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on European Economics |
| By: | Horvath, B.L.; Huizinga, H.P. (Tilburg University, Center for Economic Research) |
| Abstract: | On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to southern Europe and Ireland and located in countries characterized by weak public finances. Furthermore, countries with weak public finances and banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value. |
| Keywords: | Bailout;Banking;CDS spreads;Sovereign debt. |
| JEL: | G21 G28 H63 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011118&r=eec |
| By: | Sandra Gomes (Bank of Portugal); Pascal Jacquinot (European Central Bank); Matthias Mohr (European Central Bank); Massimiliano Pisani (Bank of Italy) |
| Abstract: | We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating EAGLE, a multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, a unilateral markup reduction by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. Second, cross-country coordination of reforms would add extra benefits to each region, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. In the long run German (Portuguese) output would increase by 9.2 (8.6) percent. Third, cross-country coordination would make the macroeconomic performance of the different regions more homogeneous, in terms of price competitiveness and real activity. Overall, our results suggest that while reforms implemented individually by each country in the euro area will produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects. |
| Keywords: | economic policy, structural reforms, dynamic general equilibrium modeling, competition, markups. |
| JEL: | C53 E52 F47 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_830_11&r=eec |
| By: | Giorgia Palladini; Richard Portes |
| Abstract: | This analysis tests the price discovery relationship between sovereign CDS premia and bond yield spreads on the same reference entity. The theoretical no-arbitrage relationship between the two credit spreads is confronted with daily data from six Euro-area countries over the period 2004-2011. As a first step, the supposed non stationarity of the two series is verified. Then, we examine whether the non-stationary CDS and bond spreads series are bound by a cointegration relationship. Overall the cointegration analysis confirms that the two prices should be equal to each other in equilibrium, as theory predicts. Nonetheless the theoretical value [1, -1] for the cointegrating vector is rejected, meaning that in the short run the cash and synthetic market's valuation of credit risk differ to various degrees. The VECM analysis suggests that the CDS market moves ahead of the bond market in terms of price discovery. These findings are further supported by the Granger Causality Test: for most sovereigns in the sample, past values of CDS spreads help to forecast bond yield spreads. Short-run deviations from the equilibrium persist longer than it would take for participants in one market to observe the price in the other. That is consistent with the hypothesis of imperfections in the arbitrage relationship between the two markets. |
| JEL: | F34 G12 G15 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17586&r=eec |
| By: | Carlos Vieira (CEFAGE-UE, Universidade de Évora, Portugal); Isabel Vieira (CEFAGE-UE, Universidade de Évora, Portugal) |
| Abstract: | The academic and political discussion about which countries met the conditions for joining EMU was decisively influenced by the Frankel and Rose (1997) hypothesis concerning endogenous OCA properties. The answer to their question "Is EMU more justifiable ex post than ex ante?" was a definite yes in their ex ante analysis. Our ex post examination of the euro's first decade, however suggests that the hypothesis does not hold for some countries. This paper utilizes panel data estimation techniques to compute OCA indices that help assess the OCA endogeneity hypothesis and signal current external and fiscal imbalances. |
| Keywords: | optimum currency areas, OCA index, monetary union |
| JEL: | F15 F36 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0042&r=eec |
| By: | Giulietti, Corrado (IZA); Guzi, Martin (IZA); Kahanec, Martin (Central European University, Budapest); Zimmermann, Klaus F. (IZA and University of Bonn) |
| Abstract: | The paper studies the impact of unemployment benefits on immigration. A sample of 19 European countries observed over the period 1993-2008 is used to test the hypothesis that unemployment benefit spending (UBS) is correlated with immigration flows from EU and non-EU origins. While OLS estimates reveal the existence of a moderate correlation for non-EU immigrants only, IV and GMM techniques used to address endogeneity issues yield, respectively, a much smaller and an essentially zero causal impact of UBS on immigration. All estimates for immigrants from EU origins indicate that flows within the EU are not related to unemployment benefit generosity. This suggests that the so-called "welfare migration" debate is misguided and not based on empirical evidence. |
| Keywords: | immigration, unemployment benefit spending, welfare magnets, European Union |
| JEL: | H53 J61 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6075&r=eec |
| By: | Monica Correa Lopez |
| Abstract: | This paper documents stylized facts of international medium-term business cycles by exploring the pattern of comovement between a catching-up economy, Spain, and each of the obvious candidate countries to technological leadership of the 1950-2007 period, the U.S., France, Germany, Italy and the U.K. A remarkable feature of the international medium-term business cycle is the strong, positive lead displayed by the U.S. technology and terms of trade cycles over Spain's macroeconomic aggregates. The corresponding evidence when the counterpart to Spain is a large European economy is weaker, particularly in the case of Europe's medium-term technology cycles. Nonparametric tests results suggest that, over the medium-term cycle, a shift towards more economic integration may not necessarily be associated with increased international comovement. |
| Keywords: | Medium-term business cycles; Stylized facts; International comovement; Technology diffusion |
| JEL: | E32 F41 O3 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1132&r=eec |
| By: | Basso, Gaetano (University of California, Davis); Dolls, Mathias (IZA); Eichhorst, Werner (IZA); Leoni, Thomas (WIFO - Austrian Institute of Economic Research); Peichl, Andreas (IZA) |
