nep-eec New Economics Papers
on European Economics
Issue of 2010‒01‒23
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Consolidation in banking and financial stability in Europe: empirical evidence By Uhde, André; Heimeshoff, Ulrich
  2. Political Budget Cycles in the European Union and the Impact of Political Pressures: A dynamic panel regression analysis By Georgios Efthyvoulou
  3. Is there a signalling role for public wages? Evidence for the euro area based on macro data By Javier J. Pérez; A. Jesús Sánchez
  4. A quarterly fiscal database for the euro area based on intra-annual fiscal information By Joan Paredes; Diego J. Pedregal; Javier J. Pérez
  5. New Evidence on the Effectiveness of Europe's Fiscal Restrictions By Marcos Poplawski Ribeiro
  6. Measuring consumer inflation expectations in Europe and examining their forward-lookingness By Lyziak, Tomasz
  7. Labor Regulations and European Private Equity By Ant Bozkaya; William R. Kerr
  8. Business R&D expenditure and capital in Europe By Helmers, Christian; Schulte, Christian; Strauss, Hubert
  9. Measuring intangible capital and its contribution to economic growth in Europe By van Ark, Bart; Hao, Janet X.; Corrado, Carol; Hulten, Charles
  10. The role of venture capital in alleviating financial constraints of innovative firms By Bottazzi, Laura
  11. Policies to Create and Destroy Human Capital in Europe By Heckman, James J.; Jacobs, Bas
  12. Environmental Regulation and Investment: Evidence from European Country-Industry Data By Leiter, Andrea M.; Parolini, Arno; Winner, Hannes
  13. Welfare Regime and Social Class Variation in Poverty and Economic Vulnerability in Europe: An Analysis of EU-SILC By Christopher T. Whelan; Bertrand Maître
  14. Years of Schooling, Human Capital and the Body Mass Index of European Females By Brunello, Giorgio; Fabbri, Daniele; Fort, Margherita
  15. They arrive with new information. Tourism flows and production efficiency in the European regions By Emanuela Marrocu; Raffaele Paci
  16. Dynamics of work disability reporting in Europe By Viola Angelini; Danilo CAVAPOZZI; Luca CORAZZINI; Omar PACCAGNELLA
  17. Carbon capture and storage technologies in the European power market By Rolf Golombek, Mads Greaker, Sverre A.C Kittelsen, Ole Røgeberg and Finn Roar Aune
  18. A micro view on home equity withdrawal and its determinants. Evidence from Dutch households By Ebner, André
  19. Cultural Integration in Germany By Constant, Amelie F.; Nottmeyer, Olga; Zimmermann, Klaus F.
  20. Minimum Income Benefits in OECD Countries: Policy Design, Effectiveness and Challenges By Herwig Immervoll

  1. By: Uhde, André; Heimeshoff, Ulrich
    Abstract: Using aggregate balance sheet data from banks across the EU-25 over the period from 1997 to 2005 this paper provides empirical evidence that national banking market concentration has a negative impact on European banks' financial soundness as measured by the Z-score technique while controlling for macroeconomic, bank-specific, regulatory, and institutional factors. Furthermore, we find that Eastern European banking markets exhibiting a lower level of competitive pressure, fewer diversification opportunities and a higher fraction of government-owned banks are more prone to financial fragility whereas capital regulations have supported financial stability across the entire European Union. --
    Keywords: Market structure,Financial stability,Banking regulation
    JEL: G21 G28 G34 L16
    Date: 2009
  2. By: Georgios Efthyvoulou (Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: This paper investigates the presence of political budget cycles (PBCs) in the European Union using a data set encompassing all 27 current member states over the period 1997-2008, and analyzes what may explain their variability across countries and over time. Conditioning on partisan considerations and several socio-economic variables, we find evidence in favor of a systematic electoral cycle in fiscal policy (i.e. spending and budget deficits are raised in election years). Furthermore, we find that PBCs are much larger in the Eurozone countries than in the countries that have not yet adopted the euro. Finally, we discuss an interesting area for future research, namely, fiscal policy manipulations are influenced by the information available to the market before elections. Specifically, we show that the size of PBCs is inversely proportional to the relative weight voters assign to non-economic issues prior to an election and positively correlated with the uncertainty over the electoral outcome. Once we account for these two features, the aforementioned differences between the Eurozone and the non-Eurozone countries seem to disappear.
