CESifo Economic Studies - recent issues

CESifo Symposium on the Economics of Climate Change: Introduction

Whalley, J. — 2009-05-29

Climate Policy after 2012

Bosetti, V., Carraro, C., Tavoni, M. — 2009-05-29

Discussion over post-2012 climate policy is now entering a crucial phase. Despite the potential great risks of prolonged global warming, the success of an international climate stabilization agreement hinges to a great extent on its economic feasibility. This article makes precise the assumptions that underpin current mainstream estimates of the costs of controlling climate change and provides quantitative estimates of cost differentials under different scenarios. In particular, the article analyses the role of three utmost factors in the economic cost of a climate treaty: energy technology development; the participation rate of developing countries; and the timing of global action. We show that all three factors have a major impact on policy macroeconomic costs. Addressing them effectively is therefore indispensable in ensuring the feasibility of any international agreement to control global warming. Therefore, we propose a series of policy recommendations that can help addressing the issues of technology, timing and participation, and that represent key policy implications for a post-2012 climate policy. (JEL codes: C72, H23, Q25, Q28)

Bringing the Copenhagen Global Climate Change Negotiations to Conclusion

Whalley, J., Walsh, S. — 2009-05-29

In this article we discuss the global negotiations now underway and aimed at achieving new climate change mitigation and other arrangements after 2012 (the end of the Kyoto commitment period). These were initiated in Bali in December 2007 and are scheduled to conclude by the end of 2009 in Copenhagen. As such, this negotiation is effectively the second round in ongoing global negotiations on climate change and further rounds will almost certainly follow. We highlight both the vast scope and vagueness of the negotiating mandate, the many outstanding major issues to be accommodated between negotiating parties, the lack of a mechanism to force collective decision making in the negotiation, and their short time frame. The likely lack of compliance with prior Kyoto commitments by several OECD countries (some to a major degree), the effective absence in Kyoto of compliance/enforcement mechanisms, and growing linkage to non-climate change areas (principally trade) all further complicate the task of bringing the negotiation to conclusion. The major clearage we see that needs to be bridged in the negotiations is between OECD countries on the one hand, and lower wage, large population, rapidly growing countries (China, India, Russia, Brazil) on the other. (JEL codes: F33, F51, F53, Q54, Q56, P28)

Technology, Unilateral Commitments and Cumulative Emissions Reduction

Chatterji, S., Ghosal, S. — 2009-05-29

In this article, we argue that weak property rights over transnational pollution and the limited threat of retaliatory punishments blunts the effectiveness of a broad-based multilateral agreement to deliver the emission reductions required to mitigate climate change. Instead, we propose a policy framework that builds on unilateral commitments, endogenous innovation and technology transfer that could lead to cumulative emissions reduction by altering the participation constraints of nations over time. (JEL codes: Q54, F53, Q50)

On the Impact of Digital Music Distribution

Ahn, I., Yoon, K. — 2009-05-29

We present a framework to evaluate the impact of digital music distribution. We set up a representative model that enables the comparative static analysis. We then interpret two empirical observations about the music industry, the sales decline and the price constancy, and fit the model to these observations. We find that, while the impact of digitalization on the producers’ profits is probably negative, it may not be as severe as the observed impact on the quantity. On the other hand, the impact of digitalization on the consumer surplus is unambiguously positive. The impact on the social welfare is rather ambiguous in general, but the social welfare may increase for plausible parameter values. (JEL codes: K11, L86, O34)

What Can We Learn from Empirical Studies About Piracy?

Dejean, S. — 2009-05-29

The purpose of this article is to make an assessment of the empirical literature dedicated to the consequences of piracy on the cultural industry. The diversity of data collected and methodologies used by empirical studies make it difficult to compare the literature results. On the one hand, some studies seem to have overestimated the impact of digital piracy which may be due, for example, to the use of Internet access as a proxy for piracy. On the other hand, the problem of finding a good instrument to avoid the endogeneity between files illegally downloaded and purchased goods, has probably led to an underestimation of the impact of piracy. As a result, the major finding of empirical works about piracy could be the change in the role of industry stakeholders as well as the way cultural goods are distributed and consumed. We also discuss the different evolutions of the music and the movie industries revenues since the appearance of the first P2P network. (JEL codes: L82, L86, K42)

