nep-eec New Economics Papers
on European Economics
Issue of 2017‒08‒20
four papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Post-crisis economic policy coordination in the EU: The European Semester as trigger for the Europeanization of national policies? An analysis of the European Semester's impact on French environmental taxation and VAT policy between 2011 and 2015 By Schreiber, Tim
  2. Brexit and The Impact of Gradual Economic Integration on Export By Rutger Teulings
  3. Why Are Banks Not Recapitalized During Crises? By Matteo Crosignani
  4. The Bank-Sovereign Nexus: Evidence from a non-Bailout Episode By Massimiliano Caporin; Gisle J. Natvik; Francesco Ravazzolo; Paolo Santucci de Magistris

  1. By: Schreiber, Tim
    Abstract: The economic and financial crisis 2007/08 revealed profound weaknesses of the economic and financial governance framework of the European Union (EU), amongst them the insufficient coordination of EU policies in the field of economic policy. In 2011, EU member states created the European Semester which aimed at better coordinating member states' economic and fiscal policies. Focussing on French value-added tax (VAT) and environmental taxation policy between June 2011 and February 2015, I analyse under which conditions the European Semester process leads to changes in national taxation policies. I develop a theoretical framework that draws on rationalist Europeanization theory to argue that usage of European Semester impulses by domestic pro-reform actors is the central mediating variable to explain whether European Semester impulses lead to changes in national policies. The analysis reveals that despite similar European Semester impulses the degree of subsequent changes in French taxation policies varied significantly. Whereas environmental taxation policy was transformed substantially, VAT policy was only slightly modified. The different strength of domestic usage by French pro-reform actors provides an explanation for this variance: While in environmental taxation policy, a group of pro-reform actors actively used the European Semester impulses to push for substantial reforms, pro-reform actors did not make use of the European Semester impulses in the field of VAT policy.
    Date: 2017
  2. By: Rutger Teulings (University of Amsterdam, The Netherlands)
    Abstract: I develop an index for economic integration accounting for its gradual and bilateral nature: the Gradual And Bilateral Integration (GABI) index. The graduality captures differences in the depth and path of five stages in economic integration and is an improvement over the use of binary dummy variables. Its bilateral nature allows for country-pair differences, which is not possible with the multilateral indexes in existing literature. I apply the GABI index to a gravity model for 18 OECD countries and estimate the impact of the five stages on export. The estimates for these five stages allow me to investigate four different Brexit scenarios in a general equilibrium analysis, ranging from soft to very hard Brexit. I find that in the latter scenario real export of the UK decreases by a significant 32% in the long run. Other EU countries also experience a decrease in real export, while non-EU countries experience an increase due to trade diversion effects. Similarly, I also investigate potential future free trade agreements like TTIP.
    Keywords: Balassa stages; economic integration; gravity model; Brexit; TTIP
    JEL: F13 F14 F15
    Date: 2017–08–03
  3. By: Matteo Crosignani
    Abstract: I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of domestic government bonds, lowering sovereign yields and supporting the home sovereign debt capacity. The model rationalizes, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit supply, and the prolonged fragility of the financial sector.
    Keywords: Bank Capital ; Bank Credit ; Government Bonds ; Risk-Shifting ; Sovereign Crises
    JEL: E44 F33 G21 G28
    Date: 2017–08–16
  4. By: Massimiliano Caporin (University of Padova); Gisle J. Natvik (BI Norwegian Business School); Francesco Ravazzolo (Free University of Bozen-Bolzano and BI Norwegian Business School); Paolo Santucci de Magistris (Aarhus University and CREATES)
    Abstract: We explore the interplay between sovereign and bank credit risk in a setting where Danish authorities first let two Danish banks default rather than bail them out and then left the country's largest bank, Danske Bank, to recapitalize privately. We find that the correlation between bank and sovereign credit default swap (CDS) rates changed with these events, indicating that the non-bailout decisions and recapitalization helped to curb the feedback loop between bank and sovereign risk. Following the non-bailout events, the sensitivity to external shocks declined both for Danske Bank and for Danish sovereign debt, as measured by their CDS connection with CDS rates on the European banking sector. After Danske Bank was recapitalized, its exposure to the European banking sector reappeared, while that did not happen for Danish sovereign debt. This decoupling between CDS rates on sovereign and private bank debt indicates that the non-bailout policies succeeded in breaking the vicious circle generated by the risks on the bank and sovereign debts. Our results are reinforced by the use of an indirect testing approach and by focusing on CDS-quantiles.
    Keywords: Bailout expectation, risk, CDS, spillover, quantile regression
    JEL: C21 G12 G21 G28
    Date: 2017–07–18

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