Fiscal Policy in New EU Member States: Go East,Prudent Man!

The European Union accepted 10 new member states (NMS) in 2004, eight of which were former socialist countries. New members have had to adjust their economic policies to EU standards. Perhaps most difficult has been fiscal policy, where NMS must comply with the Stability and Growth Pact rules. Indeed, four of the eight post-communist NMS breached the SGP limits and were put in the Excessive Deficit Procedure. While the SGP is being modified, fiscal policy is set to remain on the agenda for all NMS.

This article analyses fiscal policy in the eight NMS, focusing primarily on the period immediately preceding their EU accession. The structure and scale of these countries' fiscal policy are analysed and the main trends in the revenue and expenditure of their public budgets identified. Then the dynamics of fiscal policies in the NMS are explored and the main factors in them isolated. The authors show how much of the consolidation was due to the fiscal authorities' effort and how much was caused by external factors. They also show that most NMS governments have run rather inconsistent fiscal policies and have not consolidated their budgets appropriately, postponing politically difficult consolidation measures. However, they also identify a group of countries characterised by strong reform efforts and responsible fiscal policy making, supported usually by strong economic growth. In this context, room is given to economic as well as political economy factors.     

Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?

In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Galí and Monacelli (2005 ) for small open economies (SOE). Employing the generalized method of moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.     

Exchange rate pass-through in New Member States and candidate countries of the EU

This paper studies the degree of exchange rate pass-through to the prices of imports of some New Member States (NMSs) of the European Union plus Turkey, coming from the euro area. I estimate industry-specific rates of pass-through across and within countries using the methodology proposed by Campa and González-Mínguez [Campa, J.M. and González-Mínguez, J.M. (2006). Differences in Exchange Rate Pass-Through in the Euro Area. European Economic Review, 50, 121–145.] which estimates the short- and long-run pass-through elasticities. I did not find evidence either in favour of the hypothesis of Local Currency Pricing (zero pass-through) or the hypothesis of Producer Currency Pricing (complete pass-through) for all the countries except for Slovenia and Cyprus. With reference to the results by industry, the lowest values for exchange rate pass-through are in Manufacturing sectors. However, I did observe a exchange rate pass-through decline through the pricing chain.     

Simulating the diffusion of organic farming practices in two New EU Member States

Agriculture continues to be a major contributor to water pollution, climate change and loss of biodiversity although policies to encourage farmers to work to higher sustainability standards in food and energy crop production have increased throughout the European Union. In New Member States, accession to the European Union mostly brought a substantially increased public support to foster the diffusion of certified organic farming. However, the take-up of organic farming is varied for reasons that are not yet well understood. In this paper, we analyse the diffusion of organic farming through farm populations. This involves an understanding of farmer behaviour and how it can change over time. We present a generic agent based model that builds on the Theory of Planned Behaviour as framework for understanding and modelling farmers' decision-making processes. The model is applied to high-diffusion regions in two New EU Member States, Latvia and Estonia. The values for the model's parameters are informed by survey data. The model reproduces the interdependence of social influence and economic factors. Social influence alone is shown to make little difference to the model dynamics; organic farmers remain organic, and conventional farmers remain conventional. Introducing a change to the environment (e.g. a subsidy) results in an increase in the proportion of adopters. Thus, economic factors appear to be more influential than social factors. However, only when allowing for both, the subsidy and social influence, do we reveal the whole picture and the combined adoption rate is higher than the sum of the proportion of adopters resulting from just social influence (without a subsidy) and from just a subsidy (without social influence). We also compare the effect of the subsidy with the effect of influence from organic farm advisors to develop policy recommendations.     

Economic Growth and Convergence of EU Member States: An Empirical Investigation

The aim of this article is to construct a European production frontier using deterministic methods, and to break down growth and convergence during the period 1980–2001. The results show that EU growth is primarily driven by physical and human capital accumulation, the contribution of which is essential for the cohesion of European countries. We find capital accumulation and efficiency change to be important convergence factors within the EU, while technical change has worked against it. The approach used has also enabled us to analyze the differences in growth performance of Member States and highlight the role of human and public capital, supporting the European cohesion and development policies carried out in this period.     

Lessons of the 1999 Abolition of Intra-EU Duty Free Sales for the New EU Member States

The abolition of intra-EU duty free was critically discussedand accompanied by a vigorous and well-financed lobbying campaignby the duty free industry. The opponents of this resolutionargued that such a tax-free sales sector created jobs and hardlyreduced the value added and excise tax revenue of individualcountries. In their opinion, the duty free trade not only contributedto the reduction of the travel fare but also could be characterisedas a supplement to the normal retail trade for some products.The challenges for some specific industries led by the abolitionof duty free shopping appear to be considerable in the short-term.However, theoretical and empirical examinations made in thisstudy suggest: (a) intra-EU duty free shopping disturbs theallocation neutrality guaranteed in the single market, (b) macroeconomicsignificance of duty free shopping is rather negligible, and(c) some background studies made for the lobbyists exaggeratethe negative impacts of eliminating intra-EU duty free shopping.These three important arguments, which can also be applied tothe new EU Member States, justify the abolition of intra-EUduty free shopping. (JEL F10; F15; F18; E62; P20)     

Consumer confidence and consumption forecast: a non-parametric approach

The consumer confidence index is a highly observed indicator among short-term analysts and news reporters and it is generally considered to convey some useful information about the short-term evolution of consumer expenditure. However, its usefulness in forecasting households consumption is sometimes questioned in empirical studies. A possible weakness can be due to the use of a linear functional form to model the relation between these two variables. Here, in order to overcome this issue, a non-parametric model is used, so that overly restrictive assumptions about the functional form can be avoided.     

