nep-eec New Economics Papers
on European Economics
Issue of 2015‒12‒20
thirteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The Timing and Responsiveness of Fiscal Policy over the Business Cycle in Germany By Koester, Gerrit B.; Priesmeier, Christoph
  2. Financial regulatory transparency: new data and implications for EU policy By Mark Copelovitch; Christopher Gandrud; Mark Hallerberg
  3. Tax competition in Europe: Europe in competition with other world regions? By Streif, Frank
  4. Political conflicts over European integration: rejection or ambivalence? By Kristel Jacquier
  5. Adjusting fiscal balances for the business cycle: New tax and expenditure elasticity estimates for OECD countries By Robert W.R. Price; Thai-Thanh Dang; Jarmila Botev
  6. Banking Stability Index: New EU countries after Ten Years of Membership By Kristína Kočišová; Daniel Stavárek
  7. Who are the top 1% earners in Europe? By Oliver Denk
  8. The theoretical weaknesses of the expansionary austerity doctrine By Alberto Botta
  9. Public policies over the life cycle: a large scale OLG model for France, Italy and Sweden By Alessandro Bucciol; Laura Cavalli; Igor Fedotenkov; Paolo Pertile; Veronica Polin; Nicola Sartor; Alessandro Sommacal
  10. Monetary-fiscal policy interaction and fiscal inflation: A tale of three countries By Kliem, Martin; Kriwoluzky, Alexander; Sarferaz, Samad
  11. Labour market reforms in Italy: evaluating the effects of the Jobs Act By Marta Fana; Dario Guarascio; Valeria Cirillo
  12. Neoliberal growth models, monetary union and the Euro crisis. A post-Keynesian perspective By Engelbert Stockhammer
  13. Implementing the golden rule for public investment in Europe By Achim Truger

  1. By: Koester, Gerrit B.; Priesmeier, Christoph
    Abstract: This paper provides new empirical evidence on the timing and sensitivity of fiscal policy over the business cycle in Germany. Employing structural vector autoregressions with time-varying transmission parameters, we find that the responsiveness of the fiscal balance to output gap shocks varied substantially over the last decades. Combining output gap and fiscal balance reactions reveals three distinct fiscal regimes that gradually flow into each other. Increasing countercyclical reactions can be observed in the 1970s. This is followed by almost two decades of decreasing short-term but increasing medium-term countercylicality. A third regime is characterized by further decreases of the short-termcountercyclicality, while fiscal policy turns acyclical in the medium-term perspective. Additional analyses show, that especially changes in the degree of trade openness and the employment ratio, along with the adoption of stronger inflation targeting have driven the decline of the sensitivity of German public finances.
    Keywords: Cyclicality of fiscal policy; Structural VAR; Time–varying parameter
    JEL: C32 E32 E62
    Date: 2015–12–18
  2. By: Mark Copelovitch; Christopher Gandrud; Mark Hallerberg
    Abstract: Highlights International financial institutions have promoted financial regulatory transparency, or the publication by supervisors of financial industry data. Financial regulatory transparency enhances market stability and increases democratic legitimacy. We introduce a new index of financial regulatory data transparency - the FRT Index. It measures how countries report to international financial institutions basic macro-prudential data about their financial systems. The Index covers 68 high-income and emerging-market economies over 22 years (1990-2011). We find a number of striking trends over this period. European Union members are generally more opaque than other high-income countries. This finding is especially relevant given efforts to create an EU capital markets union. Globally, financial regulatory data transparency has increased. However, there is considerable variation. Some countries have become significantly more transparent, while others have become much more opaque. Reporting tends to decline during financial crises. We propose that the EU institutions take on a greater role in coordinating and possibly enforcing reporting of bank and non-bank institution data. Similar to the United States, a reporting requirement should be part of any EU general deposit insurance scheme. Financial regulatory transparency refers to the availability of financial industry data made public by supervisors. It has been lauded as a measure to enhance market stability (Arnone et al, 2007) and democratic legitimacy (Gandrud and Hallerberg, 2015). As with fiscal transparency, which concerns the availability of public sector financial data, and monetary policy