A Review of Financial Stability Instruments for Emerging Market Economies

Mendoza, R. U. — 2009-05-29

Graduating from their checkered histories of financial instability and debt-related problems is a key policy objective in many emerging market economies. The global financial turmoil that erupted in 2008 underscores the importance of this issue once again. This article maps out some of the key factors that contribute to this challenge, and then uses this map to develop a possible taxonomy for the array of proposed (and some already existing) policy instruments designed to respond to them. By relating each instrument to the particular aspect(s) of the broader policy challenge, the taxonomy helps to clarify some of the differences, similarities, as well as the potential value-added of these instruments. The analysis herein suggests that instruments that could help increase the efficiency of risk management strategies (such as growth- or GDP-indexed bonds) and enhance the effectiveness of debt management, growth and development policies (such as a stability and social investment facility or SIF) deserve further consideration in order to promote more sustained financial stability and enhanced debt tolerance in the emerging markets.

Reinventing Europe: Introduction

Bordignon, M., Buettner, T., van der Ploeg, F. — 2009-02-19

Given the enlargement of the European Union, the fall-back in productivity growth and the lack of success in implementing further structural reforms, this special issue highlights the political economy in the European Union and discusses the role of the Maastricht Treaty as an impediment or a catalyst for reform. It also sheds light on the empirical characteristics of the voting behaviour of Members of the European Parliament and shows that they vote more along party lines than national lines and pays due attention to allegiance and party discipline. It offers a game-theoretic analysis of why the Lisbon Treaty will not strengthen the European Parliament versus the Council as much as expected and how the old bigger Member States strengthen their grip on the political decision-making process. There is discussion of the ratification of European legislation in the Member States. Finally, the crucial question of how European politics can be made more attractive is addressed. (JEL codes: F55, H11, P16)

Legislative Behavior in the European Parliament

Roland, G. — 2009-02-19

This article summarizes research on the analysis of roll call votes in the European Parliament since the European Parliament was elected by universal suffrage and draws lessons about legislative behavior in the European Parliament. The research shows that voting in the European Parliament occurs along supranational party lines and not along geographical lines. Party cohesion has increased with the powers of the European Parliament. This increased cohesion is the reflection of European party discipline based on cohesion of national party groups. Moreover, coalition frequency is related mostly to ideological closeness between party groups. (JEL codes: D72, F53, P 16)

The Impact of Council Voting Rules on EU Decision-Making

Widgren, M. — 2009-02-19

This article deals with the design of voting rules in the European Union (EU) Council. Both internal and external impact of the voting rules are examined. Internal impact affects the distribution of power among the Member States, and external impact affects power relations between the main decision-making bodies in the EU. One of the main lessons of the analysis is that voting rules matter. This clearly explains why the design of Council voting rules has required so much bargaining and cumbersome marathon negotiations. The internal decision-making rules in the Council have substantial impact on both the national distribution of power in the Council and inter-institutional power between the EU's; decision-making bodies. (JEL codes: C70, D71, D71, H77).

Reforming the EU Budgetary Procedure: Is Codecision a Step Forward?

Giuriato, L. — 2009-02-19

Codecision is the main European Union legislative procedure and the 2007 Reform Treaty draft has adopted it to improve the budgetary process. However, at close examination, codecision and the current budgetary process show an identical structure. Both are designed as non-cooperative alternating offers bargaining games between institutions and both, although in different measure, have gone through periods of interinstitutional deadlocks and conflicts, which can be ascribed to the insufficiency of the non-cooperative bargaining setup with respect to the task of providing for joint-decision making by the Parliament and the Council of Ministers: in particular, the opportunistic interpretation of the Treaty provisions by the Parliament in the 1980s was one of the consequences of the strict bargaining design. The article argues that the lacking elements for joint decision making have been gradually inserted in the procedures by means of informal negotiation institutions, which are not only mechanisms for equilibrium selection but also corrective devices to strict non-cooperative procedures. Informal institutions will play a fundamental role also in the change from the current budgetary procedure to the one designed in the 2007 Reform Treaty, where the Parliament does not seem to gain a ‘dominant position’, the Commission improves its scope for action and the Council consolidates its role. (JEL codes: D73, D78, H77)

Zooming in on Transposition: National Execution Measures for EU Directives 1986-2002

