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on European Economics |
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Issue of 2025–05–05
35 papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | António Afonso; Catarina Farinha Miranda |
| Abstract: | Through fiscal reaction functions, we investigate fiscal sustainability for five European country-group panels and check for a change in fiscal behaviour after countries adopted the euro as their currency. Using annual data for the period between 1990 and 2021, we identify evidence of average compliance with sustainability restrictions among Eurozone nations. However, for the Eurozone countries there is a smaller response, 0.046 percentage points (pp), to an increase in the debt ratio than in the case of the European economies without euro, where the response is around 0.1036 pp. Conversely, the euro membership has decreased the average responsiveness of primary balances to debt shocks as compared to the period before the implementation of the euro. |
| Keywords: | fiscal sustainability, debt, primary budget balance, fiscal reaction functions, euro area |
| JEL: | E62 H62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11749 |
| By: | Jost, Thomas |
| Abstract: | Mit der Abschaffung der D-Mark und der Einführung des Euro waren Hoffnungen verbunden, aber auch Befürchtungen, dass die neue Währung nicht so stabil wie die D-Mark sein könnte. Die D-Mark gehörte international über 50 Jahre zu den zwei Währungen mit den niedrigsten Inflationsraten. In diesem Beitrag wird die Entwicklung der Preise und der Kaufkraft in Deutschland in zwei gleich langen Perioden vor und nach der Euro-Einführung verglichen. Der Euro weist dabei sogar geringere durchschnittliche Inflationsraten, gemessen an den Verbraucherpreisen in Deutschland, als die D-Mark auf. In den Jahren 1999 bis 2020 herrschte weltweit ein günstigeres Inflationsumfeld, was es auch der Europäischen Zentralbank (EZB) leichter machte, ihr Preisstabilitätsziel zu verfolgen. Die ersten schweren Herausforderungen ergaben sich für die EZB seit 2021, als die Inflationsrate aufgrund negativer Angebotsschocks und einer beispiellosen Fiskalexpansion auf über 10% anstieg. Die Deutsche Bundesbank konnte in ähnlichen Krisen in den 1970er Jahren mit einer konsequenten Stabilitätspolitik den Preisauftrieb deutlich stärker und nachhaltiger bekämpfen als die meisten anderen Länder. Ein Erfolg, zu dem auch ihr hoher Grad der Unabhängigkeit von der Politik beitrug. Ob dies der EZB gelingt, bleibt abzuwarten. Anfang 2025 liegt die Inflationsrate im Euroraum und in Deutschland trotz einer tiefgreifenden Konjunkturschwäche mit 2, 5% noch immer über dem Inflationsziel von 2%. |
| Abstract: | The abolition of the D-Mark and the introduction of the Euro were associated with hopes but also fears that the new currency might not be as stable as the D-Mark. The D-Mark was one of the two currencies worldwide with the lowest inflation rates for over 50 years. This article compares the development of prices and purchasing power in Germany over two equally long periods before and after the introduction of the Euro in 1999. The Euro even had lower average inflation rates measured in terms of consumer prices in Germany than the D-Mark. Between 1999 and 2020, there was a more favorable inflation environment worldwide, which also made it easier for the European Central Bank (ECB) to pursue its price stability objective. The first serious challenge for the ECB arose since 2021, when the inflation rate sharply rose above 10% due to negative supply shocks and a strong fiscal expansion. In similar crises in the 1970s, the Deutsche Bundesbank was able to combat price increases much more strongly and sustainably than most other countries. The independence of Deutsche Bundesbank from politics contributed largely to its success. Whether the ECB will succeed in lowering inflation to its target level of 2% over the medium term remains to be seen. At the beginning of 2025, with 2.5 % the inflation rate in the Euro area and Germany is still above the inflation target of 2% despite a sustained economic weakness of the Euro area economies. |
| Keywords: | D-Mark, Euro, Inflation, Kaufkraft, Geldpolitik |
| JEL: | E31 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:hawdps:315754 |
| By: | António Afonso; José Alves; José Carlos Coelho; Jamel Saadaoui |
| Abstract: | We implement a two-step analysis of fiscal and external causality patterns using a data set covering the 27 EU countries in the period 2002Q1-2023Q4. In the 1st step, we compute fiscal and external sustainability time-varying coefficients, modelling the cointegration relationship between government revenues and government spending, and between exports and imports. In the 2nd step, we use three recursive strategies, combined with Granger causality tests: forward expanding, rolling, and recursive window methods to capture causal relationships. Our results show that: (i) peripheral countries have lower sustainability coefficients, while non-Eurozone countries have higher sustainability coefficients, (ii) after the 2008 global financial crisis, there was an improvement in fiscal and external sustainability for most countries, (iii) during the Eurozone crisis in 2010-2012, in Austria, France, Greece, Ireland, Netherlands, Slovakia and Spain, there was causality between fiscal and external sustainability, (iv) during that period, causality was observed between the external and fiscal sustainability in EMU countries (Austria, Germany, Malta, Netherlands, Slovakia, Slovenia, Spain) and in non-EMU countries. |
| Keywords: | fiscal sustainability, external sustainability, European Union, time-varying causality, lag-augmented vector autoregression |
| JEL: | C22 C23 F32 F41 H30 H62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11694 |
