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on European Economics |
| By: | Hein, Eckhard; Truger, Achim |
| Abstract: | Currently fiscal policies in Germany seem to be in a very comfortable position and the German Debt Brake is regarded as an institutional precondition for this success and has been exported to the Euro area in the guise of the Fiscal Compact. In this paper we scrutinize German fiscal policies and its new national and European institutional constraints from a macroeconomic perspective. We start by reiterating the requirements for fiscal policies of member countries in a currency union like the Euro area from a Post-Keynesian perspective and examine German fiscal policies in the period from 1999 until 2007 against this theoretical background. We then turn to German fiscal policies during the Great Recession, the German Debt Brake, the Fiscal Compact and future perspectives, and analyse the associated problems and risks. Finally, we discuss alternative scenarios which could avoid the deflationary pressures of the German Debt Brake and the Fiscal Compact on domestic demand and contribute to internally rebalancing the Euro area. -- |
| Keywords: | fiscal policy,government deficits and debt,debt brake,fiscal compact,Germany,Euro area |
| JEL: | E61 E62 E64 E65 H62 H63 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:242013&r=eec |
| By: | Du Caju, Philip (National Bank of Belgium); Kosma, Theodora (Bank of Greece); Lawless, Martina (Central Bank of Ireland); Messina, Julián (World Bank and Universitat de Girona); Rõõm, Tairi (Eesti Pank) |
| Abstract: | The rarity with which firms reduce nominal wages has been frequently observed, even in the face of considerable negative economic shocks. This paper uses a unique survey of fourteen European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why they avoid cutting wages. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in euro area countries but were one of the lowest ranked obstacles in non-euro area countries. The paper examines how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations put forward for the infrequency of wage cuts. |
| Keywords: | labour costs, wage rigidity, firm survey, wage cuts, European Union |
| JEL: | J30 J32 J33 J51 C81 P5 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:03/rt/13&r=eec |
| By: | Bernardi, LUIGI |
| Abstract: | The relative merits of direct vs. indirect taxes have been largely debated since the advent of public finance theory. The current phase of the discussion concerns the relative ability of these two kinds of taxes to creating a more growth-friendly environment. The prevailing view favours indirect taxation, and suggests a shift of the fiscal burden towards indirect taxes, especially those on consumption. We shall be looking only briefly at this last question, as this paper has two other principal aims. The first aim is to evaluate the entity of the said tax shift over the last decade across Euro Area (EA-17) member countries. Our conclusion is that a “true” tax shift has not been as widespread and large as the EU Commission believes. Secondly, among the most widely-debated issues concerning the tax shift, we are going to examine the contrasting short-term impacts on the economy resulting from it, and we shall outline the possible risk that, in the short term, this tax shift may exacerbate the economic slump spreading across the European Union, particularly as an effect of the general adoption of restrictive fiscal policies by almost all member countries |
| Keywords: | Direct taxes, indirect taxes, Euro Area |
| JEL: | H2 |
| Date: | 2013–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47877&r=eec |
| By: | Fernando Broner; Aitor Erce; Alberto Martin; Jaume Ventura |
| Abstract: | In 2007, countries in the Euro periphery were enjoying stable growth, low deficits, and low spreads. Then the financial crisis erupted and pushed them into deep recessions, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and, surprisingly, so did the share of the debt held by domestic creditors. Credit was reallocated from the private to the public sectors, reducing investment and deepening the recessions even further. To account for these facts, we propose a simple model of sovereign risk in which debt can be traded in secondary markets. The model has two key ingredients: creditor discrimination and crowding-out effects. Creditor discrimination arises because, in turbulent times, sovereign debt offers a higher expected return to domestic creditors than to foreign ones. This provides incentives for domestic purchases of debt. Crowding-out effects arise because private borrowing is limited by financial frictions. This implies that domestic debt purchases displace productive investment. The model shows that these purchases reduce growth and welfare, and may lead to self-fulfilling crises. It also shows how crowding-out effects can be transmitted to other countries in the Eurozone, and how they may be addressed by policies at the European level. |
| Keywords: | sovereign debt, rollover crises, secondary markets, economic growth. |
| JEL: | F32 F34 F36 F41 F43 F44 G15 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1372&r=eec |
| By: | Nicolas Véron |