    Date: 2010–01
  3. By: Javier J. Pérez (Banco de España); A. Jesús Sánchez (Universidad Pablo de Olavide)
    Abstract: Do public sector wages exert presures on private sector wages, or has private sector a leadership role in wage setting?. This paper tries to isolate the pure signalling effect that one sector might exert on the other by controlling for other determinants of wages (prices, productivity, institutions) for the main euro area economies (Germany, France, Italy and Spain) and the periods 1980-2007 and 1991-2007. It exploits avilable quarterly information not yet used in the literature, and combine different data sources in the framework of mixed frequencies time series models. The quarterly frequency of our data allows us to check the existence of strong evidence of public wages’ leadership, either in conjunction with bidirectional links from the private sector (Germany and Spain) or pure public wage leadership (France in the sample 1991-2007, Italy for within-the-year linkages).
    Keywords: government wages, private sector wages, signalling, causality, mixed frequency data, casual graph
    JEL: C32 C53 J30 J51 E62 E63 H50 H6
    Date: 2009–12
  4. By: Joan Paredes (European Central Bank); Diego J. Pedregal (Universidad de Castilla-La Mancha); Javier J. Pérez (Banco de España)
    Abstract: The analysis of the macroeconomic impact of fiscal policies in the euro area has been traditionally limited by the absence of quarterly fiscal data. To overcome this problem, we provide two new databases in this paper. Firstly, we construct a quarterly database of euro area fiscal variables for the period 1980-2008 for a quite disaggregated set of fiscal variables; secondly, we present a real-time fiscal database for a subset of fiscal variables, composed of bi-annual vintages of data for the euro area period (2000-2009). All models are multivariate, state-space mixed-frequencies models estimated with available national accounts fiscal data (mostly annual) and, more importantly, monthly and quarterly information taken from the cash accounts of the governments. We provide not seasonally and seasonally-adjusted data. Focusing solely on intra-annual fiscal information for interpolation purposes allows us to capture genuine intra-annual "fiscal" dynamics in the data. Thus, we provide fiscal data that avoid some problems likely to appear in studies using fiscal time series interpolated on the basis of general macroeconomic indicators, namely the well-known decoupling of tax collection from the evolution of standard macroeconomic tax bases (revenue windfalls/shortfalls).
    Keywords: Euro area, Fiscal policies, Interpolation, Unobserved Components models, Mixed-frequencies
    JEL: C53 E6 H6
    Date: 2009–12
  5. By: Marcos Poplawski Ribeiro
    Abstract: This paper investigates the past effectiveness of the Maastricht Treaty (MT) and Stability and Growth Pact (SGP) in disciplining fiscal policy in the Euro zone. We estimate fiscal reaction functions for a panel of 11 members of the Euro zone including the more recent period of the reformed SGP, and compare them with fiscal responses from other “industrialized” OECD countries. Our main finding is that in contrast with the MT, the SGP has been ineffective in tackling excessive deficits in the Euro zone. Moreover, it has also not induced a countercyclical behavior of the fiscal authorities in the region. These results evince the need for reforms in Europe’s fiscal restrictions in order to restore their credibility.
