nep-eec New Economics Papers
on European Economics
Issue of 2009‒03‒22
fifteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Differentiated Impact of the Global Crisis By Mario Holzner; Sebastian Leitner; Josef Pöschl; Anton Mihailov; Waltraut Urban; Hermine Vidovic; Leon Podkaminer; Sándor Richter; Olga Pindyuk; Vladimir Gligorov; Gábor Hunya; Vasily Astrov; Peter Havlik; Zdenek Lukas
  2. The Excess Power Puzzle of the EU Budget By Heikki Kauppi; Mika Widgrén
  3. Fiscal Stimulus Packages and Uncertainty in Times of Crisis – The Option of Waiting Can Be Valuable, Though! By Ansgar Belke
  4. Can European Economics Compete with U.S. Economics? And Should It" By David Colander
  5. Real Convergence and Inflation: Long-Term Tendency vs. Short-Term Performance By Leon Podkaminer
  6. Well-being of Migrant Children and Migrant Youth in Europe By Kenneth Harttgen; Stephan Klasen
  7. Financing Social Security by Taxing Capital Income – A Bad Idea? By Lars Kunze; Christiane Schuppert
  8. How Far From the Euro Area? Measuring Convergence of Inflation Rates in Eastern Europe By Bettina Becker; Stephen G. Hall
  9. Where Do the Newest EU Member States Stand on the Road to Monetary Integration? By Elena Bojesteanu; Gabriel Bobeica
  10. Farm performance and support in Central and Western Europe: A comparison of Hungary and France By Laure Latruffe; Jozsef Fogarasi
  11. Cross-border metropolitan integration in Europe (Luxembourg, Basel and Geneva) By Sohn, Christophe; Reitel, Bernard; Walther, Olivier
  12. Modelling the Effects of Immigration on Regional Economic Performance and the Wage Distribution: A CGE Analysis of Three EU Regions By Pouliakas, Konstantinos; Roberts, Deborah; Balamou, Eudokia; Psaltopoulos, Dimitris
  13. Achieving Fiscal Flexibility and Safeguarding Sustainability - The Case of Slovakia By Isabell Koske
  14. Labour Incentive Reforms in Pre-Retirement Age in Austria By Narazani E; Shima I
  15. Do forecasters inform or reassure? Evaluation of the German real-time data By Konstantin A. Kholodilin; Boriss Siliverstovs

  1. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Josef Pöschl (The Vienna Institute for International Economic Studies, wiiw); Anton Mihailov; Waltraut Urban (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sándor Richter (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Gábor Hunya (The Vienna Institute for International Economic Studies, wiiw); Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Zdenek Lukas (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The report analyses recent economic developments and short- and medium-term development prospects, covering the countries of Central and Eastern Europe and Southeast Europe including Turkey, together with Russia, Ukraine, Kazakhstan and China. Separate chapters present an overview of developments in the European Union's New Member States and in Southeast European countries, or deal with the global economic environment and the role of the energy sector.
    Keywords: Central and East European new EU member states, Southeast Europe, Balkans, former Soviet Union, China, Turkey, economic forecasts, GDP growth, labour productivity, exchange rates, inflation, EU integration
    JEL: O52 O57 P24 P27 P33 P52
    Date: 2009–02
  2. By: Heikki Kauppi (Department of Economics, University of Turku); Mika Widgrén (Department of Economics, Turku School of Economics)
    Abstract: It is a constant topic of debate how the European Union (EU) spends the money it collects from its member states. This paper supports the idea that the EU budget battle involves one-shot games that have persistent impacts on the budget allocations. In one way or the other, the member states are able to establish rules or contracts that restrict the budget allocation in advance. In the current status quo, France and Spain are the clearest winners of these restrictions, while Austria, Finland and Sweden, not to mention the new member states, suffer largest losses.
    Keywords: EU budget, voting power
    JEL: C71 D70 D72
    Date: 2009–03
  3. By: Ansgar Belke
    Abstract: Policymakers in the EU member states are currently shaping rescue packages to prevent the financial crisis hitting their economies with unmitigated force. Each government is responding to the emerging problems with a country-specific set of measures. Given the global nature of the crisis, would coordinated action at the European level not be a better approach?Was the German government – much-criticized for its initial reluctance to adopt massive fiscal stimulation measures – right after all to exploit the option value of waiting in a situation of high uncertainty? The answer to the second question is a qualified “yes”. However, the answer to the first one is more complex and crucially depends on how reasonable it appears to model the impact of the economic crisis as an exogenous demand shock which has hit the euro area countries.
    Keywords: Policy co-ordination, fiscal multiplier, fiscal stimulus package, liquidity constraint, option value of waiting, uncertainty
    JEL: E62 F42 H62
    Date: 2009–02
  4. By: David Colander
    Date: 2009–02
  5. By: Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The cross-country relationship between the relative price level and the relative GDP level is found to be significant and stable for EU member states over the period 1997-2006. The joint dynamics of price and GDP levels tend to gravitate towards the regression line but there is no shorter-term trade-off between fast real convergence and low inflation. Contrary to popular perception high inflation is not necessary for fast convergence. Moreover the trajectories of certain euro area states indicate that giving up one's national currency is risky: it may stop convergence or even precipitate divergence. Problems may also emerge when the initial parity is weak. In addition, the inability to nominally devalue may prove very costly. However retaining one's national currency is not risk-free, even if domestic inflation is low, and even though subsequent corrective devaluations remain possible. While participation in the euro area has proved troublesome for some countries, it is in the interest of all member states to deepen wage and fiscal policy integration in order to help overcome the stagnation experienced in those euro area states that suffer from strongly overvalued price levels.
