nep-eec New Economics Papers
on European Economics
Issue of 2023‒10‒02
ten papers chosen by
Giuseppe Marotta, Università degli Studi di Modena e Reggio Emilia

  1. Monetary Policy Surprises Shocks under Different Fiscal Regimes: A Panel Analysis of the Euro Area By António Afonso; José Alves; Serena Ionta
  2. Rethinking corporate taxation in the European Union: how and where to tax Multinational Enterprises By Joana Andrade Vicente
  3. Insurers’ investment behaviour and the coronavirus (COVID-19) pandemic By Ghiselli, Angelica; Fay, Constanze
  4. Unpacking the green box: Determinants of Environmental Policy Stringency in European countries By Francisco Serranito; Donatella Gatti; Gaye-Del Lo
  5. How Much Are Individuals Left Behind in Central and Eastern Compared to Western European Countries? A Fuzzy Comparative Analysis By Elena Bárcena-Martín; Francisca García-Pardo; Salvador Përez-Moreno
  6. Green risk in Europe By Nuno Cassola; Claudio Morana; Elisa Ossola
  7. An Import(ant) Price of Brexit Uncertainty By Alejandro G. Graziano; Kyle Handley; Nuno Limão
  8. Minimum wages in a dual labour market: Evidence from the 2019 minimum-wage hike in Spain By Alexander Hijzen
  9. Policy Responses to Labour-Saving Technologies: Basic Income, Job Guarantee, and Working Time Reduction By Simone d’alessandro; Tiziano Distefano; Guilherme Spinato Morlin; Davide Villani
  10. AI Watch: Adoption of Autonomous Machines By CARBALLA SMICHOWSKI Bruno; DE NIGRIS Sarah; DUCH BROWN Nestor; MORENO MARÍA Adrián

  1. By: António Afonso; José Alves; Serena Ionta
    Abstract: We study the effect of monetary policy surprise shocks on real output and the price level, conditioned on different fiscal stances in the period 2001Q4-2021Q4 for a panel of the 19 countries of the Euro Area. Applying local projection methodology, we find that the effect of monetary shocks depends on each country’s fiscal stance, specifically, if for output response the debt is more important in the effect of monetary policy, for prices, the “Ricardian” nature of fiscal policy appears to be far more crucial. However, regarding inflation targeting, monetary policy is most effective in the low debt regime and in the high fiscal sustainability one. Our results are robust to different specifications and models and have important policy implications notably for monetary policy, which should consider different fiscal stances when pursuing specific monetary policy objectives.
    Keywords: monetary policy surprises, public debt, fiscal sustainability, local-projection models, fiscal-monetary policy mix, Euro area
    JEL: C32 E58 E62 E63
    Date: 2023
  2. By: Joana Andrade Vicente
    Abstract: In this paper we conduct an empirical analysis to assess the redistributional impact of implementing a Formulary Apportionment approach in the European Union, compared to the current system based on the separate entity approach, aiming to contribute with databased evidence to the ongoing sensitive political debate about the much-needed change in the international (and, specifically, European) corporate tax regime. We update and extend prior research to estimate which Member States will likely gain and lose in terms of corporate tax base and revenues from the implementation of the ‘Business in Europe: Framework for Income Taxation’ (BEFIT) initiative, planned to be soon launched by the European Commission. Using recently published Country-by-Country Reporting data released by the Internal Revenue Service, our findings show that the redistributional impact among Member States would be significant. Results are in line with international tax literature: larger economies with higher tax rates (such as Germany and France) would experience a considerable tax base increase, transferred from smaller countries with lower tax rates (like the Netherlands and Ireland), as multinational enterprises would have more restricted opportunities to engage in artificial profit shifting activities.
    Keywords: Country-by-Country Reporting; European Union; Formulary Apportionment; profit shifting; United States multinational enterprises.
    JEL: F23 H25 H26
    Date: 2023–08
  3. By: Ghiselli, Angelica; Fay, Constanze
    Abstract: This research explores two aspects of European insurers’ investment behaviour related to crises. While they are often considered as financial market stabilisers and long-term investors, there is currently a lack of knowledge about insurers’ investment behaviour in crises under the regulatory Solvency II regime implemented in 2016. With assets of nearly €9 trillion and bond holdings of more than €3 trillion in Q2 2022, European insurers are important financial intermediaries and finance European economies. With an empirical study, we investigate their reaction to the asset price shock at the onset of the coronavirus (COVID-19) pandemic in the first quarter of 2020 and explore cyclical investment behaviour by replicating Timmer’s (2018) study with fixed effects panel regressions. We use a large cross-country dataset, with the novelty of exploiting cross-country heterogeneity for European countries with 458, 758 security-level observations from 2017 to 2022. Overall, our findings are very relevant from a policy perspective as they suggest active and heterogeneous cyclical investment behaviour in the European insurance market with differences across issuer and holder countries of domicile.
