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Nadine Leiner-Killinger

7 February 2023
WORKING PAPER SERIES - No. 2774
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Abstract
This paper provides a comprehensive empirical analysis of the role of discretionary fiscal policy for inflation differentials across the 19 euro area countries over the period 1999-2019. The results confirm existing (older) literature that it is difficult to find robust evidence of the fiscal policy stance or impulse impacting directly on inflation differentials. We do find, however, support for an indirect effect of discretionary fiscal policy on inflation differentials working through the output gap channel. There is also some evidence that fiscal policy may be especially potent in influencing inflation differentials – with fiscal tightening cooling (and fiscal expansion increasing) inflation pressures – when the economy is above its potential. Finally, going from the overall fiscal stance or impulse to individual fiscal instruments, we find that value added tax (VAT) rate changes and public wage growth are statistically significant determinants of inflation differentials in our sample.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
14 March 2022
WORKING PAPER SERIES - No. 2656
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Abstract
Regarding a prospective reform of the European Stability and Growth Pact (SGP) it seems rather consensual that a simplified framework should take account of the prevailing macroeconomic context and enhance the balancing of sustainability and stabilisation considerations. This paper provides simulation analysis for the euro area and individual countries with a view to assessing the short- and longer-term budgetary and macroeconomic implications of a move to a two-tier system with an expenditure growth rule as single operational indicator linked to a debt anchor. Compared to the status quo, our analysis suggests that expenditure growth targets which take account of the ECB’s symmetric 2% inflation target can improve the cyclical properties of the framework. Fiscal policy would be tighter when inflation is above the target but looser when inflation is below target, resulting in a better synchronisation of fiscal and monetary policies. Providing additional fiscal accommodation in a low inflation environment would enable monetary policy to operate more effectively especially in the vicinity of the effective lower bound. The link to a longer-term debt anchor at the same time ensures a transition towards the Treaty’s debt reference level.
JEL Code
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
H50 : Public Economics→National Government Expenditures and Related Policies→General
H60 : Public Economics→National Budget, Deficit, and Debt→General
2 December 2020
OCCASIONAL PAPER SERIES - No. 252
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Abstract
Before the outbreak of the coronavirus (COVID-19) pandemic, discussions were already taking place on how to complete Economic and Monetary Union (EMU) and increase its resilience, inter alia, by speeding up economic convergence. The impact of the current unprecedented crisis on the euro area economy has given the debate new impetus. As a contribution to this topic – and without going into details of new mechanisms for crisis resolution – this paper analyses the role of fiscal transfers in real and business cycle convergence at a regional level. The paper distinguishes between net fiscal transfers – a broad measure defined as the ratio between disposable and primary incomes – and EU structural and investment funds. It provides evidence that net fiscal transfers have contributed to income redistribution across regions and to faster convergence in disposable incomes, although not to higher economic growth and real convergence. More positive evidence has been found for the role of the EU structural and investment funds over the medium term, based on the newly available – and richest so far – European Commission database. Going forward, in addition to efficiency considerations, which are important for real convergence, recommendations on the size and allocation of fiscal transfers should account for their impact on the business cycle. At the same time, in the longer run, it should be borne in mind that fiscal transfers are no substitute for genuine structural reforms and sound macroeconomic and fiscal policies when it comes to promoting sustainable economic growth and convergence.
JEL Code
H54 : Public Economics→National Government Expenditures and Related Policies→Infrastructures, Other Public Investment and Capital Stock
H77 : Public Economics→State and Local Government, Intergovernmental Relations→Intergovernmental Relations, Federalism, Secession
O47 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Measurement of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence
23 September 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 6, 2020
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Abstract
The EU’s recovery package represents an important milestone in European economic policy integration. The European financial support to be provided is intended to have a meaningful volume in macroeconomic terms, totalling almost 5% of euro area GDP. Moreover, the allocation key ensures stronger macroeconomic support for more vulnerable countries. This coordinated European policy response to COVID-19 is essential to avoid an uneven recovery and economic fragmentation while promoting economic resilience in Member States. Finally, the way that the EU has responded to the crisis also has implications for the implementation and future design of the European governance framework.
JEL Code
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H12 : Public Economics→Structure and Scope of Government→Crisis Management
18 June 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2020
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Abstract
This box examines fiscal measures taken at the level of euro area countries and the EU in response to the coronavirus (COVID-19) crisis.
