nep-eec New Economics Papers
on European Economics
Issue of 2022‒05‒09
twelve papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Expecting Brexit By Swati Dhingra; Thomas Sampson
  2. Nonlinearities in the Exchange Rate Pass-Through: The Role of Inflation Expectations By Christina Anderl; Guglielmo Maria Caporale
  3. Are all Central Bank Asset Purchases the Same? Different Rationales, Different Effects By Christophe Blot; Caroline Bozou; Jérôme Creel; Paul Hubert
  4. Measuring Shocks to Central Bank Independence using Legal Rulings By Stefan Griller; Florian Huber; Michael Pfarrhofer
  5. Fiscal Consolidation Plans with Underground Economy By Maria Ferrara; Elisabetta Marzano; Monica Varlese
  6. Firm-to-Firm Trade: Imports, Exports, and the Labor Market By Jonathan Eaton; Samuel Kortum; Francis Kramarz
  7. Wealth and its Distribution in Germany, 1895-2018 By Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick
  8. The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences By Lena Dräger; Michael J. Lamla; Damjan Pfajfar; Lena Dräger
  9. Intangible Capital and Labor Productivity Growth – Revisiting the Evidence: An Update By Roth, Felix
  10. The low productivity of European firms- how can policies enhance the allocation of resources? By Grégory Claeys; Marie Le Mouel; Giovanni Sgaravatti
  11. On the Effects of Taxation on Growth: an Empirical Assessment By Marco Alfò; Lorenzo Carbonari; Giovanni Trovato
  12. Moving From Broad to Targeted Pandemic Fiscal Support By Friedrich Heinemann

  1. By: Swati Dhingra; Thomas Sampson
    Abstract: The Brexit vote precipitated the unravelling of the UK’s membership of the world’s deepest economic integration agreement. This paper reviews evidence on the realized economic effects of Brexit. The 2016 Brexit referendum changed expectations about future UK-EU relations. Studying its consequences provides new insights regarding the economic impacts of news and uncertainty shocks. Voting for Brexit had large negative effects on the UK economy between 2016 and 2019, leading to higher import and consumer prices, lower investment, and slower real wage and GDP growth. However, at the aggregate level, there was little or no trade diversion away from the EU, implying that many of the anticipated long-run effects of Brexit did not materialize before the new UK-EU trade relationship came into force in 2021.
    Keywords: Brexit, trade policy, uncertainty, exchange rates
    JEL: E22 E65 F13 F15 F16 F31 F40
    Date: 2022
  2. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and import prices by estimating a smooth transition regression model with different inflation expectations regimes for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) respectively over the period January 1993-August 2021. Both market and survey measures of inflation expectations are used as the transition variable, and the nonlinear model is also assessed against a benchmark linear model. The pass-through to both consumer and import prices is found to be stronger in the nonlinear model and in some cases is close to being complete. Also, it is stronger for import prices than for consumer prices. Both seem to be more responsive to exchange rate changes when market expectations of both consumers and producers are considered instead of expectations from consumer surveys only. Finally, inflation expectations appear to affect the ERPT more in inflation targeting countries.
    Keywords: exchange rate pass-through, smooth transition regression, nonlinearities, inflation expectations
    JEL: C22 F31 F41
    Date: 2022
  3. By: Christophe Blot (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Caroline Bozou (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Jérôme Creel (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Paul Hubert (Observatoire Français des Conjonctures Economiques - Centre de recherche de la fondation nationale des sciences politiques, Banque de France - Banque de France - Banque de France)
    Abstract: Does policymakers' rationale for a given policy influence the impact of this policy? To answer this question, we exploit the unique setting provided by ECB asset purchase programs. PSPP and PEPP policies consist in purchases of essentially identical assets, but their objectives differ. The PSPP aimed to reduce deflationary risks, while the PEPP was announced in response to the pandemic-driven economic crisis to alleviate sovereign risks. We assess the effects of both policies on both objectives. We find that the PSPP positively affects inflation swaps while the PEPP negatively impacts sovereign spreads but much less evidence of the opposite pattern.
