nep-eec New Economics Papers
on European Economics
Issue of 2021‒09‒13
thirteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Economic policy uncertainty spillovers in Europe before and after the Eurozone crisis By Stilianos Fountas; Paraskevi Tzika
  2. Spillovers from Tax Shocks to the Euro Area By Sascha Mierzwa
  3. An assessment of the Phillips curve over time: evidence for the United States and the euro area By Marente Vlekke; Martin Mellens; Siem Jan Koopmans
  4. Asset encumbrance in euro area banks: analysing trends, drivers and prediction properties for individual bank crises By Berthonnaud, Pierre; Cesati, Enrico; Drudi, Maria Ludovica; Jager, Kirsten; Kick, Heinrich; Lanciani, Marcello; Schneider, Ludwig; Schwarz, Claudia; Siakoulis, Vasileios; Vroege, Robert
  5. Central bank balance sheet and systemic risk By Maëlle VAILLE
  6. A European Wealth Tax for a Fair and Green Recovery By Rafael Wildauer; Stuart Leitch; Jakob Kapeller
  7. The rise of Eastern Europe and German labor market reform: Dissecting their effects on employment By Walter, Timo
  8. Increased trade with China and Eastern Europe hardly affects Dutch workers By Rob Euwals; Harro van Heuvelen; Gerdien Meijerink; Jan Möhlmann; Simon Rabaté
  9. The contribution of business dynamics to productivity growth in the Netherlands By Daan Freeman; Leon Bettendorf; Harro van Heuvelen; Gerdien Meijerink
  10. Italian Labour Frictions and Wage Rigidities in an Estimated DSGE By Josué Diwambuena; Raquel Fonseca; Stefan Schubert
  11. Does welcoming refugees attract more migrants? The myth of the "Merkel effect" By Tjaden, Jasper Dag; Heidland, Tobias
  12. Offshore Tax Evasion and Wealth Inequality: Evidence from a Tax Amnesty in the Netherlands By Arjan Lejour; Simon Rabaté; Maarten van 't Riet; Wouter Leenders
  13. Interest Rates and Real Estate Markets: Empirical Evidence from Switzerland By Sebastian Will

  1. By: Stilianos Fountas (Department of Economics, University of Macedonia); Paraskevi Tzika (Department of Economics, University of Macedonia)
    Abstract: This paper focuses on economic policy uncertainty spillovers across Europe, before and after the outburst of the Eurozone crisis, using data for 7 Eurozone countries for the period 2003-2019. At first, we analyse the spillovers of uncertainty in Europe via the estimation of the Diebold-Yilmaz spillover index. The results indicate that uncertainty connectedness was 50.5% before the crisis, while it dropped to 30.6% afterwards indicating a sharp drop in uncertainty spillovers across the seven Eurozone countries. We also find that the importance of domestic causes in national uncertainty has increased during the crisis at the expense of imported factors. Dynamic net spillovers reveal that core Eurozone countries are uncertainty exporters before the crisis, while periphery countries transmit uncertainty to other countries during the crisis. An examination of the country which suffered the most during the crisis, using impulse response analysis, reveals that the Greek macroeconomic indicators (stock market, GDP, unemployment, and the ESI) were affected more by domestic, rather than European uncertainty. The highest responses are indicated during the crisis. Overall, there is positive interdependence between Greek and European uncertainty, which diminishes during the crisis.
    Keywords: economic policy uncertainty, rolling impulse responses, uncertainty spillovers, spillover index, Greek economy.
    JEL: C32 D80 E20 E66 F42 G18
    Date: 2021–06
  2. By: Sascha Mierzwa (Philipps-Universitaet Marburg)
    Abstract: I study the spill-over effects of legislated discretionary tax changes in the United States, Germany, and the United Kingdom to 11 Eurozone countries for the period 1980Q1–2018Q4 employing Local Projections (Jordà , 2005). In general, I find spillovers from US tax legislation to have the smallest effects on Eurozone countries’ real GDP and UK tax changes to exert the largest effect. There is substantial heterogeneity in both the sign and size of spillovers after US and German aggregated tax cuts, whereas UK tax cuts generally have beneficial effects. When I focus the analysis on the state dependent case, I do not find clear evidence of larger spillovers when the recipient country is in a recession. The sign and size of the spillovers instead depend on the origin and sign of the tax change, as well as the recipient country, rather than on the overall state of the business cycle. Moreover, German tax cuts can be contractionary when recipient countries are in a recession, as the short-term interest rate rises. US tax cuts, on the other hand, stimulate the exports of most countries regardless of the state of the business cycle.
