nep-eec New Economics Papers
on European Economics
Issue of 2009‒05‒16
sixteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Taxation trends in the European Union: 2008 edition By Florian Woehlbier; Marco Fantini; Beata Heimann; Gaetan Nicodeme; Katri Kosonen; Werner Vanborren; Milan Pein; Stefanie Knoth; Federico Martire; Alessandro Lupi; Monika Wozowczyk; John Verrinder; Anne Paternoster
  2. The Role of Labor Markets for Euro Area Monetary Policy By Kai Christoffel; Keith Kuester; Tobias Linzert
  3. Social capital and health across European countries By Bas van Groezen; Rashmi Jadoenandansing; Giacomo Pasini
  4. Permanent and Transitory Dynamics in House Prices and Consumption: Cross-Country Evidence By Fabio Bagliano; Claudio Morana
  5. Skill-Biased Technical Change and Wage Inequality: The U.S. versus Europe By Ryosuke Okazawa
  6. Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment By Christian Merkl; Tom Schmitz
  7. A further look at the 2004 reform of the operational framework of the ECB By M. Marzo; P. Zagaglia
  8. Taxation and Regulation of Smoking, Drinking and Gambling in the European Union By Sijbren Cnossen; David Forrest; Stephen Smith
  9. The Effect of Employment Protection Legislation and Financial Market Imperfections on Investment: Evidence from a Firm-Level Panel of EU countries By Federico Cingano; Marco Leonardi; Julian Messina; Giovanni Pica
  10. Temporary Labour Migration and Welfare at the New European Fringe: A Comparison of Five Eastern European Countries By Danzer, Alexander M.; Dietz, Barbara
  11. Self-Selection and Earnings of Emigrants from a Welfare State By Poutvaara, Panu; Munk, Martin D.; Junge, Martin
  12. Performance Pay and Within-Firm Wage Inequality By Barth, Erling; Bratsberg, Bernt; Haegeland, Torbjørn; Raaum, Oddbjørn
  13. Rethinking Retirement By Rob Euwals; Ruud de Mooij; Daniel van Vuuren
  14. Part-time work and Health among Older Workers in Ireland and Britain By Brenda Gannon; Jennifer Roberts
  15. Early retirement and inequality in Britain and Germany: How important is health? By Jennifer Roberts; Nigel Rice; Andrew M. Jones
  16. Financing Social Security: Simulating Different Welfare State Systems for Germany By Dieckhoener, Caroline; Peichl, Andreas

  1. By: Florian Woehlbier; Marco Fantini (European Commission; European Commission); Beata Heimann (European Commission); Gaetan Nicodeme (European Commission); Katri Kosonen (European Commission); Werner Vanborren (European Commission); Milan Pein (European Commission); Stefanie Knoth; Federico Martire; Alessandro Lupi (European Commission); Monika Wozowczyk (European Commission); John Verrinder (European Commission); Anne Paternoster (European Commission)
    Abstract: Taxation trends in the European Union: 2008 covers the development of taxation in all 27 Members of the European Union and Norway in a comparable format since 1995. The report is organised as follows: Part I offers an overview of taxation in Europe, describing the trends in the total tax ratio, the structure of revenues by tax type, the distribution of revenues amongst government levels, and the main developments in the rates of the personal and corporate income tax. Part II focuses on taxation of consumption, labour, and capital, as well as on environmental taxation. Part III consists of 28 Country Chapters illustrating, for each Member State (and Norway), the revenue trends and supplying a summary description of the tax system. This chapter outlines the main results from Parts I and II.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2008–04
  2. By: Kai Christoffel; Keith Kuester; Tobias Linzert
    Abstract: In this paper, we explore the role of labor markets for monetary policy in the euro area in a New Keynesian model in which labor markets are characterized by search and matching frictions. We first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy. We find that while a lower degree of wage rigidity makes monetary policy more effective, i.e. a monetary policy shock transmits faster onto inflation, the importance of other labor market rigidities for the transmission of shocks is rather limited. Second, having estimated the model by Bayesian techniques we analyze to which extent labor market shocks, such as disturbances in the vacancy posting process, shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations. Our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations. In sum, the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy
    Keywords: Labor Market, wage rigidity, bargaining, Bayesian estimation
    JEL: E32 E52 J64 C11
    Date: 2009–04
  3. By: Bas van Groezen; Rashmi Jadoenandansing; Giacomo Pasini
    Abstract: We compare the effect of trust and civic participation on self-assessed health across ten European countries. We find that, after controlling for a rich set of socio-economic characteristics, for actual health status and for health-related behaviours, trust has a significantly positive effect on perceived health in Sweden and in Germany, but none in the other countries. Civic participation does have a positive and quite similar effect in all countries. Our conclusion is that they measure two different aspects of social capital that must be treated separately.
