nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2010‒05‒02
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Exploring educational mobility in Europe By Antonio Di Paolo; Josep Lluís Raymond; Jorge Calero
  2. Household Structure in the EU By Iacovou M; Skew A
  3. Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms By Ruud de Mooij; Michael P. Devereux
  4. Inter-industry wage differentials in EU countries: What do cross-country time varying data add to the picture? By Philip Du Caju; Gábor Kátay; Ana Lamo; Daphne Nicolitsas; Steven Poelhekke
  5. Polarization and rising wage inequality: comparing the U.S. and Germany By Antonczyk, Dirk; DeLeire, Thomas; Fitzenberger, Bernd
  6. A Corporate Governance Index: Convergence and Diversity of National Corporate Governance Regulations By Martynova, M.; Renneboog, L.D.R.
  7. What drives leverage in leveraged buyouts? An analysis of European LBOS' capital structure By Brinkhuis, S; De Maeseneire, W.
  8. The Academic Entrepreneur: Myth or Reality for Increased Regional Growth in Europe? By Katalin Erdõs; Attila Varga
  9. Fiscal decentralization and intergovernmental grants: the European regional policy and Spanish autonomous regions By Juan González Alegre
  10. Modern financial instruments of the European Union By Dobrin, Marinica; Nitu, Monica
  11. Effective levels of company taxation within an enlarged EU By ZEW
  12. The Gains from Variety in the European Union By Mohler, Lukas; Seitz, Michael
  13. Price Competitiveness in Central and Eastern Europe - a case study for transition economies By Dominique Peters
  14. Short and long term evaluations of Public Employment Services in Italy By Silvia Loriga; Paolo Naticchioni
  15. Tax differences and foreign direct investment in the EU27 By Hansson , Åsa; Olofsdotter, Karin
  16. Interrelations between Education, Health, Income and Economic Development in Europe with Emphasis on New Members of European Union By Boboc, Cristina; Driouchi, Ahmed; Titan, Emilia
  17. Firm-level exchange exposure in the Eurozone By Elaine Hutson; Anthony O'Driscoll
  18. Health Care and Health Outcomes of Migrants: Evidence from Portugal By Pedro Pita Barros; Isabel Medalho Pereira
  19. What do premiums paid for bank M&As reflect? The case of the European Union By Jens Hagendorff; Ignacio Hernando; María J. Nieto; Larry D. Wall
  20. Exploring the Duration of EU Imports By Hess, Wolfgang; Persson, Maria

  1. By: Antonio Di Paolo (Universitat Autònoma de Barcelona & IEB); Josep Lluís Raymond (Universitat Autònoma de Barcelona & IEB); Jorge Calero (Universitat de Barcelona & IEB)
    Abstract: This paper is concerned with the investigation of the intergenerational mobility of education in several European countries and its changes across birth cohorts (1940-1980), using a new mobility index that considers the total degree of mobility as the weighted sum of mobility with respect to both parents. Moreover, this mobility index enables the analysis of the role of family characteristics as mediating factors in the statistical association between individual and parental education. We find that Nordic countries display lower levels of educational persistence but that the degree of mobility increases over time only in those countries with low initial levels. Moreover, the results suggest that the degree of mobility with respect to fathers and mothers converges to the same level and that family characteristics accounts for an important part of the statistical association between parental education and children’s schooling; a particular finding is that the most important elements of family characteristics are the family’s socio-economic status and educational assortative mating of the parents.
    Keywords: educational economics, intergenerational mobility, Europe, birth cohorts, family
    JEL: J62 I21 I29 D13
    Date: 2010
  2. By: Iacovou M (Institute for Social and Economic Research); Skew A (Institute for Social and Economic Research)
    Abstract: This paper maps key indicators of household structure across all countries for all countries of the expanded European Union except Malta. As well as presenting statistics which take the entire household as the unit of analysis, we also focus on groups which are particularly interesting in terms of social policy, and for whom household composition may be particularly crucial in terms of their risk of poverty: children, young adults and elderly people. A main aim of the paper is to discuss the extent to which the new EU member states of Eastern Europe display differences and similarities with the other countries of the EU. We find that the Eastern European countries are rather heterogeneous. The Czech Republic and Hungary are not dissimilar to the countries of North-Western Europe; by contrast, households in Slovenia, Slovakia and Poland closely resemble Southern European households. Finally, it is the Baltic states – particularly Latvia – where household structure least resembles structures in any of the pre-enlargement EU countries.