| By: | Bonnet Paolo (European Commission - JRC); Ciani Andrea (European Commission - JRC); Molnar Jozsef (European Commission - JRC); Nardo Michela (European Commission - JRC) |
| Abstract: | This report provides an in-depth analysis of the European Union's (EU) position in the global semiconductor industry. The analysis reveals that while the EU has long been a significant player in the global semiconducotor market, it faces challenges and dependencies that could impact its future competitiveness. The report examines the EU's trade dependencies, equipment ecosystem, and chips' market, identifying areas of strength and vulnerability. It also delves into the automotive sector, a key driver of the EU semiconductor demand, and highlights the complex and evolving nature of the automotive semiconductor supply chain. With the European semiconductor market projected to continue growing, this report provides valuable insights for policymakers and industry stakeholders seeking to strengthen the EU's position in the global semiconductor industry. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc141323 |
| By: | Lionel Fontagne (Paris School of Economics); Yoto Yotov (School of Economics, Drexel University) |
| Abstract: | We propose and construct novel measures of the effectiveness and potential of trade blocs, combining estimation with granular data and simulation with a New Quantitative Trade Model. We deploy our methods and new indexes to quantify the potential benefits from (i) further integration within the largest and most successful trade liberalization effort in the world – the Single European Market – and (ii) a possible enlargement. Three main results and implications stand out from our analysis. First, European integration has been very effective in promoting trade among its members, with heterogeneous effects across industries and member states. Second, and most novel and important, our estimates reveal that only half of the potential benefits from EU membership have been realized to date. Third, EU accession will generate very large gains from trade for the new joiners and moderate gains for existing members, with larger benefits for some small and peripheral EU members. Importantly, our methods enable us to construct confidence bounds for the effects of EU enlargement. |
| Keywords: | European Integration, Trade Costs, Trade Cost Efficiency, Single Market Potential |
| JEL: | F10 F14 F16 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202522 |
| By: | Guglielmo Maria Caporale; Luis Alberiko Gil-Alana |
| Abstract: | This note provides extensive evidence on the persistence properties of real GDP in 17 European countries and in the US over the period 1960-2023 using a fractional integration framework. The analysis suggests that in all cases shocks have permanent effects on the level of real GDP. This is consistent with the idea that it is the growth rate of output which is stationary and fluctuates around a long-run equilibrium level. Further, the degree of persistence varies across countries, with the US, Greece and Spain exhibiting the highest one and Sweden and Ireland the lowest. Policy makers should take such properties into account when formulating appropriate stabilisation policies. |
| Keywords: | real GDP, time series, persistence, fractional integration. |
| JEL: | C22 E23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11764 |
| By: | O'Connor, Kelsey J. (STATEC Research – National Institute of Statistics and Economic Studies) |
| Abstract: | The immigrant population increased by 32 million in 37 European countries from 1990-2019. Much of this movement was internal, from east to west Europe. Although both the destination and origin countries could be affected, we find no effects on aggregate subjective well-being in either group, using country-panel and instrumental variable techniques. Immigrants, in contrast, experienced increased well-being, converted to monetary terms, in excess of £25, 000 per person. We offer more comprehensive evidence than previous studies, in terms of country and period, and by assessing the impacts on subjective well-being, which captures all of the important factors affected by immigration. |
| Keywords: | life satisfaction, migrants, emigration, immigration, subjective well-being, Europe |
| JEL: | I31 J15 F22 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17816 |
| By: | Adolphsen, Ole; Könneke, Jule; Schenuit, Felix |
| Abstract: | With the Green Deal, the European Union (EU) has not only significantly increased the ambition of its climate policy in recent years, but it has also added an international dimension to European domestic climate policy. In fact, numerous recently adopted legal acts directly or indirectly affect international partners. Nevertheless, the internal and external dimensions of climate policy are not systematically interlinked in the new European Commission, and there is little strategic diplomatic support for the measures. In view of the increased importance of competitiveness and geopolitical constellations, there is an opportunity for a new strategy process. This could help EU institutions and member states coordinate the external dimension and achieve a meaningful advancement of European climate policy. |
| Keywords: | Green Deal, European climate policy, European Union (EU), European Commission, US President Donald Trump, competitiveness, geopolitical constellations, EU Commission President Ursula von der Leyen, Russia's invasion of Ukraine, European Parliament, Carbon Border Adjustment Mechanism (CBAM), Net Zero Industry Act (NZIA), Corporate Sustainability Due Diligence Directive (CSDDD) |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:315529 |
| By: | Jasper Siegfried (Lion’s Head Global Partners); Bernat Camps Adrogué (Lion’s Head Global Partners); Tay Drummond (Lion’s Head Global Partners); Mikaela Gavas (Center for Global Development); Laura Granito (Center for Global Development) |
