Regional differences in productivity in Sweden: Insights from OECD regions

Regional inequality has increased in Sweden over the past decades, albeit from a low level. While redistribution and other public policies can narrow regional gaps in income, well-being and access to services, productivity growth is key to maintaining economic dynamism, creating job opportunities and attracting and retaining skilled workers. Against this background, this paper documents the performance of Swedish large regions (TL2) on the main productivity drivers identified by the literature. Panel regressions on a dataset covering up to 125 OECD regions in 17 countries identify the factors associated with high regional productivity, namely rail and road connectivity, knowledge-intensive e..

Microeconomic European Issues

Financial Constraints for R&D and Innovation: New Evidence from a Survey Experiment

We utilize a new survey experiment to evaluate the existence and degree of financial constraints for R&D in the economy. The experiment does not only allow to deduct the presence of financial constraints, but also to evaluate their economic significance. Using data on German companies, we find that financial constraints for R&D exist but that their relevance might have been overestimated in the literature. Most R&D projects that have not been implemented because of financial constraints turn out to have low expected marginal rates of return. While this findings stands in some contrast to other studies, we also find several results that are in line with the literature: young firms are most co..

Microeconomic European Issues

Markups as a Hedge for Input Price Uncertainty: Evidence from Sweden

In this paper, we study a new channel to explain firms’ price-setting behavior. We propose that uncertainty about factor prices has a positive effect on markups. We show theoretically that firms with higher shares of inputs with volatile prices set higher markups. We use the Bartik shift-share approach to empirically test whether firms that use more oil relative to other inputs set higher markups when oil prices are more volatile. Our estimates imply that a one standard deviation increase in oil price volatility leads to a 0.38 percent increase in the markup of firms with average oil exposure.

Microeconomic European Issues

The intergenerational transmission of cognitive skills: an investigation of the causal impact of families on student outcomes

The extensive literature on intergenerational mobility highlights the importance of family linkages but fails to provide credible evidence about the underlying family factors that drive the pervasive correlations. We employ a unique combination of Dutch survey and registry data that links math and language skills across generations. We identify a causal connection between cognitive skills of parents and their children by exploiting within-family between-subject variation in these skills. The data also permit novel IV estimation that isolates variation in parental cognitive skills due to school and peer quality. The between-subject and IV estimates of the key intergenerational persistence par..

Microeconomic European Issues

Intolerance Predicts Climate Skepticism

While there is almost unanimous consent among scientists that climate change is real and has detrimental consequences, there is a sizable number of people who are skeptical towards these propositions and who are not worried by climate change. In an attempt to understand the basis of climate skepticism, we look at the role of intolerance, a culturally transmitted attitude to the effect that people with certain characteristics are not to be respected. The theoretical link from intolerance to climate skepticism is driven by two elements: insufficient or biased knowledge formation and a value of not caring very much about the welfare of others. Our empirical analysis confirms that intolerance on..

Microeconomic European Issues

Schools under mandatory testing can mitigate the spread of SARS-CoV-2

We use event-study models based on staggered summer vacations in Germany to estimate the effect of school re-openings after the summer of 2021 on the spread of SARS-CoV-2. Estimations are based on daily counts of confirmed coronavirus infections across all 401 German counties. Our results are consistent with mandatory testing contributing to containment of cases by uncovering otherwise undetected (asymptomatic) cases. Case numbers in school-aged children spike in the first week after the summer breaks but then turn not significantly di erent from zero. Case numbers in prime-aged age groups gradually decrease after school re-openings, arguably as a result of detected clusters through the scho..

Microeconomic European Issues

Wage Effects of Educational Mismatch According to Workers’ Origin: The Role of Demographics and Firm Characteristics

This paper examines the influence of educational mismatch on wages according to workers’ region of birth, taking advantage of our access to rich matched employer-employee data for the Belgian private sector for the period 1999-2010. Using a fine-grained approach to measuring educational mismatch and controlling for a large set of covariates, we first find that workers born in developed countries benefit from positive wage returns to their years of attained-, required and over-education, and that these returns are significantly higher for them than for their peers born in developing countries. Second, our results show that the wage return to a year of over-education is positive but lower th..

Microeconomic European Issues

Corruption under Austerity

We study how policies limiting the spending capacity of local governments may reduce corruption. We exploit the extension of one such policy, the Domestic Stability Pact (DSP), to small Italian municipalities. The DSP led to a decrease in both recorded corruption rates and corruption charges per euro spent. This effect emerges only in areas in which the DSP put a binding cap on municipal capital expenditures. The reduction in corruption is linked to accountability incentives as it emerges mostly in pre-electoral years and for reeligible mayors. We then estimate the impact of the extension of the DSP on local public goods provision in the following years, finding a null effect in the short ru..

