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on European Economics |
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Issue of 2024‒04‒08
eighteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Meyer, Justus; Teppa, Federica |
| Abstract: | This paper contributes to understanding consumers' retail payment preferences and digitalisation in personal finances. We focus on the acceptance of cashless payments in everyday situations and the use of mobile banking apps in the euro area, where the payment services market has changed significantly in recent years. In particular, we study app-based tools for day-to-day (offline) purchases that involve small amounts of money as well as digital tools for managing personal finances. By looking at factors associated with using non-cash payment methods, and app-based financial services solutions, we shed light on the topic of financial inclusion in payment services that concern consumers’ everyday choices. Using granular microdata from the European Central Bank's Consumer Expectations Survey, we find that most people prefer to use only one payment instrument. After the COVID-19 pandemic, it has mostly been cash and contactless cards. The use of cash is partly due to limited perceived acceptance of non-cash payments by merchants. We also find substantial cross-country heterogeneity and highlight the prominent role of demographic factors in choosing non-cash payment options and app-based tools when managing personal finances. While mobile banking is already popular amongst euro area consumers, the use of smart payment methods remains very limited. Our findings suggest that financial service providers should recognize the growing preference of the younger generations for alternative payment methods. Creating awareness among consumers might also lead to positive feedback effects by reducing consumers’ reliance on cash through higher perceived availability of non-cash payment options. JEL Classification: C13, D12, E42, O33 |
| Keywords: | cash, Consumer Expectations Survey (CES), digitalisation, FinTech, payment preferences |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242915&r=eec |
| By: | Marta Gómez-Puig (Department of Economics & Riskcenter, Universitat de Barcelona, Spain.); Simón Sosvilla-Rivero (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid, 28223 Madrid, Spain.) |
| Abstract: | Multiple interconnected channels link banks and governments: the sovereign-exposure channel (banks hold significant amounts of sovereign debt), the safety net channel (government guarantees protect banks), and the macroeconomic channel (bank and government health affect and is affected by economic activity). However, the sovereign-bank nexus in euro-area countries is particularly worrying since its member states issue debt in a currency they do not directly control and cannot ensure nominal repayment to bondholders. In this work, we summarise the main theoretical and empirical contributions that analyse this phenomenon and the legislative and institutional initiatives to reduce sovereign exposures in the banking sector. |
| Keywords: | Bank risk, Euro area, Interdependency, Sovereign risk, Sovereign-bank nexus. JEL classification: G21, G33, H63. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202406&r=eec |
| By: | Lea Steininger (Department of Economics, Vienna University of Economics and Business; Vienna Institute for International Economic Studies); Casimir Hesse (Rothschild & Co.) |
| Abstract: | In 2012, Draghi put an end to rising euro area sovereign bond yield spreads by resolving to do 'whatever it takes'. The crisis rhetoric and institutional practices of unlimited liquidity have since become commonplace, as countermeasures to recent market turmoil show. This paper sets out to explain how and why 'unlimited liquidity' ideas moved to the ECB's center of economic analysis during the euro crisis. Previous work fails to decipher that the ideational shift was highly anomalous when viewed against German ordoliberalism or scholarly support for 'expansionary austerity'. Addressing this relative neglect in other accounts, we draw on qualitative text analysis and expert interviews to argue that this shift was due to norm entrepreneurs who capitalized on the uncertainty of the crisis. We employ constructivist arguments to identify four scoping conditions that account for the ascendance of 'unlimited liquidity': an indicative reference, credibility, institutional positioning, and -- as an extension to the literature -- intellectual sensitivity. Our analysis suggests that the euro crisis changed economic ideas, and fundamentally remodels the constructivist framework for studying monetary policy in crisis times. |
| Keywords: | European Central Bank, euro crisis, monetary policy, unlimited liquidity, economic ideas, constructivism |
| JEL: | E52 E58 F50 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp357&r=eec |
| By: | Wagner, Joachim |
