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on European Economics |
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Issue of 2026–02–09
fifteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Battistini, Niccolò; Neves, Pedro |
| Abstract: | This paper develops a novel empirical framework to analyse the drivers of business expectations in the euro area. Using harmonised data from the European Commission’s business surveys for manufacturing, services, and construction, we build composite business expectations indices (BEI) for activity and prices. These composite BEI exhibit strong predictive power for near-term real GDP growth and GDP deflator inflation. To identify the underlying forces shaping expectations, we estimate sector-specific structural Bayesian vector autoregression models, combining responses on expectations and reported limits to production. According to the results, demand-side shocks, notably product demand and financial conditions, account for the bulk of fluctuations in business expectations, with heterogeneous effects across sectors. Supply-side shocks, notably materials supply and labour conditions, play a significant role in driving price expectations, especially during the post-pandemic inflationary period. Our results demonstrate the value of a granular survey-based modelling approach for real-time economic analysis and policy assessment. JEL Classification: C11, E10, E60 |
| Keywords: | business surveys, euro area, firms’ expectations, structural Bayesian VAR model |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263179 |
| By: | Aldasoro, Iñaki; Gambacorta, Leonardo; Pal, Rozalia; Revoltella, Debora; Weiss, Christoph; Wolski, Marcin |
| Abstract: | This paper provides new evidence on how the adoption of artificial intelligence (AI) affects productivity and employment in Europe. Using matched EIBIS-ORBIS data on more than 12, 000 non-financial firms in the European Union (EU) and United States (US), we instrument the adoption of AI by EU firms by assigning the adoption rates of US peers to isolate exogenous technological exposure. Our results show that AI adoption increases the level of labor productivity by 4%. Productivity gains are due to capital deepening, as we find no adverse effects on firm-level employment. This suggests that AI increases worker output rather than replacing labor in the short run, though longer-term effects remain uncertain. However, productivity benefits of AI adoption are unevenly distributed and concentrate in medium and large firms. Moreover, AI-adopting firms are more innovative and their workers earn higher wages. Our analysis also highlights the critical role of complementary investments in software and data or workforce training to fully unlock the productivity gains of AI adoption. |
| Keywords: | Artificial intelligence, firm productivity, Europe, digital transformation |
| JEL: | D22 J24 L25 O33 O47 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eibwps:335876 |
| By: | Hildebrand, Philipp; Rey, Hélène; Schularick, Moritz |
| Abstract: | • Europe must urgently strengthen its defence capabilities and secure strategic autonomy to avoid vulnerability to external pressures. • The proposal outlines a European Future of Defence Architecture focusing on next generation military technologies and strategic enablers (like AI, cyber, and satellites) which have a distinct European dimension and are inefficient at the national level. • Financing requires a joint approach through the issuance of European Future of Defence Bonds (with joint and several liabilities) to minimize costs. This joint financing is a critical step toward the emergence of a European safe asset. • The governance structure relies on an intergovernmental treaty among a coalition of willing EU countries (the European Team). It proposes Steering Committees for both Defence/Technology and Financing, with the financing mechanism possibly housed within an amended ESM structure. • A suggested spending profile involves a 1% of GDP annual catch-up phase for 10 years, potentially totaling 1.8 tn to 2 tn (depending on the team size). This debt would be stabilized thereafter by member country fiscal resources. |
| Abstract: | • Europa muss seine militärischen Fähigkeiten substanziell ausbauen und seine strategische Handlungsfähigkeit stärken, um die Abhängigkeit von externen Akteuren zu reduzieren. • Dieser Vorschlag skizziert eine europäische Verteidigungsarchitektur der Zukunft, die auf Militärtechnologien der nächsten Generation sowie strategische Enabler wie KI, Cyber und Satelliten setzt - Bereiche, in denen eine europäische Zusammenarbeit effizienter ist als nationale Lösungen. • Die Finanzierung erfordert einen gemeinsamen Ansatz über die Emission von gemeinsamen Anleihen zur Finanzierung der Europäischen Verteidigung mit gesamtschuldnerischer Haftung, um die Finanzierungskosten zu senken. Ein solches Instrument wäre ein wesentlicher Schritt hin zu einem sicheren europäischen Anleihemarkt (safe asset). • Die Governance-Struktur sollte auf einem zwischenstaatlichen Vertrag einer Koalition williger EU-Mitgliedstaaten ("Team Europa") basieren. Vorgesehen sind Lenkungsausschüsse für Verteidigung/Technologie sowie für Finanzierung; letzterer könnte in eine reformierte ESM-Struktur integriert werden. • Das vorgeschlagene Ausgabeprofil sieht über zehn Jahre ein Ausgabevolumen von 1 % des BIP vor, was 1, 8 bis 2 Billionen € (abhängig von der Größe des "Team Europa") entspricht. Diese Schulden würden danach durch die Haushaltsmittel der Mitgliedsländer stabilisiert. |
