CPB Document 2008
n° 177, December 2008
Did the 2006 covenants reduce school dropout in the Netherlands?
VAN DER STEEG Marc, VAN ELK Roel , WEBBINK Dinand
Early school-leaving is considered to be one of the major problems in Dutch education. In order to reduce the number of dropouts in the school year 2006-2007 the Dutch government has offered a financial incentive scheme to 14 out of 39 regions. This scheme provides a reward of 2000 euro per school dropout less in 2006-07. The target of the scheme was a reduction of the total number of school dropouts by at least 10 percent in one year. This paper evaluates the effectiveness of this school dropout policy by comparing the change in school dropout in these 14 regions with the change in the remaining 25 regions before and after the introduction of the policy. We observe a modest decline in the probability of dropping out in the 14 covenants regions. However, the decline in the non-covenant regions was equally large. We therefore find no significant effect on the probability of dropping out in the post-covenant year. In both regions, the number of dropouts has fallen by 3 percent in the year after the covenants. This nationwide decline can be largely assigned to changes in the student populations among the pre- and post-covenant year. The covenants also gave a reward to regions for a successful reintegration of dropouts in order to reduce school dropout in that way. However, estimates for the effect on the re-enrolment of previous dropouts are statistically insignificant as well. We conclude that 2006 covenant policy has not been effective in reducing early school-leaving.
n° 176, December 2008
Report AIECE Working Group on Foreign Trade - Autumn 2008
VAN WELZENIS Gerard
The financial crisis is still spreading and deepening and is making inroads on the real economy. Forecasting is always "work in progress" but the exceptional situation today makes it feel like shooting at a moving target from a ship on the high seas. The forecasts of the Working Group were prepared at the beginning of October, starting off from data supplied by member institutes, prepared somewhere in the third quarter. We already took the liberty during our meeting to make bigger than usual adjustments to these national trade forecasts, to get closer to the rapidly deteriorating situation in the world economy. But it is clear that our efforts fell short of what we are experiencing today. Given the uncertainties, the Working Group did not think it opportune to prepare a completely new detailed trade forecast. Instead we present the data prepared early October, which already incorporate strong downward shifts in the overall outlook, but give ample attention to the current trends and risks. We also provide a model simulation estimating the possible effects on trade variables of the rapidly declining short-term growth outlook for the world economy, the weaker euro and the lower oil and other commodity prices. In the original forecast, world trade growth decelerated from 7.4% in 2007 via 5.0% in 2008 to 2.5% next year. The simulation suggests that world trade levels might actually decline in 2009.
n° 175, November 2008
Price regulation of generic medicines: substantial price decreases in the new health-care system
DOUVEN Rudy, MEIJER Arno
The provision of generic medicines and pharmacy services in the Dutch healthcare system has taken a prominent position in the spotlights in the last few months. A number of insurers initiated a policy of selective contracting of generic medicines; as of the 1st of July 2008, these insurers reimburse only the cheapest generic product within a number of big-selling therapeutic classes. Producers of generics responded by substantially lowering their list prices of the respective generics. Insurers and their enrolees profit but pharmacists may incur revenues as a result of diminishing discounts and rebates provided by producers of generics. In order to retain lower expenditures on generics in the future, it is important to revise the current complex set of regulations about pricing and reimbursement of generics. Experiences in the US, with less regulated prices, might be useful for the Dutch situation.