    Keywords: Fiscal policy, tax policy, legislated tax changes, state dependence, Eurozone, fiscal spillovers, asymmetric effects, United States, Germany, United Kingdom, local projections, narrative approach
    JEL: E62 E63 F45 H20 H30 K34
    Date: 2021
  3. By: Marente Vlekke (CPB Netherlands Bureau for Economic Policy Analysis); Martin Mellens (CPB Netherlands Bureau for Economic Policy Analysis); Siem Jan Koopmans (VU)
    Abstract: We assess the stability of the coefficient on the unemployment gap in various linear dynamic Phillips curve models. We allow the coefficient on the unemployment gap and the other variables in our model to be time-varying, so that we can monitor the importance of the Phillips curve over time. We compare the effects of different measures for inflation and inflation expectations on our estimation results. In our analysis, we use state space methods and adopt a practical approach to Bayesian estimation with feasible testing and diagnostic checking procedures. Empirical results are presented for the United States and the five largest euro area economies. Our main conclusion is that in the United States the Phillips curve for headline inflation has remained empirically relevant over the years while there are periods when its impact has been low. For measures of core inflation we find a declining Phillips curve. In the euro area the strength of the relationship differs per country and over time, but has overall been weak and volatile in the past three decades. For both the United States and the euro area countries, we find little evidence of the “anchored expectations"-hypothesis.
    JEL: C18 C32 C52 E24 E31
    Date: 2020–09
  4. By: Berthonnaud, Pierre; Cesati, Enrico; Drudi, Maria Ludovica; Jager, Kirsten; Kick, Heinrich; Lanciani, Marcello; Schneider, Ludwig; Schwarz, Claudia; Siakoulis, Vasileios; Vroege, Robert
    Abstract: Asset encumbrance is a central concept in the context of banks’ liquidity crises, as it is associated with their capacity to obtain secured funding. This occasional paper summarises the work carried out by the task force on asset encumbrance, bringing together analyses by the ECB and those national competent authorities working on the topic. First, we describe how asset encumbrance has evolved in euro area banks, focusing on country and business model aggregates. Second, we conduct an econometric analysis of the driving factors of banks’ asset encumbrance, highlighting the relevance of credit risk, the availability of high quality collateral suitable for encumbrance, capital and sovereign funding conditions. Third, we turn our focus to the asset encumbrance dynamics of banks that have experienced a crisis. The outcome of this event study analysis indicates that asset encumbrance increases in the lead-up to a crisis, partly to offset early deposit outflows. Building on these findings, we show that asset encumbrance indicators carry predictive information for bank-specific crises as part of a multivariate early warning model. JEL Classification: G21, G01, G28, C23, C49
    Keywords: asset encumbrance, bank crisis, bank funding, collateral, early warning model, liquidity, panel econometrics
    Date: 2021–08
  5. By: Maëlle VAILLE
    Abstract: Central banks’ balance sheet policies, while intended to address ?nancial market dislocations and stimulate the economy, may have unintended persistent e?ects on systemic risk. Using a structural bayesian vector autoregressive model, this paper estimates the impacts of exogenous innovations to the central banks’ balance sheet on the aggregate systemic risk in the euro area, the United States and Japan. Our results suggest that these policies have positive e?ects on ?nancial stability in the short and medium term and seems to have no e?ects in the long term. Moreover, we study the e?ects of central balance sheet policies shocks on ?nancial institutions’ systemic risk through a panel VAR and highlight the role of leverage in the transmission of unconventional monetary policy to ?nancial ?rms’ systemic risk.
