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171. Fiscal Policy Spillovers in the Euro Area: Where Are They?

Author:
Daniel Gros and Alexandr Hobza
Publication Date:
11-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
What impact would a fiscal expansion in Germany have on the rest of the euro area? It has been generally suggested that it could go in either of two opposite directions, depending on the relative strength of two effects: the direct trade linkage and the financial market repercussions. A review of the results from four major macroeconomic models shows that the cross-country spillover effects of fiscal policy are indeed of uncertain sign and magnitude. Different models give quite different results if used in standardised simulations in terms of the sign, magnitude and time profile of the impact of a fiscal expansion in one member country (e.g. Germany) on other euro area countries. Fewer results are available concerning the potential spillover effects of structural policies, but they are similar to the ones concerning a budgetary stimulus: the magnitude of the spillover is small and varies across countries and over time.
Topic:
Economics, Government, Human Rights, International Trade and Finance, Migration, and Political Economy
Political Geography:
Europe and Germany

172. Seigniorage: An Argument for a National Currency?

Author:
Fransizka Schobert
Publication Date:
10-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Seigniorage has often been mentioned as one of the most important and most readily quantifiable arguments for a government not to give up its monopoly in base money. The analysis shows that the measurement of seigniorage may lead to very different results and that it eventually depends on the monetary environment, in which central banks issue and manage base money. For less advanced countries in Central and Eastern Europe seigniorage has only been fiscally significant in high inflationary economies and even then the success in exploiting seigniorage has been limited. Widespread currency substitution has contributed to the results. Governments in these countries which are willing to stabilise prices but which lack crediblity to do so, may be increasingly interested in euroisation. More advanced EU-accession countries have received low revenues from having a national currency over the recent years. Seigniorage has arisen as a by-product of other central bank's objectives such as price and exchange rate stability. This caused high sterilisation costs and valuation gains of the central bank's asset portfolio have often been the main reason for positive results of seigniorage. In search for a viable monetary regime and in face of further liberalisations of capital markets these countries may look at euroisation as a choice to achieve price stability without exchange rate volatility.
Topic:
Economics and Political Economy
Political Geography:
Europe

173. Extending Citizenship Rights to Third Country Nationals

Author:
Joanna Apap
Publication Date:
10-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Various issues arise in the European context with respect to the boundaries of citizenship; one of the main questions is to what extent the division between the European Union citizens and third country nationals will increase, especially if “deepening” of the Union leads to more tightening of its external borders. This paper addresses the question of how far citizenship rights can be extended to third country migrants in the EU?
Topic:
Economics, Government, Human Rights, International Trade and Finance, Migration, and Political Economy
Political Geography:
Europe

174. What Drove Relative Wages in France? Structural Decomposition Analysis in a General Equilibrium Framework, 1970-92

Author:
Sébastien Jean and Olivier Bontout
Publication Date:
09-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
This paper confronts a CGE model to observed evolutions in France, between 1970 and 1992, through a structural decomposition analysis. The choice of the model and the assumption of constant elasticities over time enable the structural change of the economy between two equilibria to be summarised through a set of four types of state variables, reflecting the effect of technical change, changes in factor supplies, shifts in consumption patterns, and international trade. Simulations then allow the contribution of each of these shocks to be assessed. We find that technical change had a strong positive impact on the relative wage of skilled to unskilled workers, while the impact of changes in factor supplies is strongly negative. The effect of international trade is far less important. However, if we take into account a trade-induced effect on productivity, then we find that trade substantially increased wage inequalities.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
China, Europe, and France

175. Is the ECB Sufficiently Accountable and Transparent?

Author:
Daniel Gros and Lorenzo Bini-Smaghi
Publication Date:
09-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
More than two years after its inception, the ECB is still perceived as lacking transparency by many academics and market participants. Our analysis, based on a series of indicators, suggests instead that the ECB is, at least on paper, one of the most transparent and accountable central banks. The discrepancy between theory and public perception suggests that much remains to be done within the given institutional framework to improve the transparency of the ECB. What is the best way to achieve this goal? Several suggestions have been put forward, such as publishing the detailed minutes of the ECB Governing Council meetings. This would result in shifting the true debate to informal meetings of the Governing Council, while formal meetings would only record pre-packaged consensus with no or little discussion. In our view, the best way to make the ECB more accountable is to engage it in substantive discussions about its policy. The ECB should provide more information about the background analysis that leads to policy decisions. For example, the ECB should transform its 'staff projections' into true inflation forecasts and it should be more open about the arguments that shape the internal debates, which precedes decisions. Accountability cannot be ensured by the ECB alone. An important role has to be played by its counterparts, such as the European Parliament, the Council of EU Finance Ministers and the public at large.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

