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on European Economics |
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Issue of 2010‒01‒16
nineteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Pablo Burriel (Banco de España); francisco de castro (Banco de España); daniel garrote (Banco de España); esther gordo (Banco de España); joan paredes (european central bank); javier j. pérez (Banco de España) |
| Abstract: | we analyse the impact of fiscal policy shocks in the euro area as a whole, using a newly available quarterly dataset of fiscal variables for the period 1981-2007. to allow for comparability with previous results on euro area countries and the us, we use a standard structural var framework, and study the impact of aggregated and disaggregated government spending and net taxes shocks. in addition, to frame euro area results, we apply the same methodology for the same sample period to us data. we also explore the sensitivity of the provided results to the inclusion of variables aiming at measuring “financial stress” (increases in risk) and “fiscal stress” (sustainability concerns). analysing us and euro area data with a common methodology provides some interesting insights on the interpretation of fiscal policy shocks. |
| Keywords: | euro area, svar, fiscal shocks, fiscal multipliers. |
| JEL: | E62 H30 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0930&r=eec |
| By: | Maria-Grazia Attinasi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Cristina Checherita (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Christiane Nickel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper uses a dynamic panel approach to explain the determinants of widening sovereign bond yield spreads vis-à-vis Germany in selected euro area countries during the period end-July 2007 to end-March 2009, when the financial turmoil developed into a full-blown financial and economic crisis. Emphasis is given to the role of fiscal fundamentals and government announcements of substantial bank rescue packages. The paper finds that higher expected budget deficits and/or higher government debt ratios relative to Germany contributed to higher government bond yield spreads in the euro area during the analysed period. More importantly, the announcements of bank rescue packages have led to a re-assessment, from the part of investors, of sovereign credit risk, first and foremost through a transfer of risk from the private financial sector to the government. JEL Classification: E62, E43, G12. |
| Keywords: | Fiscal Policy, Sovereign Spreads, Fiscal Announcements. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091131&r=eec |
| By: | Fátima Teresa Sol Murta (Faculdade de Economia/GEMF, Universidade de Coimbra); Ana Margarida Garcia (Faculdade de Economia, Universidade de Coimbra) |
| Abstract: | One of the risks that banks need to manage, in their financial intermediation activities, is liquidity risk. Thus, banks hold reserves for precautionary reasons, in order to keep enough cash to meet their obligations. In this work, we analyze the demand for excess reserves by Euro Area banks, since the change in the framework of the single monetary policy in March 2004. Our main conclusions are that there is a positive relationship between the demand for reserves and its financing cost and also that the environment of uncertainty present in the credit crisis is not significant in the demand for excess reserves: the ECB achieved control over the money market tensions. |
| Keywords: | banks; excess reserves; liquidity risk |
| JEL: | G21 E52 E58 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2010-01&r=eec |
| By: | Raquel Ortega-Argilés (JRC-IPTS); Lesley Potters (JRC-IPTS); Peter Voigt (JRC-IPTS) |
| Abstract: | The importance of SMEs in Europe’s innovation process can be seen in both the academic and the political arena. Adopted in June 2008, the ‘Small Business Act’ for Europe reflects the Commission’s political will to recognise the central role of SMEs in the EU economy and was the first to put in place a comprehensive SME policy framework for the EU and its Member States. One of its main aims is to promote growth among SMEs by helping them to tackle problems that hamper their development. This kind of policy calls for a more in-depth look into the nature of the SME population in Europe. Several attempts have been made in recent years to draw taxonomies of firms, but mostly they do not control for size effects within the defined groups of firms. The purpose of this paper is to typify different groups of R&D-intensive SMEs distinguished according to their inputs into the innovation process. In particular, we draw attention to SMEs that contribute the most to the industrial R&D investment in the EU. To do so, we run a cluster analysis on a sample of top European R&D SME investors based on a unique dataset made up of the different waves of the European R&D Investment Scoreboard. The results show that several clusters of R&D-intensive SMEs can be defined by certain characteristics, but that the diversity between clusters calls for a more careful understanding before developing measures to support European R&D-intensive SMEs. For companies labelled as ‘corporate laboratories’ according to the cluster analysis, it would be legitimate to question support for R&D, as these firms do not seem to have significant problems in finding investors that believe in their business model. On the other hand, e.g. the ‘Gazelles’ do in fact grow, but struggle with the high capital investment needed to become and remain large. In this case, it seems it would be more effective to focus on the weaknesses (physical expansion) of these firms rather than supporting their strengths (knowledge, R&D). |