JEL Code
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H6 : Public Economics→National Budget, Deficit, and Debt
27 December 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2019
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Abstract
This box informs about the review of draft budgetary plans for 2020 and derives some implications for a reform of fiscal governance. To this end, it also identifies weaknesses in the review exercise notably with respect to the follow-up of recommendations by the Council that the budgetary plans are supposed to entail. It would be important that such shortcomings be addressed, inter alia, in the Commission’s forthcoming review of the “six-pack” and “two-pack” regulations, which were implemented in 2011 and 2013 respectively, in the aim of strengthening fiscal governance.
JEL Code
H11 : Public Economics→Structure and Scope of Government→Structure, Scope, and Performance of Government
H50 : Public Economics→National Government Expenditures and Related Policies→General
H6 : Public Economics→National Budget, Deficit, and Debt
30 August 2019
OCCASIONAL PAPER SERIES - No. 231
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Abstract
This paper reviews developments in fiscal rules in the European Union (EU) from the entering into force of the Treaty on European Union (the “Maastricht Treaty”), which laid the foundations for the euro, until today. It seems safe to say that fiscal positions in the EU and the euro area are now more favourable than they would have been in the absence of the Maastricht Treaty and the Stability and Growth Pact (SGP). However, the aggregate picture masks significant cross-country heterogeneity, with less progress where it would be needed most. Furthermore, the design of the rules has not always followed economic logic and has often been the product of political constraints, giving rise to some flaws in the framework from the outset. Repeated attempts to adjust the fiscal framework to a multitude of circumstances over the past 25 years have made it overly complex and incoherent. The paper concludes that, in its current shape, the SGP is an insufficient disciplining device in economic good times, with the consequence that there are no fiscal buffers, particularly in high-debt countries, to support growth in economic troughs. This, together with the absence of a central fiscal stabilisation instrument, puts the burden of stabilisation mostly on the single monetary policy. The paper also reviews reform options on how to render the fiscal framework more effective in bringing about sounder public finances and avoiding the procyclicality observed over the past two decades.
JEL Code
H11 : Public Economics→Structure and Scope of Government→Structure, Scope, and Performance of Government
H50 : Public Economics→National Government Expenditures and Related Policies→General
H6 : Public Economics→National Budget, Deficit, and Debt
8 August 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2019
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Abstract
This box examines the fiscal policy recommendations addressed to the euro area countries against the background of downside risks to the outlook for a continued economic expansion. The examination shows that in countries with high levels of government debt, building buffers to strengthen resilience in cyclical downturns remains a priority for fiscal policies. At the same time, countries that have achieved sound fiscal positions could utilise some fiscal space for measures to support economic growth.
JEL Code
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H6 : Public Economics→National Budget, Deficit, and Debt
23 April 2019
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 3, 2019
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Abstract
This article compares the fiscal rule framework in the euro area with the frameworks in the fiscally more integrated United States and Switzerland, with the aim of drawing lessons for ways in which fiscal rules could be reformed in European Economic and Monetary Union (EMU). Both the United States and Switzerland have a history of balanced budget rules that help stabilise government debt in individual states/cantons at moderate and broadly comparable levels. The recent shift towards balanced budget rules in the euro area is an important achievement in this direction, and has contributed to better average underlying budgetary positions. Still, the fiscal rule framework needs to be rendered more effective in reducing high levels of government debt and their dispersion across the euro area. Reducing the heterogeneity of government debt positions is also an important prerequisite for setting up a well-governed common macroeconomic stabilisation function at the centre of EMU in case of deep economic crises. This in turn would help to contain the procyclicality of fiscal rules at the country level.
JEL Code
H61 : Public Economics→National Budget, Deficit, and Debt→Budget, Budget Systems
H74 : Public Economics→State and Local Government, Intergovernmental Relations→State and Local Borrowing
H77 : Public Economics→State and Local Government, Intergovernmental Relations→Intergovernmental Relations, Federalism, Secession
27 December 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2018
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Abstract
On 21 November 2018 the European Commission released its opinions on the draft budgetary plans (DBPs) of euro area governments for 2019, together with an analysis of the budgetary situation in the euro area as a whole. Each opinion includes an assessment of the compliance of the relevant plan with the Stability and Growth Pact (SGP). This exercise is important as it assesses whether countries have incorporated into their plans the country-specific recommendations for fiscal policies that were addressed to them under the 2018 European Semester, as adopted by the Economic and Financial Affairs Council on 13 July 2018. These recommendations propose, among other things, that countries with high ratios of government debt to GDP aim for a sufficiently fast reduction in indebtedness. This would raise their resilience in a future economic downturn.
