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on European Economics |
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Issue of 2026–05–11
nine papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Mr. Andre O Santos |
| Abstract: | This paper describes the 2023 euro area consultation top-down stress test that focused on the resilience of 91 systemically important banks’ capital buffers as of end-2022 to macro baseline and adverse scenarios over the period 2023-25. As a result, the paper is an illustration of a top-down stress test framework with an application to euro are banks. The 2023 euro area consultation top-down stress test included unbiased dynamic panel data estimators based on Lancaster (2002) for projecting profitability components and information on Pillar 3 disclosures (exposure-at-default, probability of default, loss-given-default, expected losses). The paper also expands the 2023 euro area consultation top-down stress test by considering risk-weight functions with Skew-Normal and Transmuted-Normal probability distributions for the idiosyncratic and systemic risk factors. The results of the stress test with both distributions indicate that most euro area banks were resilient under the 2023 euro area consultation baseline and adverse scenarios as of July 2023 (publication of the Staff report). |
| Keywords: | Bank capital; Bank profitability; Capital adequacy requirements; Corporate risk; ECB analysis; ECB-Banking Supervision; Europe; Nonperforming loans; Stress test; Working capital; Transmuted- Normal distribution |
| Date: | 2026–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/089 |
| By: | Parisa Pakrooh; Matteo Manera |
| Abstract: | Despite the strong commitment of European countries to achieve net-zero emissions by 2050, the extent to which key policies and drivers jointly shape emissions dynamics remains insufficiently investigated. To fill this gap, the study investigates the combined effects of the circular economy, energy transition, emissions trading systems, carbon tax, and digitalization on carbon reduction in the EU member states. Using annual data from 2000 to 2023, the analysis integrates causal discovery, time-varying dependence modeling, and machine learning methods to unravel system-level causal structure, dynamic connectedness, and future emission trajectories. The Directed Acyclic Graph method, especially the Fast Adjacency Skewness algorithm, identifies both contemporaneous and lagged causal relationships, in which resource productivity acts as a transmission channel within the system. Lagged disequilibrium shocks propagate from upstream circular economy factor (material footprint) and digitalization to midstream efficiency (resource productivity), and ultimately are transmitted to emissions. Time-varying copula models confirm significant heterogeneity and evolving dependence among key factors, highlighting the nature of the dynamic relationships. Forecasting results, based on a Support Vector Regression model under the European Union’s 2030 climate policy target, indicate a persistently declining emission trajectory, however at an insufficient speed to meet the EU’s 2030 target. Sensitivity analysis indicates that this gap does not reflect a policy failure but the need for accelerated policy adjustments. |
| Keywords: | Carbon Emissions, Energy Transition, Emissions Trading System, Circular Economy, Digitalization, EU Climate Policy |
| JEL: | Q54 Q43 Q58 C55 C32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:573 |
| By: | Dimitris Christelis (University of Glasgow, CSEF, and CFS); Dimitris Georgarakos (European Central Bank, University of Glasgow and CEPR); Tullio Jappelli (University of Naples Federico II, CSEF, and CEPR); Geoff Kenny (European Central Bank); Justus Meyer (European Central Bank, University of Glasgow) |
| Abstract: | We examine recent changes in stock market participation using newly available survey data from eleven euro area countries over the period 2020–2024. The evidence points to substantial turnover, with around10% of non-stockholders entering the market each year, and more than 20% of stockholders exiting. New entrants tend to have lower education, income, financial literacy, and risk tolerance than established investors, indicating a shift in the composition of market participants. We also highlight the growing importance of cryptocurrency investments among retail investors. Overall, these findings shed new light on evolving household financial behavior and its implications for market participation and financial stability. |
| Keywords: | Stocks, Mutual Funds, Crypto Assets, Household Finance, Consumer Expectations Survey |
| JEL: | D14 E21 G51 |
| Date: | 2026–04–28 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:780 |
| By: | Libertucci, Massimo; Dzezulskis, Skirmantas; McPhilemy, Samuel |