transparency, which concerns the data monetary policymakers use to set interest rates, international financial institutions have promoted regulatory transparency. Following the East Asian crisis of the late 1990s, the International Monetary Fund (IMF) included transparency in its 1999 Code of Good Practices on Transparency in Monetary and Financial Policies1 and introduced data dissemination standards for making financial data available beginning in 19962. Similar to its measures to promote fiscal transparency, the IMF has established a Financial Sector Assessment Program (FSAP), under which it conducts voluntary reviews of the stability of financial sectors and the development of those sectors. ‘Transparency’ is one key consideration within this programme. While it is up to the country in question to approve publication of the IMF’s FSAP review, most are publicly available online, and they usually include a review of the extent to which a given country observes the Fund’s standards and codes3. The Basel Committee for Banking Supervision added regulatory transparency to its Core Principles for Effective Banking Supervision in 2006. Within the European Union, the European Banking Authority (EBA) has made a number of recent attempts to promote regulatory transparency, as have other EU financial sector institutions such as the the European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA). We discuss these initiatives in more detail below, but there is currently no measure of transparency that is broadly comparable across countries or that captures whether supervisors make public macro-prudential data. In order to address this gap in measuring regulatory transparency, we introduce a new international financial regulatory data transparency index. We call it the Financial Regulatory Transparency (FRT) Index. The FRT Index measures whether countries report core macro-prudential data about their financial systems to international financial institutions like the IMF and World Bank. The Index currently covers 68 high-income and emerging market economies over 22 years (1990-2011). The FRT Index is freely available for download at - https -// Why regulatory transparency is important Regulatory transparency is important in the context of several ongoing political debates. Regulatory transparency is connected to greater liberalisation of financial markets in other parts of the world, and it can strengthen a capital markets union by making the financial sector more efficient. Gelos and Wei (2005) find that international investors invest less and capital flight is greater during crises in opaque countries. Copelovitch et al (2015) find that countries with greater regulatory transparency pay lower rates of interest on their sovereign bonds when debt burdens increase. The logic for this finding is straightforward - investors have a better understanding of what is going on in a country’s banking sector when regulatory transparency is high, and they are less nervous about implicit liabilities to the government accounts from the financial sector, liabilities which typically go unreported in government budgets (see Irwin, 2015). Despite the significant benefits of regulatory transparency – including enhancing the efficiency of financial markets and reducing sovereign borrowing costs – the so-called Five Presidents’ Report on Completing Europe's Economic and Monetary Union (Juncker, 2015), in which the presidents of the EU institutions suggest a way forward for the euro area, is curiously silent on the need for transparency in the section ‘Towards a Financial Union’.
    Date: 2015–12
  3. By: Streif, Frank
    Abstract: Corporate tax levels have fallen substantially in Europe during the last decades. A broad literature has identified tax competition as one reason for this decline in corporate tax levels. However, none of these studies explicitly asks the question whether tax competition within regions is different from tax competition across regions, e.g. due to global regionalism of foreign direct investments. This is a crucial question to answer in order to discuss the desirability of tax harmonization in a distinct region, for example, within the European Union. Therefore, the study aims to give hints on the question whether the decline in corporate tax levels in Europe is mainly driven by tax competition between EU member states or by pressure from other world regions. The results of this study, which makes use of tax reaction functions, indicate that there is evidence for tax competition within Europe, whereas there is no robust evidence that European countries compete with countries from other world regions.