| Abstract: | The Great Recession did not only affect European countries to a varying extent, its impact on national labour markets and on specific socio-economic groups in those markets also varied greatly. Institutional arrangements such as employment protection, unemployment insurance benefits and minimum income support, working time flexibility and wage setting played a crucial role in determining to what extent the economic crisis led to higher unemployment, wage cuts or income losses and rising poverty. As the crisis gained momentum, the action of automatic stabilisation mechanisms built into the national tax-benefit and social protection systems was accompanied by heterogeneous sets of discretionary policy measures. While these factors can explain cross-country variation in labour market developments, they also lead to an unequal distribution of economic risks associated with the crisis across socio-economic groups. The present paper aims to investigate and assess to what extent the financial and economic crisis that hit the global economy in 2008-2009 impacted these labour market developments and to what extent different socio-economic groups were affected. |
| Keywords: | automatic stabilisers, unemployment protection, tax systems, Europe, Great Recession |
| JEL: | H24 J65 J68 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6080&r=eec |
| By: | Marta Rodrigues Monteiro (Faculdade de Economia, Universidade do Porto); Elísio Fernando Moreira Brandão (Faculdade de Economia, Universidade do Porto); Francisco Vitorino da Silva Martins (Faculdade de Economia, Universidade do Porto) |
| Abstract: | This paper studies the economic determinants of corporate tax revenue to Gross Domestic Product (GDP) across European Union members over the period 1998-2009. The Feasible Generalized Least Squares (FGLS) regression results suggest that structural, cyclical, international and institutional factors such as GDP, Government Deficit, Industry Turnover, Unemployment, Number of Enterprises, Trade Openness, Foreign Direct Investment (FDI) and Corruption affect revenue performance of an economy. Thus, the findings show that Unemployment Rate and Corruption have an adverse effect on tax collection, while the other analysed factors contribute to a better performance concerning tax collection. In the present paper we also consider as explanatory factors the tax variables Effective Average Tax Rate (EATR) and Effective Marginal Tax Rate (EMTR). In fact, empirical results indicate a parabolic relationship between EMTR and corporate tax revenues, reinforcing the hypothesis of the existence of a Laffer curve. Our findings also suggest that the last two years of European Union enlargement are likely not to have had effect in corporate tax revenue to GDP. In addition, specific factors of some countries (Greece, Portugal and Spain) seem to positively affect corporate revenues. |
| Keywords: | Corporate Tax Revenue, EATR, EMTR, Corruption, Laffer Curve |
| JEL: | H25 H26 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:437&r=eec |
| By: | Herwartz, Helmut; Niebuhr, Annekatrin |
| Abstract: | The labor market effects of the recent financial and economic crisis are rather heterogeneous across countries and regions. Such differences in labor market performance among industrialized countries are an issue of ongoing research. The objective of this paper is to analyse labor market disparities among European regions and to provide evidence on the factors behind these differences. Whereas previous research focused on effects of national labor market institutions, we also take structural characteristics of regions into account and investigate differences in labor demand responsiveness and their potential determinants. The data set covers the NUTS2 regions in the EU15 for the period 1980 to 2008. We apply an error correction model that is combined with a spatial modeling approach in order to account for interaction among neighboring labor markets. Our findings point to substantially distinct labor demand responses to changes in output and wages among European countries and regions. Moreover, the rate of adjustment to disequilibrium is subject to a signifcant variation across units of observation. Whereas evidence on the significance of region specific variables as explanatory factors is weak, labor market institutions, especially regulations that affect the determination of wages, explain an important fraction of the disparities. -- |
| Keywords: | Regional labor markets,labor demand,institutions,Europe,error correction model |
| JEL: | C23 J23 R23 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hwwirp:112&r=eec |
| By: | Marie-Noëlle Calès (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Dominique Chabert (Université de Lyon, Lyon F-69007, France); Walid Hichri (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Nadège Marchand (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | The European Central Bank (ECB) will offer to banks in 2013 an european shared platform for securities settlement, named TARGET 2 Securities (T2S), in order to open the national financial markets. The financial crisis did not change the ECB agenda. This paper develops a spatial competition model to understand the impact of this new organisation on european post-trading services. We analyse the incentives of the Central Securities Depositaries (CSD) to move to T2S when they become competitors in the market for settlement services and remain in a monopoly position for depository services. Settlement and depository services are complementary goods, because banks have to pay for these two services to buy or sell a security. We show that such a reform should induce a decrease in the settlement price and more generally in post-trading prices, but that prices depend strongly on market organisation. Under certain conditions, partial adhesion would make prices increase. This configuration appears as a Nash equilibrium. As CSDs are free to adhere to T2S, the ECB might be forced to regulate. |
| Keywords: | Post-trading organisation, securities settlement, depositary services, compatibility |
| JEL: | D43 G15 G20 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1129&r=eec |
| By: | Fabrizio Borselli (Banca d'Italia) |
| Abstract: | The European Union’s VAT system has become vulnerable to organised fraud schemes. In recent years, these schemes, undergoing a change in structure, have affected services and imports of goods from third countries and may also have shifted trade in goods among EU countries. Within the EU-27, organised VAT fraud is estimated to amount to between €20 billion and €35 billion a year. The EU institutions and Member States have put forward several measures to tackle this problem, although some of these have placed a disproportionate burden on businesses. The article shows that need to maximise the effectiveness of anti-VAT-fraud strategy cannot be separated from a broad view of the problem and of the functioning of the VAT system as a whole. A drastic change in the VAT system might provide a robust defence against fraud but produce uncertain effects. Enhancing risk management and exchange of good practices is essential. Technology-based solutions appear to be a pragmatic and politically feasible approach to new challenges, with good prospects of success. |
| Keywords: | VAT, tax evasion, fraud |
| JEL: | H21 H26 K34 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_106_11&r=eec |