Microeconomic European Issues

Exploring the uncharted waters of educational mobility: The role of key skills

For decades, researchers tried to get a deeper understanding of the intergenerational transmission of education to shed light on inequality of educational opportunities (IEO) that determine social mobility. The underlying drivers of IEO can stem from three types of parental resources: parent’s key skills (i.e., proficiency in important domains like math and language), parent’s soft skills (i.e., the skills needed to navigate successfully in education), and parent’s financial resources. Previous research was not able to accurately distinguish between the contributions of these different resources, mainly because adequate data on the intergenerational transmission of key skills was missi..

Microeconomic European Issues

A Hard Look at “Soft” Cost‐control Measures in Healthcare Organizations: Evidence from Preferred Drug Policies in Germany

Cost‐control interventions that target physicians’ clinical discretion are common in healthcare, but evidence on their efficacy is scarce; in particular for “soft” policies when liability is unlikely to be enforced by the regulator. We study the effectiveness of preferred drug policies (minimum prescription quotas of specific “preferred” drugs) in altering physicians practice styles within the high volume drug class of HMG‐CoA‐reductase inhibitors (statins) in the German statutory health insurance system. Using a nationally representative panel of ambulatory care physicians between 2011 and 2014, we exploit the decentralized institutional setting to estimate physician respons..

Microeconomic European Issues

The role of risk attitudes and expectations in household borrowing in Estonia

This study investigates the relations between risk attitudes and expectations and different aspects of borrowing by households in Estonia. The central research question is whether risk aversion and optimism provide additional information beyond the main economic and sociodemographic characteristics in explaining borrowing behaviour. The paper uses microdata from the Estonian Household Finance and Consumption Survey (HFCS) to estimate probit and Heckman models. My analysis shows that risk-tolerant households apply for loans more often than risk-averse households do and that their loans are larger. For mortgage loans, risk aversion is related to the probability of having a loan, whereas for no..

Microeconomic European Issues

Innovation pattern heterogeneity: A data-driven retrieval of the firms' approaches to innovation

Innovation is one of the usual suspects in defining differences in performance among firms, according to a strong and diverse theoretical framework. Understanding the diversity that exists within the population of innovative firms is essential to elaborate appropriate innovation policies. Our study explores the diversity of innovation patterns among Norwegian firms included in the 2018 Community innovation survey (CIS2018). By applying factor analysis on a wide array of survey variables and on a large sample of firms, we identify eleven typical approaches to innovation, which recurrently connect innovation inputs and outputs at firm level. A main outcome of our study is a renewed fine-graine..

Microeconomic European Issues

Financing Energy Innovation: Internal Finance and the Direction of Technical Change

Achieving the goals of the Paris Agreement and of climate neutrality by 2050 in the European Union will require mobilizing financial investments towards clean energy innovation. This study examines the role of internal finance (cash flows and cash holdings) and financing constraints for innovation in energy technologies. We construct a dataset for 1,300 European firms combining balance-sheet information and patenting activities in renewable (REN) and fossil-fuel (FF) technologies and estimate the sensitivity of patenting activities to firm’s internal finance. We use count estimation techniques and control for a large set of firm-specific characteristics and market developments in REN and F..

Microeconomic European Issues

An exploratory analysis of housing and the distribution of COVID-19 in Sweden

The impact of COVID-19 on various aspects of our life is evident. Proximity and close contact with individuals infected with the virus, and as well as the extent of such contact, contribute to the intensity of the spread of the virus. Healthy and infected household members, who both require sanctuary and quarantine space, come into proximate and extended contact in housing. In other words, housing and living conditions can impact the health of occupants and the spread of COVID-19. This study investigates the relationship between housing characteristics and variations in the spread of COVID-19 per capita across Sweden's 290 municipalities. For this purpose, we have used the number of infected..

Microeconomic European Issues

The drivers of SME innovation in the regions of the EU

European Union (EU) innovation policies have for long remained mostly research driven. The fundamental goal has been to achieve a rate of R&D investment of 3% of GDP. Small and medium-sized enterprise (SME) innovation, however, relies on a variety of internal sources —both R&D and non-R&D based— and external drivers, such as collaboration with other firms and research centres, and is profoundly influence by location and context. Given this multiplicity of innovation activities, this study argues that innovation policies fundamentally based on a place-blind increase of R&D investment may not deliver the best outcomes in regions where the capacity of SMEs is to benefit from R&D is limited...

