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5221. 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
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

5222. 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
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

5223. Who Needs an Extenal Anchor?

Author:
Daniel Gros
Publication Date:
03-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
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

5224. 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
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

5225. Skill Upgrading and Production Transfer within Swedish Multinationals in the 1990s

Author:
Pär Hansson
Publication Date:
03-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper studies the link between production transfer in Swedish-headquartered multinational enterprises (MNEs) and skill upgrading in Swedish manufacturing in the 1990s. The analysis distinguishes between horizontal and vertical foreign direct investment (FDI). The increased employment share in affiliates in non-OECD countries (vertical FDI) has a non-trivial, significantly positive effect on the share of skilled labour in the Swedish parents. On the other hand, the skill upgrading in the parents is unrelated to employment changes in their affiliates in other OECD countries (horizontal FDI). The latter is consistent with implications of the newly developed horizontal MNE models.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe and Sweden

5226. European Labour Markets and the Euro: How Much Flexibility Do We Really Need?

Author:
Michael C. Burda
Publication Date:
03-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Widespread concern over real effects of EMU is consistent with new Keynesian approaches to macroeconomic fluctuations, but more difficult to reconcile with a real business cycle (RBC) paradigm. Using a model with frictions as a point of departure, I speculate that nominal price rigidity in Europe is likely to increase, while real rigidities are likely to decrease, as a consequence of monetary union. This logic implies a new European macroeconomic regime in which monetary policy is increasingly "effective" in influencing output in the short run. Similarly, changes in the nature of real and nominal price determination are likely to increase the volatility of the European business cycle. Empirical evidence of increasing covariation of price inflation and declining correlation of wage inflation and real wage growth within EMU countries in the last decade is consistent with this conjecture. Calls for additional labour market flexibility, given the magnitude of what is already in store for Europe, may be unwarranted.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

5227. Fiscal Decentralisation Economic Growth in High-Income OECD Countries

Author:
Ulrich Thießen
Publication Date:
01-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Following a brief review of the benefits and shortcomings of fiscal decentralisation, the paper attempts to empirically analyse for high-income OECD countries the relationship between per capita economic growth, capital formation and total factor productivity growth, on the one hand, and indicators of fiscal decentralisation, on the other hand. The evidence appears to be consistent with the hypothesis that the benefits of fiscal decentralisation on economic growth and capital formation are limited. However, satisfactory indicators of fiscal decentralisation are yet not existing so that the results are subject to serious qualifications.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

5228. Asymmetric Labour Markets in a Converging Europe: Do Differences Matter?

Author:
Ray Barrell and Karen Dury
Publication Date:
01-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Asymmetric economic structures across Europe may result in common shocks having asymmetric effects. In this paper we investigate whether the differences in the structure and dynamics that we observe in the European economies matter for policy design. In particular it is widely believed that labour market responses are different, with the structure of labour demand and the nature of the bargain over wages differing between countries. In addition the European economies move at different speeds in response to common shocks. In this paper we construct three different models of Europe, one where the labour market relationships are separately estimated and assumed to be different, one where the most statistically acceptable commonalties are imposed and one where common labour market relationships are imposed across all member countries. We use panel estimation techniques to test for the imposition of commonalties among countries. We find that it is possible to divide Europe into sub-groups, but it is not possible to have one model of European labour markets. We use stochastic simulation techniques on these different models of Europe and find that the preferred rule for the ECB is a combined nominal aggregate and inflation-targeting rule. We find that while this rule is dominant in all our models, the more inertia that is introduced into the labour markets, the more a nominal aggregate-targeting rule alone may be preferred. However, we conclude, that differences in the labour market transmission mechanisms across the European countries appear to have little influence on the setting of monetary policy for the ECB, although this depends on the relative importance of the different components in the welfare loss function.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

5229. Trade Jobs in Portugal: A Microeconomic Approach

Author:
Ana Rute Cardoso
Publication Date:
01-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
The Portuguese economy presents a low unemployment rate when compared to its European counterparts and it has been claimed that this is partly due to the slow restructuring of the economy, which has been keeping its specialisation in traditional industries, some of them major exporting industries. This study analyses job creation and job destruction at the firm level across skill groups, during the 1980s and the 1990s. The major aim is to explore the role of international trade against alternative explanations of job flows, providing an answer to the question: did international trade help sustain the employment of particular groups of workers, namely the least skilled, in the Portuguese economy? Could conditions in international markets therefore have contributed to keep a low unemployment rate? A matched data set on workers and firms is used, which includes a direct measure of the skill of the worker. Results indicate that technology indicators are more relevant determinants of job flows than conditions in international product markets. Indeed, import prices have no impact on job creation or job destruction for the unskilled or on job creation for the skilled. Higher export prices lead to job creation for the skilled labour force, thus pointing to a certain skill upgrading.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

5230. The Epidemiology of Microeconomic Expectations

Author:
Christopher D. Carroll
Publication Date:
12-2001
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Since the foundational work of Keynes (1936), macroeconomists have emphasized the importance of agents' expectations in determining macroeconomic outcomes. Yet in recent decades macroeconomists have devoted almost no effort to modeling actual empirical expectations data, instead assuming all agents' expectations are 'rational.' This paper takes up the challenge of modeling empirical household expectations data, and shows that a simple, standard model from epidemiology does a remarkably good job of explaining the deviations of household inflation and unemployment expectations from the 'rational expectations' benchmark. Furthermore, a microfoundations or 'agent-based' version of the model may be able to explain, in a way that still permits aggregation, stark rejections of the pure rational expectations framework like Souleles's (2002) finding that members of different demographic groups have sharply different predictions for macroeconomic aggregates like the inflation rate.
Topic:
Economics and International Trade and Finance
Political Geography:
United States and Latin America