nep-eec New Economics Papers
on European Economics
Issue of 2024–11–25
seventeen papers chosen by
Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico


  1. Fiscal consolidation and its growth effects in euro area countries: Past, present and future outlook By Philipp Heimberger
  2. Does Monetary Policy Influence Euro Area Fiscal Sustainability? By António Afonso; Francisco Gomes-Pereira
  3. The Role of Global Uncertainty in Shaping Trade Flow Relations: A Cross-Country Analysis for Europe By António Afonso; José Alves; Lucas Menescal; Sofia Monteiro
  4. The Persistence of Gender Pay and Employment Gaps in European Countries By António Afonso; M. Carmen Blanco-Arana
  5. Labor Market Policies in High- and Low-Interest Rate Environments: Evidence from the Euro Area By Povilas Lastauskas; Julius Stak\.enas
  6. Intangible Capital in France and Germany: Is there a Measurement Issue? By Nonnis, Alberto; Roth, Felix; Bounfour, Ahmed
  7. The Effect of Unconventional Fiscal Policy on Consumption -New Evidence based on Transactional Data By Winfried Koeniger; Peter Kress
  8. Natives Sorting and the Impact of Immigration on European Labor Markets By Michal Burzynski; Giovanni Peri
  9. Analysis of the Gender Gap in the Visegrád Group Countries Based on Luxembourg Income Study By Alina J?drzejczak; Kamila Trzci?ska
  10. Forecasting HICP package holidays with forward-looking booking data By Schnorrenberger, Richard; Schwind, Patrick; Wieland, Elisabeth
  11. Detecting Structural breakpoints in natural gas and electricity wholesale prices via Bayesian ensemble approach, in the era of energy prices turmoil of 2022 period: the cases of ten European markets By Panayotis G. Papaioannou; George P. Papaioannou; George Evangelidis; George Gavalakis
  12. Unslicing the pie: AI innovation and the labor share in European regions By Antonio Minniti; Klaus Prettner; Francesco Venturini
  13. After intra-EU BITs and the ECT, the EU needs to abandon extra-EU BITs: For legal, energy and climate policy, and political economy reasons By Brauch, Martin Dietrich; Mayr, Stefan; Luthin, Carl Frederick
  14. Renewable energy generation and financial market dynamics in Europe: a disaggregated approach By Bonga-Bonga, Lumengo; Kirsten, Frederich
  15. Inward FDI and regional performance in Europe after the Great Recession By Crescenzi, Riccardo; Ganau, Roberto
  16. The North Sea: Europe’s Energy Powerhouse By Hamza Mjahed
  17. European Grid Development Modeling and Analysis: Established Frameworks, Research Trends, and Future Opportunities By Qu, Chunzi; Bang, Rasmus Noss

  1. By: Philipp Heimberger
    Abstract: This paper is about fiscal consolidation measures (i.e. tax hikes and government spending cuts motivated by a desire to reduce the fiscal deficit and public debt) in euro area (EA) countries. The focus is on analysing the growth effects of fiscal adjustments as well as their implications for debt sustainability assessments. I discuss the size and composition of fiscal consolidation by distinguishing three periods: the run-up to the EA, when governments faced the Maastricht criteria for joining the monetary union (1992-1998); before and during the recession triggered by the global financial crisis (1999-2009); and the euro crisis (with a specific focus on the 2011-2013 period). The empirical evidence on the growth effects of fiscal consolidation shows that while fiscal adjustments are contractionary, the negative growth effects were particularly strong and persistent during the euro crisis. With regard to the austerity outlook, I show that, beginning in 2025, EA countries are set to implement fiscal consolidations over multiple years so as to meet reformed EU fiscal rules. The adjustment requirements for some member countries are large in historical comparison. The paper argues that the framework for debt sustainability analysis at the heart of the reformed EU fiscal rules downplays the domestic growth impacts of fiscal adjustments and ignores cross-country spill-overs that magnify domestic growth effects. In all likelihood, the reformed framework underestimates the negative growth effects of fiscal consolidation. I conclude that implementing the multi-year fiscal adjustments required to meet EU fiscal rules may not reduce public debt ratios across the EA's member countries, as the European Commission expects, and that the economic and political implications of austerity may complicate the governance of a fragile EA.
