nep-eec New Economics Papers
on European Economics
Issue of 2008‒10‒13
eighteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The European Commission´s Proposal for a Common Consolidated Corporate Tax Base By Clemens Fuest
  2. Testing Mundell’s Intuition of Endogenous OCA Theory By Warin, Thierry; Wunnava, Phanindra V.; Janicki, Hubert
  3. Effects of Flat Tax Reforms in Western Europe on Income Distribution and Work Incentives By Paulus, Alari; Peichl, Andreas
  4. Development and rural poverty in the Regions of the European Union (Sviluppo e povertà rurale nelle regioni dell'Unione Europea) By Paola Bertolini; Marco Montanari
  5. Productivity growth and technological change in Europe and the U.S. By Diego Martínez; Jesús Rodríguez-López; José L. Torres
  6. Subjective Well-Being and the Duration of Aggregate Unemployment in Europe By Carsten Ochsen
  7. Decomposition of GDP-growth in some European Countries and the United States By Henk Kranendonk; Johan Verbruggen
  8. Offshoring, Relocation and the Speed of Convergence in the Enlarged European Union By Kari E.O. Alho; Ville Kaitila; Mika Widgrén
  9. The Internal Market and the Dutch Economy By Bas Straathof; Gert-Jan Linders; Arjan Lejour; Jan Möhlmann
  10. Projet OCDE sur la migration des professionnels de santé : Le cas de la France By OCDE
  11. Bridging the Housing Gap in Poland By Rafal Kierzenkowski
  12. Are houses overvalued in the Netherlands? By Henk Kranendonk; Johan Verbruggen
  13. The Dynamics of Social Assistance Receipt: Measurement and Modelling Issues, with an Application to Britain By Lorenzo Cappellari; Stephen P. Jenkins
  14. The Impact of Derivatives Usage on Firm Value: Evidence from Greece By KAPITSINAS, SPYRIDON
  15. Migrant networks: Empirical Implications for the Italian Bilateral Trade By Marina Murat; Barbara Pistoresi
  16. The Dynamics of Child Poverty in Sweden By Lindquist, Matthew J.; Sjögren Lindquist, Gabriella
  17. The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective By Marika Karanassou; Hector Sala
  18. Mismatches in the Formal Sector, Expansion of the Informal Sector: Immigration of Health Professionals to Italy By Jonathan Chaloff

  1. By: Clemens Fuest (Oxford University Centre for Business Taxation)
    Abstract: The European Commission currently prepares a proposal for a directive on the introduction of a Common Consolidated Corporate Tax Base (CCCTB). This paper reviews the current state of the European Commission´s preparation of the CCCTB proposal and discusses the implications for efficiency and fairness of the tax system. The analysis concludes that more evidence of significant economic benefits from introducing a CCCTB would be required to generate widespread support for the project.
    Keywords: Corporate Taxation; European Commission, CCCTB
    JEL: H25
    Date: 2008
  2. By: Warin, Thierry (Middlebury College); Wunnava, Phanindra V. (Middlebury College); Janicki, Hubert (Arizona State University)
    Abstract: This paper presents an empirical assessment of the endogenous optimum currency area theory. Frankel and Rose (1998) study the endogeneity of a currency union through the lens of international trade flows. Our study extends Frankel and Rose's model by using FDI flows to test the original theory developed by Mundell in 1973. A gravity model is used to empirically assess the effectiveness of the convergence criteria by examining location specific advantages that guide multinational investment within the European Union. A fixed effects model based on a panel data of foreign direct investment (FDI) flows within the EU-15 shows that horizontal investment promotes the diffusion of the production process across the national border. Specifically, our results suggest that economic convergence ensured by belonging to the common currency area helps double FDI flows.
    Keywords: economic integration, gravity model, endogenous optimum currency area
    JEL: C23 C52 F15
    Date: 2008–09
  3. By: Paulus, Alari (ISER, University of Essex); Peichl, Andreas (IZA)
    Abstract: The flat income tax has become increasingly popular recently, yet its implementation is limited to Eastern Europe. We analyse the distributional and efficiency effects of flat tax scenarios for Western European countries. Our simulations show that flat tax rates required to attain revenue neutrality with existing basic allowances improve labour supply incentives. However, they result in higher inequality and polarisation. Flat rates necessary to keep the inequality levels unchanged allow for some scope for flat taxes to increase both equity and efficiency. Our analysis suggests that Mediterranean countries are more likely to benefit from flat taxes.