| Abstract: | With increasing pressure on European development budgets, optimising the efficiency and impact of the European Union’s concessional finance is critical. This paper examines how the European Fund for Sustainable Development Plus (EFSD+) guarantee instrument can be strengthened to better support sustainable development in emerging markets. While the EFSD+ plays a key role in mobilising private capital, its complex structure, fragmented administration, and risk management limitations hinder effectiveness. Through a benchmarking analysis of major guarantee providers, financial modeling of the EFSD+ provisioning rates, and expert interviews, this paper identifies three key areas for improvement: (1) structural and operational efficiency, (2) impact and effectiveness, and (3) financial efficiency and risk management, advocating for data-driven provisioning and mechanisms to mitigate foreign exchange risks. By implementing these reforms, the EFSD+ can enhance its impact, ensure more strategic capital allocation, and improve financial sustainability, ultimately advancing the EU’s global development objectives. |
| Date: | 2025–04–29 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:ppaper:357 |
| By: | Marjan Petreski; Magdalena Olczyk |
| Abstract: | This study examines the impact of foreign direct investment (FDI) on job creation across 109 regions in the old EU member states from 2012 to 2023. Using dynamic and spatial econometric models combined with a unique dataset of FDI projects, we find that increased FDI inflows significantly enhance regional job creation, but the relationship is nonlinear. Sectoral specialization plays a crucial role, as more concentrated FDI inflows lead to higher employment growth. Furthermore, FDI-driven job creation exhibits significant spatial spillover effects. However, regions attracting high-value FDI jobs, such as those in R&D and management, tend to experience slower overall employment growth. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.23999 |
| By: | Beaufils, Timothé; Jakob, Michael; Kalkuhl, Matthias; Richter, Philipp M.; Spiro, Daniel; Stern, Lennart; Wanner, Joschka |
| Abstract: | • By reducing reliance on fossil fuels, EU climate policy substantially lowers Russia's financial strength, thereby limiting its military capabilities to sustain its aggression on Ukraine and beyond. • We provide estimates for the security dividend of EU climate policy. • A one-euro reduction in oil consumption in the EU results in a security dividend of 37 cents (central estimate). • Based on the security dividend alone, a significant carbon price (central estimate of 60 euros per ton of CO2) on oil consumption is justified - in addition to its climate, terms-of-trade, and local health benefits. • Ambitious EU climate policy that reduces demand for oil and natural gas should be seen as an important pillar of the European security architecture, complementing military spending, diplomatic efforts, and continued support to Ukraine. |
| Abstract: | • Durch die Verringerung der Abhängigkeit von fossilen Energieträgern kann die EU-Klimapolitik die Finanzkraft Russlands deutlich verringern und damit dessen militärische Fähigkeiten zur Fortführung der Aggression gegen die Ukraine und darüber hinaus einschränken. • Wir liefern Schätzungen für die Sicherheitsdividende der EU-Klimapolitik. • Eine Reduzierung des Ölverbrauchs in der EU um einen Euro führt zu einer sicherheitspolitischen Dividende von 37 Cent (zentrale Schätzung). • Allein auf der Grundlage der Sicherheitsdividende ist ein signifikanter CO2-Preis (zentrale Schätzung von 60 Euro pro Tonne CO2) auf den Ölverbrauch gerechtfertigt - zusätzlich zu den Vorteilen für Klima, Terms of Trade und lokale Gesundheit. • Eine ehrgeizige EU-Klimapolitik, die die Nachfrage nach Erdöl und Erdgas reduziert, sollte als wichtiger Pfeiler der europäischen Sicherheitsarchitektur gesehen werden, der Militärausgaben, diplomatische Bemühungen und die weitere Unterstützung der Ukraine ergänzt. |
| Keywords: | EU climate policy, Security dividend, Russia, Ukraine, Defense spending, Geopolitical externality, EU-Klimapolitik, Sicherheitsdividende, Russland, Ukraine, Verteidigungsausgaben, Geopolitische Externalität |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:315745 |
| By: | Buchetti, Bruno; Bouteska, Ahmed; Harasheh, Murad; Santon, Alessandro |
| Abstract: | The primary objective of this study is to explore the dynamic relationships between equity returns or volatility and sentiment factors in European markets during both the periods preceding the COVID-19 pandemic, the COVID-19 itself, and the Russia-Ukraine war. We achieve this by applying the network methodology initially introduced by Diebold & Yilmaz (2014), along with its extensions based on realized measures and generalized forecast error variance decomposition, as proposed by Baruník & Křehlík (2018) and Chatziantoniou et al. (2023). Additionally, we investigate how the global sentiment factor influences the overall connectedness index by employing a quantile-on-quantile approach, following the methods outlined by Sim & Zhou (2015) and Bouri et al. (2022). To conduct our analysis, we utilize daily-frequency data encompassing the period from January 1, 2011, to December 31, 2023, covering the entirety of the COVID-19 pandemic in 2020 and the Russia-Ukraine conflict in 2022 across six European stock indices. Our primary discovery is the interconnectedness of both returns and sentiment. Furthermore, our resultsindicate that during the COVID-19 and Russia-Ukraine war, there is a notable increase in volatility spillovers among the analyzed stock indices, driven by the heightened interconnectedness between stock market returns. JEL Classification: G11, G12, G14, G40 |
| Keywords: | COVID-19, dynamic spillover and connectedness, European financial markets, investor sentiment, Russia-Ukraine war |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253050 |
