nep-eec New Economics Papers
on European Economics
Issue of 2018‒11‒19
27 papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Trade and capital flows: Substitutes or complements? An empirical investigation By Belke, Ansgar; Domnick, Clemens
  2. Exploring the implications of different loan-to-value macroprudential policy designs By Rita Basto; Diana Lima; Sandra Gomes
  3. Immigrants, labor market dynamics and adjustment to shocks in the Euro Area By Gaetano Basso; Francesco D'Amuri; Giovanni Peri
  4. How do Banks Respond to NPLs? Evidence from the Euro Area By Brunella Bruno; Immacolata Marino
  5. How Much Do Trading Partners Matter for Austria’s Competitiveness and Export Performance? By Philipp Heimberger
  6. Avoiding the fall into the loop: Isolating the transmission of bank-to-sovereign distress in the euro area and its drivers By Böhm, Hannes; Eichler, Stefan
  7. Are Banking and Capital Markets Union Complements? Evidence from Channels of Risk Sharing in the Eurozone By Hoffmann, Mathias; Maslov, Egor; Sørensen, Bent E; Stewen, Iryna
  8. Uncertain Kingdom: nowcasting GDP and its revisions By Anesti, Nikoleta; Galvão, Ana; Miranda-Agrippino, Silvia
  9. EU-UK global value chain trade and the indirect costs of Brexit By Rita Cappariello; Milan Damjanovic; Michele Mancini; Filippo Vergara Caffarelli
  10. Weakness in Italy’s core inflation and the Phillips curve: the role of labour and financial indicators By Antonio M. Conti; Concetta Gigante
  11. Labour market conditions and wage inflation in CEE economies By Simone Auer
  12. Bank capital constraints, lending supply and economic activity By Antonio M. Conti; Andrea Nobili; Federico M. Signoretti
  13. Household wealth in Italy and in advanced countries By Diega Caprara; Riccardo De Bonis; Luigi Infante
  14. Legal Harmonization, Institutional Quality, and Countries' External Positions: A Sectoral Analysis By Franziska Bremus; Tatsiana Kliatskova
  15. FH Puzzle in the Eurozone: A time-varying analysis Preliminary Draft By Mariam Camarero; Juan Sapena; Cecilio Tamarit
  16. Non-Tariff Barriers and Goods Trade: a Brexit Impact Analysis By Byrne, Stephen; Rice, Jonathan
  18. Will Brexit Age Well? Cohorts, Seasoning and the Age-Leave Gradient, Past, Present and Future By Eichengreen, Barry; Mari, Rebecca; Thwaites, Gregory
  19. Monopsony in the UK By Abel, William; Tenreyro, Silvana; Thwaites, Gregory
  20. What’s behind firms’ inflation forecasts? By Cristina Conflitti; Roberta Zizza
  21. Will Brexit Age Well? Cohorts, Seasoning and the Age-Leave Gradient, Past, Present and Future By Barry Eichengreen; Rebecca Mari; Gregory Thwaites
  22. Europe Through the Crisis: Discretionary Policy Changes and Automatic Stabilisers By Paulus, Alari; Tasseva, Iva Valentinova
  23. Product market regulation, business churning and productivity: Evidence from the European Union countries By Robert Anderton; Barbara Jarmulska; Benedetta Di Lupidio
  24. Monetary Policy, Product Market Competition, and Growth By Aghion, Philippe; Farhi, Emmanuel; Kharroubi, Enisse
  25. Benefits of forced experimentation on exports By Juan de Lucio; Raúl Mínguez; Asier Minondo; Francisco Requena
  26. How slow is the recovery of loans to firms in Italy? By Ginette Eramo; Roberto Felici; Paolo Finaldi Russo; Federico Signoretti
  27. Income protection of atypical workers in the event of unemployment in Europe By Jara Tamayo, Holguer Xavier; Tumino, Alberto

  1. By: Belke, Ansgar; Domnick, Clemens
    Abstract: This paper examines the linkages between the trade of goods and financial assets. Do both flows behave as complements (implying a positive correlation) or as substitutes (negative correlation)? Although a classic topic in international macroeconomics, the empirical evidence has remained relatively scarce so far, in particular for the Euro area where trade and financial imbalance played a prominent role in the build-up of the European sovereign debt crisis. Consequentially, we use a novel dataset, providing estimates for financial flows and its four main categories for 42 countries and covering the period from 2002-2012, to test the so-called trade-finance nexus. Since theoretical models stress that both flows might be influencing each other simultaneously, we introduce a novel time-varying instrumental variable based on capital control restrictions to estimate a causal effect. The results of the gravity regressions support theories that underline the complementarity between exports and capital flows. When testing the trade-finance nexus for different types of capital flows, the estimated coefficient is most pronounced for foreign direct investment, in line with theories stressing informational frictions. Robustness checks in the form of different estimation methods, alternative proxies for capital flows and sample splits confirm the positive relationship. Interestingly, the trade-finance nexus does not differ among countries belonging to the EMU, the European Union or among core and peripheral Euro area countries.
