CPB Discussion papers

n° 297, December 2014

Robust estimation of the VAT pass-through in the Netherlands
MELLENS Martin, VRIJBURG Hendrik, DIJKSTRA Jonneke

This paper introduces the Common Correlated Effects Estimator into the study of Value-Added-Tax pass-through and compares this method to various other methodologies used in the literature. To this end, we study two Value-Added-Tax increases in the Netherlands, in January 2001 and October 2012. We show that the Common Correlated Effects Estimator produces robust estimates, especially when divergent macroeconomic trends make identification more difficult. Furthermore, we show that the choice of the control group is of lesser importance once sufficient control variables are included. Our results indicate, in accordance with most findings in the literature, that we cannot reject the null-hypothesis of a full pass-through for both Dutch tax-hikes.

(texte téléchargeable du n° 297)

n° 296, December 2014

The social discount rate under a stochastic A2 scenario
AALBERS Rob., RUIJTER Marjon, OOSTERLEE Kees

Using a general equilibrium model in which both capital productivity and temperature are uncertain, we show that the social discount rate (SDR) will decline from 1% in 2010 to 0.6% in 2300 under the conventional, quadratic specification of the damage function, and to -2.0% under the reactive specification of the damage function. Moreover, interaction between economic and climate risks further lowers this estimate of the SDR by 0.9%. Surprisingly, the decline of the SDR never starts before 2100. We attribute this to the slow response of the earth's climate to increases in radiative forcing, thus highlighting the critical importance of properly taking into account the long-term dynamics of the climate system for the SDR. Interestingly, a substantial part of the decrease in the SDR under the reactive specification can be attributed to the presence of a term premium in long-run bonds.

(texte téléchargeable du n° 296)

n° 295, December 2014

The effect of family disruption on children's personality development: Evidence from British longitudinal data
TER WEEL Bas, PREVOO Tyas Prevoo

n° 294, November 2014

Teacher quality and student achievement: Evidence from a Dutch sample of twins
GERRITSEN Sander, PLUG Erik, WEBBINK Dinand

This paper examines the causal link that runs from classroom quality to student achievement using data on twin pairs who entered the same school but were allocated to different classrooms in an exogenous way. In particular, we apply twin fixed-effects estimation to assess the effect of teacher quality on student test scores from second through eighth grade, arguing that a change in teacher quality is probably the most important classroom intervention within a twin context. In a series of estimations using measurable teacher characteristics, we find that: (a) the test performance of all students improve with teacher experience; (b) teacher experience also matters for student performance after the initial years in the profession; (c) the teacher experience effect is most prominent in earlier grades; (d) the teacher experience effects are robust to the inclusion of other classroom quality measures, such as peer group composition and class size; and (e) an increase in teacher experience also matters for career stages with less labor-market mobility which suggests positive returns to on the job training of teachers.

(texte téléchargeable du n° 294)

n° 293, November 2014

Zero returns to compulsory schooling: Is it certification or skills that matters?
GERRITSEN Sander

This paper evaluates the effects of the raising of the minimum school leaving age (ROSLA) from 14 to 15 in the Netherlands in 1971. The policy goal was to increase the number of high school graduates. The analysis shows that the change led to a decrease in the high school dropout rate of approximately 20%. However, there were no benefits in terms of employment or higher wages. I investigate several explanations for this finding and present suggestive evidence in support of the skill-based explanation that no more labor-market relevant skills were learned during this extra year of school compared to those skills previously learned out of school.

(texte téléchargeable du n° 293)

n° 292, November 2014

Unintended effects of reimbursement schedules in mental health care
DOUVEN  Rudy, REMMERSWAAL Minke, MOSCA Ilaria(Ecorys)

We evaluate the introduction of a reimbursement schedule for self-employed mental health care providers in the Netherlands in 2008. The reimbursement schedule follows a discontinuous discrete step function ―once the provider has passed a treatment duration threshold the fee is flat until a next threshold is reached. We use administrative mental health care data of the total Dutch population from 2008 to 2010. We find an efficiency effect: on the flat part of the fee schedule providers prolong treatment only if marginal benefits to patients outweigh marginal costs. We estimate a reduction in treatment duration by 2 to 6% and lower costs by 3 to 5% compared to a control group. However, we also find unintended effects: providers treat patients longer to reach a next threshold and obtain a higher fee. The data shows gaps and bunches in the distribution function of treatment durations, just before and after a threshold. In total, about 11 to 13% of treatments are shifted to over a next threshold, resulting in a cost increase of approximately 7 to 8%.

