nep-eec New Economics Papers
on European Economics
Issue of 2012‒05‒02
twelve papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Money, credit, monetary policy and the business cycle in the euro area By Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
  2. A Note on the Current Account Sustainability of European Transition Economies By Juan Carlos Cuestas
  3. Exchange return co-movements and volatility spillovers before and after the introduction of Euro By Antonakakis, Nikolaos
  4. Labor Mobility in an Enlarged European Union By Kahanec, Martin
  5. Income Inequality in the European Union By Kaja Bonesmo Fredriksen
  6. Asymmetric Labor Market Institutions in the EMU and the Volatility of Inflation and Unemployment Differentials By Abbritti, Mirko; Mueller, Andreas I.
  7. Varieties of service economies in Europe By Di Meglio, Gisela; Pyka, Andreas; Rubalcaba, Luis
  8. Socially responsible mutual funds: An efficiency comparison among the European countries By Antonella Basso; Stefania Funari
  9. Fiscal Consolidation: How Much, How Fast and by What Means? By Douglas Sutherland; Peter Hoeller; Rossana Merola
  10. Entitlement Reforms in Europe: Policy Mixes in the Current Pension Reform Process By Axel H. Börsch-Supan
  11. Tax Reform in Norway: A Focus on Capital Taxation By Oliver Denk
  12. Work/care policies in European welfare states: continuing variety or change towards a common model? By Blome, Agnes

  1. By: Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
    Abstract: This paper uses a data-set including time series data on macroeconomic variables, loans, deposits and interest rates for the euro area in order to study the features of financial intermediation over the business cycle. We find that stylized facts for aggregate monetary and real variables are remarkably similar to what has been found for the US by many studies while we uncover new facts on disaggregated loans and deposits. During the crisis the cyclical behavior of short term interest rates, loans and deposits remain stable but we identify unusual dynamics of longer term loans, deposits and longer term interest rates.
    Keywords: euro area; loans; monetary policy; Money; non-financial corporations
    JEL: C32 C51 E32 E51 E52
    Date: 2012–04
  2. By: Juan Carlos Cuestas (Department of Economics, The University of Sheffield)
    Abstract: This paper analyses the sustainability of the current accounts of a group of Central and Eastern European countries. Given the link between national savings (public and private) and investment, current account may yield stabilities in the former fundamental macroeconomic variables. Hence, this analysis is of paramount importance given the 2008-2011 debt crises faced by many European economies, and the addition of new EU countries to the EMU. By means of unit root tests and fractional integration it shows that, in general, the ratio of current account to gross domestic product is a stationary and mean reverting process, although in some cases shocks tend to have long lasting effects, implying that there is no evidence of a potential debt default in this group of countries.
    Keywords: unit roots; fractional integration; current account; EU
    JEL: C32 E24
    Date: 2012
  3. By: Antonakakis, Nikolaos
    Abstract: This paper examines co-movements and volatility spillovers in the returns of the euro, the British pound, the Swiss franc and the Japanese yen vis-a-vis the US dollar before and after the introduction of the euro. Based on dynamic correlations, variance decompositions, generalized VAR analysis, and a newly introduced spillover index, the results suggest significant co-movements and volatility spillovers across the four exchange returns, but their extend is, on average, lower in the latter period. Return co-movements and volatility spillovers show large variability though, and are positively associated with extreme economic episodes and, to a lower extend, with appreciations of the US dollar. Moreover, the euro (Deutsche mark) is the dominant currency in volatility transmission with a net volatility spillover of 8\% (15\%) to all other markets, while the British pound is the dominant net receiver of volatility with a net volatility spillover of -11\% (-13\%), in the post- (pre-) euro period. The nature of cross-market volatility spillovers is found to be bidirectional though, with the highest volatility spillovers occurring between the European markets. The economic implications of these findings for central bank interventions, international portfolio diversification and currency risk management are then discussed.
    Keywords: Exchange returns co-movement; Volatility spillover; Vector autoregression; Variance decomposition; Spillover index; Multivariate GARCH
    JEL: C32 G15 F31
    Date: 2012–04–06
  4. By: Kahanec, Martin (Central European University and IZA)
    Abstract: The 2004 and 2007 enlargements of the EU extended the freedom of movement to workers from the twelve new member states mainly from Central Eastern Europe. This study summarizes and comparatively evaluates what we know about mobility in an enlarged Europe to date. The pre-enlargement fears of free labor mobility proved to be unjustified. No significant detrimental effects on the receiving countries’ labor markets have been documented, nor has there been any discernible welfare shopping. Rather, there appear to have been positive effects on EU’s productivity. The sending countries face some risks of losing their young and skilled labor force, but free labor mobility has relieved them of some redundant labor and the associated fiscal burden. They have also profited from remittances. Of key importance for the sending countries is to reap the benefits from brain gain and brain circulation in an enlarged EU. For the migrants the benefits in terms of better career prospects have with little doubt exceeded any pecuniary and non-pecuniary costs of migration. In conclusion, the freedom of movement in the EU provides for a triple-win situation for the receiving and sending countries as well as for migrants themselves, provided the risks are contained and efficient brain circulation is achieved.
