nep-eec New Economics Papers
on European Economics
Issue of 2022‒04‒25
twelve papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Can labour mobility reduce imbalances in the euro area? By Berger, Johannes; Strohner, Ludwig
  2. Tracking the German Business Cycle By Tino Berger; Christian Ochsner
  3. The case of financial and banking integration of Central, Eastern and South Eastern European countries: A gravity model approach By Léonore Raguideau-Hannotin
  4. Demographic transition and economic growth in 6-EU member states By Srdelic, Leonarda; Davila-Fernandez, Marwil J.
  5. Intra-EU Migration, Public Transfers, and Assimilation: Evidence for the Netherlands By Suari-Andreu, Eduard; van Vliet, Olaf
  6. Taxation, health system endowment and quality of institutions: a "social" perception across Europe By Cafferata, Alessia; Cerruti, Gianluca; Mazzone, Giulio
  7. Diagnosing the Uk Productivity Slowdown: Which Sectors Matter and Why? By Diane Coyle; Jen-Chung Mei
  8. Welfare Effect of Closing Loopholes in the Dividend-Withholding Tax: The Case of Cum-Cum and Cum-Ex Transactions By Elisa Casi; Evelina Gavrilova; David Murphy; Floris Zoutman
  9. Green financial products in the EU: A critical review of the status quo By Brühl, Volker
  10. What motivates people to pay their taxes? Evidence from four experiments on tax compliance By Eric Floyd; Michael Hallsworth; John List; Robert Metcalfe; Kristian Rotaru; Ivo Vlaev
  11. The UK’s global economic elite: a sociological analysis using tax data By Advani, Arun; Burgherr, David; Savage, Mike; Summers, Andrew
  12. The labour share along global value chains Perspectives and evidence from sectoral interdependence By Federico Riccio; Lorenzo Cresti; Maria Enrica Virgillito

  1. By: Berger, Johannes; Strohner, Ludwig
    Abstract: Labour market developments in the Euro area diverged significantly since 2008. Economic literature frequently refers to labour mobility as pillar for the functioning of currency areas. Applying the CGE model PuMA, we quantitatively analyse to what extent labour mobility can contribute to reducing imbalances within the Euro area. Our results indicate that it can temporarily reduce unemployment and increase wages in periphery countries at the cost of somewhat higher unemployment in receiving countries. Overall, economic outcomes improve slightly. Although labour mobility has a positive effect on labour market imbalances, it cannot be seen as substitute for structural reforms.
    Keywords: international migration,wage level and structure,unemployment,general equilibrium models,Euro area
    JEL: F22 D58 J11 J31 J61 J64
    Date: 2022
  2. By: Tino Berger (University of Goettingen); Christian Ochsner (University of Goettingen)
    Abstract: The German economy is an important economic driver in the Euro-area in terms of gross domestic product, labour force and international integration. We provide a state of the art estimate of the German output gap between 1995 and 2021 and present a nowcasting scheme that accurately predicts the Germany output gap up to three months prior to a gross domestic product data release. To this end, we elicit a mixed-frequency vector-autoregressive model in the spirit of Berger, Morley, and Wong (forthcoming) who propose to use monthly information to form an expectation about the current-quarter output gap. The mean absolute error of our nowcast is very small (0.25 percentage points) after only one month of observed data. Moreover, we show that international trade and labour market aggregates consistently explain large shares of variation in the German output gap.
    Keywords: output gap, Germany, nowcast, mixed frequency, vector-autoregression
    JEL: E32 E37 C53
    Date: 2022
  3. By: Léonore Raguideau-Hannotin
    Abstract: The motivation of this article is to understand the determinants of banking integration of non-Euro CESEE EU Members. One stylized fact for these economies is the building up of external financial vulnerabilities since the beginning of the Transition period, with a large weight of cross-border banking, particularly with the European Union. In relation with the literature on the impact of gross financial flows on financial stability, we therefore estimate the long-term historical, geographical and cultural determinants of cross-border banking claims with a bilateral financial gravity model. We then analyze the impact of domestic (pull), foreign (push) and global factors using the gravity framework. Our results first show that cross-border banking in these economies is significantly driven by geographical proximity and common historical links, particularly with EU Member States. Second, we find that banking sector health variables are more significant as push factors, while structural banking system variables are more significant as pull factors. These results provide evidence in favor of an impact of European banking systems on financial liabilities in this region, in relation with the very high level of EU ownership of banking assets. Finally, US global liquidity factor matters more than exchange rate stability, which points towards policy dilemma effect in the region.
