nep-tra New Economics Papers
on Transition Economics
Issue of 2023‒01‒16
nine papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. How Quantitatively Important are Shocks to Consumption and Income Tax Rates for Business Cycle Fluctuations? Lessons from Bulgaria (1999-2020) By Aleksandar Vasilev
  2. Late Banking Transitions : Comparing Uzbekistan to Earlier Reformers By Babasyan, Davit; Gu, Yunfan; Melecky, Martin
  3. The effect of rising energy and consumer prices on household finances, poverty and social exclusion in the EU By MENYHERT Balint
  4. Market economics in an all-out-war? Assessing economic and political risks to the Ukrainian war effort By Cooper, Luke
  5. European Economic impacts of cutting energy imports from Russia : A computable general equilibrium analysis By Sigit Perdana; Marc Vielle; Maxime Schenckery
  6. Economic, Institutional and Power Perspectives on EU Income Redistribution and a Ukraine Enlargement By Paul J. J. Welfens; Tian Xiong; David Hanrahan
  7. What if? The economic effects for Germany of a stop of energy imports from Russia By Rüdiger Bachmann; David Baqaee; Christian Bayer; Moritz Kuhn; Andreas Löschel; Benjamin Moll; Andreas Peichl; Karen Pittel; Moritz Schularick
  8. The Effect of International Migration on Tax Morale in the Home Country: Evidence from Poland By Jan Brzozowski; Nicola Daniele Coniglio
  9. The intergovernmental fiscal outlook and the implications of Russia’s war against Ukraine, high energy prices and inflation By OECD

  1. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: This paper analyzes the macroeconomic effects of fluctuations in the marginal tax rates of consumption and income. To this end, stochastic tax rates are introduced as in Braun (1992), into a real-business-cycle setup augmented with a detailed government sector. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2020). The quantitative importance of the presence of stochastic taxation is investigated for the stabilization of cyclical fluctuations in Bulgaria. The quantitative effect of such shocks to the marginal tax rates is found to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles, stochastic consumption and income taxes, Bulgaria
    JEL: E24 E32
    Date: 2023–01
  2. By: Babasyan, Davit; Gu, Yunfan; Melecky, Martin
    Abstract: Uzbekistan is one of the late transition economies. This paper compares the earlyexperience and challenges that Uzbekistan confronts in transitioning its banking system to market principlesagainst the earlier experience with banking transitions from Poland, Russia, and Vietnam, and other relevant evidencefrom the literature. To that effect, the paper uses new data on Uzbekistan’s banking sector, the data on past transitioneconomies, and qualitative and quantitative evidence from the literature. Uzbekistan’s latest experience with bankingtransition generates important lessons for countries that have yet to transition. Namely, how much can a newtransitioning country reasonably expect to accomplish within the medium term Which banking reforms are the most essentialand how should they best be sequenced How can expectations about efficient capital reallocation be managed, access tofinance made more equitable, and transition risks of financial instability be mitigated What are thecomplementary reforms in the real sector, especially of state-owned enterprises and the competition framework, thatneed to happen in tandem for the new banking market to function properly
    Date: 2022–03–23
  3. By: MENYHERT Balint (European Commission - JRC)
    Abstract: This report contains an empirical analysis based on microdata from European household surveys to provide a preliminary assessment of the potential social consequences of increasing energy and consumer prices in the EU. It uses detailed information on recent price developments and the structure of household expenditures to quantify the extent of living cost increases and purchasing power losses in a granular and customised manner across different household types and income groups in the EU. The Report is also the first attempt to calculate the potential effects of rising prices on indicators of material and social deprivation and measures of absolute poverty. It finds that, since early 2021, inflation is predicted to have increased material and social deprivation in the EU by about 2 percentage points on average, while the corresponding increase in absolute poverty may be closer to 5 percentage points. The adverse social effects of inflation are significantly larger in many Central and Eastern European Member States, especially among disadvantaged and/or vulnerable groups. This is likely to further deepen existing gaps in poverty and social exclusion between EU15 and non-EU15 countries, and calls for a strong and coordinated policy response.
    Keywords: poverty and social exclusion, inflation, household finances, material and social deprivation, energy poverty, absolute poverty
    Date: 2022–10
  4. By: Cooper, Luke
    Abstract: This report offers a summary analysis of the acute economic challenges facing the Ukrainian war effort and critically reviews the current policy agenda of the Government of Ukraine. Ukraine’s success in the war to date is reflective of popular support for the war-effort. Citizens are willing to mobilise and sacrifice to protect the country’s democratic public authority from its military overthrow by Russia. Despite serious social and economic problems, this has hitherto allowed Ukraine to avoid the societal collapse and state fragmentation, which are major risks to Ukraine’s ability to win the war. To mitigate these risks, it is recommended that the Ukrainian government adopt a policy of social partnership and aim to achieve full employment, so that all resources can be directed to support the war-effort.