    Keywords: flat tax reform, income distribution, work incentives, microsimulation
    JEL: C81 D31 H24
    Date: 2008–09
  4. By: Paola Bertolini; Marco Montanari
    Abstract: The paper represents a first tentative analysis of the phenomenon of rural poverty in in the European Union's regions. In the first part, the paper discusses the problem of defining rural areas and examines the indicators used for international comparisons, notably the OECD definition, which provides the most widely used classification of rurality. Afterwards, we propose a different typology of rural and non-rural areas, based on population density and the share of employment in agriculture. Three categories of regions ("Predominantly Urban", "Intermediate" and "Predominantly Rural") are identified and then compared with regard to the following socio-economic aspects: income, demography, education and labour market. The analysis includes the whole EU-27 territory at NUTS3 level and uses EUROSTAT data, supplemented in some cases by national data. The conclusions of the paper underline the relevance of the rural poverty phenomenon in Europe.
    Keywords: rural poverty; European Union; rurality
    JEL: R10 R11 R23
    Date: 2008–06
  5. By: Diego Martínez (Universidad Pablo de Olavide); Jesús Rodríguez-López (Universidad Pablo de Olavide); José L. Torres (Universidad de Málaga)
    Abstract: This paper presents an evaluation on the technological sources of labor productivity growth across European countries and the US economy for the period 1980-2004. Assets of capital are divided into those related to the information and communication technologies (ICT), and non-ICT assets. Technological progress is divided into neutral change and investment specific change. Previous exercises have aimed at ICT as a serious contributor to the upsurge of US productivity from 1995 on. Contribution to productivity growth from each type of technological progress for the US and EU-15 countries is computed using two different approaches: a growth accounting and a general equilibrium. The US and Denmark are the countries with the larger contribution from ICT-technological progress. Overall, we find that Europe is well behind the US in terms of the effects of ICT technological change.
    Keywords: Productivity growth, Investment-specific technological change, Neutral technological change
    JEL: O4
    Date: 2008–10
  6. By: Carsten Ochsen (University of Rostock)
    Abstract: This study examines whether the distribution of aggregate unemployment by duration affects individual well-being. Two hypotheses are provided to explain how the shares of short-term (up to 3 months) and long-term (more than 1 year) unemployed people could affect the well-being of the employed and unemployed: The severity hypothesis and the flow hypothesis. Using data from almost 300,000 individuals from 11 EU countries, an ordered probit estimator is used to analyze the impact of the distribution of aggregate unemployment by duration on individual well-being. We find significant evidence in favor of both the severity and the flow hypotheses. Hence, the fear of losing (or not finding) a job is more detrimental when the prospect is to remain unemployed for a longer time. At some point, however, both the employed and unemployed adapt to unemployment at the macro level. Using an alternative specification that allows for a duration-specific risk of becoming/being unemployed, we arrive at similar conclusions. What seems to bother people is thus not just the risk of becoming/remaining unemployed, but more so the risk of being out of work for 4 to 12 months.
    Keywords: unemployment, unemployment duration, life satisfaction, happiness
    JEL: J64 I31
    Date: 2008
  7. By: Henk Kranendonk; Johan Verbruggen
    Abstract: The composition of economic growth can be analyzed in two different ways. In the ‘traditional method’ for the decomposition of GDP growth, total imports are deducted from exports. This approach underestimates the importance of exports for the growth in GDP, and overestimates the importance of domestic expenditure categories. In the alternative methodology proposed in this paper, imports are allocated to all expenditure categories. Although this ‘import-adjusted method’ is more complex than the ‘traditional method’, it has the considerable advantage that the contributions of the expenditure categories to GDP growth provide a better understanding of why GDP growth decelerates or accelerates. The methodology and data requirements for calculating the import content of final demand, and the implications for the decomposition of real GDP growth, are discussed. For six European countries and the United States, the paper shows that applying the alternative methodology provides rather a different economic story.