    Keywords: Gravity model, cross-border banking, Central Eastern and South Eastern European countries, European Union, push factors, pull factors, global factors, EU, CESEE
    JEL: F34 F36 C23 O52
    Date: 2022
  4. By: Srdelic, Leonarda; Davila-Fernandez, Marwil J.
    Abstract: Europe is experiencing a dramatic shift in its demographic structure, ending three centuries of unprecedented population growth. However, there are few empirical estimates of the realised effect of such a process on economic performance. The present article attempts to fill this gap in the literature by assessing the impact of demographic transition in six European countries between 1971 and 2019. Unlike most studies in the field that rely on Cobb-Douglas production functions, we adopt an open-economy approach under the premise that, in the long-run, growth is balance-of-payments constrained. Applying time-varying-parameter estimation techniques, we compute the rate of growth compatible with equilibrium in the balance-of-payments (yBP) and show it is a good predictor of output growth trends. We proceed by investigating the importance of population dynamics as one of its determinants. The obtained effects are moderate, and there is significant heterogeneity between countries. In Italy, for instance, a 10-points increase in the old-age dependency ratio is associated with a 3% lower yBP, while in France, we have the opposite effect. Moreover, population decline effects are conditional to controlling for migration, with Germany and Austria differentiating themselves from their Southern Europe counterparts.
    Keywords: Demographic transition; Long-run growth; Thirlwall's law; Europe.
    JEL: J11 O41 O52
    Date: 2022–03
  5. By: Suari-Andreu, Eduard; van Vliet, Olaf
    Abstract: In this study we investigate public transfer receipt and assimilation of EU migrants in the Netherlands. To do so, we use high quality administrative panel data containing comprehensive information on all public transfers individuals can receive. Results show that, after controlling for composition effects, EU migrants are less likely to receive public transfers compared to Dutch natives and they receive significantly lower amounts conditional on transfer receipt. These differences are particularly large during the �first years after arrival in the Netherlands. Three to five years after arrival, the differences become indistinguishable from zero, indicating that EU migrants gradually assimilate into public transfer receipt. The size and the sign of the differences depend on whether we consider contributory or non-contributory transfers. Further exploration by means of an Oaxaca-Blinder decomposition shows that the composition effects are mostly due to differences in age and variables related to family structure.
    Keywords: Migration, Mobility, European Union, Public Transfers, Migrant Assimilation
    JEL: D1 D14 H2 H53 H55 J6 J61
    Date: 2022–03–21
  6. By: Cafferata, Alessia; Cerruti, Gianluca; Mazzone, Giulio
    Abstract: In this paper we analyze how the health system endowment and the quality of the institutions impact on a change of perception towards taxation. We conduct a sentiment analysis on French, Germans, Italians and Spanish users' tweets to understand if the impact of the current health emergency has modified the tax compliance of the citizens of the four biggest European Countries. We use a difference-in-differences estimation strategy, by comparing the average sentiment of individual tweets regarding taxation in different European NUTS-2 regions, before and after the spread of the Covid-19 pandemic. Our results highlight that in regions characterized by higher levels of health expenditure, people become more prone towards taxation with respect to the period before the widespread of covid-19. In addition, we show how a higher quality of institutions lead to a more positive perception of the same in relative and absolute terms and therefore a greater predisposition for a more progressive tax system.
    Keywords: Taxation; Sentiment Analysis; Tax compliance; Health System Endowment; Quality of institutions; Covid-19 crisis.
    JEL: C81 D04 H26 H51
    Date: 2022–02–28
  7. By: Diane Coyle (Bennett Institute for Public Policy, University of Cambridge and The Productivity Institute); Jen-Chung Mei (Bennett Institute for Public Policy, University of Cambridge and The Productivity Institute)
    Keywords: Productivity, manufacturing, ICT, Decomposition
    JEL: O47 L16 L60 L86
    Date: 2022–03
  8. By: Elisa Casi; Evelina Gavrilova; David Murphy; Floris Zoutman
    Abstract: We study the effect of reforms that close loopholes in the enforcement of the dividend-withholding tax (DWT). We focus on a Danish reform enacted in 2016, and compare Denmark to its Nordic neighbors. Our main outcome of interest is the quantity of stocks on loan. Before the reform all Nordic countries have a strong spike in stocks on loan centered around the ex-dividend day. The magnitude is large: on average excess stocks on loan peak at around 4 percent of the public float. The spike in lending is consistent with the most popular DWT arbitrage schemes. After the reform the spikes in Denmark disappear, but they continue in the other Nordics. We interpret this as evidence that the reform was successful at eliminating DWT arbitrage. We consider the welfare effects of the reform. Using synthetic difference-in-difference we find that stricter DWT enforcement resulted in a 130 percent (approx. 1.3 bln USD annually) increase in DWT revenue in Denmark. We detect no changes in foreign portfolio investment or dividend policy. We also consider DWT arbitrage among 15 European countries between 2010-2019. We find evidence of DWT arbitrage in all countries that levy DWT, though there is strong heterogeneity across countries. Importantly, similar to Denmark, Germany’s 2016 reform has eliminated the spikes in lending completely. We validate our identification strategy by showing that we find no evidence of DWT arbitrage in the UK, which does not levy a DWT.