| By: | Hochmuth, Philipp (Oesterreichische Nationalbank); Krusell, Per (Stockholm University); Mitman, Kurt (Stockholm University) |
| Abstract: | The EU has embarked on an ambitious path toward climate neutrality. How difficult will this transition be for the population as a whole and different subsets of consumers? This paper investigates this question using a dynamic general equilibrium model that captures a key feature of energy consumption: the relative energy content in one's consumption basket falls significantly as a function of one's relative income. Thus, poorer consumers are expected to be hit harder by the higher energy prices that we anticipate over the next few decades. In the model, energy---a complementary input to capital and labor---can be produced either using fossil fuel or a "green'' technology. We represent the EU policy in terms of a tax on fossil fuel and show that the European Commission's Fit-for-55 package implies a 168% tax on the fossil-based technology. The output losses from this tax are substantial, and GDP is 9.3% lower in the new steady state. The burden falls primarily on the poor agent who is 50% more worse off than the rich agent. The output losses can be compensated for if the economy achieves a 1.49% annual increase in energy efficiency as outlined in the Fit-for-55 package. |
| Keywords: | inequality, green transition, Fit-for-55 |
| JEL: | E61 Q43 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17861 |
| By: | Czarnitzki Dirk; Confraria Hugo (European Commission - JRC) |
| Abstract: | It has been a long-standing debate whether Europe suffers from an innovation gap. Recent studies indicate a global decline in research and development (R&D) productivity across various sectors, raising concerns about the efficiency of innovation investments. New panel data from the EU Industrial R&D Investment Scoreboard allow examining long-term relationships between firm productivity and R&D. The results show that EU top R&D investors struggle more than their global counterparts to convert their R&D into new ideas and marketable products. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc141091 |
| By: | Fusillo Fabrizio; Manera Maria; Orsatti Gianluca; Quatraro Francesco; Rentocchini Francesco (European Commission - JRC) |
| Abstract: | Reducing uncertainty around critical raw materials (CRM) supply is a policy priority for the EU in view of their role for advanced carbon neutral and digital technologies. A new, AI based indicator is introduced to measure the exposure of inventive activities to critical raw materials, outperforming existing approaches by identifying CRM relevance even when not immediately evident. High exposure sectors, such as aerospace & defence and ICT services, intensify inventive efforts in response to CRM supply risk, indicating strategic shifts towards substitution and diversification. European regions differ significantly in CRM exposure: some areas (e.g. parts of France, Germany, Italy, and Scandinavia) show con-siderable hidden CRM based inventive activity. Firms in CRM exposed sectors adapt by both increasing their inventive efforts and seeking alternative inventive routes, suggesting that innovation can mitigate supply risk vulnerabilities. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc141261 |
| By: | J. Dunsmore; L. M. Arthur; R. S. Kemp |
| Abstract: | We estimate the variability of solar and wind energy generation potential in Europe over a 43 year period between 1980-2022 with the MERRA-2 reanalysis datasets. We compare the estimated supply potential to hourly demand data from 36 European countries to calculate the reliability of a highly renewable electricity grid in Europe. We find that in cost-optimised scenarios with onshore wind, solar and storage, but no natural gas, reliably meeting the last 1% of demand represents 36% of the entire system cost. Including small amounts of dispatchable natural gas drastically reduces the cost of a renewable, highly reliable grid: overall system costs fall by 31% when just 1% of total generation is permitted to come from natural gas. Large renewable overbuild factors (greater than $\times$4 peak demand) are required to meet modern grid reliability standards in all scenarios, and wind, rather than solar, dominates the generation mix. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.23604 |
| By: | Ansari, Dawud; Gehrung, Rosa Melissa; Pepe, Jacopo Maria |
| Abstract: | Central Asian economies, particularly Kazakhstan and Uzbekistan, are pursuing increasingly ambitious goals for renewable energy. Apart from China - an established player in the market - it has increasingly been Gulf countries that have been implementing respective projects, particularly Saudi Arabia and, to a lesser extent, the United Arab Emirates (UAE). Both China and Gulf countries seem to have found a cooperative approach that is based on sharing the Central Asian market along the value chain. This approach could be a blueprint for future Gulf-China relations, which have become relevant for global politics. Simultaneously, the dynamics also exemplify the growing number of energy and geopolitical dynamics over which Europe has little influence. For the European Union (EU) and Germany, the developments serve as a reminder: While intra-Asian dynamics are gaining importance, Germany and the EU risk being marginalised in matters concerning energy, climate, and geopolitics - and not just in Central Asia. In response, a more consistent Central Asia strategy is required, alongside a constructive and non-ideological approach towards relations with the Arab Gulf States. |
| Keywords: | Kazakhstan, Uzbekistan, China, Saudi Arabia, United Arab Emirates (UAE), EU, Germany, Central Asian market, Gulf-China relations, energy, geopolitical dynamics, ACWA Power Renewable Energy Holding, PowerChina, hydrogen, carbon capture and storage, climate technologies, fossil fuels, green energy |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:315531 |