    Keywords: GDP growth; contribution demand categories; imports
    JEL: C67 O40
    Date: 2008–09
  8. By: Kari E.O. Alho; Ville Kaitila; Mika Widgrén
    Abstract: ABSTRACT : Economic convergence of the new member states (NMS) of the EU towards the old EU countries (EU-15), not only in terms of real income, but also in nominal terms, is of paramount importance for the whole of the EU. We build a dynamic CGE model, starting from the Balassa-Samuelson two-sector framework, but modify and enlarge it with forward-looking investment, consumption, and labour mobility behaviour to address several other issues like welfare and sustainability in terms of foreign indebtedness. At the same time we evaluate the impact of convergence on the EU-15 countries also, by endogenising offshoring and the related FDI flows from them to the NMS. Thereby we identify various effects of relocation and globalisation on the EU-15 enlarging the standard set of effects of globalisation and demonstrate the key role of their dynamic nature in the process of convergence. We find that in a general equilibrium setting fears of large adverse effects of a relocation of EU-15 manufacturing to the NMS are not well founded. In contrast, offshoring appears to be a win-win case for both the EU-15 and the NMS in terms of real income. The convergence of the NMS is fairly rapid, but will involve a persistent rapid inflation rate.
    Keywords: convergence, relocation, new member states, EU-15
    JEL: F15 F21 F43
    Date: 2008–10–03
  9. By: Bas Straathof; Gert-Jan Linders; Arjan Lejour; Jan Möhlmann
    Abstract: This paper estimates the effects of the formation and development of the Internal Market (IM) in the European Union on income per capita for the EU and specifically for the Netherlands, since its appearance in 1958. It does so in two stages. First, gravity equations are estimated to identify the impact of the IM on bilateral trade in goods and services and Foreign Direct Investment (FDI). The results of the first stage show that 8 percent of the exports and imports of goods by the EU members can be attributed to the IM. For services trade, the IM effects are somewhat smaller: about 5 percent of EU members’ services trade. The IM has a bigger impact on FDI stocks. For the Netherlands, the IM has about twice as large an effect on trade in goods compared to the results for the EU. For services trade and FDI, the effects are in line with the results for the EU. Second, the trade-enhancing effect of IM on GDP is estimated. For 2005, IM integration of goods markets has yielded 2 to 3 percent higher per capita income in the EU, and about 4 to 6 percent higher income per capita in the Netherlands. If the current level of integration effects with respect to the IM for goods and services persists, GDP per capita in the long run will increase by about 10 percent in the EU and about 17 percent in the Netherlands.
    Keywords: European Union, Internal Market; gravity equation; openness and income
    JEL: F15 F4
    Date: 2008–09
  10. By: OCDE
    Abstract: Ce document examine la démographie des professionnels de la santé en France ainsi que les évolutions récentes des politiques migratoire relatives aux professionnels de la santé. Il traite également de la planification des effectifs et du rôle possible du recrutement du personnel de la santé étranger dans les années à venir.<p> L’évolution des effectifs au cours des années 90 a été marquée par des restrictions concernant la formation de médecins et d’infirmières. Depuis lors, les capacités de formation ont été fortement accrues, et la France se situe ainsi au niveau de la moyenne européenne et au dessus de l’ensemble des pays de l’OCDE en termes de densité de médecin. Les chiffres disponibles montrent qu’en France, le recrutement international de professionnels de santé ne joue pas un rôle prépondérant. Une proportion importante de ceux qui sont formés à l’étranger sont originaires de pays membres de l’Union Européenne, notamment en raison des dispositions législatives européennes, qui vise à faciliter la reconnaissance de diplôme des ressortissants de l’UE pour la plupart des professions de la santé. Pour ce qui est des diplômés hors Union Européenne, ils doivent répondre à des mesures plus restrictives, mises en place par la législation française, qui limite l’accès à la profession. Les médecins et infirmiers formés à l’étranger sont principalement employés en milieu hospitalier.... <BR>This report examines health workforce demographics in France, together with recent trends in migration policies regarding health professionals. It also analyses workforce planning and the possible role of the recruitment of foreign health workers in coming years.<p> Workforce trends in the 1990s were marked by restrictions governing the training of doctors and nurses. Since then, training capacities have expanded significantly, and France is now on a par with the European average and above the OECD-wide average in terms of density of doctors. The available figures show that the international recruitment of health professionals does not play a decisive role in France. A large share of foreign-trained health workers come from EU countries, in particular because of the European legislation aimed at facilitating recognition of diplomas of EU nationals for most health professions. Non-EU diplomas, however, are subject to tighter restrictions laid down by French legislation, which limits access to the profession. Foreign-trained doctors and nurses are primarily employed in hospitals....