    Keywords: EU labor markets, migration, EU enlargement, labor mobility, free movement of workers, transitional arrangements, new member states, European Union
    JEL: F22 J61
    Date: 2012–04
  5. By: Kaja Bonesmo Fredriksen
    Abstract: Poor growth performance over the past decades in Europe has increased concerns for rising income dispersion and social exclusion. European authorities have recently launched the Europe 2020 strategy which aims to improve social inclusion in Europe on top of already existing European regional policies aiming to reduce regional disparities through stimulating growth in areas where incomes are relatively low. While it is most common to confine measures of inequality to national borders, the existence of such union-wide objectives and policies motivates measuring income dispersion among all Europeans in this paper. Towards the end of the 2000s the income distribution in Europe was more unequal than in the average OECD country, albeit notably less so than in the United States. It is the within-country, not the between-country dimension, which appears to be most important. Inequality in Europe has risen quite substantially since the mid 1980s. While the EU enlargement process has contributed to this, it is not the only explanation since inequality has also increased within a “core” of 8 European countries. Large income gains among the 10% top earners appear to be a main driver behind this evolution.<P>L'inégalité des revenus dans l'Union européenne<BR>La faible croissance en Europe au cours des dernières décennies a augmenté les inquiétudes concernant la répartition des revenus et l’exclusion sociale. Les autorités européennes ont récemment lancé la stratégie Europe 2020 qui vise à améliorer l’insertion sociale en Europe en plaçant cet objectif au dessus des politiques régionales européennes déjà existantes afin de réduire les disparités régionales en stimulant la croissance dans les zones où les revenus sont relativement bas. Alors que l’inégalité est, le plus fréquemment, mesurée par pays, le fait de mettre en place des objectifs et des politiques à l’échelle européenne explique pourquoi ce rapport traite de l’inégalité des revenus entre tous les Européens. Vers la fin des années 2000, la distribution des revenus en Europe était plus inégalitaire que la moyenne de la zone de l’OCDE mais beaucoup moins qu’aux États-Unis. Ce sont les inégalités à l’intérieur des pays et non entre pays qui semblent le plus importantes. L’inégalité en Europe a sensiblement augmenté depuis la moitié des années 80. Même si l’élargissement a contribué à cette hausse, ce n’est pas la seule explication puisque l’inégalité a aussi augmenté au sein d’un groupe de 8 pays faisant parti de l’Union sur toute la période considérée. D’importants gains de revenus pour les 10% les mieux rémunérés apparaissent comme étant la raison principale de cette évolution.
    Keywords: redistribution, European Union, convergence, income inequality, Gini coefficient, top incomes, redistribution, Union européenne, convergence, inégalité des revenus, hauts revenus, Gini
    JEL: C81 D31 D63 H23
    Date: 2012–04–16
  6. By: Abbritti, Mirko (University of Navarra); Mueller, Andreas I. (Columbia University)
    Abstract: How does the asymmetry of labor market institutions affect the adjustment of a currency union to shocks? To answer this question, this paper sets up a dynamic currency union model with monopolistic competition and sticky prices, hiring frictions and real wage rigidities. In our analysis, we focus on the differentials in inflation and unemployment between countries, as they directly reflect how the currency union responds to shocks. We highlight the following three results: First, we show that it is important to distinguish between different labor market rigidities as they have opposite effects on inflation and unemployment differentials. Second, we find that asymmetries in labor market structures tend to increase the volatility of both inflation and unemployment differentials. Finally, we show that it is important to take into account the interaction between different types of labor market rigidities. Overall, our results suggest that asymmetries in labor market structures worsen the adjustment of a currency union to shocks.
    Keywords: currency union, labor market frictions, real wage rigidities, unemployment, sticky prices, inflation differentials
    JEL: E32 E52 F41
    Date: 2012–04
  7. By: Di Meglio, Gisela; Pyka, Andreas; Rubalcaba, Luis
    Abstract: This paper identifies the varieties and dynamics of service economies in Europe, analysing the role of knowledge base and innovative efforts and their evolution across time and countries. Results based on aggregated macroeconomic data indicate that there is no convergence trend towards a single service economy model. Moreover, different service economies models can be associated with institutional and welfare state diversity. When analysing a comprehensive set of indicators at a disaggregated level a more detailed pattern of service economies emerges. The structural composition of countries plays a prominent role, while heterogeneity is driven by uneven knowledge bases and innovative efforts. --
    Keywords: services,social models,innovation,knowledge,Europe
    JEL: L80 O31 C38
    Date: 2012
  8. By: Antonella Basso (Department of Economics, Università Ca' Foscari Venezia); Stefania Funari (Department of Management, Università Ca' Foscari Venezia)
    Abstract: The first objective of this contribution is to evaluate the performance of SRI equity mutual funds in the main European countries with three different DEA models. Secondly, with a series of statistical tests we compare the performance of SRI and non SRI mutual funds in the various countries, to determine if SRI mutual funds have to sacrifice something in terms of financial performance. Thirdly, we compare the performance obtained by SRI mutual funds among the different European countries.
