Political economy of eastern enlargement of the European Union: Budgetary costs and reforms in voting rules

Eastern European countries are likely to be major recipients of European Union (EU) funds after membership, which has created serious concern among incumbent members. The EU has devised reforms of budgetary rules to limit the funds that will flow to the East. Using a political economy model and drawing on the experience of previous enlargements, this paper argues that such pre-accession reforms will be ineffective because they can be reversed by a coalition of Eastern European countries after membership. The paper then estimates budgetary costs of eastern enlargement. A better way to resolve budgetary concerns is to reform voting rules rather than budgetary rules, before eastern enlargement.     

Policy assessment of an EU wide flat area CAP payments system

While the evolution of the Common Agricultural Policy (CAP) until 2013 is clear, European Union (EU) budgetary pressures and the perceived unfairness of the distribution of CAP support across Member States has lead to uncertainty over the design of the CAP post 2013. One comprehensive reform option being considered is the implementation of an EU wide flat area payment (EUWFAP) system and a reduction of the total budget available for direct payments. It is hypothesised that the implementation of this policy proposal would lead to significant changes in the distribution of the EU budget and to the redistribution of agricultural production between the Member States, which could hinder the implementation of the proposal. This paper evaluates the rationality of the EUWFAP, based on the analysis of its budgetary and market impacts. Using the AGMEMOD 2020 combined model, the introduction of the EUWFAP in 2013 is compared with a baseline continuation of the current policy. Results suggest that there would be minor negative impacts on the agricultural production at the EU level, but that more substantial impact for some commodities, most notably beef, and could occur in the individual EU Member States. An important outcome of such a policy reform would be a substantial change in the budget allocation between Member States, which could help mitigate the budgetary tensions between the Member States.     

East–West European Integration: A General-Equilibrium Analysis of Alternative Agricultural Policies

This paper studies the budgetary and trade implications of European Union (EU) membership of Eastern European countries under various agricultural policy scenarios. The author uses a six-region, 13-sector general-equilibrium model with many explicitly modeled agricultural and trade policies. It is found that EU membership of Eastern European countries, including their adoption of the EU's Common Agricultural Policy (CAP), leads to a surge in Eastern Europe's agricultural exports. Moreover, the EU's agricultural expenditure increases by 26%. A reform of the CAP following the Agenda 2000 proposal does not reduce the cost of enlargement if Eastern European farmers receive compensation payments.     

Convergence Analysis of the Structure of Social Protection Financing

Expenditure on social protection in the European Union (EU) member states has been increasing rapidly over the last decade. To cover the increasing expenses, the countries need to find ways to increase revenues. Social protection financing systems and structure of financing vary across countries, but all of them use mainly two sources for financing: general government contributions and social tax revenue. The aim of this paper is to study the development of the structure of social protection financing at the main contributor level over the last decade, defining the trends that characterize the changes. We concentrate on convergence analysis of the structure of social protection financing, which is an important but, so far, insufficiently studied issue.This paper was presented at the 57th IAES Conference in Lisbon, March 10–14, 2004. The authors would like to thank the discussants in that session for their helpful suggestions. This paper was prepared with the support of the Estonian Science Foundation research grant. We wish to thank Reet Maldre for the assistance     

Delay determinants of European Banking Union implementation

Most countries in the European Union (EU) delay the transposition of European Commission (EC) directives, which aim at reforming banking supervision, resolution, and deposit insurance. We compile a systematic overview of these delays to investigate if they result from strategic considerations of governments conditional on the state of their financial, regulatory, and political systems. Transposition delays pertaining to the three Banking Union directives differ considerably across the 28 EU members. Bivariate regression analyses suggest that existing national bank regulation and supervision drive delays the most. Political factors are less relevant. These results are qualitatively insensitive to alternative estimation methods and lag structures. Multivariate analyses highlight that well-stocked deposit insurance schemes speed-up the implementation of capital requirements, banking systems with many banks are slower in implementing new bank rescue and resolution rules, and countries with a more intensive sovereign-bank nexus delay the harmonization of EU deposit insurance more.     

What Determines Sectoral Trade in the Enlarged EU?

In this paper, we estimate a sectoral gravity model for trade within a heterogeneous trade bloc, the enlarged EU, comprised of a high‐income group (wealthiest EU), a middle‐income group (Greece, Portugal and Spain), and a low‐income group (new Central and Eastern European member countries). The estimation was conducted on sectors with different degrees of scale economies and skill‐intensities in the presence of transport costs. The results offer support for the call to incorporate trade theories based on both endowments and scale economies. In addition, whilst integrating poorer countries is beneficial for all of the participants in the bloc, there is still a role for a redistribution policy, such as the EU's Regional Policy, which should comprise a mix of policies, focusing on both income and education/skills, together with infrastructure development.     

