nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2012‒09‒09
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Less is More? 20 years of changing minimum income protection for old Europe’s elderly By Tim Goedemé
  2. New aspects of intra-industry trade in EU countries By Ito, Tadashi; Okubo, Toshihiro
  3. Returns To College Over Time: Trends In Europe In The Last 15 Years. Stuck On The Puzzle. By Elena Crivellaro
  4. Ethnic Networks and the Location Choice of Migrants in Europe By Nowotny, Klaus; Pennerstorfer, Dieter
  5. The impact of low emission zones on PM10 levels in urban areas in Germany By Malina, Christiane; Fischer, Frauke
  6. Strategic interactions in public R&D across EU-15 countries: A spatial econometric analysis By Hakim Hammadou; Sonia Paty; Maria Savona
  7. From Empty Pews to Empty Cradles: Fertility Decline Among European Catholics By Eli Berman; Laurence R. Iannaccone; Giuseppe Ragusa
  8. Would Less Fiscal Decentralization Reduce Public Sector Size across Sectors in Europe ? By Michele Cincera; Antonio Estache; Wolf Alexander
  9. Taxation and Labor Supply of Married Women across Countries: A Macroeconomic Analysis By Bick, Alexander; Fuchs-Schündeln, Nicola
  10. European Export Performance. By Cheptea, A.; Fontagné, L.; Zignago, S.
  11. Pipeline Power By Franz Hubert; Onur Cobanli
  12. Too much of a good thing? On the growth effects of the EU's regional policy By Becker, Sascha O.; Egger, Peter H.; Von Ehrlich, Maximilian
  13. Absorptive Capacity and the Growth and Investment Effects of Regional Transfers: Regression Discontinuity Design with Heterogeneous Treatment Effects By Becker, Sascha O; Egger, Peter H; Von Ehrlich, Maximilian
  14. Exports, R&D and Productivity in German Business Services Firms: A test of the Bustos-model By Alexander Vogel; Joachim Wagner
  15. Why to employ both migrants and natives? A study on task-specific substitutability By Anette Haas; Michael Lucht; Norbert Schanne
  16. Self-Financing of Traditional and R&D Investments: Evidence from Italian SMEs By Paola Brighi; Roberto Patuelli; Giuseppe Torluccio
  17. Dynamic market selection in EU business services By Kox, Henk L.M.; Leeuwen, George van
  19. Accrued Pension Rights in Belgium: Micro-Simulation of Reforms By alain Jousten; Sergio Perelman; Fabio Sigismondi; Ekaterina Tarantchenko
  20. Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway By Christoph Basten; Andreas Fagereng; Kjetil Telle

  1. By: Tim Goedemé
    Abstract: Over the past two decades, pension reforms have been at the top of the agenda of social policy makers in Europe. In many countries, these reforms have resulted in less generous public pensions. At the same time, minimum income protection for the elderly has received attention from policy makers, but much less so from social policy researchers. Therefore, in this paper, I explore how benefit levels of non-contributory minimum income schemes for the elderly have evolved between 1990 and 2009 in 13 ‘old’ EU member states. Building on two new cross-national and cross-temporary comparable datasets on minimum income protection in Europe, it is shown that over the past 20 years the erosion of the principal safety net of last resort for elderly persons has been limited. Moreover, in a substantial number of European countries a deliberate policy of large increases in minimum income benefits has been pursued, leading to a remarkable convergence of relative benefit levels.
    Keywords: basic pension, benefit level, conditional basic pension, convergence, elderly, European Unio,n minimum benefit, minimum income protection, minimum pension, social assistance, social pension
    JEL: H55 I38 J26
    Date: 2012–08
  2. By: Ito, Tadashi; Okubo, Toshihiro
    Abstract: Using the HS eight-digit product level trade data of EU countries for the period 1988 – 2010, we analyse Intra-industry trade within EU countries as well as with Eastern European countries and with China. We find the Eastern European countries’ rise up the quality ladder, and by contrast the substantially lower prices of China’s exports to EU countries vis-à-vis China’s imports from them. The contrast between EU trade with the Eastern European countries and with China is present even in very recent years.
