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on European Economics |
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Issue of 2023‒02‒27
thirteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Francesco Corsello (Bank of Italy); Alex Tagliabracci (Bank of Italy) |
| Abstract: | This paper focuses on the developments of energy prices since mid-2021 and assesses their impact on euro-area headline inflation, also considering the indirect transmission through the core and food components. We find that, while the contribution of energy inflation to core and food inflation is generally low in normal times, it has been significant in the recent period, as a consequence of the exceptional increase in energy prices. In the first nine months of 2022, energy inflation accounted for more than 60 per cent, on average, of headline inflation in the euro area, either directly or indirectly. The same result holds qualitatively true for the four largest countries in the euro area, although with some quantitative differences. These findings provide relevant indications for setting the normalization path of monetary policy in the euro area. Given the prevailing role of energy prices – an exogenous supply factor that can hardly be affected directly by policy rate increases – in driving inflation, the appropriate speed of adjustment largely depends on the assessment of the risks of second-round effects and of a de-anchoring of long-term inflation expectations. |
| Keywords: | energy price shocks, inflation dynamics, pass-through |
| JEL: | C11 E31 E32 E52 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_745_23&r=eec |
| By: | Menz, Jan-Oliver; Wieland, Elisabeth; Mehrhoff, Jens |
| Abstract: | How much does quality adjustment matter in measuring consumer price inflation? To address this question, we use different sources of micro and macro price data for Germany and the euro area. For Germany, we find that quality adjustment applies to a large range of goods and services but, on average, price adjustments due to quality changes reduce headline inflation only by 0.06 percentage points, which is balanced out by an increase due to quantity adjustment (e.g. a smaller package size) of the same amount. For the euro area, we assess the impact of heterogeneous quality adjustment methods by deriving the distribution of member states’ cumulative inflation rates for typical quality-adjusted products. Our macro-based estimate makes up to ± 0.2 percentage points for headline HICP inflation and ranges between± 0.1 and 0.3 percentage points for core inflation, when controlling for income differentials between member states. [...] JEL Classification: E31, C43 |
| Keywords: | inflation differentials, inflation measurement, micro price data, quality adjustment |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232773&r=eec |
| By: | Ehrmann, Michael; Hubert, Paul |
| Abstract: | How do financial markets acquire information about upcoming monetary policy decisions, beyond their reaction to central bank signals? This paper hypothesises that sharing information among investors can improve expectations, especially in the presence of disagreement or uncertainty about the economy. To test this hypothesis, the paper studies monetary policy-related content on Twitter during the “quiet period” before European Central Bank announcements, when policymakers refrain from public statements related to monetary policy. Conditional on large disagreement about the economic outlook, higher Twitter traffic is associated with smaller monetary policy surprises, suggesting that exchanging private signals among investors can help improve expectations. JEL Classification: D83, E52, E58, G14 |
| Keywords: | Central bank communication, information processing, market expectations, quiet period, Twitter |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232770&r=eec |
| By: | Kuntal K Das; Logan J Donald; Alfred V Guender |
| Abstract: | This paper presents a model of alternative sources of credit – bank vs. bond finance - to examine the credit substitution hypothesis. Our framework produces testable hypotheses about the behaviour of price- and quantity-based information variables. Examining data from ten Euro-area countries, we find that a credit spread outperforms a finance mix as a predictor of economic activity in both time series and pooled data regressions. There are clear signs of asymmetric and maturity effects in the data. Positive changes in the credit spread predict decreases in economic activity while negative changes bear no informative content. The asymmetric effect is exceptionally strong in pooled data and is present in short-term, long-term, and total credit spreads. In country-specific time-series regressions the asymmetric signalling property is strongest for the long-term credit spread. By contrast, we find no substantive evidence that changes in a quantity-based finance mix have robust predictive power. |
| Keywords: | Credit spread, finance mix, predictive ability, asymmetric effects, maturity split |
