nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2023‒07‒31
sixteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Science and productivity in European Firms: How do regional innovation modes matter? By Natália Barbosa; Ana Paula Faria
  2. Parents' Preferences, Parenting Styles and Children's Outcomes By Flavia Coda Moscarola; Daniela Del Boca; Giovanna Paladino
  3. Employment versus Efficiency: Which Firms Should R&D Tax Credits Target? By Anna Bernard; Rahim Lila; Joana Silva
  4. The Effects of Cash for Clunkers on Local Air Quality By Helm, Ines; Koch, Nicolas; Rohlf, Alexander
  5. Medical Brain Drain – Assessing the Role of Job Attributes and Individual Traits By Bertoni, Marco; Chattopadhyay, Debdeep; Gu, Yuanyuan
  6. R&D subsidies and Portuguese firms’ performance: A longitudinal firm-level study By Inês Teixeira; Aurora Teixeira; Luís Santos
  7. How does bonus depreciation affect real investment? Effect size, asset structure, and tax planning By Eichfelder, Sebastian; Knaisch, Jonas; Schneider, Kerstin
  8. The Welfare Economics of Reference Dependence By Daniel Reck; Arthur Seibold
  9. Preference-Choice Mismatch and University Dropout By Fouarge, Didier; Heß, Pascal
  10. Carbon Capture and Storage: Publics in five countries around the North Sea prefer to do it on their own territory By Merk, Christine; Andersen, Gisle; Nordø, Åsta Dyrnes; Helfrich, Torben
  11. What Makes Hiring Difficult? Evidence from Linked Survey-Administrative Data By Bertheau, Antoine; Larsen, Birthe; Zhao, Zeyu
  12. Carbon home bias of European investors By Martijn Boermans; Rients Galema
  13. Beyond Trading: Knowledge Spillovers and learning-by-exporting in Global Value Chains By Holger Graf; Hoda Mohamed
  14. Natural Resources, Demand for Skills, and Schooling Choices By Bütikofer, Aline; Dalla-Zuanna, Antonio; Salvanes, Kjell Gunnar
  15. Financial Literacy and Mortgage Payment Delinquency? By Tran Huynh
  16. Does Performance Pay Increase the Risk of Marital Instability? By Mehrzad B. Baktash; John S. Heywood; Uwe Jirjahn

  1. By: Natália Barbosa; Ana Paula Faria (Department of Economics and NIPE, University of Minho; Department of Economics and NIPE, University of Minho,)
    Abstract: Productivity disparities in the European regions tend to persist. In order to understand the underlying sources of this phenomenon we assess the importance of science and regional innovation modes on firms’ productivity growth on a sample of 150, 712 firms across 161 NUTSII European regions, over the period 2012-2017. We find that science is a major source of firms’ productivity growth, and it has been particularly important to firms located in Southern Europe and, to less extent, in Eastern EU regions, indicating that a science-push convergence process is at work in the EU peripheral regions. Our findings also show that the fast-growing productivity firms are those who benefit more from external knowledge and innovation. Growth by imitation seems to be a viable strategy restricted to the slow-growing productivity firms. These results help to conciliate contentious evidence regarding firms’ benefits from spillovers, namely from scientific knowledge.
    Keywords: Territorial innovation patterns, Firm productivity, Europe, Quantile regression
    JEL: O33 O38 L25 R11
    Date: 2023–07
  2. By: Flavia Coda Moscarola; Daniela Del Boca; Giovanna Paladino
    Abstract: This paper examines the intergenerational transmission of preferences between parents and their children. Specifically, we analyse whether parents transmit patience, the propensity to save, reading habits, and conscientiousness to their children, and how specific parenting styles – i.e. indicators of their involvement in children’s education and their attitudes towards sharing financial information - play a role in such transmission. To study this link, we analyse the data from a representative survey of Italian households (parents with children 14-20 years of age) that we conducted in Italy in September 2022. Our results show a significant and positive relationship between parents’ and children’s preferences and that parenting styles act as moderators in the transmission of patience and conscientiousness between parents and children. A Sharing parenting style strengthens the transmission of patience mostly among children under the age of 18 and in households with an SES above the median, while a Present parenting style strengthens the transmission of conscientiousness mostly in households with an SES below the median. The strengthening effect of Present parenting style on reading habits is observed for mothers only.