    Keywords: Monetary policy,Asset prices,Central bank communication,Central bank reaction function,Intermediate objectives
    Date: 2021–12
  4. By: Stefan Griller; Florian Huber; Michael Pfarrhofer
    Abstract: We investigate the consequences of legal rulings on the conduct of monetary policy. Several unconventional monetary policy measures of the European Central Bank have come under scrutiny before national courts and the European Court of Justice. These lawsuits have the potential to severely impact the scope and flexibility of central bank policies, and central bank independence in a wide sense, with important consequences for the real and financial economy. Since the number of relevant legal challenges is small, we develop an econometric approach that searches for minimum variance regimes which we use to isolate and measure the effects of these events. Our results suggest that legal rulings addressing central bank policies have a powerful effect on financial markets. Expansionary shocks ease financial conditions along various dimensions, and inflation swap reactions suggest inflationary pressures with stronger effects in the short term.
    Date: 2022–02
  5. By: Maria Ferrara; Elisabetta Marzano; Monica Varlese
    Abstract: Fiscal consolidation literature often neglects that there are economies with a sizable underground sector and that most of time it is accounted in GDP statistics. This produces non negligible effects on fiscal multipliers. This paper explores a fiscal consolidation plan calling for a downsizing of the underground sector as well. The analysis refers to the Italian economy that, among European countries, is the second for high public debt and has one of the highest size of tax evasion. Results show that it is possible to both reduce public debt and tax evasion through a temporary cut in public spending associated with a permanent drop in tax rates. In this context a reallocation of resources from the underground to market sector operates.
    Keywords: fiscal consolidation plans, underground economy, DSGE modelling
    JEL: E26 E32 E62 E63 H26
    Date: 2022
  6. By: Jonathan Eaton; Samuel Kortum; Francis Kramarz
    Abstract: Customs data reveal heterogeneity and granularity of relationships among buyers and sellers. A key insight is how more exports to a destination break down into more firms selling there and more buyers per exporter. We develop a quantitative general equilibrium model of firm-to-firm matching that builds on this insight to separate the roles of iceberg costs and matching frictions in gravity. In the cross section, we find matching frictions as important as iceberg costs in impeding trade, and more sensitive to distance. Because domestic and imported intermediates compete directly with labor in performing production tasks, our model also fits the heterogeneity of labor shares across French producers. Applying the framework to the 2004 expansion of the European Union, reduced iceberg costs and reduced matching frictions contributed equally to the increase in French exports to the new members. While workers benefited overall, those competing most directly with imports gained less, even losing in some countries entering the EU.
    JEL: F12 F14 F16
    Date: 2022
  7. By: Thilo N. H. Albers (Humboldt University Berlin; Lund University); Charlotte Bartels (DIW Berlin; UCFS; IZA); Moritz Schularick (University of Bonn, Sciences Po Paris, and CEPR)
    Abstract: German history over the past 125 years has been turbulent. Marked by two world wars, revolutions and major regime changes, as well as a hyperinflation and three currency reforms, expropriations and territorial divisions, it provides unique insights into the role of country-specific shocks in shaping long-run wealth dynamics. This paper presents the first comprehensive study of wealth and its distribution in Germany since the 19th century. We combine tax and archival data, household surveys, historical national accounts, and rich lists to analyze the evolution of the German wealth distribution over the long run. We show that the top 1% wealth share has fallen by half, from close to 50% in 1895 to 27% today. Nearly all of this decline was the result of changes that occurred between 1914 and 1952. The interwar period and the wealth taxation in the aftermath of World War II stand out as the great equalizers in 20th century German history. After unification in 1990, two trends have left their mark on the German wealth distribution. Households at the top made substantial capital gains from rising business wealth while the middle-class had large capital gains in the housing market. The wealth share of the bottom 50% halved since 1990. Our findings speak to the importance of historical shocks to the distribution and valuations of existing wealth in explaining the evolution of the wealth distribution over the long run.
