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on European Economics |
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Issue of 2020‒08‒31
eleven papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Morris, Richard; Reiss, Lukas |
| Abstract: | This paper presents a framework for analysing the evolution of the structural government deficit estimated using the official EU methodology relevant for the Stability and Growth Pact. The focus of our framework lies in the analysis of the main driving forces of changes in estimated structural government revenue, including the impact of changes to tax legislation, fiscal drag (caused e.g. by the non-indexation of income tax brackets), the composition of economic growth, and a residual. This approach allows us to scrutinise estimates of discretionary revenue measures and fiscal elasticities, both of which play a crucial role in the current EU fiscal governance framework. Between 2010 and 2018, Germany's structural revenue ratio increased substantially even though the estimated impact of changes to tax legislation was close to zero. In most other larger euro area countries, by contrast, structural revenue performed worse than could have been expected based on the estimated impact of discretionary revenue measures. Our approach shows that the composition of economic growth was unfavorable for generating revenue in all analysed countries over this time span. Moreover, in most countries actual revenue grew by less than what could have been expected in view of the discretionary measures taken and developments in the macroeconomic aggregates used to approximate tax bases. JEL Classification: H3, H6, E32, E62 |
| Keywords: | cyclical adjustment, fiscal policy, revenue windfalls |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202455&r=all |
| By: | Baccaro, Lucio; Bremer, Björn; Neimanns, Erik |
| Abstract: | The COVID-19 pandemic may lead to a resurgence of the euro crisis. In this context, Italy seems particularly vulnerable: support for the euro is lower than in most other eurozone countries, and a possible exit could have serious consequences for the common currency. Based on a novel survey experiment, this paper shows that the pro-euro coalition is fragile in Italy and preferences are malleable. They are heavily dependent on the perceived costs of continued membership, as a majority of Italians would opt for Italexit rather than accepting a bailout plan requiring the implementation of austerity policies. Individuals who feel they have not benefited from the euro are most likely to support exit when faced with the prospect of austerity. This suggests that, differently from Greece, where voters were determined to remain in the euro at all costs, the pro-euro coalition may crumble if Italy is exposed to harsh conditionality. |
| Keywords: | euro,framing,Italy,public opinion,survey experiment,voting behaviour,Italien,öffentliche Meinung,Umfrageexperiment,Wahlverhalten |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:mpifgd:2010&r=all |
| By: | Heikki Oksanen |
| Abstract: | In this paper, sound public finances under the euro means sustainability in the long term instead of short- and medium-term fiscal discipline. The challenges to sustainability are identified for the four largest euro area member states, and several policy options for sustainability are illustrated with scenarios. Sustainability of the government finances is required for being solvent and having continuous access to credit at acceptable interest rates. Solvency in the long term is the key link between coherent fiscal and monetary policies. A main tool of the Eurosystem for setting an appropriate monetary stance is purchasing bonds issued by the solvent governments. It also must assess their solvency if it needs to act as the lender of last resort for a euro area government under liquidity shortage to prevent it from developing into a general financial crisis. Resolving the crisis caused by the Covid-19 pandemic requires confidence that the public finances will be steered towards sustainability and the Eurosystem can take its proper role as a central bank. |
| Keywords: | euro, fiscal policy, monetary policy |
| JEL: | E42 E62 E63 H10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8396&r=all |
| By: | Marco Arena; Gabriel Di Bella; Alfredo Cuevas; Borja Gracia; Vina Nguyen; Alex Pienkowski |
| Abstract: | Estimates of the natural interest rate are often useful in the analysis of monetary and other macroeconomic policies. The topic gathered much attention following the great financial crisis and the Euro Area debt crisis due to the uncertainty regarding the timing of monetary policy normalization and the future path of interest rates. Using a sample of European countries (including several members of the Euro Area), this paper provides estimates of country-specific natural interest rates and some of their drivers between 2000 and 2019. In line with the literature, our findings suggest that natural interest rates declined during this period, and despite a rebound in the last few years of it, they have not recovered to their pre-crisis levels. The paper also discusses the implications of the decline in natural interest rates for monetary conditions and debt sustainability. |