    Keywords: Europe, China, International trade, EU, Intra-industry trade, Horizontal and Vertical Product Differentiation, Quality, Unit price gap
    JEL: F13 F14
    Date: 2012–08
  3. By: Elena Crivellaro (University of Padova)
    Abstract: While there has been intense debate in the empirical literature about the evolution of the college wage premium in the US, its evolution in Europe has been given little attention. This paper aims to investigate the evolution of the returns to higher education in 12 European countries from 1994 to 2009. In particular, it explores how does this evolution affect wage inequality and how it differs across age cohorts. The period of interest has seen higher education participation rate increasing dramatically: graduate supply considerably outstripped demand which ought to imply a fall in the premium. I use cross country variation in relative supply, demand and labour market institutions to look at their effects on the trend in the college wage gap. I address possible concerns of endogeneity of relative supply by an instrumental variable strategy. Results show a significant decline of college returns in countries with higher relative supply of skilled workers and a marked fall in college returns for recent cohorts for both men and women in all European countries. find evidence that both market and non market factors matter in explaining wage inequality. More specifically, the estimated growth in the wage gap appears negatively correlated to changes in relative supply and positively correlated with the relative demand index, in particular, in countries with higher relative supply of skilled workers, that present a stronger decline in the returns to college. Institutional constraints also matter.
    JEL: J24 J31 D31 I24
    Date: 2012–07
  4. By: Nowotny, Klaus (University of Salzburg); Pennerstorfer, Dieter (Austrian Institute of Economic Research)
    Abstract: This paper analyzes the role of ethnic networks in the location decision of migrants to the EU at the regional level. Using a random parameters logit specification we find a substantially positive effect of ethnic networks on the location decision of migrants. Furthermore, we find evidence of spatial spillovers in the effect of ethnic networks. Analyzing the trade-off between potential income and network size, we find that migrants would require a sizable compensation for living in a region with a smaller ethnic network, especially when considering regions where only few previous migrants from the same country of origin are located.
    Keywords: network migration; ethnic networks; random parameters logit
    JEL: C35 F22 R23
    Date: 2012–09–03
  5. By: Malina, Christiane; Fischer, Frauke
    Abstract: High levels of particulate matter scaling less than 10 micrometers in diameter (PM10) in many urban areas have led to the introduction of binding PM10 limit values by the European Commission in 2005. Road transport in inner city areas is believed to be one of the main contributors to accumulated PM10 levels and, thus, is the focus of regulation. One of the strongest regulatory mechanisms to meet the new PM10 air quality standard is the introduction of low emission zones (LEZs) in Germany. This policy allows local authorities to define geographical areas in urban agglomerations as LEZs, into which vehicles that do not meet predetermined emission standards are prohibited from entering. This paper evaluates the effectiveness of LEZs on reducing PM10 levels in German cities. We employ a fixed effects panel data model to analyze the effects of LEZs on daily PM10 levels using data from 2000 to 2009. We take into account daily data for meteorological conditions and traffic volume. The results of the analysis reveal that the introduction of LEZs has significantly reduced daily PM10 levels in urban areas. We can also show that PM10 levels are significantly driven down further when LEZ standards in cities become more stringent over time. --
    Keywords: Particulate matter,low emission zones,panel data
    JEL: Q58 R49
    Date: 2012
  6. By: Hakim Hammadou; Sonia Paty; Maria Savona
    Abstract: The aim of this paper is to test the presence of strategic interactions in government spending on Research and Development (R&D) among EU-15 countries. We add to the literature on public choice strategic interactions in general, and to work on R&D spending in particular. We take account of traditional and some overlooked factors related to countries' public R&D spending, including (i) the international context -- i.e. Lisbon strategy; (ii) country characteristics - the National System of Innovation, and more specifically national similarities in relation to (a) trade and economic size and (b) sectoral specialization. Sectoral specialization is likely to affect government spending, depending on the mechanisms of complementarity or substitution between public and private R&D. Using a spatial dynamic panel model in which spatial matrices are specified both in terms of traditional Euclidean distance, and sectoral specialization proximity, we confirm the existence of strategic interactions on R&D spending among European countries with similar economic size, international trade and sectoral structure. Unlike the results emerging from the literature on strategic interactions in public choice, geographic proximity seems not to affect interactions related to public spending on R&D.
    Keywords: Public spending strategic interactions, Public R&D expenditures, National Systems of Innovation, Complementarity public and private R&D, Spatial interactions, EU countries, spatial dynamic panel data
    Date: 2012–08–27
  7. By: Eli Berman; Laurence R. Iannaccone; Giuseppe Ragusa
    Abstract: Catholic countries of Europe pose a demographic puzzle –fertility is unprecedentedly low (total fertility=1.3) despite low female labor force participation. We model three channels of religious effects on demand for children: through changing norms, reduced market wages, and reduced costs of childrearing. We estimate their effects using new panel data on church attendance and clergy employment for thirteen European countries from 1960-2000, spanning the Second Vatican Council (1962-65). Catholic theology is uniform across countries. Yet service varied considerably across countries and over time, especially before the Council, reflecting differences in Church provision of education, health, welfare and other social services. We use differential declines in service provision --measured by nuns/capita-- to identify its effect on fertility, controlling for secular trends. They are large: 300 to 400 children per nun. Reduced religiosity (measured by church attendance) has no effect for Protestants, but predicts fertility decline for Catholics. The data suggest that service provision and religiosity complement each other –a finding consistent with preferential provision of services to church attendees. Nuns outperform priests in predicting fertility, suggesting that the childrearing cost channel dominates theology and norms.
