nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2010‒04‒17
eighteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The Determination of Wages of Newly Hired Employees: Survey Evidence on Internal versus External Factors By Keeney, Mary; Galu?s?c´ak, Kamil; Smets, Frank; Nicolitsas, Daphne; Strzelecki, Pawel; Vodopivec, Matija
  2. The Geography and Co-location of European Technology-specific Co-inventorship Networks By Julian P. Christ
  3. Health care utilization among immigrants and native-born populations in 11 European countries. Results from the Survey of Health, Ageing and Retirement in Europe By Aïda Solé-Auró; Montserrat Guillén; Eileen M. Crimmins
  4. The Benefit of Regional Diversification of Cogeneration Investments in Europe: A Mean-Variance Portfolio Analysis By Westner, Günther; Madlener, Reinhard
  5. Family influence on early career outcomes in seven European countries By Simona Comi
  6. An Analysis of the EU Emission Trading Scheme By Don Bredin; Cal Muckley
  7. Health at Work and Low-pay:a European Perspective By Elena Cottini; Claudio Lucifora
  8. The EU Emission Trading Scheme. Insights from the First Trading Years with a Focus on Price Volatility By Claudia Kettner; Angela Köppl; Stefan Schleicher
  9. Is Corporate R&D Investment in High-tech Sectors more Efficient? Some Guidelines for European Research Policy By Raquel Ortega-Argilés; Maria-Cristina Piva; Lesley Potters; Marco Vivarelli
  10. An applied analysis of ACE and CBIT reform in the EU By Ruud de Mooij; Michael Devereux
  11. Corporate Tax Consolidation and Enhanced Cooperation in the European Union By Leon Bettendorf; Albert van der Horst; Ruud de Mooij; Hendrik Vrijburg
  12. Temporary Labour Migration and Welfare at the New European Fringe : A Comparison of Five Eastern European Countries By Alexander M. Danzer; Barbara Dietz
  13. EU-US differences in the size of R&D intensive firms By Raquel Ortega-Argilés; Andries Brandsma
  14. How does economic integration influence employment and wages in border regions? The case of the EU-enlargement 2004 and Germany’s eastern border By Nils Braakmann; Alexander Vogel
  15. European trade in parts and components : searching (for a trade model for searching) for offshoring evidence By Richard Frensch
  16. Corporate tax harmonization in the EU By Leon Bettendorf; Michael P. Devereux; Albert van der Horst; Ruud de Mooij
  17. A Good Time for Making Work Pay? Taking Stock of In-Work Benefits and Related Measures across the OECD By Immervoll, Herwig; Pearson, Mark
  18. The Responses of Taxable Income Induced by Tax Cuts – Empirical Evidence from the German Taxpayer Panel By Peter Gottfried; Daniela Witczak

  1. By: Keeney, Mary (Central Bank and Financial Services Authority of Ireland); Galu?s?c´ak, Kamil (Czech National Bank); Smets, Frank (European Central Ban); Nicolitsas, Daphne (Bank of Greece); Strzelecki, Pawel (National Bank of Poland); Vodopivec, Matija (Bank of Slovenia)
    Abstract: This paper uses information from a rich firm-level survey on wage and price-setting procedures, in around 15,000 firms in 15 European Union countries, to investigate the relative importance of internal versus external factors in the setting of wages of newly hired workers. The evidence suggests that external labour market conditions are less important than internal pay structures in determining hiring pay, with internal pay structures binding even more often when there is labour market slack. When explaining their choice firms allude to fairness considerations and the need to prevent a potential negative impact on effort. Despite the lower importance of external factors in all countries there is significant cross-country variation in this respect. Cross-country differences are found to depend on institutional factors (bargaining structures); countries in which collective agreements are more prevalent and collective agreement coverage is higher report to a greater extent internal pay structures as the main determinant of hiring pay. Within-country differences are found to depend on firm and workforce characteristics; there is a strong association between the use of external factors in hiring pay, on the one hand, and skills (positive) and tenure (negative) on the other.