    Keywords: balance sheet policies, srisk, structural BVAR, zero and sign restrictions, leverage
    JEL: C32 C33 E44 E52 E58
    Date: 2021
  6. By: Rafael Wildauer (Department of International Business and Economics, University of Greenwich); Stuart Leitch (University of Greenwich); Jakob Kapeller (Institute for Socio-Economics, University of Duisburg-Essen, Germany; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: This paper investigates the potential of a European net wealth tax to raise substantial revenues while supporting the economy and the consensus on climate action. To achieve this, household survey data from the European Central Bank (covering 22 EU countries) are analysed. To address the problem of under-reporting of wealth at the top of the distribution in survey data, a Pareto distribution is fitted to the right tail of the data and used to create an amended data set which also represents these missing rich, whose wealth goes unreported.
    Date: 2021–09
  7. By: Walter, Timo
    Abstract: From the early 1990s until 2005 the unemployment rate rose in Germany from 7.3% to 11.7%. While the unemployment rate reached its peak in 2005, it decreased steadily in the following years. On the one hand, the fourth stage of the German labor market reform (Hartz IV) was implemented in 2005 with the intent to cut the unemployment rate. On the other hand, the productivities in Germany and Eastern Europe grew strongly during the same period, enhancing the joint trade. The "rise of the East", in terms of rising trade, is likely to have had an ambiguous effect on the German labor market. This paper investigates the employment effects of the "Hartz IV-Reform". Further, it concentrates on the labor market effects of the German and Eastern European productivity shock. The focus lies on the national and county level (including 402 counties). As the effects on regional labor markets differ and take time, the paper builds on the dynamic and spatial trade model of Caliendo et al. (2019). I find that the "Hartz IV-Reform" and the German productivity contributes positively to the decline of unemployment, whereas the increase in Eastern European productivity is only responsible for a minor increase in unemployment.
    Keywords: Dynamic Trade Model,Labor Market Reform,Trade Liberalization,Productivity Shocks,Germany,Eastern Europe
    JEL: F14 F16 F17
    Date: 2021
  8. By: Rob Euwals (CPB Netherlands Bureau for Economic Policy Analysis); Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Gerdien Meijerink (CPB Netherlands Bureau for Economic Policy Analysis); Jan Möhlmann (CPB Netherlands Bureau for Economic Policy Analysis); Simon Rabaté (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: Contrary to other studies, we find no robust effect of an increase in trade with China and Central European (CEE) countries on local employment, wages and inequality in the Netherlands. If there is an effect, it is small, with positive effects of increased exports counteracting the negative effects of increased imports. One of the reasons why we find different results for the Netherlands is the fact that the Dutch manufacturing industry was already undergoing changes well before the emergence of China and the CEE countries and became less sensitive to import competition from China or the CEE countries. In addition, the Netherlands has collective wage negotiations, which may help to explain that we do not find any effects on wages. While the effect of increased trade with China and the CEE countries on manufacturing jobs is limited, it can create uncertainty for workers. The negative effect of import competition and the positive impact of export opportunities on manufacturing jobs also point to adjustments across industries and regions. Transitioning workers to new types of work can be difficult for these workers, as they are (temporarily) unemployed and may need to move to other regions.
    JEL: F16 J31 R11
    Date: 2021–07
  9. By: Daan Freeman (CPB Netherlands Bureau for Economic Policy Analysis); Leon Bettendorf (CPB Netherlands Bureau for Economic Policy Analysis); Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Gerdien Meijerink (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper analyses the declining firm dynamism in the Netherlands, which may explain part of the slowdown in productivity growth. We use a rich microdata set including nearly all corporations in the Netherlands during 2006-2016, which enables us to evaluate the TFP growth contributions of exiting firms, start-ups and new firms resulting from mergers & acquisitions in different industries. We use a Melitz and Polanec (2015) decomposition to assess TFP growth contributions. We find that in service industries, start-ups, new firms created by M&As and exiting firms all contribute to overall TFP growth, in line with the creative destruction hypothesis. In manufacturing industries, TFP growth is driven mostly by incumbent firms. Here, entry and exit dynamics contribute relatively little or even negatively to TFP growth. In addition, young firms in the manufacturing industries tend to have higher TFP growth than older firms, while in service industries this is not the case. Finally, in general, relatively low productivity entrants are more likely to exit in the first five years after entry, which is in line with an `up-or-out' dynamic.