    Keywords: Capital flows,economic integration,Heckscher-Ohlin paradigm,interaction between trade integration and capital mobility,trade
    JEL: F14 F15 F21 F41
    Date: 2018
  2. By: Rita Basto; Diana Lima; Sandra Gomes
    Abstract: This paper evaluates the macroeconomic effects of macroprudential policy measures consisting of changes in loan-to-value ratios in the euro area. The analysis is carried out within a fully structural, multi-country model, that prominently includes financial frictions and a banking sector. Our main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction in lending. A policy measure introduced at the euro area level implies larger long-run effects but the short-run recessionary impact is attenuated by the monetary policy response.
    JEL: E58 E61 F42
    Date: 2018
  3. By: Gaetano Basso (Bank of Italy); Francesco D'Amuri (Bank of Italy); Giovanni Peri (Univeristy of California, Davis)
    Abstract: We analyze the role of labor mobility in cushioning labor demand shocks in the Euro Area. We find that foreign-born workers’ mobility is strongly cyclical, while this is not the case for natives. Foreigners’ higher population to employment elasticity reduces the variation in overall employment rates over the business cycle: thanks to foreigners, the impact of a one standard deviation change in employment on employment rates decreases by 6 per cent at country level and by 7 per cent at regional level. In addition, we compare Euro Area mobility with that of another currency union, the US. We find that the population to employment elasticity estimated for foreign-born persons is similar in the Euro Area and the US, while Euro Area natives are definitely less mobile across countries than US natives are across states in response to labor demand shocks. This latter result confirms that in the Euro Area there is room for improving country-specific shock absorption through higher labor mobility. It also suggests that immigration has helped labor market adjustments.
    Keywords: business cycles, international migration, mobility
    JEL: E32 F22 J6
    Date: 2018–11
  4. By: Brunella Bruno (Università Bocconi); Immacolata Marino (Università di Napoli Federico II and CSEF)
    Abstract: We study how asset quality deterioration influences the way Euro area banks adjust their balance sheets over 2010-2015. Findings from the fixed effect analysis report strong evidence of a negative correlation between asset quality and asset and lending growth. To explore the causality of the nexus, we exploit the 2014 ECB Asset Quality Review exercise in a diff-in-diff framework. We uncover a direct and negative effect of higher NPLs on banks' credit supply. Results are stronger for AQR banks plagued by high level of problem loans located in High-NPLs countries.