| Keywords: | SMEs; innovation inputs; cluster analysis |
| JEL: | O33 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:wpaper:200915&r=eec |
| By: | Leon Bettendorf (CPB Netherlands Bureau for Economic Policy Analysis); Albert van der Horst (CPB Netherlands Bureau for Economic Policy Analysis); Ruud A. de Mooij (Erasmus University Rotterdam, CPB, Tinbergen Institute, Oxford University Centre for Business Taxation, CESifo); Hendrik Vrijburg (Erasmus University Rotterdam) |
| Abstract: | This article assesses the economic implications of the introduction of consolidation with formula apportionment in the European Union under alternative enhanced cooperation agreements. We fi?nd that the consolidation is likely to yield a small aggregate welfare gain in Europe, but that not all countries benefi?t. A coalition of winning countries reduces the welfare gain and may induce a process of adverse selection which distroys the possibility of cooperation. We fi?nd that a coalition of similar countries (in terms of the size of their multinational sector) is more feasible in achieving agreement and is actually preferred by those countries over a European-wide reform. |
| Keywords: | Corporate tax harmonization, European Union, CCCTB, Applied General Equilibrium |
| JEL: | C68 F23 H25 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1001&r=eec |
| By: | Gabriel Ahlfeldt (Chair for Economic Policy, University of Hamburg); Wolfgang Maennig (Chair for Economic Policy, University of Hamburg); Tobias Osterheider |
| Abstract: | This article provides empirical evidence for the (anticipated) net costs and benefits of a common monetary policy that varies across regions depending on the industry mix. The paper is the first to approach the issue of the regional and sectoral effects of a common monetary policy by using empirical spatial models to analyze referenda. Here, the referenda examined are the 2000 and 2003 referenda held in Denmark and Sweden regarding participation in the EMU. We find that voters in regions with a high proportion of interest-sensitive sectors and low international integration tend to oppose participation in a currency union. The opposite is true for non-interest-sensitive sectors with relatively high integration. These findings are in line with the hypothesis of rational voters maximizing utility. Furthermore, perceived net costs are found to increase with distance from the European core and with the age of voters, indicating that a national currency represents an experience good. These results are robust to spatial dependencies and are not driven by broader forms of Euro-skepticism. |
| Keywords: | EMU, Euro, Regional & Sectoral Effects of Monetary Policy, Public Referenda, Denmark, Sweden |
| JEL: | E52 P16 R12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:hce:wpaper:028&r=eec |
| By: | Paulus A; Sutherland H; Tsakloglou P |
| Abstract: | International comparisons of inequality based on measures of disposable income may not be valid if the size and incidence of publicly-provided in kind benefits differ across the countries considered. The benefits that are financed by taxation in one country may need to be purchased out of disposable income in another. We estimate the size and incidence of in kind or “non cash†benefits from public housing subsidies, education and health care for five European countries using comparable methods and data. Inequality in the augmented income measure is dramatically lower than in disposable income, with the effects of the three components varying in importance across countries. Adapting equivalence scales to take proper account of differences in needs for health care and education across population members reduces the scale of the effect, but does not eliminate it. |
| JEL: | C81 D31 H51 H52 |
| Date: | 2009–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em10/09&r=eec |
| By: | Guio, Anne-Catherine (IWEPS); Fusco, Alessio (CEPS/INSTEAD); Marlier, Eric (CEPS/INSTEAD) |
| Abstract: | The paper discusses methodological issues raised by the construction of indicators on material deprivation, which is defined here as an enforced lack of a combination of items depicting some aspects of living conditions related to housing conditions, possession of durables and capacity to afford basic requirements. More specifically, its focus is on the selection of items, their dimensional structure, their aggregation in a synthetic measure and their weighting. The paper also puts in perspective material deprivation and income-based poverty indicators to emphasise the complementarity of the two approaches. It covers the European Union countries available in the 2007 Community Statistics on Income and Living Conditions (EU-SILC) users’ data base. |