    Date: 2010–03
  2. By: Julian P. Christ
    Abstract: This paper contributes with empirical findings to European co-inventorship location and geographical coincidence of co-patenting networks. Based on EPO co-patenting information for the reference period 2000-2004, we analyze the spatial configuration of 44 technology-specific co-inventorship networks. European co-inventorship (co-patenting) activity is spatially linked to 1259 European NUTS3 units (EU25+CH+NO) and their NUTS1 regions by inventor location. We extract 7.135.117 EPO co-patenting linkages from our own relational database that makes use of the OECD RegPAT (2009) Files. The matching between International Patent Classification (IPC) subclasses and 44 technology fields is based on the ISI-SPRU-OST-concordance. We confirm the hypothesis that the 44 co-inventorship networks differ in their overall size (nodes, linkages, self-loops) and that they are dominated by similar groupings of regions. The paper offers statistical evidence for the presence of highly localized European co-inventorship networks for all 44 technology fields, as the majority of linkages between NUTS3 units (counties and districts) are within the same NUTS1 regions. Accordingly, our findings helps to understand general presence of positive spatial autocorrelation in regional patent data. Our analysis explicitly accounts for different network centrality measures (betweenness, degree, eigenvector). Spearman rank correlation coefficients for all 44 technology fields confirm that most co-patenting networks co-locate in those regions that are central in several technology-specific co-patenting networks. These findings support the hypothesis that leading European regions are indeed multi-field network nodes and that most research collaboration is taking place in dense co-patenting networks.
    Keywords: co-patenting, co-inventorship, networks, linkages, co-location, RegPAT
    JEL: C8 O31 O33 R12
    Date: 2009–06
  3. By: Aïda Solé-Auró (RFA-IREA, University of Barcelona, Spain); Montserrat Guillén (RFA-IREA, University of Barcelona, Spain); Eileen M. Crimmins (Andrus Gerontology Center. University of Southern California)
    Abstract: Objective: This study examines health care utilization of immigrants relative to the native-born populations aged 50 years and older in eleven European countries. Methods. We analyzed data from the Survey of Health Aging and Retirement in Europe (SHARE) from 2004 for a sample of 27,444 individuals in 11 European countries. Negative Binomial regression was conducted to examine the difference in number of doctor visits, visits to General Practitioners (GPs), and hospital stays between immigrants and the native-born individuals. Results: We find evidence those immigrants above age 50 use health services on average more than the native-born populations with the same characteristics. Our models show immigrants have between 6% and 27% more expected visits to the doctor, GP or hospital stays when compared to native-born populations in a number of European countries. Discussion: Elderly immigrant populations might be using health services more intensively due to cultural reasons.
    Keywords: count data, physician services, immigration.
    Date: 2009–10
  4. By: Westner, Günther (E.ON Energy Projects GmbH); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: The EU Directive 2004/8/EC, concerning the promotion of cogeneration, established principles on how EU member states can support combined heat and power generation (CHP). Up to now, the implementation of these principles into national law has not been uniform, and has led to the adoption of different promotion schemes for CHP across the EU member states. In this paper, we first give an overview of the promotion schemes for CHP in various European countries. In a next step, we take two standard CHP technologies, combined-cycle gas turbines (CCGT-CHP) and engine-CHP, and apply exemplarily four selected support mechanisms used in the four largest European energy markets: feed-in tariffs in Germany; energy efficiency certificates in Italy; benefits through tax reduction in the UK; and purchase obligations for power from CHP generation in France. For contracting companies, it could be of interest to diversify their investment in new CHP facilities regionally over several countries in order to reduce country and regulatory risk. By applying Mean-Variance Portfolio (MVP) theory, we derive characteristic return-risk profiles of the selected CHP technologies in different countries. The results show that the returns on CHP investments differ significantly depending on the country, the support scheme, and the selected technology studied. While a regional diversification of investments in CCGT-CHP does not contribute to reducing portfolio risks, a diversification of investments in engine-CHP can decrease the risk exposure.
    Keywords: Combined heat and power; CHP promotion scheme; Portfolio optimization
    JEL: C15 D81 G11 Q48
    Date: 2009–11
  5. By: Simona Comi (DISCE, Università Cattolica)
    Abstract: This paper studies how much family characteristics affect early career outcomes (earnings) of children in seven European countries: Germany, France, Italy, Greece, Spain, Portugal and Austria using ECHP. To asses the overall importance of family influence an indicator of family effect on earnings, the siblings’ earnings correlations is computed, using the eight waves of ECHP data on siblings. Portugal is the country with the highest siblings’ correlation in earnings followed by Italy, Greece, Spain and France. Germany and Austria turned out to have a very low siblings’ correlation in earnings. The correlation increases when the same gender siblings samples are used in almost all countries. These findings may suggest that the earnings correlation of siblings of different gender is lower because of labor market discrimination against female.
