nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2012‒10‒06
twenty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Incomplete specialization and offshoring across Europe By Richard Frensch; Jan Hanousek; Evžen Kočenda
  2. The division of parental transfers in Europe By Javier Olivera Angulo
  3. Innovation and spatial inequality in Europe and USA By Lee, Neil; Rodríguez-Pose, Andrés
  4. Human Trafficking, a Shadow of Migration: Evidence from Germany By Seo-Young Cho
  5. On the (In) Effectiveness of Policies to Promote Broadband Diffusion in Europe (2003-2010): An Econometric Assessment By Michele Cincera; Antonio Estache; Lauriane Dewulf
  6. Real Convergence in Europe: A Cluster Analysis By Juan Carlos Cuestas; Mercedes Monfort; Javier Ordóñez
  7. Cooperation mechanisms to achieve EU renewable targets By Klinge Jacobsen, Henrik; Hansen, Lise-Lotte P; Schröder, Sascha T; Kitzing, Lena
  8. CO2 Abatement from RES Injections in the German Electricity Sector: Does a CO2 Price Help? By Ellerman Denny; Delarue Erik; Hannes Weigt
  9. Physical limitations, depressive symptoms and cognitive problems: exploring the complex structure of un-health among older people in Italy By Marco Fuscaldo
  10. Political Risk, Institutions and Foreign Direct Investment: How Do They Relate in Various European Countries? By Vladimír Benácek; Helena Lenihan; Bernadette Andreosso-O’Callaghan; Eva Michalíková; Denis Kan
  12. Are new social risk expenditures crowding out the old? By Leen Meeusen; Annemie Nys
  13. Why Are Educated and Risk-Loving Persons More Mobile Across Regions? By Bauernschuster, Stefan; Falck, Oliver; Heblich, Stephan; Suedekum, Jens
  14. Trade-offs between environmental regulation and market competition: airlines, emission trading systems and entry deterrence By Cristina Barbot; Ofelia Betancor; M. Pilar Socorro; M. Fernanda Viecens
  15. The power of beliefs: Evidence on the influence of trust on self-assessed health By Martin Ljunge
  16. Heterogeneity of Regional Growth in the European Union By Martin Wagner; Achim Zeileis
  17. Misery Loves Company: Exogenous Shocks in Retirement Expectations and Social Comparison Effects on Subjective Well-Being By Montizaan, Raymond; Vendrik, Maarten
  18. Perceived Internet privacy concerns on social network in Europe By Cecere, Grazia; Le Guel, Fabrice; Soulié, Nicolas
  19. Projecting the future cost of the French elderly disabled allowance using a microsimulation model By C. MARBOT; D. ROY
  20. The French tax credit dedicated to sustainable development: an econometric evaluation By A. MAUROUX

  1. By: Richard Frensch; Jan Hanousek; Evžen Kočenda
    Abstract: Research for evidence on offshoring activities and its driving forces has been done by analyzing gross trade flows related to offshoring using gravity equations augmented by ad hoc measures of supply-side country differences. We develop a specification grounded in incomplete specialization that views bilateral gravity equations as statistical relationships constrained on countries’ multilateral specialization patterns. We apply this approach to an empirical analysis of the European trade in parts and components. Our results bring evidence that bilateral trade related to offshoring activities across Europe is driven by countries’ multilateral specialization incentives that are expressed by specific supply-side country differences relative to the rest of the world.
    Keywords: International trade, gravity model, offshoring, panel data, European Union
    JEL: F14 F16 L24
    Date: 2012–09
  2. By: Javier Olivera Angulo (University College Dublin)
    Abstract: In this paper we explore the patterns of the division of inter-vivos financial transfers from parents to adult children in a sample of 12 European countries. We exploit two waves of the Survey of Health, Aging, and Retirement in Europe (SHARE) for 50+. Contrary to previous studies, we find a higher frequency of parents dividing equally their transfers. We argue that altruistic parents are also concerned with norms of equal division, and hence don’t fully offset child income differences. The parents start to give larger transfers to poorer children if the child income inequality becomes unbearable from the parent’s view. We find econometric evidence suggesting this behaviour under different specifications and strategies. Furthermore, contextual variables like the gini coefficient and pension expenditures help to explain country differences with respect to the division of inter-vivos transfers. The lower frequency of equal division found in studies with American data may respond to the higher inequality and relatively lower pension expenditures in US.