    JEL: H31 H41 I3 I38 J13 J4 Z12
    Date: 2012–08
  8. By: Michele Cincera; Antonio Estache; Wolf Alexander
    Abstract: This paper presents an empirical analysis of the recent impact of fiscal decentralization in Europe on total expenditure for specific government functions as well as on total government size. A panel dataset for the years 2000 to 2009 for European countries has been constructed from EUROSTAT data. The effects of decentralization interact with the degree of vertical imbalances and tend to be negative as predicted by the Leviathan view of government. Effects vary strongly across government functions and are strongest in relative terms for infrastructure and social spending. Moderate restraining effects are found for education, while health spending is not significantly affected
    Date: 2012–08
  9. By: Bick, Alexander; Fuchs-Schündeln, Nicola
    Abstract: We document contemporaneous differences in the aggregate labor supply of married couples across 19 OECD countries. We quantify the contribution of international differences in non-linear labor income taxes and consumption taxes, as well as male and female wages, to the international differences in the data. Our model replicates the comparatively small differences of married men's hours worked very well. Moreover, taxes and wages account for a large part of the observed substantial differences in married women's labor supply between the US and Western, Eastern, and Northern Europe, but cannot explain the low labor supply of married women in Southern Europe.
    Keywords: Hours Worked; Taxation; Two-Earner Households
    JEL: E60 H20 H31 J12 J22
    Date: 2012–09
  10. By: Cheptea, A.; Fontagné, L.; Zignago, S.
    Abstract: Competitiveness has come to the forefront of the policy debate within the European Union, focusing on price competitiveness and intra-EU imbalances. But how to measure properly competitiveness, beyond price or cost competitiveness, remains an open methodological issue; and what is the resilience of producers located in the EU to the competition of emerging economies is disregarded. We analyze the redistribution of world market shares at the level of product variety, as countries no longer specialize in sectors or even products, but in varieties of the same product, sold at different prices. We decompose changes in market shares into structural effects (geographic and sectoral) and a pure performance effect. Our method is based on an econometric shift-share decomposition and we consider the EU-27 as an integrated economy, excluding intra-EU trade. Revisiting the competitiveness issue in such perspective sheds new light on the ongoing debate. From 1995 to 2009 the EU-27 withstood the competition of emerging countries better than the US and Japan. The EU market shares in the upper price range of the market proved quite resilient, by cumulating good performance and favorable structure effects, contrary to the US and Japan. Finally, while most developed countries lose market shares in high-technology products to developing countries, the EU is slightly gaining, benefiting of a favorable structure effect.
    Keywords: International Trade, Export Performance, Competitiveness, Market Shares, Shift-Share, European Union.
    JEL: F12 F15
    Date: 2012
  11. By: Franz Hubert (Humboldt–Universitat zu Berlin); Onur Cobanli (Humboldt–Universitat zu Berlin)
    Abstract: We use cooperative game theory to analyze the impact of three controversial pipeline projects on the power structure in the Eurasian trade of natural gas. Two of them, Nord Stream and South Stream, allow Russian gas to bypass transit countries, Ukraine and Belarus. Nord Stream’s strategic value turns out to be huge, justifying the high investment cost for Germany and Russia. The additional leverage obtained through South Stream, in contrast, appears small. The third project, Nabucco, aims at diversifying Europe’s gas imports by accessing producers in Middle East and Central Asia. It curtails Russia’s power, but the benefits accrue mainly to Turkey, while the gains for the EU are negligible.
    Keywords: Bargaining Power, Network, Trade links, Natural Gas
    JEL: L5 L9 O22
    Date: 2012–09
  12. By: Becker, Sascha O. (University of Warwick); Egger, Peter H. (ETH Zurich); Von Ehrlich, Maximilian (ETH Zurich)
    Abstract: The European Union (EU) provides grants to disadvantaged regions of member states from two pools, the Structural Funds and the Cohesion Fund. The main goal of the associated transfers is to facilitate convergence of poor regions (in terms of per-capita income) to the EU average. We use data at the NUTS3 level from the last two EU budgetary periods (1994-99 and 2000-06) and generalized propensity score estimation to analyze to which extent the goal of fostering growth in the target regions was achieved with the funds provided and whether or not more transfers generated stronger growth effects. We find that, overall, EU transfers enable faster growth in the recipient regions as intended, but we estimate that in 36% of the recipient regions the transfer intensity exceeds the aggregate effciency maximizing level and in 18% of the regions a reduction of transfers would not even reduce their growth. We conclude that some reallocation of the funds across target regions would lead to higher aggregate growth in the EU and could generate even faster convergence than the current scheme does.