| Abstract: | This paper describes and evaluates the European Union (EU) banking sector capital framework, focusing on how the international standards set by the Basel Committee on Banking Supervision have been implemented within the EU. Using granular supervisory data for significant institutions under the Single Supervisory Mechanism (SSM), we quantify the capital impact of EU-specific regulatory choices, supervisory measures and macroprudential policies. We show that most EU capital requirements stem from Basel standards, which encompass both prescriptive “Pillar 1” components and elements that are expected to be designed and calibrated at the jurisdictional level. The paper describes the evolution of capital ratios and requirements since the inception of the SSM and discusses the relationship between changes in capital levels and indicators of banking sector performance. To provide a comparative perspective, a model-based counterfactual exercise compares capital requirements of EU banks with those that would arise if EU banks were subject to the main prudential regulations that currently apply in the United States, which vary depending on the size of the bank. The results show that for the largest EU banks, the current US rules would entail stricter requirements, whereas mid-sized EU banks would be subject to less stringent requirements. Our findings show that EU capital requirements are broadly comparable to those in other jurisdictions and are largely in line with international standards. When assessing broader indicators of bank performance, we highlight the importance of considering not only private costs and benefits, but also intended effects and broader societal objectives. [...] JEL Classification: G21, G28, F36 |
| Keywords: | bank capital regulation, banking supervision, Basel III, European Union banking sector, supervisory policy |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026387 |
| By: | Philippe Demougin; Áron Kiss; Alexander Leodolter; Kristine Van Herck |
| Abstract: | This brief discusses how reforms in Member States related to taxation, in particular business taxation, can contribute to spurring investment, while respecting the need to maintain public revenue in a context of high debt and significant fiscal needs. After describing how corporate taxation contributes to the public finances of EU countries, the brief surveys recent studies analysing the impact of corporate taxation on business investment. Recent studies suggest that cuts to statutory tax rates represent a costly way of spurring investment. Targeted incentives for investment, including investment tax credits and accelerated depreciation rules, may be a more cost-effective way to spur investment, although their stimulative effects are not sufficient to counterbalance the static fiscal costs. Business taxation based on tax bases other than profits (e.g. on real estate or turnover) has also been found to be more distortive and harmful to investment than profit-based taxes. Specific aspects of the tax code may open the way for aggressive tax planning (ATP) whereby taxpayers reduce their corporate tax liability through arrangements that may be legal but are in contradiction with the intent of the law. Through the European Semester and reforms in national Recovery and Resilience Plans, the EU has achieved some success in fighting ATP in a number of countries, although some issues remain. |
| Keywords: | Business taxation, corporate income tax, investment, EU, Draghi report, aggressive tax planning, European Semester. |
| JEL: | H25 H26 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:euf:ecobri:089 |
| By: | Koch, Svea; Bergmann, Julian; Erforth, Benedikt; Hackenesch, Christine; Keijzer, Niels |
| Abstract: | The international order is undergoing profound change as rivalry among major powers realigns the global balance. This is also having an impact on European development policy. In many European Union (EU) member states, funding for official development assistance (ODA) is declining. At the same time, EU countries are reforming their development policies and increasingly channelling their remaining resources towards priorities that serve primarily their own interests. So far, these reforms have largely been defined bilaterally, whereas a political debate on the role, added value and joint objectives of EU development policy is largely absent. Yet, without strengthening European cooperation in development policy, Europe will not succeed in providing an adequate response to the current upheavals in global politics. In this policy brief, we argue that reform efforts in European development policy must strengthen cooperation and complementarity to respond effectively to the changed geopolitical landscape. Our analysis identifies four key policy areas where European actors are pursuing ongoing reforms and where development policy should make significant contributions: 1) promoting economic cooperation and privatesector engagement, 2) security policy, 3) managing and shaping migration and 4) human development including poverty reduction, particularly in least developed countries (LDCs). So far, a joint European strategic direction in these areas has been lacking. Negotiating these shared priorities requires a revitalisation of the political dialogue between EU institutions and member states, as well as further development of the "Team Europe" approach. "Team Europe 2.0" would then have two functions: to strengthen substantive complementarity "internally" through an understanding of how the various actors individually contribute to jointly defined objectives; and "externally" by making visible what Europe stands for strategically. A key element of Team Europe 2.0 should be an improved substantive dialogue among member states and within issue-specific, informal groups cofacilitated by individual member states and the European Commission. Such "thematic champions" could initiate the development of joint strategies for larger, transformative initiatives. Improved political dialogue and coordination on substance in key areas of European development policy are prerequisites for a united and more strategic external presence of "Team Europe", including in multilateral contexts. |