    Keywords: SRI mutual funds; Performance evaluation; Data envelopment analysis
    JEL: C65 G1 G23
    Date: 2012–04
  9. By: Douglas Sutherland; Peter Hoeller; Rossana Merola
    Abstract: The economic and financial crisis was the catalyst for a fiscal crisis that engulfs many OECD countries. Consolidating public finances in order to address the consequences of the crisis, underlying weaknesses and also future spending pressures creates important challenges. Fiscal consolidation requires choices to be made about how much consolidation is needed, how fast it should be implemented and which instruments should be used. Estimates of fiscal gaps suggest that substantial and sustained fiscal tightening will be needed in nearly all countries to bring debt down to prudent levels. However, given a weak global economy, implementing a large fiscal tightening could be particularly costly. Structuring consolidation packages to use instruments with low multipliers initially and enhancing the institutional framework for fiscal policy to lend greater credibility to the commitment to consolidate over time may help minimise the trade-offs with growth in the short run. In most countries there is scope to target spending programmes more effectively and eliminate distortions in taxation. Such measures, buttressed by structural reforms, such as to unsustainable pension systems, can underpin fiscal sustainability, while minimising the costs to long-run growth.<P>Consolidation budgétaire : Quelle ampleur, quel rythme et quels moyens ?<BR>La crise économique et financière a servi de catalyseur à une crise budgétaire qui submerge de nombreux pays de l’OCDE. Assainir les finances publiques pour faire face aux conséquences de la crise, aux faiblesses sous-jacentes ainsi qu’aux pressions futures sur les dépenses publiques représente un défi majeur pour bon nombre de pays. La consolidation budgétaire implique des choix quant à l’ampleur de la consolidation nécessaire, au rythme auquel elle doit être mise en œuvre et aux moyens à utiliser. Sur la base d’estimations des écarts budgétaires, il semble qu’il faudra un resserrement budgétaire important et durable dans presque tous les pays pour ramener la dette à des niveaux prudents. Cependant, compte tenu de la faiblesse de l’économie mondiale, la mise en œuvre d’un vaste programme de restriction budgétaire pourrait être particulièrement coûteuse. Structurer les programmes de consolidation de façon à utiliser au départ des instruments à multiplicateurs faibles et, à terme, à améliorer le cadre institutionnel de la politique budgétaire afin de rendre plus crédible l’engagement à assainir les finances publiques pourrait aider à réduire au minimum les arbitrages avec la croissance à court terme. Dans la plupart des pays, il est possible de cibler plus efficacement les programmes de dépenses et d’éliminer les distorsions de la fiscalité. Ces mesures, étayées par des réformes structurelles telles que la réforme des systèmes de retraite, qui ne sont plus tenables, peuvent soutenir la viabilité budgétaire tout en réduisant au minimum les coûts pour la croissance à long terme.
    Keywords: fiscal consolidation, fiscal gaps
    JEL: H62 H63 H68
    Date: 2012–04–12
  10. By: Axel H. Börsch-Supan
    Abstract: Many European countries have begun (or have announced) programs intended to reduce the growth of entitlement programs, in particular of public pensions. Current costs are high, and the pressures will increase due to population aging and negative incentive effects. This paper focuses on the pension reform process in Europe. It links the causes for current problems to the cures required to make the pay-as-you-go entitlement programs in Continental Europe sustainable above and beyond the financial crisis. It discusses examples which appear, from a current point of view, to be the most viable and effective options to bring entitlement systems closer to fiscal balance and still achieve their key aims. There is no single policy prescription that can solve all problems at once. Reform elements include a freeze in the contribution and tax rates, an indexation of benefits to the dependency ratio, measures to stop the current trend towards early retirement, an adaptation of the normal retirement age to increased life expectancy, and more reliance on private savings – elements of a sustainable but complex multipillar system of pensions and similar entitlement programs.
