nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2021‒10‒18
twenty papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Benefits of internationalisation for acquirers and targets - But unevenly distributed By Frey, Rainer; Goldbach, Stefan
  2. How effective are hiring subsidies to reduce long-term unemployment among prime-aged jobseekers? Evidence from Belgium By Desiere, Sam; Cockx, Bart
  3. Income Risk Inequality: Evidence from Spanish Administrative Records By Manuel Arellano; Stéphane Bonhomme; Micole De Vera; Laura Hospido; Siqi Wei
  4. The heterogeneous effects of the Great Recession on informal care to the elderly By Carro, Jesús M.; Pronkina, Elizaveta
  5. Labor Supply Responses to Income Tax Free and Bracket Expansions By Panayiota Lyssiotou; Elena Savva
  6. Time Preferences, Illness, and Death By Norrgren, Lisa
  7. Wage and employment cyclicalities at the establishment level By Merkl, Christian; Stüber, Heiko
  8. Marginal returns to citizenship and educational performance By Gathmann, Christina; Vonnahme, Christina; Busse, Anna; Kim, Jongoh
  9. Commuting, Children and the Gender Wage Gap By Borghorst, Malte; Mulalic, Ismir; van Ommeren, Jos
  10. Relationship lending, Trust, and SME bank financing in the UK By Degryse, Hans; Matthews, Kent; Zhao, Tianshu
  11. Spillover in the UK Housing Market By Dominik Blatt; Kausik Chaudhuri; Hans Manner
  12. Taxation of Multinationals: Design and Quantification By Sébastien Laffitte; Julien Martin; Mathieu Parenti; Baptiste Souillard; Farid Toubal
  13. Productivity-wage nexus at the firm-level in Portugal: Decoupling and divergences By Alexandre Mergulhão; José Azevedo Pereira
  14. Career-breaks and Maternal Employment in CEE Countries By Alena Bicakova; Klara Kaliskova
  15. Emission distribution and incidence of national mitigation policies among households in Austria By Stefan Nabernegg
  16. Do employees always reciprocate homebased working with commitment? The role of blurring boundaries, trust and fairness By Lott, Yvonne
  17. Transportation and Quality of Life: Evidence from Denmark By Hybel, Jesper; Mulalic, Ismir
  18. The COVID-19 consumption game-changer: evidence from a large-scale multi-country survey By Hodbod, Alexander; Hommes, Cars; Huber, Stefanie J.; Salle, Isabelle
  19. Household debt and labour supply By Bunn, Philip; Chadha, Jagjit; Lazarowicz, Thomas; Millard, Stephen; Rockall, Emma
  20. Populists in Power By Luisa Doerr; Niklas Potrafke; Felix Roesel

  1. By: Frey, Rainer; Goldbach, Stefan
    Abstract: In some countries around the world, the advantages of globalisation have been increasingly called into question recently. In particular, takeovers by foreign firms raise suspicions of technology theft and job cuts at the newly acquired local plant. By looking at Germany, as a large open economy, between 1999 and 2018 we first see that both German firms that are acquired by foreign investors and German firms which invest abroad show similar characteristics: they are on average larger, more innovative and productive, but less profitable than purely national firms. With internationalisation, a variety of positive effects emerge. With respect to takeovers of German companies by foreign investors, the productivity and sales of the German affiliate increase while the foreign owners tend to step up expenditure on the labour force in Germany in the aftermath of the acquisition - compared to purely domestically owned firms. In the case of German firms going international, we find positive productivity and sales effects for relatively small companies investing abroad, and this internationalisation is not to the detriment of the domestic labour force. Thus, all in all, this supports a positive view of globalisation. However not all firms benefit: in particular, sector, firm size and time horizon have a bearing on the outcome.
    Keywords: globalisation,firm acquisition,M&A,productivity,sales,innovativeness,know-how,technology,labour costs,employment,wages,firm heterogeneity
    JEL: D22 D24 F23 G34
    Date: 2021
  2. By: Desiere, Sam; Cockx, Bart
    Abstract: Hiring subsidies are widely used to create (stable) employment for the long-term unemployed. This paper exploits the abolition of a hiring subsidy targeted at long-term unemployed jobseekers over 45 years of age in Belgium to evaluate its effectiveness in the short and medium run. Based on a triple difference methodology the hiring subsidy is shown to increase the job finding rate by 13% without any evidence of spill-over effects. This effect is driven by a positive effect on individuals with at least a bachelor’s degree. However, the hiring subsidy mainly created temporary short-lived employment: eligible jobseekers were not more likely to find employment that lasted at least twelve consecutive months than ineligible jobseekers.