    Keywords: NPLs, non-performing loans, bank lending, asset quality, AQR
    JEL: G20 G21 G01
    Date: 2018–11–09
  5. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Based on a panel data set for 38 European countries over the period 1995-2014 and by using the definition of ’foundational competitiveness’, which we operationalise as GDP per working-age individual at PPP, this paper analyses how much trading partners matter for the national competitiveness of European countries. Results based on a growth regression framework show that higher growth of trading partners’ competitiveness has a positive impact on the growth of national competitiveness. We find evidence that there are diminishing national returns to increasingly competitive trading partners, but we cannot find strong evidence for a lock-in effect of Austria with the CESEE region. Furthermore, regression results on the determinants of the Austrian bilateral export market shares with European trading partners over 1995-2016 provide evidence that Austria’s export performance is sensitive to changes in its trading partners’ business cycle position, but not more sensitive than that for other selected eurozone countries.
    Keywords: competitiveness, export performance, exports, trade, Austria, Europe
    JEL: F14 L60 L80
    Date: 2018–11
  6. By: Böhm, Hannes; Eichler, Stefan
    Abstract: We isolate the direct bank-to-sovereign distress channel within the eurozone's sovereign-bank-loop by exploiting the global, non-eurozone related variation in stock prices. We instrument banking sector stock returns in the eurozone with exposure-weighted stock market returns from non-eurozone countries and take further precautions to remove any eurozone crisis-related variation. We find that the transmission of instrumented bank distress, while economically relevant, is significantly smaller than the corresponding coefficient in the unadjusted OLS framework, confirming concerns on reverse causality and omitted variables in previous studies. Furthermore, we show that the spillover of bank distress is significantly stronger for countries with poorer macroeconomic performances, weaker financial sectors and financial regulation and during times of elevated political uncertainty.
    Keywords: sovereign-bank-loop,bank distress,instrumental variable estimation,bank exposures,macroeconomic performance
    JEL: E44 F3 G15 G21 G28
    Date: 2018
  7. By: Hoffmann, Mathias; Maslov, Egor; Sørensen, Bent E; Stewen, Iryna
    Abstract: The interplay of equity market and banking integration is of first-order importance for risk sharing in the EMU. While EMU created an integrated interbank market, "direct'' banking integration (in terms of direct cross-border bank-to-real sector flows or cross-border banking-consolidation) and equity market integration remained limited. We find that direct banking integration is associated with more risk sharing, while interbank integration is not. Further, interbank integration proved to be highly procyclical, which contributed to the freeze in risk sharing after 2008. Based on this evidence, and a stylized DSGE model, we discuss implications for banking union. Our results show that real banking integration and capital market union are complements and robust risk sharing in the EMU requires both.
    Keywords: Banking Union; Capital Union
    JEL: F15 F36
    Date: 2018–10
  8. By: Anesti, Nikoleta (Bank of England); Galvão, Ana (Warwick Business School); Miranda-Agrippino, Silvia (Bank of England)
    Abstract: We design a new econometric framework to nowcast macroeconomic data subject to revisions, and use it to predict UK GDP growth in real-time. To this end, we assemble a novel dataset of monthly and quarterly indicators featuring over ten years of real-time data vintages. In the Release-Augmented DFM (or RA-DFM) successive monthly estimates of GDP growth for the same quarter are treated as correlated observables in a Dynamic Factor Model (DFM) that also includes a large number of mixed-frequency predictors. The framework allows for a simple characterisation of the stochastic process for the revisions as a function of the observables, and permits a detailed assessment of the contribution of the data flow in informing (i) forecasts of quarterly GDP growth; (ii) the evolution of forecast uncertainty; and (iii) forecasts of revisions to early released GDP data. We find that the RA-DFM predictions have information about the latest GDP releases above and beyond that contained in the statistical office earlier estimates; predictive intervals are well-calibrated; and that real-time estimates of UK GDP growth are commensurate with those of professional forecasters. Data on production and labour markets, subject to large publication delays, account for most of the forecastability of the revisions.