(texte téléchargeable du n° 292)

n° 291, October 2014

Demanding occupations and the retirement age in the Netherlands
VERMEER Niels, MASTROGIACOMO Mauro(DNB; VU; Netspar), VAN SOEST Arthur(Tilburg University; Netspar)

In the policy debate on increasing the statutory retirement age, the issue has been raised to make an exception for workers with demanding occupations, since health considerations may make it unreasonable to expect them to work longer. We use unique Dutch survey data to analyze the general public’s opinions on what are demanding occupations, to what extent it is justified that someone with a demanding occupation can retire earlier, and on the willingness to contribute to an earlier retirement scheme for such occupations through higher taxes. A representative sample of Dutch adults answered several questions about hypothetical persons with five different jobs. Panel data models are used to analyze the answers, accounting for confounding factors affecting the evaluations of the demanding nature of the jobs as well as their reasonable retirement age or willingness to contribute to an early retirement scheme. The Dutch public thinks that workers in demanding occupations should be able to retire earlier. A one standard deviation increase in the perceived demanding nature of an occupation translates into a one year decrease in the reasonable retirement age and a 30 to 40 percentage points increase in the willingness to contribute to an early retirement scheme for that occupation. There is some evidence that respondents whose own job is similar to the occupation they evaluate find this occupation more demanding than other respondents but respondents are also willing to contribute to early retirement of occupations that are not similar to their own.

(texte téléchargeable du n° 291)

n° 290, October 2014

Ranking the Stars: Network Analysis of Bilateral Tax Treaties
VAN'T RIET Maarten, LEJOUR Arjan

With a novel approach this paper sheds light on the international tax planning possibilities of multinationals. The international corporate tax system is considered a network, just like for transportation, and ‘shortest’ paths are computed, minimizing tax payments for the multinationals when repatriating profits. Read the accompanying press release and� background document .The network consists of 108 jurisdictions, and the ‘shortest’ paths are constructed from the rates of corporate income taxes, withholding taxes on dividends and the double taxation relief methods. Double taxation treaties typically lower bilateral withholding taxes. The possibility to funnel investments through a third country to take advantage of treaty provisions, treaty shopping, is found to lead to an average potential reduction of the combined effective tax rate of more than 6 percent. On average, multinationals need only pay taxes of 6 percent, after the corporate income tax in the host country. Moreover, the network approach identifies the countries which are most likely to perform the role of conduits. The United Kingdom heads the rankings of three out of four network centrality measures. The tax revenues on dividends for the conduit countries are less than a half percent of the worldwide flows. Finally, a crackdown on tax havens is simulated. The impact is found to be modest, both on the tax reduction and on network centrality. The result illustrates the strong dampening effect treaty shopping has on the remaining double tax rates.

(texte téléchargeable du n° 290)

n° 288, October 2014

Renewable energy policies and cross-border investment: evidence from M&A in solar and wind energy
SHESTALOVA Victoria, CRISCUOLO Chiara, JOHNSTONE Nick, MENON Carlo

This study assesses the role of feed-in tariffs (FITs) and renewable energy certificates (RECs) in creating incentives for cross-border investments and for investments in particular technological portfolios via M&A. The analysis explores the dataset on M&As in alternative energy sources worldwide over 2005‑2011. The results suggests that FITs encourage more diversified M&A than RECs. With respect to foreign investment, the study finds a linear relationship between FITs and cross-border M&As in the wind energy sector, but an inverted U-shaped relationship in the solar energy sector. One possible explanation for the latter may lie in reduced policy credibility due to the public finance implications of ‘generous’ FITs. Another possible explanation for this finding concerns the use of high solar FITs by countries whose natural conditions provide little comparative advantage in solar energy, suggesting that low profitability and limited potential of solar energy in those countries might have deterred the entry of foreign investors.