    Keywords: intergenerational transmission, patience, propensity to save, reading, conscientiousness, parenting styles.
    Date: 2023
  3. By: Anna Bernard; Rahim Lila; Joana Silva (Católica School of Business and Economics, Universidade Católica Portuguesa; Charles Rivers Associate; Católica School of Business and Economics, Universidade Católica Portuguesa)
    Abstract: R&D tax credits, by stimulating private sector innovation, can play a key role in promoting employment and firm performance. This paper examines the program impact on the trajectory of firms in terms of technology adoption, firm performance and workforce composition, and the extent to which it depends on the size of the targeted firms. It uses rich longitudinal micro-data on innovation, firms and their workers. Combining matching with a staggered adoption differences-in-differences, we show that tax credits increase investment in R&D-related activities while funds are being received, but not thereafter. Productivity and efficiency (but not employment) increase in large firms. These effects are driven by structural changes, both in terms of the increased share of skilled individuals within the firm (keeping the overall employment level constant) and enhanced technological adoption. In contrast, small firms mostly respond by increasing employment and production scale. Our results suggest that an important trade-off: R&D tax credit programs that target large firms are likely to lead to efficiency and productivity gains, but limited effects on employment of supported firms. In contrast, R&D tax credit programs that mostly benefit small firms may lead to employment gains in supported firms, but limited effects on structural changes in productivity and efficiency.
    Keywords: R&D tax credits, Innovation, SIFIDE, Matching, Differences-in-Differences
    JEL: O31 O38 H25
    Date: 2023–07
  4. By: Helm, Ines (Ludwig-Maximilians-Universität München); Koch, Nicolas (Mercator Research Institute on Global Commons and Climate Change (MCC)); Rohlf, Alexander (Mercator Research Institute on Global Commons and Climate Change (MCC))
    Abstract: We study the effects of a large car scrappage scheme in Germany on new car purchases and local air quality by combining vehicle registration data with data on local air pollutant emissions. For identification we exploit cross-sectional variation across districts in the number of cars eligible for scrappage. The scheme had substantial effects on car purchases and did not simply reallocate demand across time in the short-term. Nevertheless, about half of all subsidized buyers benefited from windfall gains. The renewal of the car stock improved local air quality suggesting substantial mortality benefits that likely exceed the cost of the policy. While policy take-up is somewhat smaller in urban districts, improvements in air quality and health tend to be larger due to a higher car density.
    Keywords: cash for clunkers, local air quality, car scrappage schemes, emissions, car rebate
    JEL: H20 H23 Q53 Q58
    Date: 2023–06
  5. By: Bertoni, Marco (University of Padova); Chattopadhyay, Debdeep; Gu, Yuanyuan (Macquarie University, Sydney)
    Abstract: We study physicians' migration intentions by undertaking a Discrete Choice Experiment with senior Italian medical students. Using the mixed logit models, we estimate how much income students are willing to forego for various job characteristics, including the job location. We find that future doctors are willing to sacrifice €13, 500/year on average to remain in their home country. Those with higher willingness to take risks, competitiveness, cognitive skills and altruism levels are more likely to migrate abroad, with implications for the quality of future doctors remaining in their home country. Furthermore, the valuations of several job characteristics differ substantially for jobs located in the home country or abroad, informing the design of job contracts that shall help retain young doctors.