    Keywords: Nowcasting; data revisions; dynamic factor model
    JEL: C51 C53
    Date: 2018–11–02
  9. By: Rita Cappariello (Bank of Italy); Milan Damjanovic (Bank of Slovenia); Michele Mancini (Bank of Italy); Filippo Vergara Caffarelli (Bank of Italy)
    Abstract: Production networks in the European Union (EU) and the United Kingdom (UK) are highly integrated and Brexit poses a threat to supply and demand linkages across the Channel. In a world of Global Value Chains (GVCs), tariffs might be more harmful than in a world where trade is purely direct. In this paper we highlight the features of GVC-trade between the EU and the UK, disentangling the complex network of bilateral EU-UK value-added flows. Assuming that following Brexit the UK adopts the same Most-Favoured-Nation tariff schedule as the EU, we compute the direct and indirect costs of these tariffs, taking into account the EU-UK GVC-trade patterns. Tariffs would add almost 1 percentage point to the cost of manufacturing inputs in the UK, while the corresponding input cost in the EU would be only marginally affected, despite some heterogeneity at the country-level.
    Keywords: Brexit, tariffs, global value chains
    JEL: D57 F13 F15
    Date: 2018–11
  10. By: Antonio M. Conti (Bank of Italy); Concetta Gigante (University of Exeter)
    Abstract: We investigate the dynamics of core inflation in Italy, with a special focus on the period of low inflation after 2014, through the lenses of a Phillips curve framework. Composite indicators of the Italian labour and financial market are constructed and included into a Phillips curve. A number of results emerges from the empirical analysis. First, a statistically significant trade-off between core inflation and economic activity is observed, especially when measures of slack are derived from labour market variables. Second, financial indicators can help to better characterize the dynamics of core inflation. Third, when controlling for financial indicators the slope of the Phillips curve turns out to be smaller, except for the case in which it is measured by the measure of slack based on broad labour market conditions. Fourth, a steepening in the Phillips curve emerges in the aftermath of the Global Financial Crisis, while a stabilization is evident at the end of the sample. Fifth, non-linear techniques suggest that weakness in core inflation may be dependent on the level of labour market tightness and of trend inflation especially. These findings have non-negligible implications for modeling and forecasting inflation dynamics in Italy.
    Keywords: low inflation, Phillips curve, labour markets, financial stress, time variation
    JEL: C32 E32 E50
    Date: 2018–10
  11. By: Simone Auer (Bank of Italy)
    Abstract: In this paper, we test whether a wage Phillips curve can still be considered a reliable approximation of nominal wage determination in Poland, Hungary and the Czech Republic. The empirical evidence is broadly in favour of the existence of a negative relation between labour market slack and nominal wage inflation in the Central and Eastern European (CEE) economies between 2001 and 2017. However, after 2009 wage inflation was significantly below the value that would have been predicted by an estimated wage Phillips curve. The results of rolling OLS estimations confirm a weakening of the negative relation with the unemployment gap. A closer look at the recent evolution of labour market conditions in Poland, Hungary and the Czech Republic suggests that the composition effects on labour supply, especially those linked to demographic and migration trends, could be particularly relevant. Other possible explanations generally mentioned with reference to advanced economies - such as a large share of long-term unemployment, part-time and temporary workers or workers that are underemployed or marginally attached to the labour market - probably had no role or only a marginal one in the recent weak nominal wage growth in the three countries.
    Keywords: wage growth, Phillips curve, unemployment, labour supply
    JEL: E24 E31 J21
    Date: 2018–10
  12. By: Antonio M. Conti (Bank of Italy); Andrea Nobili (Bank of Italy); Federico M. Signoretti (Bank of Italy)
    Abstract: We estimate a Bayesian VAR with a detailed characterization of the banking sector for Italy since the 1990s. We use conditional forecasting techniques to retrieve bank capital shocks related to regulatory and supervisory initiatives and quantify their impact on credit supply and economic activity. We study three episodes characterized by increased regulatory/supervisory pressure and large increases in the Tier 1 capital ratio (the discussion on the Basel III reform; the 2011 EBA stress test and capital exercise; and the ECB’s comprehensive assessment and the launch of the SSM). We find evidence of large and persistent shocks to bank capital in all three episodes, which had significant negative effects on loan supply and GDP. Our results are robust to taking account of possible instabilities in the estimated relationships. The analysis focuses on the potential short-run costs of the regulatory/supervisory initiatives and disregards the potentially much larger long-run benefits of high bank capitalization.