| JEL: | E3 E4 G1 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-08&r=eec |
| By: | Xiaoshan Chen (Durham University); Spyridon Lazarakis (Lancaster University); Petros Varthalitis (Athens University of Economics and Business) |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:dur:durham:2023_02&r=eec |
| By: | Mona Barake (EU Tax - EU Tax Observatory) |
| Abstract: | This paper explores profit shifting behaviour by European banks through a newly available data source. Financial institutions as of 2014 started disclosing their activity on a country-by-country level following the CRDIV EU Directive. The country-by-country reporting (CbCR) requires European banks to file their revenues, profits, number of employees and taxes paid in all countries where they operate including tax haven countries. In this paper, I construct the database for bank CbCR from the banks filings and annual reports. The database includes 51 European banks headquartered in 18 different European countries between 2014 and 2020. I use the database to study profit shifting arising from international tax differences between countries. I find that the banks' profits are sensitive to the tax rate suggesting that banks lower their tax burden through their affiliates. The size of banks seems to have an effect, the larger the bank group, the more it might engage in tax planning. Profit shifting is estimated by using the tax differential methodology. The findings show that profit shifting by the top European banks is around 4-3% percent of the total profits booked abroad. This implies tax revenue losses of up to 3-2%. The introduction of a global minimum tax of 15% would generate between 300 to 2 billion euros depending on the final rules implemented. |
| Keywords: | Profit shifting, Tax planning, Banks, Country-by-country reporting |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03925346&r=eec |
| By: | Bassi, Claudio; Behn, Markus; Grill, Michael; Waibel, Martin |
| Abstract: | This paper investigates both the magnitude and the drivers of bank window dressing behaviour in euro-denominated repo markets. Using a confidential transaction-level data set, our analysis illustrates that banks engineer an economically sizeable contraction in their repo transactions around regulatory reporting dates. We establish a causal link between these reductions and banks’ incentives to window dress and document the role of the leverage ratio and the G-SIB framework as the most relevant drivers of window dressing behaviour. Our findings suggest that regulatory action is warranted to limit banks’ ability to window dress. JEL Classification: C23, G14, G18, G21, G28 |
| Keywords: | banking regulation, G-SIBs, leverage ratio, repo markets, window dressing |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232771&r=eec |
| By: | MAIER ESSINGER Sofia (European Commission - JRC); RICCI Mattia (European Commission - JRC) |
| Abstract: | During the 2010-2019 decade, consumption taxes have risen in the vast majority of the EU Member States as a result of austerity measures, tax shifts as well as taxing transport and housing-related energy consumption. The redistributive impact of these policy changes remains mostly unexplored. In this paper, we provide new empirical evidence on the redistributive effect of changes in VAT and excises over this period, along with other developments in the broader tax-benefit system including tax shift reforms. Our results indicate that the consumption tax systems in the EU have become more unequalizing in most countries as a result of an increase in the tax burden and of its regressivity. While the taxation of transport is the component that has increased the most, the highest inequality impact was driven by the taxation of housing-related energy consumption. Only in a few countries these policy changes were accompanied by an increase in social transfers sufficient to compensate the poorest households. |
| Keywords: | Consumption taxation, Tax shift, Austerity, Inequality, Microsimulation |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202210&r=eec |
| By: | Diego Comin; Javier Quintana; Tom Schmitz; Antonella Trigari |
| Abstract: | We compute new estimates for Total Factor Productivity (TFP) growth in the United States and in five European countries. Departing from standard methods, we account for positive profits and use firm surveys to proxy for unobserved changes in factor utilization. These novelties have a major impact, especially in Europe, where our estimated TFP growth series are less volatile and less cyclical than the ones obtained with standard methods. Based on our approach, we provide annual industry-level and aggregate TFP series, as well as the first estimates of utilization-adjusted quarterly TFP growth in Europe. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:683&r=eec |
| By: | Fatica, Serena (European Commission); Katay, Gabor (European Commission); Rancan, Michela (Universita Politecnica delle Marche) |