Microeconomic European Issues

Worker Mobility and Labour Market Opportunities

We develop a measure of labour market opportunities for heterogenous types of worker, exploiting information on their suitability different jobs encoded in historical patterns of worker mobility.We provide a theoretical foundation for our measure, which features naturally in a general random search framework. Our measure is flexible in the sense that it admits general definitions of worker and job heterogeneity, and is easily implementable empirically with data on worker mobility and labour demand. We apply our measure to high-quality data on labour demand in the UK, based on the universe of 104.7 million job adverts posted online from January 2015 to June 2021. We demonstrate the utility of..

Microeconomic European Issues

The Heterogeneous Impacts of Higher Education Institutions on Regional Firm Location: Evidence from the Swiss Universities of Applied Sciences

The empirical literature on knowledge spillovers provides evidence that higher education institutions (HEIs) have positive effects on regional firm location, i.e., the number of start-ups or firms located in a region. However, less is known about how HEIs in different fields of study impact regional firm location in different industries. To estimate effects on firm location in different industries, we exploit the establishment of universities of applied sciences (UASs)-bachelor degree-granting three-year HEIs in Switzerland-in different fields of study. We find that effects are heterogeneous and UASs specializing in "chemistry and life sciences" and "business, management, and services" are t..

Microeconomic European Issues

Tax-benefit policies to fight poverty among young adults in Europe

European countries o?er a large amount of policies to protect the population against the risk of poverty and social exclusion but Young adults generally do not have access to unemployment bene?ts since their period of contribution is relatively short and in some countries they do not have access to minimum income. In times of high unemployment in Europe, is it possible for young people to access autonomy without family resources? This paper aims to compare the budgetary constraints of young adults to understand the various strategies implemented by di?erent European countries. I rely on microsimulation and hypothetical data to compare identical individuals and to isolate the e?ect of di?eren..

Microeconomic European Issues

The COVID-19 Curtain: Can Past Communist Regimes Explain the Vaccination Divide in Europe?

As of November 2021, all former Communist countries from Central and Eastern Europe exhibit lower vaccination rates than Western European countries. Can institutional inheritance explain, at least in part, this heterogeneity in vaccination decisions across Europe? To study this question we exploit novel data from the second wave of the SHARE (Survey of Health, Ageing, and Retirement in Europe) Covid-19 Survey fielded in Summer 2021 that covers 27 European countries and Israel. First, we document lower Covid-19 vaccine take-up amongst individuals above 55 years old who were born under Communism in Europe. Next, we turn to reunified Germany to get closer to a causal effect of exposure to Iron ..

Microeconomic European Issues

Administrative border effects in Covid-19 related mortality

Does the organisation of healthcare systems affect health outcomes? To answer this question, we analysed the effects of the Covid-19 pandemic by focusing on mortality rate outcomes and exploited the heterogeneity of the healthcare organisational models among Italian regions, which makes Italy an ideal "laboratory". Within a common national healthcare system, Italian regions are allowed large autonomy to organise themselves as mixed-markets based on choice and competition, network or centralised leadership models, each delivering different responses to the Covid-19 emergency. Exploiting the discontinuity of healthcare organisational models across the Italian regional borders around Lombardy -..

Microeconomic European Issues

The career costs of children's health shocks

We provide novel evidence on the impact of a child's health shock on parental labor market outcomes. To identify the causal effect, we leverage long panels of high-quality Finnish and Norwegian administrative data and exploit variation in the timing of the health shock. We do this by comparing parents across families in similar parental and child age cohorts whose children experienced a health shock at different ages. We show that these families have very similar characteristics and were following parallel trends before the event. This allows us to use a simple difference-in-differences model: we construct counterfactuals for treated households with families who experience the same shock a f..

Microeconomic European Issues

Are incentive effects from fiscal equalization underestimated? Evidence from a Swiss reform

This paper investigates incentive effects of fiscal equalization on local tax rates. I propose three refinements to current empirical estimations of these incentive effects. I show that local policy-makers may conceive changes in equalization transfers as stemming from discrete rather than marginal changes in the tax base, thus considering "supramarginal" equalization rates. Second, I study "effective" equalization rates which condition on the current tax rate. Third, I control for redistribution effects. I investigate the reform of an inter-municipal equalization scheme in Switzerland. My baseline estimate from supramarginal equalization rates is 2-3 times larger than found in previous stud..

Microeconomic European Issues

Motherhood, Pregnancy or Marriage Effects?

The existence of large child penalties has been documented for multiple countries and time periods. In this paper, we assess to what extent marriage decisions and pregnancies (rather than live births), which tend to occur around the birth of the first child, explain part of the so-called motherhood effect in labor market outcomes. Using data for 29 countries drawn from SHARE, we show that although marriage has a negative effect on women's employment (3.3%), its magnitude is much smaller compared with the negative effect of a first child (23%). Moreover, we find that pregnancies that end in non-live births have non-statistically significant effects in employment in the following years, suppor..