    Date: 2010–04–20
  3. By: Ruud de Mooij (CPB Netherlands); Michael P. Devereux (Oxford University Centre for Business Taxation)
    Abstract: This paper explores the economic implications of an allowance for corporate equity (ACE), a comprehensive business income tax (CBIT) and a combination of the two in the EU. We illustrate the key trade-offs in designing ACE and CBIT in the presence of tax distortions at various decision margins of firms, such as its financial structure, investment, profit allocation and discrete location. Using an applied general equilibrium model for Europe, we quantitatively assess the effects of ACE, CBIT and combined reforms in EU countries. The results suggest that ACE is welfare improving as long as corporate tax rates are not used to cover the cost of base narrowing. CBIT typically reduces welfare by exacerbating marginal investment distortions. When governments adjust statutory corporate tax rates to balance their budget, however, CBIT reforms become more attractive while ACE reforms are welfare reducing in a number of countries. European coordination of reforms mitigates fiscal spillovers within the EU and renders ACE reforms more, and CBIT reforms less, attractive for welfare. A combination of ACE and CBIT reforms can be designed to be revenue neutral and welfare improving through smaller financial distortions.
    Keywords: European Union, corporate taxation
    JEL: H25
    Date: 2009–05
  4. By: Philip Du Caju (National Bank of Belgium, boulevard de Berlaimont 14, 1000 Brussels, Belgium.); Gábor Kátay (Magyar Nemzeti Bank, Szabadság tér 8-9, Budapest, 1850 Hungary.); Ana Lamo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Daphne Nicolitsas (Bank of Greece, 21 E. Venizelos Avenue, 102 50 ATHENS, Greece.); Steven Poelhekke (De Nederlandsche Bank, Postbus 98, 1000 AB Amsterdam, The Netherlands.)
    Abstract: This paper documents the existence and main patterns of inter-industry wage differentials across a large number of industries for 8 EU countries (Belgium, Germany, Greece, Hungary, Ireland, Italy, Netherlands, and Spain) at two points in time (in general 1995 and 2002) and explores possible explanations for these patterns. The analysis uses the European Structure of Earnings Survey (SES), an internationally harmonised matched employer-employee dataset, to estimate inter-industry wage differentials conditional on a rich set of employee, employer and job characteristics. After investigating the possibility that unobservable employee characteristics lie behind the conditional wage differentials, a hypothesis which cannot be accepted, the paper investigates the role of institutional, industry structure and industry performance characteristics in explaining inter-industry wage differentials. The results suggest that inter-industry wage differentials are consistent with rent sharing mechanisms and that rent sharing is more likely in industries with firm-level collective agreements and with higher collective agreement coverage. JEL Classification: J31, J41, J51.
    Keywords: inter-industry wage differentials, rent sharing, unobserved ability.