| Abstract: | New obstacles to the European banking union have emerged over the last year, but a successful transition remains both necessary and possible. The key next step will be in the second half of 2014, when the European Central Bank (ECB) will gain supervisory authority over most of Europeâ??s banking system. This needs to be preceded by a rigorous balance sheet assessment that is likely to trigger significant bank restructuring, for which preparation has barely started. It will be much more significant than current discussions about a bank resolution directive and bank recapitalisation by the European Stability Mechanism (ESM). The 2014 handover, and a subsequent change in the European treaties that will establish the robust legal basis needed for a sustainable banking union, together define the policy sequence as a bridge that can allow Europe to cross the choppy waters that separate it from a steady-state banking policy framework. |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:783&r=eec |
| By: | Kaitila, Ville |
| Abstract: | We analyse the Sigma convergence (standard deviation divided by average) of purchasing power adjusted GDP per capita and GDP per hour worked in the European Union. We also link the development in income distribution as measured by Gini coefficients to convergence. With short pauses, there has been a long term trend of GDP per capita convergence in the European Union after 1960. The Great Recession was a shock to the development, and convergence within the EU-15 has suffered considerably. The largest relative declines have occurred in Cyprus, Greece, Italy, Portugal and Spain. On the other hand, the ex-transition countries have mostly continued their catching up. Historically, convergence in the EU has been faster when aggregate GDP growth has been faster. We also find that income disparities measured by Gini coefficients are negatively related to GDP per capita levels. Convergence was not correlated with changes in income distribution in 2000–2011 except for a group of six catching-up countries where we find a positive relation. We also find that there has occurred Sigma convergence in national Gini coefficients |
| Keywords: | EU, GDP per capita, productivity, Sigma convergence, Gini coefficient |
| JEL: | F15 F43 O15 O47 |
| Date: | 2013–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:14&r=eec |
| By: | Agnès Bénassy-Quéré; Yeganeh Forouheshfar |
| Abstract: | We study the implication of a multipolarization of the international monetary system on cross-currency volatility. More specifically, we analyze whether the internationalization of the yuan could modify the impact of asset supply and trade shocks on the euro-dollar exchange rate, within a three-country, three-currency portfolio model. Our static model shows that the internationalization of the yuan (defined as a rise in the yuan in international portfolios) would be either neutral or stabilizing for the euro-dollar rate, whatever the exchange-rate regime of China. Moving to a dynamic, stock-flow framework, we show that the internationalization of the yuan would make exchange-rate variations more efficient to stabilize net foreign asset positions after a trade shock. |
| Keywords: | China;yuan;exchange-rate regime;euro;dollar |
| JEL: | F31 F33 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2013-14&r=eec |
| By: | CPB Netherlands (CPB Netherlands); CAPP (CAPP) |
| Abstract: | The main research question of the project is summarized as: What are the macroeconomic and distributional consequences of fiscal devaluation for a selection of countries and the EU as a whole? The selected countries are France, Italy, Spain and Austria. The project aims to perform four tasks: 1. Provide a review of the impacts of fiscal devaluations in the light of economic literature and former studies. 2. Use suitable models to analyse macroeconomic impacts of fiscal devaluation in the selected countries and do a comparative analysis of the results obtained in different countries. 3. Analyse distributional impact of fiscal devaluations with the help of models in the selected countries and link these results, if possible, to the macro-level analysis. 4. Analyse the suitability of the policy for the EU as a whole with the help of model simulations and in the light of the country-specific results. |
| Keywords: | European Union, Taxation, fiscal devaluation, redistribution |
| JEL: | H21 H23 H24 H31 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0036&r=eec |
| By: | Salvador Barrios (European Commission); Jonathan Pycroft (European Commission); Bert Saveyn (European Commission) |
| Abstract: | One key objective of tax-based fiscal consolidations which is too often disregarded in public debate is to minimise economic distortions. This paper uses a computable general equilibrium model to gauge these potential distortions by calculating the marginal cost of public funds (MCF) for EU member states. We consider two specific tax categories which are often proposed as good candidates for efficiency-enhancing tax shifting policies: labour and green taxes. Our analysis suggests that the economic distortions provoked by labour taxes are significantly larger than for green taxes. This result suggests that a green-taxes oriented fiscal consolidation would be preferred to a labour-tax oriented one (assuming that both tax increases would yield the same tax revenues). This holds for all EU member states modelled and despite the fact that potential welfare enhancement through pollution abatement are cancelled-out. Nevertheless, this result is slightly less strong when one considers the spillover effects between countries, which are more pronounced (in relative terms) for green taxes. This suggests that the use of green taxes for fiscal consolidation would be more effective were there to be close coordination across EU countries. In addition the efficiency losses associated with labour taxes are also likely to be greater when labour markets are less flexible (from an efficiency-wage perspective), a result also found to a small extent for green taxes. This raises the possibility that undertaking structural reforms (especially in the labour market) would help to minimize the efficiency losses entailed by tax-driven fiscal consolidations. |