| By: | Popova, Daria; Avram, Silvia; Irene, Rioboo |
| Abstract: | This study provides the first comparative analysis of how COVID-19 policy responses influenced gender income inequality across 28 European countries. Using a quasi-experimental approach that combines microsimulation and nowcasting techniques, we construct counterfactual scenarios to estimate the net effects of pandemic-related labor market shocks and government interventions on the incomes of women and men. By employing a gender-sensitive measure of disposable income, we address intra-household inequality often overlooked in distributional research. Our findings show that although both working age men and women experienced income losses in 2020, these were significantly mitigated by tax-benefit policies. Men, on average, benefitted more from furlough due to greater employment losses and higher pre-pandemic earnings, while women benefitted from the progressive design of other policy measures. On average, the ratio of women’s to men’s disposable incomes rose slightly, indicating a temporary narrowing of the gender income gap. These results highlight the equalizing role of expansive social protection during pandemic and underscore the importance of gender-aware policy analysis. |
| Date: | 2025–04–22 |
| URL: | https://d.repec.org/n?u=RePEc:ese:cempwp:cempa7-25 |
| By: | Calo, Adam; Kay, Sylvia; Moreau, Eliaz |
| Abstract: | Rethinking the regulation of land markets is central to the agroecological transition in Europe. The EU has bold, evidenced-based policy objectives for food system and environmental transformation. Yet, absent a parallel process for regulating land, these policy objectives will remain watered down or impossible to obtain. The EU has shown commitments to invest in environmental policy experimentation because it knows the future wellbeing of the continent depends on sound land use management. However, there is no parallel movement towards reimagining European land governance. This status quo imperils the EU green agenda and threatens the legitimacy of desperately needed environmental policy. Identifying enticing policy options to inspire new land governance can help fulfil existing EU sustainability commitments and open meaningful pathways to scale agroecology. This research first uses existing evidence from the literature to show how current European land markets—governed by the main freedoms of the EU treaties—weakens the capacity to achieve generational renewal, the vitality of rural areas, and land based biodiversity maintenance. Then we reveal existing and potential opportunities for European land market regulation. Through this analysis we argue that agricultural land is a blind spot in European policies for the transition to agroecology, and thus reframe land regulation as an enabling tool to install young and new farmers, facilitate biodiverse landscapes, and build durable rural economies. Measures like transparency in land markets, public acquisition of agricultural land, establishing a first right of refusal, and taxation to facilitate access to land may unlock land for a new generation of agroecological farmers. Exploration of these policy cases calls for an imaginative expansion of public action on land markets to tackle food system challenges, and is aimed directly at policy makers. |
| Date: | 2025–04–21 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:ajh4v_v1 |
| By: | Mr. Aleš Bulíř; Khyati Chauhan |
| Abstract: | No large European countries and only few small ones have met the so-called Bohn rule during the past 40 years or so. The Bohn rule specifies that past increases of public debt need to be systematically compensated with current and future fiscal surpluses to stabilize debt at some steady-state level. We find that post-1980 European fiscal primary balances have been driven by spending growth and consumption smoothing. The results change little between periods before and after the global financial crisis. |
| Keywords: | Fiscal sustainability; public debt; the Bohn rule |
| Date: | 2025–04–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/070 |
| By: | Florian Misch; Ben Park; Carlo Pizzinelli; Galen Sher |
| Abstract: | The discussion on Artificial Intelligence (AI) often centers around its impact on productivity, but macroeconomic evidence for Europe remains scarce. Using the Acemoglu (2024) approach we simulate the medium-term impact of AI adoption on total factor productivity for 31 European countries. We compile many scenarios by pooling evidence on which tasks will be automatable in the near term, using reduced-form regressions to predict AI adoption across Europe, and considering relevant regulation that restricts AI use heterogeneously across tasks, occupations and sectors. We find that the medium-term productivity gains for Europe as a whole are likely to be modest, at around 1 percent cumulatively over five years. While economcially still moderate, these gains are still larger than estimates by Acemoglu (2024) for the US. They vary widely across scenarios and countries and are sustantially larger in countries with higher incomes. Furthermore, we show that national and EU regulations around occupation-level requirements, AI safety, and data privacy combined could reduce Europe’s productivity gains by over 30 percent if AI exposure were 50 percent lower in tasks, occupations and sectors affected by regulation. |
| Keywords: | Artificial Intelligence; Productivity; Technology; Regulation |
| Date: | 2025–04–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/067 |
| By: | Kolasa, Marcin (International Monetary Fund); Laséen, Stefan (Monetary Policy Department, Central Bank of Sweden); Lindé, Jesper (Sveriges Riksbank and International Monetary Fund) |
