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on European Economics |
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Issue of 2023‒03‒13
six papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Popov, Alexander; Steininger, Lea |
| Abstract: | We study how monetary policy affects local market competition in a union of countries ex-periencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines). This effect is more pronounced when interest rates have been low-for-long, and it is stronger in sectors that are relatively more sensitive to changes in financing conditions. The underlying mechanism is a decline (increase) in short-term debt and investment by smaller and medium-size firms, relative to large firms, following monetary policy tightening (easing). JEL Classification: E2, G1, G12 |
| Keywords: | Competition, Eurozone, Low Interest Rates, Monetary Policy, Monetary Union |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232778&r=eec |
| By: | Checherita-Westphal, Cristina; Leiner-Killinger, Nadine; Schildmann, Teresa |
| Abstract: | This paper provides a comprehensive empirical analysis of the role of discretionary fiscal policy for inflation differentials across the 19 euro area countries over the period 1999-2019. The results confirm existing (older) literature that it is difficult to find robust evidence of the fiscal policy stance or impulse impacting directly on inflation differentials. We do find, however, support for an indirect effect of discretionary fiscal policy on inflation differentials working through the output gap channel. There is also some evidence that fiscal policy may be especially potent in influencing inflation differentials – with fiscal tightening cooling (and fiscal expansion increasing) inflation pressures – when the economy is above its potential. Finally, going from the overall fiscal stance or impulse to individual fiscal instruments, we find that value added tax (VAT) rate changes and public wage growth are statistically significant determinants of inflation differentials in our sample. JEL Classification: E31, E62, E63, F45 |
| Keywords: | fiscal policy, inflation differentials, public wages, tax policy |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232774&r=eec |
| By: | Andreeva, Desislava; Coman, Andra; Everett, Mary; Froemel, Maren; Ho, Kelvin; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Wong, Andrew; Wong, Eric; Żochowski, Dawid |
| Abstract: | We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centres – the United Kingdom, Hong Kong and Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-centre affiliates. We find that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors, especially for those banks that have only a weak deposit base in IFCs – and are thus relatively more exposed to NIRP in their headquarters. Using euro-area data, including bank-level data from France, we find that NIRP does not influence overall cross-border lending from banks’ headquarters’ economies, but NIRP does impair lending to financial sectors based in IFCs. This impairment is stronger for banks with a large deposit base in headquarter economies exposed to NIRP. JEL Classification: E52, F34, F36, F42, G21 |
| Keywords: | bank lending, cross-border lending, International financial centres, monetary policy, negative interest rates, risk-taking |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232775&r=eec |
| By: | Beyer, Marcel |
| Abstract: | In crisis times, insurance companies might feel the pressure to present a performance of their investment portfolios that is superior to the market, since investment portfolios back the claims of policyholders and serve as a signal for the claims' safety. I seek to show whether a stock market crisis as experienced over the course of the Covid-19 pandemic influences insurance firms' decisions on the allocation of credit risk bearing assets in their investment portfolio. I find, consistently with previous research, that insurers shift their portfolio holdings towards lower credit risk assets as financial market conditions tighten. This tendency seems to be restricted by the liquidity risk of high-yield assets, and the credit risk of lower-rated investment-grade assets. Both effects ultimately lead to a larger fraction of less liquid assets during the crisis and the recovery. |
| Keywords: | Insurance, Covid-19, Financial Stability |
| JEL: | G01 G11 G22 G32 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:icirwp:4623&r=eec |
| By: | Tijmen Tuinsma (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium.); Kristof De Witte (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium & UNU-MERIT, Maastricht University, Maastricht, The Netherlands.); Petr Janskı (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Miroslav Palanskı (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Vitezslav Titl (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium & Utrecht University School of Economics, Utrecht University, Utrecht, The Netherlands.) |
| Abstract: | Private Country-by-Country Reporting (CbCR) is a measure against tax avoidance by large multinationals, implemented throughout the EU in 2016. Multinational companies with an annual revenue over EUR 750 million have been required to report their global activities on a country-by-country basis to tax authorities. Using this cutoff in a sharp regression discontinuity design, we find causal evidence for an increase in effective tax rates for affected companies, indicating an increase in tax compliance. We estimate the increase in effective tax rates at 5 to 6 percentage points locally. However, significant cross-sectional variation is present: the most aggressive multinationals with tax haven affiliates are at most moderately affected, while almost the full effect is concentrated in medium-aggressive firms. From a policy perspective, the results suggest that while CbCR was effective in combating some forms of tax avoidance, profit shifting opportunities in tax havens mostly negate this effect. |
| Keywords: | corporate tax avoidance, tax havens, financial transparency |
| JEL: | F23 H25 H26 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2023_04&r=eec |
| By: | Sarah Brown (Department of Economics, University of Sheffield, UK; and IZA Bonn); Alexandros Kontonikas (Essex Business School, University of Essex); Alberto Montagnoli (Department of Economics, University of Sheffield, UK); Harry Pickard (Newcastle University Business School, Newcastle University); Karl Taylor (Department of Economics, University of Sheffield; and IZA Bonn) |
| Abstract: | In this paper we analyse the asset allocation of European households, focusing on developments during the period that followed the recent twin financial crises. We examine whether “search for yield” materialises outside financial institutions and whether the degree of financial literacy plays a role. We consider a wider set of alternatives to the safe assets by incorporating mutual funds to the standard set of stocks and bonds. We provide novel evidence which suggests that the “search for yield” during the post-crisis period of low interest rates took place not by raising the direct holdings of stocks and bonds, but rather indirectly through higher mutual funds’ holdings, in line with a “flight to delegation”. Importantly, this behaviour is strongly linked to the level of financial literacy, with the most literate households displaying significantly higher use of mutual funds. |
| Keywords: | Asset allocation; Financial literacy; Delegation |
| JEL: | E2 E44 G11 G51 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2023005&r=eec |