JEL Code
H60 : Public Economics→National Budget, Deficit, and Debt→General
H68 : Public Economics→National Budget, Deficit, and Debt→Forecasts of Budgets, Deficits, and Debt
5 September 2018
RESEARCH BULLETIN - No. 49
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Abstract
Economists often try to forecast whether the economy as a whole will grow or contract. When measuring the effects of fiscal policy measures on economic activity, such forecasts are based on so-called multipliers. Using a new dataset compiled from economic forecasts and recommendations by the European Commission under the excessive deficit procedure of the Stability and Growth Pact, we derive the multipliers that were assumed by forecasters during the European sovereign debt crisis to project the effects of fiscal consolidation on economic growth. Our results confirm that forecasters adapted their assumptions on multipliers as the crisis progressed and accounted for larger effects of consolidation on growth later on in the crisis. Another finding is that the actual fiscal multipliers were not exceptionally large during the crisis.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
H5 : Public Economics→National Government Expenditures and Related Policies
28 June 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2018
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Abstract
On 23 May the European Commission issued its 2018 European Semester Spring Package of policy recommendations for Member States. The package includes country-specific recommendations (CSRs) for economic and fiscal policies for all EU Member States. It also covers recommendations regarding the implementation of the European Union's Stability and Growth Pact (SGP) for a number of countries. With regard to fiscal policies, the recommendations focus in particular on Member States' compliance with the SGP on the basis of the Commission's 2018 spring forecast and the Commission's assessment of countries' policy plans as reflected in the updates of the stability and convergence programmes released in April. This year's European Semester exercise is important particularly with a view to avoiding any repetition of mistakes made prior to the financial crisis when sufficient fiscal buffers were not built up in economic good times and the ensuing recession was aggravated by the sudden necessity of pro-cyclical fiscal tightening. Against this background, this box examines the fiscal policy recommendations that are addressed to 18 euro area countries (i.e. excluding Greece).
JEL Code
H60 : Public Economics→National Budget, Deficit, and Debt→General
H68 : Public Economics→National Budget, Deficit, and Debt→Forecasts of Budgets, Deficits, and Debt
30 May 2018
WORKING PAPER SERIES - No. 2154
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Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual scenario. Our new data set allows overcoming this problem by making use of the fact that recommendations under the EU’s excessive deficit procedure (EDP) provide both a baseline no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the macroeconomic impact of fiscal consolidation over the EDP horizon. For a sample of 24 EU countries to which 48 EDP recommendations were applied between 2009 and 2015, we derive country-specific fiscal multipliers as actually applied by forecasters during the crisis. Our results confirm Blanchard and Leigh’s (2013, 2014) presumption that forecasters learned during the crisis. According to our findings, fiscal multipliers as applied by the European Commission increased over time – from about 1/4 in the early years of the crisis to about 2/3 in the later years. However, different from Blanchard and Leigh (2013, 2014), we do not find evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1 during the crisis.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
H5 : Public Economics→National Government Expenditures and Related Policies
28 December 2017
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2017
19 November 2014
OCCASIONAL PAPER SERIES - No. 157
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Abstract
In the light of the lessons learned from the euro area sovereign debt crisis, the EU fiscal and macroeconomic governance framework was overhauled in 2011. Against this background, this paper analyses whether the broadened surveillance of fiscal and macroeconomic indicators under the strengthened governance framework would have facilitated the identification of emerging imbalances, had it been in place before the crisis. The findings suggest that the strengthened governance framework would have given earlier signals about emerging excessive fiscal and macroeconomic imbalances. Euro area countries thus would have been obliged to take preventive and corrective action at an earlier stage, provided that the stricter rules had been effectively implemented. At the same time, the paper concludes that the increased reliance of the EU fiscal governance framework on unobservable magnitudes such as the structural budget balance, which are difficult to measure in real time, will continue to impede the timely identification of underlying fiscal imbalances. It is suggested that the new macroeconomic imbalance procedure could have given earlier indications about the emergence of excessive macroeconomic imbalances, which in turn posed risks for fiscal sustainability. Looking forward, these preliminary findings suggest possible synergies between the, until now largely unrelated, fiscal and macroeconomic governance frameworks.