    Keywords: Wealth inequality; portfolio heterogeneity; saving; wealth taxation.
    JEL: D31 E01 E21 H2 N3
    Date: 2022–05
  8. By: Lena Dräger; Michael J. Lamla; Damjan Pfajfar; Lena Dräger
    Abstract: Using a new consumer survey dataset, we show that macroeconomic preferences affect expectations and economic decisions through different channels. While household expectations are on average inversely related to preferences, households with the same inflation or interest rate expectations can differently assess whether the level of the corresponding variable is appropriate or too high/too low. This `hidden heterogeneity' in expectations is correlated with sociodemographic characteristics and affects durable spending and saving decisions. We also show that the variation in inflation preferences can be explained with risk preferences. Overall, this adds a new dimension to the definition of anchored expectations.
    Keywords: macroeconomic expectations, monetary policy perceptions, inflation and interest rate preferences, risk preferences, survey microdata
    JEL: E31 E52 E58 D84
    Date: 2022
  9. By: Roth, Felix
    Abstract: This contribution analyzes the impact of intangible capital on labor productivity growth across countries at the aggregate and sectoral levels by employing an econometric growth-accounting approach. First, our results show that intangible capital deepening accounts for around 50 percent of labor productivity growth at both the aggregate and sectoral level. Second, we find that this positive impact of intangible capital on productivity growth at both levels of aggregation is driven by investments in economic competencies, the only intangible group not covered in the national accounts. Third, our results reveal deep sectoral heterogeneities regarding investments and productivity effects of different intangible types. These findings have important implications for future EU industrial policies and are directly relevant to the EU's efforts to close its productivity gap with the US.
    Keywords: intangible capital,labor productivity growth,cross-country sectoral panel analysis,manufacturing,market services,EU
    JEL: C23 E22 L16 L60 L80 O47 O52
    Date: 2022
  10. By: Grégory Claeys; Marie Le Mouel; Giovanni Sgaravatti
    Abstract: This Working Paper is an output from the MICROPROD project, which received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390. This paper summarises the most important policy lessons from the research undertaken in the MICROPROD project, work package 4, related to the allocation of the factors of production, with a special focus on the weak dynamism of European small and medium-sized enterprises...
    Date: 2022–04
  11. By: Marco Alfò (Sapienza Università di Roma, Italy); Lorenzo Carbonari (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS); Giovanni Trovato (Dipartimento di Economia e Finanza, Università degli Studi di Roma “Tor Vergata”, Italy; CEIS)
    Abstract: We study the effects of taxation on the growth rate of the real per capita GDP in a sample of 21 OECD countries, over the period 1965-2010. To do this we estimate a version of the model proposed by Mankiw, Romer and Weil (1992) augmented to consider both direct and indirect effects of taxation on investment share parameters. We employ a semi-parametric technique – namely, a Finite Mixture Model – which combines features from mixed effect models for panel data and cluster analysis methods to account for country-specific unobserved heterogeneity. Our results suggest that taxes have a negative impact on growth: in the baseline model the coefficient estimates indicate that a 10% cut in personal income tax rate (respectively corporate income tax rate) may raise the GDP growth rate by 0.6% (respectively 0.3%).
    Keywords: Economic Growth, Taxation, Finite Mixture Model, Classification
    JEL: H30 O30 O40
    Date: 2022–04
  12. By: Friedrich Heinemann
    Abstract: This paper conceptualizes an appropriate path for fiscal policy starting from the early this yardstick, it assesses the initial fiscal response of Member States. It exploits fiscal projections and program data to analyze the adjustment to the economic recovery. For loan guarantee and short-time work schemes, it identifies program-specific parameters that improve target precision and identifies examples of more and less convincing program designs.
    Date: 2022

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