| Abstract: | The use of cloud computing by firms can be expected to go hand in hand with higher productivity, more innovations, and lower costs, and, therefore, should be positively related to export activities. Empirical evidence on the link between cloud computing and exports, however, is missing. This paper uses firm level data for manufacturing enterprises from the 27 member countries of the European Union taken from the Flash Eurobarometer 486 survey conducted in February - May 2020 to investigate this link. Applying standard parametric econometric models and a new machine-learning estimator, Kernel-Regularized Least Squares (KRLS), we find that firms which use cloud computing do more often export, do more often export to various destinations all over the world, and do export to more different destinations. The estimated cloud computing premium for extensive margins of exports is statistically highly significant after controlling for firm size, firm age, patents, and country. Furthermore, the size of this premium can be considered to be large. Extensive margins of exports and the use of cloud computing are positively related. |
| Keywords: | Cloud computing, exports, firm level data, Flash Eurobarometer 486, kernel-regularized least squares (KRLS) |
| JEL: | D22 F14 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kcgwps:285359&r=eec |
| By: | Giovanni Carnazza (Università di Roma Tre); Federica Lanterna (University Roma Tre, Department of Economics) |
| Abstract: | An extensive economic literature has investigated the cyclical behaviour of the budget balance in response to the business cycle. However, little is known about the behaviour of one of its two main components, i.e. tax revenue. We shed new light on this issue by focusing on a panel of 27 EU countries for the period 1995-2022. Using a novel empirical strategy to pre-adjust each revenue item for the business cycle, we study the behaviour of personal income tax, corporate income tax, indirect taxes, social security contributions, and non-tax revenues. Considering different econometric techniques, we find a general and stable pro-cyclical behaviour for all tax items in the EU, except for corporate income tax. This behaviour is then analysed with the varyingcoefficient model, assessing the impact of a novel variable combining the stringency of the European fiscal framework and the debt-to-GDP ratio. Generally, this indicator seems to have intensified the procyclical trend of each revenue item. |
| Keywords: | Tax policy, Pro-cyclicality, Tax Revenue, Cyclical adjustment, European Union |
| JEL: | E32 E62 H20 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0281&r=eec |
| By: | Köppl-Turyna, Monika; Christl, Michael; De Poli, Silvia |
| Abstract: | This paper analyzes the relationship between economic growth, inequality and redistribution. In a cross-country setting for 25 EU countries over the period 2007-2019, we show that market income inequality is associated with higher growth in the short run. To estimate the impact of redistribution to low-income earners, we introduce a new measure, the so-called net benefit share (NBS). Contrary to other findings, we show that this (targeted) redistribution to low income earners (Q1 NBS) boosts growth in the short run, driven by the consumption and private investment channels. On the other hand, untargeted redistribution to higher income earners reduces growth. |
| Keywords: | growth, redistribution, inequality, European Union |
| JEL: | H23 O47 D63 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ecoarp:285354&r=eec |
| By: | Miquel-Flores, Ixart; Reghezza, Alessio; Buchetti, Bruno; Perdichizzi, Salvatore |
| Abstract: | This study investigates the underlying reasons for banks’ continued support of fossil fuel-based firms and examines the role of public guaranteed loans (PGLs) in redirecting resources towards greener economic activities, thereby facilitating the climate transition process. Using a unique pan-European credit register dataset, we combine supervisory bank data with firm-level greenhouse gas emission data and financial information. Our analysis yields three main findings. Firstly, European banks perceive lending to green companies as riskier compared to their brown counterparts, a phenomenon we term as the “green-transition risk.” Secondly, we provide evidence that during the COVID-19 pandemic, European banks have strategically leveraged PGLs to channel resources towards environmentally sustainable activities, thereby augmenting the proportion of green loans in their portfolios and partially shifting the inherent “green-transition risk” to European governments and citizens. Lastly, our investigation reveals a banking preference for awarding PGLs to financially robust green firms over less profitable, highly indebted green firms, which could pose significant challenges for green businesses requiring financial support during the COVID-19 crisis. JEL Classification: G20, G21, G28 |
| Keywords: | climate change, credit risk, green lending, public guaranteed loans |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242916&r=eec |
| By: | Odran Bonnet (Insee); Etienne Fize (Institut des Politiques Publiques, Paris School of Economics); Tristan Loisel (Insee, Crest); Lionel Wilner (Insee, Crest) |
