Structural change in times of increasing openness: assessing path dependency in European economic integration

Abstract

This paper analyzes the dynamics of structural polarization and macroeconomic divergence in the context of European integration, where the latter is primarily understood as an increase in economic and financial openness. In the process of estimating the dynamic effects of such an openness shock on 26 EU countries, we develop a taxonomy of European economies that consists of four groups: core, periphery, and catching-up countries in Eastern Europe as well as financial hubs. We show that these four country groups have responded in a distinct way to the openness shock imposed by European integration and argue that the latter should be seen as an evolutionary process that has given rise to different path-dependent developmental trajectories. These trajectories are linked to the sectoral development of European economies and the evolution of their technological capabilities. We propose a set of interrelated policy measures to counteract structural polarization and to promote macroeconomic convergence in Europe.

The Taxing Deed of Globalization

“…4 The present paper examines the effects of globalization on labor income tax burdens across the income distribution in a host of countries and years and addresses the effects of globalization on the relative size of the revenues from different tax bases. 5 To that end, we compiled the biggest existing dataset on annual labor income tax calculators, between the years 1980 and 2007 for the 65 biggest economies. 6 We combine these tax calculators with information on country-year-specific gross labor income distributions, tax revenues, and measures of globalization.…”

“…This literature documents higher income tax sensitivity for more skilled (higher earning) and younger individuals than the average. 5 While revenues from income taxation are the most important source for developed countries, they are less important than value-added taxes in less developed economies. 6 See Egger and Strecker (2018) for more information on the dataset, which in total covers 252 economies and territories between 1980 and 2012 for 12 household archetypes (distinguished by the types of allowances and deductions granted across all the existing systems).…”

Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries

“…To assess the robustness of our results, we divide economies under study in six groups of countries: central countries, peripheral countries, relatively old countries, relatively young countries, relatively more indebted countries, and relatively less indebted countries (following the empirical literature, we consider Austria, Belgium, Finland, France, Germany, and the Netherlands as EA central countries and Greece, Ireland, Italy, Portugal, and Spain as EA peripheral countries (see, e.g., Gräbner et al [120]). Regarding the relative aging and the relative indebted countries classification, we use the sample average to distribute countries below and above it as relatively old and young countries (Austria, Belgium, France, Germany, Greece, Italy, and Portugal, and Finland, Ireland, Netherlands, and Spain, respectively) or as relatively more or less indebted countries (Greece, Italy, and Belgium, and Austria, Finland, France, Germany, Ireland, Netherlands, Portugal, and Spain, respectively).…”

Pandemic pushes polarisation: the Corona crisis and macroeconomic divergence in the Eurozone

“…Essential factors for explaining the long-term divergence of Eurozone countries are to be found in the unequal regulatory conditions in the context of the European 'race for the best location' (for example, in the areas of the labour market, tax and corporate law, or financial market regulation, see Kapeller et al 2019) as well as in the different technological capabilities across EU countries (Gräbner et al 2019(Gräbner et al , 2020b. Technological capabilities serve as an important driver of long-term economic development, and there exists a strong positive relationship between the level of economic complexity (used as a proxy for technological capabilities; see Hidalgo and Hausmann 2009) and GDP per capita levels (see Fig.…”

“…Furthermore, unemployment rates in Southern countries have not only reached much higher levels in pre-Corona times as compared to the Northern Eurozone, they also seem to be more strongly affected by the advent of the Corona crisis: according to the most recent macroeconomic forecasts 2 Southern countries will suffer a relatively more 1 Our focus in this paper is on Northern and Southern countries. Gräbner et al (2019) suggest that when taking into account all EU countries a taxonomy of four groups is more adequate. The proposed taxonomy also accounts for countries serving as financial hubs (where the financial sector plays an outstanding role) and Eastern European countries that partially experience catching-up dynamics.…”