    Date: 2010–04
  5. By: Antonczyk, Dirk; DeLeire, Thomas; Fitzenberger, Bernd
    Abstract: This paper compares trends in wage inequality in the U.S. and Germany using an approach developed by MaCurdy and Mroz (1995) to separate age, time, and cohort effects. Between 1979 and 2004, wage inequality increased strongly in both the U.S. and Germany but there were various country specific aspects of this increase. For the U.S., we find faster wage growth since the 1990s at the top (80% quantile) and the bottom (20% quantile) compared to the median of the wage distribution, which is evidence for polarization in the U.S. labor market. In contrast, we find little evidence for wage polarization in Germany. Moreover, we see a large role played by cohort effects in Germany, while we find only small cohort effects in the U.S.. Employment trends in both countries are consistent with polarization since the 1990s. We conclude that although there is evidence in both the U.S. and Germany which is consistent with a technology-driven polarization of the labor market, the patterns of trends in wage inequality differ strongly enough that technology effects alone cannot explain the empirical findings. --
    Keywords: Wage Inequality,Polarization,International Comparison,Cohort Study,Quantile Regression
    JEL: J30 J31
    Date: 2010
  6. By: Martynova, M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research)
    Abstract: The issue of appropriate corporate governance framework has been a focal point of recent reforms in many countries. This study provides a comprehensive comparative analysis of corporate governance regulatory systems and their evolution over the last 15 years in 30 European countries and the US. It proposes a methodology to create detailed corporate governance indices which capture the major features of capital market laws in the analysed countries. The indices indicate how the law in each country addresses various potential agency conflicts between corporate constituencies: namely, between shareholder and managers, between majority and minority shareholders, and between shareholders and bondholders. The analysis of regulatory provisions within the suggested framework enables us to understand better how corporate law works in a particular country and which strategies regulators adopt to achieve their goals. The 15-year time series of constructed indices and large country-coverage (30 European countries and the US) also allows us to draw conclusions about the convergence of corporate governance regimes across the countries. To our best knowledge, this is the first study that intends to address the convergence debate empirically. The analysis is based on a unique corporate governance database that comprises the main changes in corporate governance regulations in the US and all European countries between 1990-2005.
    Keywords: governance regulation;convergence;corporate governance;agency problem;ownership and control;LLSV
    JEL: G3 G34 G38 K2 K22 K40 G32
    Date: 2010
  7. By: Brinkhuis, S; De Maeseneire, W. (Vlerick Leuven Gent Management School)
    Abstract: This paper examines leverage in European private equity led LBOs. We use a unique, self-constructed sample of 126 European private equity (PE) sponsored buyouts completed between June 2000 and June 2007. We find that determinants derived from classical capital structure theories do not explain leverage in LBOs, while they do drive leverage in a control group of comparable public firms. Rather, we document that leverage levels in LBOs are related to the prevailing conditions in the debt market. In addition, our results indicate that reputed private equity sponsors use more debt and that secondary buyouts have higher leverage levels.
    Keywords: leverage, capital structure, buyouts, LBO, financial flexibility
    Date: 2010–03–05
  8. By: Katalin Erdõs (Department of Economics and Regional Studies, University of Pécs); Attila Varga (Department of Economics and Regional Studies, University of Pécs)
    Abstract: Knowledge flows from universities to the regional economy can take different forms ranging from formal research collaborations to consultancy and informal personal connections. One of the knowledge communication channels drawing substantial interest of both researchers and regional policy makers is academic spin-off firm formation. According to the concept of the “academic entrepreneur” (Etzkowitz) university spin-off firm formation has grown naturally from the academic culture of the US where professors traditionally behave very much like entrepreneurs while setting up and maintaining research labs, hiring research assistants, “marketing” research results in conferences and publications or networking with colleagues and funding agencies. Spinning off a company is just a step forward from such entrepreneurial tasks of academics. Thus according to this concept academic motivations are main drivers in university spin-off firm formation in the US. Despite this challenging view the empirical literature pays relatively little attention to the particular “academic” features of university spin-offs and rarely considers the specificities of university entrepreneurship most notably the role of scientists as entrepreneurs. Empirical evidence suggests that Europe performs less successfully than the US in transferring knowledge from university labs to the regional economy via spin-off companies. One potential reason behind this difference is that institutions that determine the continental European research system hold back the emergence of academic entrepreneurs. Thus it is the main research question in our paper whether those specific “academic” drivers behind university spin-off firm formation are present at all in the continental European context. The related question is whether professional characteristics of the academics, their social capital, the norms of academia and the academic and business environment support or hinder these academic motivations? This paper is based on interviews carried out with university researchers who actively participate in firm formation in Hungary. Hungary is an excellent European case since the features of its university system are rooted in the continental (mainly German) tradition, but it also inherits some characteristics from the even more centralized socialist (soviet) tradition.
