Fiscal Devaluation, Product Market Regulations and Eu Economic Activity

Abstract : In the aftermath of the global financial crisis, a fiscal devaluation, understood as a shift in taxation from labor to consumption and deregulation in upstream service sectors, have been debated as possible tools of restoring competitiveness in peripheral countries of the Euro area. The relevant empirical evidence of the effects of these two measures in the EU countries is however very limited. Our study tries to fill this gap. We explore an impact of fiscal devaluation and regulation in upstream service sectors on sector-level economic activity in the EU countries in years 1995-2015. Our results indicate that fiscal devaluation boosts export performance, gross value added, gross fixed capital formation, employment as well as it contributes to lower growth of compensation per employee. We found that the higher share of labour costs in total production costs, the larger magnitude of the favourable effects induced by FD. We also found that generous unemployment benefits decrease the effects of FD and that these effects are on average stronger in euro area countries than among non-euro EU member states. Furthermore, we confirmed that stringent regulations of up-stream services hamper the magnitude of the effects triggered by FD. The results provide profound implications for economic policy.

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State-owned Enterprises Across Europe

Abstract : We developed a dataset on state-owned enterprises across 27 European countries, over more than a decade (1999-2012). To achieve this, we relied on a representative firm-level dataset, AMADEUS. This dataset enables us to observe and identify state investors operating at several levels of government (local, province and federal), investing domestically and abroad. After documenting our identification procedure we present various examples pointing towards the accuracy of our dataset. We document a large presence of state firms in the Eastern part of Europe, in former Command Economies. State presence is heavily concentrated in certain sectors and we record differences in state orientation across the different Legal Origins present in our dataset. The extent to which states interfere in the economy correlates with several measures of general economic development, political freedom and corruption. Based on a simple regression framework, imposing a mixture of fixed effects, we present evidence that firms with a higher investment stake by state investors have a lower level of total factory productivity on average, employ more workers and pay higher wages, hereby reaffirming existing studies on the link state firms-efficiency and different firm objectives for a much larger cross-country panel.

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Misallocation and Privatizing when Firm Value is Unknown: an Agency Model and Application to the Case of Poland

Abstract : This paper studies privatization as an agency problem, where ex ante neither investor nor the state know the productive value of the capital stock in a given firm. We study the case of an economy in transition from a centrally planned to a market-based system. Because under central planning prices did not provide adequate incentives, many of the firms to be privatized are characterized by a suboptimal combination of capital and labor. Our model replicates well the stylized features of privatization processes, as described by novel and unique data on privatization in Poland. We study the optimal pricing strategy by the state and buying decision of the investor. We allow for a variety of firms to be sold (denoted by the extent of misallocation) and heterogeneity of investors (denoted by the extent of capital constraints). We study whether privatization leads to improved allocation of resources in that economy, i.e. the effective use of resources. We also study two policy instruments – employment guarantees or investment guarantees – as potential policy tools to improve allocative efficiency of the economy.

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