    Keywords: EU regional policy; Regional growth; Generalized; propensity score estimation; Quasi-randomized experiment
    Date: 2012
  13. By: Becker, Sascha O (University of Warwick); Egger, Peter H (ETH Zurich); Von Ehrlich, Maximilian (ETH Zurich)
    Abstract: Researchers often estimate average treatment eects of programs without investigating heterogeneity across units. Yet, individuals, rms, regions, or countries vary in their ability, e.g., to utilize transfers. We analyze Objec- tive 1 Structural Funds transfers of the European Commission to regions of EU member states below a certain income level by way of a regression dis- continuity design with systematically heterogeneous treatment eects. Only about 30% and 21% of the regions { those with sucient human capital and good-enough institutions { are able to turn transfers into faster per-capita income growth and per-capita investment. In general, the variance of the treatment effect is much bigger than its mean.
    Keywords: Regional transfers; Absorptive capacity; Heterogeneous local average treatment effects; Regression discontinuity design.
    Date: 2012
  14. By: Alexander Vogel (Leuphana University Lueneburg, Germany); Joachim Wagner (Leuphana University Lueneburg, Germany)
    Abstract: This paper uses newly available data for German business services firms to test a hypothesis derived by Bustos (AER 2011) in a model that explains the decision of heterogeneous firms to export and to engage in R&D. Using a non-parametric test for first order stochastic dominance it is shown that, in line with this hypothesis, the productivity distribution of firms with exports and R&D dominates that of exporters without R&D, which in turn dominates that of firms that neither export nor engage in R&D. These results are in line with findings for firms from manufacturing industries. The model, therefore, seems to be useful to guide empirical work on the relation between exports, R&D and productivity for services firms, too.
    Keywords: Exports, R&D, productivity, business services firms, Germany
    JEL: F14
    Date: 2012–08
  15. By: Anette Haas (Institut für Arbeitsmarkt- und Berufsforschung (IAB)); Michael Lucht (Institut für Arbeitsmarkt- und Berufsforschung (IAB)); Norbert Schanne (Institut für Arbeitsmarkt- und Berufsforschung (IAB))
    Abstract: This paper analyzes the performance of migrants on the German labor market and its dependence on the tasks performed on their jobs. Recent work suggests quantifying the imperfect substitutability relationship between migrants and natives as a measure for the hurdles migrants have to face. Our theoretical work adopts that migrant shares are very heterogeneous across firms which is hard to reconcile with an aggregate production function. We argue that the ability to integrate migrants may form a competitive advantage for firms. We show in a Melitz-type framework that the output reaction to wage changes varies across firms. Hence, substitution elasticities of an aggregate production function can be quite different from those individual firms are faced with. Finally we estimate elasticities of substitution for different aggregate CES-nested production functions for Germany between 1993 and 2008 using administrative data and taking into account the task approach. We find significant variation in the substitutability between migrants and natives across qualification levels and tasks. We show that especially interactive tasks seem to impose hurdles for migrants on the German labor market.
    Keywords: Heterogeneity, Migrants, Substitution Elasticity, Tasks
    JEL: J15 J24 J31
    Date: 2012–08
  16. By: Paola Brighi (Department of Management, University of Bologna, Italy; Centro Studi Banca e Finanza (CEFIN), Italy; The Rimini Centre for Economic Analysis (RCEA), Italy); Roberto Patuelli (Department of Economics, University of Bologna, Italy; The Rimini Centre for Economic Analysis (RCEA), Italy); Giuseppe Torluccio (Department of Management, University of Bologna, Italy; Centro Studi Banca e Finanza (CEFIN), Italy)
    Abstract: Self-financing has often been seen as an important source for research-and-development (R&D) funding. However, an in-depth comparison between the determinants of self-financing in the case of traditional investments versus those in R&D has not been provided yet. We use a comprehensive data set of Italian manufacturing firms to investigate this issue. We analyse the role of a wide number of financial variables in driving the rate of self-financing of firms, in both traditional and R&D investments, and we focus on public subsidies and firm size as critical factors explaining heterogeneity. First, we perform logit and logistic regressions separately for traditional and R&D self-financing, finding that they are positively correlated, and that the availability of public subsidies reduces self-financing. Subsequent poolability tests show that public subsidies and firm size are crucial discriminating factors for self-financing behaviour. Our main finding is that, in the absence of public subsidies, no internal or external market variable is able to explain the firms’ financing decisions. Furthermore, our analyses generally show that credit constraints and banking relationship variables are relevant in determining traditional investment self-financing, while no clear statistical evidence is found in the R&D case. Credit rationing is not significant for R&D self-financing, which may be explained by rationed firms being left out of our sample.