    Keywords: corporate taxes,tax competition,tax harmonization,Europe
    JEL: H2 H77 H87
    Date: 2015
  4. By: Kristel Jacquier (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We use survey data from ISSP 2013 to explore how conflicts over European integration interact with the dimensions of contestation that structure politics in five EU countries. Multinomial estimates allow the distinction between support, rejection and ambivalence vis-à-vis the EI. The empirical analysis shows that ambivalence and rejection of the European Union have the same determinants. We find that far-right political ideology is the only robust predictor of genuine anti-EU attitudes
    Keywords: European integration; political parties; survey analysis
    JEL: D72 F02
    Date: 2015–10
  5. By: Robert W.R. Price; Thai-Thanh Dang; Jarmila Botev
    Abstract: This paper re-estimates the elasticities of government revenue and expenditure items with respect to the output gap for OECD countries. These elasticities are used by the OECD to calculate cyclically adjusted fiscal balances. The study updates the earlier 2005 study using the most recent datasets and tax codes, the coverage being confined in this paper to 35 countries, the 34 OECD member states and Latvia. The same two-step methodology is retained: revenue and expenditure elasticities with respect to the output gap being defined as the product of, first, the elasticities of individual revenue and expenditure items with respect to their bases and, second, the elasticities of these bases with respect to the output gap. A number of refinements and methodological improvements are made relative to the 2005 study. The revisions to individual elasticities relative to the 2005 vintage are significant in a number of cases but do not follow a clear pattern across countries, except for the elasticities of corporate income tax revenue which are revised up in most cases.<P>Correction des soldes budgétaires en fonction des variations cycliques : Nouvelles estimations d'élasticités des impôts et des dépenses pour les pays de l'OCDE<BR>Cet article estime les élasticités des composantes de revenus et de dépenses des administrations publiques par rapport aux écarts de production pour les pays de l’OCDE. Ces élasticités sont utilisées par l’OCDE pour calculer les soldes financiers des administrations publiques corrigés du cycle économique. Cette étude est une mise à jour des travaux parus en 2005, elle utilise les données et les codes d’impôts les plus récentes , et couvre 35 pays, à savoir les 34 pays membres ainsi que la Lettonie. La méthode en deux étapes a été conservée : les élasticités par rapport aux écarts de production étant définies comme le produit , dans un premier temps, des élasticités des composantes individuelles de recettes et de dépenses par rapport à leurs assiettes , et dans un deuxième temps des élasticités de ces assiettes par rapport aux écarts de production. Des modifications et des améliorations méthodologiques ont été apportées depuis l’étude de 2005. Les révisions d’élasticités par rapport à la version de 2005 sont importantes dans certains cas mais ne suivent pas un schéma type pour tous les pays, à l’exception des élasticités des impôts sur les bénéfices des sociétés qui ont été révisées à la hausse dans la plupart des cas.
    Keywords: budget elasticity, fiscal surveillance, automatic stabilisers, cyclically adjusted, ajustement cyclique, stabilisateurs automatiques, élasticité budgétaire, surveillance fiscale
    JEL: E62 H30 H60
    Date: 2015–12–14
  6. By: Kristína Kočišová (Department of Banking and Investments, Faculty of Economics, Technical University of Košice); Daniel Stavárek (Department of Finance and Accounting, School of Business Administration, Silesian University)
    Abstract: Successful development of economy is based on the effective and stable performance of credit institutions, mainly banks. Evaluation of stability and soundness of banks is a complex task that involves a significant number of multidimensional criteria. This paper discusses some of the existing efforts to construct an aggregate financial stability index and brings attempts to construct an aggregate Banking Stability Index (BSI). We try to construct an aggregate index, taking into account indicators of financial strength of banks (performance and capital adequacy) and major risks (credit risk and liquidity risk) affecting banks in the banking system. Based on the international experience an aggregate BSI is then used for evaluation of stability in the European Union (EU) countries, focusing on ten countries that joined EU in 2004. We obtained data from database of the International Monetary Fund. Results showed that in 2014 countries with the most stable banking sectors were Luxembourg and Estonia. On the opposite end of the scale were banking sectors in Spain, Portugal, and Greece. The outcome of the study showed decline of the average banking stability in EU countries during the period of 2005-2008, and its improvement since 2009. The improvement in last years was positively affected mainly by development of the capital adequacy (which may be affected by the gradual implementation of decrees in the field of capital requirements regulation). Results also showed that the countries that joined EU in 2004 were positively affected by accession to EU what is evidenced by the value of BSI, which increased between the years 2004 and 2014.