n° 174, Oktober 2008
Economic consequences of 'Schoon en Zuinig (Clean and Economical)' in 2020
KOUTSTAAL Paul, VEENENDAAL Paul
The policy targets of the Dutch climate and energy policy 'Schoon en Zuinig' (S&Z) are quite similar to those of the policy proposal '20 20 by 2020' of the European Commission. Yet, they are more ambitious. Size and costs of the extra efforts depend upon size and efforts of the global coalition against global warming. This report addresses two extreme cases of global mitigation strategies: GRAND COALITION and IMPASSE. The costs of '20 20 in 2020' appear quite similar in both scenarios and amount to 0.6 till 0.7% of 2020 national income. Yet, climate policy is much more effective in GRAND COALITION. The larger share of S&Z for renewable energy use implies a higher cost of 0.2% in terms of 2020 national income. The additional costs of extra emissions reductions of S&Z in IMPASSE may remain modest if extra credits are bought via the Clean Development Mechanism; the policy proposals by the European Commission allow for this. As the Netherlands would try to realise more of the extra reductions domestically rather than abroad, the additional costs would rise quickly. They may then arrive in 2020 at 0.25% of Dutch national income.
n° 173, Oktober 2008
Looking for profit for the Social Enterprise - An economic analysis
KONING Pierre, VAN LEUVENSTEIJN Michiel, MEIJER Arno
Mid 2007, the government announced the ‘Maatschappelijke Onderneming’ (i.e. ‘social enterprise’) as a draft of a new (additional) legal form for non-profit organisations. The new legal form aims at providing a stronger basis for the corporate governance of non-profit organisations, particularly by stronger competences of stakeholders. In this CPB Document, we analyse the use and usefulness of providing standards for corporate governance for non-profit organisations. Moreover, we argue which organisations are likely to choose for the new legal form. In the study, we pay particular interest to two specific sectors for which the new legal form is particularly intended: the hospital industry and housing corporations. Key words: non-profit organisations, corporate governance, public sector.
n° 172, October 2008
Evaluating CPB's published GDP growth forecasts; a comparison with individual and pooled VAR based forecasts
ELBOURNE Adam, KRANENDONK Henk, LUGINBUHL Rob, SMID Bert, VROMANS Martin
We compare the accuracy of our published GDP growth forecasts from our large macro model, SAFFIER, to those produced by VAR based models using both classical and Bayesian estimation techniques. We employ a data driven methodology for selecting variables to include in our VAR models and we find that a randomly selected classical VAR model performs worse in most cases than the Bayesian equivalent, which performs worse than our published forecasts in most cases. However, when we pool forecasts across many VARs we can produce more accurate forecasts than we published. A review of the literature suggests that forecast accuracy is likely irrelevant for the non-forecasting activities the model is used for at CPB because they are fundamentally different activities.
n° 171, October 2008
Border tax adjustment and the EU-ETS, a quantitative assessment
MANDERS Ton Manders, VEENENDAAL Paul
If the EU stands alone in adopting climate policy and imposes a strict emissions ceiling, competitiveness of EU energy-intensive sectors will be affected negatively. Relocation of EU energy-intensive firms to countries with a lax regime also leads to carbon leakage. However, when use is made of the opportunities of the Clean Development Mechanism these impacts are very modest. Border tax adjustments (BTAs) to ‘level the playing field’ between domestic and foreign producers may be considered to address the concerns about both competitiveness and carbon leakage. It is far from clear whether these measures are WTO-proof. Simulations show that both an import levy and an export refund restore competitiveness to a certain extent. BTAs may lower the costs for energy-intensive sectors, but induce higher costs for other sectors. This paper uses a general equilibrium model to quantify and assess the implications of a number of policy scenarios.
n° 170, September 2008
Cross your border and look around.
VAN DER WIEL Henry, CREUSEN Harold, VAN LEEUWEN George, VAN DER PIJLL Eugene
This document focuses on innovation, human capital, technology transfers and competition as potential sources of productivity growth for firms. It integrates the views of existing literature such as the two faces of R&D, the convergence debate and the existence of firm-level heterogeneity in productivity. Using firm-level data of 127 industries in the Netherlands, the document analyses which determinants are most relevant for a catch up to the global frontier and in that respect are important for the productivity performance of firms. Moreover, the document takes into account the potential importance of a national frontier. The frontier is defined as the highest productivity level at the national or global level respectively. The document provides econometric evidence that technology transfers matter, predominantly from the national frontier. Particularly, R&D encourages growth through technology transfers from the national frontier. This suggests that firms mainly conduct R&D in order to adopt existing technologies from other (domestic) firms. Competition on Dutch markets plays a role in productivity growth as well. Finally, human capital also seems to affect productivity growth.
n° 169, September 2008
Individuele spaarrekeningen voor werkloosheid: mirakel of mythe?