    JEL: H22 J08 J18 J23 J38 J64 J65 J68
    Date: 2021–10–04
  3. By: Manuel Arellano (CEMFI); Stéphane Bonhomme (University of Chicago); Micole De Vera (CEMFI); Laura Hospido (Banco de EspaÑa and iza); Siqi Wei (CEMFI)
    Abstract: In this paper we use administrative data from the social security to study income dynamics and income risk inequality in Spain between 2005 and 2018. We construct individual measures of income risk as functions of past employment history, income, and demographics. Focusing on males, we document that income risk is highly unequal in Spain: more than half of the economy has close to perfect predictability of their income, while some face considerable uncertainty. Income risk is inversely related to income and age, and income risk inequality increases markedly in the recession. These findings are robust to a variety of specifications, including using neural networks for prediction and allowing for individual unobserved heterogeneity.
    Keywords: Spain, income dynamics, administrative data, income risk, inequality
    JEL: D31 E24 E31 J31
    Date: 2021–09
  4. By: Carro, Jesús M.; Pronkina, Elizaveta
    Abstract: This paper studies the role of unobserved factors to measure the impact of the economic downturn on informal care availability to the elderly in Europe. We use the Survey of Health, Ageing and Retirement in Europe (SHARE), which allows controlling for socio-demographic variables. Our results show that the impact of the Great Recession on care receipt depends not only on observed, but also on unobserved characteristics. For 21 percent of the sample, the effect is three to four times larger than the average effect for the entire sample. For 57 percent of the sample, there is no effect of the economic crisis, and this is due to unobservable factors. In our estimation process, we are able to characterize how this unobserved heterogeneity correlates with the observable variables. Moreover, we show that if the unobserved heterogeneity in the effect of the crisis is ignored, then we are not able to capture that there is no effect for more than half of the individuals, even if we allow for unobserved heterogeneity in the intercept of the model and for the heterogeneous effect of the crisis based on observables.
    Keywords: Informal Care; Great Recession; Unobserved Heterogeneity
    JEL: I18 J14 C2
    Date: 2021–10–13
  5. By: Panayiota Lyssiotou; Elena Savva
    Abstract: This paper contributes to the labor supply literature by focusing on how middle earners respond to financial incentives and whether the responses are different between men and women. We exploit substantial expansions in the level of individual income exempt from taxation and taxed at a lower marginal tax rate while the schedule of marginal tax rates remained the same. These tax revisions improved the financial incentives to work, in particular for individuals in the middle of the income distribution. We find robust evidence that the tax reforms increased significantly the wages of medium and high educated married males and females. They also had a positive impact on work participation that was more substantial for married women, especially the medium educated. We estimate significant positive own wage labor supply elasticities that are about the same for men and women when we condition on the labor outcome effects of inflows of EU and non-EU foreign workers, which changed the skill distribution of the economy and had a more significant impact on female labor outcomes.
    Keywords: labor supply of men and women, income taxation, foreign workers, gender equality; labor market integration
    JEL: H24 H31 J16 J22 J38 J61
    Date: 2021–10
  6. By: Norrgren, Lisa (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper investigates the predictive power of time preferences on the risk of early mortality and illness in adulthood. Using a unique Swedish cohort of 12,956 individuals born in 1953, interviewed in 1966, and followed with register data up to 2018, the paper finds that patient adolescents are 17–21% less likely to die before age 65. Patient adolescents have fewer hospitalizations and diagnoses in their adult life and are less likely to be diagnosed with conditions associated with lifestyle risk factors. Patient adolescents are also more in favor of sports activities and school rules on smoking. The investigated channels for the relationship between time preferences and future health include lifestyle, mother’s time preferences, and the adolescent’s education attainment and future income. Controlling for education and income reduces the coefficient for time preferences on early mortality by one-fourth.
    Keywords: Time preferences; illnes; death
    JEL: D90 D91 I10 I12
    Date: 2021–10
  7. By: Merkl, Christian; Stüber, Heiko
    Abstract: We document substantial cross-sectional heterogeneity of German establishments' real wage cyclicality over the business cycle. While wages of the median establishment are moderately procyclical, 36 percent of establishments have countercyclical wages. We estimate a negative connection between establishments' wage cyclicality and their employment cyclicality, thereby providing a benchmark for quantitative macroeconomic models. We propose and calibrate a labor market ow model to match various empirical facts and to perform counterfactual exercises. If all establishments behaved as the most procyclical ones, labor market amplification would drop by one-third. If all followed Nash bargaining, it would drop by more than two-thirds.
