Current publications

Cover of EconPol Working Paper 60

Corruption and Economic Growth: Does the Size of the Government Matter?

António Afonso (EconPol Europe; ISEG – School of Economics and Management, Universidade de Lisboa; REM – Research in Economics and Mathematics, UECE), Eduardo de Sá Fortes Leitão Rodrigues (ISEG – School of Economics and Management, Universidade de Lisboa)

Corruption has a negative effect on the economy - specifically on the level and growth of GDP - and large governments register less benefit from reducing corruption than small governments. This working paper from António Afonso and Eduardo de Sá Fortes Leitão Rodrigues finds that developing economies, regardless of government size, benefit less from reducing corruption and government size is not sufficient to explain the influence of corruption on economic activity - although the level of effectiveness of public services is crucial. The findings suggest that private investment is a potential transmission channel for corruption. 

... Details
Cover of EconPol Policy Brief 33

Incentives for Accelerating the Production of Covid-19 Vaccines in the Presence of Adjustment Costs

Claudius Gros (Goethe University Frankfurt), Daniel Gros (EconPol Europe, CEPS)

Delays in the availability of vaccines are very costly for society but existing fixed price contracts provide no incentives for producers to speed up delivery: a dose delivered tomorrow receives the same price as a dose delivered in the next quarter. The benefits for early delivery are huge for society, but non-existent for suppliers. A better contract would have the price fully  variable over time. In this policy brief, the authors show that it is straightforward to design an optimal contract, which aligns the time paths of the price with that of the social value of a vaccination. There is a clear policy conclusion: contracts should contain incentives for accelerated production. Vaccines delivered early should command a higher price.

... Details
Cover of EconPol Working Paper 59

Survey-Based Structural Budget Balances

Marcell Göttert, Timo Wollmershäuser (EconPol Europe, ifo Institute – Leibniz Institute for Economic Research at the University of Munich)

The budget dispute between Italy and the European Commission in 2018 gave new impetus for the debate about the reliability of output gap estimation methods and their use for calculating structural budget balances. In this paper, Marcell Göttert and Timo Wollmershäuser review the main properties of the mainstream approaches. They show that the structural budget balances resulting from the production function approach and the time series approach are imprecise, subject to large revisions and often biased. Apart from these technical flaws, the mainstream approaches also suffer from political economy problems. As the computation of structural budget balances in the mainstream approach is difficult and model-dependent, it is not easy to explain to the public and prone to manipulation. In addition, the first ex post estimation is only available late with the first publication of GDP. The authors propose an alternative approach to calculate structural budget balances on the basis of a business survey.

... Details
Cover of EconPol Working Paper 58

Robots at Work? Pitfalls of Industry Level Data

Karim Bekhtiar, Benjamin Bittschi, Richard Sellner (EconPol Europe, Institute for Advanced Studies [IHS], Vienna)

An analysis of data from the International Federation of Robotics (IFR), currently the most widely used data on the economic effects of robotization, has found that robotization has significantly lower productivity effects than previously assumed and may cause falling wages. Authors Karim Bekhtiar, Benjamin Bittschi and Richard Sellner (EconPol Europe, IHS Vienna) claim that using the data can be misleading if information on sectors that are either unaffected by or only marginally exposed to robotization is combined with those which are heavily affected, such as manufacturing.The study also rejects previous research findings that the technology causes skill-biased technological change and instead finds the opposite to be true.

... Details
Cover of EEAG report

EEAG Report on the European Economy 2021 - Beyond the Coronavirus Crisis: Investing for a Viable Future

Torben M. Andersen, Giuseppe Bertola, Clemens Fuest, Cecilia Garcia-Peñalosa, Harold James, Jan-Egbert Sturm, Branko Uroševic

The coronavirus crisis has led to the sharpest economic downturn in modern times and poses unparalleled challenges to policy both on a national and an EU level, as well as globally. The European Union has launched the ground-breaking Next Generation EU (NGEU) program, which involves common burden-sharing and explicitly aims to strengthen social cohesion within the European Union. If it succeeds, it will strengthen both the role of the European Union and cohesion within the European Union. If it fails, it will be yet another example of a promising project that remains on paper, and only serves to erode social capital in the European Union. New resources will need to be well invested with an overall aim of overcoming market failures. This year's report shows how the crisis is affecting existing structures and makes recommendations for potential future investments in childcare, education, environment, firms and the economy as a whole.