(texte téléchargeable du n° 288)

n° 287, October 2014

Collective versus Individual Pension Schemes: a Welfare-Theoretical Perspective
WESTERHOUT Ed, BONENKAMP Jan, BROER Peter

This paper explores the welfare effects of a number of collective pension contracts, distinguishing between the two welfare effects. We find that collective schemes can be either superior or inferior to individual schemes. Collective pension contracts allow for intergenerational risk sharing with the unborn. They therefore imply a higher level of social welfare than individual accounts. Collective pension contracts also imply a sub- optimal allocation of consumption across time periods and states of nature however. Hence, collective pension contracts also reduce social welfare. This paper explores the welfare effects of a number of collective pension contracts, distinguishing between the two welfare effects. We find that collective schemes can be either superior or inferior to individual schemes.

(texte téléchargeable du n° 287)

n° 286, October 2014

The effectiveness of fiscal stimuli for working parents
DE BROER Henk-Wim, JONGEN Egbert, KABATEK Jan 

We study the relative effectiveness of fiscal stimuli for working parents in an empirical model of household labour supply and childcare use. We use a large and rich administrative dataset for the Netherlands. To promote the labour participation of parents with young children, governments employ a number of fiscal instruments. Prominent examples are childcare subsidies and in-work benefits. However, which policy works best for employment is largely unknown. We study the relative effectiveness of fiscal stimuli for working parents in an empirical model of household labour supply and childcare use. We use a large and rich administrative dataset for the Netherlands. Large-scale reforms in childcare subsidies and in-work benefits in the data period benefit the identification of the parameters. We find that an in-work benefit for secondary earners that increases with income is the most cost-effective way of stimulating total hours worked of parents with young children. Childcare subsidies and a `flat' in-work benefit for secondary earners are somewhat less cost-effective. In-work benefits for both primary and secondary earners are much less cost-effective, since the former are rather unresponsive to financial incentives.

(texte téléchargeable du n° 286)

n° 285, September 2014

Labour market effects of job displacement for prime-age and older workers
DEELEN Anja, DE GRAAF-ZIJL Marloes, VAN DEN BERGE Wiljan

This paper studies the effect of firm closures for prime-age and older workers. Administrative data on the Dutch labour force are used to follow a sample of Dutch workers who lost their jobs due to firm closures in the period 2000 - 2009. Applying difference-in-difference techniques and using a control group created by exact matching, we find that involuntary job loss has a severe impact on older workers' labour market prospects. Finding a new job is relatively difficult, and wage cuts are more substantial once they find a new job. The differences between prime-age and older workers are partly mediated by tenure and industry effects. Not only do older workers on average have longer job tenures than prime-age workers, older workers with longer job tenures experience more negative effects of displacement as well. For prime-age workers tenure in the job before displacement makes less of a difference for their outcomes after displacement. Likewise, displaced older workers are more sensitive to the situation in the local labour market in the industry from which they are displaced. Moreover, older workers experience stronger negative effects of changing industries after displacement on their post-displacement wages.

(texte téléchargeable du n° 285)

n° 284, September 2014

Maximum likelihood estimation of the Markov chain model with macro data and the ecological inference model
TEN CATE Arie

This CPB Discussion Paper merges two isolated bodies of literature: the Markov chain model with macro data (MacRae, 1977) and the ecological inference model (Robinson, 1950). Both are choice models. They have the same likelihood function and the same regression equation. Decades ago, this likelihood function was computationally demanding. This has led to the use of several approximate methods. Due to the improvement in computer hardware and software since 1977, exact maximum likelihood should now be the preferred estimation method.