    Keywords: bank capital shocks, Bayesian VAR models, conditional forecasts, time variation
    JEL: C32 E32 F34
    Date: 2018–11
  13. By: Diega Caprara (Bank of Italy); Riccardo De Bonis (Bank of Italy); Luigi Infante (Bank of Italy)
    Abstract: The paper studies the long-term evolution of household wealth in order to compare the changes in Italian financial wealth and real wealth with those of the most advanced countries. In Italy households’ real wealth is 5.5 times disposable income, while housing wealth is 4.6 times, and financial wealth is 3.8 times disposable income. Therefore total gross wealth is around 9.3 times disposable income. Given that household liabilities make up 80 per cent of disposable income, total net wealth is 8.5 times income. In France and Spain household non-financial wealth also exceeds that of financial assets, while the contrary holds in the United States and in Germany. In Italy the ratio of gross financial wealth to disposable income is in line with that in France, greater than in Spain and Germany, and smaller than in the USA, Japan, the UK, and Canada. With the exception of Germany and Japan, changes in financial assets are mainly due to price changes in financial instruments – holding gains or losses – rather than to financial transactions. In the last two decades the financial portfolio of Italian households has become more similar to the average portfolio of the advanced economies. Italian household debt is the lowest by international comparison.
    Keywords: financial wealth, households, non-financial wealth, debts, financial accounts
    JEL: E01 E21
    Date: 2018–11
  14. By: Franziska Bremus; Tatsiana Kliatskova
    Abstract: This paper analyzes links between institutional harmonization and bilateral portfolio debt and equity holdings at the sectoral level. Motivated by the action plan for the European Capital Markets Union, we examine the potential for legal harmonization and convergence in institutional quality to affect financial structures. Our analysis yields three key insights. First, legal harmonization across the EU promotes capital market integration via increased portfolio equity holdings. Second, discrepancies in institutional quality matter for cross-border portfolio positions: economic agents increase their portfolio debt investment in countries that are transparent and have efficient insolvency procedures, investor protection, and tax systems as compared to the domestic ones. Third, the relationship between external capital holdings and institutional harmonization varies significantly across sectors. The other financial corporations sector, which accounts for a large share of portfolio positions, tends to react more to institutional harmonization than do banks and the non-financial private sector.
    Keywords: capital market integration, legal harmonization, sectoral effects
    JEL: E02 F21 G15
    Date: 2018
  15. By: Mariam Camarero (Jaume I University. Department of Economics, Av. de Vicent Sos Baynat s/n, E-12071 Castellón, Spain); Juan Sapena (Catholic University of Valencia, Faculty of Economics and Business. 34 Calle Corona, Valencia, Spain); Cecilio Tamarit (University of Valencia, INTECO Joint Research Unit. Department of Applied Economics II. PO Box 22.006 - E-46071 Valencia, Spain)
    Abstract: The aim of this paper is to reexamine the Feldstein-Horioka puzzle in a dynamic framework. We estimate a time-varying saving-investment relationship for a group of 17 countries panel, paying special attention to Eurozone members but including some relevant OECD countries as well for the period 1970-2016. The main advantage of our empirical approach is that it captures the dynamics of the FH coe_cient, highly consistent with increased _nancial integration. Global risk and country size are relevant elements to unpuzzle the savings-investment correlation. The inclusion of time-varying estimates reveal certain heterogeneity among EMU countries on the way and the circumstances under which their domestic investment would be constrained by savings retention.