    Keywords: University, spin-off, academic entrepreneurship, regional university technology transfer
    JEL: I23 O18 O33 R11
    Date: 2009–12
  9. By: Juan González Alegre (Universidad Pablo de Olavide)
    Abstract: Most of the Structural Actions are designed as an incentive to increase public investment in less-developed areas. However, we suspect that the efficiency of the policy is related to the level of fiscal autonomy of the subsidized government. In this paper we construct a paned data model in order to estimate the role of fiscal federalism on the effectiveness of the EU Structural Actions in enhancing public investment. We use data from the seventeen Spanish regions for the period 1993-2007. The estimation is run upon three alternative strategies: firstly we break the sample according to the level of fiscal autonomy of the units; secondly, we insert an interaction term capturing the join effect of both variables, fiscal decentralization and EU Structural Actions; finally, we estimate a simultaneous equation model in which public investment and the EU transfers are decided simultaneously. Results unambiguously support the hypothesis that the effectiveness of the Structural Funds decreases with larger decentralization. Our results suggest also that this could be due to the fact that regions find it more difficult to be eligible for additional EUSF as they gain fiscal autonomy. The general conclusions include the recommendation that the future design of the European Cohesion policy should take into account the heterogeneity of Fiscal Federalism across the Member States in order to the get the most out of it.
    Keywords: fiscal federalism, intergovernmental grants, European Union, regional policy, panel data, simultaneous equations for panels
    JEL: H72 H77 C33 C23
    Date: 2010
  10. By: Dobrin, Marinica (Universitatea Spiru Haret. Facultatea de Management Financiar Contabil); Nitu, Monica (Universitatea Spiru Haret, Facultatea de Management Financiar Contabil)
    Abstract: The paper contains data and information taken from the work "MODERN FINANCIAL INSTRUMENTS OF THE EUROPEAN UNUION USED IN THE CONTEXT OF THE NEW ECONOMIC AND FINANCIAL CHALLENGES", scientific research detailed study based on the current economic and financial aspects of the national and European economy.
    Keywords: structural funds; cohesion fund; complementary funds
    JEL: A11
    Date: 2010–04–23
  11. By: ZEW
    Abstract: The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). It extends the scope of the calculation of ETRs conducted under the study on effective levels of company taxation within an enlarged EU (2008). The project includes a focus on the effects of tax reforms in the EU27 for the period 1998-2009 and their impact on the level of taxation for both domestic and cross-border investment.
    Keywords: European Union, taxation, corporate taxation, effective tax rates
    JEL: H25
    Date: 2010–03
  12. By: Mohler, Lukas; Seitz, Michael
    Abstract: Over the last decade, European Union members have experienced a dramatic increase in imports. This increase was accompanied by a strong growth in the number of imported goods and trading partners, indicating positive welfare gains for consumers via an extended set of consumption possibilities, as pointed out in the "New Trade Theory". In this paper, we apply the methodology developed by Feenstra (1994) and Broda and Weinstein (2006) to estimate structurally the gains from imported variety for the 27 countries of the European Union using highly disaggregated trade data at the HTS-8 level from Eurostat for the period of 1999 to 2008. Our results show that, within the European Union, especially “newer” and smaller member states exhibit high gains from newly imported varieties. Furthermore, we find that the vast majority of the gains from variety for consumers stem from intra-European Union trade.
    Keywords: European Union; Welfare Gains from Trade; Trade in Variety
    JEL: F12 F14
    Date: 2010–04
  13. By: Dominique Peters
    Abstract: Newly industrialized countries and transition economies are often perceived as a threat to Western countries in public discussion, and concerns about economic 'competitiveness' arise. The present paper focuses on the specific macro-economic term 'price competitiveness'. It analyzes the underlying assumptions of the term, explains how the 'price competitiveness' indicator is composed, and what the restrictions are when applying it to transition economies. When calculating the 'price competitiveness' indicator for Central and Eastern European New Member States of the European Union in the last decade, all ten countries show values that are conventionally understood as a steady 'loss in price competitiveness'. Still, this has not led to lower export growth in the last decade in these countries. Instead, all ten assessed countries show above-average growth in Exports, in Manufacturing goods, and in Gross Domestic Product, compared to the rest of the world. The 'price competitiveness' indicator fails, due to inherent assumptions and technical implications, to explain the Export development in economies that are fastgrowing and going through a process of industrialization - so called 'catch-up economie' - what has been the case in the Central and Eastern European countries in the last decade. The 'price competitiveness' indicator should thus not be applied irrespectively of a country's economic situation.