| Abstract: | This paper provides a comprehensive assessment of the macroeconomic and fiscal impact of unconventional monetary tools in small open economies. Using a DSGE model, we show that the exchange rate plays a critical role to amplify the favourable impact of unconventional monetary policy while it attenuates the effectiveness of conventional fiscal policy to jointly boost output and inflation. We then use the model as a laboratory to do a case study of the Swedish Riksbank asset purchases and negative policy rates 2015-2019. We find that the Riksbank unconventional policy measures provided meaningful macroeconomic stimulus to economic activity and inflation, with the dual benefit of reducing overall government debt by about 5 percent of GDP. If conventional fiscal policy had been used to provide a commensurate output boost, inflation would have risen notably less, and the fiscal cost would have amounted to a deterioration of the government debt position with nearly 5 percent of GDP. |
| Keywords: | Monetary Policy; Asset Purchases; Quantitative Easing; Negative Interest Rate Policy; Fiscal Policy |
| JEL: | D44 E52 E58 E63 |
| Date: | 2025–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0450 |
| By: | Carranza, Rafael; Nolan, Brian; Bavaro, Michele |
| Abstract: | This paper investigates the intergenerational transmission of poverty and how it varies across thirty European countries using retrospective reports on childhood household circumstances from the 2019 EU-SILC ad hoc intergenerational module. Latent class analysis is employed as it allows all the available information to be incorporated to estimate current and childhood poverty with a minimum of structure imposed. For each generation, the two latent classes distinguished are seen to be distinct in terms of the prevalence of disadvantage. The intergenerational association between current and childhood poverty is assessed via transition matrices and summary mobility indices. This shows substantial variation in the extent and nature of intergenerational association across the countries covered, with a high degree of consistency between. Household income is not available for the parental generation but omitting it from the latent class model for current poverty made little difference to the country mobility rankings. |
| Keywords: | Poverty, mobility, intergenerational transmission, disadvantage |
| JEL: | D31 D63 O40 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:amz:wpaper:2025-07 |
| By: | Hötte, Kerstin; Koutroumpis, Pantelis; Theodorakopoulos, Angelos |
| Abstract: | Do automation-induced changes in labor and capital income undermine pub- lic revenues? Decomposing taxes by source (labor, capital, sales), we analyze the impact of automation on tax revenues and the structure of taxation in 19 EU countries during 1995-2016. Before 2007 robot diffusion was associated with a decline in total tax revenues and taxes from capital, along with decreasing labor and capital income and output. After 2008, the negative effects diminish. ICTs show a weak negative but persistent effect on total tax revenues and taxes on goods for the full period, and an increase in capital income. Overall, the impact of automation on production and taxation varies over time. Whether automation erodes taxation depends on the technology and stage of diffusion. Concerns about public budgets are myopic when focusing on the short-run and ignoring relevant technological trends. |
| Keywords: | Technological Change, ICT, Robots, Fiscal Revenues, Labor |
| JEL: | H2 O3 |
| Date: | 2023–05 |
| URL: | https://d.repec.org/n?u=RePEc:amz:wpaper:2023-10 |
| By: | Centeno Clara (European Commission - JRC); Cosgrove Judith (European Commission - JRC); Schulz Carola; Hüsing Tobias; Cuartas-Acosta Alexander |
| Abstract: | "This report provides the results of an analysis of the landscape of digital skills certification schemes in the EU which certify skills relevant to the European Digital Competence Framework for Citizens (DigComp). It has been carried out to contribute to the feasibility study of a European Digital Skills Certificate, in Action 9 of the Digital Education Action Plan 2021-2027. It also aims to support transparency in the field and comparability of digital skills certification services offered in the EU. The analysis (conducted from November 2022 to January 2023, with final validation with scheme owners completed in February 2025) has identified 27 relevant schemes operating in the EU, with services available in all EU countries, and reveals that the schemes show variations in many aspects. The report provides a comparative analysis of different characteristics of the various schemes, including organisational aspects, alignment to DigComp, services offered, technical and quality assurance aspects, adoption and impact. It also includes a fact sheet for each of the schemes analysed." |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139548 |
| By: | Isabella Gourevich |
| Abstract: | Key MessagesUkraine possesses confirmed reserves for two-thirds of the 34 raw materials classified as critical by the EU. Despite this geological richness, current extraction levels remain limited.The EU faces lower supply risks for raw materials currently mined in Ukraine than for those that remain part of the country’s untapped resource potential.Ukraine currently plays a minor role in EU raw material value chains. However, it is a potential future key partner in enhancing the EU’s resource security.Realizing Ukraine’s potential as a raw material supplier requires more than mining. Significant investment in downstream capabilities is essential to create integrated value chains.The EU must pursue a multi-pronged strategy: deepen partnerships with resource-rich and politically stable countries, expand domestic refining capacities, and accelerate recycling, substitution, and circular economy initiatives. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:econpb:_72 |