    JEL: F16 J31 R11
    Date: 2021–08
  10. By: Josué Diwambuena (Free University of Bozen-Bolzano, Italy); Raquel Fonseca (ESG-University of Quebec at Montreal and CIRANO); Stefan Schubert (Free University of Bozen-Bolzano, Italy)
    Abstract: This paper investigates how Italian labour market institutions influence business cycle fluctuations. We apply a DSGE model that features Italian labour market rigidities and we estimate the latter on Italian data using Bayesian techniques to assess the effects of demand, supply, and labour market shocks on the macroeconomy, and to measure their significance for economic fluctuations. Our results show: First, technology, time preference and wage bargaining shocks are key drivers of economic fluctuations across horizons. Second, matching efficiency and wage bargaining shocks are significant sources of unemployment and vacancies fluctuations but their role is limited for output fluctuations. Third, labour market relaxation policies have only marginally contributed to the reduction in unemployment. Last, accounting for wage rigidities influences labour market dynamics and helps the model to fit data well. We, therefore, urge policymakers to support additional changes in labour market institutions.
    Keywords: DSGE; Labour market frictions; Bayesian estimation; Italy.
    JEL: E24 E32 C51 C52
    Date: 2021–09
  11. By: Tjaden, Jasper Dag; Heidland, Tobias
    Abstract: In 2015, German Chancellor Angela Merkel decided to allow over a million asylum seekers to cross the border into Germany. One key concern at the time was that her decision would signal an open-door policy to aspiring migrants worldwide - thus, increasing migration to Germany in the long-term. With the continued global rise in forced displacement, Merkel's decision in 2015 provides a unique case study for the fundamental question of whether welcoming migration policies have sustained effects on migration towards destination countries. We analyze an extensive range of data on migration inflows, intentions, and interest between 2000 and 2020. The results reject the 'pull effect' hypothesis while reaffirming states' capacity to adapt to changing contexts and regulate migration.
    Keywords: migration,migration policy,asylum and refugee policy,policy signaling,pull effects
    JEL: F22 F68
    Date: 2021
  12. By: Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis); Simon Rabaté (CPB Netherlands Bureau for Economic Policy Analysis); Maarten van 't Riet (CPB Netherlands Bureau for Economic Policy Analysis); Wouter Leenders (University of California, Berkeley)
    Abstract: As long as there have been taxes, people have tried to avoid and evade them. Interest in these phenomena has been fueled by the effects on public revenues, as well as on the distribution of wealth and income. One prominent example of tax evasion is the hiding of wealth and income in tax havens. According to estimates by Zucman (2013), 8% of global financial wealth, or $5.9 trillion, is held in tax havens. During the global financial crisis of the late 2000s, the G20 countries vowed to tackle offshore tax evasion and proclaimed the end of the “era of banking secrecy”. In recent years, leaks containing confidential information from financial institutions as well as academic research investigating leaks and tax amnesties have confirmed the popular narrative that tax evasion is concentrated among the wealthiest in society (Alstadsæter, Johannesen and Zucman, 2018, 2019). This does not only affect public revenues, but also the measurement of wealth and income inequality. We use unique microdata to study tax evasion in the Netherlands. We have received data on over 27,000 participants to the Dutch tax amnesty between the years 2002 and 2018. In addition, we have data on households who appeared in recent information requests to 4 different Swiss banks. We link these data to administrative data on income, wealth, and demographics covering the entire Dutch population.
    JEL: H26 H87 E21
    Date: 2020–10
  13. By: Sebastian Will
    Abstract: For more than a decade, we have seen a rise in real estate prices simultaneously with a decrease in interest rates. In this article, we demonstrate how and to what extent interest rate changes influence prices in real estate markets. We apply a vector autoregressive model with cointegrating variables to examine this relationship during the years between 2007 and 2020. Using times series of different segments of the real estate market, we find significant negative responses of investment property prices and rents to a positive interest rate shock while apartment and house prices positively react. Considering mortgage interest rate shocks, we again find a divided picture, which fosters the perception of different behaviour of real estate segments responding to interest rate shocks. The results suggest that these differences can be explained by the different composition of investors and planned utilisation in the considered segments.
    Keywords: Cointegration; House Prices; Interest Rate; Var
    JEL: R3
    Date: 2021–01–01

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