    Keywords: siblings correlation, intergenerational mobility.
    JEL: J62 D3
    Date: 2009–12
  6. By: Don Bredin (University College Dublin); Cal Muckley (University College Dublin)
    Abstract: The European Union’s Emissions Trading Scheme (ETS) is the key policy instrument of the European Commission’s Climate Change Program aimed at reducing green- house gas emissions to eight percent below 1990 levels by 2012. A critically important element of the EU ETS is the establishment of a market determined price for EU allowances. This article examines the extent to which several theoretically founded factors including, energy price movements, economic growth, temperature and stock market activity determine the expected prices of the European Union CO2 allowances during the 2005 through to the 2009 period. The novel aspect of our study is that we examine the heavily traded futures instruments that have an expiry date in Phase 2 of the EU ETS. Our study adopts both static and recursive versions of the Johansen multivariate cointegration likelihood ratio test as well as a variation on this test with a view to controlling for time varying volatility effects. Our results are indicative of a new pricing regime emerging in Phase 2 of the market and point to a maturing market driven by the fundamentals. These results are valuable both for traders of EU allowances and for those policy makers seeking to improve the design of the European Union ETS.
    Keywords: CO2 prices, EU ETS, Energy, Kyoto Protocol, Weather
    JEL: Q49 G12 G15
    Date: 2010–01–01
  7. By: Elena Cottini; Claudio Lucifora (DISCE, Università Cattolica)
    Abstract: This study investigates the relationship between health, working conditions and pay in Europe. In particular, we measure health at work using self-assessed indicators for overall, as well as physical and mental health, using the 2005 wave of the EWCS (European Working Conditions Survey) for 15 EU countries. We find that, controlling for personal characteristics, (adverse) working conditions are associated with poor health status – both physical and mental. Low pay plays a role, mainly for men and when interacted with working conditions, suggesting that stigma and deprivation effects may be correlated with health at work. We also account for the potential endogeneity arising from workers sorting by firms and job types with different working conditions, and provide evidence of a causal effect of (adverse) working conditions and (low) pay on health at the workplace.
    Keywords: working conditions, physical and mental health, low-pay employment
    JEL: I10 J41 J81
    Date: 2009–12
  8. By: Claudia Kettner (WIFO); Angela Köppl (WIFO); Stefan Schleicher (WIFO)
    Abstract: The EU Emission Trading Scheme (EU ETS) is a key instrument in European climate policy. Evidence from the first trading period (2005-2007) and the first year of the Kyoto period 2008 dampened, however, ex-ante enthusiasm: because of substantial over-allocation of emissions allowances in the first trading period the overall emissions cap was not stringent which caused a sharp drop in carbon prices. In 2008 a more stringent cap but still high price volatility was observed. Based on experience from the first years of the EU ETS the design of the EU ETS will be changed for the post-Kyoto period (2013-2020) including an EU-wide cap and the use of auctioning as the main allocation principle. So far, no measures to control price volatility are envisaged. This issue however gains in importance in the political and economic debate as prices are an important signal for investment decisions. More or less stable price signals are essential for the environmental effectiveness of an emissions trading scheme. As evidence shows, this is not necessarily guaranteed by the market process. Based on an analysis of the first trading years the paper provides an argumentation for the implementation of price stabilisation measures in the post-Kyoto period.
    Keywords: climate policy, emissions trading, EU Emission Trading Scheme
    Date: 2010–04–06
  9. By: Raquel Ortega-Argilés (JRC-IPTS); Maria-Cristina Piva (Universita Cattolica di Milano); Lesley Potters (JRC-IPTS); Marco Vivarelli (Universita Cattolica di Milano)
    Abstract: This paper discusses the link between R&D and productivity across the European industrial and service sectors. The empirical analysis is based on both the European sectoral OECD data over the period 1987-2002 and on a unique micro longitudinal database consisting of 532 top European R&D investors over the six-year period 2000-2005. The main conclusions are as follows. First, the R&D stock has a significant positive impact on labour productivity; this general result is largely consistent with previous literature in terms of the sign, the significance and the magnitude of the estimated coefficients. More interestingly – both at sectoral and firm levels - the R&D coefficient increases monotonically (both in significance and magnitude) when we move from the low-tech to the medium and high-tech sectors. This outcome means that corporate R&D investment is more effective in the high-tech sectors and this may need to be taken into account when designing policy instruments (subsidies, fiscal incentives, etc.) in support of private R&D. However, R&D investment is not the sole source of productivity gains; technological change embodied in gross investment is of comparable importance on aggregate and it is the main determinant of the productivity increase in the low-tech sectors. Hence, an economic policy aiming to increase productivity in the low-tech sectors should support the overall capital formation.