    Keywords: Cyclicality, Debt Capital Flows, Financial Stability, Insurance companies, Pandemic, Portfolio Allocation
    Date: 2023–09
  4. By: Francisco Serranito; Donatella Gatti; Gaye-Del Lo
    Abstract: This paper identifies the determinants of OECD Environmental Policy Stringency (EPS) index using a panel of 21 European countries for the period 2009-2019. If there is a large literature on the macroeconomic, political, and social determinants of EPS, the people’s attitudes or preferences toward environmental policies is still burgeoning. Thus, the main goal of this paper is to estimate the effects of people’s awareness regarding environmental issues on the EPS indicator. Due to the endogeneity of preferences, we have applied an instrumental variable framework to estimate ourempirical model. Our most important result is to show that individual environmental preferences have a positive and significant effect on the level of EPS indicator : on average, a rise in individual preferences of 10% in a country will increase its EPS indicator by 2.30%. Our results have important policy implications.
    Keywords: Environmental policy stringency; Environmental attitudes/concerns, inequality; environmental Kuznets curve; EU
    JEL: Q0 Q1 Q3 Q50 Q54 Q56
    Date: 2023
  5. By: Elena Bárcena-Martín (Universidad de Málaga); Francisca García-Pardo (Universidad de Málaga); Salvador Përez-Moreno (Universidad de Málaga)
    Abstract: This paper examines the extent to which individuals of Central and Eastern European (CEE) member countries of the EU are left behind compared to individuals from Western European (WE) countries, as well as across CEE countries. To this end, according to the principle of ‘Leaving no one behind’ (LNOB) of the 2030 Sustainable Development Agenda, a fuzzy approach is applied to a multidimensional setting made up of income, material deprivation, and work intensity. Comparing both blocs of countries, three decades after transitions to liberal democracy and market economies of CEE countries, a certain process of convergence between them is observed over the period 2007–2019 essentially as a result of two processes: a decrease in the level individuals were left behind in the CEE countries, and an increase in the level individuals were left behind in the WE countries in the years following the 2007–2008 financial crisis. Differences in the degree individuals were left behind along the income distribution are also analysed. Specifically, it is found that the extent to which individuals were left behind in both blocs in 2007 differs except in the tails. In contrast, the degree individuals were left behind in 2019 is very similar along the distribution for both the CEE and WE blocs and similar to the levels of the WE bloc in 2007. Focusing on the CEE countries, significant disparities among countries regarding the degree of being left behind and its distribution are also revealed. This finding may be related to the models of capitalism implemented, which ranged from mixed economy models (Czech Republic, Slovenia, and Slovakia), where citizens are less left behind, to Bulgaria, Lithuania, and Romania, characterised by more market-based models where people lag further behind.
    Keywords: Leaving no one behind, income, material deprivation, work intensity, fuzzy approach, Central and Eastern European counties
    JEL: I30 O57 C02
    Date: 2023–09
  6. By: Nuno Cassola; Claudio Morana; Elisa Ossola
    Abstract: Climate change poses serious economic, financial, and social challenges to humanity, and green transition policies are now actively implemented in many industrialized countries. Whether financial markets price climate risks is critical to ensuring that the necessary funding flows into environmentally sound projects and that stranded assets risk is adequately managed. In this paper, we assess climate risks for the European stock market within the context of Alessi et al. (2023) greenness and transparency factor. We show that measures of returns spreads of green vs. brown investment might reflect climate risks and assets' exposition to systematic macro-financial risk factors. These latter factors should be filtered out to measure climate risks accurately. We show that climate risks are priced in the European stock market by focusing on aggregate, industry, and company-level data. We propose a market-based green rating procedure, which might be of particular interest to evaluate non-transparent and non-disclosing companies for which ESG information is unavailable. We illustrate its implementation using a sample of over 800 non-transparent firms.
    Keywords: Climate risk, environmental disclosure, macro-finance interface, unconditional factor models, asset pricing, European Union.