    Keywords: Feldstein-Horioka puzzle, panel unit root tests, multiple structural breaks, Kalman Filter, Time varying parameters
    JEL: C23 F32 F36
    Date: 2018–10
  16. By: Byrne, Stephen (Central Bank of Ireland); Rice, Jonathan (Central Bank of Ireland)
    Abstract: This paper estimates the potential loss in trade between Ireland and the United Kingdom arising from increases in non-tariff barriers following the UK’s exit from the European Union. Using a difference gravity specification, we estimate a 9.6 per cent decline in trade flows between the UK and Ireland from an increase in border waiting times. This equates to a 1.4 per cent decline in total Irish exports and a 3.1 per cent decline in total Irish imports. We also present evidence of heterogeneity in the exposure (measured by time-sensitivity) across different types of goods, with beverages,fresh foods and raw materials being most exposed. For trade in fuels, chemicals and imperishable foods we do not find evidence of an effect from an increase in time.
    Keywords: Brexit, Non-tariff Barriers, International Trade, Gravity Model
    JEL: E5 G01 G17 G28 R39
    Date: 2018–05
  17. By: Gert Peersman (-)
    Abstract: This paper examines the causal effects of shifts in international food commodity prices on euro area inflation dynamics using a structural VAR model that is identified with an external instrument (i.e. a series of global harvest shocks). The results reveal that exogenous food commodity price shocks have a strong impact on consumer prices, explaining on average 25%-30% of inflation volatility. In addition, large autonomous swings in international food prices contributed significantly to the twin puzzle of missing disinflation and missing inflation in the era after the Great Recession. Specifically, without disruptions in global food markets, inflation in the euro area would have been 0.2%-0.8% lower in the period 2009-2012 and 0.5%-1.0% higher in 2014-2015. An analysis of the transmission mechanism shows that international food price shocks have an impact on food retail prices through the food production chain, but also trigger indirect effects via rising inflation expectations and a depreciation of the euro.
    Keywords: Food commodity prices, inflation, twin puzzle, euro area, SVAR-IV
    JEL: E31 E52 Q17
    Date: 2018–10
  18. By: Eichengreen, Barry; Mari, Rebecca; Thwaites, Gregory
    Abstract: In the UK's 2016 referendum on EU membership, young voters were more likely than their elders to vote Remain. Applying new methods to a half century of data, we show that this pattern reflects both ageing and cohort effects. Although voters become more Eurosceptical as they age, recent cohorts are also more pro-European than their predecessors. Much of the pro-Europeanism of these recent cohorts is accounted for by their greater years of education. Going forward, the ageing of the electorate will thus be offset at least in part by the replacement of older cohorts with younger, better-educated and more pro-European ones. But we also document large nationwide swings in sentiment that have little to do with either seasoning or cohort effects. Hence these demographic trends are unlikely to be the decisive determinants of future changes in European sentiment. Rather, nationwide changes in sentiment, reflecting macroeconomic or other conditions, and the age-turnout gradient will be key.
    JEL: F0
    Date: 2018–10
  19. By: Abel, William; Tenreyro, Silvana; Thwaites, Gregory
    Abstract: We study the evolution and effects of monopsony power in the UK private sector labour market from 1998 to 2017. Using linked employee-firm micro-data, we find that: (1) Measures of monopsony have been relatively stable across the time period examined - rising prior to the crisis, before subsequently falling again. (2) There is substantial cross-sectional variation in monopsony at the industry level. (3) Higher levels of labour market concentration are associated with lower pay amongst workers not covered by a collective bargaining agreement. (4) For workers covered by a collective bargaining agreement, the association between labour market concentration and pay is greatly reduced and in most cases disappears. (5) The link between productivity and wage levels is weaker when labour markets are more concentrated.