    Keywords: dividend tax arbitrage, tax enforcement, financial innovation, welfare analysis
    JEL: H25 H26 O16 F38
    Date: 2022
  9. By: Brühl, Volker
    Abstract: The financial sector plays an important role in financing the green transformation of the European economy. A critical assessment of the current regulatory framework for sustainable finance in Europe leads to ambiguous results. Although the level of transparency on ESG aspects of financial products has been significantly improved, it is questionable whether the complex, mainly disclosure-oriented architecture is sufficient to mobilise more private capital into sustainable investments. It should be discussed whether a minimum Taxonomy ratio or Green Asset Ratio has to be fulfilled to market a financial product as "green". Furthermore, because of the high complexity of the regulation, it could be helpful for the understanding of private investors to establish a simplified green rating, based on the Taxonomy ratio, to facilitate the selection of green financial products.
    JEL: G10 G20
    Date: 2022
  10. By: Eric Floyd; Michael Hallsworth; John List; Robert Metcalfe; Kristian Rotaru; Ivo Vlaev
    Abstract: In this study, we first present a large natural field experiment that tested messages aimed at increasing tax compliance. We find that the main drivers of changes in compliance are messages describing the monitoring and enforcement behavior of the tax collector. A second natural field experiment built on the results of the first experiment to further investigate what kinds of costs resulting from tax collector oversight are salient to taxpayers. Specific time and cognitive incentives did not significantly increase payment rates, whereas stating non-specific costs of inaction did. Additional analyses suggest the increase in compliance is likely due to a 'fill in the blank' effect in which taxpayers assume the consequence is a fine. Interestingly, specifically stating maximum fine or jailtime consequences have the largest effect in a laboratory setting but only if the consequences are interpreted as realistic. Overall, our study reinforces that tax authorities can use short messages to increase tax compliance; the estimated accelerated revenue from the two field studies amounts to 9.9m GBP.
    Date: 2022
  11. By: Advani, Arun; Burgherr, David; Savage, Mike; Summers, Andrew
    Abstract: In this paper we show the importance of international ties amongst the UK’s global economic elite, by exploiting administrative data derived from tax records. We show how this data can be used to shed light on the kind of transnational dynamics which have long been hypothesised to be of major significance in the UK, but which have previously proved intractable to systematic study. Our work reveals the enduring and distinctive influence of long-term imperial forces, especially to the former ‘white settler’ ex-dominions which have been called the ‘anglosphere’. These are allied to more recent currents associated with European integration and the rise of Asian economic power. Here there are especially strong ties to the ‘old EU-6’ nations of France, Germany, Netherlands, Belgium, Luxembourg, and Italy. The incredible detail and universal coverage of our data means that we can study those at the very top with a level of granularity that would be impossible using traditional survey sources. We find compelling support for the public perception that non-doms are disproportionately highly affluent individuals who can be viewed as a part of a global elite. However, whilst there is some evidence for the stereotype of the global wealthy parking themselves in the UK, this underplays the significance of the working rich. Our analysis also reveals the remarkable concentration of non-doms in central areas of London.
    Keywords: ES/L011719/1
    JEL: N0 E6
    Date: 2022–04
  12. By: Federico Riccio; Lorenzo Cresti; Maria Enrica Virgillito
    Abstract: This article proposes a novel framework to investigate how globalisation affects workers' share of value added. We explore functional income distribution by looking at industrial interdependence and thus identifying GVCs as the unit of analysis; we then track inputs composition and their labour share evolution along the value chains. First, we find widespread heterogeneous patterns across value chains components, accounting for the direct, domestic and foreign requirements of the chains, inside an overall declining trend. Second, we study the evolution of the vertical labour share along development stages. Finally, by means of a shift-share analysis, we investigate what drives such decline in the vertical labour share: albeit country-sector idiosyncratic factors accounted by the within-input component contribute the most, between-input reallocation - GVCs restructuring - matters particularly to detect the role played by foreign contributions. In essence, we provide evidence of a recombination of inputs toward emerging economies and service-based activities. Such recombination negatively impacts upon the overall labour share dynamics. Overall, our methodology contributes to better understanding the process of fragmentation of production and international division of labour by developing a series of novel and fine-grained indicators; in addition, it allows to study the ensuing implication for functional income distribution.
    Keywords: Structural Change; Global Value Chains; Labour Share.
    Date: 2022–04–19

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