JONGEN Egbert L.W., VAN VUREN Annemiek
Individual savings accounts are a recurring reform option for unemployment insurance. Under a system of individual accounts, individuals are forced to save part of their income into an individual account out of which benefits are paid during unemployment. Individuals are allowed to have a negative balance and still have the same access to income during unemployment. When negative balances at the end of the working life are nullified, some risk pooling remains. To study the impact of introducing individual accounts for unemployment, we construct a simulation model, which we calibrate for the Netherlands. The simulations results suggest that an optimal combination of the forced savings rate and the replacement rate can slightly increase welfare, when unemployed are credit constrained. When credit constraints are not that important for unemployment, individual accounts are less interesting for unemployment, but then current UI replacement rates seem rather generous. Empirical studies suggest that credit constraints are not that important for unemployment.
n° 168, September 2008
The Internal Market and the Dutch Economy. Implications for trade and economic growth
STRAATHOF Bas, LEJOUR Arjan, LINDERS Gert-Jan, MÖHLMANN Jan
This paper estimates the effects of the formation and development of the Internal Market (IM) in the European Union on income per capita for the EU and specifically for the Netherlands, since its appearance in 1958. It does so in two stages. First, gravity equations are estimated to identify the impact of the IM on bilateral trade in goods and services and Foreign Direct Investment (FDI). The results of the first stage show that 8 percent of the exports and imports of goods by the EU members can be attributed to the IM. For services trade, the IM effects are somewhat smaller: about 5 percent of EU members' services trade. The IM has a bigger impact on FDI stocks. For the Netherlands, the IM has about twice as large an effect on trade in goods compared to the results for the EU. For services trade and FDI, the effects are in line with the results for the EU. Second, the trade-enhancing effect of IM on GDP is estimated. For 2005, IM integration of goods markets has yielded 2 to 3 percent higher per capita income in the EU, and about 4 to 6 percent higher income per capita in the Netherlands. If the current level of integration effects with respect to the IM for goods and services persists, GDP per capita in the long run will increase by about 10 percent in the EU and about 17 percent in the Netherlands.
n° 167, August 2008
Vertical relationships between health insurers and healthcare providers
BIJLSMA Michiel, MEIJER Arno, SHESTALOVA Victoria
The current institutional reforms in the Dutch healthcare sector may increase the extent of vertical relations (such as vertical contracts and vertical integration) between insurers and healthcare providers. Vertical relations may have both welfare increasing and welfare reducing effects. In this study, we focus on the latter, in particular on anticompetitive foreclosure. We distinguish three possible mechanisms that may lead to anticompetitive foreclosure, called respectively 'exclusivity', 'sabotage', and the 'waterbed effect'. We discuss under which conditions they come into play and which policy measures can prevent them.
n° 166, May 2008
Effecten van omzetting van de aanschafbelasting op personenauto's in een kilometerprijs
BESSELING Paul, GEURS Karst, HILBERS Hans, LEBOUILLE Rik, THISSEN Mark
At the end of 2007, the Dutch government decided to implement a road pricing scheme in the Netherlands, called ‘Anders Betalen voor Mobiliteit’ (Paying differently for mobility). Major goal is to start with a full operational system in 2016 in which every car user will pay a tariff per driven kilometre. Starting point is that for the average car user, the car mobility will not be more or less expensive. In order to accomplish this, the fixed car and road taxes will be abolished. Point of departure is to convert the road tax (MRB) into a tariff per kilometre. In this report is examined what the impacts are in case the purchase tax for private cars (BPM) will be incorporated into a price per kilometre as well.