    JEL: G01 G11 G12 Q54
    Date: 2023–09
  7. By: Alejandro G. Graziano; Kyle Handley; Nuno Limão
    Abstract: We estimate the impact of trade policy uncertainty (TPU) on CES import price indices, focusing on the implications of Britain's exit from the European Union (Brexit). Our analysis reveals that an increase in the probability of Brexit increases U.K. import price indices by raising the prices of existing products and by reducing product variety from the E.U. We find evidence that the risk of higher import protection from the 2016 referendum increased current import price indices by more than 10%. This amounted to a 2 log point increase in manufactured goods prices and a 0.6 log point decrease in consumers' real income.
    JEL: D8 E02 F02 F13 F14 F15
    Date: 2023–08
  8. By: Alexander Hijzen
    Abstract: This paper provides an assessment of the 2019 minimum-wage hike in Spain, which increased the minimum wage by 22% and directly concerned 7% of dependent employees. The assessment is based on an individual-level analysis that follows the outcomes of workers that were employed in the year before the reform over time. Among directly affected workers, the hike in the minimum wage increased full-time equivalent monthly earnings by on average 5.8% and reduced employment by -0.6%. The wage effects are stronger for workers on open-ended contracts, while the employment effects are stronger for workers on fixed-term contracts.
    Keywords: employment protection, fixed-term contracts, labour market duality, wage-setting, wage-shifting
    JEL: J3 J4 J8
    Date: 2023–09–18
  9. By: Simone d’alessandro (University of Pisa); Tiziano Distefano (University of Florence); Guilherme Spinato Morlin (University of Pisa); Davide Villani (Joint Research Centre – European Commission)
    Abstract: Several studies argue that the latest advancements in technology could result in a continuous decrease in the employment level, the labour share of income and higher inequalities. This paper investigates policy responses to the rise of labour-saving technologies and their potential negative effects on employment and inequality. Using EUROGREEN (an Input-Output-Stock-Flow model), we assess how three different policy measures – basic income (BI), job guarantee (JG), and working time reduction without loss of payment (WTR) – could affect the economy in the wake of a technological shock. We build different scenarios in which the effects of these policies are implemented against a reference setting of high labour productivity growth. We evaluate the impact of these policies on per capita GDP, the Gini coefficient, the labour share, the unemployment rate, and the deficit-to-GDP ratio. We find that these policies could be effective in counterbalancing some of the negative effects of labour-saving technologies. JG reduces the level of unemployment significantly and permanently, whereas BI and WTR only temporarily affect the unemployment rate. WTR effectively increases the wage share and generates the lowest deficit-to-GDP ratio in the long run. The introduction of a wealth tax further reduces inequality and helps to offset the increase in public spending associated with JG and BI. A mix of these policies delivers the highest per capita GDP, lowest unemployment rate, and best distributive outcomes.
    Keywords: Labour-saving technologies; input-output; inequality; policy scenario analysis; automation; structural change; robot
    Date: 2023–09
  10. By: CARBALLA SMICHOWSKI Bruno (European Commission - JRC); DE NIGRIS Sarah (European Commission - JRC); DUCH BROWN Nestor (European Commission - JRC); MORENO MARÍA Adrián
    Abstract: This report provides an empirical analysis of the drivers of and barriers to adoption of autonomous machines (AM) technologies by European companies. It also analyses the impact of adopting this technology on firm productivity. Using 2020 survey data from 9 640 firms located in EU27, Norway, Iceland and the UK, we show that AM adoption is driven by several factors and has heterogeneous effects on companies depending on their characteristics. Regarding the drivers of adoption, we find that firm size, employee knowledge of artificial intelligence (AI) and the joint adoption of AM with complementary technologies increase a firm’s probability of adopting AM. Concerning barriers to adoption, we make three main findings. First, the most relevant barriers (cost of adoption and, to a lesser extent, lack of skills and data access) are different for large firms. For the latter, liability and reputation risks, as well as data access, are the most important obstacles. Second, certain types of obstacles (namely liability and reputation risks, data access and lack of funding) are more likely to be present in certain sectors of activity. Third, the more complementary technologies a firm adopts, the lower its probability of facing obstacles to AM adoption. Finally, we find that AM adoption boosts firm productivity. This effect is higher for firms that start out with lower productivity, which suggests that there is a decreasing marginal return to AM adoption in terms of productivity.
    Date: 2023–08

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