    Date: 2010
  14. By: Silvia Loriga; Paolo Naticchioni (Univ. of Cassino, Univ. of Rome “La Sapienza”, CeLEG (LUISS-Rome) and ISFOL.)
    Abstract: In the last decade the European Employment Strategy strongly recommended reforms of active labour market policies, reforms that have generated a spread of evaluation exercises for most of European countries. This paper fills the gap in the literature concerning the Italian case, assessing the efficacy of Public Employment Services (PESs) -after the reforms of 1997, 2000, 2003- in increasing the unemployment to employment transition probabilities, through matching techniques. Exploiting the longitudinal dimension of the Labour Force Survey data we design an evaluation structure that allows observing outcomes in both the short (at most 3 months) and the long run (at most 12 and 15 months). In this framework, PES users show a lower probability of finding a job in the short term, because of a lock-in effect, while in the long term this probability turns out to be positive. We also show that PES effects in the long term are much less pronounced when considering as outcome variable the probability of finding a permanent job, a proxy for the quality of the job, suggesting that PES impacts are to a large extent driven by the use of temporary contracts. Furthermore, to deal with issues related to selection on unobservables we carry out two different sensitivity analysis, which confirm our baseline findings.
    Keywords: Public Employment Services, Active Labour Market Policies, European Employment Strategy, Matching, Policy Evaluation
    JEL: J64 J68
    Date: 2010
  15. By: Hansson , Åsa (Department of Economics, Lund University); Olofsdotter, Karin (Department of Economics, Lund University)
    Abstract: Abstract: We empirically analyze the impact of corporate tax rates and agglomeration economies on FDI using panel data on bilateral FDI flows and stocks in the enlarged European Union. The novelty of the paper is that it explicitly deals with agglomeration forces and how these may explain differences in tax policies between new and old member countries. The empirical analysis closely follows the implicit underlying model where the foreign direct investment decision is seen as a two-step procedure that entails: 1) whether or not to invest; and 2) the amount of FDI to invest. Using recent data on corporate tax rates for all 27 EU member countries from 1995-2006, we find that there are large differences in the determinants of FDI going to the EU15 and new member countries. While tax differentials mainly seem to influence FDI flows to new members, agglomeration economies appear to play a somewhat more important role for the amount of investment made within the EU15. In addition, significant differences are found between the determinants of the extensive and intensive margins of the FDI decision.
    Keywords: Corporate taxes; agglomeration economies; foreign direct investment
    JEL: F12 F15 F21 H71
    Date: 2010–03–15
  16. By: Boboc, Cristina; Driouchi, Ahmed; Titan, Emilia
    Abstract: This study looks at how health, education, and economic development are inter-related in the case of Europe. Factorial analyses besides econometric models, implemented on a panel data from EUROSTAT show that the included variables are interrelated. The new members of the European Union are found to be investing in education, research and development and health care. Furthermore, they have high economic growth and high improvements in education and health state indicators. However, the instability and economic risks that have appeared during the transition process do affect the level of social protection. The existing social protection system increases poverty rates and slows the convergence towards developed economies. Two main directions for enhancing human development in EU new member economies are identified. They include the strengthening of the social protection system to target the vulnerable members affected by the transition process besides increasing expenditure on research and development.