    Keywords: real convergence, relative price level, inflation, euro, EU
    JEL: E31 F15 F43 O47
    Date: 2008–12
  6. By: Kenneth Harttgen (University of Göttingen / Germany); Stephan Klasen (University of Göttingen / Germany)
    Date: 2009–03–06
  7. By: Lars Kunze; Christiane Schuppert
    Abstract: This paper examines the growth effects of an increase of capital income taxes with additional revenue being devoted to cut wage-related social security contributions to reduce unemployment. The analysis is carried out in an overlapping generations model with endogenous growth, unemployment and a social security system comprising pensions and unemployment benefits. It is shown that the reform not only promotes employment but may additionally stimulate economic growth. Calibrating the model to match data for the EU15 reveals that European countries can indeed gain in form of higher employment and growth if the initial capital income tax is not too high.
    Keywords: Capital income taxation, social security, imperfect labor market, overlapping generations, growth
    JEL: H24 H55 O40
    Date: 2009–03
  8. By: Bettina Becker (Department of Economics, Loughborough University); Stephen G. Hall (Department of Economics, University of Leicester)
    Abstract: We present a common factor framework of convergence which we implement using principal components analysis. We apply this technique to a dataset of monthly inflation rates of EMU and the Eastern European New Member Countries (NMC) over 1996-2007. In the earlier years, the NMC rates moved independently from an average of the three best performing countries over the past twelve months, while they moved somewhat closer in line with them in the later years. Looking at the sample of the EMU and NMC countries as a whole, there is evidence of a formation of convergence clubs across the two groups.
    Keywords: Convergence, inflation rates, European Monetary Union, principal components analysis.
    JEL: C22 F31
    Date: 2009–03
  9. By: Elena Bojesteanu (Academy of Economic Studies (Romania)); Gabriel Bobeica (Academy of Economic Studies (Romania))
    Abstract: The present study sheds light on important aspects of monetary integration in the European Union involving the newest member states. It assesses the degree to which they satisfy the business cycle correlation criteria. Our results demonstrate that there is a common business cycle in the Euro area and that most of the candidate countries exhibit convergence with this group, with the remarkable exception of Estonia, Lithuania, Slovakia and Romania. Bulgaria shows better achievements than Romania in terms of business cycle synchronization with the Euro zone.This paper was presented at the 18th International Conference of the International Trade and Finance Association meeting at Universidade Nova de Lisboa, Lisbon, Portugal, on May 23, 2008.
    Date: 2008–08–06
  10. By: Laure Latruffe; Jozsef Fogarasi
    Abstract: The paper investigates the difference in technical efficiency and in productivity change, and the technology gaps, between French and Hungarian farms in the dairy and cereal, oilseeds and proteinseeds (COP) sectors during the period 2001-2004. The analyses are performed with national FADN data and the Data Envelopment Analysis (DEA) approach under each country’s respective frontier and under a metafrontier. Results revealed that in both the dairy and the COP sectors, Hungarian farms’ technology was the more productive, despite a technological deterioration. This suggests technological advantages for large-scale (Hungarian) over small-scale (French) farming in these two sectors. These findings may also be explained by the higher policy support in France. Subsidies received by farms have indeed a stronger negative impact on technical efficiency for French farms than for Hungarian farms, and a negative impact on the ability to lead the technology only for French farms.
    Keywords: technology gap, technical efficiency, Malmquist indices, subsidies, farms
    JEL: P51 D24 Q12
    Date: 2009
  11. By: Sohn, Christophe (Centre for Population, Poverty and Public Policy Studies (CEPS/INSTEAD), Luxembourg); Reitel, Bernard (University of Upper Alsace, France); Walther, Olivier (Centre for Population, Poverty and Public Policy Studies (CEPS/INSTEAD), Luxembourg)
    Abstract: This article questions the integration processes in three small cross-border metropolitan areas: Luxembourg, Basel and Geneva. By referring to an original analysis framework, it evaluates the nature and intensity of the functional and institutional integration and highlights the elements that structure the cooperation between the actors. The analysis shows that there is not necessarily a reciprocal link between the size of the functional area and the extent of the cooperation. Whilst no metropolitan-sized project is on the agenda in Luxembourg, the example of Basel and Geneva shows that the presence of a national border offers an opportunity to invent original forms of governance, increase the autonomy of the local authorities by different types of cooperation which transcend the institutional and territorial divides, and enable the international character of the metropolitan centre to be valued for what it is. In a context of global competition, these features represent an undeniable benefit.