    Keywords: inter-vivos transfers, altruism, equal division, Europe
    JEL: D19 D64 J18
    Date: 2012–09–25
  3. By: Lee, Neil; Rodríguez-Pose, Andrés
    Abstract: Innovation is a crucial driver of urban and regional economic success. Innovative cities and regions tend to grow faster and have higher average wages. Little research, however, has considered the potential negative consequences: as a small body of innovators gain relative to others, innovation may lead to inequality. The evidence on this point is fragmented, based on cross-sectional evidence on skill premia rather than overall levels of inequality. This paper provides the first comparative evidence on the link between innovation and inequality in a continental perspective. Using micro data from population surveys for European regions and US Cities, the paper finds, after controlling for other potential factors, good evidence of a link between innovation and inequality in European regions, but only limited evidence of such a relationship in the United States. Less flexible labour markets and lower levels of migration seem to be at the root of the stronger association between innovation and income inequality in Europe than in the US.
    Keywords: Cities; European Union; Inequality; Innovation; Regions; United States
    JEL: D31 O31 R13
    Date: 2012–09
  4. By: Seo-Young Cho
    Abstract: This paper empirically analyzes the causal relationship between migration and human trafficking inflows into Germany during the period between 2001 and 2010. My results suggest that migrant networks, measured by migrant stocks from a specific source country, increase the illicit, exploitative form of migration - human trafficking - from that respective country. However, the network effect varies across different income levels of source countries. The significant, positive effect of migrant networks decreases as the income level increases, and furthermore the effect is insignificant for high income countries.
    Keywords: Human trafficking, Migration, Network effects
    JEL: F22 J23 J61
    Date: 2012
  5. By: Michele Cincera; Antonio Estache; Lauriane Dewulf
    Abstract: This paper presents an updated empirical assessment of the relative effectiveness of intra-platform and inter-platform competition in terms of broadband diffusion in Europe between 2003 and 2010. It relies on an econometric analysis of 18 European countries. To approximate two forms of competition within a same platform, we distinguish between service-based access and facility-based access. The first type requires less investment from entrants than the second which allows entrants to differentiate their product. Our results update and validate earlier studies. We show that service-based intra-platform competition brought by access regulation is still not an accelerating factor of broadband diffusion (or investment) in Europe. In contrast, we find that both facility-based intra-platform competition brought by access regulation and inter-platform competition brought by the deployment of non-DSL technologies effectively fuels broadband diffusion. In sum, many EU countries may have underestimated the potential payoff of stimulating product differentiation through inter-platform and service-based intra-platform competition for the diffusion of broadband in Europe.
    Keywords: ICT; broadband diffusion; competition
    JEL: D43 L43 L63
    Date: 2012–09
  6. By: Juan Carlos Cuestas (Department of Economics, The University of Sheffield); Mercedes Monfort (Jaume I University, Spain); Javier Ordóñez (University of Bath)
    Abstract: In this paper we analyse real convergence in GDP per worker in the EU member states. The aim is to test whether there is evidence of club convergence in the EU, i.e. divergence in GDP per worker. Evidence in favour of cluster or club convergence may be an indication of significant productivity divergences between countries, which may also explain the current turmoil in the euro zone. The results show evidence of different economic growth rates within Europe, which also converge to different steady states, implying divergence in the EU-14. Within the EU-14 member states we observe two convergence clubs, which are not related to the fact that some countries belong to the euro area. Furthermore, Eastern European countries are also divided in two clubs, with a more direct effect of belonging to the euro zone in the composition of the clubs.