| Keywords: | Defence spending, governance, resilience, Verteidigungsausgaben, Governance, Resilienz |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:335873 |
| By: | Dolphin, Geoffroy; Ferrucci, Gianluigi |
| Abstract: | The EU Carbon Border Adjustment Mechanism (CBAM) came into force on 1 October 2023, introducing reporting requirements for importers of covered products and, from 2026, an obligation to pay a fee on the carbon content of imported goods. This paper uses indices of ad valorem tariffs to assess the incidence of the EU CBAM on both EU member states and the EU’s trading partners. Overall, the direct impact on EU countries’ trade is estimated to be small, adding 0.1 percent to the value of EU imports when averaged across all imports, and 0.04 percent to the average cost of non-EU countries’ exports to the EU—with a maximum of 1.2 percent. However, effects could be sizeable for specific products such as iron, steel and aluminium, which can help explain CBAM’s political salience. Moreover, an expanded CBAM featuring full coverage of ETS sectors, and a significantly higher carbon price could entail larger costs in the more distant future. JEL Classification: F13, F64, Q54, Q56 |
| Keywords: | carbon leakage, carbon taxation, emissions trading, trade policy |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263177 |
| By: | Samkova, Mascha |
| Abstract: | This paper employs a novel approach in applying the cheap talk signalling game to study the EU accession game of the 10 Central and Eastern European states that joined the European Union in 2004 and 2007. The interdisciplinary application of a Bayesian game to international relations reveals the strategic interactions between the Union and applicant states in the light of the Copenhagen criteria and the unprecedented challenges countries faced during the post-Communist transition since 1989. The paper first presents the historical background about the EU accession process, debates on EU conditionality and existing game-theoretical approaches, before presenting the timeline and data on accession and reform speed of applicant states from 1989 to 2007. The model applies a signalling game to the negotiations process where the European Commission’s annual progress reports are seen as costless, unverifiable and observable signals to the applicant states about their final EU accession speed. It is demonstrated that possible equilibria outcomes can be uninformative or informative, depending on the players’ divergence of interests with regards to reform speed. Furthermore, the model is used to explain the outcomes seen in three ex-post case studies, taking into account additional domestic and external factors that shaped the varying outcomes of accession and reform speeds in the two EU enlargement waves in the 2000s. |
| Date: | 2026–02–03 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:43bwe_v1 |
| By: | António Afonso; José Alves; Frederico Silva Leal |
| Abstract: | Using quarterly data for the period Q1:2000–Q4:2024, the study examines whether elections in EU-27 member states shape the composition and timing of fiscal policy strategies, and how political, fiscal and institutional constraints condition these dynamics. Employing a two-way fixed-effects framework, we find evidence that elections consistently lead to increases in primary expenditure. These effects are visible across several components, namely compensation of employees, intermediate consumption, gross fixed capital formation, and other primary expenditure. Using alternative electoral windows reveals that some adjustments begin before the electoral year, particularly in the case of GFCF and other primary expenditure, suggesting medium-term planning of politically salient spending. Importantly, these patterns emerge only around regular elections, with no evidence of political budget cycles in early elections. In addition, high-debt countries tend to adopt more restrictive electoral strategies, EU membership moderates pre-electoral spending, and coalition governments appear to impose additional fiscal discipline during election periods. Overall, the findings indicate that political budget cycles persist in the European Union, but their magnitude and composition depend critically on fiscal conditions, institutional frameworks, and governance structures. |
| Keywords: | Political Budget Cycles, Fiscal Policy, Elections, European Union. |
| JEL: | D72 E62 H60 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp04052026 |
| By: | Joana Sousa-Leite |