    Keywords: labour markets; market power; monopsony; Unionization
    Date: 2018–10
  20. By: Cristina Conflitti (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: How do firms form expectations about future inflation? We investigate this issue by exploiting the Survey of Inflation and Growth Expectations run by Banca d’Italia and Il Sole 24 Ore on Italian firms. Several sources of information might matter in shaping short- and long-term expectations, inter alia media reports, professional forecasts, personal shopping experience, price increases experienced when dealing with suppliers, and the outcome of contract renewals. The specific feature of the wage setting process in Italy allows us to assess the reaction of inflation expectations to exogenous variation in the cost of labour borne by firms. We find that firms’ inflation expectations are significantly affected by contractual wage increases. As to the prices of goods for own consumption, proxied by house and fuel prices, only the latter affect inflation expectations; official inflation data and professional forecasters expectations are also important. Results are robust to several specifications using panel and cross-section estimates.
    Keywords: inflation expectations, survey data, wages
    JEL: C23 E24 E31
    Date: 2018–10
  21. By: Barry Eichengreen; Rebecca Mari; Gregory Thwaites
    Abstract: In the UK’s 2016 referendum on EU membership, young voters were more likely than their elders to vote Remain. Applying new methods to a half century of data, we show that this pattern reflects both ageing and cohort effects. Although voters become more Eurosceptical as they age, recent cohorts are also more pro-European than their predecessors. Much of the pro-Europeanism of these recent cohorts is accounted for by their greater years of education. Going forward, the ageing of the electorate will thus be offset at least in part by the replacement of older cohorts with younger, better-educated and more pro-European ones. But we also document large nationwide swings in sentiment that have little to do with either seasoning or cohort effects. Hence these demographic trends are unlikely to be the decisive determinants of future changes in European sentiment. Rather, nationwide changes in sentiment, reflecting macroeconomic or other conditions, and the age-turnout gradient will be key.
    JEL: D72 I38 J11
    Date: 2018–11
  22. By: Paulus, Alari; Tasseva, Iva Valentinova
    Abstract: Tax-benefit policies affect household incomes through two main channels: discretionary policy changes and automatic stabilisers. Although a large body of literature has studied the impact of tax-benefit policy changes on incomes, little is known about the link between automatic stabilisers and the income distribution. We contribute to the literature by studying in detail the contribution of automatic stabilisers and discretionary policy changes to income changes in the EU countries between 2007 and 2014. Our results show that, discretionary policy changes and the automatic stabilisation response of policies more often worked to reduce inequality of net incomes, and so helped offset the inequality-increasing impact of a growing disparity in gross (pre-tax) market incomes. Inequality reduction was achieved mainly through policy changes to benefits and benefits acting as automatic stabilisers. On the other hand, policy changes to and the automatic stabilisation response of taxes and social insurance contributions raised inequality in some countries and lowered it in others.Â
    Date: 2018–10–27
  23. By: Robert Anderton; Barbara Jarmulska; Benedetta Di Lupidio
    Abstract: This paper empirically investigates the effects of product market regulation on business churning (i.e. entry and exit of firms) and their impacts on productivity, using annual data for the period 2000-2014 across individual EU countries and sectors. The paper hypothesises that product market reforms, which reduce entry barriers and increase the degree of competition, can allow new firms to enter the market and compete vis-à-vis incumbent firms. The higher competitive pressures can push competitive incumbent firms to innovate while other less productive and inefficient firms may exit. These possible mechanisms can result in improvements to the average industry-level productivity. By using business demography data (i.e, business churning) at the industry and firm size level, we perform a panel data analysis across European countries and sectors to evaluate the effect of product market regulation on firm churning and their impacts on productivity. In particular, we differentiate between micro (less than 10 employees) and other firms given the substantial degree of heterogeneity among these two size classes both in terms of business churning and productivity growth. The paper finds that reducing product market regulation increases business dynamism (i.e. increases the churn rate) by facilitating firms’ entry and exit which, in turn, boosts sectoral total factor productivity.