    Keywords: Fiscal policy, fiscal consolidation, fiscal multiplier, growth, public debt, euro area
    JEL: H30 H63 O47
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:imk:fmmpap:109-2024
  2. By: António Afonso; Francisco Gomes-Pereira
    Abstract: This paper studies the impact of monetary policy on fiscal sustainability in the euro area. Our sample includes 12 euro area countries and covers the period from 2003:Q1 to 2022:Q4. We extend a fiscal reaction function (Bohn’s rule) by including the monetary policy stance as an interaction term. Our findings are as follows: First, a contractionary (expansionary) monetary stance tends to lead to an increase (decrease) in the primary balance. Second, the ECB’s monetary policy stance significantly influences the fiscal reaction function coefficient. In other words, contractionary monetary policy induces a larger increase in primary balances in response to an increase in the debt-to-GDP ratio than if monetary policy was neutral or expansionary. Our findings suggest that expansionary monetary policy has the potential to help fiscal sustainability, and potentially mitigate fiscal fatigue. Conversely, contractionary monetary policy can exacerbate the fiscal effort required to satisfy the government intertemporal budget constraint.
    Keywords: monetary policy stance, fiscal sustainability, debt sustainability
    JEL: E52 E58 E63
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:ces:ceswps:_11266
  3. By: António Afonso; José Alves; Lucas Menescal; Sofia Monteiro
    Abstract: We examine the effects of World Uncertainty and Geopolitical Risk on Trade flows for 31 European economies between 1995 and 2023. To do so, we resort to Panel estimation techniques, including OLS and Poisson Pseudo Maximum Likelihood (PPML). Our findings reveal that European nations primarily respond to global uncertainty by concentrating their exports and imports among top trading partners particularly their top 5 highest trading partners. This result is more pronounced when uncertainty is driven by low-income countries. Moreover, there is a stronger relationship between imports and global uncertainty compared to exports. Our study underscores the importance of European economies strategically adapting their export and import approaches in response to these challenges.
    Keywords: geopolitical risk, world uncertainty, trade flows, international trade, European economies
    JEL: C23 E44 F14 F41 F62
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:ces:ceswps:_11401
  4. By: António Afonso; M. Carmen Blanco-Arana
    Abstract: The gender pay gap and the gender gap in employment remains persistent in Europe despite the basic assertion of gender equality under EU law. We assess the factors that influence the gender pay gap and gender employment gap across European countries. Therefore, we use an unbalanced panel of 31 European countries over the period 2000-2022, and estimate a system generalized method of moment model (GMM). The main conclusions confirm that tertiary education significantly reduces gender pay gap and part-time and temporary contracts significantly increase this gap. Moreover, part-time reduces significantly gender employment gap. Gross Domestic Product (GDP) per capita does not affect these gaps and the Global Financial Crisis (GFC) saw a narrowing of the gender pay and employment gaps in European countries. The results are robust when using a fixed effects (FE) model..
    Keywords: gender pay gap, gender employment gap, secondary education, tertiary education, part-time, temporary work, GMM, European countries
    JEL: J00 J16 C23
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:ces:ceswps:_11315
  5. By: Povilas Lastauskas; Julius Stak\.enas
    Abstract: Do labor market policies initiated in periods of loose monetary policy yield different outcomes from those introduced when monetary tightening prevails? Using data from 11 euro-area members up to 2010 -- and extending to 17 countries up to 2020 -- we analyze three labor market policies: replacement rates, spending on active labor market policies (ALMPs), and employment protection. We find that these policies deliver different macroeconomic outcomes in low- and high-interest rate environments. In particular, ALMPs reduce unemployment if implemented under a loose monetary policy but not otherwise, whereas higher employment protection delivers expansionary effects under a tight monetary policy. These findings highlight that the effectiveness of labor market policies is significantly influenced by the monetary policy environment, emphasizing the need for coordinated policy design. Methodologically, we contribute by proposing to average local projections using Mallow's $C_{p}$ criterion, allowing for inferences that are robust to mis-specification and accommodate non-linearities.