(texte téléchargeable du n° 284)

n° 283, July 2014

Optimally Differentiated Carbon Prices for Unilateral Climate Policy
BOETERS Stefan

Economic thought on climate policy as an instance of environmental regulation is strongly influenced by the principle of a uniform carbon price. Economists acknowledge that this principle breaks down in a “second-best†world with other distortions, such as taxes and market power in domestic and international markets. However, systematic analysis of this point in the economic climate policy literature is scarce. In the present paper, a computable general equilibrium (CGE) set-up is chosen in order to examine what pattern of differentiated carbon prices emerges as optimal in a second-best world. The CGE model WorldScan, which is considered to be representative of the class of models routinely used for numerical climate policy analysis, produces three main results: First, the optimal pattern of carbon prices is highly differentiated, ranging from almost prohibitive taxes to high subsidies (with a range of more than 1700 euros per ton of CO2). Second, the welfare gain from switching from a uniform price to optimally differentiated prices is enormous, equivalent to a 27 % emission reduction for free. Third, the most important drivers of carbon price differentiation are market power in export markets as well as taxes on consumption, intermediate inputs and domestic output. This shows that carbon price differentiation cannot be dismissed as a policy option lightly. However, before translating these findings into concrete policy advice, the relevant features of modelling pre-existing distortions in CGE models need close revision.

(texte téléchargeable du n° 283)

n° 282, July 2014

Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands
EUWALS Rob, DEELEN Anja

In this study, we investigate the anatomy of older workers’ wages. The central question is whether the wage cushion—i.e., the difference between actual wages and collectively agreed-upon (maximum) contractual wages—contributes to the fact that wages continue increasing at older ages. We follow the wages of individual workers in twenty-two sectors of industry in the Netherlands using administrative data for the period 2006 – 2010. In the public sector, we find no evidence of a wage cushion. Wage scale ceilings set in collective agreements are guiding for older workers’ wages, and workers earning a contractual wage equal to a wage scale ceiling are not compensated with higher additional wages. In the private sector, we do find evidence of a wage cushion. Wage scale ceilings are less restrictive and workers earning a contractual wage exceeding the highest wage scale ceiling experience higher contractual wage growth. The private sector wage cushion enhances wage differentiation and allows for wages that continue increasing at older ages.

(texte téléchargeable du n° 282)

n° 281, July 2014

Age-Specific Labour Market Effects of Employment Protection - A numerical approach
BOETERS Stefan

The particular situation of the youngest and oldest individuals on the labour market motivates age-specific labour market analysis. One topical case is employment protection for older workers. The effect of employment protection on the total number of jobs is ambiguous. The positive effect of lower job destruction is counteracted by the negative effect of lower job creation. This ambiguity carries over to the more specific case of age-related employment protection. Numerical analysis can be illuminating when countervailing effects produce an ambiguity. In this paper, I present a numerical model based on the theoretical set-up of Chéron, Hairault and Langot (2011). Simulations performed with the model highlight age-specific effects of general employment protection measures and effects of measures targeted at particular age-groups on workers outside the target group. Firing taxes and hiring subsidies have age-specific consequences because employment and unemployment rates vary over the lifecycle. Positive effects of employment protection for the target group can be outweighed by negative effects for other workers.

(texte téléchargeable du n° 281)

n° 280, July 2014

Targeted advertising, platform competition and privacy
KOX Henk, STRAATHOF Bas, ZWART Gijsbert

Targeted advertising can benefit consumers through lower prices for access to websites. Yet, if consumers dislike that websites collect their personal information, their welfare may go down. We study competition for consumers between websites that can show targeted advertisements. We find that more targeting increases competition and reduces the websites' profits, but yet in equilibrium websites choose maximum targeting as they cannot credibly commit to low targeting. A privacy protection policy can be beneficial for both consumers and websites. If consumers are heterogeneous in their concerns for privacy, a policy that allows choice between two levels of privacy will be better. Optimal privacy protection takes into account that the more intense competition on the high-targeting market segment also benefits consumers on the less competitive segment. Consumer surplus is maximized by allowing them a choice between a high targeting regime and a low targeting regime which affords more privacy.