JEL Code
H3 : Public Economics→Fiscal Policies and Behavior of Economic Agents
H6 : Public Economics→National Budget, Deficit, and Debt
E02 : Macroeconomics and Monetary Economics→General→Institutions and the Macroeconomy
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination
27 December 2012
WORKING PAPER SERIES - No. 1503
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Abstract
Do capital markets impose fiscal discipline on governments? We investigate the responses of fiscal variables to a change in the interest rate paid by governments on their debt in a panel of 14 European countries over four decades. This is done in the context of a panel vector autoregressive (PVAR) model, using sign restrictions via the penalty function method of Mountford and Uhlig (2009) to identify structural cost of borrowing shocks. Our baseline estimation shows that a one percentage point rise in the cost of borrowing leads to a cumulative improvement of the primary balance-to-GDP ratio of approximately 1.9 percentage points over 10 years, with the fiscal response becoming significantly evident only two years after the shock. We also find that the bulk of fiscal adjustment takes place via a rise in government revenue rather than a cut in primary expenditure. The size of the total fiscal adjustment, however, is insufficient to avoid the gross government debt-to-GDP ratio from rising as a consequence of the shock. Sub-dividing our sample, we also find that for countries participating in Economic and Monetary Union (EMU) the primary balance response to a cost of borrowing shock was stronger in the period after 1992 (the year in which the Maastricht Treaty was signed) than prior to 1992.
JEL Code
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H60 : Public Economics→National Budget, Deficit, and Debt→General
3 March 2011
WORKING PAPER SERIES - No. 1307
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Abstract
This paper investigates the relationship between government debt and labour taxation for a panel of 18 EU countries over the period 1979-2008. The econometric estimates point to a statistically significant and economically relevant positive response of labour taxation to changes in the general government debt and interest expenditure-to-GDP ratios. The results are robust across a range of econometric specifications and labour tax indicators.
JEL Code
H2 : Public Economics→Taxation, Subsidies, and Revenue
H24 : Public Economics→Taxation, Subsidies, and Revenue→Personal Income and Other Nonbusiness Taxes and Subsidies
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
J22 : Labor and Demographic Economics→Demand and Supply of Labor→Time Allocation and Labor Supply
14 April 2010
OCCASIONAL PAPER SERIES - No. 109
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Abstract
In mid-September 2008, a global financial crisis erupted which was followed by the most serious worldwide economic recession for decades. As in many other regions of the world, governments in the euro area stepped in with a wide range of emergency measures to stabilise the financial sector and to cushion the negative consequences for their economies. This paper examines how and to what extent these crisis-related interventions, as well as the fall-out from the recession, have had an impact on fiscal positions and endangered the longer-term sustainability of public finances in the euro area and its member countries. The paper also discusses the appropriate design of fiscal exit and consolidation strategies in the context of the Stability and Growth Pact to ensure a rapid return to sound and sustainable budget positions. Finally, it reviews some early lessons from the crisis for the future conduct of fiscal policies in the euro area.
JEL Code
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
Network
Eurosystem Monetary Transmission Network
25 February 2009
WORKING PAPER SERIES - No. 1015
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Abstract
To the best of our knowledge, our paper is the first systematic study of the predictive power of monetary aggregates for future inflation for the cross section of New EU Member States. This paper provides stylized facts on monetary versus non-monetary (economic and fiscal) determinants of inflation in these countries as well as formal econometric evidence on the forecast performance of a large set of monetary and nonmonetary indicators. The forecast evaluation results suggest that, as has been found for other countries before, it is difficult to find models that significantly outperform a simple benchmark, especially at short forecast horizons. Nevertheless, monetary indicators are found to contain useful information for predicting inflation at longer (3-year) horizons.