| Abstract: | This paper studies how banks’ balance sheets before the negative interest rate policy (NIRP) shaped credit supply and loan pricing around the ECB’s first move into negative territory in June 2014. We identify heterogeneous credit responses by comparing the lending decisions of different banks lending to the same firm. We find that banks with higher reliance on deposit funding prior to NIRP contract credit supply and cut loan rates more over the subsequent months, consistent with deposit rate rigidity and banks’ funding structure shaping the adjustment of both credit supply and loan pricing when policy rates turn negative. In contrast, banks with stronger liquidity positions expand credit more and cut loan rates less, suggesting that securities holdings provide a buffer that supports lending under negative policy rates. The effects on lending volumes are concentrated among ex-ante safer firms, indicating that balance sheet constraints primarily operate through credit reallocation towards borrowers with greater access to alternative funding sources. |
| Keywords: | monetary policy, negative interest rate policy, bank lending channel, deposits channel, portfolio rebalancing. |
| JEL: | E50 E52 E58 G21 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp04042026 |
| By: | Kristijan Kozheski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Trajko Slaveski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Predrag Trpeski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Kristijan Kozheski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Borce Trenovski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Gunter Merdzan (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia) |
| Abstract: | Purpose The study aims to examine the rationale, structure, and effectiveness of labor market measures and policies in Central and South-Eastern European (CSEE) countries, with particular attention to the post-transition challenges that have shaped their labor market dynamics. It highlights the critical role of Active Labor Market Policies (ALMPs) in enhancing employability, reducing structural unemployment, and fostering long-term socio-economic inclusion through targeted interventions addressing skill mismatches and persistent unemployment. Design/methodology/approach The research applies a comparative analytical approach, combining theoretical insights from labor economics with empirical evidence drawn from policy evaluations and statistical indicators for selected CSEE countries. The analysis categorizes labor market policies into six main groups—public employment services, training programs, employment incentives, direct job creation, entrepreneurship promotion, and financial support for the unemployed—and evaluates their scope, design, and institutional effectiveness across differing economic contexts. In addition, the empirical strategy employs a dynamic panel-data GMM estimator to identify causal effects while addressing endogeneity, unobserved heterogeneity, and potential serial correlation. Findings The findings reveal that the efficiency and sustainability of labor market policies in Central and South Eastern European (CSEE) countries are largely contingent upon institutional quality, policy coordination, and fiscal capacity. Well-targeted active labor market policies (ALMPs)—particularly training programmes and employment incentives—have demonstrated measurable impacts in reducing long-term and youth unemployment (Kluve, 2006; Hijzen and Venn, 2011). In contrast, direct job creation and financial support measures tend to yield only transitory effects unless integrated with active reintegration strategies and skill development initiatives (Card et al., 2018). The temporal analysis of labor market policy expenditures from 2004 to 2022 identifies distinct phases shaped by post-transition economic transformation, EU accession processes, and exogenous shocks such as the 2008 global financial crisis and the COVID-19 pandemic. During periods of heightened macroeconomic instability, particularly in 2009–2010 and again in 2020–2021, governments in the region expanded ALMP spending through wage subsidy schemes and job retention programs (Hijzen and Venn, 2011). However, the subsequent withdrawal of emergency measures and the re-emergence of fiscal constraints reveal a persistent reliance on reactive, crisis-driven interventions. This contrasts with the more structurally embedded, long-term human capital and productivity strategies observed in advanced EU member states (Card et al., 2018). The findings thus underscore the importance of transitioning toward forward-looking labor market policies that are institutionally grounded, fiscally sustainable, and aligned with broader goals of inclusive and resilient economic growth. Figure 1: Total Expenditures on Labor Market Policies and Measures in Selected Central and Eastern European Countries (in million EUR) (Source: EUROSTAT) The data presented in Table 2 indicate pronounced differences in the distribution of total labor market policy expenditures among the selected Central and South Eastern European countries during the period 2004–2022. Poland consistently dominates the expenditure structure, accounting for between 41.5% and 59.3% of total spending, reflecting both the size of its economy and its long-standing strategic commitment to improving labor market performance and reducing unemployment. Hungary follows with an average share of approximately 15%, although its expenditure dropped sharply to 7.3% in 2020 due to temporary fiscal adjustments and programme restructuring during the COVID-19 pandemic, before recovering in 2022. The Czech Republic ranks third, recording a 23% share of total