>
    Keywords: Labor supply; single mothers; in-work tax credit; social assistance; random utility model
    JEL: I38 J22
    Date: 2008–09–30
    Abstract: This paper is an attempt to assess the existence and magnitude of local research spillovers in France. We rely on the model of an extended production function (Cobb-Douglas and Translog) with both local and neighborhood R&D capital stocks. We estimate this model on 312 employment areas as of 1999, first for the whole economy, then separately for five large manufacturing industries. We find estimates of R&D capital elasticities with respect to productivity which are significant and plausible both within own-area and across neighboring areas, as well as within own-industry but not across different industries.
    Keywords: Productivity, R&D, Local R&D Spillovers, Spatial Econometrics
    JEL: O30 O32 O47 C21
    Date: 2008
  26. By: Hernández Quevedo, C; Jiménez Rubio, D
    Abstract: The reduction of inequalities in health and in the access to health services is one of the main objectives in any health care system. Various studies have analysed the existence of inequalities in health and in the use of health care for the Spanish population. However, the empirical evidence for the immigrant collective on this issue is as yet insufficient. This working paper aims to provide evidence on inequalities in health and in the access to health services for the immigrant population living in Spain, relative to that of the autochthonous population, by using the 2003 and 2006 Spanish National Health Survey. After using a pooled ordered probit for a measure of self-assessed health and pooled probit models for several utilisation variables, our results show that there are different patterns in health status and utilisation of health care between nationals and immigrants in Spain. Immigrants report better levels of health status than Spaniards, although they face barriers of entry to health care services. Health policies should focus on reducing legal, cultural and administrative barriers to access health services.
    Keywords: health care utilisation, health limitations, inequalities, immigrants, Spain
    JEL: I12 C21
    Date: 2008–09
  27. By: André Decoster; Kris De Swerdt; Kristian Orsini
    Abstract: The adverse distributional effects of a flat tax are well known and have been documented by empirical research in several countries, including Belgium. Advocates of the flat tax argue, correctly, that these studies do not take into account agents’ behavioural reactions and possible feed back effects. One of the important effects in this context is the potential increase in labour supply and the resulting increase in the taxable base and decrease in unemployment allowances. In this study we calculate the cost recovery based on a micro-simulation model that includes a labour supply model. We find that there is indeed a clearly positive effect on labour supply and hence also on the tax base. By introducing a revenue-neutral flat tax, labour supply increases by approximately 47,000 full-time equivalents. However, the effect is limited because, compared to a static scenario the cost recovery only allows the revenue-neutral flat tax to decrease from 38.5% to 37%. Furthermore, there is little or no impact of these employment effects on the strongly regressive nature of a flat tax reform.
    Date: 2008–08
  28. By: Trannoy, A; Tubeuf, S; Jusot, F; Devaux, M
    Abstract: This article analyses the role played by childhood circumstances, especially social and family background in explaining health status among older adults. We also explore the hypothesis of an intergenerational transmission of health inequalities using the French part of SHARE. As the impact of both social background and parents’ health on health status in adulthood represent circumstances independent of individual responsibility, this study allows us to test for the existence in France of inequalities of opportunity in health related to family and social background. Empirically, our study relies both on tests of stochastic dominance at first order and multivariate regressions, supplemented by a counterfactual analysis to evaluate the longlasting impact of childhood conditions on inequality in health. Allocating the best circumstances in both parents’ SES and parents’ health reduces inequality in health by an impressive 57% using the Gini coefficient. The mother’s social status has a direct effect on the health of her offspring. By contrast, the effect on the descendant’s health from the father’s social status is indirect only, going through the descendant’s social status as an adult. There is also a direct effect of each parent’s health on health in adulthood.
    Keywords: Stochastic dominance - equality of opportunity – inequality in health – intergenerational transmission – older adults – Gini index
    Date: 2008–10

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