    Date: 2024–10
    URL: https://d.repec.org/n?u=RePEc:arx:papers:2410.12024
  6. By: Nonnis, Alberto; Roth, Felix; Bounfour, Ahmed
    Abstract: In this article, we highlight important differences in capital investment and capital stock in intangible assets between France and Germany, which we attribute to potential measurement issues between the two countries. Using data from the latest EUKLEMS/INTANProd release for the period between 1995 and 2020, we identify investment in software and databases, along with investment in organizational capital, as key drivers of these differences. Investment in software appears to be four times higher in France than in Germany, while organizational capital is about two and a half times larger in France. Given the comparable economic growth patterns of these two countries over recent decades, we believe these measurement discrepancies could have significant implications for understanding both past growth trends and future growth perspectives.
    Keywords: Intangible capital, Labour Productivity, Germany, France, EU
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:zbw:uhhhdp:18
  7. By: Winfried Koeniger (University of St. Gallen; CESifo (Center for Economic Studies and Ifo Institute); Center for Financial Studies (CFS); IZA Institute of Labor Economics; Swiss Finance Institute); Peter Kress (University of St. Gallen)
    Abstract: We use novel transaction-level card expenditure data to estimate the effect of the temporary value-added tax (VAT) cut in Germany 2020. We find that the annualized growth rate of expenditures for durables increased by 6 percentage points (pp) during the tax cut, with a particularly strong increase of up to 11 pp for consumer electronics. The expenditure growth rate for semidurables and non-durables did not change by and large. The estimates imply a consumption multiplier of 0.2 and an elasticity of fiscal revenues to a VAT rate reduction of two thirds.
    Keywords: Consumption expenditure, Transactional data, Temporary VAT cut, Unconventional fiscal policy
    JEL: D12 E21 E62 E65 H31
    Date: 2024–10
    URL: https://d.repec.org/n?u=RePEc:chf:rpseri:rp2458
  8. By: Michal Burzynski; Giovanni Peri
    Abstract: We analyze the implications of non-EU immigration for wage distribution and inequality among European workers, by focusing on their migration across local labor markets and within- and across-occupational mobility. To quantify the role of each channel, we build a multi-region, multi-occupation and multi-sector model of labor markets that replicates the regularities of labor mobility across spatial and occupational cells in Europe observed in the data. We find that non-EU immigration increases wages of the majority of European workers, while generating significant sorting across occupations (job upgrading) and inducing negative self-selection of natives into inactivity. The overall level of income inequality rises (especially the between-occupation component), fueled by natives’ mobility across jobs. The sorting of native workers across regions induced by immigration is of lesser importance for welfare and inequality, but shapes the spatial distribution of overall effects.
    Keywords: Immigration; Welfare; Sorting; Self-selection
    JEL: C68 J24 J31 J62
    Date: 2024–11
    URL: https://d.repec.org/n?u=RePEc:irs:cepswp:2024-09
  9. By: Alina J?drzejczak; Kamila Trzci?ska
    Abstract: Gender equality is one of the fundamental values of the European Union (EU). Great efforts have been made to defend this right and to promote gender equality within the member states and across the world. However, substantial income differences between men and women are still observed. There is a debated research issue regarding the methodology of measuring gender gap – the traditional methods based on comparing means and medians seem unsatisfactory as they do not consider the shape of income distributions. In the paper we propose a parametric approach for estimating the relative distribution, which enables comparing and visualizing the “gap” between the gender groups at each distribution quantile. Such an approach moves beyond the typical focus on average or median earnings differences, toward a full comparison of the entire distribution of women’s earnings relative to men’s. The focus of the present paper is on income distributions across four Central European countries: Poland, Slovakia, Czechia and Hungary, the members of the Visegrád Group (V4). These countries share a similar history and similar economic development, but there are substantial differences between the national approaches to economic reforms, including labour market policy. This, in turn, is reflected in different income distributions and income inequality patterns. The basis for the calculations was the microdata coming from the Luxembourg Income Study (LIS). The statistical methods applied in the study turned out to be relevant to describe the gender gap over the entire income range. The results of the empirical analysis helped to reveal similarities and substantial differences between the countries.