    Keywords: Fiscal restrictions; panel data; Maastricht Treaty; stability and growth pact
    JEL: C33 E62 E65 H62
    Date: 2009–07
  6. By: Lyziak, Tomasz
    Abstract: This paper presents numerical measures of European consumers’ inflation expectations derived on the basis of European Commission qualitative survey data with different quantification methods, i.e. with the probability method, the regression method and the logistic (and linear) function method. The study aims at assessing differences between those measures and the resulting uncertainty in measuring inflation expectations of this group of economic agents. Moreover, in the empirical part of the paper the formation of expectations by consumers in European economies is examined, with a particular focus on estimating the degree of forward-lookingness of expectations.
    Keywords: Inflation Expectations; Consumers; Survey; EU
    JEL: D84 D12 C42
    Date: 2009
  7. By: Ant Bozkaya (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussel and MIT and NBER); William R. Kerr (Harvard University and NBER)
    Abstract: European nations substitute between employment protection regulations and labor market expenditures (e.g., unemployment insurance benefits) for providing worker insurance. Employment regulations more directly tax firms making frequent labor adjustments than other labor insurance mechanisms. Venture capital and private equity investors are especially sensitive to these labor adjustment costs. Nations favoring labor expenditures as the mechanism for providing worker insurance developed stronger private equity markets in high volatility sectors over 1990-2004. These patterns are further evident in US investments into Europe. In this context, policy mechanisms are more important than the overall insurance level provided.
    Keywords: employment protection regulations, dismissal costs, unemployment insurance benefits, private equity, venture capital, buy-outs, entrepreneurship.
    JEL: G24 J21 J65 L26 M13 O31 O32 O52
    Date: 2009–12
  8. By: Helmers, Christian (University of Oxford); Schulte, Christian (Ludwig-Maximilians-Universität München); Strauss, Hubert (European Investment Bank, Economic and Financial Studies)
    Abstract: This study presents new estimates of business R&D capital stocks for 22 countries at the aggregate and industry levels. At 9 percent of GDP, the EU business R&D capital stock falls short of its US and Japanese counterparts. Within the EU, R&D capital stocks are much lower in the southern and the new member states, reflecting large and persistent disparities in R&D expenditure. There was hardly any convergence over the past decade. The R&D capital stock is concentrated on three technologyintensive manufacturing industries and is positively correlated with growth in total factor productivity across countries and industries. Finally, the ratios between the stocks of R&D capital and tangible capital suggest marked differences in how R&D and tangible capital are combined in production.
    Keywords: R&D capital stock; R&D expenditure; tangible capital stock; R&D intensity; high-tech manufacturing
    JEL: E22 L60 O30 O47
    Date: 2009–12–23
  9. By: van Ark, Bart (The Conference Board); Hao, Janet X. (The Conference Board); Corrado, Carol (The Conference Board); Hulten, Charles (The Conference Board)
    Abstract: This study describes the state of the art in the measurement of intangible capital and its contribution to economic growth, with a focus on an international comparison of intangible capital deepening among eleven advanced economies. By employing a broad measure of intangibles, including computerized information, innovative property and economic competencies, we find a relatively large impact on growth. Intangible capital explains about a quarter of labour-productivity in the US and larger countries of the EU. The continental West-European countries show a distinction between countries with significant contributions from intangible capital deepening and a group of laggards. Catching-up countries such as the Czech Republic, Greece and Slovakia show much larger contributions from tangible capital deepening than from intangibles, and also larger multi-factor productivity (MFP) growth rates related to the restructuring of those countries.
    Keywords: Economic growth; productivity; capital; innovation
    JEL: O30 O40
    Date: 2009–12–23
  10. By: Bottazzi, Laura (Bologna University, Italy)
    Abstract: Venture capital is considered to be the most appropriate form of financing for innovative firms in high-tech sectors. We provide an assessment of venture capital with some of Europe’s most innovative and successful companies: those listed on Europe’s “new” stock markets. Venture capital is effective in helping these firms overcome credit constraints but has a limited effect on their ability to grow and create jobs. This result clashed with the evidence on the role of VC for US companies. Yet, VC is not only about money but also about steering and supporting portfolio companies, activities which depend on venture capitalists’ educational and organizational background as well as on the legal and cultural environment in which they operate.