(texte téléchargeable du n° 280)

n° 279, July 2014

Growing pension savings lead to deeper capital markets. This can have a positive effect on economic growth by allowing firms that are more dependent on external finance to grow faster. We study this effect using data on 69 industrial sectors in 34 OECD countries for the period 2001-2010 through a difference-in-differences approach that interacts financial development with industry dependence on external finance. We take into account unobserved heterogeneity by including country-time, industry-time and industry-country fixed effects. We find a significant impact of higher level of pension savings on growth in sectors that are more dependent on external financing. The financial crisis does not significantly affect this relation.

(texte téléchargeable du n° 279)

n° 278, June 2014

Social interactions and the retirement age
VERMEER Niels, VAN VUUREN Daniel, VAN ROOIJ Maarten

In this study, we gauge the impact of social interactions on individual retirement preferences. A survey including self-assessments and vignette questions shows that individual preferences are affected by preferences and actual retirement behavior of the social environment. Retirement from paid work depends on the retirement age of relatives, friends, colleagues and acquaintances. Information and advice provided by the social environment play a role in the retirement decision. A majority of respondents would postpone retirement when their social environment retires later. A one year increase in the social environment’s retirement age leads to an average increase of three months in the individual retirement age. In addition, people tend to stick more to the state pension age than to other retirement ages, which suggests a norm about retirement at the state pension age.

(texte téléchargeable du n° 278)

n° 277, May 2014

Safe Dike Heights at Minimal Costs: An Integer Programming Approach
ZWANEVELD Peter, VERBEIJ Gerard

Optimal dike heights are of crucial importance to the Netherlands as almost 60% of its surface is under threat of flooding from sea, lakes, or rivers. This area is protected by more than 3,500 kilometres of dunes and dikes. These dunes and dikes require substantial yearly investments of more than 1 billion euro. In this paper we propose an integer programming model for a cost-benefit analysis to determine optimal dike heights. We improve upon the model proposed by Brekelmans et al. (2012), which is in turn an improvement of the model by Van Dantzig (1956). The model by Van Dantzig (1956) was introduced after a devastating flood in the Netherlands in 1953. Our model provides an alternative approach with almost complete flexibility towards input-parameters for flood probabilities, damage costs and investment costs for dike heightening. In contrast to Brekelmans et al. (2012), who present a dedicated approach with no optimality guarantee, we present an easy-to-implement algorithm that provides an optimal solution to the problem. We briefly discuss robust optimization approaches to deal with uncertainty, e.g. climate change. The method has been implemented and tested for the most recent data on flood probabilities, damage and investment costs, which are presently being used by the government to determine how the safety standards in the Dutch Water Act should be changed.

(texte téléchargeable du n° 277)

n° 276, April 2014

Individual Returns to a PhD Education in the Netherlands: Income Differences between Masters and PhDs
VAN DER STEEG Marc, VAN DER WIEL Karen, WOUTERSE Bram

In this paper we investigate the individual returns to a doctorate education in the Netherlands over the first twenty years of a career. We compare monthly incomes of PhDs to that of Master graduates with the same years of experience, gender and field of study and who took the same time to obtain a Master degree. The latter covariate can be seen as a measure of ability. It turns out that over the first twenty years of experience, the average annual return (AAR) to a PhD education is not significantly different from zero. During the PhD track and the first years after PhD graduation PhDs earn less than Masters, but this initial investment is compensated by higher earnings in later years. Extrapolation of the return suggests an average annual return to a PhD education over the entire career of six percent. Similarly, the internal rate of return (IRR) – an alternative measure that takes both the timing and level of income differences into account - would equal nine percent over the entire career. Returns to a PhD education differ strongly by sex. Female PhDs experience a positive annual return of ten percent over the first twenty years after graduation, whereas male PhDs experience a negative return of seven percent. Positive returns for women are largely driven by the fact that they tend to work more hours than female Master graduates.

(texte téléchargeable du n° 276)

n° 275, April 2014

Provider competition and over-utilization in health care
BOONE Jan, DOUVEN Rudy

This paper compares the welfare effects of three ways in which health care can be organized: no competition (NC), competition for the market (CfM) and competition on the market (CoM) where the payer offers the optimal contract to providers in each case. We show that CfM is optimal if the payer either has contractible information on provider quality or can enforce cost efficient protocols. If such contractible information is not available NC or CoM can be optimal depending on whether patients react to decentralized information on quality differences between providers and whether payer’s and patients’ preferences are aligned.