Treutlein, D. — 2009-02-19

This study empirically investigates the transposition patterns of European Union EU directives in 15 Member States and in 5 major sectors of the economy with a view to analysing the political–economic reasons behind sector and national differences in national execution measures. Specifically, we analyse whether, in the course of transposition, EU directives pass the respective national parliaments or not. Neglected in the scientific literature so far, this question is highly relevant from a normative political perspective and complements the debate on the EU's; democratic deficit by focusing on the national implementation of EU law. Based on information contained in CELEX and EUR-lex, our newly constructed dataset allows us to analyse Member States' transposition performances in a novel fashion, namely across time, Member States as well as policy areas. Our empirical analysis reveals generally low primary transposition ratios. Put differently, most of EU directives are transposed by national executives rather than national legislators. Further, remarkable differences in primary transposition ratios are detected along all three data dimensions. We hypothesize that national political-institutional constellations, economic sector characteristics and EU membership benefits are the main explanatory factors behind these differences. (JEL codes: D70, D78, F50, F53, H77)

Home Bias and Market Integration in the EU

Balta, N., Delgado, J. — 2009-02-19

The Single Market has been one of the core policies of the European Union. Twenty years after the launch of the Single Market Programme national borders still matter in Europe. Consumption baskets and investment portfolios of European countries still contain a predominant share of home products and equity. This article evaluates the success of integration policies in the European Union by assessing the magnitude and evolution of home bias across Europe in goods and services markets and in equity portfolio holdings. There are large differences in the degree of home bias across European countries. More worrisome is that home bias in goods and services has barely changed in recent years. This might indicate that traditional integration policies are no longer effective and need to be transformed to continue delivering. (JEL Codes: D78, F15, F21, F36)

Why Lisbon Fails

Ruta, M. — 2009-02-19

This article looks at the political economy of structural reforms and growth in the European Union. As the EU's; economy approaches the world technology frontier, structural reforms that increase competition in intermediate goods sectors are necessary to boost innovation and productivity growth—the main objective of the Lisbon Agenda. Such reforms, however, raise the opposition of incumbents and, therefore, are politically difficult to implement. When there are important policy spillover effects, national governments are more easily captured by vested interests, as they fail to internalize the benefits of reforms on the rest of the Union. This suggests that the weak political governance of the Lisbon Agenda, which is centred on the peer pressure of national governments, and the ensuing inability to complete the single market in non-manufacturing sectors, explains the Lisbon failure. (JEL classification: D72, F42, O30, O40)

Is Lisbon Far from Maastricht? Trade-offs and Complementarities between Fiscal Discipline and Structural Reforms

Buti, M., Roger, W., Turrini, A. — 2009-02-19

While according to the so-called ‘Brussels-Frankfurt consensus’, sound fiscal policies and structural reforms support each other, it is often claimed that the EU fiscal framework, by reducing the budgetary room for manoeuvre and the political capital of governments, may deter reforms. The aim of this article is to explore which factors determine the relationship between fiscal discipline and reforms. By means of a simple model we show that, depending on the time horizon of the government, structural reforms may either be complementary to, or a substitute for, fiscal discipline. If governments are forward-looking, substitution is more likely; if governments are short-sighted, reforms and fiscal discipline may become complementary. We provide empirical evidence supporting this argument. In a sample of EU-15 countries over the past three decades, the introduction of the Maastricht constraints at the beginning of the 1990s does not seem to have affected the probability of labour market reforms on average, but had a positive and significant impact on countries with governments facing elections in the current or forthcoming year (which are hence assumed to behave myopically). Our results suggest that if governments are short-sighted, then the expectation that relaxing fiscal constraints may help to boost structural reforms may not be well-founded. (JEL codes: E62, H50, H55, H62, J58, L50)

The European Union and the Member States: An Empirical Analysis of Europeans' Preferences for Competences Allocation

Cerniglia, F., Pagani, L. — 2009-02-19

In this article, we empirically study the preferences of European citizens concerning the allocation of powers between the European Union (EU) and the Member States using Eurobarometer data from 1995 to 2003. Both descriptive and econometric analysis highlights a ranking of countries according to the number of issues citizens want to delegate to EU (which we call Europeanism). More specifically, the more pro-European countries are those from Southern Europe while the less pro-European countries are those in Scandinavia, Denmark, and Luxemburg. Econometric analysis shows that this country effect is largely linked to the quality of the countries’ national government institutions. We find also a positive relationship between Europeanism and education, the degree of information of citizens, and left wing affiliation. For some policy domains, we also estimate probit equations for citizens’ preferred allocation of powers and we find that the countries’ Europeanism ranking varies with the area considered. (JEL codes: H11, H77)