    Keywords: Wage Cyclicality,Employment Cyclicality,Labor Market Flow Model,Labor Market Dynamics,Establishments,Administrative Data
    JEL: E32 E24 J64
    Date: 2021
  8. By: Gathmann, Christina; Vonnahme, Christina; Busse, Anna; Kim, Jongoh
    Abstract: Citizenship is the most important right a host country can bestow on its immigrant population. Yet, little is known which citizenship policies work and who actually benefits from them. To answer these questions, we estimate the marginal returns to citizenship on children's school performance and skill development. For identification, we use two national reforms, which facilitated naturalization for first-generation immigrants and introduced birthright citizenship. We find substantial unobserved heterogeneity in returns with reverse selection on gains, i.e., the returns are highest for those with the lowest propensity of take-up. Citizenship significantly improves the school performance of immigrant children but has only modest effects on test scores. Policy simulations indicate that raising citizenship take-up would generate sizable benefits overall. Based on marginal treatment response functions, we also show that expanding birthright citizenship carries higher returns than facilitating naturalization.
    Keywords: Citizenship,migration,policy evaluation,marginal treatment effects,marginal treatment response functions
    JEL: I21 J15
    Date: 2021
  9. By: Borghorst, Malte (Mercator School of Management, University of Duisburg-Essen); Mulalic, Ismir (Department of Economics, Copenhagen Business School); van Ommeren, Jos (Department of Spatial Economics, VU University)
    Abstract: It has been documented that the gender pay gap strongly increases after the birth of the first child. We focus on Denmark and show that gender differences regarding commuting play an important role in explaining this. We offer 3 pieces of evidence. First, the gender pay and commuting gaps come into existence at the same moment: when the first child is born. Second, wage compensation for commuting is lower for women after the birth compared to men: about 3 − 4 percentage points of the overall gender pay gap is due to gender differences related to compensation for commuting when having children. Third, women who get a child are much more likely to leave their job when they have a long commute, which is not true for men. <p>Using information on job moving through the lens of a dynamic search model, these results imply that the marginal cost of commuting increases substantially for women with a child. For female workers with a child, a one standard deviation increase in commuting distance induces costs equivalent to about 10% of their wage, whereas for all other workers these costs are equivalent to only 3-4% of their wages.
    Keywords: Commuting; Wages; Gender wage gap
    JEL: J31 J61 R23 R41
    Date: 2021–10–06
  10. By: Degryse, Hans; Matthews, Kent (Cardiff Business School); Zhao, Tianshu
    Abstract: It is well recognized that relationship banking helps to relieve the credit constraints faced by SMEs to access bank finance. Trust is an important part of relationship banking. However, the term trust is nebulous, and relationship banking means different things to different banks and different borrowers. How trust enables the credit market for SMEs through relationship banking is largely unexplored. Using a unique primary dataset of SMEsin the UK, we construct a measure of trust-based relationship banking from the perspective of the borrower. We examine the drivers of trust-based relationship banking in terms of organizational trust in the relationship manager, defined as the delegation of operational autonomy, along with local market and social capital factors, and the style of the bank-borrower relationship. Along with bank, firm, and market factors, trust-based relationship banking helped to reduce the credit constraints faced by SMEs in the decade following the global financial crisis.
    Keywords: Trust, Relationship Banking, SME Financing, Bank Organization
    JEL: G21 G29 L14
    Date: 2021–10
  11. By: Dominik Blatt (Statistics Netherlands, Netherlands); Kausik Chaudhuri (Leeds University Business School, UK); Hans Manner (University of Graz, Austria)
    Abstract: We study spillovers between regional housing markets in the UK in the period 1973 to 2020. The analysis is based on a vector autoregressive model that allows for structural breaks in its parameters at unknown times. In particular, we allow for distinct breakpoints in the conditional mean, variance and correlation parameters, which enables us to distinguish different spillover channels. Based on the resulting piecewise constant model we compute the spillover index by Diebold and Yilmaz. We find significant time variation of the spillover index that indicates a decreasing role of London for the rest of the country, but that also indicates reduced contagion risk and the existence of the North-South divide that declined later in the sample. Furthermore, a central role of the Midlands is demonstrated.
    Keywords: vector autoregression; structural breaks; contagion; spillovers; regional housing markets.