    Keywords: Panel Data, Wage Distribution, Inequality, Mobility
    JEL: I12 J14
    Date: 2009–04
  4. By: Fabio Bagliano (University of Turin and CeRP-Collegio Carlo Alberto, Turin); Claudio Morana (Università del Piemonte Orientale and CeRP-Collegio Carlo Alberto, Turin)
    Abstract: In this paper a small-scale macroeconomic system is estimated in the framework of a common trends model, in order to explore the dynamic interactions between real house prices, consumption expenditure and output in the US and major European economies. The results point to important differences across countries, with long-run house price effects on consumption only for France, Germany and the US. However, some interactions between house prices and consumption are detected in all countries at shorter horizons. Evidence of international comovements in the common trend component of house price dynamics is also found.
    Date: 2009–02
  5. By: Ryosuke Okazawa (Graduate School of Economics, Kyoto University)
    Abstract: This paper analyzes the effect of the recent technical change on the labor market and explains the observed differences in wage inequality among advanced countries. In particular, we focus on the difference between the wage inequality in the U.S. and continental Europe. By introducing human capital investment into Acemoglu (1999)’s model, we show that ex ante homogeneous economies would have distinct ex post wage inequality. In addition, we show that the differences in tax or education system can explain the difference in wage inequality between the U.S. and Europe.
    Keywords: skill-biased technical change, wage inequality, human capital investment, matching
    JEL: E24 J24 J31 J64
    Date: 2009–04
  6. By: Christian Merkl; Tom Schmitz
    Abstract: This paper analyzes the effects of different labor market institutions on inflation and output volatility. The eurozone offers an unprecedented experiment for this exercise: since 1999, no national monetary policies have been implemented that could account for volatility differences across member states, but labor market characteristics have remained very diverse. We use a New Keynesian model with unemployment to predict the effects of different labor market institutions on macroeconomic volatilities. In our subsequent empirical estimations, we find that higher labor turnover costs have a statistically significant negative effect on output volatility, while replacement rates have a positive effect, both of which are in line with theory. Real wage rigidities do not seem to play much of a role. This result is in line with our employed labor market model, but stands in stark contrast to the search and matching model. While labor market institutions have a large effect on output volatility, they do not seem to have much of an effect on inflation volatility. Our estimations indicate that the latter is driven instead to a certain extent by differences in government spending volatility
    Keywords: Labor market institutions, macroeconomic volatility, monetary policy, firing costs, unemployment benefits, replacement rate
    JEL: E24 E32 J64
    Date: 2009–04
  7. By: M. Marzo; P. Zagaglia
    Date: 2009–03
  8. By: Sijbren Cnossen; David Forrest; Stephen Smith
    Abstract: Smoking is the single largest cause of avoidable death in the European Union accounting for over half a million deaths each year. One in ten of all 11-year olds have been drunk twice or more times, possibly causing lasting physical and mental harm. Electronic gaming machines are the crack cocaine of gambling. Consumer sovereignty, on the other hand, indicates that people should be allowed to smoke as long as they do not harm others. There is sound medical evidence, furthermore, that a drink each day keeps the doctor away, while recreational gambling can be an enjoyable form of entertainment for many people. These and other salient facts about the harmful and positive effects of smoking, drinking and gambling provide the background for a dispassionate economic analysis of the taxation and regulation of these activities. The main message the studies convey is that it would be unrealistic to rely solely on duty levels and differentiation to curb abusive use. Duty levels do have a clear impact in restraining consumption by children and young adults - an important priority for policy. But complementary policies - including direct regulation and provision of information - also have a meaningful role to play in each of the markets for tobacco, alcohol and gambling.