    Keywords: cluster; real convergence; economic integration; euro
    JEL: C32 C33 O47
    Date: 2012
  7. By: Klinge Jacobsen, Henrik; Hansen, Lise-Lotte P; Schröder, Sascha T; Kitzing, Lena
    Abstract: There are considerable benefits from cooperating among member states on meeting the 2020 RES targets. Today countries are supporting investments in renewable energy by many different types of support schemes and with different levels of support. The EU has opened for cooperation mechanisms such as joint support schemes for promoting renewable energy to meet the 2020 targets. The potential coordination benefits, with more efficient localisation and composition of renewable investment, can be achieved by creating new areas/sub-segments of renewable technologies where support costs are shared and credits are transferred between countries. Countries that are not coordinating support for renewable energy might induce inefficient investment in new capacity that would have been more beneficial elsewhere and still have provided the same contribution to meeting the 2020 RES targets. Furthermore, countries might find themselves competing for investment in a market with limited capital available. In both cases, the cost-efficiency of the renewable support policies is reduced compared to a coordinated solution. Barriers for joint support such as network regulation regarding connection of new capacity to the electricity grid and cost sharing rules for electricity transmission expansion are examined and solutions are suggested. The influence of additional renewable capacity on domestic/regional power market prices can be a barrier. The market will be influenced by for example an expansion of the wind capacity resulting in lower prices, which will affect existing conventional producers. This development will be opposed by conventional producers whereas consumers will support such a strategy. A major barrier is the timing of RES targets and the uncertainty regarding future targets. We illustrate the importance of different assumptions on future targets and the implied value of RES credits. The effect on the credit price for 2020 is presented in an exemplary case study of 200MW wind capacity.
    Keywords: RES target; cooperation mechanisms; policy coordination; renewables; European energy policy
    JEL: Q48 Q01 Q20
    Date: 2012–09
  8. By: Ellerman Denny; Delarue Erik; Hannes Weigt (University of Basel)
    Abstract: <p style="text-indent:0cm"><span lang="EN-GB">The overlapping impact of the Emission Trading System (ETS) and renewable energy (RE) deployment targets creates a classic case of interaction effects. Whereas the price interaction is widely recognized and has been thoroughly discussed, the effect of an overlapping instrument on the abatement attributable to an instrument has gained little attention. </span><span style="line-height:150%" lang="EN-GB">This paper estimates the actual reduction in demand for European Union Allowances that has occurred due to RE deployment focusing on the German electricity sector, for the five years 2006 through 2010. </span><span lang="EN-US">Based on a unit commitment model we estimate that CO2 emissions from the electricity sector are reduced by 33 to 57 Mtons, or 10% to 16% of what estimated emissions would have been without any RE policy. Furthermore,</span><span style="line-height:150%" lang="EN-US"> </span><span style="line-height:150%" lang="EN-GB">we find that the abatement attributable to RE injections is greater in the presence of an allowance price than otherwise. The same holds for the ETS effect in presence of RE injection. T</span><span lang="EN-US">his interaction effect is consistently positive for the German electricity system, at least for these years, and on the order of 0.5% to 1.5% of emissions.</span></p>
    Keywords: ETS, RE policy, interaction, emission abatement, Germany
    JEL: L94 Q58
    Date: 2012
  9. By: Marco Fuscaldo
    Abstract: Although health has always been a multidimensional concept, the research on older peoplefs health has been mostly focused on specific dimension or disease, studied one at a time. The present work aims at understanding the complex associations among different indicators of older peoplefs un]health in Italy. In order to reach this purpose, the work uses the Italian panel of the Survey on Health, Ageing and Retirement in Europe (SHARE) and explores the associations among a wide range of indicators of health problems by applying a series of Confirmative Factor Analysis. Differences between men and women and between a numbers of age groups of old people are systematically scrutinized. Finally, a SEM is carried out in order to map the inter]relations of the retained un]health dimensions across time. The preferred representation of the data is a nested model that identified one global factor, which related to all manifest indicators, and four residual factors that measured the specific experiences of physical impairment, cognitive problems, affective suffering and motivational difficulties. The findings confirm the invariance of the proposed nested latent structure across time and improve our understanding about how health dimensions are connected over time.