    JEL: C32 G01 R10 R31
    Date: 2021–10
  12. By: Sébastien Laffitte (CEPS - Centre d'Economie de l'ENS Paris-Saclay - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay - Université Paris-Saclay); Julien Martin (CEPR - Center for Economic Policy Research - CEPR); Mathieu Parenti (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles); Baptiste Souillard (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles); Farid Toubal (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research - CEPR, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Minimum corporate taxation is the second Pillar of the reforms of international corporate taxation. It is a simple and powerful tool that could curb profit shifting towards low or no tax jurisdictions. Its implementation would allow France to tax the profits that French headquarters have shifted to tax havens, but also to reduce the erosion of its tax base. We estimate the French corporate income tax (CIT) revenues would increase by almost 6 billion euros in the short run after the implementation of an effective minimum tax rate of 15% and by 8 billion euros at a rate of 21%. CIT gains may vary substantially depending on the scope of the tax base, the possibility of headquarters' inversion, and whether it includes domestic corporations or not. CIT gains are relatively higher in France than in Germany or the United States. The expected gains are substantially larger than those to be expected from the implementation of the first Pillar of the reform in its version proposed by the US in April 2021, which opens up rights to tax the 100 largest corporations in the world according to their sales' destination. According to our estimates, Pillar One would bring in about 900 million euros for France.
    Keywords: Tax rate,multinational corporation,reform
    Date: 2021
  13. By: Alexandre Mergulhão; José Azevedo Pereira
    Abstract: There is a growing international concern about the slowdown in productivity growth, especially as labor productivity enhancements are important drivers of higher general-ised living standards.Using administrative data of firms in Portugal between 2010 and 2016, we analyse the relationships between productivity and wages. At odds with neoclassical theory of mar-ginal productivity of labor, we find that two thirds of firms insufficiently raised wages giv-en observed productivity growth. Employing unconditional quantile regressions, we in-vestigate some quantifiable determinants of the productivity-wage gap at different parts of the distributions. Most of the documented dynamics contributed not only to the diver-gence of productivity and wages but also to the decoupling of productivity and wage growth. We argue that labor market flexibilisation intensified segmentation, providing incentives for non standard contracts. Both dimensions, as well as higher board com-pensations, international trade and on-the-job training weakened the link between productivity and wages.
    Keywords: compensation, income distribution, Productivity, public policy, Quantile regressions, wage share
    JEL: C3 D2 D31 D33 J31 J38
    Date: 2021–10–18
  14. By: Alena Bicakova; Klara Kaliskova
    Abstract: Post-birth career breaks and their impact on mothers’ labor market outcomes have received considerable attention in the literature. However, existing evidence comes mostly from Western Europe and the US, where career breaks tend to be short. In contrast, Central and Eastern European (CEE) countries, where post-birth career interruptions by mothers are typically much longer, have rarely been studied. In the first part of this study, we place CEE countries into the EU context by providing key empirical facts related to the labor market outcomes of mothers and the most important factors that may affect them. Besides substantial differences between CEE countries and the rest of the EU, there is also large heterogeneity within CEE itself, which we explore next. In the second part, we review the main family leave and formal childcare policies and reforms that have occurred in CEE countries since the end of Communism and provide a comprehensive survey of the existing scientific evidence of their impact on maternal employment. While research on the causal impacts of these policies is scarce, several important studies have recently been published in high-impact journals. We are the first to provide an overview of these causal studies from CEE countries, which offer an insightful extension to the existing knowledge from Western Europe and the US.
    Keywords: CEE countries; labor market, motherhood;
    Date: 2021–09
  15. By: Stefan Nabernegg (University of Graz, Austria)
    Abstract: One major barrier for the feasibility of national climate policies is limited public acceptance because of distributional concerns. In the literature, different approaches are used to investigate the incidence of climate policies across income groups. We apply three approaches of incidence analysis to the case of Austria, that vary in terms of data and computational intensity: (i) household fuel expenditure analysis, (ii) household carbon footprints and (iii) macroeconomic general equilibrium modelling with heterogeneous households. As concerns about heterogeneity within low-income groups (horizontal equity) were recently articulated as main objection for effective redistributive revenue recycling in the literature, we compare a pricing instrument of a fuel tax with two non-pricing instruments. We find that expenditure analysis, without considering embodied emissions in consumption, overestimates regressivity as well as within group variations of carbon pricing instruments. An economy-wide fuel tax without redistributive revenue recycling shows a slightly regressive distributional effect in the general equilibrium analysis, driven by the households use of income. This is well approximated by the carbon footprint analysis as income source effects play a minor role for this policy. For the two examples of non-pricing policies, we show that income source effects, which can be only evaluated in a closed macroeconomic model, strongly codetermine the mostly progressive distributional effect. Therefore we derive three general aspects that determine the incidence of climate policies: (i) the consumption patterns of households and the corresponding emission intensities of consumption, (ii) the existing distribution and composition of income, and (iii) the specific policy and policy design considered. For the feasibility of climate policy, we conclude that the evaluation as well as the clear communication of distributional effects is essential, as policy acceptance depends on the perceived individual outcome.