Consumer confidence and rational expectations in the United States compared with the United Kingdom

This paper examines the relationship between consumer confidence and the Rational Expectations Permanent Income Hypothesis in the USA and compares the results with those obtained for the UK. The study expands previous analysis by defining consumption as motor vehicles, goods excluding motor vehicles, and services. The results suggest that predictive ability of the USA's consumer confidence is less than that of the UK, but that contrary to the UK study, confidence does not predict future consumption growth of services and is therefore consistent with Rational Expectations Permanent Income Hypothesis.     

Consumer confidence and economic activity: a factor augmented VAR approach

This study aims to analyse the effects of the consumer confidence on economic activity for the US market. We use the empirical factor-augmented vector autoregression (FAVAR) method, which enables us to incorporate a wide range of economic activity factors into the analysis. The consumer confidence index (CCI) is chosen as the principal variable that is presumed to represent the degree of optimism on the state of economic activity. The results show that consumer confidence and economic activity are strongly correlated for manufacturing-related factors, such as industrial production and inventories. We also observe strong relation among CCI and personal consumption expenditures, as well as housing market variables.     

Consumer Inventory and Demand for Storable Goods: New Evidence from a Consumer Survey

In this study, I provide new evidence on consumer inventory from a unique survey on the purchase and inventory of a storable product. I confirm that the predictions regarding the correlations between the key variables of purchase probability, purchase quantity and inventory derived from the standard dynamic models of consumer inventory are consistent with the data. Furthermore, I find that the amount of daily consumption varies within a household across time and depends on inventory holding. The evidence does not conform to a constant consumption rate, which studies often assume for tractability.     

EU Banks Rating Assignments: Is There Heterogeneity between New and Old Member Countries?

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether “old” and “new” EU countries are rated differently and to determine whether “new” ones are assigned lower ratings, ceteris paribus, than “old” ones. We find that country‐specific factors (in the form of heterogeneous intercepts) are a crucial determinant of ratings. Whilst “new” EU countries typically have lower ratings than “old” ones, after controlling for financial variables we also discover that all countries have significantly different intercepts, confirming our prior belief. This intercept heterogeneity suggests that each country's rating is assigned uniquely, after controlling for differences in financial factors, which may reflect differences in country risk and the legal and regulatory framework that banks face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating expenses to operating income variables across countries. Typically ratings are more responsive to the former and less sensitive to the latter for “new” EU countries compared with “old” EU countries.     

Transition economies and trust building: a network perspective on EU enlargement

Many transition economies are characterised by a relativelyrudimentary institutional framework. Weak legislative structuresand the absence of effective market regulation and propertyright enforcement rules diminish the chance of mutually profitablebusiness transactions and—more generally—restrictthe chances for innovation and sustainable growth. Against thisbackground, we analyse the extent to which more efficient governancemechanisms can contribute to a more favourable business environment.In doing so, we adopt a network perspective. We argue that bothin developed market economies as well as in centrally plannedeconomies much of economic exchange takes place in networks.However, the characteristics of these networks, in particularthe concept of trust, can differ significantly. This leads usto conclude that the real challenge of the process of economictransition is connected to building new economic exchange networks.In this paper, we discuss this argument and analyse how thecurrent enlargement of the EU into Eastern Europe may favourablyaffect this process of institutional change in the accessioncountries.     

Bioeconomics as economics from a Darwinian perspective

Bioeconomics—the merging of views from biology and economics—on the one hand invites the 'export' of situational logic and sophisticated optimization developed in economics into biology. On the other hand, human economic activity and its evolution, not least over the past few centuries, may be considered an instance for fruitfully applying ideas from evolutionary biology and Darwinian theory. The latter perspective is taken in the present paper. Three different aspects are discussed in detail. First, the Darwinian revolution provides an example of a paradigm shift which contrasts most significantly with the 'subjectivist revolution' that took place at about the same time in economics. Since many of the features of the paradigmatic change that were introduced into the sciences by Darwinism may be desirable for economics as well, the question is explored whether the Darwinian revolution can be a model for introducing a new paradigm in economic theory. Second, the success of Darwinism and its view of evolution have induced economists who are interested in an evolutionary approach in economics to borrow, more or less extensively, concepts and tools from Darwinian theory. Particularly prominent are constructions based on analogies to the theory of natural selection. Because several objections to such analogy constructions can be raised, generalization rather than analogy is advocated here as a research strategy. This means to search for abstract features which all evolutionary theories have in common. Third, the question of what a Darwinian world view might mean for assessing long term economic evolution is discussed. Such a view, it is argued, can provide a point of departure for reinterpreting the hedonistic approach to economic change and development. On the basis of such an interpretation bioeconomics may not only go beyond the optimization-cum-equilibrium paradigm currently prevailing in economics. It may also mean adding substantial qualifications to the subjectivism the neoclassical economists, at the turn of the century, were proud to establish in the course of their scientific revolution.     