(texte téléchargeable du n° 275)

n° 274, April 2014

Follow the leader? Public and private wages in the Netherlands
ZEILSTRA Annette, ELBOURNE Adam

This study investigates wage leadership in the Netherlands. We empirically examine public and private wages using several wage definitions for the period 1980-2012. We find no evidence for public wage leadership. Moreover, public wages return to their previous equilibrium value three to four years after an exogenous shock in public wages. By contrast, an exogenous shock to private wages has a permanent influence on both private and public wages. These findings suggest that although a public wage freeze lowers public expenditure in the short-run, it is not an effective policy measure to lower public expenditure in the medium and long-run.

(texte téléchargeable du n° 274)

n° 273, April 2014

Saving behavior and risk taking: Evidence from the Dutch Tax Reform in 2001
FLOOR Erik, LEJOUR Arjan

This paper compares the welfare effects of three ways in which health care can be organized: no competition (NC), competition for the market (CfM) and competition on the market (CoM) where the payer offers the optimal contract to providers in each case. We show that CfM is optimal if the payer either has contractible information on provider quality or can enforce cost efficient protocols. If such contractible information is not available NC or CoM can be optimal depending on whether patients react to decentralized information on quality differences between providers and whether payer’s and patients’ preferences are aligned.

(texte téléchargeable du  n° 273)

n° 271, March 2014

Time variation in the dynamic effects of unanticipated changes in tax policy
DE WIND Joris

Using a structural vector autoregression with time-varying parameters, I analyze to what extent the dynamic effects of unanticipated changes in tax policy have changed structurally over the post World War II period in the United States. Read also: CPB Discussion Paper 270 ' Reduced-rank time-varying vector autoregressions '. The estimated time variation points to a permanent decline in the tax multiplier as well as a faster response of the economy. Despite the permanent decline, the estimated tax multiplier is still at the higher end of the range of existing empirical estimates, which is consistent with Mertens and Ravn (2013b), whose identification strategy I follow. Furthermore, the estimated time variation also suggests that fiscal policy has become more countercyclical over time. In particular, spending policy used to be procyclical and has become countercyclical after the beginning of the 1990s, whereas tax policy already used to be countercyclical and has become even more countercyclical over time.

(texte téléchargeable du n° 271)

n° 270, March 2014

Reduced-rank time-varying vector autoregressions
DE WIND Joris, GAMBETTI Luca Gambetti

The standard time-varying VAR workhorse suffers from overparameterization, which is a serious problem as it limits the number of variables and lags that can be incorporated in the model. Read also: CPB Discussion Paper 271 ' Time variation in the dynamic effects of unanticipated changes in tax policy '. As a solution for the overparameterization problem, we propose a new, more parsimonious time-varying VAR model setup with which we can reliably estimate larger models including more variables and/or more lags than was possible until now. The new model setup implies cross-equation restrictions on the time variation that are empirically supported, theoretically appealing, and make the Bayesian estimation procedure much faster.

(texte téléchargeable du n° 270)

n° 269, March 2014

Cities, Tasks and Skills
KOK Suzanne, TER WEEL Bas

This research applies a task-based approach to measure and interpret changes in the employment structure of the 168 largest US cities in the period 1990-2009. As a result of technological change some tasks can be placed at distance, while others require proximity. We construct a measure of task connectivity to investigate which tasks are more likely to require proximity relative to others. Our results suggest that cities with higher shares of connected tasks experienced higher employment growth. This result is robust to a variety of other explanations including industry composition, routinisation, and the complementarity between skills and cities.

(texte téléchargeable du n° 269)

n° 268, February 2014

Measuring too-big-to-fail funding advantages from small banks’ CDS spreads
BIJLSMA Michiel, LUKKEZEN Jasper, MARINOVA Kristina

Large banks derive a funding advantage from being too-big-to-fail, while small banks do not. To estimate the funding advantage we explain the CDS spreads of small banks in six major European countries during the crisis by market fundamentals and bank-specific characteristics. Next, we extrapolate and predict the CDS spreads of large banks. The difference between the predicted and the observed spread is then interpreted as the funding advantage and amounts to 67 basis points for large banks and 121 for GSIFIs.