| Keywords: | Material deprivation; EU-SILC ; Eurobarometer ; Poverty ; European Union |
| JEL: | I32 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:irs:iriswp:2009-19&r=eec |
| By: | Nicholas Oulton; Ana Rincon-Aznar |
| Abstract: | We employ the EU KLEMS database to estimate the real rate of return to capital in 14 countries (11in the EU, three outside the EU) in 10 branches of the market economy plus the market economy as awhole. Our measure of capital is an aggregate over seven types of asset: three ICT assets (computers,communications equipment, and software) and four non-ICT assets (machinery and equipment, nonresidentialstructures, transport equipment, and other). The real rate of return in the market economydoes not vary very much across countries, with the exception of Spain where it is exceptionally highand in Italy where it is exceptionally low. The real rate appears to be trendless in most countries.Within each country however, the rate varies widely across the 10 branches, often being implausiblyhigh or low. We also estimate the growth of capital services by two different methods: ex-post and exante,and the contribution of capital to output growth by three methods: ex-post, ex-ante and hybrid.Our implementation of the ex-ante method uses an estimate of the required rate of return for eachcountry instead of the actual, average rate of return to calculate user costs and also employs theexpected growth of asset prices rather than the actual growth. These estimates are derived fromexactly the same data as for the ex-post method, ie without any extraneous data being employed. Forestimating the contribution of capital to output growth, the ex-ante method uses ex-ante profit as theweight, while both the ex-post and the hybrid method use ex-post profit. We find that the threemethods produce very similar results at the market economy level. But differences are much larger atthe branch level, particularly between the ex-post and ex-ante methods. |
| Keywords: | Capital, rate of return, ex post, ex ante |
| JEL: | E22 E23 D |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0957&r=eec |
| By: | Babecky, Jan; Caju, Philip Du; Kosma, Theodora; Lawless, Martina; Messina, Julian; Room, Tairi |
| Abstract: | It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. The authors analyse which firm-level and institutional factors are associated with wage rigidity. The results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). The analysis also finds that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations. |
| Keywords: | Labor Policies,Environmental Economics&Policies,Labor Markets,Income,Markets and Market Access |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5159&r=eec |
| By: | Paulus A; Čok M; Figari F; Hegedüs P; Kump N; Lelkes O; Levy H; Lietz C; Lüpsik S; Mantovani D; Morawski L; Sutherland H; Szivos P; Võrk A |
| Abstract: | Tax and benefit systems in the enlarged EU vary significantly in size and structure. We examine how taxes and benefits shape income distributions in 19 EU countries, focusing on the differences between Western European countries (EU15) and Eastern European countries (Estonia, Hungary, Poland, Slovenia). We use EUROMOD, the European tax-benefit microsimulation model, which simulates taxes and benefits for representative samples of household micro-data and through a common framework which allows the analysis of cross-country differences on a comparable basis. The analysis concentrates on the distribution and composition of incomes, and the effect of taxes and benefits on poverty and inequality |
| JEL: | C81 D31 P50 |
| Date: | 2009–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em8/09&r=eec |
| By: | Kumbhakar, Subal C. (Binghamton University, New York); Ortega-Argilés, Raquel (European Commission); Potters, Lesley (Utrecht School of Economics); Vivarelli, Marco (Università Cattolica del Sacro Cuore); Voigt, Peter (European Commission) |
| Abstract: | The main objective of this study is to investigate the impact of corporate R&D activities on firms' performance, measured by labour productivity. To this end, the stochastic frontier technique is applied, basing the analysis on a unique unbalanced longitudinal dataset consisting of 532 top European R&D investors over the period 2000–2005. R&D stocks are considered as pivotal input in order to control for their particular contribution to firm-level efficiency. Conceptually, the study quantifies the technical inefficiency of a given company and tests empirically whether R&D activities could explain the distance from the efficient boundary of the production possibility set, i.e. the production frontier. From a policy perspective, the results of this study suggest that – if the aim is to leverage companies' productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and, to some extent, in medium-tech sectors. By contrast, supporting corporate R&D in the low-tech sector turns out to have a minor effect. Instead, encouraging investment in fixed assets appears vital for the productivity of low-tech industries. However, with regard to firms' technical efficiency, R&D matters for all industries (unlike capital intensity). Hence, the allocation of support for corporate R&D seems to be as important as its overall increase and an 'erga omnes' approach across all sectors appears inappropriate. |