    Keywords: Metropolitan regions; Governance ; Border studies ; Integration ; Europe
    JEL: R12 R58 P41 P52
    Date: 2009–02
  12. By: Pouliakas, Konstantinos; Roberts, Deborah; Balamou, Eudokia; Psaltopoulos, Dimitris
    Abstract: The paper uses a regional Computable General Equilibrium (CGE) model to analyse the effects of immigration on three small remote EU regions located within Scotland, Greece and Latvia. Two migration scenarios are assessed. In the first, total labour supply is affected. In the second, the importance of migratory flows by differential labour skill types is investigated. The results indicate significant differences in the extent to which regional economies are affected by immigration. They also suggest that remote regions are highly vulnerable to the out-migration of skilled workers (‘brain-drain’) while the in-migration of unskilled workers leads to widening wage inequality.
    Keywords: Immigration; CGE; Skills; Wage Inequality; Brain-drain; Regional economies
    JEL: R13 D33 D58 R23
    Date: 2008–11–30
  13. By: Isabell Koske
    Abstract: Euro area entry calls for more fiscal flexibility to absorb cyclical shocks that cannot be dealt with by the common monetary policy. At the same time fiscal consolidation must not be put at risk, especially given rising ageing related costs. The current fiscal framework could be improved by introducing multi-year expenditure ceilings and by removing pro-cyclical elements in fiscal rules. An adjustment account that serves to register breaches of fiscal rules and eliminates them over time could help in coping with projection errors. To ensure long-term sustainability of public finances it is essential not to dilute the substantial improvements in the long-term balance of the definedbenefit pillar associated with past pension reforms. The government should consider making participation in the defined contribution pillar mandatory for new labour market entrants or, at the very least, make it the default option. For current workers the pillars should remain closed. Moreover, further parametric changes such as increasing the retirement age in line with life expectancy gains and reducing unsustainable elements in the pension formula would improve the balance of the defined benefit pillar.<P>Introduire plus de flexibilité budgétaire et préserver la viabilité des finances publiques - le cas de la Slovaquie<BR>L’entrée dans la zone euro exige plus de flexibilité budgétaire pour absorber les chocs cycliques auxquels ne peut remédier la politique monétaire commune. Mais, dans le même temps, il ne faut pas compromettre l’assainissement budgétaire, surtout avec l’augmentation des dépenses liée au vieillissement. On pourrait améliorer le cadre budgétaire actuel en introduisant des plafonds pluriannuels de dépenses et en mettant fin aux éléments procycliques des règles de politique budgétaire. Un compte d’ajustement enregistrant les écarts par rapport aux règles de politique budgétaire et les éliminant à terme pourrait être utile pour corriger les erreurs de prévision. Pour assurer la viabilité à long terme des finances publiques, il est indispensable de ne pas remettre en cause la nette amélioration à long terme de l’équilibre du régime de retraite à prestations définies, rendue possible par les réformes antérieures. Le gouvernement devrait envisager une participation obligatoire des nouveaux entrants sur le marché du travail au régime à cotisations définies ou, au moins, faire en sorte que ce régime soit l’option par défaut. Il ne faudrait pas que les travailleurs actuels puissent changer de régime. De plus, de nouveaux ajustements paramétriques - notamment le relèvement de l’âge de la retraite en fonction de l’allongement de l’espérance de vie et la correction d’un certain nombre d’éléments non viables de la formule de calcul des retraites - amélioreraient l’équilibre du régime à prestations définies.
    Keywords: Slovak Republic, République slovaque, fiscal rules, pension system, système de retraite, fiscal sustainability, viabilité budgétaire, cadre budgétaire
    JEL: G32 H55 H62 H63
    Date: 2009–03–06
  14. By: Narazani E; Shima I
    Abstract: In view of the political debate on the future sustainability of pensions system in Austria and given the low participation of older worker in the labour market, in this paper we try to shed light on employment and retirement behaviour while a combination of reduction in pension benefits along with income support is provided. We find out that reforms characterized by moderately generous income support while working along with lower pension entitlement in early retirement yield higher social welfare compared to the current system. The labour supply response signals increase under the proposed reforms among middle-income males, in the age category 55-60, whereas these reforms seem to be ineffective for women. These findings emphasize the importance of introducing pension reforms complemented with tax-benefits policies such that the former remove the disincentives to retire earlier and the later enhance the employment of workers in pre-retirement age.
    Keywords: supply, discrete choice models, guaranteed minimum income, retirement, older worker
    Date: 2009–03–06
  15. By: Konstantin A. Kholodilin (DIW Berlin, Germany); Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: The paper evaluates the quality of the German national accounting data (GDP and its use-side components) as measured by the magnitude and dispersion of the forecast/ revision errors. It is demonstrated that government consumption series are the least reliable, whereas real GDP and real private consumption data are the most reliable. In addition, early forecasts of GDP, private consumption, and investment growth rates are shown to be systematically upward biased. Finally, early forecasts of all the variables seem to be no more accurate than naïve forecasts based on the historical mean of the final data.
    Keywords: Quality of statistical data, real-time data, signal-to-noise ratio, forecasts, revisions
    JEL: C53 C89
    Date: 2009–02

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