    Keywords: brain drain, medical workforce, job design, personality traits, discrete choice experiments
    JEL: F66 I18 J08
    Date: 2023–06
  6. By: Inês Teixeira; Aurora Teixeira; Luís Santos (Faculdade de Economia, Universidade do Porto & KU Leuven; CEF.UP, Faculdade de Economia, Universidade do Porto & INESC TEC; Faculdade de Economia, Universidade do Porto)
    Abstract: The present study analyses the impact of subsidies to Research and Development (R&D), more specifically, the impact of QREN (Quadro de Referência Estratégico Nacional)’s Sistema de Incentivos à Investigação e Desenvolvimento Tecnológico nas Empresa (SI I&DT QREN), on the performance of firms. A relatively wide range of studies explores the relationship between subsidies to R&D and firms’ performance. Nevertheless, no consensus has been reached. Furthermore, the literature that analyses the impact of R&D subsidies in non-market-centred and moderate innovative economies like Portugal is quite scarce and limited. The information used in this empirical study concerns the period between 2008-2017, and it was collected from the Operational Competitiveness Programme (COMPETE) included in QREN and complemented with economic and financial data gathered from the Annual System of Iberian Balances (SABI) database. We compared the performance of firms that in 2014 succeeded in obtaining subsidies to R&D with similar firms that did not receive subsidies. Resorting to information on a set of relevant variables in the period before obtaining the subsidy (2008-2013), we established a trustable comparison group using the Propensity Score Matching (PSM). Then, based on the Average Treatment Effect on the Treated (ATT), we compared firms that received subsidies with those that did not use outcome variables of 2017 (three years after the subsidy), most notably employment, labour productivity, operational results, and exports. Results show that firms that received a public subsidy to R&D three years after receiving the subsidy have higher employment levels and export propensity than those that did not. Notwithstanding, no statistically significant differences were encountered in terms of labour productivity or overall financial performance.
    Keywords: R&D subsidies; firms’ performance; propensity score matching; Portugal
    JEL: C31 L25 O32
    Date: 2023–07
  7. By: Eichfelder, Sebastian; Knaisch, Jonas; Schneider, Kerstin
    Abstract: We analyze how tax incentives (bonus depreciation) affect real investment choices of firms by exploiting an exogenous variation in regional tax regulation in former East Germany (Development Area Law, DAL). Our rich administrative panel data for the universe of German manufacturing firms at the establishment level allow us not only to identify an aggregate effect, but also to identify which types of investment (equipment, buildings, land) are are most affected (asset structure). Our baseline results suggest that the DAL increased real gross investment by 16.0% to 19.9%. This aggregate effect is primarily driven by additional investments in buildings (76.6% to 92.3%) and land (108.0% to 121.3%) investments, which have the longest regular depreciation periods in absence of bonus depreciation. The impact on equipment investment is significantly smaller (7.3% to 10.5%). Hence, firms did not only increase their real investment, but also adjusted their asset structure in response to the tax incentive. Addressing firm heterogeneity, we observe a stronger response for firms with more than one business establishment and large firms, thereby providing evidence of tax planning opportunities (multi-establishment firms) and relatively low tax planning costs (large firms) enhancing the effect of bonus depreciation on investment. There is only week evidence of financial reporting costs (accounting incentives) moderating the tax induced effect on firms' real investment choices.
    Keywords: business taxation, user cost of capital, tax elasticity, real investment
    JEL: G11 H25 H32 M41
    Date: 2023
  8. By: Daniel Reck; Arthur Seibold
    Abstract: Empirical evidence suggests that individuals often evaluate options relative to a reference point, especially seeking to avoid losses. We undertake the first welfare analysis under reference-dependent preferences. We characterize the welfare impact of changes in reference points and prices, decomposing these into direct and behavioral effects. The sign of direct and behavioral effects depends on the form of reference-dependent payoffs; which of these effects matter for welfare depends on whether reference dependence reflects a bias or a normative preference. We derive sufficient statistics formulas quantifying the social welfare effects of changes in reference points and prices in terms of estimable reduced-form parameters and normative judgments. We illustrate these findings with an empirical application to reference dependence exhibited in German workers' retirement decisions. We find positive social welfare effects of increasing the Normal Retirement Age, but ambiguous effects of financial incentives to postpone retirement.