    Keywords: financial soundness indicators, aggregate index, banking sector, EU countries
    JEL: C20 G21
    Date: 2015–12–10
  7. By: Oliver Denk
    Abstract: Top earners have become the subject of intense public and scholarly debate. This is the first paper that comprehensively documents the profiles of the 1% highest paid employees across 18 European countries. The data come from the largest harmonised source available, an employer-based survey that covers the labour income of 10 million employees, excluding the self-employed. The patterns that emerge are broadly common across countries. Workers in the top 1% tend to be 40 to 60 years old, be men, have tertiary education, work in finance or manufacturing, and be senior managers. The analysis also uncovers several cross-country differences. For example, top earners are younger in Eastern Europe, and they include more women in countries with higher overall female employment. The new estimates in this paper are similar to related ones based on administrative records in the few countries for which such studies exist, indicating that the sample is broadly representative of the characteristics of top earners.<P>Qui sont les 1 % des salariés les mieux payés en Europe ?<BR>Les très hauts revenus sont aujourd’hui au coeur du débat public et des travaux universitaires. Ce document est le premier qui procède à une analyse complète du profil des 1 % des salariés les mieux payés dans 18 pays européens. Les données proviennent de la plus grande source harmonisée qui existe, une enquête auprès des employeurs qui porte sur le revenu du travail de 10 millions de salariés, hors travailleurs indépendants. Les caractéristiques mises en évidence sont globalement similaires d’un pays à l’autre. Les employés qui font partie des 1 % les mieux rémunérés se trouvent principalement parmi les personnes âgées de 40 à 60 ans, de sexe masculin, ayant fait des études supérieures, travaillant dans la finance ou l’industrie, et occupant un poste de haut dirigeant. L’analyse révèle également plusieurs différences entre pays. Par exemple, les employés à très hauts revenus sont plus jeunes en Europe de l’Est, et les femmes sont davantage représentées dans cette catégorie dans les pays où le taux d’emploi des femmes est plus élevé. Les nouvelles estimations que cette étude fournit recoupent celles basées sur des registres administratifs dans les quelques pays où de telles études existent, ce qui révèle que l’échantillon est globalement représentatif des caractéristiques des bénéficiaires de hauts revenus.
    Keywords: earnings, income inequality, Europe, inégalité des revenus, revenus, Europe centrale
    JEL: D31 D63 J21 J31
    Date: 2015–12–14
  8. By: Alberto Botta (Mediterranean University of Reggio Calabria (IT))
    Abstract: The existing criticism to the expansionary austerity theory has extensively addressed the methodological problems affecting the econometric techniques underpinning it, and hence the solidity of its empirical findings. Relatively fewer efforts have been spent in showing the theoretical inconsistencies of the expansionary austerity literature, i.e. the rather extreme assumptions and circumstances under which an expansionary fiscal correction episode might effectively materialize. In this paper, we try to further develop this second type of critique. We first present some stylized facts that seem to contradict the central pillars of the expansionary austerity building. We then move to the theory and provide a detailed analysis of the specific policy measures expansionary austerity supporters advocate to compose possibly successful austerity packages. We do so through a simple short-run model. We show that fiscal consolidation might have expansionary outcomes only under extreme, very specific and uncertain conditions. Expansionary austerity would hardly take place in the context of monetarily sovereign economies, or in presence of an accommodative monetary policy like that implemented by the ECB since late 2011, or into economic systems that are poorly integrated on international good markets and cannot manage their own exchange rate freely.