    Keywords: health
    JEL: I14 J14
    Date: 2012–09
  10. By: Vladimír Benácek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Helena Lenihan (University of Limerick); Bernadette Andreosso-O’Callaghan (University of Limerick); Eva Michalíková (Brno University of Technology); Denis Kan (University of Limerick)
    Abstract: This paper examines theoretically and empirically the extent to which the decision by foreign firms to invest in a group of countries is influenced by economic factors, as opposed to political risk and institutional performance. We consider the importance of these factors as drivers of foreign direct investment (FDI) for 32 European countries (subsequently divided into three pooled clusters) by means of panel regression techniques in two specifications over the 1995-2008 period. Our results suggest that risk and institutional factors considered in both static and dynamic perspectives significantly influence the behaviour of investors. Policies and institutions that vary widely between countries modify their decision-making, so that the purely economic factors have different statistical significance and impacts on the intensity of FDI, as was revealed by clustering countries into three groups according to levels of economic maturity. Additionally, not all factors of risk have an identical impact on FDI decisions in particular groups of countries. However, we find that as measures of political risk, monetary discipline, low regulation, effective government and good education prove to be highly significant for most country groupings. All of these measures reduce political risk and positively affect the level of FDI.
    Keywords: FDI; Political risk; Economic institutions; Panel regression; European Union
    JEL: F2 D81 C23
    Date: 2012–07
  11. By: Rieck, Karsten Marshall Elseth (Department of Economics, University of Bergen)
    Abstract: In several European countries, a paternity quota has been introduced as part of paid parental leave to provide incentives for fathers to increase their child care responsibilities and household involvement.In this paper, we explore the introduction of the first paternity quota in Norway in 1993. Through a regression discontinuity (RD) framework, we examine the sickness absence of parents who had children just before and after the reform—due to the parents’ own illness and to care for close family members. Our findings suggest that the amount of sick leave taken by fathers has increased in the short and long term and that the amount of sick leave taken by mothers has decreased, although the estimates are not statistically significant. The results are supported by standard RD and robustness tests. We also address the relevance of a composition bias resulting from the unobservable latent sick leave of non-employed individuals. This sensitivity check shows that their latent absence may affect the estimated treatment effect.
    Keywords: sickness absence; paternity leave; child care
    JEL: I38 J13 J22
    Date: 2012–06–24
  12. By: Leen Meeusen; Annemie Nys
    Abstract: This paper contributes to a discussion on the extent to which the focus of social spending has been shifted from ‘old’ to ‘new’ social risks. In order to clarify Cantillon’s claim that the transition to a social investment state has influenced poverty trends (Cantillon, 2011), Vandenbroucke and Vleminckx (2011) analyzed public social cash expenditures. We build on this work by providing more detailed data, i.e. the inclusion of private expenditures for a larger group of countries. This paper provides country files containing both public and private expenditure variables that present the evolution of social spending in 21 EU member states covering the period 1985-2007. For each country a distinction has been made between three categories of ‘old’ expenditures and six categories of ‘new’ expenditures, with ‘old’ expenditures representing the core tasks of the welfare state and ‘new’ expenditures representing new programs aimed at social risks inherent to a post–industrial society. These data allow us to formulate an answer to the following question: ‘Have we witnessed a significant shift in budgetary resources from ‘old’ to ‘new’ programs that might explain the disappointing poverty trends witnessed in various EU member states?’. Using data from the OECD’s Social Expenditure Statistics Detailed Database (SOCX) and the OECD’s Education Database, we conclude that although growth of ‘new’ expenditures has been larger than the growth of ‘old’ ones, we are not able to identify a substantial shift in absolute figures. Since health and retirement spending remain the main bulk in social expenditures (due to their inflexible nature), we narrowed the analysis and focused only on ‘working age’ benefits. Doing so, we still are not able to identify a clear pattern that reveals a shift in resources from ‘old’ to ‘new’ expenditures. Our conclusions are in line with previous studies.