    Date: 2008–10–01
  11. By: Rafal Kierzenkowski
    Abstract: Despite a high level of homeownership, the housing market in Poland is suffering from an important shortage. The difference between the number households and available dwellings, the number of dwellings per thousand inhabitants, and the availability of basic amenities (especially in rural areas) all indicate that significant improvements are needed to catch up to the most affluent OECD and EU countries. The formal rental segment of the market is also underdeveloped, contributing to low labour mobility and persistent disparities in regional unemployment. Given the social, economic and political dimensions of the problem, various housing policies implemented since the beginning of the transition process have aimed to fill the housing gap, though they have been either narrow in scope or have led to unclear results. However, the housing market has been buoyant in recent years, spurred by rising levels of GDP per capita, lower interest rates and the emergence of a competitive mortgage market. Yet a brisk price appreciation has also occurred at the same time, while households’ exposure to interest- and exchange-rate risks has significantly increased and banks’ funding capabilities have shrunk. Although the market has not been directly affected by the recent global financial turmoil, recent information shows that a turn-around is underway, with prices declining in several major cities as sentiment has plunged. This raises concerns about the capacity of the market to achieve a smooth adjustment in the face of a possible downturn. <P>Combler le déficit de logements en Pologne <BR>Malgré la place importante qu’occupe la propriété, le marché immobilier polonais pâtit d’une importante pénurie de logements. La différence entre le nombre de ménages et le nombre de logements disponibles, la densité de logements par millier d’habitants et l’équipement en éléments de confort de base (en particulier dans les zones rurales) sont autant de facteurs qui témoignent des progrès que la Pologne doit encore accomplir pour se hisser au niveau des pays les plus riches de l’OCDE et de l’Union européenne. Le segment locatif formel est également sous-développé, ce qui contribue à une faible mobilité de la main-d’oeuvre et à la persistance de disparités régionales du chômage. La question du logement ayant une dimension sociale, économique et politique, la plupart des politiques du logement mises en oeuvre depuis le début du processus de transition visaient à combler le déficit de logements, mais avaient une portée insuffisante ou ont eu des résultats mitigés. Il n’en reste pas moins que le marché immobilier a été dynamique ces dernières années, notamment en raison de la hausse du PIB par habitant, de la baisse des taux d’intérêt et de l’apparition d’un marché hypothécaire concurrentiel. Toutefois, dans le même temps, les prix se sont fortement appréciés, tandis que l’exposition des ménages aux risques de taux de change et de taux d’intérêt s’est fortement accrue, ce qui a réduit les capacités de financement des banques. Par ailleurs, bien que le marché polonais n’ait pas été directement touché par les turbulences financières qui ont secoué l’économie mondiale ces derniers temps, de récentes données montrent que le retournement du marché est en cours, les prix ayant baissé dans plusieurs grandes villes à mesure que le climat des affaires se dégradait. Cette situation amène à s’interroger sur la capacité des marchés à réussir un ajustement en douceur en cas de retournement.
    JEL: E22 E51 P33 R21 R31
    Date: 2008–09–29
  12. By: Henk Kranendonk; Johan Verbruggen
    Abstract: The movement of the level of house prices in the Netherlands between 1980 and 2007 is explainable fairly well by fundamental supply and demand factors. Empirical research has shown that the overvaluation of approximately 10% that existed in 2003 shrunk to approximately 0% in 2007. This was not caused by downward correction of house prices, but by the circumstance that the increase of the actual house price between 2003 and 2007 lagged behind the increase of the long-term value of the house price. Therefore, this does not confirm the IMF’s recently published research results, indicating that approximately 30% of the house price increase between 1997 and 2007 cannot be explained by fundamental factors.