    Keywords: product market regulation; business churning; productivity; EU
    Date: 2018
  24. By: Aghion, Philippe; Farhi, Emmanuel; Kharroubi, Enisse
    Abstract: In this paper we argue that monetary easing fosters growth more in more credit-constrained environments, and the more so the higher the degree of product market competition. Indeed when competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change with aggregate conditions. To test this prediction, we use industry-level and firm-level data from the Euro Area to look at the effects on sectoral growth and firm-level growth of the unexpected drop in long-term government bond yields following the announcement of the Outright Monetary Transactions program (OMT) by the ECB. We find that the monetary policy easing induced by OMT, contributed to raising sectoral (firm-level) growth more in more highly leveraged sectors (firms), and the more so the higher the degree of product market competition in the country (sector).
    Date: 2018–10
  25. By: Juan de Lucio (Universidad Nebrija. Calle de Santa Cruz de Marcenado, 27, 28015, Madrid (Spain).); Raúl Mínguez (Universidad Nebrija. Calle de Santa Cruz de Marcenado, 27, 28015, Madrid (Spain).); Asier Minondo (Deusto Business School, University of Deusto, Camino de Mundaiz 50, 20012 Donostia - San Sebastián (Spain). Research aliate of Instituto Complutense de Estudios Internacionales.); Francisco Requena (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)
    Abstract: The severe reduction in domestic demand between 2008 and 2013 in Spain forced many firms to seek new customers in foreign markets. In this paper, we explore whether the increase in the crisis-motivated number of new exporters led to a larger number of regular exporters once domestic demand returned to pre-crisis levels. Using an instrumental variable approach, we find that a 10% increase in new exporters led to a 5% increase in new regular exporters. Since the economic crisis was not anticipated in Spain, our results establish a causal link between experimentation in foreign markets and discovery of new regular exporters. This evidence is consistent with alternative narratives where _rms had capacity constraints, were uncertain about the pro_tability of their export operations, and averse to risk or satis_ed with their non-exporter status prior to the crisis.
    Keywords: capacity constraints, risk aversion, experimentation, exports, Spain, Great Recession
    JEL: F10 F23
    Date: 2018–07
  26. By: Ginette Eramo (Bank of Italy); Roberto Felici (Bank of Italy); Paolo Finaldi Russo (Bank of Italy); Federico Signoretti (Bank of Italy)
    Abstract: This paper studies the characteristics of the recent evolution of loans to non-financial firms in Italy from an historical perspective, with the aim of ascertaining whether the ongoing recovery is creditless; the main demand- and supply-side determinants of credit are also discussed. We find the following results. First, bank loan dynamics have been weak compared to the universe of recoveries in 13 euro-area countries since 1980; however, credit has evolved in line with the median pattern in the restricted sample of recoveries following deep and long recessions and/or recessions associated with banking crises. Second, the reduction in loans has been common to firms of all sizes, though it has been more pronounced for smaller ones. Third, based on a review of credit market indicators, survey evidence and econometric studies, the weakness of lending to firms has been in line with subdued dynamics of demand; the stringency of lending criteria has also contributed, in particular for smaller and riskier firms.
    Keywords: creditless recovery, credit demand, credit supply, small firms financing
    JEL: E32 E50 G20
    Date: 2018–11
  27. By: Jara Tamayo, Holguer Xavier; Tumino, Alberto
    Abstract: This paper evaluates the degree of income protection the tax-benefit system provides to atypical workers in the event of unemployment, comparing them to standard employees. Our approach relies on EUROMOD, the EU tax-benefit microsimulation model, to simulate transitions from employment to unemployment for the entire workforce and to compare household financial circumstances before and after the transition. Our results show that coverage rates of unemployment insurance are low among atypical workers. These workers are also significantly more exposed to the risk of poverty than standard employees, both while in work and in the event of unemployment. Our analysis also shows that low-work intensity employees are characterised by higher net replacement rates than other groups. However, this is due to the major role played by the market incomes of other household members. Finally, we show that in countries where self-employed workers are not eligible for unemployment insurance benefits, extending the eligibility to this group of workers would increase their replacement rates significantly and make them less likely to fall into poverty in the event of unemployment.Â
    Date: 2018–10–29

This nep-eec issue is ©2018 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.