    Keywords: R&D, productivity, high-tech sectors, innovation and industrial policy
    JEL: O33
    Date: 2009–06
  10. By: Ruud de Mooij; Michael Devereux
    Abstract: We assess the quantitative impact of two reforms to corporation tax, which would eliminate the differential treatment of debt and equity: the allowance for corporate equity (ACE) and the comprehensive business income tax (CBIT). We investigate the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budget, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less, efficient. A combination of ACE and CBIT is always welfare improving.
    Keywords: Corporate tax reform; European Union; Tax coordination; Computable General Equilibrium model; ACE; CBIT
    JEL: D58 H25
    Date: 2009–07
  11. By: Leon Bettendorf; Albert van der Horst; Ruud de Mooij; Hendrik Vrijburg
    Abstract: This article assesses the economic implications of the introduction of consolidation with formula apportionment in the European Union under alternative enhanced cooperation agreements. We .nd that the consolidation is likely to yield a small aggregate welfare gain in Europe, but that not all countries bene.t. A coalition of winning countries reduces the welfare gain and may induce a process of adverse selection which distroys the possibility of cooperation. We .nd that a coalition of similar countries (in terms of the size of their multinational sector) is more feasible in achieving agreement and is actually preferred by those countries over a European-wide reform.
    Keywords: Corporate Tax Harmonisation; Common Consolidated Corporate Tax Base; Enhanced Cooperation Agreements; Applied General Equilibrium; European Union
    JEL: C68 F23 H25
    Date: 2009–11
  12. By: Alexander M. Danzer (Royal Holloway, University of London, UK); Barbara Dietz (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: This paper investigates patterns and determinants of temporary labour migration in Armenia, Belarus, Georgia, Moldova and Ukraine after EU enlargement in 2004. Migration incidence, destination choices and migration determinants differ between poorer and better-off countries. Although broadly in line with general results from the migration literature, we observe some peculiarities like the high share of older migrants and a modest role of family obligations in the migration decision process. We find no indication of a brain drain related to temporary migration in sending regions as the educational background of migrants is rather low. Migration is used as household insurance against unemployment and is associated with lower incidence of poverty. This finding remains robust when attempting to reduce the potential omitted variable bias with an instrumental variable approach.
    Keywords: Temporary migration, welfare, Eastern Europe, cross-country study
    JEL: F22 J61 I31 P23
    Date: 2009–05
  13. By: Raquel Ortega-Argilés (JRC-IPTS); Andries Brandsma (JRC-IPTS)
    Abstract: The average firm size of the top R&D investors among US-based companies is smaller than that of the EU-based firms. Does this help to explain why the US has a greater R&D intensity, or is the higher firm size in the EU, just as its lower R&D intensity, determined by the sectors in which the top R&D investors are operating? Using data on the top-R&D investors from the 2006 EU Industrial R&D Investment Scoreboard, the size differential between R&D performers in the EU and US is more closely examined. A first observation is that, despite great differences between sectors, the overall distribution of companies' R&D investments in both economies is remarkably similar, as opposed to the distribution of the R&D/sales ratios of the same two sets of companies. The notion that size plays a role, independent of the sectoral composition of R&D, is then confirmed by regression analysis. In the US as well as in the EU, smaller sized Scoreboard companies tend to spend a larger proportion of their income from sales on R&D.
    Keywords: Research and Development intensity, EU-US R&D gap, size of firms
    JEL: O33
    Date: 2009–06
  14. By: Nils Braakmann (Institute of Economics, Leuphana University of Lüneburg, Germany); Alexander Vogel (Institute of Economics, Leuphana University of Lüneburg, Germany)
    Abstract: This paper considers the (short run) employment and wage effects of the 2004 EUenlargement on firms located close to Germany’s Eastern border. We use a 50% sample of Germans plants and apply difference-in-differences-estimators combined with a matching approach. We evaluate changes in total employment, the employment shares of low-skilled and Eastern European workers and the wages for low-skilled, skilled and high-skilled workers in various sectors. Our results suggest negative (short-run) effects of the EU-enlargement on employment in construction and the business services sector, where we also find negative wage effects. Wages and employment in manufacturing, wholesale and retail trade, hotels and restaurants and social and personal service activities seem to have been relatively less affected.
