Efficiency and equity of European education and training policies

This paper reviews empirical evidence, especially from Europe, on how education and training policies can be designed to advance both efficiency and equity. Returns to educational investments tend to decrease over the life cycle. Moreover, they are the highest for disadvantaged children at early stages and for the well-off at late stages of the life cycle. This creates complementarities between efficiency and equity at early stages and trade-offs at late stages. The paper discusses specific policies for efficiency and equity at each educational stage, ranging from early childhood education and schools over vocational and higher education to training and lifelong learning. The available evidence suggests that both efficiency and equity can be enhanced by output-oriented reforms properly designed to each stage, where the state generally sets a regulatory framework that ensures accountability and funding, and uses the forces of choice and competition to deliver best results. Designed this way, education and training systems can advance efficiency and equity at the same time. This paper is an adapted and revised version of the analytical report that accompanied the Communication and Staff Working Paper of the European Commission on “Efficiency and Equity in European Education and Training Systems” (ec.europa.eu/education/policies/2010/back_gen_en.html).     

Stability and Growth Pact: issues and lessons from political economy

The paper analyses the EU fiscal rules from a political economy perspective and derives some policy lessons. Following a literature survey, the paper stresses the importance of appropriate incentives for rule compliance in an environment where national fiscal sovereignty precludes the option of centralised enforcement. In addition, the paper stresses the importance of clear and simple rules and in particular the 3% deficit limit in anchoring expectations of fiscal discipline and facilitating public and market monitoring of public finances. This, in turn, strengthens incentive for rule compliance. Moreover, the paper discusses the interests of the most important players in European fiscal rule formation and the importance of choosing the appropriate time for initiating a reform debate.Non-technical summary The EU fiscal framework as laid down in the Maastricht Treaty and the Stability and Growth Pact (SGP, the Pact) aims to preserve fiscal sustainability while allowing room for automatic fiscal stabilisation. These two objectives are also at the heart of the ECB’s interest in the EU fiscal framework because their attainment facilitates monetary policy making in the short and long run.The paper analyses the EU fiscal rules from a political economy perspective and derives some policy lessons. The literature review of the first part reveals that fiscal rules can help solve deficit/debt biases and time inconsistency problems by constraining the behavior of policy makers. But rules can also mitigate biases if they facilitate financial market and public scrutiny of fiscal policies.Thereafter, the paper analyses the institutional environment in which EU fiscal rules are applied. It argues that EU rules reflect a “contract” amongst countries that retain sovereignty on fiscal policies. Enforcement, therefore, ultimately has to be undertaken by the contracting parties. Due to this constraint, the rules can also be characterised as “soft” law (with the 3% limit being nevertheless a much “harder” constraint than the other elements). But this does not necessarily imply that the rules are ineffective (or “dead”). Soft law reduces political transaction costs (by improving transparency and providing a forum for peer pressure). Moreover, if well-designed, such law can boost incentives towards making the rules “self-enforcing”. Evidence speaks in favour of this view: while EU fiscal rules were bent in a number of cases and compliance is undeniably of concern, major and rapid fiscal balance deteriorations have been largely prevented since the start of EMU.The paper also looks at potential trade-offs between “complex” rules where a “fine-tuned” economic rationale may boost acceptance of the rules versus simple and clear rules that allow easy monitoring. It is argued that clarity and simplicity of rules are important especially when formal enforcement is limited (“soft law”) and public monitoring becomes more important. By facilitating public and market monitoring of compliance, clear and simple rules are also more costly to breach.The benefits of “complexity”, and in particular the use of administrative discretion to fine tune the rules to country situations have limits, in particular when it comes to the excessive deficit procedure (EDP). It is argued that the 3% deficit limit and the time frame for correcting excessive deficits already provide some room to accommodate economic circumstances. The 3% limit must be clear, simple and strictly implemented to anchor expectations of fiscal discipline and to facilitate public and market monitoring. Further discretion and relaxation would conflict with this need. From this angle, other risks (e.g., efforts not materializing, structural reforms producing surprise costs etc) are hard to justify as a reason for extending deadlines to correct excessive deficits.The preventive arm of the Pact with its requirement of close-to-balance-or-in-surplus budgetary positions defines sound medium term budget positions and adjustment paths. This may be appropriately fine-tuned to address concerns about the Pact’s underlying economic rationale. For example, a symmetric application in good and bad times and less time inconsistency would be desirable.Finally, the timing of a debate on fiscal rules needs to be carefully chosen. In the EU context (and perhaps in other contexts as well), there seems to be much inherent pressure to make the rules more “complex”. Moreover, for the debate initiated in summer 2004, there was also no willingness by countries to give up sovereignty nor was there a sense of urgency to strengthen public finances via tighter rule implementation and enforcement. In such an environment, it is likely that changes to fiscal rules make them more complicated, discretionary and, thereby, potentially less enforceable.The views expressed are those of the author and not of the ECB. Comments by Vitor Gaspar, Mark Hallerberg, Steven Keuning, Jose Marin, Richard Morris, Gilles Noblet, Hedwig Ongena, Luca Onorante, Rolf Strauch, Juergen von Hagen, an anonymous referee and valuable assistance by Anna Foden are much appreciated.     