Microeconomic European Issues

Redistributive effect and the progressivity of taxes and benefits: evidence for the UK, 1977–2018

We apply the Kakwani approach to decomposing redistributive effect into average rate, progressivity, and reranking components using yearly UK data covering 1977–2018. We examine cash and in-kind benefits, and direct and indirect taxes. In addition, we highlight an empirical implementation issue – the definition of the reference (‘pre-fisc’) distribution. Drawing on an innovative counterfactual approach, our empirical analysis shows that trends in the redistributive effect of cash benefits are largely associated with cyclical changes in average benefit rates. In contrast, trends in the redistributive effects of direct and indirect taxes are mostly associated with changes in progressiv..

Microeconomic European Issues

The Intergenerational Transmission of Cognitive Skills: An Investigation of the Causal Impact of Families on Student Outcomes

The extensive literature on intergenerational mobility highlights the importance of family linkages but fails to provide credible evidence about the underlying family factors that drive the pervasive correlations. We employ a unique combination of Dutch survey and registry data that links math and language skills across generations. We identify a causal connection between cognitive skills of parents and their children by exploiting within-family between-subject variation in these skills. The data also permit novel IV estimation that isolates variation in parental cognitive skills due to school and peer quality. The between-subject and IV estimates of the key intergenerational persistence par..

Microeconomic European Issues

Permanent versus transitory income shocks over the business cycle

This paper investigates how income shocks shape consumption dynamics over the business cycle. First, we break new ground and create a unique panel dataset of transitory and permanent income shocks by combining household-level income expectations with the findings of the DNB Household Survey conducted in the Netherlands in the period 2006-2018. We then use the first and second moments of the identified income shocks in a structural life-cycle framework and show that the model matches the observed consumption patterns well. Finally, using counterfactual model simulations, we assess the importance of the nature of income shocks (permanent income hypothesis), future income uncertainties (precaut..

Microeconomic European Issues

Zombie firms and the take-up of support measures during Covid-19.

In this paper, we analyse the incidence of zombie firms, how they have been affected by the pandemic, and their take-up of economic support measures. While balance sheet data for 2020 are not available yet, we find that in 2019, they represented 3 to 5 per cent of all corporations. In 2020, they were more likely to experience liquidity deficits and spikes in their default probability, as well as to exit the market. Importantly, we also find that they were less likely to take up the economic support measures. Overall, as fewer firms exited the market in 2020 than in 2019, the pandemic is likely to have boosted the zombie share. However, compared with other firms, zombies have exited the marke..

Microeconomic European Issues

Aggregate dynamics and microeconomic heterogeneity: the role of vintage technology.

We study how the timing of technology adoption through capital accumulation shapes firm-level productivity dynamics and quantify its aggregate implications in a model of heterogeneous firms. Using data on the census of incorporated Italian firms and exploiting the lumpiness of capital accumulation, we document that large investment episodes lead to productivity gains at the firm and sectoral level due to vintage effects. In a general equilibrium model of firm heterogeneity, we find that the presence of vintage technology constitutes a powerful microeconomic-based amplification mechanism of aggregate shocks relative to a benchmark real business cycle model.

Microeconomic European Issues

Split Personalities? Behavioral Effects of Temperature on Financial Decision-making

Do environmental factors affect financial decision-making and how might personality traits mediate these effects? Using plausibly exogenous variation in individuals' exposure to within-country fluctuations in temperature between 2004 and 2018 across 28 European countries and Israel, we estimate the causal effect of a marginal change in temperature on financial investments and its interaction with individual personality characteristics. We find that a 10% increase in temperature is associated with a 0.1 percentage point (pp) rise in the probability that an optimist invests in bonds and a 0.12 pp decline in the probability for stocks. However, among pessimists, we find null effects. We find si..

Microeconomic European Issues

The Broadband Penetration in Europe

In this article we estimate the determinants of broadband penetration in Europe. We use data from the European Innovation Scoreboard of the European Commission for 37 countries in the period 2010-2019. We apply Panel Data with Fixed Effects, Panel Data with Random Effects, WLS, OLS and Dynamic Panel. We found that the level of “Broadband Penetration” in Europe is positively associated to “Enterprises Providing ICT Training”, “Innovative Sales Share”, “Intellectual Assets”, “Knowledge-Intensive Service Exports”, “Turnover Share SMEs”, “Innovation Friendly Environment” and negatively associated with “Government procurement of advanced technology products”, “Sa..

Microeconomic European Issues