    JEL: H51 H55 H68
    Date: 2012–04
  11. By: Oliver Denk
    Abstract: Norway’s dual income tax system achieves high levels of revenue collection and income redistribution, without overly undermining economic performance and while paying attention to environmental externalities. It treats capital and labour income in different ways: capital income is taxed at a single low rate, while labour income is taxed at progressive rates. However, effective tax rates on savings vary widely across asset classes. The favourable treatment of owner-occupied housing relative to financial savings should be reduced, preferably by taxing imputed rents at the standard 28% statutory rate. The wealth tax implies very high effective tax rates on savings, indicating that it either gives rise to tax avoidance or significantly inhibits growth. The government should investigate the issue and, if the growth-equity trade-off is too unfavourable to growth, phase out or lower the wealth tax. To restrain tax avoidance by the wealthy, the base of the gift and inheritance tax should be broadened. Overall, the reform package recommended in this paper would improve the allocation of capital and increase work and investment incentives. It could be designed to be broadly neutral in regard to income redistribution and public revenue.<P>La réforme fiscale en Norvège : Privilégier l'imposition du capital<BR>En Norvège, le système d'imposition duale atteint d’excellents résultats en termes de recouvrement des recettes et de redistribution du revenu, sans pénaliser excessivement la performance économique et en prenant en compte les externalités environnementales. Ce système n’applique pas le même traitement aux revenus du capital et du travail : le revenu du capital est soumis à un taux d’imposition unique faible, tandis que celui du travail est taxé à des taux progressifs. Toutefois, les taux d’imposition effectifs de l’épargne varient beaucoup d’une catégorie d’actifs à l’autre. Le traitement favorable des logements occupés par leurs propriétaires devrait être réduit, de préférence en taxant leur valeur locative imputée au taux légal normal de 28 %. L’impôt sur la fortune entraîne des taux d’imposition effectifs de l’épargne très élevés, qui ouvrent la voie à l’évasion fiscale ou qui entravent significativement la croissance. Le gouvernement doit se pencher sur cette question et, si l’arbitrage entre croissance et équité est par trop défavorable à la croissance, éliminer progressivement l’impôt sur la fortune ou réduire son taux. Afin de restreindre les possibilités d’évasion fiscale de la part des contribuables les plus aisés, il faudrait élargir la base de l’impôt sur les donations et les successions. Dans l’ensemble, les réformes recommandées dans ce document amélioreraient la répartition du capital et renforceraient les incitations à travailler et à investir. Elles pourraient être conçues de façon à avoir un impact globalement neutre sur la redistribution des revenus et les recettes publiques.
    Keywords: Norway, taxation, capital taxation, own-occupied housing, dual income tax system, wealth tax, rate of return allowance, allowance for corporate equity, fiscalité, Norvège, double système d'imposition, imposition du capital, propriétaires occupants, impôt sur la fortune, taux de l'indemnité de retour, déduction pour capital de l'entreprise
    JEL: D9 H2 R21 R38
    Date: 2012–04–03
  12. By: Blome, Agnes
    Abstract: This paper investigates work/care policies in fifteen European welfare states during the last two decades in a comparative perspective. The main question is how certain work/care arrangements are supported through public policies of different welfare states and whether this has changed over time. In particular the development of leave regulations and working time policies, the provision of childcare, child allowances and types of taxation schemes which favor the reconciliation of work and care are analyzed based on a comprehensive data collection. Although an ongoing trend towards the support of the dual-earner model is clearly visible in the data, countries still differ in the current extent of work/care reconciliation policies and the pace and timing of political reforms. Moreover, hardly any country fits an ideal type of an entirely coherent policy. Different countries prioritize certain instruments over others, irrespective of the notion they have of any specific work/care arrangement. -- Dieser Artikel analysiert vergleichend Maßnahmen zur Vereinbarkeit von Familie und Beruf in fünfzehn europäischen Wohlfahrtsstaaten. Die zentrale Frage lautet, inwiefern Vereinbarkeitsarrangements durch wohlfahrtsstaatliche Leistungen unterstützt werden und ob und wie sich diese Leistungen in den letzten zwanzig Jahren verändert haben. Basierend auf einer umfassenden Datensammlung werden die Entwicklungen in den Elternzeit-, Elterngeld- und Arbeitszeitregelungen, der öffentlichen Kinderbetreuung, des Kindergeldes sowie der Steuersysteme, die die Vereinbarkeit von Familie und Beruf fördern, untersucht. Obwohl ein länderübergreifender Trend in Richtung des Zweiverdienermodells in den Daten sichtbar wird, bestehen weiterhin Unterschiede sowohl im aktuellen Entwicklungsstand der Vereinbarkeitspolitik als auch beim Reformtempo. Auffällig ist zudem, dass das Maßnahmenbündel in nahezu keinem Land kohärent ist. Unabhängig von den selbstgesteckten Zielen geben die Länder bestimmten Politikinstrumenten Vorrang gegenüber anderen.
    Keywords: work,care,reconciliation,policies,gender,Europe,comparison
    Date: 2011

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