    Keywords: Fiscal policy, expansionary austerity theory, post-Keynesian macro models
    JEL: E12 E61 E62
    Date: 2015–12
  9. By: Alessandro Bucciol (Department of Economics (University of Verona)); Laura Cavalli (Department of Economics (University of Verona)); Igor Fedotenkov (Department of Economics (University of Verona)); Paolo Pertile (Department of Economics (University of Verona)); Veronica Polin (Department of Economics (University of Verona)); Nicola Sartor (Department of Economics (University of Verona)); Alessandro Sommacal (Department of Economics (University of Verona))
    Abstract: The paper presents a large scale overlapping generation model with heterogeneous agents, where the family is the decision unit. We calibrate the model for three European countries - France, Italy and Sweden - which show marked differences in the design of some public programs. We examine the properties in terms of annual and lifetime redistribution of a number of tax-benefit programs, by studying the impact of removing from our model economies some or all of them. We find that whether one considers a life-cycle or an annual horizon, and whether behavioral responses are accounted for or not, has a large impact on the results. The model may provide useful insights for policy makers on which kind of reforms are more likely to achieve specific equity objectives.
    Keywords: Redistribution, Fiscal policy, Computable OLG models
    JEL: H2 H3
    Date: 2015–11
  10. By: Kliem, Martin; Kriwoluzky, Alexander; Sarferaz, Samad
    Abstract: We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using crosscountry data from 1965 to 1999. In a first step, we contrast the monetary-fiscal narrative for Germany, the U.S. and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of high fiscal budget deficits and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary-fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
    Keywords: Time-Varying VAR,Inflation,Public Deficits
    JEL: E42 E58 E61
    Date: 2015
  11. By: Marta Fana; Dario Guarascio; Valeria Cirillo
    Abstract: Law 183 of 2014, evocatively named the "Jobs Act", has determined a deep change in the Italian industrial relations. Bringing at completion a reform process begun in the 1990s, the Jobs Act has introduced a new contract type - "contratto a tutele crescenti" - implying a substantial downsize of obligation for workers' reinstatement in case of firms invalidly firing them. The new permanent contract is therefore deprived of the substantial re- quirements of an open-ended contract. The Law has also weakened the legal constraints for firms intending to monitor workers through electronic devices and introduced new incentives for firms using temporary contracts. This article frames the Jobs Act within the overall labour market reform process occurred in Italy since mid-nineties and provides a first evaluation of its impacts on the Italian labour market. Taking advantage of different data sources (administrative and labour force data) and concentrating the analysis over the period after the Jobs Act implementation, the investi- gation provides the following results: the expected boost in employment growth is not detected; an increase in the share of temporary contracts over the open-ended ones is observed; a raise of part-time contracts within the new permanent positions emerges. The analysis shows that the Jobs Act failed in achieving its main goals. We discuss the observed evidence evaluating the appropriateness of the Law 183/2014 in the present Italian economic context accounting, in particular, for the structural effects of the recent crisis.
    Date: 2015–09–12
  12. By: Engelbert Stockhammer (Kingston University)
    Abstract: The paper offers an account of the Euro crisis based on post-Keynesian monetary theory and its typology of demand regimes. Neoliberalism has transformed social and financial relations in Europe but it has not given rise to a sustained profit-led growth process. Instead, growth has relied either on financial bubbles and rising household debt ('debt-driven growth') or on net exports ('export-driven growth'). In Europe the financial crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and monetary policy. This neoliberal economic policy regime in conjunction with the separation of monetary and fiscal spheres has turned the financial crisis of 2007 into a sovereign debt crisis in southern Europe.
    Keywords: Euro crisis, neoliberalism, European economic policy, European integration, financial crisis, sovereign debt crisis
    JEL: E02 E12 E50 E60 F50 P16
    Date: 2015–12
  13. By: Achim Truger
    Keywords: Öffentliche Investition, Goldene Rege, Finanzpolitik
    Date: 2015

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