    JEL: D60 D90 H55
    Date: 2023–06
  9. By: Fouarge, Didier (ROA, Maastricht University); Heß, Pascal (Institute for Employment Research (IAB), Nuremberg)
    Abstract: Drawing on data from the German National Educational Panel Study (NEPS), we show that students who select majors that do not match their occupational preferences prior to enrolling in university are more likely to drop out than those who do choose majors that match their occupational preferences. Our findings suggest that this gap cannot be explained by institutional obstacles to entering a major. Instead, the primary mechanisms behind this phenomenon are indecisiveness and preference changes.
    Keywords: dropout, preferences, mismatch, tertiary education
    JEL: J24 D83
    Date: 2023–06
  10. By: Merk, Christine; Andersen, Gisle; Nordø, Åsta Dyrnes; Helfrich, Torben
    Abstract: Carbon Capture and Storage (CCS) has been identified as an essential part of the lowest-cost path toward reaching the goals of the Paris Agreement. In Europe, an accelerated pace of CCS development indicates that a CO2 transport and storage system could be established by 2030. However, we know little about how the public views the market for transport and storage of CO2 currently under development in Europe. In early 2023, we conducted an experimental comparative survey to study public opinions on cross-border CO2 trade for storage in Denmark, Germany, the Netherlands, Norway and the UK. The share of respondents that perceive CCS as somewhat positive or very positive varies considerably between the countries; we find the highest share in Denmark (69%), followed by the UK (68%), Norway (67%), the Netherlands (57%) and the lowest share in Germany (49%). Especially concerns about environmental risks and costs lead to more negative views, while perceptions of job creation and economic opportunities lead to more positive evaluations. The experimental results show that importing CO2 for storage is among the least preferred options in all countries, while the storage of CO2 that has been captured in the own country is the most preferred option; the gap in the share of positive evaluations is substantial and amounts to up to 20 percentage points in the UK. Respondents who feel that countries are responsible for reducing national greenhouse gas emissions and storing their own captured CO2 drive the pattern of a more positive evaluation of a domestic CCS value chain and a more negative evaluation of importing CO2.
    Keywords: carbon capture and storage, public perceptions, trade
    JEL: F35 O18
    Date: 2023
  11. By: Bertheau, Antoine (University of Copenhagen); Larsen, Birthe (University of Copenhagen); Zhao, Zeyu (Copenhagen Business School)
    Abstract: We design a survey that asks firms about the obstacles that discourage them from hiring despite having potential needs. Using Danish administrative data and subjective beliefs elicited from our survey, we show how hiring obstacles vary across firms. Over two-thirds of employers agree that skill shortages are a hiring obstacle. One-third of employers consider labor costs, the time to find candidates, and the time to train new recruits as hiring obstacles. High-wage firms are less discouraged by labor costs, while younger or smaller firms are more discouraged by search and training time. Around thirty percent of employers prefer to hire the already employed over the unemployed because they believe that unemployed workers have lower abilities due to negative selection or skill depreciation during unemployment. Firms with such preferences are more likely to report hiring obstacles.
    Keywords: labor demand, hiring behavior, linked survey-administrative data, employer perceptions
    JEL: J23 M12
    Date: 2023–06
  12. By: Martijn Boermans; Rients Galema
    Abstract: We investigate the extent to which investors exhibit carbon home bias: disproportionate investment in carbon-intensive firms from the home market. We utilize a comprehensive stock-level holdings dataset of European investors to understand the relationship between carbon home bias, divestment and disclosure. We show that investors exhibit significant carbon home bias, with about half of their carbon emissions stemming from their domestic portfolios. Over our sample period 2013-2022, European investors have decarbonized their portfolios, but predominantly through their foreign portfolios. Domestic carbon exposures have persisted. Differences-in-differences analyses show that a shock inducing institutional investors to decarbonize is associated with higher ownership of domestic carbon-intensive stocks. Consistent with engagement, higher domestic ownership of carbon-intensive stocks is associated with lower carbon emissions and a higher likelihood of carbon disclosure. Our results show that carbon home bias is not driven by differential home-foreign carbon risk premia, but instead suggest investors’ successful engagement at home while divesting abroad.