| Date: | 2020–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/116&r=all |
| By: | Huixin Bi; Sarah Zubairy |
| Abstract: | We explore the evolution of pension policy across countries and investigate the macroeconomic effects of pension structural reforms in recent decades, in particular those with implementation delays. We first document chronological changes in pension policy for 10 OECD countries between 1962 and 2017. The new data set shows that pension systems rapidly expanded between the 1960s and 1980s, followed by a wave of retrenchments since the 1990s. Structural pension reforms, which are motivated by long-run fiscal sustainability concerns, often come with significant implementation delays. We find that when structural pension retrenchments are implemented without delays, people close to retirement stay in the workforce longer to compensate for the decline in their pensions, leading to a decline in old-age pension spending. News about structural pension retrenchments in the future, however, leads people close to retirement to exit the labor market prior to the reform being implemented. As a result, government spending on old-age pensions tends to increase, rather than decrease, over the medium term. This effect is particularly prevalent for pension reforms that change retirement age and contribution years and that come with longer implementation delays. |
| Keywords: | Fiscal foresight; Pension reform; Narrative approach |
| JEL: | E62 H3 H55 |
| Date: | 2020–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:88577&r=all |
| By: | Pablo Burriel (Banco de España); Cristina Checherita-Westphal (ECB); Pascal Jacquinot (ECB); Matthias Schön (Bundesbank); Nikolai Stähler (Bundesbank) |
| Abstract: | The paper reviews the economic risks associated with regimes of high public debt through DSGE model simulations. The large public debt build-up following the 2009 global financial and economic crisis acted as a shock absorber for output, while in the recent and more severe COVID19-crisis, an increase in public debt is even more justified given the nature of the crisis. Yet, once the crisis is over and the recovery firmly sets in, keeping debt at high levels over the medium term is a source of vulnerability in itself. Moreover, in the euro area, where monetary policy focuses on the area-wide aggregate, countries with high levels of indebtedness are poorly equipped to withstand future asymmetric shocks. Using three large scale DSGE models, the simulation results suggest that high-debt economies (1) can lose more output in a crisis, (2) may spend more time at the zero-lower bound, (3) are more heavily affected by spillover effects, (4) face a crowding out of private debt in the short and long run, (5) have less scope for counter-cyclical fiscal policy and (6) are adversely affected in terms of potential (long-term) output, with a significant impairment in case of large sovereign risk premia reaction and use of most distortionary type of taxation to finance the additional debt burden in the future. Going forward, reforms at national level, together with currently planned reforms at the EU level, need to be timely implemented to ensure both risk reduction and risk sharing and to enable high debt economies address their vulnerabilities. |
| Keywords: | government debt, interest rates, economic growth, fiscal sustainability |
| JEL: | E62 H63 O40 E43 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2029&r=all |
| By: | Jacquinot, Pascal (European Central Bank); Lozej, Matija (Central Bank of Ireland); Pisani, Massimiliano (Bank of Italy) |
| Abstract: | We simulate a version of the EAGLE, a New Keynesian multi-country model of the world economy, to assess the macroeconomic effects of US tariffs imposed on one country member of the euro area (EA), and the rest of the world (RW). The model is augmented with an endogenous effective lower bound (ELB) on the monetary policy rate of the EA and country-specific labour markets with search-and-matching frictions. Our main results are as follows. First, tariffs produce recessionary effects in each country. Second, if the ELB holds, then the tariff has recessionary effects on the whole EA, even if it is imposed on one EA country and the RW. Third, if the ELB holds and the real wage is flexible in the EA country subject to the tariff, or if there are segmented labour markets with directed search within each country, then the recessionary effects on the whole EA are amplified in the short run. Fourth, if the elasticity of substitution among tradables is low, then the tariff has recessionary effects on the whole EA also when the ELB does not hold. |
| Keywords: | DSGE models, protectionism, unemployment, monetary policy. |
| JEL: | F16 F41 F42 F45 F47 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:04/rt/20&r=all |