| Abstract: | This paper exploits the introduction of the German carbon tax in 2021 as well as excise tax rebates on fuel in both France and Germany, consecutive to the 2022 oil crisis, to infer how fuel tourism responds to changes in relative prices. Based on French high-frequency transaction-level data issued from individual banking accounts, we find substantial displacement between foreign and domestic consumption. When relative prices increase by 1%, the relative cross-border demand decreases by 7.7%. In border areas, the elasticity of tax revenue with respect to foreign prices is as high as 0.5. Moreover, there is no substantial difference in demand response to either carbon or excise tax. Such empirical evidence illustrates the importance of coordinating tax policy within EU. |
| Keywords: | Commodity taxation; Tax coordination; Carbon pricing; Fuel tourism; Transaction-level data. |
| JEL: | H20 H23 H77 R48 |
| Date: | 2024–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2024-06&r=eec |
| By: | Muhammed Bulutay |
| Abstract: | How do households perceive the forecasting performance of the central bank? Using two novel experiments embedded in the Bundesbank's Survey on Consumer Expectations (total N=9500), this article shows that the majority of German households underestimate the ECB's inflation forecasting accuracy. In particular, they believe that the ECB is overly optimistic. Communication that challenges these perceptions improves the anchoring of inflation expectations, reduces inflation uncertainty and discourages consumption of durable goods. Treated households also report higher trust in the ECB, perceive the ECB's inflation target as more credible, the ECB's communication as more honest, and the ECB's policy as more beneficial to them. Finally, the causal effect of central bank trust on inflation expectations is quantified using instruments to deal with endogeneity. |
| Keywords: | Inflation Expectations, Central Bank Trust, Inflation Forecasts, Central Bank Communication, Information Provision Experiments |
| JEL: | C83 D91 E71 |
| Date: | 2024–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:bdp:dpaper:0034&r=eec |
| By: | Hoste, J.; Verboven, F. |
| Abstract: | We develop a new approach to measure the sources of cross-border goods market segmentation. Our cost-of-living approach uncovers the relative importance of price and product availability differences, while accounting for taste differences. We implement our methodology on regionally disaggregated consumer goods data in the EU and US. The analysis reveals that price, and especially, product availability differences are much larger between than within European countries, and are only marginally larger between than within US states. Our findings imply that US states are geographically integrated, whereas EU countries remain segmented, due to trade frictions that mainly relate to fixed costs. |
| Keywords: | Geographic Market Integration, LOP Deviations, Product Availability Differences |
| JEL: | D12 F15 R32 |
| Date: | 2024–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2402&r=eec |
| By: | Florencia Jaccoud; Fabien Petit; Tommaso Ciarli; Maria Savona |
| Abstract: | This paper examines the labor market implications of investment in automation over the life cycle of ICT and robot technologies from 1995 to 2017 in 163 European regions. We first identify major technological breakthroughs during this period for these automation technologies and identify the phases of acceleration and deceleration in investment. We then examine how exposure to these automation technologies affects employment and wages across these different phases of their life cycle. We find that the negligible long term impact of automation on employment conceals significant short term positive and negative effects within phases of the technology life cycle. We also find that the negative impact of ICT investment on employment is driven by the phase of the cycle when investment decelerates (and the technology is more mature). The phases of the technology life cycles are more relevant than differences in regions’ structural characteristics, such as productivity and sector specialization in explaining the impact of automation on regional employment. |
| Keywords: | automation, technology life cycle, employment, wages, ICT, robot |
| JEL: | J21 O33 J31 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10987&r=eec |
| By: | Gregory de Walque (Economics and Research Department, National Bank of Belgium); Thomas Lejeune (Economics and Research Department, National Bank of Belgium) |
| Abstract: | This paper reports the estimation and simulation of the Bernanke and Blanchard (2023) model on Belgian data. The model offers a consistent framework that ties together wage growth, inflation expectations and price inflation. It is used to study the surge and persistence of inflation in the post-pandemic period in Belgium. According to the model, a sequence of shocks to product shortage, energy and food components is found to be the main reason behind the duration of high Belgian inflation in this period. Though the Belgian replication of the model predicts sensitive short-term inflation expectations to realised inflation, a large wage catch-up - reflecting automatic wage indexation - and some role for labour market tightness in wage growth, their contribution to a persistent inflation is strongly attenuated by a weak estimated wage-price pass-through. |
| Keywords: | Inflation, wage indexation, inflation expectations, shortages, energy prices, food prices |