    Keywords: Venture capital; innovative firm; financing constraint; start-up; IPO; investor activism; legal system
    JEL: G24 G32
    Date: 2009–12–23
  11. By: Heckman, James J. (University of Chicago); Jacobs, Bas (Erasmus University Rotterdam)
    Abstract: Trends in skill bias and greater turbulence in modern labor markets put wages and employment prospects of unskilled workers under pressure. Weak incentives to utilize and maintain skills over the life-cycle become manifest with the ageing of the population. Reinvention of human capital policies is required to avoid increasing welfare state dependency among the unskilled and to reduce inefficiencies in human capital formation. Policy makers should acknowledge strong dynamic complementarities in skill formation. Investments in the human capital of children should expand relative to investment in older workers. There is no trade-off between equity and efficiency at early ages of human development but there is a substantial trade-off at later ages. Later remediation of skill deficits acquired in early years is often ineffective. Active labor market and training policies should therefore be reformulated. Skill formation is impaired when the returns to skill formation are low due to low skill use and insufficient skill maintenance later on in life. High marginal tax rates and generous benefit systems reduce labor force participation rates and hours worked and thereby lower the utilization rate of human capital. Tax-benefit systems should be reconsidered as they increasingly redistribute resources from outsiders to insiders in labor markets which is both distortionary and inequitable. Early retirement and pension schemes should be made actuarially fairer as they entail strong incentives to retire early and human capital is thus written off too quickly.
    Keywords: family policy, (non)cognitive skills, returns to education, inequality, dynamic complementarity, training, retirement, labor supply, human capital, skill formation, training policy, active labor market policy, tax, pension, benefit systems, welfare state
    JEL: H2 H5 I2 I3 J2 J3
    Date: 2009–12
  12. By: Leiter, Andrea M. (Department of Economics and Statistics, University of Innsbruck); Parolini, Arno (Department of Economics and Statistics, University of Innsbruck); Winner, Hannes (University of Salzburg)
    Abstract: This paper contributes to the empirical literature on the relationship between environmental regulation and firm behavior. In particular, we ask whether and how strongly an industry's investment responds to stringency in environmental regulation. Environmental stringency is measured as (i) an industry's total current expenditure on environmental protection, and (ii) a country's revenue from environmental taxes. Focusing on European industry level data between 1995 and 2005, we estimate the dierential impact of environmental stringency on four types of investment: gross investment in tangible goods, in new buildings, in machinery, and in `productive' investment (investment in tangible goods minus investment in abatement technologies). Both environmental variables enter positively, and their quadratic terms exhibit signi cantly negative parameter estimates. This, in turn, indicates a positive but diminishing impact of environmental regulation on investment.
    Keywords: Investment; environmental regulation; pollution abatement costs; Europe.
    JEL: D92 H23 Q52
    Date: 2010–01–13
  13. By: Christopher T. Whelan (School of Sociology and Geary Institute, University College Dublin); Bertrand Maître (Economic and Social Research Institute)
    Abstract: In this paper we address a set of interrelated issues. These comprise increasing concerns about reliance on nationally based income poverty measures in the context of EU-enlargement, the relative merits of one dimensional versus multidimensional approaches to poverty and social exclusion and the continuing relevance of class based explanations of life chances. Identifying economically vulnerable groups we find that, contrary to the situation with national income poverty measures, levels of vulnerability vary systematically across welfare regimes. The multidimensional profile of the economically vulnerable sharply differentiates them from the remainder of the population. While they are also characterised by distinctively higher levels of multiple deprivation, a substantial majority of the economically vulnerable are not exposed to such deprivation. Unlike the national relative income approach, the focus on economic vulnerability reveals a pattern of class differentiation that is not dominated by the contrast between the self-employed and all others. In contrast to a European-wide relative income approach, it also simultaneously captures the fact that absolute levels of vulnerability are distinctively higher among the lower social classes in the less comprehensive and generous welfare regimes while class relativities are significantly sharper at the other end of the spectrum.