Prudent consumers: New evidence from the Consumer Expenditure Survey

Using Consumer Expenditure Survey data from 1986 to recent years, this study examines whether or not the precautionary saving motive is an important force governing consumer behavior. A time series model is obtained by aggregating a log-linearized Euler equation across households, in which the cross-sectional variance of consumption growth represents income uncertainty. The test uses an alternative measure of consumption that excludes some problematic expenditure items from the conventional measure and finds strong evidence for the presence of the precautionary motive. This result is in sharp contrast with the findings of previous cross-sectional estimations using the same data set. It is argued that cross-sectional estimations may be seriously affected by measurement errors whereas the current estimation is not.     

Agri-environmental policies in the EU and United States: A comparison

Agri-environmental policies (AEPs) in the United States and the European Union are examples of payments for environmental services that pay farmers to reduce the negative externalities of agricultural production, while serving as a means to transfer public funds to farmers. We show that despite similar origins, AEPs in the two regions differ both in their specific objectives and in their implementation. For example, AEPs in most member states of the EU-15 have the additional objective of using agriculture as a driver for rural development. This objective is achieved by compensating farmers for the private delivery of positive public goods, such as attractive landscapes, produced by agriculture. The rationale is market failure, and there is empirical evidence that Europeans are willing to pay for such positive externalities. No comparable provision exists in U.S. policy. By contrast, U.S. AEPs focus almost entirely on reducing agriculture's negative externalities, such as soil erosion. Second, we find that U.S. programs are more targeted than their EU counterparts, and take opportunity cost into account. The EU programs, on the other hand, address a wider range of externalities, and are focused more on the paying for a particular farming process than reducing specific negative externalities. The EU takes a broader view of AEPs than does the United States, both in terms of type of activity that can be funded, and by using less targeting by land characteristics, and so the European program could be more easily used as a mechanism for transferring income to producers. Despite this, we find evidence that many of the amenities targeted by the programs are demanded by the population.     

中美消费者消费行为比较研究:以肯德基(KFC)为例

通过对中美两国大学生(n=795)的调查,测量和比较了两国年轻消费者对肯德基(KFC)的消费行为、品牌印象和重购意愿。相对美国被访者而言,中国被访者更愿意呆在肯德基餐厅里就餐,时间也更长;中国被访者对肯德基的正面印象更多;美国被访者对肯德基未来光顾的可能和满意之间的相关度高于中国被访者。     

Why risk popular ratification failure? A comparative analysis of the choice of the ratification instrument in the 25 Member States of the EU

Following the European integration history, referenda are a risky ratification strategy. Despite establishing a convention and intense treaty negotiations, an unprecedented number of eleven member states announced a referendum for the ratification of the constitutional treaty in 2004, two of them finally failed and stalled the ratification process. This study examines the choice of the ratification instrument by an empirical analysis of the strategic interaction between government, opposition parties and the electorate in the 25 ratification countries. Our analysis considers country-specific conditions and correctly predicts most of the ratification choices in countries which announced referenda (65%) and almost all parliamentary ratification cases (93%). The results reveal that governments choose referenda when they expect low gains from a treaty reform or are confronted with a Euro-sceptical parliamentary opposition. We also find that governments are eager to separate popular votes from domestic electoral campaigns.     

Unemployment Hysteresis in the US States and the EU: A Panel Approach

This paper applies the panel unit root test proposed by Im, Pesaran and Shin (1997) to test for unemployment hysteresis in the US states and the EU countries against the alternative of a natural rate. The results show that hysteresis for the EU and the natural rate for the US states are the most plausible hypotheses.     

External economies as a mechanism of agglomeration in EU manufacturing

Productive externalities are significant determinants of agglomeration, not deeply studied at the industry and international level. We analyse the impact on productivity growth of technological externalities, both inter- and intraindustry, national or international, at the industry level for the EU countries and the period 1995–2002. The results confirm the advisability of considering international externalities when countries are taken as regions, whose omission underestimates national spillovers. Together with national endowments and a central geographical position, the growth of productivity is encouraged by national and international specialization as a general result; moreover, it is fuelled by stronger interindustry spillovers and productive diversification, a result more evident for high technology industries, while lower technology industries are more sensitive to the omission of international externalities. Economic integration seems to be relevant, because supranational regions with less friction for goods and factor movements are more likely to take advantage of external economies as a mechanism of productivity growth and agglomeration.