nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2012‒07‒14
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Cross-Border Electricity Transmission Investments By Matti Supponen
  2. German Nuclear Phase-out Policy: Effects on European Electricity Wholesale Prices, Emission Prices, Conventional Power Plant Investments and Eletricity Trade By Thure Traber; Claudia Kemfert
  3. Regulatory Reform and Corporate Control in European Energy Industries By John J. García and Francesc Trillas
  4. Migration and Imperfect Labor Markets: Theory and Cross-country Evidence from Denmark, Germany and the UK By Herbert Brücker; Elke Jahn; Richard Upward
  5. Evaluating the possible impact of pension reforms on future living standards in Europe By Grech, Aaron George
  6. How policy matters: Germany’s parental leave benefit reform and fathers’ behavior 1999-2009 By Esther Geisler; Michaela Kreyenfeld
  7. Optimization of power plant investments under uncertain renewable energy development paths - A multistage stochastic programming approach By Fürsch, Michaela; Nagl, Stephan; Lindenberger, Dietmar
  8. The Rise of the East and the Far East: German Labor Markets and Trade Integration By Dauth, Wolfgang; Findeisen, Sebastian; Suedekum, Jens
  9. Building gas markets: US versus EU, market versus market model By Miguel Vazquez, Michelle Hallack and Jean-Michel Glachant
  10. The impact of China on manufacturing exports of Italy and Germany By Giorgia Giovannetti, Marco Sanfilippo and Margherita Velucchi
  11. Cross-Border and Foreign-Affiliate Sales of Services: Evidence From German Micro-Data By Kelle, Markus; Kleinert, Jörn; Raff, Horst; Toubal, Farid
  12. Benchmarking Unemployment Benefits in the EU By Stovicek, Klara; Turrini, Alessandro
  13. Immigrant Homeownership and Immigration Status: Evidence from Spain By Amuedo-Dorantes, Catalina; Mundra, Kusum
  14. Overeducation among Immigrants in Sweden: Incidence, Wage Effects and State-Dependence By Andersson Joona, Pernilla; Datta Gupta, Nabanita; Wadensjö, Eskil
  15. Measuring Vulnerability to Poverty Using Long-Term Panel Data By Katja Landau; Stephan Klasen; Walter Zucchini
  16. Independent Schools and Long-Run Educational Outcomes: Evidence from Sweden's Large Scale Voucher Reform By Böhlmark, Anders; Lindahl, Mikael
  17. The cycle of earnings inequality: evidence from spanish social security data By Stéphane Bonhomme; Laura Hospido
  18. A common corporate tax base for Europe: An impact assessment of the draft council directive on a CC(C)TB By Spengel, Christoph; Ortmann-Babel, Martina; Zinn, Benedikt; Matenaer, Sebastian
  19. Cost Incentives in European Football By Feddersen, Arne; Humphreys, Brad; Soebbing, Brian
  20. Does Consumption Decline at Retirement?: Evidence from Repeated Cross-Section Data for Germany By Martin Beznoska; Viktor Steiner

  1. By: Matti Supponen
    Abstract: The objective of this paper is to analyse what targets and criteria should be followed for electricity transmission investments which would be beneficial for Europe. The paper indicates that there is serious underinvestment in the European transmission network from the overall welfare point of view. The paper demonstrates that in transmission investments there is an important dimension of welfare distribution between the countries connected but also within the countries due to the change in the market outcome when an interconnector is built. The paper shows that it is possible to develop objective criteria for interconnector investments. Social welfare benefits from price arbitrage should be one criterion but several other criteria should be used as well including price convergence, security of supply and competition benefits. Flaws in market design, capacity calculation and capacity allocation need to be addressed to provide efficient signals for interconnector investments. This should include designing of optimal price zones for Europe.