expenditures in 2022, while Romania and Bulgaria exhibit notably low and declining spending levels, with Romania’s share falling from 8.1% in 2005 to only 1.3% in 2020, suggesting limited fiscal support and weak institutional capacity. Slovenia maintains a relatively stable share of around 4–5%, indicating consistent but modest financing, constrained by its smaller economic base. Croatia, included in the later years of observation, recorded a substantial increase in expenditure in 2020, driven primarily by emergency job-retention programmes introduced during the pandemic. Overall, the data from Table 2 demonstrate that countries with stronger institutions and greater fiscal capacity, such as Poland and the Czech Republic, sustain higher and more stable levels of labor market policy spending, while those with weaker institutional frameworks, such as Romania and Bulgaria, remain constrained by low and fragmented investment in labor market interventions. Table 1: Share of Selected Central and Eastern European Countries in Total Expenditures on Labor Market Measures and Policies (in %) Country 2005 2010 2015 2020 2022 Bulgaria 3, 0 2, 6 3, 6 4, 3 6, 2 Romania 8, 1 9, 3 4, 2 1, 3 Slovenia 3, 8 5, 4 4, 2 5, 4 4, 3 Croatia 4, 8 7, 7 Czechia 9, 3 13, 0 14, 6 15, 7 23, 0 Poland 59, 3 45, 7 44, 9 50, 0 41, 5 Hungary 12, 1 16, 4 17, 8 7, 3 12, 0 Slovakia 4, 4 7, 7 6, 0 8, 3 13, 0 (Source: ILO STAT) The data presented in Table 3 illustrate significant variation in the allocation of expenditures across distinct categories of active labor market measures (ALMMs) in the selected Central and South Eastern European (CSEE) countries over the period 2004–2022. The largest proportion of spending is consistently directed toward employment incentives, which peaked in 2020 at EUR 3, 670.26 million and remained elevated in 2021. This trend reflects the widespread implementation of wage subsidy schemes and job-retention programmes introduced as emergency fiscal responses to mitigate mass layoffs and labor market disruptions caused by the COVID-19 pandemic. Expenditures on services provided by public employment institutions also constitute a substantial share of total spending, displaying steady growth from EUR 521.57 million in 2005 to EUR 862.31 million in 2022. This pattern suggests continued institutional investment in employment mediation, counselling, and job placement support. In contrast, spending on training and skills development programmes has declined markedly, from EUR 564.99 million in 2008 to just EUR 86.6 million in 2022, indicating a reduced and inconsistent emphasis on long-term strategies for human capital enhancement. Meanwhile, expenditures for direct job creation and support for self-employment exhibit cyclical dynamics, with noticeable increases during crisis periods—particularly in 2010 and 2020—underscoring their role as short-term countercyclical instruments rather than components of a sustained developmental agenda. Overall, the evidence from Table 3 suggests that active labor market policy in the region remains primarily oriented toward short-term labor market stabilization, while structural interventions aimed at improving skills, fostering entrepreneurship, and enhancing long-term labor market resilience receive comparatively limited and inconsistent financial prioritization. Table 2: Expenditures by Categories of Active Labor Market Measures in Selected Central and South Eastern European Countries, 2004–2022 (in million EUR) Year Services Provided by Public Labor Market Institutions Training and Skills Development Programmes Employment Incentives Direct Job Creation Incentives for Starting One’s Own Business 2005 521, 57 341, 21 282, 19 314, 16 434, 37 2006 645, 79 387, 55 291, 73 319, 21 447, 24 2007 701, 49 421, 61 381, 2 313, 88 533, 55 2008 758, 92 564, 99 417, 52 342, 38 653 2009 716, 66 252, 92 708, 62 456, 42 959, 84 2010 735, 26 292, 91 1062, 18 660, 4 1132, 33 2011 762, 37 147, 07 648, 12 376, 15 849, 89 2012 766, 07 147, 55 680, 57 622, 52 641, 8 2013 753, 08 167, 01 829, 68 882, 92 599, 33 2014 802, 68 169, 42 918, 92 977, 38 543, 58 2015 782, 65 149, 19 943, 17 1091, 39 513, 27 2016 755, 16 120, 63 903, 9 1114, 92 488, 38 2017 799, 67 130, 04 873, 21 1014, 93 490, 37 2018 753, 97 145, 15 811, 52 748, 26 472, 45 2019 858, 15 123, 5 707, 75 683, 09 484, 53 2020 883, 38 88, 71 3670, 26 495, 88 676, 59 2021 835, 29 71, 85 2577, 58 511, 61 522, 87 2022 862, 31 86, 6 691, 03 422, 33 573, 75 (Source: ILO STAT) The results of the econometric analysis indicate that among all categories of active labor market measures, the most substantial and statistically significant positive effect on employment in Central and South Eastern European countries is associated with services provided by public labor market institutions. A 10% increase in fiscal spending on such services is estimated to raise the employment rate by 0.2%, underscoring the critical role of institutional support, including counselling, job matching, and individualized assistance, in facilitating workers’ integration into the labor market. Conversely, training and skills development programmes display a statistically significant negative relationship with employment, reflecting their limited efficiency, low participation rates, and insufficient