    Keywords: taxation; tobacco; alcohol; gambling; regulation; externalities; European Union
    JEL: H2 H8 H23 I18 L83
    Date: 2009–02
  9. By: Federico Cingano (Bank of Italy); Marco Leonardi (University of Milan and IZA); Julian Messina (University of Girona, FEDEA and IZA); Giovanni Pica (Università di Salerno and CSEF)
    Abstract: This paper analyzes the joint effect of EPL and financial market imperfections on investment, capital-labour substitution, labour productivity and job reallocation in a cross-country framework. In the spirit of Rajan and Zingales (1998) and Ciccone and Papaioannou (2006), we exploit variation in the need for reallocation at the sectoral and aggregate level to assess the average effect of EPL on firms’ policies. Then, exploiting firm-level information we study if the effect of EPL is stronger in firms with lower levels of internal resources. We find that, on average, EPL reduces investment per worker, capital per worker and value added per worker in high reallocation sectors relative to low reallocation sectors. The reduction in the capital-labour ratio is less pronounced in firms with higher internal resources, suggesting that financial constraints exacerbate the negative effects of EPL on capital deepening.
    Date: 2009–05–01
  10. By: Danzer, Alexander M. (Royal Holloway, University of London); Dietz, Barbara (Institute for Eastern European Studies, Regensburg)
    Abstract: This paper investigates patterns and determinants of temporary labour migration in Armenia, Belarus, Georgia, Moldova and Ukraine after EU enlargement in 2004. Migration incidence, destination choices and migration determinants differ between poorer and better-off countries. Although broadly in line with general results from the migration literature, we observe some peculiarities like the high share of older migrants and a modest role of family obligations in the migration decision process. We find no indication of a brain drain related to temporary migration in sending regions as the educational background of migrants is rather low. Migration is used as household insurance against unemployment and is associated with lower incidence of poverty. This finding remains robust when attempting to reduce the potential omitted variable bias with an instrumental variable approach.
    Keywords: temporary migration, welfare, Eastern Europe, cross-country study
    JEL: F22 J61 I31 P23
    Date: 2009–04
  11. By: Poutvaara, Panu (University of Helsinki); Munk, Martin D. (SFI - Danish National Centre for Social Research); Junge, Martin (CEBR, Copenhagen)
    Abstract: Following a seminal contribution by Borjas (1987), a large literature has analyzed how income distribution and redistribution are related to immigration to various rich countries. In this paper, we take a look at the other side of the coin. We analyze emigration from Denmark, which is one of the richest and most redistributive European Welfare States. Using comprehensive register data on full population and a unique new representative survey, we analyze whether Danes with relatively high earnings ability favor countries with more unequal income distribution and lower taxes, like the United States.
    Keywords: migration, emigration, redistribution, brain drain, education
    JEL: F22 J61 H2
    Date: 2009–04
  12. By: Barth, Erling (Institute for Social Research, Oslo); Bratsberg, Bernt (Ragnar Frisch Centre for Economic Research); Haegeland, Torbjørn (Statistics Norway); Raaum, Oddbjørn (Ragnar Frisch Centre for Economic Research)
    Abstract: This paper examines the impact of performance-related pay on wage differentials within firms. Our theoretical framework predicts that, compared to a fixed pay system, pay schemes based on individual output increase within-firm wage inequality, while group-based bonuses have minor effects on wage dispersion. Theory also predicts an interaction between performance-related pay and union bargaining, where union power reduces the impact of performance pay on wage dispersion. The empirical contribution utilizes two recent Norwegian employer surveys, linked to a full set of individual employee pay records. A longitudinal sub-sample allows for identification based on fixed establishment effects. Introduction of performance-related pay is shown to raise residual wage inequality in nonunion firms, but not in firms with high union density. Our findings suggest that even though performance-related pay appears to be on the rise, the overall impact on wage dispersion is likely to be small, particularly in European countries with strong unions.