    Keywords: Electricity transmission network; investments
    Date: 2012–02–24
  2. By: Thure Traber; Claudia Kemfert
    Abstract: The German decision to finally phase-out nuclear electricity has led to a debate on its effects on electricity prices, emission prices in the European emission trading system, as well as on international electricity trade. We investigate these effects with a Electricity market model for Europe with investments in power plants under oligopolistic conditions in Germany. We find modest price increases on the German wholesale market by the mid-term 2020 and an effect of the accelerated nuclear phase- out of between four and twelve percent. Moreover, the increase in the emission allowance prices due to the change in nuclear policy is between 1:8 and 3 Euro per ton of CO2 by the same period. The large variations in our results are induced by four combinations of the European emission trading policy and the success of the German energy efficiency policy. Most pronounced price effects are found in scenarios with a successful energy savings policy, which acts as a substitute for new power plants. Moreover, the tighter the emission trading system is, the larger are the effects of the accelerated phase-out on electricity and emission prices. Under a tight system, however, investments in conventional generation are likely to be dominated by natural gas fired plants since the decrease of utilization rates induced by renewable energies are more important for coal fired power plants with their relative high investment costs.
    Keywords: energy modeling; nuclear phase-out; climate policy; oligopoly
    JEL: C63 L13 L94 Q38
    Date: 2012
  3. By: John J. García and Francesc Trillas
    Abstract: The deregulation process in the EU electricity sector triggered strategic decisions that led to industry restructuring. This paper presents preliminary evidence of the impact of this process on investors, using event studies and estimation techniques such as least squares and GARCH. Our findings suggest three stylized facts: 1) regulatory reform in Europe was certainly accompanied by a takeover wave, as predicted by Mitchell and Mulherin (1996); 2) mergers and acquisitions had a positive impact on the stock price of target firms, and a much lower and sometimes even a negative impact for the bidding firms; 3) the effect of takeover announcements on the returns of competitors of the merging firms depends on the degree of market power. In countries with high market power (like Spain) competitors significantly increase share returns upon takeover announcements, whereas in countries with lower market power (like England and Wales) returns do not change significantly.
    Keywords: Companies; Electricity supply industry deregulation; Oligopoly; Stock Market
    Date: 2012–06–22
  4. By: Herbert Brücker (University of Bamberg, IAB Nürnberg, and IZA Bonn); Elke Jahn (IAB Nürnberg, Arhus University, and IZA Bonn); Richard Upward (University of Nottingham)
    Abstract: We investigate the labor market effects of immigration in Denmark, Germany and the UK, three countries which are characterized by considerable differences in labor market institutions and welfare states. Institutions such as collective bargaining, minimum wages, employment protection and unemployment benefits affect the way in which wages respond to labor supply shocks, and, hence, the labor market effects of immigration. We employ a wage-setting approach which assumes that wages decline with the unemployment rate, albeit imperfectly. We find that wage flexibility is substantially higher in the UK compared to Germany and, in particular, Denmark. As a consequence, immigration has a much larger effect on the unemployment rate in Germany and Denmark, while the wage effects are larger in the UK. Moreover, the elasticity of substitution between natives and foreign workers is high in the UK and particularly low in Germany. Thus, the preexisting foreign labor force suffers more from further immigration in Germany than in the UK.
    Keywords: immigration, unemployment, wages, labor markets, panel data, comparative studies.