    Keywords: SMEs; R&D investments; Corporate structure; Poolability test
    JEL: D45 D82 E51 G21 G32 O32
    Date: 2012–08
  17. By: Kox, Henk L.M.; Leeuwen, George van
    Abstract: European business services has witnessed about two decades of virtual productivity stagnation. The paper investigates whether this is caused by weak dynamic market selection. The time pattern of scale-related inefficiencies is used as an indicator for the effectiveness of market selection. We use a DEA method to construct the productivity frontier by sub-sector and size class, for business services in 13 EU countries. From this we derive scale economies and their development over time. Between 1999 and 2005 we observe a persistence of scale inefficiencies and X-inefficiencies , with scale efficiency falling rather than growing over time. This indicates malfunctioning competitive selection. The time pattern of inefficiencies is significantly explained by regulatory policies that hamper entry and exit dynamics and labour adjustment, and by a lack of import penetration. The results suggest that policy reform and more market openness will have positive productivity effects. This holds for business services itself, but also wider, because of business services’ products are widely used as intermediary inputs in other parts of the European economy.
    Keywords: competition; scale economies; market contestability; regulation; EU; productivity
    JEL: L11 L8 D24
    Date: 2012–09
  18. By: Tiiu Paas; Vivika Halapuu
    Abstract: The paper is aiming to clarify the possible determinants of peoples’ attitudes towards immigrants depending on their personal characteristics as well as attitudes towards households’ socio-economic stability and a country's institutions relying on the data of the European Social Survey fourth round database. The study is intending to provide empirical evidence-based grounds for the development of policy measures to integrate ethnically diverse societies, taking into account the composition of the country's population as well as other country’s peculiarities. The results of the empirical analysis are consistent with several theories explaining individual and collective determinants of people’s attitudes towards immigrants. Ethnic minorities, urban people, people with higher education and higher income, as well as people who have work experience abroad are, as a rule, more tolerant towards immigrants in Europe. Furthermore, people whose attitudes to socio-economic risks are lower and who evaluate the political and legal systems of a country and its police higher (e.g. political trust) are more tolerant towards immigrants. Respondents’ labour market status of (employed, unemployed) does not have a statistically significant relationship with their attitudes towards immigrants. In addition to the respondent’s personal characteristics and their attitudes, the collective determinants depending on country specific conditions measured by country dummies are valid in explaining people’s attitudes towards immigration.
    Keywords: edattitudes, immigration, tolerance, economic growth, policy implications, Baltic States
    JEL: O40 R11 C31 P51
    Date: 2012
  19. By: alain Jousten; Sergio Perelman; Fabio Sigismondi; Ekaterina Tarantchenko
    Abstract: We simulate different reform scenarios of the Belgian pension system using a micro-simulation approach. Using a rich administrative dataset with extensive information on individual earnings histories, we evaluate the impact of the scenarios for the individuals as well as the system as a whole. Our main metric for these analysis is the notion of accrued to date pension rights, i.e. the pensions rights that would be due if the system were shut down today and all accrued rights under current legislation were honored. Our analysis illustrates that partial reforms have limited effects, both in distributional and in fiscal terms. To achieve more substantial effects, a more comprehensive approach is needed. Regional differences within the country are mostly due to differences in regional GDP rather than the pension system itself.
    Date: 2012
  20. By: Christoph Basten; Andreas Fagereng; Kjetil Telle
    Abstract: We identify the causal effect of lump-sum severance payments on nonemployment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a severance payment worth 1.2 months’ earnings at the median lowers the fraction re-employed after a year by seven percentage points. Data on household wealth enable us to verify that the effect is decreasing in prior wealth, which favors an interpretation as liquidity constraints over the alternative of mental accounting. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, means they are likely to exist also in other countries.
    Keywords: Unemployment, Optimal Unemployment Insurance, Liquidity Constraints, Mental Accounting, Severance Pay, Regression Discontinuity Design
    JEL: C41 E21 E24 J65
    Date: 2012

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