nep-eec New Economics Papers
on European Economics
Issue of 2015‒12‒28
fourteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. What happened to profitability? Shocks, challenges and perspectives for euro area banks. By Gong Cheng; Dirk Mevis
  2. "The ECB, the Single Financial Market, and a Revision of the Euro Area Fiscal Rules" By Mario Tonveronachi
  3. "Redistribution in the Age of Austerity: Evidence from Europe, 2006-13" By Markus P.A. Schneider; Stephen Kinsella; Antoine Godin
  4. Tax shifts By Milena Mathé; Gaetan Nicodeme; Savino Rua
  5. Productivity spillovers in the GVC. The case of Poland and the New EU Member States By Jan Hagemejer
  6. IOR – NIER’s Input-Output Model of the Swedish Economy By Forsfält, Tomas; Glans, Erik
  7. Political conflicts over European integration: rejection or ambivalence? By Kristel Jacquier
  8. A global factor in variance risk premia and local bond pricing By Kaminska, Iryna; Roberts-Sklar, Matt
  9. Preferential Regulatory Treatment and Banks' Demand for Government Bonds By Bonner, Clemens
  10. Tax reforms in EU Member States - 2015 Report By European Commission
  11. Should we still use the concept of potential growth ? By Catherine Mathieu; Henri Sterdyniak
  12. Public debt and economic growth: Economic systems matter By Ahlborn, Markus; Schweickert, Rainer
  13. The impact of immigration on occupational wages: evidence from Britain By Nickell, Stephen; Saleheen, Jumana
  14. Inequality and welfare: Is Europe special? By Alain Trannoy

  1. By: Gong Cheng (European Stability Mechanism); Dirk Mevis (European Stability Mechanism)
    Abstract: This paper uses a newly constructed dataset including financial statement information of 310 banks in the euro area to analyse the evolution of bank profitability before and after the Global Financial Crisis and the subsequent European crisis. We first document the general trends in the changes in banks’ profitability with a particular focus on country and bank heterogeneity. We find that the profitability of banks in different parts of the monetary union was hit by multiple shocks of different nature. Based on this, we then propose an econometric analysis of the drivers behind the evolution of bank profitability by discriminating factors relative to macroeconomic conditions, bank funding and portfolio structures, and new banking regulations in the euro area.
    Keywords: Bank, profit, return on asset, bank regulation, bank business model
    JEL: G21 G28 G33 L25
    Date: 2015–11
  2. By: Mario Tonveronachi
    Abstract: Mario Tonveronachi, University of Siena, builds on his earlier proposal (The ECB and the Single European Financial Market) to advance financial market integration in Europe through the creation of a single benchmark yield curve based on debt certificates (DCs) issued by the European Central Bank (ECB). In this policy brief, Tonveronachi discusses potential changes to the ECB's operations and their implications for member-state fiscal rules. He argues that his DC proposal would maintain debt discipline while mitigating the restrictive, counterproductive fiscal stance required today, simultaneously expanding national fiscal space while ensuring debt sustainability under the Maastricht limits, and offering a path out of the self-defeating policy regime currently in place.
    Date: 2015–11
  3. By: Markus P.A. Schneider; Stephen Kinsella; Antoine Godin
    Abstract: We examine the relationship between changes in a country's public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006-13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU's Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.
    Keywords: Inequality; Austerity; Europe; Fiscal Policy; Lorenz Curve
    JEL: D31 D63 E62 E65 H6
    Date: 2015–12
  4. By: Milena Mathé (European Commission); Gaetan Nicodeme (European Commmission, ULB, CESifo, CEPR); Savino Rua (European Commission)
    Abstract: Shifting taxes away from labour to tax bases which are considered least detrimental to growth remains a common policy recommendation from the European Commission and other international institutions. This paper reviews the theoretical and empirical literature on the growth effects of tax shifts. It then takes stock of tax shifts in the EU Member States over the last years, giving a few examples of their implementation and of the hurdles Member tates have faced. Finally, it concludes on recent developments that may impact on the nature of future tax shifts
    Keywords: European Union, Taxation, Growth, Tax shift, labour taxation, VAT, redistribution
    JEL: H20 H30 N14 P35
    Date: 2015–10
  5. By: Jan Hagemejer (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: The new EU member states have been experiencing firm internationalization not only through inward foreign direct investment but also through exporting, importation of foreign technology in investment goods and increased use of imported intermediates. We argue that there are important productivity spillovers within the global value chains, i.e. FDI alone does not tell the whole story of the reallocation processes going on in the economies of the NMS. We augment the standard TFP spillover empirical model with modern measures of GVC participation. We show that increased foreign content of exports brings additional productivity gains on top of the ones attributed to exporting. Moreover, we show that in selected cases, participation in the GVC leads to a smaller productivity gap between foreign and domestic firms.
    Keywords: global value chains, productivity, New Member States, productivity spillovers
    JEL: L25 C67 F10 F23 O12
    Date: 2015
  6. By: Forsfält, Tomas (National Institute of Economic Research); Glans, Erik (National Institute of Economic Research)
    Abstract: The present paper introduces a new version of an input-output model of the Swedish economy (IOR). The model is used at NIER for short term forecasts of imports and sectoral production. It is also used for structural analysis of the Swedish economy. The economy is divided into about 30 products/industries and about 40 final demand categories. For each demand category, it is possible to trace back the supply provided by value added of different industries, including trade margins and merchanting trade, public sector production, imports, taxes and subsidies. This paper presents calculated supply shares for the main components of final demand for the year 2012. An adjustment for the tourist consumption in Sweden is made in such a way that the supply share for household consumption is valid for Swedish households, and the supply shares for exports includes exports to incoming tourists.