| Keywords: | European Union, Taxation, labour taxation, environment, marginal cost public funds |
| JEL: | H21 H23 H24 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0035&r=eec |
| By: | Angelos Liontakis (Department of Agricultural Economics & Rural Development, Agricultural University of Athens, Greece); Dimitris Kremmydas (Department of Agricultural Economics & Rural Development, Agricultural University of Athens, Greece) |
| Abstract: | In the European Union homogenous inflation forces are expected to prevail due to the increased economic integration, especially after the creation of the single currency area. This expectation is directly related to the issue of inflation convergence which has gained increasing attention by both academia and policy makers in Europe. While the examination of the core inflation is of great importance for macroeconomic policy, the prominent role of disaggregate inflation indices and especially food inflation has been also frequently emphasized in the literature. However, the issue of food inflation convergence has been largely ignored in empirical studies. This study explores the evolving distribution of the food inflation rates in the EU-25 member states, using the distribution dynamics analysis and covering the period from January 1997 to March 2011. This analysis rests on the assumption that each country represents an independent observation which provides unique information that can be used to estimate the transition dynamics of inflation. However, we show that inside EU-25, spatial autocorrelation prevails and therefore, the independency assumption is violated. To insure spatial independence, the Getis spatial filter is implemented prior to the distribution dynamics analysis. The results of the analysis confirm the existence of convergence trends which are even more clear after the spatial filtering procedure, indicating, on the one hand, the influence of spatial effects on food inflation and, on the other hand, the effectiveness of Getis spatial filtering. |
| Keywords: | European Union, inflation, convergence, spatial filtering |
| JEL: | E31 C21 R12 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:aua:wpaper:2013-3&r=eec |
| By: | Maciej Sobolewski; Grzegorz Poniatowski |
| Abstract: | The main purpose of this study is to determine what are the main factors which stand behind the diversity in performance of business services measured by their contribution to growth in the EU Member States. We show that in addition to typical growth factors which enhance labor productivity, also the extent of interconnectedness of business services with upstream industries is important to explain service-based economic growth. Our analysis yields two interesting results. Firstly, we show that patterns of industrial interconnectedness of business services are considerably diversified across the EU Member States indicating large differences in the integration of services as supplier with other sectors on a country level. Secondly we show that the diversified growth performance of business services across the EU25 countries can be explained by differences in labor productivity and differences in forward linkages. Our results indicate the fundamental role of business services as the main engine of growth in the European economy. This service-based growth is channeled mainly through increases in labor productivity and forward interconnectedness of services with downstream industries. On the policy making level our results indicate that investment in human and intangible capital are crucial for the service-dominated economy as they not only enhance economic growth inside knowledge intensive services but also facilitate transmission of growth impulses to downstream industries by increasing diffusion and integration of services as suppliers of high value added inputs to the economy. |
| Keywords: | Industrial Linkages,Business Services, Growth, Multipliers, Input-Output |
| JEL: | D57 L52 R15 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnstan:0455&r=eec |
| By: | Berthold, Norbert; Gründler, Klaus |
| Abstract: | Germany has experienced tremendous growth rates in the aftermath of World War II. Since the early 1970s, growth rates declined and settled down at a more or less constant rate of 2 percent per year, only to experience a renewed negative trend around the early 2000s. We investigate the evolution of the German growth rate and particularly aim to explain the last decline. Endogenous growth theory suggest that long-run growth is mainly driven by human capital and technological progress. Our 3SLS estimations in a panel of 187 countries between 1965 and 2010 support this hypothesis. As it turns out, human capital accumulation in Germany severely lags behind the average level of the developed countries. As this may explain the moderate position of Germany in the group of the 25 richest countries, the developed countries in turn experience a period of below-average growth rates. Regardless the financial crisis from the late 2000s, growth reveals a downward trend since the turn of the millennium in nearly each of the developed economies. We argue that this decline must be traced back to a general lack of radically new ideas in the world economy. The explanation of the German growth crisis may thus be considered a blueprint of the situation in the developed economies. -- |
| Keywords: | Economic Growth,Endogenous Theory,Germany,Technical Change |
| JEL: | O40 O33 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewwb:120&r=eec |