This paper analyses the impact of the fiscal-monetary policy mix on the convergence on per capita income of the least developed regions (Objective 1) of the European Union (EU 28) during the implementation of the three European Structural and Investment Funds (ESIF) programmes between 2000 and 2020. The Solow-Swan growth model with control variables allows us to assess the absorption capacity of regions in the different phases of the economic cycle. The empirical results show the effectiveness of EU Regional and Cohesion Policy. However, the combination of fiscal and monetary policy shows an impact that is asymmetric, depending on the region. Thus, a policy mix of fiscal restraint and monetary expansion would boost growth in all regions, but would slow down the convergence process in Objective 1 regions.

This study’s aim is a comparative analysis between Portugal and Germany regarding the existence of a bidirectional relationship between the budget balance and the current account balance, starting with the introduction of the Euro (1999 and 2002, respectively) to the end of 2020. While the analysis finds a bilateral relationship, it shows that the budget balance and the current account balance for each country have similar and distinct developments, reflecting the distinct characteristics of each economy. One of the most striking findings is that the response of the budget balance to the current account balance is higher in Germany than in Portugal. In addition, public debt as a percentage of GDP positively affects the current account balance in Portugal, but not in Germany. This can be linked to the fact that the debt-to-GDP ratio is higher in Portugal, according to the authors.

The paper introduces a new dataset that includes quantitative harmonized indices of tax reforms, which provides indicators on tax reforms for tax rates and tax bases, along with detailed subindices for six types of taxes in in 23 industrialized and emerging economies between 1960 and 2014. Relating tax reforms to the timing of elections, we examine electoral cycles in tax reforms. Our results show that politicians postpone tax rate increases to after elections. A key innovation of our dataset is the coverage of harmonized indices for six tax types. Examining heterogeneity across tax types, we find that electoral cycles are particularly pronounced for value added tax rates and personal income tax rates.

This paper investigates the recent trends in labor market power in Italy and assesses the impact of a potential minimum wage using a large sample of manufacturing firms. The authors show that, despite a general shift of labor market power from the employer to the workers, monopsony power is still widespread, especially in certain sectors and regions. The introduction of a minimum wage would be beneficial to the economy as it reduces the monopsony power of highly productive firms that pay low wages. However, it may also have a negative impact, since firms with low labor productivity may react by reducing the number of their employees or even by exiting the market. The optimal minimum wage, which minimizes the negative effects and maximizes the positive effects on the economy, ranges between EUR 8.25 and 9.65 per hour.

This paper investigates the relationship between the budget balance and the current account balance for European Union countries with a quarterly data set from 1995 to 2020, using various time series and panel data empirical methodologies. The analysis shows that the impact of the budget balance on the current account balance is greater for those Eurozone countries with an average current account balance-to-GDP ratio outside the range of -4 to 6%, and in Eurozone countries with debt-to-GDP ratios above 60%. Hence, from a policy perspective, to avoid such unwelcome effects on the current account balance, governments should try to contain both, budget deficits and big current account deficits. Economic policy measures to mitigate the resulting macroeconomic imbalances should be tailored to individual countries but - given the feedback effects between economies as a whole - they also require coordination at EU level.  

This Working Papaer analyses the relation between Portugal’s government budget balance and current account balance from 1999 (Q1) – when Portugal joined the Euro – until 2019 (Q4). The study arrives at three main conclusions: First, a tightening of fiscal policy improves the external balance of the Portuguese economy, although not substantially. Second, the share of public consumption on GDP has a negative impact on the current account balance. This means, that any policy that stimulates economic activity leading to an increase in public consumption needs to be applied carefully. Finally, the research shows that the investment rate negatively affects the cyclical component of the current account balance, suggesting a high degree of integration of the Portuguese economy in international financial markets. Even though public policy measures promoting investment have a negative impact on external accounts in the short-term, they contribute to the structural improvement of the government balance in the long-run.

The implementation of recovery funds under the EU’s Covid-19 recovery program NextGenerationEU should be aligned with business cycle phases. This could ensure that financial support will have the most even and efficient impact across regions. This is one of the key conclusions derived from this EconPol Working Paper. The study analyzed the impact of the European Structural and Investment Funds on regional development over the period 1986–2018, identifying lessons for the EU's Covid recovery program NGEU. The study finds that European Structural and Investment Funds distributed between 1986 and 2018 had a positive impact overall on regional growth in the recipient regions: In the long run, an increase of 1% in the EU aid led to permanent increases of personal income around 0.03% - 0.04%. However, the research shows that the business cycle affects the speed of convergence of the regions. The funds were least effective during downturn phases, especially in the least developed regions. This effect can partially be attributed to lower absorption rates in these regions and liquidity traps. According to the research, one way to mitigate this effect is to ease co-financing requirements during economic downturn phases and to adapt funds to the business cycle phase.

The EMU should create monetary and fiscal mechanisms to safeguard its irreversibility in exceptional situations, according to this EconPol Working Paper. The financial crisis and the coronavirus crisis have shown that the EMU's integrity can only be saved by relaxing either monetary orthodoxy, or fiscal orthodoxy, or both, when exposed to large, systemic shocks. The authors illustrate how such monetary and fiscal mechanisms could be designed by using a fiscal target zone model, where EU member governments are willing to abide with the commitment to debt stability under the no-bailout clause only up to an upper limit of their feasible fiscal effort. The study also shows that EMU completion means providing a monetary and/or fiscal emergency backstop to the irreversibility principle. The alternative to such mechanisms is to include an explicit exit clause in the treaties, the authors conclude.

Economic upswing phases are strongly linked to a rise in CO2 emissions. The effect is strongest in countries that depend on energy-intensive sectors, this latest EconPol Working paper finds. The research further shows that an increase in the share of renewable energy in the primary energy supply during an upswing has the greatest impact on reducing CO2 emissions. According to the authors, the study’s results lead to an important conclusion: European environmental policy should be adjusted over the economic cycle, e.g. by introducing procyclical green taxation.  

We conduct a large-scale incentivized survey experiment in nine EU countries to study how priming common economic interests (EU trade), a shared identity (EU common values), and a major health crisis (COVID-19), influences altruism, reciprocity and trust of EU citizens. We find that the COVID-19 treatment increases altruism and reciprocity towards compatriots, as well as altruism towards citizens of other EU countries. The EU common values treatment has similar effects and in addition also boosts reciprocity towards fellow Europeans. The EU trade treatment has no tangible impact on behavior. Trust in others is not affected by any treatment. Our results suggest that both a shared identity and a shared crisis can have a unifying effect among EU citizens, while shared economic interests (alone) do not significantly affect European cohesion.