    JEL: F22 J31 J61
    Date: 2012–07
  5. By: Grech, Aaron George
    Abstract: Successive reforms enacted since the 1990s have dramatically changed Europe’s pensions landscape. This paper tries to assess the impact of recent reforms on the ability of systems to alleviate poverty and maintain living standards, using estimates of pension wealth for a number of hypothetical cases. By focusing on all prospective pension transfers rather than just those at the point of retirement, this approach can provide additional insights on the efficacy of pension systems in the light of increasing longevity. Our estimates indicate that while reforms have decreased generosity significantly, in most countries poverty alleviation remains strong. However, moves to link benefits to contributions have made some systems less progressive, raising adequacy concerns for certain groups. In particular, unless the labour market outcomes of women and of lower-income individuals change substantially over the coming decades, state pension transfers will prove inadequate, particularly in Eastern European countries. Similarly while the generosity of minimum pensions appears to have either been safeguarded by pension reforms, or improved in some cases, these transfers generally remain inadequate to maintain individuals above the 60% relative poverty threshold throughout retirement. Our simulations suggest that the gradual negative impact of price indexation on the relative adequacy of state pensions is becoming even more substantial in view of the lengthening of the time spent in receipt of retirement benefits. The consumption smoothing function of state pensions has declined noticeably, strengthening the need for longer careers and additional private saving. When pressed, policymakers, particularly in Western Europe, seem to have been more willing to sacrifice the income smoothing function of pensions rather than its poverty alleviation function. Policymakers in some counties, notably Germany, France and the UK, have sought to refocus state pension systems towards generating better outcomes for people in the bottom half of the income distribution, probably with the insight that middle- to high-income individuals are possibly in a better position to accommodate the effect of state pension reforms by increasing their private saving. However in some cases, notably in Eastern Europe, results suggest that policymakers may not have fully considered the full impact of their policies on those on low incomes, on those with incomplete careers and on women.
    Keywords: Social Security; Public Pensions; Retirement; Poverty; Retirement Policies
    JEL: H55 I38 J26
    Date: 2012–05
  6. By: Esther Geisler (Max Planck Institute for Demographic Research, Rostock, Germany); Michaela Kreyenfeld (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: In 2007, Germany enacted a radical new parental leave benefit scheme that grants parents 67 percent of their previous income, and includes two “daddy months.” In this paper, we use data from the German Microcensus for the period 1999 to 2009 to explore how this reform has changed fathers’ use of parental leave. We find strong overall increase in parental leave usage among men. Two groups of men in particular changed their behavior: highly educated men and fathers who are on fixed-term employment contracts.
    Keywords: Germany, family
    JEL: J1 Z0
    Date: 2012–07
  7. By: Fürsch, Michaela (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Nagl, Stephan (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Lindenberger, Dietmar (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: Electricity generation from renewable energy sources (RES-E) is supposed to increase signi ficantly within the coming decades. However, uncertainty about the progress of necessary infrastructure investments, public acceptance and cost developments of renewable energies renders the achievement of political plans uncertain. <p> Implementation risks of renewable energy targets are challenging for investment planning, because different RES-E shares fundamentally change the optimal mix of dispatchable power plants. Speci cally, uncertain future RES-E deployment paths induce uncertainty about the steepness of the residual load duration curve and the hourly residual load structure. <p> In this paper, we show how uncertain future RES-E penetrations impact the electricity system and try to quantify effects for the Central European power market. We use a multi-stage stochastic investment and dispatch model to analyze effects on investment choices, electricity generation and system costs. Our main findings include that the uncertain achievement of RES-E targets signi ficantly effects optimal investment decisions. <p> First, a higher share of technologies with a medium capital/operating cost ratio is cost-efficient. Second, the value of storage units in systems with high RES-E penetrations might decrease. Third, in the case of the Central European power market, costs induced by the implementation risk of renewable energies seem to be rather small compared to total system costs.
    Keywords: Multi-Stage Stochastic Programming; Renewable Energy; Power Plant Optimization
    JEL: C61 C63 Q40
    Date: 2012–05–09
  8. By: Dauth, Wolfgang (Institute for Employment Research (IAB), Nuremberg); Findeisen, Sebastian (University of Zurich); Suedekum, Jens (University of Duisburg-Essen)
    Abstract: We analyze the effects of the unprecedented rise in trade between Germany and "the East" – China and Eastern Europe – in the period 1988–2008 on German local labor markets. Using detailed administrative data, we exploit the cross-regional variation in initial industry structures and use trade flows of other high-income countries as instruments for regional import and export exposure. We find that the rise of "the East" in the world economy caused substantial job losses in German regions specialized in import-competing industries, both in manufacturing and beyond. Regions specialized in export-oriented industries, however, experienced even stronger employment gains and lower unemployment. In the aggregate, we estimate that this trade integration has caused some 493,000 additional jobs in the economy and contributed to retaining the manufacturing sector in Germany. We also conduct our analysis at the individual worker level, and find that trade had a stabilizing overall effect on employment relationships.