176. Maastricht the Choice of Exchange Rate Regime in Transition Countires During the Run-Up to EMU

Author:
György Szapáry
Publication Date:
05-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
This paper raises some specific issues concerning the choice of exchange rate regime in transition countries during the run-up to EU/EMU membership. It argues that there is no "one-size-fits-all" exchange rate regime that accession countries should uniformly adopt. It also argues that the Maastricht criterion on inflation is inconsistent with the catching-up process because of the Balassa-Samuelson effect and that this inconsistency will encourage a "weighing-in" syndrome: like the boxer who refrains from eating for hours prior to the weigh-in only to consume a big meal once the weigh-in is over, the candidate country will maintain very tight monetary policy and resort to all sorts of techniques (freezing of administered prices, lowering of consumption taxes, etc.) to squeeze down inflation prior to accession only to shift back gears after it has joined the EMU. Indeed, the convergence of short-term interest rates to EMU levels that will come with accession will automatically mean a loosening of monetary policy after the country has become a member of the monetary union. That loosening will be reinforced if the country had previously allowed its exchange rate to appreciate against the euro. The result of this stop-go cycle is that the efficiency of economic management will suffer. It would be better to recognize the principle of the Balassa-Samuelson effect explicitly in the Maastricht criteria by giving more room for maneuver than the one provided by the present rule. The paper makes suggestions on how the Maastricht criterion on inflation could be adjusted and discusses their merits. It concludes that a reasonable compromise would be to define the permissible inflation deviation in reference to the average inflation rate of the euro zone, not the three EU members with the lowest inflation rate.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

177. Foreign Direct Investment and Company Taxation in Europe

Author:
Agnès Bénassy-Quéré, Lionel Fontagné, and Amina Lahrèche-Révil
Publication Date:
04-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The growing globalisation of OECD economies, associated to the progresses in European integration, tends to increase the mobility of capital and to deepen the pressure on tax policies. On the one hand, tax policies are tied by the Stability Pact criteria: the limit imposed on budget deficits leaves little scope for tax rates to decrease. On the other hand, the growing mobility of capital tends to increase the elasticity of tax bases to tax rates, hence reducing the autonomy of governments in increasing taxes.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

178. Economic Integration Between the EU and the CEECS: A Sectoral Study

Author:
Francesca di Mauro
Publication Date:
04-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Economic integration between the EU and the CEECs has proceeded at high speed over the 90's, with the main channels of such integration being trade and FDI. Some authors believe that the 'commercial transition' is now complete and that a new, deeper phase of integration has started, with growing flows of FDI in the region. Following a gravity-type approach, in this paper I tackle two difficult issues surrounding the EU-CEECs integration: has FDI in the CEECs region substituted EU exports, therefore harming employment at home? Has FDI in the CEECs region been redirected away from similarly attractive countries, such as Spain and Portugal? By using a unique database on FDI broken down by country and by sector, which allows more detailed qualifications than possible in previous work, the answers to these two questions appear to be negative.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe, Spain, and Portugal

179. Who Needs an Extenal Anchor?

Author:
Daniel Gros
Publication Date:
03-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
This paper argues that there might be non-monotonic relationship between the strength of the domestic framework for fiscal policy and the interest of a country to use an external anchor to achieve price stability. Countries with a strong domestic framework, e.g. low public debt, little pressure for excessive expenditure and an efficient tax system, would anyway enjoy low inflation rates and therefore have little need for an external anchor. Countries with high debt or very weak institutions would greatly benefit from an external anchor to save them from the extreme inflation rates they would otherwise have to endure because the market knows that the temptation for them to inflate public debt away is so strong. By contrast, countries with moderately weaknesses might be in a situation where they need some inflation to supplement government revenues with seigniorage, but the inflation resulting from the interaction with the market, which knows about this, is still moderate.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

180. What's Trade Got To Do With It? Relative Demand for Skills within Swedish Manufacturing

Author:
Paul Brenton, Bob Anderton, and Eva Oscarsson
Publication Date:
03-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
This paper seeks to identify the contribution of trade and technological change to the increase in inequality between skilled and unskilled workers in Sweden since the 1970s. An empirical approach is adopted which allows for the outsourcing of the low-skill parts of the production chain within industries to low-wage locations and is applied to detailed industry and trade data, the latter distinguishing between low-wage sources of imports and OECD countries. Another feature of the study is the use of data on patents to capture technological change. The paper finds that, in contrast to previous studies, trade with low-wage countries may have contributed to the rise in inequality in Swedish manufacturing. Here we identify this effect through changes in relative import prices and through changes in import penetration measured in volume terms. Changes in import penetration measured in value terms, which have been used in previous studies, are not found to be significant. In addition imports seem to have had a larger effect on inequality in high-skill intensive sectors rather than the low-skill sectors. The empirical results also suggest that the increased use of technology also played a role in creating greater inequality between skilled and unskilled workers in Sweden with the magnitude of this impact increasing in the 1990s.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe and Sweden