| Keywords: | corporate R&D, productivity, technical efficiency, stochastic frontier analysis |
| JEL: | L2 O3 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4657&r=eec |
| By: | Joachim R. Frick; Markus M. Grabka |
| Abstract: | Using representative and consistent microdata from the German Socio-Economic Panel Study (SOEP) from 1985-2007, we illustrate that capital income (CI = return on financial investments) and imputed rent (IR = return on investments in owner-occupied housing) have become increasingly important sources of economic inequality in Germany over the last two decades. Whereas the operationalization of CI in this paper is based on monetary returns on financial investments only, our definition of IR follows a regulation by the European Commission, (EC) which is currently being used to harmonize income measurement for the European Statistics on Income and Living Conditions (EU-SILC) in Europe. While both of these components represent some kind of return on alternative private investments, our results indicate that they do not coincide in their impacts on income inequality and poverty. In line with the literature, net IR as defined according to the EC regulation tends to exert a dampening effect on inequality and relative poverty, very much driven by the increasing share of outright ownership among the elderly. On the other hand, inequality is boosted by CI especially when looking at the upper tail of the income distribution. As the German public pension scheme gradually loses its ability to maintain people’s living standards into retirement, we find these effects to increase over time. The analyses presented here, exemplified for Germany, make a clear case for the joint consideration of all components of private investment income for the purpose of welfare analysis, be they of a monetary or non-monetary nature. This appears to be relevant in at least three dimensions of comparative research: (1) across time; (2) across space, regions, welfare regimes; (3) across the individual life course, thus analyzing the impact of investment income on intrapersonal mobility patterns. |
| Keywords: | Income inequality, decomposition, capital income, imputed rent, SOEP |
| JEL: | D31 D33 I31 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp254&r=eec |
| By: | Urban Sila |
| Abstract: | It has been suggested in the literature that taxes and subsidies play an important role inexplaining the differences in working hours across countries. In this paper I test whetherpublic programmes for family support play a role in explaining this variation. I analyse twotypes of policies: childcare subsidies and family cash benefits. I distinguish between peoplewith children and people without children. Childcare subsidies should increase working hoursin the economy and these effects should differ between people with children and peoplewithout children. Public support to families is also expected to decrease the amount of timepeople spend in childcare at home. I test this using household data for a set of Europeancountries and the US. Empirical analysis, however, does not support the family-policyexplanation. The effects of the policies on working hours are weak and insignificant. Inregressions with time spent caring for children as a dependent variable, the estimates of theeffects contradict the predictions of the theory. Furthermore, I don't find evidence for theexpected differences in effects between parents and nonparents. I conclude that familypolicies are not helpful in explaining the variation in working hours across countries. |
| Keywords: | Working hours, household behavior, taxation, subsidies, fiscal policies, child care,time allocation, labor supply |
| JEL: | D1 H20 H31 I38 J13 J18 J22 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0955&r=eec |
| By: | Joanna Tyrowicz (National Bank of Poland, Economic Institute; University of Warsaw, Faculty of Economics) |
| Abstract: | This paper reviews the literature on the labour market institutions in European Union Member States in the context of monetary integration. Traditionally, labour markets are a key concept in the optimal currency area theory, playing the role of the only accommodation mechanism of asymmetric shocks after the monetary unification. There are several theoretical frameworks linking the institutional design of the labour market to the potential effectiveness of monetary policy in the context of currency areas. Many empirical studies addressed these issues too, yielding important policy implications for labour market reforms in the process of monetary unification. However, there seem to be "white spots” in this patchwork, which may actually be particularly useful from the perspective of CEECs upon the accession to the euro zone. We suggest these research directions encompassing labour supply and theoretical frameworks of labour market flexibility benchmarking in the context of monetary integration. |