alignment with labor market needs, particularly in countries such as Bulgaria and Romania, where training initiatives often remain formalistic and poorly connected to employer demand. Employment incentives, in contrast, exhibit a positive and significant effect, where a 10% increase in fiscal incentives is expected to raise employment by 0.1%, confirming their relevance as short-term activation tools. The strongest effect, however, is observed for direct job creation measures: a 10% rise in related expenditures increases employment by an estimated 0.4%, suggesting that these interventions are particularly effective during crises, albeit with limited long-term sustainability. Measures promoting self-employment show a negative and significant impact, indicating structural weaknesses such as weak entrepreneurial ecosystems, regulatory uncertainty, and inadequate institutional support. Overall, the findings suggest that the effectiveness of labor market measures across the region is strongly contingent upon the institutional capacity and operational efficiency of public employment services. Countries with well-developed and adaptable institutions achieve higher and more sustained employment outcomes, while those with fragmented systems and limited fiscal resources face persistent challenges in reducing unemployment and enhancing human capital. Table 3: Expenditures by Categories of Active Labor Market Measures in Selected Central and South Eastern European Countries, 2004–2022 (in million EUR) Dynamic Panel Data Estimation Results (Arellano-Bond GMM) Number of observations = 132 Number of countries = 8 Instruments (total) = 10 Wald X2 (4) = 29346 Prob > X2 =0.000 Dependent variable: employment Variable Coefficient Robust. Std. Err. L1.employment .9304527*** .063456 services 0.0229 *** 0.0041 training -0.0179 ** 0.0029 empl_incentives 0.0109* 0.0017 job_creation 0.0384 ** 0.0049 start_up -0.0233 *** 0.0070 out_work 0.0011 0.0011 _cons 49.9130 *** 0.4950 Significance levels: *** p |
| Keywords: | Labor market policies, Employment incentives, Active labor market measures, Institutional capacity, Central and South Eastern Europe |
| JEL: | J08 J21 J68 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:aoh:conpro:2025:i:6:p:273-278 |
| By: | Benink, Harald (Tilburg University, School of Economics and Management); Murawski, Sara; Sanders, Mark |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiutis:0fbddcd1-03c8-41b6-bce5-ba4301aafd3f |
| By: | Nguyen, Hang T. T. |
| Abstract: | This paper investigates the relationship between corporate income tax rates (CITR) and firm-level productivity growth using AMADEUS data of 304, 410 observations from 79, 842 European firms from 2006 to 2019. The results imply a robust non-linear relationship: higher CITRs are positively associated with productivity growth for high-productivity firms near the technological frontier and negatively associated with the productivity catch-up of less productive firms. Heterogeneity tests suggest a stronger productivity response to tax rate changes of small and medium-sized enterprises (SMEs) and domestic firms, while I do not find a significant productivity response to tax rate changes for large and multinational firms. The main findings are robust across various productivity estimation methods and model specifications and challenge the conventional view that higher business tax rates have a linear and negative effect on productivity growth. The paper contributes to the ongoing debate about the role of corporate taxation in shaping economic competitiveness and long-term growth. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:335901 |
| By: | Zhiwu Hong (China University of Political Science and Law); Linlin Niu (Xiamen University) |
| Abstract: | This paper examines how the Russia-Ukraine geopolitical risk (GPR) transmits to Eurozone sovereign bond yields using an affine macro-finance yield net model. We find GPR shocks raise inflation expectations immediately with significance and persistence, subsequently lifting sovereign yields most sharply at the medium term, explaining about 30\% of yield variation at a five-year horizon. Surprisingly, transmission is strongest in fiscally robust members, not high-debt countries. This pattern aligns with national commitments to Ukraine, revealing that direct fiscal engagements---enabled by their fiscal space---drive risk pricing, underscoring the monetary-fiscal trade-offs facing policymakers under geopolitical stress. |
| Keywords: | Geopolitical risk; Eurozone; Sovereign risk premia; Fiscal exposure; Affine term structure models |
| JEL: | C32 E31 E43 F51 G15 |
| Date: | 2026–01–28 |
| URL: | https://d.repec.org/n?u=RePEc:wyi:wpaper:002614 |
| By: | Olteanu, Dan Constantin (Romanian Academy, National Institute of Economic Research) |
| Abstract: | This study provides a comparative analysis, for the European countries, of how the volume and structure of public debt have evolved during the pandemic and in the following years. We will study the trend of public debt share in government revenues, the dynamics of public debt structure by financial instruments and maturity, the evolution of external and foreign currency public debt, the interest expenditures and the apparent cost of debt. The analyses show a substantial accumulation of debt in the EU27, with an average rate of over 6% in the period 2020-2023. Romania's public debt increased, in nominal terms, more than double between 2019 and 2023. The slope of the debt trend in Romania (rate of over 17% in 2022-2023) is worrying and its perpetuation over the next few years would put pressure, through debt service, on public spending that is already oversized in relation to revenues. |