    JEL: E6
    Date: 2022–12–01
  5. By: Sigit Perdana (EPFL - Ecole Polytechnique Fédérale de Lausanne); Marc Vielle (EPFL - Ecole Polytechnique Fédérale de Lausanne); Maxime Schenckery (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles)
    Abstract: The recent economic sanctions against Russia can jeopardise the sustainability of the European Union's (EU) energy supply. Despite the EU's strong commitment to stringent abatement targets, fossil fuels still play a significant role in the EU energy policy. Furthermore, high dependency on Russian energy supplies underlines the vulnerability of the EU energy security. Using a global computable general equilibrium model, we prove that the current EU embargo on coal and oil imported from Russia will have adverse supply effects, substantially increasing energy prices and welfare costs for the EU resident. Although it reduces emissions, extending the embargo to include natural gas doubles this welfare cost. The use of coal is likely to increase, especially with respect to EU electricity generation, given the current constraints of additional import capacities from non-Russian producers. The impact on Russia once the EU extends the sanctions to natural gas is less substantial than on the EU. Russian welfare cost will increase less than 50%, indicating that extending the current restriction to boycott Russian gas is a costly policy option.
    Keywords: European union,Russia,Computable general equilibrium model,Fit for 55 package,Imports ban
    Date: 2022–11
  6. By: Paul J. J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Tian Xiong (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); David Hanrahan (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The analysis looks into European Union income redistribution policies and also places a focus on certain theoretical, institutional and empirical aspects of a future enlargement of the EU to admit Ukraine as a member; while suggestions for policy reforms in the EU and for a transition process for new member countries are also presented. Moreover, the role of the Banzhaf power index in terms of the intra-EU allocation of EU grants and loans under the Recovery and Resilience Facility (part of the Next Generation EU plan) as well as EU transfers to regions/national institutions in EU countries are considered – within a cross country analysis. As independent variables in the regression analysis for the grant/loan ratio on the one hand and the EU transfers/GDP of recipient countries we consider the relative per capita income (in purchasing power parity figures) of recipient countries, Corona death ratios and related indicators as well as the Banzhaf power index (for the European Council) which has changed after BREXIT and which would also change in the context of an EU-Ukraine enlargement. The Banzhaf power index measures power in the context of weighted majority decisions in the European Council. The regressions show several significant variables – but the Banzhaf power index is insignificant for the grants-to-loans ratio of recipient EU countries; and we even can state a new Banzhaf index paradox. The regression analysis for the grant loan ratio is the first to date in the literature. There is considerable potential for a new X-EXIT in the context of a Ukraine enlargement where lessons from BREXIT should be carefully considered if one is to avoid further such disintegration cases. As prior to previous enlargements, topics such as the role of redistribution and fiscal competences at an EU level in relation to revenue-raising and spending have been raised, one can assume that these issues will be to the fore once again if the prospect of a Ukraine-enlargement becomes more likely. One lesson to be drawn is that Ukraine should get lower EU transfers per capita than was the case for Poland in 2005. The required reforms in the EU are pointed out on the one hand, on the other hand politico-economic reflections suggest that the implementation of such reforms will be rather difficult; not least in the context of the fast aging of societies in Germany, Italy and Spain after 2025 – with the caveat that strong immigration from Ukraine could slow down the greying of societies particularly in Germany and Italy, so that anti-EU sentiments could become weakened under certain conditions. An EU enlargement to admit Ukraine is finally considered in a scenario perspective.
