Services Provision and Temporary Mobility: Freedoms and Regulation in the EU

International posting of workers and mobility of self‐employed service suppliers lie between outright migration and trade in goods: their regulation, for both distributional and market‐correcting purposes, is not as difficult to harmonise as that of labour markets, but personal mobility is more visible and socially intrusive than product market interactions. This paper analyses economic and legal tensions between national regulatory frameworks and international competition in these areas, in both the intra‐EU and global contexts, highlighting how interactions between the external and internal roles of the European Commission may foster efficient integration of markets and policies in this and other fields.     

Finance, governments, and trade

We study how financial transactions may respond to exogenous variation in trade opportunities not only directly, but also through policy channels. In more open economies, governments may find it more difficult to fund and enforce public policies that substitute private financial transactions, and more appealing to deregulate financial markets. We propose a simple theoretical model of such policy-mediated relationships between trade and financial development. Empirically, we document in a country panel dataset that, before the 2007–2008 crisis, financial market volumes were robustly and negatively related to the share of government consumption in GDP in regressions that also include indicators of financial regulation and trade openness, and we seek support for a causal interpretation of this result in instrumental variable specifications.     

Price,wage and employment response to shocks: evidence from the WDN survey

We analyse the relative intensity and character of price vs. cost and wage vs. employment firm-level adjustment to cost-push shocks in the European System of Central Banks Wage Dynamics Network (WDN) survey data set. The results document several statistically significant and theoretically sensible relationships: price increases are less likely when product market competition is more intense, and more likely when collective wage agreements or employment protection legislation constrain firm-level reactions. We discuss how changes of such structural and institutional features of firms and of their environment may underlie the evolution of macroeconomic adjustment mechanisms in Europe.     

DEALER PRICING OF CONSUMER CREDIT*

Price discrimination incentives may induce dealers to bear the financial cost of their customers' credit purchases. We focus on how financial market imperfections make it possible to segment the customer population. When borrowing and lending rates differ from each other and from the rate of interest on a durable good purchase, the structure of those rates influences customers' choices to purchase on credit or cash terms, and the scope for dealers' price discrimination. Empirical analysis of a set of installment‐credit, personal‐loan, and regional interest rate data offers considerable support to the assumptions and implications of our theoretical framework.     

Household Debt and Credit: Economic Issues and Data Problems

We survey contributions to the analysis of household liabilities, highlighting relevant theoretical aspects and outlining how data sources may support empirical testing and measurement efforts. Specifically, we classify aspects of household debt, discussing the theoretical and policy relevance of heterogeneity across individual and country dimensions. Aiming to illustrate conceptual and measurement issues, we refer to the approaches and results of some recent relevant country-specific work on administrative and survey data, and we argue that research in this area would greatly benefit from availability of appropriately classified household liabilities data and of cross-country institutional information.     

National Labor Market Institutions and the EU Integration Process

This paper outlines theoretical insights regarding the motivationand effects of labor market institutions, and reviews empiricalstudies of relevant evidence from European and other countries'historical experience. Institutional interference with laissezfaire labor market outcomes has both economic and distributionalimplications, which depend on the structure of markets and onthe details of policy implementation. The resulting conceptualframework is brought to bear on a discussion of possible reformsof European labor markets in the context of the Economic andMonetary Union process. (JEL F02, J00)     

Hidden insurance in a moral‐hazard economy

We analyze the general equilibrium of an economy in which a competitive industry produces nonexclusive insurance services. The equilibrium is inefficient because insurance contracts cannot control moral hazard, and welfare can be improved by policies that reduce insurance by increasing its price above marginal cost. We discuss how insurance production costs that exceed expected claim payments interact with moral hazard in determining the equilibrium's inefficiency, and show that these costs can make insurance premia so actuarially unfair as to validate the standard first‐order conditions we exploit in our analysis.     

Reforms,Finance, and Current Accounts

We analyze the implications of labor market reforms for an open economy's human capital investment and future production. A stylized model shows that labor market deregulation can imply more positive current‐account balances if financial markets are imperfect and labor market institutions not only distort labor allocation, but also smooth income. Empirically, in Organisation for Economic Co‐operation and Development (OECD) country‐level panel data, we find that labor market deregulation has been positively related to current‐account surpluses on average and more strongly so when and where financial market access was more limited. These results are robust to inclusion of standard determinants of current‐account imbalances, and do not appear to be driven by cyclical phenomena.     

Consumption smoothing and income redistribution

We show theoretically that income redistribution benefits borrowing-constrained individuals more than is implied by standard relative-income and uninsurable-risk considerations. Empirically, we find in international opinion-survey data that younger and lower-income individuals express stronger support for government redistribution in countries where consumer credit is less easily available. This evidence supports our theoretical perspective if such individuals are more strongly affected by tighter credit supply, in that expectations of higher incomes in the future increase their propensity to borrow.     

Uncertainty and Consumer Durables Adjustment

We characterize infrequent durables stock adjustment by consumers who also derive utility from non-durable consumption flows in the presence of idiosyncratic income uncertainty. The data we analyse include subjective future income uncertainty measures, which we use as instruments in the estimation of relevant parameters of heterogeneous consumers' dynamic adjustment problems. The data feature two conceptually distinct sources of variation: cross-sectional heterogeneity of the sampled households' dynamic problems, and history-dependent heterogeneity in their situation during the observation period. We note that the latter should affect the likelihood but not the size of stock adjustment decisions, and find broad support for theoretical predictions in formal selection-controlled regressions based on this insight.