    Keywords: policy incidence; carbon footprint; carbon pricing; climate change; Computable General Equilibrium; distribution; fuel tax; heterogenous households; Multi-Regional Input-Output simulation
    JEL: C43 E01 E31 R31
    Date: 2021–10
  16. By: Lott, Yvonne
    Abstract: Work organizations are increasingly under pressure to offer home-based working. However, there is inconsistent evidence on whether granting employees to work from home is a business case increasing their organizational commitment. Analysis of the representative German Linked Personnel Panel revealed that, overall, the use of home-based working is associated with employees' higher organizational commitment. A closer look at the data, however, shows that this is less often the case when the use of home-based working involves the blurring of work-life boundaries. Our results are the first to provide evidence that perceived fairness in the exchange relation with supervisors is of particular importance for employees' experiences with working from home.
    Date: 2021
  17. By: Hybel, Jesper (Aalborg University, Department of the Built Environment); Mulalic, Ismir (Department of Economics, Copenhagen Business School)
    Abstract: This paper investigates the importance of transportation for quality of life in Denmark. We first calibrate a simple general equilibrium model to analyse how local wage levels, housing costs, and commuting costs vary across urban areas as well as to construct a quality of life index that measures a representative household's willingness to pay for local amenities. We find that the quality of life is high in large cities. Wages and rents are also substantially higher in the urban areas that are dense. We then regress the quality of life index on observed amenities to infer how much quality of life is associated with transportation. Our empirical results suggest that the quality of the public transport system is particularly important for the quality of life.
    Keywords: Quality of life; Rent gradients; Wage gradients; Commuting costs; Amenities; Transportation
    JEL: H40 J30 O52 R10 R40
    Date: 2021–09–20
  18. By: Hodbod, Alexander; Hommes, Cars; Huber, Stefanie J.; Salle, Isabelle
    Abstract: Prospective economic developments depend on the behavior of consumer spending. A key question is whether private expenditures recover once social distancing restrictions are lifted or whether the COVID-19 crisis has a sustained impact on consumer confidence, p references, and, hence, spending. The elongated and profound experience of the COVID-19 crisis may durably affect consumer preferences. We conducted a representative consumer survey in five European countries in summer 2020, after the release of the first wave’s lockdown restrictions, and document the underlying reasons for households’ reduction in consumption in five key sectors: tourism, hospitality, services, retail, and public transports. We identify a large confidence shock in the Southern European countries and a shift in consumer preferences in the Northern European countries, particularly among high-income earners. We conclude that the COVID-19 experience has altered consumer behavior and that long-term sectoral consumption shifts may occur. JEL Classification: D12, D81, D84, E21, E60, E71, G51, H30
    Keywords: consumer preferences, consumption, COVID-19, economic resilience, expectations, experiences, fiscal policy, household behavior, sectoral changes, zombification
    Date: 2021–10
  19. By: Bunn, Philip (Bank of England); Chadha, Jagjit (National Institute of Economic and Social Research); Lazarowicz, Thomas (University College London); Millard, Stephen (Bank of England); Rockall, Emma (Stanford University)
    Abstract: In this paper, we first develop a theoretical framework with three types of household: outright homeowners, mortgagors and renters. We then examine empirically how household debt affects the response of labour supply to shocks to income, mortgage interest rates and house prices for each type of household. In line with our framework, we find that negative income shocks lead to lower participation among outright homeowners while increasing mortgagors’ desired hours; surprise rises in interest rates lead to increases in desired hours that are larger the higher is the household’s debt level; and falls in house prices increase mortgagors’ desired hours.
    Keywords: Household debt; housing; labour supply; participation; hours worked
    JEL: E21 J22
    Date: 2021–09–24
  20. By: Luisa Doerr; Niklas Potrafke; Felix Roesel
    Abstract: We examine how populist governments influence political culture and economic outcomes. Some Austrian communities are governed by far-right populist mayors, directly elected by a majority of voters. We exploit close elections and find that the electorate becomes more polarized under populist mayors. However, polarization is not limited to politics. A major innovation of our study is using data on team members of local football teams. Our results show that diversity in local football teams decreases when populists are in power, indicating that populists infiltrate the civic society. When it comes to economic outcomes, migration and budget transparency decrease under populist governments.
    Keywords: populism, far-right politics, partisan politics, polarization, immigration, economic policy, local government, budget transparency
    JEL: D72 P16 H72 Z18
    Date: 2021

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