| JEL: | E31 E24 E37 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:202403-447&r=eec |
| By: | Ciccarelli, Matteo; Darracq Pariès, Matthieu; Priftis, Romanos; Angelini, Elena; Bańbura, Marta; Bokan, Nikola; Fagan, Gabriel; Gumiel, José Emilio; Kornprobst, Antoine; Lalik, Magdalena; Montes-Galdón, Carlos; Müller, Georg; Paredes, Joan; Santoro, Sergio; Warne, Anders; Zimic, Srečko; Rigato, Rodolfo Dinis; Kase, Hanno; Koutsoulis, Iason; Brunotte, Stella; Cocchi, Sara; Giammaria, Alessandro; Invernizzi, Marco; Von-Pine, Eliott |
| Abstract: | This paper takes stock of the ECB’s macroeconometric modelling strategy by focusing on the models and applications used in the Forecasting and Policy Modelling Division. We focus on the guiding principles underpinning the current portfolio of the main macroeconomic models and illustrate how they can in principle be used for economic forecasting, scenario and risk analyses. We also discuss the modelling agenda which is currently under development, focusing notably on heterogeneity, machine learning, expectation formation and climate change. The paper makes it clear that the large macroeconometric models typically developed in central banks remain stylised descriptions of our modern economies and can fail to predict or assess the nature of economic events (especially when big crises arise). But even in highly uncertain economic conditions, they can still provide a meaningful contribution to policy preparation. We conclude the paper with a roadmap which will allow the ECB and the Eurosystem to exploit technological advances and cooperation across institutions as a useful means of ensuring that the modelling framework is not only resilient to disruptive events but also innovative. JEL Classification: C30, C53, C54, E52 |
| Keywords: | economic models, forecasting, macroeconometrics, monetary policy |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2024344&r=eec |
| By: | Gundert, Hannah; Nicolay, Katharina; Steinbrenner, Daniela; Wickel, Sophia |
| Abstract: | Tax incentives are a key component of governments' investment policy mix as they directly impact companies' tax burden. In this paper, we illustrate the EU's tax attractiveness as investment location over time in terms of effective average tax rates and evaluate potential tax reform options. Our quantitative assessment of recent tax policies suggests that corporate tax rate cuts, notional interest deductions and R&D incentives reduce the effective average tax rate significantly. However, we argue that targeted measures such as accelerated depreciations and R&D incentives are most suitable for creating an attractive tax environment for business investments, especially in the context of the global minimum tax. |
| Keywords: | Mannheim Tax Index, effective tax rates, Devereux-Griffith methodology, globalminimum tax, tax incentives, investment, location attractiveness |
| JEL: | F21 F23 H25 K34 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:283587&r=eec |
| By: | Busch, Berthold; Sommer, Julian; Sultan, Samina |
| Abstract: | Spätestens seit dem russischen Angriffskrieg in der Ukraine und dem Beschluss, Beitrittsgespräche mit dem Land zu eröffnen, hat das Thema Erweiterung für die Europäische Union (EU) wieder deutlich an Bedeutung gewonnen. Die strategische Dimension einer Erweiterung tritt durch die geopolitische Lage in den Vordergrund. Durch eine Erweiterung könnte zudem der Binnenmarkt an Attraktivität gewinnen. Einhergehen mit der Erweiterungsdebatte muss aber stets auch die Frage nach der Erweiterungsfähigkeit der EU - und damit nach Reformen. Im Raum steht die Aufnahme von bis zu acht Ländern - neben der Ukraine wären dies Albanien, Bosnien Herzegowina, Georgien, Montenegro, Nordmazedonien, Serbien sowie die Republik Moldau. Dies hätte Veränderungen auf verschiedenen Ebenen zur Konsequenz. Dieser Report diskutiert die Folgen für die drei zentralen Institutionen der EU - Kommission, Rat und Parlament -und macht Reformvorschläge, um deren Arbeits- und Handlungsfähigkeit zu erhalten. Die Europäische Kommission würde gemäß der derzeitigen Regelung auf 35 Mitglieder wachsen. Es erscheint unwahrscheinlich, dass die Mitgliedstaaten auf ihr Recht, ein Kommissionsmitglied zu stellen, ganz oder zeitweise im Zuge einer Rotation verzichten werden. Daher erscheint eine stärkere Hierarchisierung der Kommission als die beste Option. Der Rat der EU entscheidet in den meisten Bereichen mit qualifizierter Mehrheit. Durch eine Erweiterung auf eine EU-35 könnte sich die wirtschaftliche Ausrichtung des Rates hin zu weniger wirtschaftlicher Freiheit verschieben. Dadurch würde es dem eher liberalen Block, zu dem auch Deutschland gehört, schwerer fallen, per Sperrminorität Entscheidungen zu verhindern oder per Mehrheitsbeschluss Entscheidungen durchzusetzen. |