    Keywords: Input-output; forecasting and simulation; import shares
    JEL: C67 D57 E17
    Date: 2015–12–14
  7. By: Kristel Jacquier (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    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: survey analysis,European integration,political parties
    Date: 2015–10
  8. By: Kaminska, Iryna (Bank of England); Roberts-Sklar, Matt (Bank of England)
    Abstract: In a world of interconnected financial markets it is plausible that risk appetite — an important factor in asset pricing — is determined globally. By constructing an estimate of variance risk premia (VRP) for UK, US and euro-area equity markets, we are able to estimate international variance risk premia and use them to construct a proxy for global risk aversion. The impact of this time-varying risk aversion proxy on bond risk premia is then analysed within an arbitrage-free term structure model of UK interest rates, where it is introduced explicitly as a pricing factor. By linking VRP to a stochastic discount factor, we find that the risk aversion factor has significantly affected UK government bond yields. The changes in the risk aversion factor have been particularly important in the period of the 2008–09 financial crisis, with medium maturity yields being affected the most.
    Keywords: Affine term structure models; option implied volatility; realized volatility; risk aversion; stochastic discount factor; variance risk premium; volatility forecasting
    JEL: C22 C52 E43 G12
    Date: 2015–12–21
  9. By: Bonner, Clemens (Tilburg University, Center For Economic Research)
    Abstract: The purpose of this paper is to analyze the impact of preferential regulatory treatment on banks’ demand for government bonds. Using unique transaction-level data, our analysis suggests that preferential treatment in microprudential liquidity and capital regulation significantly increases banks’ demand for government bonds. Liquidity and capital regulation also seem to incentivize banks to substitute other bonds with government bonds. We also find evidence that this "regulatory effect" leads banks to reduce lending to the real economy.
    Keywords: government bonds; financial markets; regulation; liquidity; capital allocation
    JEL: G18 G21 E42
    Date: 2015
  10. By: European Commission (European Commission)
    Abstract: The 2015 report on Tax Reforms in EU Member States presents an overview of the reforms recently introduced by Member States in the main areas of tax policy and provides up-to-date analysis of the main challenges in each area. It also includes an indicator-based assessment, which gives an initial indication of Member States’ performance in each area
    Keywords: European Union, Taxation, European Semester, VAT, Coporpotate income tax, tax administration, tax reform
    JEL: H21 H22 H23 H25 H27 H62
    Date: 2015–09
  11. By: Catherine Mathieu (OFCE); Henri Sterdyniak (OFCE)
    Abstract: The concepts of potential output level and growth survived the 2008 crisis and are still widely used in economic policy debates. The paperdiscusses thetheoretical foundations and empirical assessments of these concepts. Potential output may refer to different concepts, depending on the constraints taken into account. Potential output cannot be assessed without a complex macroeconomic analysis.The paper discusses recent empirical work on potential growth estimates,especially how they introduce a break in potential growth after the 2008 crisis, and how the methods used oftenjustify procyclical policies. For the future,the problem isnot a slowdown in potential growth butthe inability of developed economies,underglobalisation constraints, to reach afull-employment growth.
    Keywords: potential growth; euro area governance
    JEL: E63 O47
    Date: 2015–12
  12. By: Ahlborn, Markus; Schweickert, Rainer
    Abstract: Most studies on the relationship between public debt and economic growth implicity assume homegenous debt effects across their samples. We - in accordance with recent literature - challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinacian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of hetergeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, whil for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.
    Keywords: Public Debt,Economic Growth,Economic Systems,Fiscal Policy,Welfare State
    JEL: E62 P10 P51 H10
    Date: 2015
  13. By: Nickell, Stephen (Nuffield College, University of Oxford); Saleheen, Jumana (Bank of England)
    Abstract: This paper asks whether immigration to Britain has had any impact on average wages. There seems to be a broad consensus among academics that the share of immigrants in the workforce has little or no effect on native wages. These studies typically have not refined their analysis by breaking it down into different occupational groups. Our contribution is to extend the existing literature on immigration to include occupations as well. We find that the immigrant to native ratio has a small negative impact on average British wages. This finding is important for monetary policy makers, who are interested in the impact that supply shocks, such as immigration, have on average wages and overall inflation. Our results also reveal that the biggest impact of immigration on wages is within the semi/unskilled services occupational group. We also investigate if there is any differential impact between immigration from the EU and non-EU, and find that there is no additional impact on aggregate UK wages as a result of migrants arriving specifically from EU countries. These findings accord well with intuition and anecdotal evidence, but have not been recorded previously in the empirical literature.
    Keywords: Immigration; occupation; wages
    Date: 2015–12–18
  14. By: Alain Trannoy (Aix-Marseille University, CNRS and EHESS, France)
    Abstract: We review the literature about inequality and welfare with a particular focus on whether Europe has a special sensitivity to these matters or specific outcomes. We argue that both statements are likely to be true which raises the possibility of a causal link. Europe has relatively good results in terms of inequality and welfare in comparison with other continents and more specifically America, because these issues matter for European people. Still, research needs to be fostered in at least 5 areas that are detailed at the end of this review. A specific attention is devoted to the contribution of other social sciences and natural sciences (cognitive science) to the development of our knowledge for these fields.
    Keywords: Inequality, income inequality, equality of opportunity, welfare, well-being, Europe, the U.S.
    JEL: D63 I31 P52 O51 O52
    Date: 2015–11

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