JEL Code
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
P24 : Economic Systems→Socialist Systems and Transitional Economies→National Income, Product, and Expenditure, Money, Inflation
30 June 2008
OCCASIONAL PAPER SERIES - No. 89
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Abstract
The paper starts by presenting some stylised facts on youth unemployment over the last two decades, both at the euro area and the country level. It shows that despite declining considerably over the last few years, youth unemployment has remained at a high level relative to other age groups in most euro area countries. The paper finds that there is a positive relationship between the share of young people in the total population and the youth unemployment rate, i.e. the smaller the share of young people in the population, the lower the risk of them being unemployed. At the same time, economic conditions are negatively correlated with the youth unemployment rate, i.e. the youth unemployment rate increases when the economic situation worsens. Moreover, robust results across the regression scenarios show that higher employment protection and minimum wages imply a higher youth unemployment rate, while active labour market policies (ALMPs) tend to reduce it. The results also indicate that the increasing share of services employment in total employment is helping to reduce unemployment among young persons. Furthermore, the increase in the youth inactivity rate, which is mainly due to the fact that there are more young people in education, is also linked to the overall decline in youth unemployment. Finally, as regards education, the results indicate that the number of years of education, the number of young people with vocational training and, to a lesser extent high scores in the PISA study, are associated with lower youth unemployment rates. The share of the young population not in school, however, is positively correlated with the unemployment rate. As youth unemployment is subject to certain country- specific features, each country should identify the relevant underlying sources of youth unemployment and react accordingly. Governments can make a positive contribution to the transition of young persons from education to labour market by a well-functioning education ...
JEL Code
I2 : Health, Education, and Welfare→Education and Research Institutions
J11 : Labor and Demographic Economics→Demographic Economics→Demographic Trends, Macroeconomic Effects, and Forecasts
J13 : Labor and Demographic Economics→Demographic Economics→Fertility, Family Planning, Child Care, Children, Youth
J21 : Labor and Demographic Economics→Demand and Supply of Labor→Labor Force and Employment, Size, and Structure
J64 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Unemployment: Models, Duration, Incidence, and Job Search
25 June 2008
OCCASIONAL PAPER SERIES - No. 87
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Abstract
The aim of this report is to describe and analyse the main developments in labour supply and its determinants in the euro area, review the links between labour supply and labour market institutions, assess how well labour supply reflects the demand for labour in the euro area and identify the future challenges for policy-makers.
JEL Code
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
J1 : Labor and Demographic Economics→Demographic Economics
J2 : Labor and Demographic Economics→Demand and Supply of Labor
J6 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers
6 July 2007
OCCASIONAL PAPER SERIES - No. 66
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Abstract
The need for structural reforms in the euro area has often been advocated. These reforms would improve the welfare of euro area citizens and also, as a welcome side-effect, facilitate the conduct of monetary policy. Against this background, a particularly relevant question that can be posed is whether monetary policy should help implement structural reforms. The objective of this paper is to provide a review of the existing literature on structural reforms in Economic and Monetary Union (EMU) and to discuss the possible ways in which monetary policy could support the structural reform process. In the context of EMU, the main conclusions that emerge are that the monetary policy for the euro area is not the appropriate tool for mitigating the potential and uncertain short-term costs of reforms or for providing incentives for structural reforms at the national level. However, credible monetary policy aimed at price stability can improve the functioning of the supply side of the economy and contribute to an environment which is conducive to welfare-enhancing structural changes. In addition, the ECB's contribution to the implementation of structural reforms takes the form of analysis, assessment and communication.
19 December 2005
OCCASIONAL PAPER SERIES - No. 41
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Abstract
This paper analyses trends in working time in the euro area, in comparison with the US, over the period 1970 to 2004 and examines the causes and consequences of the observed changes. Between 1970 and 2004, a downward trend in average annual hours worked per worker can be observed for the euro area as a whole, all individual euro area countries and the United States. In contrast to the US, the euro area and a number of euro area countries also experienced a significant decline in annual hours worked per capita ("labour utilisation") over the last three decades. Data reveal important disparities across countries - both in trends and levels. While some countries managed to reverse their downward trends in labour utilisation in the 1980s and 1990s, the level of average hours worked per capita in 2004 remained significantly below their 1970 levels for all euro area countries for which data are available. From a policy perspective, falling annual average hours worked per worker or per capita are not a problem per se, if they reflect preferences. For example, increasing shares of voluntary part-time employment across many euro area countries, whilst increasing European employment rates, have contributed to the downward trend in average annual hours per worker. However, to the extent that low working hours are due to institutional features which create disincentives to work, such as high tax wedges and high unemployment benefits, or enforced reductions in working hours, these factors should be addressed.
JEL Code
J3 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs
J22 : Labor and Demographic Economics→Demand and Supply of Labor→Time Allocation and Labor Supply
J24 : Labor and Demographic Economics→Demand and Supply of Labor→Human Capital, Skills, Occupational Choice, Labor Productivity
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
D02 : Microeconomics→General→Institutions: Design, Formation, and Operations