| Keywords: | public debt, debt structure, debt trend, debt stabilisation, government financing |
| JEL: | H60 H63 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ror:wpince:241217 |
| By: | Hundsdoerfer, Jochen; Löwe, Maren |
| Abstract: | We analyze how value added taxes (VATs) affect labor market outcomes (firms' employee costs, wages, hours worked, employment). While VATs are designed to tax consumption, they are levied at the firm level, which creates potential spillovers to labor markets. We hypothesize that VATs affect wages and employment through two channels: an inflation adjustment effect, where employees demand higher wages to compensate for VAT-induced price increases; and a profitability effect, where incomplete pass-through reduces firms' net sales and profits, putting downward pressure on wages and employment. We exploit variation in VAT rates, measuring labor market outcomes at the firm and country level. We find economically significant negative effects of VAT rates at the firm level on employee costs and at the country level on wages and employment. At the firm level, a one percentage point increase in the standard VAT rate corresponds to a 3.886% reduction in employee costs. At the country level, the same increase is associated with a 2.802% decline in average nominal wages. We find a 1.444% decline in employment at the country level following a one percentage point increase in the VAT rate. For working hours, the evidence is inconclusive and at most suggests a reduction. Heterogeneity analyses suggest that small firms and firms with high profit margins react stronger; among the employees, the age group 15-24 years is hit hardest. Our study provides the first systematic cross-country evidence on the labor market consequences of VATs. |
| Keywords: | VAT, Labor Supply, Labor Demand, Wages, VAT Incidence, Inflation, Wage Bargaining |
| JEL: | D22 D24 H22 H25 M51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:335902 |
| By: | Gunter Merdzan (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Predrag Trpeski (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia); Daniela Bojadjieva (Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, North Macedonia) |
| Abstract: | Purpose The significance of political institutions in promoting economic growth is well acknowledged within institutional economics; however, empirical results often display considerable variation, especially in European post-transition economies. As noted by North (1990) and Acemoglu and Robinson (2012), institutions influence incentives, mitigate uncertainty, and dictate the efficiency of resource allocation. Nonetheless, evidence from transition countries indicates that the relationship between political institutions and economic outcomes is contingent upon specific contextual factors. Earlier studies have yielded mixed results regarding the relationship between economic and political freedoms. Piątek et al. (2013) found that economic freedom fosters growth in transition countries, while political freedom appears to have a neutral effect, suggesting that political reforms may lag behind market liberalisation. In contrast, Uzelac et al. (2020) and Bayar (2016) demonstrate that democracy, political stability, and the quality of governance, particularly in controlling corruption and upholding the rule of law, positively influence economic performance in Central and Eastern Europe. Alexiou et al. (2020) report similar long-term advantages associated with institutional quality, indicating that voice and accountability can enhance growth once the institutional framework becomes stable. Additionally, Tamilina and Tamilina (2014) contend that the growth of post-communist countries relies more on the maturity of political institutions than on their economic counterparts, emphasising the significance of institutional evolution over formal design. Conversely, some scholars, including Hodgson (2006) and Bonnal and Yaya (2015), note that democracy can have neutral or even adverse short-term effects, particularly in fragmented or unstable institutional environments. In this context, the current study aims to contribute to the ongoing debate by empirically re-evaluating the impact of political institutions, assessed through the Freedom House Index (which measures political rights and civil liberties) (Freedom House, 2024) and the Polity IV Index from the Center for Systemic Peace (which evaluates executive constraints and participation) (Marshall et al., 2019), on economic growth in thirteen European post-transition economies from 1996 to 2019. This paper offers updated, dynamic empirical evidence that resolves long-standing inconsistencies in the literature on institutions and growth in post-transition Europe. The topic remains highly relevant, as political and institutional reforms