    Keywords: international trade, import competition, export opportunities, local labor markets, employment, China, Eastern Europe, Germany
    JEL: F16 J31 R11
    Date: 2012–06
  9. By: Miguel Vazquez, Michelle Hallack and Jean-Michel Glachant
    Abstract: The liberalization process of the gas sector has showed that the reasoning to introduce competition in gas industries separates the services in at least two groups: commodities with relatively low transaction costs, and hence suitable to short-term market coordination, and network services which concentrate most of the specificities related to the physical flows. However, the way to coordinate such network services is still under debate. In this view, in USA specific services are coordinated through long term contracts, whereas the EU regulatory frame socializes the costs of the network services. In this paper, we develop a general analysis of the major consequences of this fundamental regulatory choice. In addition, we build on such analysis to explain the differences among the current proposals to design the coming European Internal Market.
    Keywords: Volume coupling; market coupling; implicit allocation
    Date: 2012–02–22
  10. By: Giorgia Giovannetti, Marco Sanfilippo and Margherita Velucchi
    Abstract: This paper analyses the impact of China on the export performance of Italy and Germany to their main trading partners in the OECD markets. Given a strong specialization in the manufacturing sector, these two countries are exposed to China’s competition. Italy, with a productive structure based on so-called “traditional” sectors, is likely to be more vulnerable to China’s competitive pressure. Using data for the period 1995-2009, this paper estimates the impact of China on Italy and Germany’s market shares at a very disaggregated sector level. Results show that China has affected Italy’s and Germany’s market shares in different ways, especially during the post-WTO accession period, being on average more harmful for the former.
    Keywords: China; Gravity Model; Market Shares; F-10; F-14
    Date: 2012–06–13
  11. By: Kelle, Markus; Kleinert, Jörn; Raff, Horst; Toubal, Farid
    Abstract: We merge German balance-of-payments and foreign-affiliate-trade statistics to obtain data about trade in commercial services at the firm level. We use these data to study export market participation and the choice of export mode: cross-border versus foreign-affiliate sales. We find that for firms in our sample productivity is both a statistically significant and economically important determinant of the export participation and export mode choice. We also identify the role of industry- and country-specific determinants.
    Keywords: commercial presence; firm heterogeneity; foreign direct investment; international trade; multinational enterprises; supply modes; trade in services
    JEL: F12 F15 L13
    Date: 2012–06
  12. By: Stovicek, Klara (European Commission); Turrini, Alessandro (European Commission)
    Abstract: This paper proposes a methodology for benchmarking unemployment benefits systems, with a view to assess reform needs and priorities. The methodology permits to assess different dimensions of unemployment benefit systems and to consider alternative relevant benchmarks. Looking at all relevant dimensions allows to better gauge how unemployment benefit systems perform in terms of their multi-faceted objectives (such as income support and stabilisation, incentives to take up work) and to have a more thorough assessment of each objective. Comparisons with alternative benchmarks offer the possibility of assessing against more meaningful country comparators, which take into account similarities in terms of economic fundamentals, institutions and policy settings. The methodology is applied to EU countries and results are discussed.
