"Numerical fiscal rules implemented at the national level in member countries of the European Union offer useful information on possible reasons for the growing reliance on such rules, and on their implication for fiscal policy. Our analysis of a survey-based dataset suggests that both the introduction of the EU fiscal framework and country-specific fiscal governance features played a role in triggering introduction of numerical fiscal rules, and that the impact of rules is statistically significant, robust, and quantitatively important. Outcomes and rules may be jointly determined by unobserved political factors, but the evidence suggests that causality runs from rules to fiscal behaviour, and that rules specifically designed to prevent conflicts with the stabilization function of fiscal policy are indeed associated with less pro-cyclical policies." Copyright (c) CEPR, CES, MSH, 2008.

We study the e¤ects "globalization" on wage inequality. Our "global" economy resembles Rosen (1981) "Superstars" economy, where a) innovations in production and communication technologies enable suppliers to reach a larger mass of consumers and to improve the (perceived) quality of their products and b) trade barriers fall. When transport costs fall, income is redistributed away from the non-exporting to the exporting sector of the economy. As the latter turns out to employ workers of higher skill and pay, the e¤ect is to raise wage inequality. Whether the least skilled are stand to lose or gain from improved production or communication technologies, in contrast, depends on wether technology is skill-complement or substitute. The model provides an intuitive explanation for why changes in wage premia are so strongly a¤ected by exports' growth in plant-level empirical investigations (Bernard and Jensen (1997)).

Restoring sustainable public finances in the aftermath of the Great Recession is a key challenge in most EU countries. In order to learn from history, our paper examines consolidation episodes in the EU since 1970. We shed light on the factors that favour the start of a consolidation episode and determine its success. Compared to the existing literature, we add a number of new dimensions in the analysis. First, we explore a broader set of potential ingredients of the 'recipe for success', including the quality and strength of fiscal governance and the implementation of structural reforms. Secondly, we check whether the 'recipe for success' changed over time. Our analysis broadly confirms received wisdom concerning the conditions triggering a consolidation episode and the role of the composition of adjustment for success, with some qualifications related to the role played by government wages. In addition it provides evidence that well-designed fiscal governance as well as structural reforms improve the odds of both starting a consolidation episode and achieving a lasting fiscal correction. We also show that, over time, successful and unsuccessful consolidation episodes have become more similar in terms of adjustment composition.

This paper analyses the main features and determinants of labour market reforms in the EU over the period of 2000-2011 using the European Commission LABREF database. The data suggests that the timing, focus, and geographical distribution of reforms reflect the interplay between economic shocks and existing institutions. The 2008 crisis was followed by increased policy activity in most policy domains in a large number of EU countries, initially to cushion the impact of the crisis on employment and incomes, subsequently to improve the adjustment capacity of labour markets. Regression analysis indicates that reform activism is stronger in countries with lower GDP per capita and long-standing EU membership, under critical economic and labour market conditions, and where political costs are low. The direction of reforms is affected by economic and labour market conditions, available fiscal space, and by initial policy settings.JEL classification: J20, J38, J48, J58, J68

No abstract

This paper provides a cross‐country perspective to the firm‐level analysis of the relation between foreign ownership and labor demand in host countries. We estimate labor demand equations in eleven European countries using dynamic panel data techniques on samples that permit to distinguish the ownership status of firms. We find that the employment adjustment is significantly faster in Multinational's affiliates (MNEs) compared with national firms (NEs), irrespective of the country investigated. As for the wage elasticity of labor demand, MNEs show smaller elasticities and very little variation across countries. Cross‐country correlations show that the relative size of wage elasticities in MNEs on that in NEs is positively related to country‐level indexes of labor market regulation. We interpret the results as follows. MNEs tend to have a more rigid demand for total labor (possibly due to a different skill composition). However, being MNEs relatively “footloose,” this difference tends to vanish as the rigidity of employment regulations rises. (JEL: F23, J23)

We investigate the role of skill heterogeneity in explaining location patterns induced by pecuniary externalities (Krugman [30]). In our setting, sellers with higher skills better perform in the marketplace, and their sales are larger. Selling to distant locations leads to lower sales because of both (pecuniary) transport costs and communication costs that reduce the perceived quality of goods. A symmetry-breaking result is obtained: symmetric configurations cannot be stable, and regional inequality is inevitable. The relatively more skilled choose to stay in the location with higher aggregate income and skill, while the relatively less skilled in the other. The model allows us to analyze the links between the extent of interregional inequality and the extent of interpersonal skill inequality.Keywords: Skill heterogeneity; Agglomeration; Core-periphery model; Regional inequality; Interpersonal inequality; Transport and communication costs.JEL ClassiÞcation: R12, R13, F12, F16.Acknowledgments: We thank Richard Arnott, Duncan Black, Pierre-Philippe Combes, Gilles Duranton, Masa Fujita, Tatsuo Hatta, Gianmarco Ottaviano, Diego Puga, Akihisa Shibata, Tony Smith, Takaaki Takahashi and participants of the seminars/conferences for their constructive comments and encouragement. A part of the research was conducted while we were visiting CORE, Université catholique de Louvain, Belgium, where we beneÞted from the stimulating discussions with Jacques Thisse.

"Economic reform is sometimes seen as damaging to a government's re-election chances, but anecdotal evidence from OECD countries would not seem to strongly support this perception. This paper tests this hypothesis on a sample of 21 OECD countries over the period 1985-2003, controlling for other economic and political factors that may affect re-election. It is found that the chances of re-election for incumbent governments are not significantly affected by their record of pro-market reforms. However, the electoral impact of reform is found to differ strongly depending on which types of policies are considered. In particular, reform measures that are more likely to hurt large groups of 'insiders' seem electorally more damaging. A series of framework conditions appears to affect the impact of reforms on re-elections. Reformist governments in countries with rigid product and labour markets tend to be voted out of office, suggesting the existence of a 'rigidity trap'. While fiscal stimulus is not an effective instrument to 'sweeten the pill' and raise the odds of re-election, the presence of liberal financial markets appears to soften electoral resistance to structural reform. The latter finding is of particular relevance in the current financial crisis: forward-looking governments should not rush to over-regulate financial markets in order not to compromise the feasibility of product and labour market reforms". Copyright (c) CEPR, CES, MSH, 2010.