    Keywords: economic vulnerability, poverty, social exclusion, welfare regimes, social class, multiple deprivation
    Date: 2010–01–07
  14. By: Brunello, Giorgio (University of Padova); Fabbri, Daniele (University of Bologna); Fort, Margherita (University of Bologna)
    Abstract: We use the compulsory school reforms implemented in European countries after the II World War to investigate the causal effect of education on the Body Mass Index (BMI) and the incidence of overweight and obesity among European females. Our IV estimates suggest that years of schooling have a protective effect on BMI. The size of the estimated effect is not negligible but smaller than the one found in comparable recent work for the US. We depart from the current empirical literature in three main directions. First, we use a multi-country approach. Second, we complement the standard analysis of the causal impact of years of schooling on BMI with one relying on a broader measure of education, i.e. individual standardized cognitive tests, and show that the current focus in the literature on years of schooling as the measure of education is not misplaced. Last, we evaluate whether the current focus on conditional mean effects should be integrated with an approach which allows for heterogeneous responses to changes in compulsory education. Although our evidence based on quantile regressions is mixed, there is some indication that the protective effect of schooling does not increase monotonically from the lower to the upper quantile of the distribution of BMI. Rather, the marginal effect is stronger among overweight (but not obese) females than among females with BMI above 30.
    Keywords: obesity, human capital, Europe
    JEL: I12 I21
    Date: 2009–12
  15. By: Emanuela Marrocu; Raffaele Paci
    Abstract: <p>It is well known that firms productivity is influenced by information spillovers generated either by other firms located nearby or by direct contacts with final demand or by foreign demand in the case of traded products. In this paper we investigate a new channel of efficiency - enhancing information spillovers: tourism flows. The idea is that tourists, in general, have preferences for high quality goods and differentiated products which are revealed when they buy local products in the tourism destinations, thus transmitting relevant information to the local firms. The latter, in turn, exploit this new information generating a positive impact on the efficiency level of the local economy. More specifically we examine the effects of tourist flows on regional total factor productivity, within a spatial dynamic model, controlling also for other intangible factors (such as human, social and technological capital) and for the degree of accessibility. We apply the analysis to 199 European regions belonging to the EU15 member countries, plus Switzerland and Norway. The econometric results show the positive impact of tourism flows on regional efficiency levels together with the positive role played by intangible assets, infrastructures and spatial spillovers.</p>
    Keywords: tourism, information; total factor productivity; European regions
    JEL: R10 O33 L83 D83
    Date: 2009
  16. By: Viola Angelini (University of Padua); Danilo CAVAPOZZI (University of Padua); Luca CORAZZINI; Omar PACCAGNELLA (University of Padua)
    Abstract: In this paper we investigate the role of response styles in the dynamics of work disability reporting. Using the 2004 and 2006 waves of the Survey of Health, Ageing and Retirement in Europe (SHARE), we document that in Europe surprisingly large fractions of individuals change their self-reported disability status within two years. We find that this dynamics can be largely explained by the fact that respondents change the way they evaluate the severity of work disability problems over time.
    Keywords: Work disability, vignettes, reporting heterogeneity.
    JEL: I10 J14 C33
    Date: 2010–01
  17. By: Rolf Golombek, Mads Greaker, Sverre A.C Kittelsen, Ole Røgeberg and Finn Roar Aune (Statistics Norway)
    Abstract: We examine the potential of Carbon Capture and Storage (CCS) technologies in the European electricity markets, assessing whether CCS technologies will reduce carbon emissions substantially in the absence of investment subsidies, and how the availability of CCS technologies may affect electricity prices and the amount of renewable electricity. To this end we augment a multi-market equilibrium model of the European energy markets with CCS electricity technologies. The CCS technologies are characterized by costs and technical efficiencies synthesized from a number of recent cost estimates and CCS technology reviews. Our simulations indicate that with realistic values for carbon prices, new CCS coal power plants become profitable, totally replacing non-CCS coal power investments and to a large extent replacing new wind power. New CCS gas power also becomes profitable, but does not replace non-CCS gas power fully. Substantially lower CCS costs, through subsidies on technological development or deployment, would be necessary to make CCS modification of old coal and gas power plants profitable.