    Keywords: unemployment insurance, unemployment assistance, tax and benefit policies, benchmarking, flexicurity
    JEL: J65 J68 H20 H53
    Date: 2012–06
  13. By: Amuedo-Dorantes, Catalina (San Diego State University, California); Mundra, Kusum (Rutgers University)
    Abstract: Because of the many advantages of homeownership for immigrants and for the communities where immigrants reside, a variety of countries have implemented policies that facilitate immigrant homeownership. Although these policies hinge on immigration status, the link between immigration status and homeownership is yet to be carefully explored. Using a recent survey of immigrants in Spain, we find that permanent residents from the EU15 enjoy the highest homeownership rates, even after accounting for a wide range of individual and family characteristics known to impact housing ownership. Permanent residents from countries outside the EU15, temporary residents and undocumented immigrants are, respectively, 12 percentage-points, 29 percentage-points and 33 percentage-points less likely to own a home than permanent residents from the EU15. Overall, the findings highlight the differences in homeownership by immigrant status, possibly reflecting differences in cultural adaptation and integration across immigrants in host country.
    Keywords: immigrant homeownership, immigration status, Spain
    JEL: R21 J61
    Date: 2012–06
  14. By: Andersson Joona, Pernilla (SOFI, Stockholm University); Datta Gupta, Nabanita (University of Aarhus); Wadensjö, Eskil (Stockholm University)
    Abstract: The utilization and reward of the human capital of immigrants in the labor market of the host country has been studied extensively. In the Swedish context this question is of great policy relevance due to the high levels of refugee migration and inflow of tied movers. Using Swedish register data covering the period 2001-2008, we analyze the incidence and wage effects of overeducation among non-Western immigrants. We also analyze whether there is state-dependence in overeducation and extend the immigrant educational mismatch literature by investigating whether this is a more severe problem among immigrants than among natives. In line with previous research we find that the incidence of overeducation is higher among immigrants and the return to overeducation is lower indicating that immigrants lose more from being overeducated. We find a high degree of state-dependence in overeducation both among natives and immigrants, but to a higher extent among immigrants.
    Keywords: educational mismatch, immigrants, wages, state-dependence
    JEL: J61 I21 J24 J31 F22
    Date: 2012–06
  15. By: Katja Landau (Georg-August-University Göttingen); Stephan Klasen (Georg-August-University Göttingen); Walter Zucchini (Georg-August-University Göttingen)
    Abstract: We investigate the accuracy of ex ante assessments of vulnerability to income poverty using cross-sectional data and panel data. We use long-term panel data from Germany and apply different regression models, based on household covariates and previous-year equivalence income, to classify a household as vulnerable or not. Predictive performance is assessed using the Receiver Operating Characteristics (ROC), which takes account of false positive as well as true positive rates. Estimates based on cross-sectional data are much less accurate than those based on panel data, but for Germany, the accuracy of vulnerability predictions is limited even when panel data are used. In part this low accuracy is due to low poverty incidence and high mobility in and out of poverty.
    Keywords: vulnerability; poverty; ROC; German panel data
    JEL: C23 C52 I32 O29
    Date: 2012–07–06
  16. By: Böhlmark, Anders (SOFI, Stockholm University); Lindahl, Mikael (Uppsala University)
    Abstract: This paper evaluates average educational performance effects of an expanding independent-school sector at the compulsory level by assessing a radical voucher reform that was implemented in Sweden in 1992. Starting from a situation where all public schools were essentially local monopolists, the degree of independent schools has developed very differently across municipalities over time as a result of this reform. We regress the change in educational performance outcomes on the increase in the share of independent-school students between Swedish municipalities. We find that an increase in the share of independent-school students improves average performance at the end of compulsory school as well as long-run educational outcomes. We show that these effects are very robust with respect to a number of potential issues, such as grade inflation and pre-reform trends. However, for most outcomes, we do not detect positive and statistically significant effects until approximately a decade after the reform. This is notable, but not surprising given that it took time for independent schools to become more than a marginal phenomenon in Sweden. We do not find positive effects on school expenditures. Hence, the educational performance effects are interpretable as positive effects on school productivity. We further find that the average effects primarily are due to external effects (e.g., school competition), and not that independent-school students gain significantly more than public-school students.