    Keywords: House prices; housing market
    JEL: E39 R21 R31
    Date: 2008–04
  13. By: Lorenzo Cappellari; Stephen P. Jenkins
    Abstract: We model the dynamics of social assistance benefit receipt in Britain using data from the British Household Panel Survey, waves 1–15. First, we discuss definitions of social assistance benefit receipt, and present information about the trends between 1991 and 2005 in the receipt of social assistance benefits, and in annual rates of transition into and out of receipt. Second, we review potential multivariate modelling approaches especially the dynamic random effects probit models that are used in our empirical analysis and, third, discuss sample selection criteria and explanatory variables. Fourth, we present our regression estimation estimates and interpret them. The final section contains a summary of the substantive results, and highlights some lessons concerning application of the analysis for other countries and some methodological issues.
    JEL: C33 C35 I38
    Date: 2008–10–01
    Abstract: This paper presents evidence on the use of derivative contracts in the risk management process of Greek non-financial firms and its potential impact on firm value. The sample of the research consists of 81 Greek non-financial firms with exposure to financial risks that are listed in the Athens Stock Exchange and have their annual report published according to the International Financial Reporting Standards (I.F.R.S) for the years 2004-2006. The subject of investigation is whether hedging with derivatives materially increases firm value as many related research has proven, or whether hedging does not affect firm value and can be attributed to managerial or other motives. Having used Tobin’s Q as a proxy for firm value a positive and significant effect of hedging on it is verified, 4.6% of firm value on average, not only concerning the general use of derivatives, but also the use of foreign exchange derivatives and interest rate derivatives in particular. Controlling for managerial motives does not change the sign of the hedging premium, nor its magnitude.
    Keywords: risk management; financial risk; derivatives; corporate finance; Greece.
    JEL: G32
    Date: 2008–09–30
  15. By: Marina Murat; Barbara Pistoresi
    Abstract: A significant number of empirical studies, focusing on different countries, have found a positive link between migration and trade. This paper studies the relationship between emigration, immigration and trade using Italian data. The sample regards 51 foreign trading partners and spans from 1990 to 2005. The results suggest that: networks of Italian emigrants in foreign countries boost bilateral trade. The effects of immigrants are weak, on exports, or negative, on imports. Results do not change when the cultural and institutional dissimilarities between countries are considered.
    Keywords: International Migration, Italian Bilateral Trade
    JEL: F10 F22 F23
    Date: 2007–09
  16. By: Lindquist, Matthew J. (Dept. of Economics); Sjögren Lindquist, Gabriella (Swedish Institute for Social Research, Stockholm University)
    Abstract: The purpose of this paper is to study (empirically) the dynamics of child poverty in Sweden, the quintessential welfare state. We find that 1 out of every 5 children is disposable income poor at least once during his or her childhood, while only 2 percent of all children are chronically poor. We also document a strong life-cycle profile for child poverty. Just over 20 percent of all children are born into poverty. The average poverty rate then drops dramatically to about 7.5 percent among 1-year old children. After which, it declines (monotonically) to about 3.9 percent among 17-year olds. Children in Sweden are largely protected (economically) from a number of quite serious events, such as parental unemployment, sickness and death. Family dissolution and longterm unemployment, however, do push children into poverty. But for most of these children, poverty is only temporary. Single mothers, for example, are overrepresented among the poor, but not among the chronically poor. Children with immigrant parents are strongly overrepresented among the chronically poor; as are children whose parents have unusually low educations. We argue that information about the dynamics of child poverty may help policy makers to construct more salient policies for fighting child poverty.