| Keywords: | labour market institutions, monetary integration, labour market reform, CEECs, EMU |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:61&r=eec |
| By: | Yann Algan; Christian Dustmann; Albrecht Glitz; Alan Manning |
| Abstract: | A central concern about immigration is the integration into the labour market, not only of the first generation, but also of subsequent generations. Little comparative work exists for Europe's largest economies. France, Germany and the United Kingdom have all become, perhaps unwittingly, countries with large immigrant populations albeit with very different ethnic compositions. Today, the descendants of these immigrants live and work in their parents' destination countries. This paper presents and discusses comparative evidence on the performance of first- and second-generation immigrants in these countries in terms of education, earnings, and employment. |
| Keywords: | Immigration, Earnings, Employment, education, France, Germany, UK |
| JEL: | J30 J61 J64 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0951&r=eec |
| By: | John T. Addison; Lutz Bellman; Alex Bryson; André Pahnke; Paulino Teixeira |
| Abstract: | Industrial relations are in flux in many nations, perhaps most notably in Germany and Britain. That said, comparatively little is known in any detail of the changing pattern of the institutions of collective bargaining and worker representation in Germany and still less in both countries about firm transitions between these institutions over time. The present paper maps changes in the importance of the key institutions, 1998-2004, and explores the correlates of two-way transitions, using successive waves of the German IAB Establishment Panel and both cross-sectional and panel components of the British Workplace Employment Relations Survey. We identify the workplace correlates of the demise of collective bargaining in Britain and the erosion of sectoral bargaining in Germany, and identify the respective roles of behavioral and compositional change. |
| Keywords: | union recognition, union coverage, sectoral and firm-level collective bargaining, works councils, joint consultative committees, changes in collective bargaining/worker representation states, bargaining transitions and their determinants |
| JEL: | J50 J53 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0954&r=eec |
| By: | Gollier, Christian |
| Abstract: | This paper explores empirically the link between stocks returns Value-at-Risk (VaR) and the state of financial markets cycle. The econometric analysis is based on a simple vector autoregression setup. Using quarterly data from 1970Q4 to 2008Q4 for France, Germany and the United-Kingdom, it turns out that the k-year VaR of equities is actually dependent on the cycle phase: the expected losses as measured by the VaR are smaller in recession times than expansion periods, whatever the country and the horizon. These results strongly suggest that the European rules regarding the solvency capital requirements for insurance companies should adapt to the state of the financial market’s cycle. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:20628&r=eec |
| By: | Julien Chevallier (Imperial College London); Benoît Sévi (University of Angers (GRANEM) and LEMNA) |
| Abstract: | The recent implementation of the EU Emissions Trading Scheme (EU ETS) in January 2005 created new financial risks for emitting firms. To deal with these risks, options are traded since October 2006. Because the EU ETS is a new market, the relevant underlying model for option pricing is still a controversial issue. This article improves our understanding of this issue by characterizing the conditional and unconditional distributions of the realized volatility for the 2008 futures contract in the European Climate Exchange (ECX), which is valid during Phase II (2008-2012) of the EU ETS. The realized volatility measures from naive, kernel-based and subsampling estimators are used to obtain inferences about the distributional and dynamic properties of the ECX emissions futures volatility. The distribution of the daily realized volatility in logarithmic form is shown to be close to normal. The mixture-of-distributions hypothesis is strongly rejected, as the returns standardized using daily measures of volatility clearly departs from normality. A simplified HAR-RV model (Corsi, 2009) with only a weekly component, which reproduces long memory properties of the series, is then used to model the volatility dynamics. Finally, the predictive accuracy of the HAR-RV model is tested against GARCH specifications using one-step-ahead forecasts, which confirms the HAR-RV superior ability. Our conclusions indicate that (i) the standard Brownian motion is not an adequate tool for option pricing in the EU ETS, and (ii) a jump component should be included in the stochastic process to price options, thus providing more efficient tools for risk-management activities. |
| Keywords: | CO2 Price, Realized Volatility, HAR-RV, GARCH, Futures Trading, Emissions Markets, EU ETS, Intraday data, Forecasting |
| JEL: | C5 G1 Q4 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.113&r=eec |