n° 165, May 2008
Economische effecten van regulering en subsidiëring van de huurwoningmarkt
ROMIJN Gerbert, BESSELING Paul
In the name of putting decent and affordable housing within everybody’s, but especially the poor’s, reach, the Dutch authorities regulate the supply of rental houses, subsidize demand and subject rents to rent controls. This study analyses the effects of these policies on rents, demand for and supply of rental units, tenant’s incomes and welfare effects. This shows that the policies reduce rents to tenants by almost 50%, at an annual cost of 14½ bln euros. Only 6¾ bn euros reach the low income households for which it is primarily intended. The rest is pocketed by middle or high income households. This is an important cause of the problems that currently blight the rental housing market. Many cheap rental units are occupied by middle and high income families, whereas many low income families cannot find affordable housing and first time renters typically have to wait several years before they are eligible for a house. As a result
the social cost.
n° 164, April 2008
Transparency of quality and competition in health care. Chances and dilemmas
BIJLSMA Michiel, POMP Marc
Safeguarding the quality of health care is important. In the Netherlands, currently health care professionals themselves provide this safeguard, as well as direct regulation of quality provided by the Health Care Inspectorate. In the new health care system, quality competition between hospitals will play an additional and growing role. Quality competition requires transparency of quality. However, this transparency can also have unwanted consequences, if hospitals try to manipulate these indicators, or base allocation decisions on a limited subset of indicators. This document addresses several open questions regarding transparency of health care quality. Will players in the health care markets, such as insurers, health care providers, policyholders and patients, use the information on quality? Are there disadvantages to transparency of health care quality? Should the government oblige health care providers to provide the necessary data on quality?
n° 163, April 2008
Static efficiency in Dutch supermarket chain
CREUSEN Harold, MEIJER Arno, ZWART Gijsbert, VAN DER WIEL Henry
In this study, we analyse changes in market power in the Dutch supermarket chain and discuss the effects on welfare. The supermarket chain includes consumers, supermarkets, buyer groups and food manufactures. We look at the theoretical background of market power. Special attention has been paid to recent theories of buyer power of retailers in the vertical chain. Theory suggests that supermarkets can enhance their buyer power by, for instance, using own private brands as an outside option in bargaining with manufacturers. Using firm-level data, indicators reveal that profit margins of both supermarkets and of manufacturers have declined between 1993 and 2005. Hence, competition on these markets seems to have become tougher and mark-ups lower over time. Furthermore, we find no significant empirical indications that supermarkets were able to use their buyer power to shift profits from manufacturers to supermarkets after 1993. Finally, all else equal, in terms of welfare consumers have benefited from fiercer competition in terms of lower prices.
n° 162, April 2008
Skill gaps in the EU: role for education and training policies
MINNE Bert, VAN DER STEEG Marc, WEBBINK Dinand
Skill gaps are widely seen as a problem that lowers aggregate productivity growth. A question for the European Commission is whether and how governments should take action with education and training policies to reduce skill gaps and make Europe the best performing region in the world. European citizens can best decide for themselves on the type of education. Distribution of information on occupation prospects is effective to influence their choice of education. Moreover, it is important that the education system is sufficiently flexible to absorb unexpected shocks in skill needs of employees. Policies stimulating education targeted at government-assigned sectors are risky policies. Intensification of general education at the cost of specific education, and intensification of training of employees find little support.
n° 161, April 2008
MIMOSI; microsimulatiemodel voor belastingen, sociale zekerheid, loonkosten en koopkracht
ROMIJN Gerbert, GOES Joke, DEKKER Peter, GIELEN Miriam, VAN ES Frank
Since the summer of 2007, CPB Netherlands Bureau for Economic Policy Analysis has employed the MIMOSI micro simulation system for forecasts and analyses in the related fields of purchasing power, labour costs, social security and income taxation. This document describes the main features of the MIMOSI micro simulation system. The role of micro simulation is discussed as well as the nature of micro simulation with MIMOSI and the micro data on which MIMOSI is built. Additionally, the way in which MIMOSI operates is discussed and illustrated by presenting the results of ten experiments analysed using MIMOSI.