Technology and Income Distribution Issues in Trade Models

Jones, R. W. — 2008-11-21

In a world characterized by global competitive market conditions, technological improvements initially localized in one sector of one country cause real income changes at home and abroad, sometimes in paradoxical fashion. A foreign technological advance in the production of a commodity not produced at home may worsen the home country's real income. As well, a foreign technological advance in a commodity the home country exports may serve to raise home real incomes. These paradoxes are explained and related to the basic proposition that a country moving from autarky to free trade must gain. (JEL codes: F10, F11, O30)

Pensions under Ageing Populations and the EU Stability and Growth Pact

Beetsma, R., Oksanen, H. — 2008-11-21

This article explores how the Stability and Growth Pact (SGP) may cope with the future costs of population ageing in the European Union. Clearly, population ageing has forced countries to reform their pension systems, and will continue to do so, both by reducing the generosity of pension arrangements and by switching to funding rather than relying on pure pay-as-you go pension provision. We study how such reforms affect the room for adhering to the SGP, but also how the SGP may induce or hamper the incentives for reform. We will refer to recent literature on ageing and pensions and on the SGP. We also calibrate a simple model for addressing intergenerational equity and discuss its implications for the SGP. (JEL codes: H11, H55, H60)

The Life-course Perspective and Social Policies: An Overview of the Issues

Bovenberg, A. L. — 2008-11-21

A number of trends are changing the nature of social risks and increase the importance of human capital, adaptability, and flexibility. This article discusses the usefulness of a life-course perspective in developing proactive social policies that better fit the changing life cycles of individuals who combine formal work with other activities on transitional labor markets. It pays special attention to the accumulation and maintenance of human capital over the life course and stresses that reconciliation of work and family goes beyond child care facilities and parental leave, and involves the entire life course. In particular, longer and deeper involvement in paid employment allows people to exploit their longer life to reconcile the two ambitions of, first, investing in the next generation as a parent and, second, pursuing a fulfilling career in paid work in which one keeps learning. Greater flexibility of working time over the life course requires more individual responsibility for financing leave. Moreover, rather than shielding older insiders through employment protection, labor market institutions should enable parents of young children to easily enter and remain in the labor market. Finally, more activating social assistance and in-work benefits should replace the passive income support for breadwinners that results in high minimum wage floors. (JEL codes: H30, J10, J20)

Prospects for Growth in the Euro Area

McQuinn, K., Whelan, K. — 2008-11-21

We review the recent performance of the Euro area economy, focusing in detail on the separate roles played by labour input, capital input and total factor productivity (TFP). After a long period of catching up with US levels of labour productivity, Euro area productivity growth has, since the mid-1990s, fallen significantly behind. We show that this recent divergence has accelerated since 2000, and that this is mainly due to the poor rate of Euro area TFP growth. Based on prevailing trends, we estimate that potential output growth in the Euro area currently may be running as low as 1.7 percent per year. In addition, if TFP growth stays at recent levels, the output growth rate will decline further due to weaker capital deepening. To consider future Euro area prospects for growth, we examine a set of alternative scenarios, each of which posits a potential increase in a determinant of output growth. One of these scenarios focuses on the potential effects of greater labour market deregulation. (JEL codes: O10, O47, O52, J11)

What Explains Germany's Rebounding Export Market Share?

Danninger, S., Joutz, F. — 2008-11-21

Germany's export market share increased since 2000, while most industrial countries experienced declines. This study explores four explanations and evaluates their empirical contributions: (i) improved cost competitiveness, (ii) ties to fast growing trading partners, (iii) increased demand for capital goods and (iv) regionalized production of goods (e.g. off-shoring). An export model is estimated covering the period 1993–2005. The dominant factors explaining the increase in market share are trade relationships with fast growing countries and regionalized production in the export sector. Improved cost competitiveness had a comparatively smaller impact. There is no conclusive evidence supporting the increased demand for capital goods hypothesis. (JEL codes: C22, F41).

Erratum

2008-11-21