    JEL: C4 J16 D63
    Date: 2024–03
    URL: https://d.repec.org/n?u=RePEc:lis:liswps:878
  10. By: Schnorrenberger, Richard; Schwind, Patrick; Wieland, Elisabeth
    Abstract: Forecasting consumer prices for package holidays, which represent a major driver of the inflation rate in Germany, poses some practical challenges. With a substantial share in the underlying consumer basket, prices for package holidays exhibit strong seasonality, notable volatility, and methodological breaks. We present two modelling strategies for predicting this volatile component based on the unadjusted price series and the seasonally adjusted series. Moreover, we exploit the forward-looking dimension of high-frequency booking data to compile a price indicator that provides early signals about the underlying trend of the target series. Our forecasting exercise shows that accurate forecasts are obtained with a modelling strategy tailored to the seasonally adjusted target series, alongside precise projections of the future seasonal component. Finally, augmenting the forecasting model with the forwardlooking price indicator yields considerable gains that increase with the forecast horizon. Specifically, adding forward-looking information to the best-performing model increases the nowcast precision by 2.6% to 8% for short-term horizons of one to seven months, and the improvement exceeds 17% for longer horizons.
    Keywords: Inflation forecasting, consumer prices, seasonality, travel booking data
    JEL: E31 E37 C22 C53
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:zbw:bubtps:305277
  11. By: Panayotis G. Papaioannou; George P. Papaioannou; George Evangelidis; George Gavalakis
    Abstract: We investigate the impact of several critical events associated with the Russo Ukrainian war, started officially on 24 February 2022 with the Russian invasion of Ukraine, on ten European electricity markets, two natural gas markets (the European reference trading hub TTF and N.Y. NGNMX market) and how these markets interact to each other and with USDRUB exchange rate, a financial market. We analyze the reactions of these markets, manifested as breakpoints attributed to these critical events, and their interaction, by using a set of three tools that can shed light on different aspects of this complex situation. We combine the concepts of market efficiency, measured by quantifying the Efficient market hypothesis (EMH) via rolling Hurst exponent, with structural breakpoints occurred in the time series of gas, electricity and financial markets, the detection of which is possible by using a Bayesian ensemble approach, the Bayesian Estimator of Abrupt change, Seasonal change and Trend (BEAST), a powerful tool that can effectively detect structural breakpoints, trends, seasonalities and sudden abrupt changes in time series. The results show that the analyzed markets have exhibited different modes of reactions to the critical events, both in respect of number, nature, and time of occurrence (leading, lagging, concurrent with dates of critical events) of breakpoints as well as of the dynamic behavior of their trend components.
    Date: 2024–09
    URL: https://d.repec.org/n?u=RePEc:arx:papers:2410.07224
  12. By: Antonio Minniti (Department of Economics, University of Bologna); Klaus Prettner (Department of Economics, Vienna University of Economics and Business); Francesco Venturini (Department of Economics, University of Urbino)
    Abstract: We study how the development of Artificial Intelligence (AI) influences the distribution of income between capital and labor and how this, in turn, exacerbates geographic income inequality. To investigate this issue, we first build a theoretical framework and then analyze data from European regions dating back to 2000. We find that for every doubling of regional AI innovation, there is a 0.7% to 1.6% decline in the labor share, which may have decreased by between 0.20 and 0.46 percentage points from a mean of 52% due solely to AI. This new technology is particularly detrimental to high-skill and medium-skill labor. The impact on income distribution is driven by worsening wage and employment conditions for high-skill labor, and by wage compression for medium- and low-skill labor. The effect of AI is not driven by other factors affecting regional development in Europe, nor by the concentration process in the AI market.
    Keywords: Artificial Intelligence, patenting, labor share, European regions
    JEL: O31 O32 O34
    Date: 2024–10
    URL: https://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp369
  13. By: Brauch, Martin Dietrich; Mayr, Stefan; Luthin, Carl Frederick
    Abstract: After terminating intra-EU bilateral investment treaties (BITs) and withdrawing from the Energy Charter Treaty, the EU and its member states should terminate BITs with extra-EU partners. Extra-EU BITs risk undermining the autonomy of EU law, hinder EU energy and climate goals, and fail to establish balanced sustainable investment partnerships.