| By: | Johannes Hirvonen (Northwestern University); Aapo Stenhammar (University of Bonn); Joonas Tuhkuri (Stockholm University) |
| Abstract: | Industrial policies are widespread, but evidence on their workforce effects remains limited. We present novel evidence on the impact of EU technology subsidies on employment and skill demand in Finnish SMEs, 1994–2018. The subsidies fund new machinery, including robots and CNC machines. Comparing closely matched grant winners and losers, we find that receiving a grant increased employment without changing skill composition. Leveraging application text data and machine learning, we match firms, analyze their plans, and show that subsidies primarily supported expansion, such as launching new products, rather than automating work. In contrast, analysis of a broader sample of manufacturing firms outside the program reveals that IT investments are more strongly associated with skill upgrading than machinery investments, suggesting that different technologies may impact jobs differently. Our findings indicate that machinery grants can create opportunities for non-college-educated workers. |
| Keywords: | Industrial Policy, Subsidies, Technological Change, Labor Demand, Skills |
| JEL: | J23 J24 O33 O25 H25 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:2504 |
| By: | Giulia Canzian; Elena Crivellaro; Tomaso Duso; Antonella Rita Ferrara; Alessandro Sasso; Stefano Verzillo |
| Abstract: | The Covid-19 pandemic caused a global economic crisis, leading governments to provide substantial State Aid to support firms. This paper examines the effectiveness of Covid-related financial support in Spain and Italy, focusing on its impact on firm recovery. Using a difference-in-differences (DiD) approach combined with propensity score weighting, it compares outcomes of similar firms receiving aid to those without. The results show significant benefits for micro-firms, including mitigated turnover declines and increased investments in both tangible and intangible assets. The findings highlight the critical role of government support in business survival and recovery, especially for SMEs, during the pandemic. . |
| Keywords: | State aid, aid effectiveness, temporary framework, Covid, firm growth, investment, difference-in-differences |
| JEL: | D04 D22 L25 L52 P43 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2116 |
| By: | Karl Svozil |
| Abstract: | This paper identifies and analyzes six key strategies used to exploit the Eurosystem's financial mechanisms, and attempts a quantitative reconstruction: inflating TARGET balances, leveraging collateral swaps followed by defaults, diluting self-imposed regulatory rules, issuing money through Emergency Liquidity Assistance (ELA), acquisitions facilitated via the Agreement on Net Financial Assets (ANFA), and the perpetual (re)issuance of sovereign bonds as collateral. The paper argues that these practices stem from systemic vulnerabilities or deliberate opportunism within the Eurosystem. While it does not advocate for illicit activities, the paper highlights significant weaknesses in the current structure and concludes that comprehensive reforms are urgently needed. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.01051 |
| By: | MacKinnon, Danny; Amarouche, Maryame; Béal, Vincent; Cauchi-Duval, Nicolas; Franklin, Rachel S. (Newcastle University); Kinossian, Nadir; Lang, Thilo; Le Petit-Guerin, Mehdi; Leibert, Tim; Nafaa, Nora |
| Abstract: | For over a decade, concern has mounted about places in Europe and North America that have been ‘left behind’ by the growth and prosperity experienced in more economically dynamic regions. This briefing paper summarises the findings from the ‘Beyond Left Behind Places’ project. Filling a gap in the policy debate, this study included qualitative research with residents of economically ‘left behind’ regions in France, Germany and the UK to gather their experiences and perceptions. The qualitative research was focused on six case studies areas, two in each country. It aimed to give agency and voice to people living in ‘left behind’ areas and draw on their experiences and priorities to inform the development of locally tailored policy responses. The case studies were designed to explore residents’ employment activities and access to services, alongside their perceptions of their areas and of recent place-based policies. Based on our findings, we outline a set of directions and recommendations on policies ‘for’ and ‘with’ ‘left behind places. |
| Date: | 2025–03–03 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:5hfxm_v1 |
| By: | Alvaro Ortiz; Tomasa Rodrigo; David Sarasa; Pedro Torinos; Sirenia Vazquez |
| Abstract: | Using a panel data local projections model and controlling for firm characteristics, procurement bid attributes, and macroeconomic conditions, the study estimates the dynamic effects of procurement awards on new lending, a more precise measure than the change in the stock of credit. The analysis further examines heterogeneity in credit responses based on firm size, industry, credit maturity, and value chain position of the firms. The empirical evidence confirms that public procurement awards significantly increase new lending, with NGEU-funded contracts generating stronger credit expansion than traditional procurement during the recent period. The results show that the impact of NGEU procurement programs aligns closely with historical procurement impacts, with differences driven mainly by lower utilization rates. Moreover, integrating high-frequency financial data with procurement records highlights the potential of Big Data in refining public policy design. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.01964 |
| By: | Louison Duboz; Ioan Cristinel Raileanu; Jette Krause; Ana Norman-L\'opez; Matthias Weitzel; Biagio Ciuffo |