Emerging production systems in the transnationalisation of German car manufacturers: adaptation,application or innovation?

Based on case studies, this article seeks to determine whether or not German car manufacturers are exporting a 'German production model' to overseas plants and to what extent the overseas operations have a reciprocal effect on production methods in the originating country. It is argued that the most adequate analytical concept is one that emphasises interest-driven organisational learning processes.     

The trade-off between fertility and education: evidence from before the demographic transition

The trade-off between child quantity and quality is a crucial ingredient of unified growth models that explain the transition from Malthusian stagnation to modern growth. We present first evidence that such a trade-off indeed existed already in the nineteenth century, exploiting a unique census-based dataset of 334 Prussian counties in 1849. Furthermore, we find that causation between fertility and education runs both ways, based on separate instrumental-variable models that instrument fertility by sex ratios and education by landownership inequality and distance to Wittenberg. Education in 1849 also predicts the fertility transition in 1880–1905.     

Explaining liberalization commitments in financial services trade

The paper examines the determinants of market access commitments in international financial services trade in the General Agreement on Trade in Services (GATS). Based on a theoretical model, it empirically investigates the role of domestic political economy forces, international bargaining considerations, and the state of complementary policy. The empirical results confirm the relevance of the model in explaining banking and (to a somewhat lesser degree) securities services liberalization commitments. The findings imply that those who seek greater access to developing country markets for financial services must do more to counter protectionism at home in areas of export interest for developing countries. JEL no. D78, F13, G20     

The evolution of backpacker destinations: the case of Zipolite,Mexico

Despite the growing literature on backpacker tourism, little is known about the evolutionary patterns of the places that cater to such travellers. This paper analyses, first, the way in which established and current models of tourist development conceptualise backpackers and their destinations. In addition, it offers some specific suggestions that will allow them to explain the evolution of backpacker destinations in a more detailed manner. Then, results of field research conducted at Mexico's largest backpacker resort are presented, to illustrate its particular socio‐spatial evolution. The paper concludes that, when fuelled by an increasing number of arrivals and a growing demand for comforts, what were once drifter‐dominated peripheral places may evolve gradually into well‐established ‘resorts’ that satisfy contemporary backpackers' demands for infrastructure, natural settings and ambience. Developer‐tourists with an affinity to backpacker culture are likely to become key actors as they come to gain control over land use and local economic development. Copyright © 2007 John Wiley & Sons, Ltd.     

The effect of investment in children’s education on fertility in 1816 Prussia

The interaction between investment in children’s education and parental fertility is crucial in recent theories of the transition from Malthusian stagnation to modern economic growth. This paper contributes to the literature on the child quantity–quality trade-off with new county-level evidence for Prussia in 1816, several decades before the demographic transition. We find a significant negative causal effect of education on fertility, which is robust to accounting for spatial autocorrelation. The causal effect of education is identified through exogenous variation in enrollment rates due to differences in landownership inequality. A comparison with estimates for 1849 suggests that the preference for quality relative to quantity might have increased during the first half of the nineteenth century.     

The Decline of Schooling Productivity in OECD Countries

Based on Baumol's cost-disease model, we develop two alternative measures of the change in the productivity of schooling. Both productivity measures are based on changes in the relative price of schooling. We find that in most OECD countries the price of schooling has increased faster in 1970–94 than would be compatible with constant schooling productivity. In addition, we show that the average performance of pupils has remained constant at best in most OECD countries. Our results imply a larger decline in the productivity of schooling in many OECD countries than in the United States.     

Monetary Policy, Agency Costs and Output Dynamics

This paper examines the role of financial market imperfections for output reactions to nominal interest rate shocks. Empirical evidence shows a hump-shaped impulse response function of output and suggests that credit supply co-moves with output. A monetary business cycle model with staggered price setting is presented where the firms' outlays for capital and labor must be covered by the sum of net worth of entrepreneurs and loans in the form of debt contracts. These properties are shown to generate a hump-shaped impulse response of output, which takes on the smooth and persistent appearance of the empirical output response when nominal wages are set in a staggered way, too.