    Keywords: EU-enlargement, economic integration, employment, wages
    JEL: F15 L80
    Date: 2009–09
  15. By: Richard Frensch (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: Recent empirical studies have been searching for evidence on and driving forces for offshoring. Typically, this search has been conducted by analysing gross trade flows related to offshored activities using gravity equations augmented by ad hoc measures of supply-side country differences. This paper suggests that gravity formulations of this sort are potentially mis-specified, due to theoretically unmotivated attempts of allowing for both complete and incomplete specialisation influences on gross trade flows within the same gravity framework. The paper suggests an alternative specification rooted in incomplete specialisation with complete specialisation as a natural limiting case. Re-sults support evidence for offshoring activities across Europe, driven by supply-side country differences compatible with models of incomplete specialisation and trade. Fur-ther interpretation of the results in the spirit of Grossman and Rossi-Hansberg (2008) suggests the conjecture that the latest waves of offshoring activities from “old” to “new” EU members may have been more likely to hurt (low-skill) workers in the old EU than offshoring to east Asia.
    Keywords: offshoring, gravity
    JEL: F14 F16 L24
    Date: 2010–02
  16. By: Leon Bettendorf; Michael P. Devereux; Albert van der Horst; Ruud de Mooij
    Abstract: This paper explores the economic consequences of proposed EU reforms for a common consolidated corporate tax base. The reforms replace separate accounting with formula apportionment as a way to allocate corporate tax bases across countries. To assess the economic implications, we use a numerical CGE model for Europe. It encompasses several decision margins of firms such as marginal investment, FDI decisions, and multinational profit shifting. The simulations suggest that consolidation does not yield substantial welfare gains for Europe. The variation of effects across countries is large and depends on the choice of the apportionment formula. Consolidation with formula apportionment does not weaken incentives for tax competition. Tax competition instead offers a rationale for rate harmonisation, in addition to base harmonisation.
    Keywords: Corporate Tax Harmonisation; Common Consolidated Corporate Tax Base; Applied General Equilibrium; European Union
    JEL: C68 F23 H25
    Date: 2009–11
  17. By: Immervoll, Herwig (OECD); Pearson, Mark (OECD)
    Abstract: The twin problem of in-work poverty and persistent labour market difficulties of low-skilled individuals has been one of the most important drivers of tax-benefit policy reforms in OECD countries in recent years. Employment-conditional cash transfers to individuals facing particular labour-market challenges have been a core element of “make-work-pay” policies for some time and are now in use in more than half of the OECD countries. They are attractive because they redistribute to low-income groups while also creating additional work incentives. But like all social benefits, they have to be financed, which creates additional economic costs for some. This paper discusses the rationale for in-work benefits (IWB), summarises the main design features of programmes operated in OECD countries, and provides an update of what is known about their effectiveness in terms of reducing inequalities and creating employment. As policies aiming to promote self-sufficiency, wage subsidies and minimum wages share a number of the objectives associated with IWB measures. We review evidence on the effectiveness of minimum wages and wage subsidies and discuss links between these policies and IWBs. Finally, we outline some potential consequences of weakening labour markets for the effectiveness of make-work-pay policies.
    Keywords: labor market, tax-benefit reform, in-work benefits, low-skilled workers
    JEL: J20 J30 H24 H31
    Date: 2009–04
  18. By: Peter Gottfried; Daniela Witczak
    Abstract: The elasticity of taxable income has gained increasing attention as a fiscal policy parameter. This paper provides empirical evidence for Germany and adds to the relatively small body of literature for European countries. We use a large new panel data set to analyze the taxable income response to tax rate changes in 2004 which were part of an extensive reform programme in Germany at the beginning of this century. We find an average elasticity of approximately 0.6. Separately estimated income effects however are mostly small or insignificant. The results vary when dividing taxpayers by income type and group.
    Keywords: elasticity of taxable income; tax reform; net-of-tax rate
    JEL: H24 H31
    Date: 2009–11

This nep-eur issue is ©2010 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.