    Keywords: home bias; carbon footprint; divestment; engagement; securities holdings statistics
    JEL: G11 G15 G23 H55 Q54 Q56
    Date: 2023–07
  13. By: Holger Graf (Friedrich Schiller University Jena, Economics Department); Hoda Mohamed (Friedrich Schiller University Jena, Economics Department)
    Abstract: Does exporting intermediate goods induce learning from importers? In this paper, we examine to what extent learning from German industries can be explained by knowledge spillovers, channeled through the export of intermediate goods. Our study is based on a sample of 27 German trade partners in 14 manufacturing industries for the period 2004 to 2016. Using data on patent citations and trading in intermediate goods, we find support for the widely known “learning-by-exporting†hypothesis. Our analyses reveal that citations to German patents are positively related to exported intermediate goods weighted by German R&D expenditure. The relationship between these spillovers and learning seems to be particularly strong in certain industries. We also show that the level of absorptive capacity of the exporting trade partner, as measured by the number of researchers involved in R&D activities, plays a role in mediating these spillovers.
    Keywords: GVC, trade, intermediate goods, learning-by-exporting, knowledge spillovers
    JEL: F14 O14 O32 O33
    Date: 2023–07–07
  14. By: Bütikofer, Aline (Dept. of Economics, Norwegian School of Economics and Business Administration); Dalla-Zuanna, Antonio (Bank of Italy); Salvanes, Kjell Gunnar (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper studies the consequences of the buildup of a new economic sector—the Norwegian petroleum industry—on investment in human capital. We assess both short-term and long-term effects for a broad set of educational margins, by comparing individuals in regions exposed to the new sector with individuals in unexposed regions. Importantly, we analyze how the effects and the mechanisms change as the sector develops. Our results indicate that an initial increase in the high school dropout rate is short-lived both because dropouts get their degrees later as adults, and because later-born cohorts adapt to the new needs of the industry by enrolling more in vocational secondary education. We also observe a decrease in academic high school and college enrollment except for engineering degrees. Financial incentives to both completing high school and field of study, are the most likely channels driving these effects.
    Keywords: Natural Resources; Education; Petroleum
    JEL: I20 J10
    Date: 2023–06–30
  15. By: Tran Huynh (Friedrich Schiller University Jena)
    Abstract: This study investigates the causal effect of financial literacy on mortgage payment delinquency. Using an Instrumental-Variable (IV) approach, we find that increased financial literacy significantly reduces the probability of mortgage delinquency. The identified causal effect is robust to different specifications of the IV and cannot be explained by formal education, income, and many other individual characteristics. Our study also examines the heterogeneity of the impact across various demographic groups. We find that the effect of financial literacy on delinquency likelihood is negative and significantly different from zero for any age, gender, income, or education level. However, the magnitude of the effect decreases with age and is higher in states where the population’s financial literacy is low, as compared with high-literate states.
    Keywords: financial literacy, mortgage delinquency, NFCS surveys, instrumental variables
    JEL: G51 G53
    Date: 2023–07–04
  16. By: Mehrzad B. Baktash; John S. Heywood; Uwe Jirjahn
    Abstract: This paper uses German survey data on married couples to examine the association of performance pay at work and subsequent separation or divorce. Despite extensive controls, performance pay remains associated with an increased probability of separation or divorce. Yet, the results are entirely gender specific. When husbands earn performance pay, no association with marital instability is found. When wives earn performance pay, the association is large and robust. This pattern persists across a variety of modeling choices and attempts to account for endogeneity. We argue that the pattern fits theoretical expectations and discuss the implications.
    Keywords: Performance Pay, Separation, Divorce, Gender
    JEL: J33 I31 J32
    Date: 2023

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