| Abstract: | At the latest since the Russian war of aggression in Ukraine and the decision to open accession talks with the country, the topic of enlargement has once again become much more important for the European Union (EU). The strategic dimension of enlargement has come to the fore due to the geopolitical situation. Enlargement could also help to make the internal market more attractive. However, the enlargement debate must always go hand in hand with the question of the EU's capacity for enlargement - and thus for reform. The admission of up to eight countries is under discussion - in addition to Ukraine, these would be Albania, Bosnia and Herzegovina, Georgia, Montenegro, North Macedonia, Serbia and the Republic of Moldova. This would result in changes at various levels. This report discusses the consequences for the three central institutions of the EU - Commission, Council and Parliament - and puts forth recommendations for reforms to ensure their continued efficacy. With the current framework, the European Commission would expand to encompass 35 members. IGiven the unlikelihood of member states relinquishing their right to appoint a Commissioner, a more hierarchical structure within the Commission appears to be the most viable solution. The Council of the EU predominantly operates on a system of qualified majority voting in most domains. Enlargement to an EU-35 could shift the economic focus of the Council towards less economic freedom. This would make it more difficult for the more liberal bloc, to which Germany also belongs, to prevent decisions by blocking minority or to enforce decisions by majority vote. |
| JEL: | D02 F68 O52 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:285372&r=eec |
| By: | Andrés Rodríguez-Pose; Lewis Dijkstra; Hugo Poelman |
| Abstract: | While in recent times many regions have flourished, many others are stuck —or are at risk of becoming stuck— in a development trap. Such regions experience decline in economic growth, employment, and productivity relative to their neighbours and to their own past trajectories. Prolonged periods in development traps are leading to political dissatisfaction and unrest. Such discontent is often translated into support for anti-system parties at the ballot box. In this paper we study the link between the risk, intensity, and duration of regional development traps and the rise of discontent in the European Union (EU) —proxied by the support for Eurosceptic parties in national elections between 2013 and 2022— using an econometric analysis at a regional level. The results highlight the strong connection between being stuck in a development trap, often in middle- or high-income regions, and support for Eurosceptic parties. They also suggest that the longer the period of stagnation, the stronger the support for parties opposed to European integration. This relationship is also robust to considering only the most extreme Eurosceptic parties or to including parties that display more moderate levels of Euroscepticism. |
| Keywords: | discontent, Euroscepticism, development trap, economic growth, employment, productivity, regions, EU |
| JEL: | D72 R11 R58 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:2405&r=eec |
| By: | Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This paper analyses the relationship between working from home (WFH) and mental well-being at different stages during the first two critical years of the COVID-19 pandemic, when governments repeatedly imposed lockdowns and enacted WFH mandates to contain the spread of the virus. Using data from a representative survey conducted at four different time periods in 2020 (first lockdown, subsequent gradual reopening), 2021 (further lockdown) and 2022 (restrictions widely lifted) in the 27 EU member states, it examines the potentially changing role of several mediators over time, such as work-family conflict, family-work conflict, stability, resilience, isolation, the importance of different support networks, workload, physical risk of contracting COVID-19 at work, and housing conditions. For the first lockdown, it also differentiates by previous WFH experience, in terms of WFH novices and experienced WFH workers. It differentiates by gender, in order to take the potential gendered nature and effect of COVID-19 measures into account. The results show that while there was no direct relationship between WFH and mental well-being, there are several important mediators whose relevance was specific not only to certain stages of the pandemic, but also to previous experience with WFH and gender. Stability is the only mediator that was relevant over the entire two-year pandemic period. Work-family conflict and family-work conflict were only relevant during the first lockdown, while resilience and isolation mattered especially when most of the EU economies had lifted most of their restrictions. Unlike established WFH workers, WFH novices had an advantage during the first lockdown, benefiting from lower family-work conflict and more helpful networks of family and friends. Moreover, our results differ by gender for females who undertook WFH, important mediators were work-family conflict and family-work conflict. Both were related to adjustments they had to make in work and non-work hours in response to the enforced closure of schools and childcare facilities during the lockdowns, especially during the first. For males who undertook WFH, especially WFH novices, support from networks of family and friends was an important mediator. |
| Keywords: | working from home, mental well-being, COVID-19, structural equation modelling |
| JEL: | I10 I31 J81 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:244&r=eec |