... Details
Cover EconPol Working Paper 57

The Role of Fiscal Policies for External Imbalances: Evidence from the European Union

António Afonso and José Carlos Coelho (EconPol Europe, ISEG - Lisbon School of Economics & Management, Universidade de Lisboa; REM/UECE)

This research from António Afonso and José Carlos Coelho studies the existence of a causal relationship between the general government balance and the current account balance (assessed as a percentage of GDP) for 28 European Union countries, using annual data for 1996 to 2019. They find that an increase in budget deficit of 1 pp of GDP results in a deterioration of the current account deficit of 0.318 pp of GDP, which supports the Twin Deficits Hypothesis.

... Details
Cover of EconPol opinion

Vaccines: How to Use Market-Based Incentives to Ramp Up Production

Clemens Fuest and Daniel Gros

Economic incentives to accelerate vaccine production would be much more productive than the empty threat of suing AstraZeneca. The additional cost for boosting vaccine supply for Europe might run into a couple of billions of euros, but this would be a lot less than the cost of prolonged disruption to the economy and society, let alone the lives lost. Clemens Fuest and Daniel Gros examine the EU's mistakes. 

... Details
Cover of EconPol Working Paper 56

The Global Economic Impact of Politicians: Evidence from an International Survey RCT

Dorine Boumans (EconPol Europe, ifo Institute), Klaus Gründler (EconPol Europe, ifo Insitute, University of Munich [LMU], CESifo), Niklas Potrafke (EconPol Europe, ifo Insitute, University of Munich [LMU], CESifo), Fabian Ruthardt (EconPol Europe, ifo Insitute, University of Munich [LMU])

A large-scale RCT survey of 843 experts in 107 countries examined how the US president influences economic expectations of international experts, including GDP growth, unemployment, inflation and trade in their country. The results show that the election of Joe Biden increased growth expectations of international experts by 0.98 percentage points for the year 2021, that treatment effects materialize only in the short-run and experts’ uncertainty increased after the election. The results suggest that exceptional politicians influence global economic outcomes.

... Details
Cover of EconPol Working Paper 55

(Non-)Keynesian Effects of Fiscal Austerity: New Evidence from a Large Sample

António Afonso, José Alves, João Tovar Jalles

Using a large sample of 174 countries between 1970 and 2018, authors empirically assess whether a usually expected negative response of private consumption and private investment to a fiscal consolidation is reversed. They find that increases in government consumption have a Keynesian effect on real per capita private consumption; there is a positive effect of tax increases on private consumption when there is a fiscal consolidation; there is a crowding-in effect for private investment, from fiscal contractions; expansionary fiscal consolidations occur particularly in highly indebted advanced economies following an increase in taxes. The negative effect of taxation on private consumption is larger when an economy is experiencing a financial crisis, but it is not consolidating.

... Details
Cover of EconPol Working Paper 54

International Transmission of Interest Rates: The Role of International Reserves and Sovereign Debt

António Afonso (EconPol Europe, ISEG – School of Economics and Management, Universidade de Lisboa; REM – Research in Economics and Mathematics, UECE), Florence Huart (University of Lille, LEM), João Tovar Jalles (EconPol Europe, ISEG – School of Economics and Management, Universidade de Lisboa; REM – Research in Economics and Mathematics, UECE), Piotr Stanek (Cracow University of Economics)

In this study of the determinants of international transmission of interest rates with a special emphasis on the role of international reserves and government debt, authors confirm that the trilemma still holds. They find significant spillovers from the U.S. interest rates to other countries, mostly for Advanced Economies; a dampening effect of the share of external liabilities in the domestic currency; a negative effect of international reserves on interest rates; higher reserves decrease risk premia for long-term interest rates; the significance of spillovers fades once the sovereign debt reaches 100% of GDP in developed countries.

... Details