(texte téléchargeable du n° 268)

n° 267, February 2014

Urban traffic externalities: quasi-experimental evidence from housing prices
OSSOKINA Ioulia, VERWEIJ Gerard

This paper exploits a quasi-experiment to value the benefits of reducing urban traffic externalities. As a source of exogenous variation we use the opening of a new bypass in The Hague, the Netherlands, that reduced traffic on a number of local streets, leaving others unaffected. We calculate the effect of the change in traffic nuisance on housing prices and find that a reduction of 50% in traffic density induces a 1% increase in housing prices on average. Reductions in traffic nuisance are valued much more positively when the traffic density is already high. We do not find evidence of anticipation effects up to 3 years before the change. Furthermore, our results indicate that traffic nuisance effects are likely to be biased in cross-sectional studies.

(texte téléchargeable du n° 267)

n° 266, February 2014

Banks,Financial Markets and Growth in Developed Countries: a Survey of the empirical literature
BIJLSMA Michiel, DUBOVIK Andrei

We review the literature on finance and growth with a focus on developed countries We find little evidence that increases in the traditional proxies for financial development will enhance growth in these countries. Potential causes include: decreasing returns, misallocation of credit, difficulties in measuring efficient financial development, and increasing macroeconomic or systemic risk. To stimulate efficient financial intermediation, policy makers should focus on lending to firms instead of consumers; avoid too high concentration levels; and keep government ownership of banks at a minimum.

(texte téléchargeable du n° 266)

n° 265, February 2014

The Foreign Investment Effects of Tax Treaties
LEJOUR Arjan

We examine the impact of bilateral and multilateral tax treaties on bilateral FDI stocks. First, we present panel regressions of the effects of treaties on FDI based on an extensive database of all OECD countries from 1985 onwards. We use geographic instruments to correct for the endogeneity of tax treaties. In contrast to many papers, we find that these treaties increase bilateral FDI significantly. The increase is about 16 percent and for new treaties this is even 21 percent. Moreover, the EU parent subsidiary directive doubles bilateral FDI stocks. Second, we analyse the effects of treaty shopping on FDI using the number of tax treaties as a proxy for the attractiveness of a country for establishing a holding. This indicator has a significant impact on FDI: twenty extra tax treaties increase bilateral FDI stocks by about 50 percent. Lower withholding tax rates of dividends do also attract FDI.

(texte téléchargeable du n° 265)

n° 264, January 2014

The impact of a comprehensive school reform policy for failing schools on educational achievement; Results of the first four years
VAN ELK Roel, KOK Suzanne

This CPB Discussion Paper estimates the effects of a comprehensive school reform program on high-stakes test scores in Amsterdam. The program implements a systematic and performance-based way of working within weakly performing primary schools and integrates measures such as staff coaching, teacher evaluations and teacher schooling, and the use of new instruction methods. Difference-in-differences estimates show substantial negative effects on test scores for pupils in their final year of primary school. The program decreased test scores with 0.17 standard deviations in the first four years after its introduction. A potential explanation for this finding is the intensive and rigorous approach that caused an unstable work climate with increased teacher replacement.

(texte téléchargeable du n° 264)

n° 263, January 2014

Government spending shocks, sovereign risk and the exchange rate regime
LUKKEZEN Jasper, BONAM Dennis (VU and Tinbergen)

Keynesian theory predicts output responses upon a fiscal expansion in a small open economy to be larger under fixed than under floating exchange rates. We analyse the effects of fiscal expansions using a New Keynesian model and find that the reverse holds in the presence of sovereign default risk. By raising sovereign risk, a fiscal expansion worsens private credit conditions and reduces consumption; these adverse effects are offset by exchange-rate depreciation and a rise in exports under a float, yet not under a peg. We find that output responses can even be negative when exchange rates are held fixed, suggesting the possibility of expansionary fiscal consolidations.

(texte téléchargeable du n° 263)