continue to influence the region's prospects for convergence, resilience, and long-term development. Building on prior research, this paper utilises a system generalised method of moments (system GMM) to explore the relationship between political institutions and economic growth. The aim of this study is to assess whether advancements in political institutions, characterised by increased democratic participation, improved accountability, and reinforced constraints on executive power, result in higher GDP per capita growth in post-transition Europe. Consequently, the primary hypothesis examined is: Political institutions that promote greater transparency, participation, and checks on executive authority have a positive, statistically significant effect on economic growth in European post-transition economies. Design/methodology/approach The empirical analysis utilises a dynamic panel-data framework, focusing on thirteen European post-transition economies over the period from 1996 to 2019. To address potential endogeneity, the study employs the system GMM estimator developed by Arellano and Bover (1995) and by Blundell and Bond (1998). This methodology facilitates consistent estimation in dynamic contexts where the lagged dependent variable is included as a regressor and the number of time periods is relatively limited compared to the cross-sectional units. The dependent variable in this analysis is GDP per capita growth, while the primary explanatory variables are political-institutional indicators. These include the Freedom House Index, which assesses political rights and civil liberties (Freedom House, 2024), and the Polity IV Index from the Centre for Systemic Peace, which evaluates executive constraints, political participation, and regime durability (Marshall et al., 2019). Additionally, control variables include the logarithm of GDP per capita in purchasing power parity (PPP), gross fixed capital formation (GFCF) as a measure of physical capital, human capital and population growth. Before conducting the main regression analysis, the study examines partial correlations between GDP per capita growth and the two institutional indicators, while controlling for all other growth determinants. This approach aims to isolate the relationship between political institutions and economic performance, independent of structural and macroeconomic influences. The validity of the instruments and the absence of serial correlation are assessed using standard diagnostic tests. Findings When accounting for the influences of various macroeconomic variables, including initial income, gross fixed capital formation, human capital, and population growth, the partial correlations between GDP per capita growth and the two institutional indicators remain positive, though modest in magnitude. This pattern suggests that enhancements in political rights, civil liberties, and executive constraints are consistently associated with higher growth, provided that structural and demographic factors are controlled for. The system GMM estimation reinforces these associations, demonstrating that political institutions have a positive and statistically significant impact on economic growth. The coefficient for the Freedom House Index is 0.421 (p |
| Keywords: | Political institutions, Economic growth, European post-transition countries, System GMM |
| JEL: | O11 O43 P20 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:aoh:conpro:2025:i:6:p:299-304 |
| By: | Serpil Kahraman (Yasar University, Izmir, Turkiye); Merve Keser (Yasar University, Izmir, Turkiye) |
| Abstract: | Central Banks have traditionally managed and conducted monetary policy tools to achieve macroeconomic policy goals. Green Central Banking is a subset of central banking that acknowledges the profound impact of climate change on the economy. The measures undertaken by central banks to address these environmental issues are referred to as “green central banking.†Since the European Central Bank (ECB) introduced this concept in July 2021, central banks have begun to integrate this tool into monetary policy. This study provides a comprehensive overview of central banks' roles and actions in the context of environmental issues through a systematic literature review using WoS and Scopus databases. The results indicate that two main research questions are extensively examined by a large body of literature: (1) whether green monetary policies have an impact on climate change, and (2) whether climate change has an impact on green central banking as a converse causality. The existing literature tends to support the view that there is a bidirectional interaction between green central banking and climate change. It can also be said that the nascent body of literature lacks complementary research questions on how the greening of central banks, considering the costs and benefits of the policies. Thus, the literature focuses on three key rationales: the role of climate policy on green central banking and its monetary policies, the converse interaction from green central banking to climate policy, and the bidirectional interaction between the two. |
| Keywords: | monetary policy, central banking, green central banking |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:smo:raiswp:0584 |