Monetary integration strategies and perspectives of new EU countries

The poor record of economic convergence between the euro area and those countries that joined the European Union (EU) in May 2004 raises serious doubts about the possibility for the latter countries to adopt the European single currency in the not too distant future. In fact, many new EU countries would have to make considerable efforts in order to fulfil all EMU criteria by the end of the present decade. These efforts could lead to output and growth losses in these countries, which would run counter to their catching‐up process with respect to the rest of the EU. To avoid a number of shortcomings elicited by the obligation to respect the convergence criteria in the short term, and also to avoid the financial instability risks implied by participation in the ERM II, this paper suggests an alternative plan for integrating the new EU countries monetarily. The plan consists in creating a European settlement agent in charge of the final payment of the new EU countries’ international transactions. These transactions would be settled using an international monetary standard whose creation would eliminate instability on the foreign exchange market by its being the yardstick that the current international monetary system lacks.     

The effects of economic and political integration on fiscal decentralization: evidence from OECD countries

Abstract .  This paper examines the impact of economic and political integration on the vertical government structure. It argues that, by increasing the market size and the benefits of decentralized provision of public goods, integration triggered the recent process of decentralization in OECD countries. A panel analysis relates the degree of fiscal decentralization to economic and European integration, controlling for interregional heterogeneity, economies of scale, and institutions. The results mostly support a decentralizing effect of economic integration in general and of European integration in particular for heterogeneous EU countries, whereas participation of subnational governments in national decision-making is associated with more centralization.     

Ownership unbundling of natural gas transmission networks: empirical evidence

The European Commission has intensively examined the mandatory separation of natural gas transmission from production and services. However, economic theory is ambiguous on the price effects of vertical separation. In this paper, we empirically analyze the effect of ownership unbundling of gas transmission networks, considered to be the strongest form of vertical separation, on the level of end-user prices. Therefore, we apply different dynamic estimators such as system GMM and the bias-corrected least-squares dummy variable estimator to an unbalanced panel consisting of 18 EU countries over 19 years, allowing us to avoid the endogeneity problem and to estimate the long-run effects of regulation. We introduce a set of regulatory indicators as market entry regulation, ownership structure, vertical separation and market structure, as well as account for structural and economic country specifics. Among the different estimators, we consistently find that ownership unbundling has no impact on natural gas end-user prices, while the more modest legal unbundling reduces them significantly. Furthermore, third-party access, market structure and privatization show significant influence, with the latter leading to higher prices.     

欧盟研发税收激励政策的实施效果设计原则及发展方向

研发税收激励已成为各国激励企业研发投入的重要政策工具之一。本文综述了欧盟成员国研发税收激励政策实施情况及其效果，欧盟成员国实施研发税收激励政策的成功经验，欧委会提出的研发税收激励政策设计应该考虑的问题和遵循的一般原则，以及欧委会提出的成员国研发税收激励政策发展的方向。     

Trade integration and the EU economic membership criteria

The purpose of this paper is to consider whether the European Union (EU)'s economic membership criteria for the Central and Eastern European countries (CEECs) and Cyprus (the Candidate Countries) are fulfilled. To this end, I examine the actual and potential levels of trade between the Candidate Countries and the EU countries using the gravity model. The results show a high degree of trade integration between all Candidate Countries and the EU, indicating that the Candidate Countries would not face any serious difficulties in coping with the competitive pressure and market forces within the Union in the medium term. The European Commission, however, suggested the contrary for some of the Candidate Countries in its opinions of 1997.     

希腊债务危机对欧洲认同的影响分析

希腊债务危机引发了欧洲认同危机：欧元信用受到质疑、在救助希腊问题上欧盟成员国的意见分歧、欧洲民众对欧元的信心动摇和欧盟的救助无力等因素弱化了欧洲认同。欧洲货币联盟的结构性缺陷、希腊债务危机中欧盟成员国对国家利益的维护和民族认同的差异是其主要原因。消除希腊债务危机对欧洲认同负面影响的出路在于缩小欧元区成员国的经济差距、加强成员国之间的团结和合作、建立欧元区财政合作机制、增强欧盟层面的领导力,并在此过程中强化欧洲认同。     

The effects of company taxation in EU accession countries on German FDI1

This article investigates how company taxation affects German foreign direct investment (FDI) in European Union (EU) accession countries. In 2004 and 2007, 10 former socialist eastern European countries joined the EU. Although the EU integration is associated with increasingly favourable investment conditions, accession countries also pursue active strategies to attract foreign firms. In particular, taxes on corporate income have been significantly reduced during the last decade. We analyse whether corporate tax policies of eastern European countries affect three aspects of multinational activity: the location decision, the investment decision and the capital structure choice. The results suggest that local taxes are negatively related to both location and investment decisions. The analysis of the capital structure confirms that higher local taxes imply higher debt‐to‐capital ratios.     