| Keywords: | EU development policy, complementarity, Team Europe, Global Gateway, economic development, security, migration, human development |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:idospb:340865 |
| By: | Lippert, Barbara; von Ondarza, Nicolai; Seebass, Frauke |
| Abstract: | Since Russia launched its full-scale war of aggression against Ukraine in 2022, the European Union (EU) has pursued its enlargement policy as part of a geopolitical approach. According to the European Commission and candidate states, the EU could admit new members from 2028 onwards, while Ukraine is calling for accession in 2027. Yet significant obstacles remain. Within the EU, the reform process designed to improve its capacity to act and prepare it for a Union of 30 or more has stalled. However, the readiness of accession candidates and the Union's absorption capacity are key criteria that German European policy has traditionally upheld. There is currently intense debate within the EU regarding gradual integration, fast-track routes, and new safeguard clauses aimed at reducing the tension between geopolitical urgency and sound integration policy. With regard to the Western Balkan states, the EU should adhere to the well-established accession process. In the case of Ukraine, the situation is so acute that the political commitment to admit the country must be reaffirmed. As a preliminary step towards membership, the EU should offer Kyiv a new type of accession association that also includes a security and defence dimension. |
| Keywords: | Ukraine, Western Balkans, Moldova, Hungary, Turkey, Georgia, Germany, EU Enlargement, EU reform process, Russia, war of aggression, gradual integration, fast-track routes, new safeguard clauses, European Economic Area (EEA) |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:340858 |
| By: | Beate Deixelberger (University of Graz, Austria) |
| Abstract: | Empirical evidence on the productivity effects of environmental regulation remains inconclusive, with mixed findings across studies. Using a large-scale panel of EU firms from 2013 to 2022, this paper examines how environmental policy stringency affects firm-level productivity. Productivity is estimated from production functions and regressed on policy stringency, measured using the OECD Climate Actions and Policies Measurement Framework, in a dynamic distributed-lag panel framework. Baseline estimates point to small and often statistically insignificant aggregate effects that are highly sensitive to macroeconomic conditions, reflecting policy-macro co-movement. Decomposing sectoral policies by instrument type suggests potentially offsetting effects, which attenuate once policy-macro co-movement is accounted for. Allowing for sectoral heterogeneity, however, reveals pronounced differences across industries, with more negative responses in input-intensive and regulation-exposed sectors and more positive ones in less exposed, more flexible sectors. These findings indicate that aggregate estimates mask economically meaningful heterogeneity across sectors and policy instruments, thereby helping to reconcile the mixed empirical evidence. |
| Keywords: | Environmental policy, Firm productivity, Sectoral heterogeneity, Porter hypothesis, Dynamic panel data, European Union |
| JEL: | Q58 D24 C23 L25 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2026-06 |
| By: | Bertschek, Irene; Erdsiek, Daniel; Niebel, Thomas; Sack, Robin; Zimmermann, Volker |
| Abstract: | Recent literature has increasingly focused on deciphering the modern productivity puzzle, with particular attention given to the link between digital technologies and firm-level productivity. So far, much of this research has primarily focused on large and publicly listed firms. Leveraging a panel dataset covering German small- and medium-sized enterprises (SMEs) over the period 2016 to 2021, we investigate whether digitalisation can help revive the sluggish productivity growth and narrow the gap between productivity frontrunners and laggards. We measure digitalisation through firms' digital capital stocks (DK) that we derive from a broad measure of digitalisation expenditures. Building on an augmented Cobb-Douglas production function, we examine the relationship between DK and labour productivity (LP ). Our findings show that higher DK is positively associated with higher LP levels, with the effect being even stronger for firms that are already more digitally advanced. Moreover, higher digitalisation expenditures appear to be related to narrowing the productivity gap between laggards and the frontier. |
| Keywords: | Heterogeneity of Digitalisation, Productivity, Firm-level Data |
| JEL: | L25 O14 O33 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:340839 |