| Abstract: | Combining a rich database on natural hazards, granular flood risk maps and detailed information on firm geolocalisation, we study the dynamic impacts of floods on European manufacturing firms during the period 2007-2018. We find that water damages significantly and persistently worsen firm performance, and may endanger their survival. An average flood deteriorates total assets by about 2% in the year after the event, and up to 5% seven years out. The drop in sales and employment is comparable. We show how reallocation of economic activity within flooded regions can reconcile our results with the 'creative destruction' hypothesis proposed by the natural disaster literature. |
| Keywords: | natural disasters, floods, climate risk, firm performance, panel local projections |
| JEL: | D22 Q54 R11 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:202213&r=eec |
| By: | Rasmus Wiese; João Tovar Jalles; Jakob de Haan |
| Abstract: | This paper examines the impact of labour market and product market reforms on income inequality for 25 OECD countries, using the local projections approach and updates of the reform indicators put together by Duval et al. (2018) until 2020. Our results suggest that both types of (endogenized) reforms cause more income inequality. Consistent with this finding is that counter-reforms lead to less income inequality. However, the inequality-raising effects of reforms occur especially in countries that have below median levels of social spending; in countries where social spending is above the sample median, the effect of reform is mostly statistically insignificant. |
| Keywords: | structural reforms, income distribution, local projections, nonlinearities |
| JEL: | D31 J21 H30 L43 L51 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10214&r=eec |
| By: | Alessio Ciarlone (Banca d'Italia) |
| Abstract: | Defying expectations, remittance flows to low- and middle-income countries withstood the shock related to the outbreak of the COVID-19 pandemic. Relying on detailed data for a large panel of remittance-receiving economies, this paper explores the key drivers of remittance outflows from Italy and finds empirical support to plausible explanations for their resilience during the pandemic. The impulse response functions obtained via a local projection approach confirm the paramount role of remittances as automatic stabilizers. Notwithstanding a reduction in their personal incomes due to the recession in Italy, migrant workers stepped up their financial support to their families back home to cushion the impact of the pandemic. In this regard, a shift from informal to formal remittance channels played a significant role. More specifically, the acceleration in the digitalization of financial services during, and because of, the pandemic had important spillover effects on migrants’ remittances, thus overcoming the hurdles created by the COVID-related restrictions adopted in both the sending and the receiving countries. |
| Keywords: | Remittances, COVID-19, local projections, digitalisation, mobile money, informality |
| JEL: | F24 I10 O11 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1402_23&r=eec |
| By: | Easterlin, Richard A. (University of Southern California); O'Connor, Kelsey J. (STATEC Research – National Institute of Statistics and Economic Studies) |
| Abstract: | In Europe differences among countries in the overall change in happiness since the early 1980s have been due chiefly to the generosity of welfare state programs— increasing happiness going with increasing generosity and declining happiness with declining generosity. This is the principal conclusion from a time series study of ten Northern, Western, and Southern European countries with the requisite data. In the present study cross-section analysis of recent data gives a misleading impression that economic growth, social capital, and / or quality of the environment are driving happiness trends, but in the long-term time-series data these variables have no relation to happiness. Significance: Over the past five decades happiness has emerged as a subject of social science research and a potential goal of public policy. But how can a country's happiness be increased? On this, there is a conflict between a number of policy alternatives – promote economic growth, increase social capital, improve the environment, expand welfare state programs. Each of these has point-of-time (cross-section) evidence supporting its claim, but there are very few long-term time-series studies. This article presents newly available time-series evidence that supports the importance of welfare state policies. |
| Keywords: | economic growth, happiness, life satisfaction, subjective well-being, long-term, welfare programs, social capital, trust, quality of environment, cross section, time series, Europe, Easterlin Paradox |
| JEL: | I31 I38 D60 O10 Q53 Z13 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15904&r=eec |