    Keywords: performance related pay, wage inequality, union bargaining
    JEL: J31 J33
    Date: 2009–04
  13. By: Rob Euwals; Ruud de Mooij; Daniel van Vuuren
    Abstract: This study argues that Dutch policy regarding the labour market for elderly is at a crossroads. Previous reforms in the Netherlands have encouraged labour supply and are expected to boost labour-market participation of individuals aged 55 to 64 to 60% in 2020. Further stimulus of supply is debatable due to perverse distributive implications. The increase in participation reveals inefficiencies in the demand side of the market. Indeed, the Dutch labour market for elderly is characterised by long unemployment duration, long job tenures, low mobility and little investment in human capital. The inefficiencies were previously hidden by massive early retirement, but will become more pressing as the workforce ages and participation rates increase. This imposes a new challenge for Dutch policy, a challenge that has become more urgent due to the current financial crisis that is expected to cause a substantial rise in unemployment. The study offers up-to-date insight in the consequences of policy reforms for the labour market.
    Keywords: Participation; Welfare-state institutions; Retirement; Wage-productivity gap; Flexibility; Allocation
    JEL: D6 H2 H5 J14 J26 J3 J6
    Date: 2009–04
  14. By: Brenda Gannon; Jennifer Roberts (Department of Economics, The University of Sheffield)
    Abstract: Part-time work is viewed as a viable option for people who wish to have a gradual transition to retirement. From a policy viewpoint, this may help to alleviate some labour supply shortages, especially in the context of the aging population. Factors such as health or pension provision may influence a person´s decision to work part-time. This paper considers the impact of health on the work decision for people aged 50 and over in the UK and Ireland. Methodological issues are discussed and the impact of unobserved individual effects is estimated using the Mundlak estimator applied to the multinomial probit model. The impact of health on part-time work is negative in Ireland, but we find no significant effect in the UK. The paper discusses potential reasons for these impacts and current policies on part-time work..
    Keywords: health, retirement, panel data
    JEL: J26 I10 C23
    Date: 2008–12
  15. By: Jennifer Roberts (Department of Economics, The University of Sheffield); Nigel Rice; Andrew M. Jones
    Abstract: Both health and income inequalities have been shown to be much greater in Britain than in Germany. One of the main reasons seems to be the difference in the relative position of the retired, who, in Britain, are much more concentrated in the lower income groups. Inequality analysis reveals that while the distribution of health shocks is more concentrated among those on low incomes in Britain, early retirement is more concentrated among those on high incomes. In contrast, in Germany, both health shocks and early retirement are more concentrated among those with low incomes. We use comparable longitudinal data sets from Britain and Germany to estimate hazard models of the effect of health on early retirement. The hazard models show that health is a key determinant of the retirement hazard for both men and women in Britain and Germany. The size of the health effect appears large compared to the other variables. Designing financial incentives to encourage people to work for longer may not be sufficient as a policy tool if people are leaving the labour market involuntarily due to health problems.
    Keywords: health, early retirement, hazard models
    JEL: J26 I10 C23 C41
    Date: 2008–11
  16. By: Dieckhoener, Caroline (University of Cologne); Peichl, Andreas (IZA)
    Abstract: In Germany, there is an ongoing debate about how to increase the efficiency of the social security system and especially its financing. The aim of this paper is to simulate different financing systems for Germany. The introduction of a Liberal British or the Southern Greek financing system increases inequality and poverty, as well as labour supply incentives. The introduction of the Social-democratic Danish financing system decreases inequality of incomes, but does not necessarily lead to less poverty. Tax payments are extremely high, whereas social contribution payments are relatively low leading to mixed incentives effects.
    Keywords: social security, welfare states, comparative analysis, EUROMOD
    JEL: C81 D31 H24
    Date: 2009–04

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