    Keywords: school choice, independent schools, educational performance, external effects
    JEL: I2 H4
    Date: 2012–06
  17. By: Stéphane Bonhomme (CEMFI); Laura Hospido (Banco de España)
    Abstract: We use detailed information on labor earnings and employment from Social Security records to document earnings inequality in Spain from 1988 to 2010. Male earnings inequality was strongly countercyclical: it increased around the 1993 recession, showed a substantial decrease during the 1997-2007 expansion and then a sharp increase during the recent recession. These developments were partly driven by the cyclicality of employment and earnings in the lower-middle part of the distribution. We emphasize the importance of the housing boom and subsequent housing bust, and show that demand shocks in the construction sector significantly impacted aggregate labor market outcomes
    Keywords: Earnings inequality, social security data, unemployment, business cycle
    JEL: D31 J21 J31
    Date: 2012–07
  18. By: Spengel, Christoph; Ortmann-Babel, Martina; Zinn, Benedikt; Matenaer, Sebastian
    Abstract: After intensive and extensive preparation, the European Commission released the long-awaited proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) on March 16, 2011. In the context of the Europe 2020 Strategy, major objectives of the proposed CCCTB are the elimination of transfer pricing concerns, the removal of double taxation due to conflicting tax claims between Member States and, ofcourse, the reduction of tax compliance costs. However, as the second and the third step of the proposed CCCTB, i.e. the consolidation and the allocation mechanism, still suffer from considerable shortcomings, we recommend introducing the CCCTB in two steps. In this context, our paper focuses on the first step of a CCCTB, i.e. the common corporate tax base (CCTB). The paper combines qualitative and quantitative analyses on the key differences and similarities between the proposed CCTB and current tax accounting practice in all 27 Member States, Switzerland and the U.S. It offers not only a broad geographical scope, but also great detail in analyzing the differences in tax accounting and quantifying the change in tax burden induced by the introduction of a CCTB in each Member State, Switzerland and the U.S. --
    Keywords: CCCTB,Corporate Taxation,Effective Tax Burden,European Tax Analyzer
    JEL: H20 H25
    Date: 2012
  19. By: Feddersen, Arne (University of Southern Denmark); Humphreys, Brad (University of Alberta, Department of Economics); Soebbing, Brian (Louisiana State University)
    Abstract: We examine the effects of financial incentives on effort supplied by football clubs in European domestic leagues. Tournament theory predicts that the amount of effort supplied varies with returns to effort. We analyze variation in 31,746 domestic league match outcomes in ten European leagues over eleven seasons, exploiting the actual standings on the league table to generate variables reflecting incentives to provide effort in each match. Results from ordered logit regressions indicate that the effort implied by observed match outcomes support the predictions of tournament theory in this setting; clubs supply more or less effort in response to changes in incentives.
    Keywords: effort supply; football; UEFA Champions League
    JEL: J01 J33 L83
    Date: 2012–07–01
  20. By: Martin Beznoska; Viktor Steiner
    Abstract: The life-cycle hypothesis implies that consumption would not decline at retirement. However, several studies found relevant declines in food consumption after retirement for the United States. Others concluded that this contradiction of the life-cycle hypothesis is solved by allowing for broader measures of consumption than food. Using repeated cross-section data for Germany, this paper analyzes the retirement consumption puzzle for the German case. For our broadest consumption measure, which includes the flow of durables' consumption, we find, on average, no significant consumption decline at retirement. This also holds if the potential endogeneity of indidual retirement is controlled for in instrumental variable regressions. We also find heterogeneity in retirement effects among birth cohorts, the level of household wealth, and the level of consumption, but these effects do not support the hypothesis that retirement is associated with a strong reduction of consumption among poorer households.
    Keywords: Retirement consumption puzzle, life-cycle hypothesis, wealth effects, repeated cross-section data
    JEL: D12 D91 H31 H55
    Date: 2012

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