    Keywords: child poverty; chronic poverty; poverty dynamics
    JEL: I32 J13
    Date: 2008–10–01
  17. By: Marika Karanassou (Queen Mary, University of London and IZA); Hector Sala (Universitat Autònoma de Barcelona and IZA)
    Abstract: The evolution of Spanish unemployment has been quite idiosyncratic. The full-employment levels of the early seventies were followed by unemployment rates that were the highest within the OECD countries in the aftermath of the oil price shocks. While unemployment was extremely persistent in most of the eighties and nineties, it experienced its sharpest decline in recent years. We investigate the determinants of this unemployment trajectory using the analytical framework of the chain reaction theory (CRT). We show that unemployment may not gravitate towards its natural rate due to <i>frictional growth</i>, a phenomenon that arises from the interplay of lagged adjustment processes and growing exogenous variables in a dynamic system with spillovers. The empirical analysis distinguishes four periods: (i) 1978-1985, (ii) 1986-1990, (iii) 1991-1994, (iv) 1995-2005, and finds that capital accumulation is a crucial driving force of unemployment. Thus, our theoretical and empirical results question the key role of the natural rate in policy making.
    Keywords: Labour market dynamics, Frictional growth, Chain reaction theory, Capital accumulation, Impulse response function
    JEL: E22 E24 J21
    Date: 2008–10
  18. By: Jonathan Chaloff
    Abstract: Italy has an aging population which is placing a strain on the public health system and on families. At the same time, it has a distorted market of supply of health professionals. Past over enrolment in medical faculties has produced a current glut of doctors, although shortages will appear as this cohort retires. It is difficult for foreign-trained doctors, and Italian-trained foreigners, to practice medicine in Italy. In nursing, the situation is more critical, with far fewer graduates of nursing schools than necessary even to meet replacement needs. Care for the aged, which was traditionally borne by families, has increasingly been delegated to informal immigrant workers. In the absence of major changes in the care industry, recruitment efforts for nurses and other health technicians has expanded to include other source countries. Obstacles to international recruitment of nurses have been reduced, both by simplifying recognition of foreign qualifications and by exempting nurses from limits on labour migration to Italy. However, a ban on permanent employment in the public sector has relegated foreign nurses largely to private sector and shorter-term contract work. National and local health authorities have also become involved in supporting international recruitment of nurses, often through private agencies. In the home-care sector, families have been granted more opportunities to hire care workers from abroad legally, and many local authorities are attempting to integrate this spontaneous private care into their eldercare system through skill upgrades and support. Nonetheless, international migration will not be sufficient to solve Italy’s health care professional needs. <BR>Le vieillissement de la population en Italie pèse lourdement sur le système de santé public et les familles. Parallèlement, l’offre de professionnels de la santé sur le marché du travail est déséquilibré. Dans le passé, le nombre excessif d’inscriptions dans les facultés de médecine a entrainé une surabondance de médecins, mais des pénuries apparaîtront au fur et à mesure qu’ils partiront à la retraite. Il est difficile pour les médecins ayant étudié à l’étranger et les immigrés qui se sont qualifiés en Italie d’exercer la médecine dans ce pays. En ce qui concerne les infirmières, la situation est plus critique, avec un trop petit nombre de diplômés des écoles d’infirmières, même pour satisfaire uniquement les besoins de remplacement. Les soins aux personnes âgées, incombant traditionnellement aux familles, ont été de plus en plus délégués aux immigrés du secteur informel. En l’absence de changements majeurs dans les politiques de la santé, des efforts ont été faits pour recruter des infirmières et personnels de santé dans d’autres pays d’origine. La simplification de la reconnaissance des qualifications acquises à l’étranger et l’exemption de quotas d’infirmières étrangères sur le marché du travail en Italie ont réduit les obstacles au recrutement international d’infirmières. Cependant, l’interdiction de les employer de façon permanente dans le secteur public a relégué la majorité des infirmières étrangères dans le secteur privé et dans les contrats de travail à court terme. L’administration sanitaire nationale et locale a aussi contribué au recrutement international des infirmières souvent par le biais d’agences privées. Dans le secteur des soins à domicile, les familles se sont vu octroyer plus d’opportunités pour recruter légalement à l’étranger du personnel de soins à domicile. Beaucoup d’autorités locales s’efforcent d’intégrer ce type de soins privés dans leurs systèmes de soins aux personnes âgées en assistant les personnels soignants privés et en renforçant leurs compétences. Néanmoins, les migrations internationales ne seront pas suffisantes pour répondre aux besoins de l’Italie en professionnels de la santé.
    JEL: I19 J61
    Date: 2008–10–01

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