    Keywords: Social investment, old and new social risks, social expenditures, working age benefits
    JEL: I31 Y10
    Date: 2012–09
  13. By: Bauernschuster, Stefan (Ifo Institute for Economic Research); Falck, Oliver (Ifo Institute for Economic Research); Heblich, Stephan (University of Stirling); Suedekum, Jens (University of Duisburg-Essen)
    Abstract: Why are better educated and more risk-friendly persons more mobile across regions? To answer this question, we use micro data on internal migrants from the German Socio- Economic Panel (SOEP) 2000-2006 and merge this information with a unique proxy for region-pair-specific cultural distances across German regions constructed from historical local dialect patterns. Our findings indicate that risk-loving and skilled people are more mobile over longer distances because they are more willing to cross cultural boundaries and move to regions that are culturally different from their homes. Other types of distance-related migration costs cannot explain the lower distance sensitivity of educated and risk-loving individuals.
    Keywords: migration, culture, distance, human capital, risk attitudes
    JEL: J61 R23 D81
    Date: 2012–09
  14. By: Cristina Barbot; Ofelia Betancor; M. Pilar Socorro; M. Fernanda Viecens
    Abstract: Emission trading systems (ETS) are being applied worldwide and in different economic sectors as an environmental regulatory tool that induces reductions of CO2 emissions. In Europe such a system is in place since 2005 for energy intensive installations and, since 1st January 2012, for airlines with flights arriving and departing from Community airports. The efficiency of the system should consider not only how it allows reaching an environmental goal, but also it should take into account its implications for market competition. In this work we develop a theoretical model that analyses the European ETS’s main features as devised for airlines, focusing on its effects on potential competition and entry deterrence. Contrary to other economic activities under ETS, potential competition is usual in most airline markets. Our results indicate that the share of capped allowances allocated initially for free to air operators may be a key element in deterring or allowing entry into the market. This result may be in collision with the general European principle of promoting competition and may represent a step backwards in the construction of a single European air transport market.
    Date: 2012–09
  15. By: Martin Ljunge (University of Copenhagen and SITE)
    Abstract: This paper estimates the influence of trust on self-assessed health. Second generation immigrants in a broad set of European countries with ancestry from across the world are studied. There is a significant positive effect of trust on selfassessed health. Health has both intrinsic and instrumental value. The finding provides evidence for one mechanism through which trust creates desirable outcomes. Individuals with high trust feel healthier. As health may promote a more productive life, it may be one channel through which trust increases national income. The results suggest policy put more emphasis on promoting social trust.
    Keywords: trust; self-assessed health; subjective health; intergenerational transmission; cultural transmission
    JEL: I12 D13 D83 Z13
    Date: 2012–08–28
  16. By: Martin Wagner; Achim Zeileis
    Abstract: This paper uses model-based recursive partitioning to study economic growth in the 255 European Union NUTS2 regions over the period 1995-2005. The starting point of the analysis is a human-capital augmented Solow-type growth equation similar in spirit to Mankiw, Romer, and Weil (1992). Initial GDP and the share of highly educated in the working age population are found to be important for explaining economic growth, whereas the investment share in physical capital is only significant for coastal regions in the PIIGS countries. Recursive partitioning leads to a regression tree with four terminal nodes with partitioning according to (i) capital regions, (ii) non-capital regions in or outside the so-called PIIGS countries and (iii) inside the respective PIIGS regions furthermore between coastal and non-coastal regions.
    Keywords: convergence, growth regressions, recursive partitioning, regional data
    JEL: C31 C51 O18 O47
    Date: 2012–10
  17. By: Montizaan, Raymond (ROA, Maastricht University); Vendrik, Maarten (Maastricht University)
    Abstract: This study investigates the effects of social comparisons accompanying a substantial reform of the Dutch pension system on the job satisfaction of workers who are close to retirement. The reform implies that public sector workers born on January 1, 1950, or later face a substantial reduction in their pension rights, while workers born before this threshold date can still retire under the old, more generous rules. Using unique matched survey and administrative panel data on male public sector workers born in 1949 and 1950, we find strong and persistent effects on job satisfaction that are sizable compared to income effects on well-being. The drop in satisfaction is strongly affected by social comparisons with colleagues. Treated workers are less affected by the reform when the treatment group is larger in the organization where they are employed. Moreover, the social comparison effect is especially prevalent in organizations that stimulate their employees to work in teams. We also find evidence that workers compare their own replacement rate with the average replacement of comparable individuals in their organization, but the major part of the social comparison effect is non-monetary.