    Keywords: Intra-EU Income Redistribution, EU Ukraine Enlargement, Banzhaf Power Index, Grant-loan Ratio, Immigration, Constitutional EU Reforms
    JEL: F02 K33 N44 P00 R00
    Date: 2022–12
  7. By: Rüdiger Bachmann (UND - University of Notre Dame [Indiana]); David Baqaee (UCLA - University of California [Los Angeles] - UC - University of California); Christian Bayer (University of Bonn); Moritz Kuhn (University of Bonn, ECONtribute - ECONtribute: Markets & public policy); Andreas Löschel (RUB - Ruhr University Bochum); Benjamin Moll (LSE - London School of Economics and Political Science); Andreas Peichl (LMU - Ludwig-Maximilians University [Munich]); Karen Pittel (LMU - Ludwig-Maximilians University [Munich]); Moritz Schularick (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, University of Bonn, ECONtribute - ECONtribute: Markets & public policy)
    Abstract: This article discusses the economic effects of a potential cut-off of the German economy from Russian energy imports. We show that the effects are likely to be substantial but manageable. In the short run, a stop of Russian energy imports would lead to a GDP decline in range between 0.5% and 3% (cf. the GDP decline in 2020 during the pandemic was 4.5%). (i) In the case of an import stop, imports of oil and coal from Russia can be substituted from other countries, but the situation in the gas market is more challenging. An increase in gas imports from other countries, substitution of gas used for electricity production by coal or nuclear as well as refilling of storage facilities over the summer can only reduce the shortfall to about 30% of gas consumption or 8% of German energy consumption over the next 12 months. (ii) How would the German economy cope with such a shortfall of gas deliveries? The economic effects crucially depend on substitution and reallocation of energy inputs across sectors. To quantify these effects, we use a state-of the-art multi-sectoral open economy model following Baqaae and Farhi (2021) that accounts for elasticities of substitution and reallocation between different intermediate inputs. In a second step, we turn to a simplified model that helps us derive plausible bounds for the economic effects using observed elasticities for energy inputs. In the Baqaae-Farhi model, the output costs of a Russian import stop remain firmly below 1% of Gross Domestic Product (GDP), or between 80 and 120 Euros per German citizen per year. In a more pessimistic scenario where it proves very difficult to substitute Russian gas in the short-run outside the electricity sector, the economic costs would rise to about 2-2.5% of GDP, or about 1000 Euros per German citizen over 1 year. This comes potentially on top of a large increase in energy prices for household and industry even without a shortfall of gas deliveries. Of course the effects are more detrimental in energy intensive sectors. (iii) Data from the Income and Consumption Survey (EVS) show variation in the expenditure share on energy across the income distribution. However, the distributional consequences of an increase in energy prices appear manageable. A targeted policy towards low-income households without reducing the incentives for households to save energy would be a cost effective way of ensuring a fair burden-sharing across households. It is important to maintain strong incentives for households to reduce gas usage. (iv) Economic policy should aim at strategically increasing incentives to substitute and save fossil energies as soon as possible. In case that an active embargo is politically desired, it should start as soon as possible so that economic agents can use the summer period for adjustment. To reduce dependence on imported energy, it is advisable for the government to commit to elevated fossil energy prices, in particular for natural gas, for an extended period to create incentives for households and industry to adjust quickly.
    Date: 2022–03
  8. By: Jan Brzozowski (Jagiellonian University, Cracow, Poland.); Nicola Daniele Coniglio (University of Bari Aldo Moro, Italy)
    Abstract: International migration represents a potential channel for the transmission of norms, attitudes, and values back to the home countries. In this paper, we explore how the international migration of individuals affects tax morale and aversion to the free-riding of their household members left in the home country. We use a rich longitudinal household-level database which is representative of Polish society in the period 2007- 2015 — one of the most important countries of emigration in the EU — and allows us to observe social attitudes and values of individuals before and after the actual migration of a member of the household. Our results show that having a migrant in the household has a significant and positive effect on tax morale and increases aversion toward free-riding of those who stay put. We demonstrate that the transmission of this important form of social remittances crucially depends on the characteristics — gender, level of education, role in the household — of both those who migrate and those who stay put within the household. The identification of the effects relies on individual-level longitudinal data which allows us to rule out any time-constant confounding factor affecting both international migrations of family members and individual attitudes toward tax avoidance.
    Keywords: international migration, social remittances, values’ transfer, tax morale
    JEL: D83 F22 F24 H26 P20 Z10
    Date: 2022–12
  9. By: OECD
    Abstract: Less than two years after the start of the COVID-19 pandemic, Russia’s illegal, unprovoked and unjustifiable war of aggression against Ukraine has triggered the biggest military confrontation in Europe since World War II. Many OECD countries have reacted to Russia’s aggression by providing military and humanitarian aid to Ukraine and by imposing economic sanctions on Russia, which has accentuated supply chain disruptions, especially in the energy sector. A combination of these supply shocks with a demand shock caused by expansionary fiscal and monetary policies to tackle the pandemic has created inflationary pressures on a scale not seen in decades. Central banks around the world are acting to fulfil their price stability mandates by increasing interest rates and by engaging in quantitative tightening (primarily the selling of government bonds to reduce central bank balance sheets), all of which put pressure on borrowing costs at a time when governments are engaging in expansionary fiscal policy to alleviate the impact of inflation. The objective of this policy note is to examine the main consequences of this challenging environment for the fiscal stance of different levels of governments. These include the weakening outlook for government revenues in times of high expenditure pressures from a more rapid energy transition as well as high borrowing costs.
    Keywords: energy crisis, fiscal federalism, state and local governments, subnational fiscal projections, tax policy
    JEL: H12 H68 H77
    Date: 2023–01–05

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