    Keywords: Interdependencies; Health; Education; Economic Development
    JEL: D31
    Date: 2010–01–19
  17. By: Elaine Hutson (School of Business, University College Dublin); Anthony O'Driscoll (School of Business, University College Dublin)
    Abstract: Using a sample of 1,154 European firms from 11 countries, we show that firm-level exchange exposure for Eurozone and non-Eurozone European firms has increased since the advent of the euro, but this rise was smaller for Eurozone than non-Eurozone firms. The increase in firmspecific risk is offset by a substantial reduction in market-level exchange exposure in most Eurozone countries, so the advent of the Eurozone appears to have been associated with a shift in exchange risk from systematic to firm-specific. We also find that Eurozone firms’ exchange exposure is greater than that of non-Eurozone European firms, and univariate testing confirms the significance of this difference. In a multivariate setting, however, after controlling for countryspecific and firm-specific characteristics that potentially influence the extent of exposure – economic openness, governance factors, firm size, industry and several financial ratios – this difference is no longer apparent.
    Keywords: foreign exchange exposure, euro, Eurozone, economic openness
    Date: 2010–04–13
  18. By: Pedro Pita Barros (Department of the Universidade Nova de Lisboa (Portugal)); Isabel Medalho Pereira (Human Development Report Office (UNDP))
    Abstract: This paper studies the performance of immigrants relative to natives, in terms of their health status, use of health care services, lifestyles, and coverage of health expenditures. We base the analysis on international evidence that identified a healthy immigrant effect, complemented by empirical research on the Portuguese National Health Survey. Furthermore, we assess whether differences in health performance depend on the personal characteristics of the individuals or can be directly associated with their migration experience.
    Keywords: Migration, health status, health care, healthy immigrant effect, Portugal
    JEL: O1 O15 C3 C33 F22
    Date: 2009–07
  19. By: Jens Hagendorff (University of Leeds); Ignacio Hernando (Banco de España); María J. Nieto (Banco de España); Larry D. Wall (Federal Reserve Bank of Atlanta)
    Abstract: We analyze the takeover premiums paid for a sample of European bank mergers between 1997 and 2007. We find that acquiring banks value profitable, high-growth and low risk targets. We also find that the strength of bank regulation and supervision as well as deposit insurance regimes in Europe have measurable effects on takeover pricing. Stricter bank regulatory regimes and stronger deposit insurance schemes lower the takeover premiums paid by acquiring banks. This result, presumably in anticipation of higher compliance costs, is mainly driven by domestic deals. Also, we find no conclusive evidence that bidders seek to extract benefits from regulators either by paying a premium for deals in less regulated regimes or by becoming "too big to fail".
    Keywords: banks, mergers, premiums, European Union
    JEL: G21 G34 G28
    Date: 2010–04
  20. By: Hess, Wolfgang (Department of Economics, Lund University); Persson, Maria (Department of Economics, Lund University)
    Abstract: The objective of this paper is twofold. First, against the background of an existing empirical literature on the duration of trade which has found that international trade is often of strikingly short duration, we aim to establish whether or not EU imports from the rest of the world also are short-lived. Second, since there is at this point no clear commonly accepted theoretical explanation for these short trade durations, we seek to provide a thorough empirical description and analysis of the phenomenon, with the intention of thereby facilitating theoretical developments on the subject. We employ a rich data set of detailed imports to the EU15 countries from 140 exporters, covering the time period 1962-2006. Using these data, we begin by conducting a thorough descriptive analysis of the duration of EU imports. Thereafter, we perform a regression analysis using discrete-time duration models with proper controls for unobserved heterogeneity. We draw the conclusion that EU imports are indeed very short-lived – in fact, possibly more so than, for example, US imports. The median duration of EU imports is for example merely one year, and almost 60 percent of all spells cease during the first year of service. Among our empirical findings are (i) that the duration of trade remains stable across the long time period that we study; (ii) that short trade durations are the result of at least two processes: countries shifting between different suppliers but continuing to import a given product, and countries ceasing to import the product altogether; and (iii) that countries with a diversified export structure also will tend to have more long-lived export flows. In our formal regression, we are also able to find a set of explanatory variables that have statistically significant effects on the probability that trade flows die.
    Keywords: Duration of Trade; Survival; European Union; Discrete-Time Hazard Models
    JEL: C41 F10 F14
    Date: 2010–04–29

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