| By: | Eichhorst, Werner (IZA); Rinne, Ulf (IZA); Marx, Paul (University of Duisburg-Essen); Böheim, René (University of Linz); Leoni, Thomas (WIFO - Austrian Institute of Economic Research); Cahuc, Pierre (Sciences Po, Paris); Colussi, Tommaso (Catholic University Milan); Jongen, Egbert L. W. (CPB Netherlands Bureau for Economic Policy Analysis); Verstraten, Paul (CPB Netherlands Bureau for Economic Policy Analysis); Ferreira, Priscila (University of Minho); Cerejeira, João (University of Minho); Portela, Miguel (University of Minho); Ramos, Raul (University of Barcelona); Kahanec, Martin (Central European University); Martiskova, Monika (CELSI); Hensvik, Lena (IFAU); Nordström Skans, Oskar (Uppsala University); Arni, Patrick (University of Bristol); Costa, Rui (London School of Economics); Machin, Stephen (London School of Economics); Houseman, Susan N. (Upjohn Institute for Employment Research) |
| Abstract: | Country reports for Austria, France, Germany, Italy, Netherlands, Portugal, Spain, Slovakia, Sweden, Switzerland, United Kingdom, and the United States (153 Seiten) |
| Date: | 2020–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izarrs:98&r=all |
| By: | Georgiadis, Georgios; Le Mezo, Helena; Mehl, Arnaud; Casas, Camila; Boz, Emine; Nguyen, Tra; Gopinath, Gita |
| Abstract: | This paper presents the most comprehensive and up-to-date panel data set of invoicing currencies in global trade. It provides data on the shares of exports and imports invoiced in US dollars, euros, and other currencies for more than 100 countries since 1990. The evidence from these data confirms findings from earlier research regarding the globally dominant role of the US dollar in invoicing – despite the comparatively smaller role of the US in global trade – and the overall stability of invoicing currency patterns. But the evidence also points to several novel stylised facts. First, both the US dollar and the euro have been increasingly used for invoicing even as the share of global trade accounted for by the US and the euro area has declined. Second, the euro is used as a vehicle currency in parts of Africa, and some European countries have seen significant shifts toward euro invoicing. And third, as suggested by the dominant currency paradigm, countries invoicing more in US dollars (euros) tend to experience greater US dollar (euro) exchange rate pass-through to their import prices; also, their trade volumes are more sensitive to fluctuations in these exchange rates. JEL Classification: F14, F31, F44 |
| Keywords: | dominant currency paradigm, exchange rate pass-through, invoicing currency of trade |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202456&r=all |
| By: | Sophia Chen; Deniz O Igan; Nicola Pierri; Andrea F Presbitero |
| Abstract: | We use high-frequency indicators to analyze the economic impact of COVID-19 in Europe and the United States during the early phase of the pandemic. We document that European countries and U.S. states that experienced larger outbreaks also suffered larger economic losses. We also find that the heterogeneous impact of COVID-19 is mostly captured by observed changes in people’s mobility, while, so far, there is no robust evidence supporting additional impact from the adoption of non-pharmaceutical interventions. The deterioration of economic conditions preceded the introduction of these policies and a gradual recovery also started before formal reopening, highlighting the importance of voluntary social distancing, communication, and trust-building measures. |
| Date: | 2020–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/125&r=all |
| By: | Nicolo Maffei Faccioli (Universitat Autonoma de Barcelona and Barcelona GSE); Eugenia Vella (Centre for Health Economics and Department of Economics and Related Studies, University of York, UK) |
| Abstract: | This paper provides new evidence on the macroeconomic effects of net migration shocks in Germany. Using monthly data from 2006 to 2019 and a variety of identification strategies in a structural vector autoregressive model, we show that migration shocks are expansionary. Net migration increases persistently industrial production, per capita net exports and tax revenue. In the labor market, migra- tion boosts persistently job openings and, after a year and a half, hourly wages in manufacturing. Total unemployment declines but the response is asymmetric be- tween natives and foreigners. Unemployment falls persistently for natives while it rises a year after the shock for foreigners as the newly settled migrants enter the labor market gradually. Using also quarterly data in a mixed-frequency SVAR, we shed light on the employment and participation responses for natives and foreign- ers. We also show that migration shocks increase per capita GDP, investment, and hourly wages of the aggregate economy. Taken together, our results highlight a job-creation effect for natives and a job-competition effect for foreigners. |
| Keywords: | Migration, unemployment, job creation, job competition, mixed-frequency SVAR. |
| JEL: | C11 C32 E32 F22 F41 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2020008&r=all |