EconPol Working Paper Series

Cover of EconPol Working Paper 66

The Existential Trilemma of EMU in a Model of Fiscal Target Zone

Pompeo Della Posta (University of Pisa), Roberto Tamborini (University of Trento)

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.

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Cover of EconPol Working Paper 65

CO2 Emissions and Energy Technologies in Western Europe

J. Barrera-Santana (Universidad de la Laguna and CEDESOG), Gustavo A. Marrero (Universidad de la Laguna and CEDESOG), Luis A. Puch (Universidad Complutense de Madrid and ICAE), Antonia Díaz (Universidad Carlos III de Madrid)

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.  

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Cover of EconPol Working Paper 64

Calamities, Common Interests, Shared Identity: What Shapes Altruism and Reciprocity?

Cevat Giray Aksoy (European Bank for Reconstruction and Development, King's College London and IZA), Antonio Cabrales (Universidad Carlos III de Madrid), Mathias Dolls (ifo Institute, CESifo, IZA and ZEW), Ruben Durante (ICREA, UPF, IPEG, Barcelona School of Economics, and CEPR), Lisa Windsteiger (Max Planck Institute for Tax Law and Public Finance

Information on the Covid-19 pandemic increases altruistic behavior and reciprocity towards compatriots, citizens of other EU countries, and non-EU citizens. This is one key result of a large-scale survey experiment conducted in August 2020 by EconPol Europe network members in nine European countries. The study also finds that priming common European values boosts altruism and reciprocity, but only towards compatriots and fellow Europeans. In contrast, priming common economic interests (EU trade) has no tangible impact on behaviour. The survey experiment provides novel evidence on how trust, reciprocity, and altruism are affected by a major health crisis (Covid-19), common economic interests (EU trade) and shared values (EU ideals).

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Cover of EconPol Working Paper 63

What Are the Priorities of Bureaucrats?

Evidence from Conjoint Experiments with Procurement Officials

Janne Tukiainen (University of Turku and VATT), Sebastian Blesse (ZEW Mannheim), Albrecht Bohne (ZEW Mannheim), Leonardo M. Giuffrida (ZEW Mannheim, MaCCI), Jan Jääskeläinen (Aalto University), Ari Luukinen (FCCA), Antti Sieppi (FCCA)

The functioning of public bureaucracies is considered a principal driver of government effectiveness and state capacity. Surveying more than 900 real-life procurement officials in Finland and Germany on the basis of hypothetical choice experiments the authors of this study find that bureaucratic decision-making is based to a large extent on intrinsic motivation. While bureaucrats lack important career or pay incentives, they have substantial discretion at work. Contracting officers value a certain degree of competition and consider (too) rigid regulation as the biggest threat to the procurement process. This supports previous research finding that in countries with high public sector capacity more rules are detrimental to procurement outcomes. Another important conclusion that can be drawn from the survey is that procurement bureaucrats aim to avoid negative risks concerning prices and supplier reputation as well as awarding public contracts to bidders with prior bad performance.

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Cover of EconPol Working Paper 62

Do Financial Markets Reward Government Spending Efficiency?

António Afonso (EconPol Europe; ISEG; REM/UECE), João Tovar Jalles (EconPol Europe; ISEG; REM/UECE; Economics for Policy and Centre for Globalization and Governance; IPAG Business School), Ana Venâncio (ISEG; ADVANCE/CSG)

To mitigate the economic impact of the corona crisis many governments have heavily engaged in counter-cyclical policies contributing to record high deficit and debt levels. Therefore, the more efficient use of public resources will be given special attention by financial markets’ participants. For a sample of 34 OECD countries over the period 2007-2018, this study finds that increased public spending efficiency is indeed rewarded by the three main rating agencies Standard & Poors, Moody´s and Fitch through higher sovereign credit rating notations. And these in turn naturally imply lower funding costs for governments in capital markets - an important policy implication to consider in times of Covid-induced scarce budgetary resources.

 

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