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:zbw:colfdi:305243
  14. By: Bonga-Bonga, Lumengo; Kirsten, Frederich
    Abstract: This paper adds to the existing body of research on the connection between renewable energy generation and financial market development. It does so by examining this relationship while differentiating between three types of financial market development: access, efficiency, and depth, and by categorizing renewable energy generation into three types: wind, solar, and hydroelectric energy. Additionally, the paper evaluates the mediating role of stock market capitalisation in the relationship between renewable energy and financial market development. Using panel two-stage least squares (2SLS) based on Lewbel's instrumental variable approach, the study concludes that wind energy generation is the most responsive to the various components of financial market development among European countries. The bootstrapping causal mediation analysis shows the significant mediating role of stock market capitalisation, particularly in the impact of financial market development on wind energy generation. These findings offer valuable insights for policymakers seeking to finance renewable energy projects in order to achieve Sustainable Development Goal 13.
    Keywords: renewable energy, financial market development, 2SLS, Lewbel, mediation
    JEL: C23 Q2 Q43
    Date: 2024
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:122461
  15. By: Crescenzi, Riccardo; Ganau, Roberto
    Abstract: This paper looks at inward foreign direct investment (FDI) and regional labour productivity in the aftermath of the Great Recession, exploring two FDI-induced effects. The first effect is linked with a capacity of FDI per se to trigger short-term productivity gains in response to a global shock. The second effect is associated with the degree of industrial diversification of these investment flows. The results suggest that it is not the amount of foreign investment received per se that matters for productivity recovery but its composition. A low degree of FDI diversification helped regions to gain productivity after the shock. The effect is stronger in regions with an industrial profile concentrated in a limited number of sectors, particularly in services. FDI can support regional recovery, but in the short run, it does so by matching and reinforcing existing regional specialisation profiles and to the benefit of services-oriented regions.
    Keywords: inward FDI; industrial profile; regional growth; European Union
    JEL: F20 R11 R12
    Date: 2024–10–23
    URL: https://d.repec.org/n?u=RePEc:ehl:lserod:125406
  16. By: Hamza Mjahed
    Abstract: The North Sea has been an important energy hub for many European countries for centuries. It is home to many natural resources, from oil and natural gas, to wind and wave energy, making it a powerhouse of energy production. In recent decades, the North Sea has seen significant investment in energy infrastructure and innovation, allowing many of these resources to be harnessed and used to supply energy to much of Europe. Furthermore, the North Sea has become more important for European energy security in the context of the volatility in global energy markets and European efforts to decouple from Russian fossil fuels. The North Sea is thus bound to play a vital role in the future of European energy security, with a large number of projects set to come online in the coming years, providing a significant boost to energy production.
    Date: 2023–02
    URL: https://d.repec.org/n?u=RePEc:ocp:pbecon:pb_09_23
  17. By: Qu, Chunzi (Dept. of Business and Management Science, Norwegian School of Economics); Bang, Rasmus Noss (SNF - Centre for Applied Research at NHH)
    Abstract: This paper presents a comprehensive survey of recent literature on European energy system modeling and analysis with special focus on grid development. Spanning the years from 2013 to 2023, we analyze 59 selected articles, organizing them by geographical scope, grid expansion strategies, research focus, and methodology. Additionally, we provide an overview of established and recurring frameworks, including ELMOD, EMPIRE, AnyMOD, LIMES, TIMES, FlexPlan, PyPSA, REMix, and Balmorel. Further, we elaborate on the recent trends in research and modeling. Based on our observations, we propose avenues for future research. For instance, considering recent changes in the geopolitical environment, we suggest shifting the geographical research focus from the North Sea region to the Central and Eastern European regions. Other suggestions include investigating grid development under imperfect market competition, merging the study of grid development with sector coupling, and increasing the focus on blue hydrogen, which appear to not receive much focus, as opposed to green hydrogen. Overall, this work may serve as a useful resource for newcomers to grid-related research and a practical guide for seasoned researchers in the field.
    Keywords: Grid expansion; Optimization; Model; Renewable energy; Development; Europe
    JEL: Q40 Q50
    Date: 2024–10–31
    URL: https://d.repec.org/n?u=RePEc:hhs:nhhfms:2024_011

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