n° 160, March 2008
Two quantative scenarios for the future of manufacturing in Europe
LEJOUR Arjan, VERWEIJ Gerard
This paper presents two scenarios for the future of manufacturing in Europe with varying trends in globalisation, technological progress and energy efficiency. From these scenarios, we conclude that the trend towards a services economy is likely to continue with employment shifting away from manufacturing towards services. However, manufacturing production still grows and is important for trade in Europe. The sectors which are already the most open ones for international trade are also the ones mostly affected by this trend. These include chemicals, rubber and plastics, the combined machinery and equipment sectors, textiles and wearing apparel, and wood and other manufacturing. R&D policies and internal market policies in Europe can have strong positive impact on manufacturing. These policies do not alter the trend that Europe's share in global production and trade will continue to decline, but they do mitigate the overall decline, in particular in the chemicals, rubber and plastics, and combined machinery and equipment sectors.
n° 159, February 2008
A smoking ban for the Dutch hotel and catering industry. A cost-benefit analysis
SPREEN Marlon, MOT Esther
The Dutch government has decided on a smoking ban for the Dutch hotel and catering industry, effective from July 1, 2008. This study provides a cost-benefit analysis of this policy. Furthermore, a smoking ban is compared to a less drastic alternative, improved ventilation. It turns out that the benefits of a smoking ban exceed by far the costs using assumptions that appear most plausible. Sensitivity analyses with a number of different assumptions, for example regarding the value of improved health, do not change this conclusion. Improved ventilation also has a positive net effect, but this effect is much smaller than that of smoke-free pubs, hotels and restaurants.
n° 158, January 2008
Decomposition of GDP growth in European countries; different methods tell different stories
VERBRUGGEN Johan, KRANENDONK Henk
The composition of economic growth can be analysed in two different ways. In the 'traditional method' for the decomposition of GDP growth, total imports are deducted from exports. This approach underestimates the importance of exports for the growth in GDP, and overestimates the importance of domestic expenditure categories. In the alternative methodology proposed in this paper, imports are allocated to all expenditure categories. Although this 'import-adjusted method' is more complex than the 'traditional method', it has the considerable advantage that the contributions of the expenditure categories to GDP growth provide a better understanding of why GDP growth decelerates or accelerates. The methodology for calculating the import content of final demand, and the implications for the decomposition of real GDP growth, are discussed. For six individual European countries and the euro area, the paper shows that applying the alternative methodology provides rather a different economic story.
n° 157, January 2008
Vertical foreclosure: a policy framework
BIJLSMA Michiel, KOCSIS Viktoria, SHESTALOVA Victoria, ZWART Gijsbert
Whenever you phone your mother, switch on the light, or buy health insurance you purchase a service or product from a chain of vertically related industries. Providers of these products or services need access to a telecommunications network, an electricity network or to health care services. In such industries, integration and exclusive contracts between vertically related firms may have important welfare enhancing effects, but can also deny or limit rivals' access to input or customers, leading to foreclosure. Foreclosure can harm welfare if it reduces competition. This document provides policymakers with a framework to assess the potential for welfare reducing foreclosure of vertical integration and vertical restraints and describes possible remedies. The framework consists of four steps. Each step requires its own detailed analysis. First, market power should exist either upstream or downstream. Second, a theory of foreclosure should be formulated that explains why foreclosure is a profitable equilibrium strategy. Third, the existence and magnitude of potential welfare enhancing effects of the vertical restrains or vertical integration should be assessed. Fourth, suitable policies to address foreclosure should be found.
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