    Keywords: social comparison, well-being, retirement
    JEL: D63 D1 I3 J26
    Date: 2012–09
  18. By: Cecere, Grazia; Le Guel, Fabrice; Soulié, Nicolas
    Abstract: The development of computing technologies and Internet has made possible to capture, save and analyse increasing mount of personal information, which might impact public concern about privacy. The present article aims at analysing Internet privacy concerns in respect to social network website. We use a well-suited dataset of 23 087 individuals collected by the European Union in 2009 in all member states. Fitting an ordered logit model, we examine the variables associated with the probability to have high privacy concerns in order to draw policy and regulatory implications. The results show that institutional framework ensuring comprehensive national efforts to safeguard privacy increases the probability to be worried about possible misuse of private data. Additionally, we observe that socio-demographic variables affect the perception of individual personal data use/misuse.
    Keywords: economics of privacy; social network websites; privacy paradox
    JEL: L96 D12 K39
    Date: 2012
  19. By: C. MARBOT (Insee); D. ROY (Insee)
    Abstract: Confronted with an ageing population, developed countries are facing the challenge of providing care to a growing number of disabled elderly people. Knowing how many they will be and, given the current pensions and welfare systems, how much it will cost to care for them is crucial to policymakers. The INSEE pensions microsimulation tool (called Destinie) was extended in 2011 to elderly disability, in preparation for a reform of the funding of elderly disability in France. Microsimulation at the individual level allows to take into account expected changes in the distribution of variables that influence the process under study. It also allows to simulate allowances based on complex, non-linear scales that require calculation at the individual level. This document describes the implementation method and the results of the forecasts. First, on the characteristics of the disabled elderly and presence of caregivers. Then, several alternative scenarios are studied and yield a range of estimates of the future cost of the allowance for elderly disability, ranging from 0.54% of GDP in the most optimistic scenario to 0.71% of GDP in the most pessimistic one.
    Keywords: Microsimulation, forecasts, elderly disability, APA
    JEL: I18 H51 J14 C53
    Date: 2012
  20. By: A. MAUROUX (Insee)
    Abstract: A tax credit dedicated to sustainable development was first introduced in France in 2005 in order to encourage households to invest in energy conservation and to install renewable energy equipments. It was a big success: between 2005 and 2008 about one primary residence in sixteen was renovated asking for this green tax credit (Clerc, Marcus, Mauroux 2010). In this article we take advantage of an exogenous increase of the tax credit rate to assess its incentive impact. In 2006 the tax credit rate on energy conservation expenditures was raised from 25% to 40% but only for the subset of homeowners living for less than 3 years in a building completed before 1977. We estimate on exhaustive fiscal data the impact of this marginal increase of the tax credit rate on the declaration rate of eligible households using a matching method combined with triple differences, based on Heckman, Ichimura, Smith and Todd (1998). If the tax credit rate had not been raised, in 2006 one eligible household in fifteen among the declarants living for less than three years in a dwelling completed between 1969 and 1976 would not have used this tax credit, one in eight in 2007 and in 2008. Between 2006 and 2008, the additional public cost due to the tax credit increase is at least 80 million euros for the sub-sample of homeowners living for less than 3 years in a dwelling completed between 1969 and 1976, i.e. an average cost between 6,550 and 10,360 euros per additional retrofitted dwelling. Except if the average CO2 emission reductions per household are greater than 10 tonnes each year over the equipment life span, the public cost of a tonne of CO2 avoided by additional declarant among the eligible living in a building completed between 1969 and 1973 would be higher than 32 ¬, the tutelary value of carbon in 2008.
    Keywords: tax credit, sustainable development, public policy evaluation, matching, difference-in-differences estimates
    JEL: H31 H23 D12
    Date: 2012

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