The dynamics of institution building: State aids,the European commission,and the court of justice of the European Union

This paper studies the interactions between European Union institutions and the Member States with regard to state aid control. The mandate of the European Commission includes the maintenance and strengthening of economic integration, and as such it may discipline any Member States that undermine the single market. Relying on an original database covering all state aid applications with rulings between 2000 and 2017, we show that, on the one hand, the Commission tends to reject programs originating from countries that are resistant to EU integration, which is proxied by the transposition deficit. On the other hand, when firms or national governments appeal the decisions made by the Commission, the reversal of the Commission's rejection decisions by the Court of Justice of the European Union is positively correlated with the transposition deficit. This evidence suggests that while the Commission is biased against countries with greater resistance to integration, the Court corrects this bias since its mandate is to guarantee the rule of law in the EU system of governance. We argue that these revealed policy preferences are consistent with the assumption that these two bodies attempt to strengthen their legitimacy by making decisions in line with their mandates. Moreover, the interaction between these twin pursuits of legitimacy reinforces the overall legitimacy of the Union, suggesting another driver of evolution in an equilibrium approach of institutions.     

Preferences for redistribution and exposure to tax-benefit schemes in Europe

This paper provides evidence that attitudes towards redistribution are associated with the extent of generosity of the redistributive context experienced by the individual, as measured by the likelihood of receiving positive benefit transfers net of fiscal contribution. We estimate reduced form tax-benefit equations with the EU Statistics on Income and Living Conditions (EU-SILC), and match the implied parameters to the respondents of the European Social Survey (ESS) on the basis of their characteristics. The period of analysis is 2008–2016. For identification, we exploit exogenous cross-country and time variation in tax rules and market income to disentangle implications of exposure to tax-benefit rules on preferences for redistribution from the effects of changes in income inequality. We find that exposure to positive net benefits increases support for redistribution by 1.4%–3% on baseline models, the effect being robust across a variety of specifications.     

Redistributive preferences in Europe and Central Asia, 2006–2016*

This paper analyses support for reducing inequality and for redistribution to specific groups in Europe and Central Asia. Using the Life in Transition Surveys, it examines differences in redistributive preferences across countries and time, as well as determinants of individual preferences, testing for motivations such as self‐interest, past and expected future social mobility, beliefs about fairness, as well as ideology and risk preferences. The extent to which different groups are perceived as deserving of government support is found to vary considerably, with the disabled, the elderly and families with children being the most favoured groups. The motives for redistribution towards different groups are also not uniform – self‐interest appears to be a basis for assistance to the elderly and families with children, whereas values and beliefs are associated with support for the working poor and the unemployed.     

EU regional policy and tax competition

The European Union (EU) provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU member states and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyze these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-level regional policy that supports the development of intra-union infrastructure.     

EU Enlargement and the Future of the Welfare State

The eastern enlargement of the EU resembles German unification in its momentousness. Whereas the latter led to a 26% increase in the population of the Federal Republic, the former will increase the population of the EU by 28% if all ten entry aspirants are accepted. A special problem will be posed by migration. Given the existing wage differences between eastern and western European countries, a massive westward migration can be expected after enlargement. A temporary east–to–west migration until the eastern countries create an efficient capital stock makes economic sense if this is driven by wage differences and meets with a flexible labour market. Migration does not make economic sense, however, if, and to the extent that, it is induced by the current social assistance systems. Moreover, welfare–motivated migration would create competition among western European states to frighten off potential migrants, and this would lead to an erosion of the traditional social welfare state. If the EU plan incorporated limitation on the free movement of labour, beneficial migration would also cease. A better solution would be to limit access to the western social systems, at least for a transitional period, in order to filter out migration induced by differing social standards. An EU–wide application of the home–country principle in the granting of social benefits would achieve this goal.     

全球大中型企业研发投入特点分析

工业企业研究与试验发展（R＆D）经费支出，是工业企业科技活动经费支出总额的一个重要组成部分。本文依据欧盟委员会公布的“2009欧盟工业R＆D投入排行榜”的相关数据，探讨了发达国家及世界顶级企业R＆D投入特点，并将我国入选企业与之进行比较，找出差距，为我国企业提供借鉴。     

Evaluating the Cost-Effectiveness of In-Work Benefits: A Simulation Study for Switzerland

Abstract. Income support for working low-income families (the 'working poor') is on top of the political agenda in Switzerland. The current social assistance system is considered inadequate to support working poor households. Several European countries have introduced in-work benefits in order to make work pay. Based on a structural labour supply model, this paper provides microsimulation results of the effects of introducing different schemes of in-work benefits. It turns out that adding a minimum hours requirement to the current social assistance system is the most cost-effective reform. One-third of expected costs can be attributed to behavioural changes in labour supply.