    Keywords: Carbon capture and storage; fossil fuels; energy; carbon emissions; abatement.
    JEL: H23 Q40 Q54
    Date: 2009–12
  18. By: Ebner, André
    Abstract: Home equity is the most important part of a household portfolio, but only recently has it become more accessible through innovations in the mortgage market and financial deregulation. This study looks at the factors driving home equity withdrawal on a household level using Dutch survey data and assesses to which degree different theoretical predictions can be empirically supported. There is little evidence that equity withdrawal is used as a buffer against adverse income shocks, with financial motives and life-cycle effects likely to dominate a household’s decision. Finally, the study provides first evidence of the impact of changing supply side conditions on home equity withdrawal.
    Keywords: home equity withdrawal; Dutch housing market; consumption models
    JEL: D1 D9 E2 E4 G2
    Date: 2010–01
  19. By: Constant, Amelie F. (DIW DC, George Washington University); Nottmeyer, Olga (DIW Berlin); Zimmermann, Klaus F. (IZA, DIW Berlin and Bonn University)
    Abstract: This chapter investigates the integration processes of immigrants in Germany by comparing certain immigrant groups to natives differentiating by gender and immigrant generation. Indicators which are supposed to capture cultural integration of immigrants are differences in marital behavior as well as language abilities, ethnic identification and religious distribution. A special feature of the available data is information about overall life satisfaction, risk aversion and political interest. These indicators are also presented. All of these indicators are depicted in comparison between natives and immigrants differentiated by ethnic origin, gender and generation. This allows visualization of differences by ethnic groups and development over time. Statements about the cultural integration processes of immigrants are thus possible. Furthermore, economic integration in terms of female labor force participation is presented as an additional feature. Empirical findings suggest that differences among immigrants and between immigrants and Germans do exist and differ significantly by ethnic origin, gender and generation. But differences seem to diminish when we consider the second generations. This indicates greater adaptation to German norms and habits, and thus better cultural, socio-economic and political integration of second generation immigrants in Germany.
    Keywords: cultural integration, immigrants, Germany, ethnic origin, gender, generation
    JEL: F22 J15 J61 Z13
    Date: 2009–12
  20. By: Herwig Immervoll
    Abstract: Almost all OECD countries operate comprehensive minimum-income programmes for working-age individuals, either as last-resort safety nets alongside primary income replacement benefits, or as the principal instrument for delivering social protection. Such safety-net benefits aim primarily at providing an acceptable standard of living for families unable to earn sufficient incomes from other sources. This paper provides an overview of social assistance and other minimum-income programmes in OECD countries, summarises their main features, and highlights a number of current policy challenges.<BR>Presque tous les pays de l’OCDE ont des programmes de revenu-minimum globaux envers les individus en âge de travailler, soit comme des filets de protection de dernier recours accompagnant des prestations principales de remplacement de revenu, soit comme instruments principaux pour apporter une protection sociale. De tels filets de protection ont pour but principalement d’apporter un standard de vie acceptable pour les familles incapables de gagner suffisamment de revenus d’autres sources. Ce document présente un aperçu de l’assistance sociale et d’autres programmes dans les pays de l’OCDE, résume leurs principales caractéristiques et met l’accent sur un nombre de défis politiques actuels.
    Keywords: negative income tax, poverty, social assistance, welfare to work, assistance sociale, impôt sur le revenu négatif, pauvreté, protection sociale à l’emploi
    JEL: D31 H31 H53 I38
    Date: 2010–01–07

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