| Abstract: | The deployment of Automated Vehicles (AVs) is expected to address road transport externalities (e.g., safety, traffic, environmental impact, etc.). For this reason, a legal framework for their large-scale market introduction and deployment is currently being developed in the European Union. Despite the first steps towards road transport automation, the timeline for full automation and its potential economic benefits remains uncertain. The aim of this paper is twofold. First, it presents a methodological framework to determine deployment pathways of the five different levels of automation in EU27+UK to 2050 under three scenarios (i.e., slow, medium baseline and fast) focusing on passenger vehicles. Second, it proposes an assessment of the economic impact of AVs through the calculation of the value-added. The method to define assumptions and uptake trajectories involves a comprehensive literature review, expert interviews, and a model to forecast the new registrations of different levels of automation. In this way, the interviews provided insights that complemented the literature and informed the design of assumptions and deployment trajectories. The added-value assessment shows additional economic activity due to the introduction of automated technologies in all uptake scenarios. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.23914 |
| By: | D\'avid Csercsik; Borb\'ala Tak\'acsn\'e T\'oth; P\'eter Kotek; L\'aszl\'o \'A. K\'oczy; Anne Neumann |
| Abstract: | AggregateEU is a new centralised mechanism that provides a no-commitment platform to trade natural gas in the European Union. Throughout the consultation process, AggregateEU has been mocked as `Tinder of the European gas markets' as it helps consumers and suppliers to find partners, but leaves it up to the matched partners to decide whether or not to contract on the possible trade. The non-commitment nature leads to substantial overbidding and many non-realised matches. We propose a quantitative modelling framework to study the effect of overbidding in the AggergateEU demand aggregation or joint purchasing mechanism. We conclude that the mechanism is prone to overbidding and that overbidding has ambiguous effects on trade. Depending on the parameters, overbidding may facilitate trade, but may also result in highly inefficient outcomes when overbidding is combined with a miscoordination over the delivery points. Suggested remedies include allowing for convex bids, restrictions on overbidding, or giving up part of the non-binding character of the market. %Ideally, the traditional mechanisms of gas exchanges should be augmented by features of AggregateEU. Our results sugge |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.05269 |
| By: | Müller, Melanie; Strack, Lea; Vulović, Marina |
| Abstract: | In July 2024, the European Union (EU) and the Serbian government signed a strategic raw materials partnership. For the EU, this cooperation represents an important step towards diversifying its supply chains and strengthening economic partnerships in its neighbourhood. Serbian President Aleksandar Vuéci´c has a geopolitical interest in this cooperation, which he also wants to use to further consolidate his already extensive power domestically. The signing of the partnership agreement has triggered massive protests in Serbia. Critics fear that the implementation of the raw materials partnership could further undermine already fragile rule-of-law structures, as well as environmental and social standards. The case of Serbia illustrates that the EU can only exert limited influence on the country's authoritarian government in a geopolitically tense context. However, it must strategically use its available leverage to mitigate the existing risks. |
| Keywords: | Serbia, Aleksandar Vuéci´c, rule of law, sustainability, Europe's raw materials cooperation, Critical Raw Materials Act (CRMA), ESG (environmental, social, governance), Jadar Project, lithium, boron, German Mineral Resources Agency (DERA), Rio Sava |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:315536 |
| By: | Salih Bora (Centre for Security, Diplomacy and Strategy–VUB); Mary E. Lovely (Peterson Institute for International Economics); Luis Simón (Centre for Security, Diplomacy and Strategy–VUB; Elcano Royal Institute) |
| Abstract: | Heightened concerns about China's exports have intensified competitive pressures on producers and compelled American and European policymakers, government officials, and political leaders to try to counteract those concerns. President Donald Trump's decision to raise tariffs on China by 145 percent is the most recent--and arguably most dramatic--example of broader concerns about Chinese overcapacity. The clash with China is particularly evident in sectors that US and European leaders have deemed essential for growth and security, charging that Chinese industrial subsidies, rather than comparative advantage, are the basis for the country's export success. However, the European Union and the United States have taken different approaches to resolve tensions with China. The European Union seeks, at least for now, to preserve and adhere to global trading rules. By contrast, the United States has acted unilaterally (even before the second Trump administration) to defend its domestic production by engaging in a trade confrontation with China that, together with China's retaliation, has rattled global financial markets. This Policy Brief explores these EU-US divisions, their reflection on trade and industrial policy, and prospects for coordinated action against Chinese overcapacity. The authors argue that the European Union can take the lead toward a resolution within the rules-based system while maintaining an open door to future US participation. This Policy Brief has been copublished with the Centre for Security, Diplomacy and Strategy–VUB. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:iie:pbrief:pb25-2 |