Felipe Serrano

A dynamic analysis of the effects on pensioners’ welfare of social security reforms

The aim of this paper is to analyze the dynamic effects of the different parametric reforms oriented to reach the financial balance of public pension systems on the well-being of the retired population. Using the Spanish social security system as a case study, a duration analysis is implemented to look for a causal relationship and then estimate separately the effects of an effective retirement age delay and a replacement rate reduction as well as the combined effect of these two measures. We also estimate the effects of a delay on the reforms. We find that a change in the effective retirement age would have positive effects on the individual welfare of retired population, while a reduction of the replacement rate would diminish it. The combined effect of the two measures would finally translate into a welfare lost of the retired population. The delay on the reforms implies higher welfare loss (to the affected generations) than the analyzed reforms.

The Economic Crisis in Spain: Contagion Effects and Distinctive Factors

Since the year 2008, the Spanish economy has been immersed in the deepest crisis of its history. From being one of the most dynamic European economies in the decade of the 2000s, Spain has moved to be a nearly stagnant economy whose short-term prospects are far from being optimistic, clearly worse than those of most European countries. The aim of the chapter is to provide an explanation of the bad performance of Spain’s economy since 2008. In this chapter we argue that the current economic problems of Spain can be found in the unsustainable strategy of economic growth that was followed since the early 1990s. This expansion was based on an excessive resource to the external funding, leading to an unsustainable growth of the external debt, whose problems unleashed, first with the financial turmoils that took place in the years 2007 and 2008, and, second, with the crisis of the sovereign debt in the euro area that started with the crises of Greece, Ireland and Portugal. Also, there is the existence of unsolved structural problems in the labour market, namely the excessive use of the fixed-term employment contracts, which since the early 1990s have contributed to amplifying any shock affecting the Spanish economy, making it more unstable and pro-cyclical; and, finally, the wrong fiscal policy implemented both before and during the crisis, which led to a pro-cyclical fiscal stance before the crisis, to the generation of an unsustainable fiscal deficit at the very beginning of the crisis, and to a pro-cyclical fiscal stance during the crisis because of the need to adjust the fiscal deficit.

The Spanish fiscal policy during the recent "great recession"

This paper examines the fiscal strategy followed by the Spanish government in order to stop the fall of aggregate demand induced by the financial crisis. The Spanish economy provides the best example among the countries of the European Monetary Union of the contradictions between the discretionary fiscal policy in the crisis and the fiscal rules. The intensity of the crisis and some initial badly designed fiscal stimulus shortened the fiscal space, raising the deficit over the limit established in the Stability and Growth Pact. As a consequence of the enforcement of the rule, the Spanish administration has to apply a restrictive fiscal policy without having left the recession, while keeping one of the lowest indebtedness levels in the euro zone countries.

Institutions, Expectations and Aggregate Demand

The concept of rational expectations is the cornerstone of orthodox economic theory. As Minford and Peel (2002) argue: ‘in its modern guise macroeconomics is based entirely on the idea that agents are rational. Hence rational expectations are central to the subject today’ (p. 41). Although the conclusions reached by the mainstream about, for instance, the reasons for and duration of economic disequilibria, the causes of economic cycles, and the impact of economic policy are based on this way of analysing the economic behaviour of individuals, in most undergraduate textbooks, this way of representing how individuals make their economic decisions is not made explicit. In fact, in most textbooks that discuss competing schools of economic thought and their main differences, it is not explained that these schools can be grouped into two main approaches, according to their treatment of the information problems: schools that identify information problems with situations of risk, and schools that treat information problems in terms of uncertainty.

The Impact of the Current Crisis on Emerging Market and Developing Countries

When analysing the relations between developed economies and emerging market and developing economies, it is easy to see how the latter have been traditionally dependent and influenced by the cyclical behaviour of the former and by the turmoils generated in them. Expansions in advanced economies implied a positive development framework for developing countries, which benefited from higher export flows and from a suitable financial environment in the shape of higher capital inflows. By contrast, recessions in developed economies dragged developing economies with them due to the negative impact generated on exports and net capital inflows. Even more, the economic deterioration in developing economies was aggravated by episodes of currency and banking crisis and by the inability of these countries the application of anti-cyclical policies. In fact, the need to restore some sound macro-economic foundations, mainly to reduce fiscal unbalances and ensure capital inflows, forced to apply restrictive demand-side policies, which, in turn, damaged the economic situation. The final result was a strong convergence and synchrony of the economic cycle of developed and developing economies, but where the cycle volatility was bigger for the latter.

Evaluating the Relative Innovative Position of European Union Member Countries: An Empirical Analysis

Abstract This paper aims to provide empirical evidence about the relative positions of European Union member states on innovation and, more specifically, on innovation in manufacturing. These positions were obtained from the aggregation of different innovation variables using the principal component analysis. We do not provide, from the statistical viewpoint, a synthetic indicator, even if, from the economic perspective, the information we obtained was similar to what such an indicator would provide. Our unit of analysis is the sector in each country, what we will term ‘country‐sector’, covering both innovative and non‐innovative firms.

Labor Flexibility, Inequality, and Financial Crisis

The most striking feature of the current economic situation in Spain is the huge unemployment rate, above 25 percent. From an orthodox perspective, we suggest that this unemployment is the result of a highly inflexible labor market, which needs to be reformed by introducing flexibility measures. The paper argues, however, that labor market reforms introduced since the early 1980s, allowing an excessive use of temporary employment contracts, have had perverse effects on the Spanish economy. They have affected negatively not only aggregate demand and supply, but also income distribution. The emergence of these market reforms helps explain the current rate of unemployment as well as the deep impact of the global financial crisis on overall Spanish economic activity.

Financial Liberalization, Growth and Financial Crisis

One of the most relevant contributions made by Philip Arestis to the economics literature is his study on the relationship between finance and growth. The extent of his work and the limited size of this chapter makes possible only to mention a small sample of his contributions. Philip Arestis has helped to recognize the existence of a deep relationship between finance and development and growth and to understand the channels through which the financial market affects economic activity (Arestis and Demetriades, 1997; Arestis, Demetriades and Luintel, 2001). But he has also contributed, and today perhaps this is what makes, if possible, Philip’s work even more attractive, to the explanation of the inherent risks arising from untrammelled domestic and international financial liberalization. What makes Philip Arestis different from most authors on these topics is that his Post Keynesian background gives him the needed tools to explain the inherent problems of financial markets, their inefficient working due to the existence of uncertainty, and, consequently, their potential negative consequences in the form of financial crises and the influence that a right institutional framework has on its working (Arestis et al., 2005; Arestis and Stein, 2005). Actually, the current crisis is a good example of the lessons to be drawn from Philip Arestis’s work.

Is There a Role for Active Fiscal Policies? Supply-Side and Demand-Side Effects of Fiscal Policies

There is no doubt that the subject of fiscal policy has been, is, and, with complete certainty, will continue to be a recurrent subject in Malcolm Sawyer’s works. A great deal of his long-term research activity has been focused on the study of the economic impact of active fiscal economies and on the defence of the active role of fiscal policy from a double perspective. Firstly, as a tool of stabilising economic policy, correcting and compensating the disequilibrium generated by the fluctuations in economic activity, which are explained as a result of changes in the aggregate demand. Secondly, as part of an active policy aiming to reach and keep levels of economic activity, or in other words of aggregate demand, which permit reaching full employment.

New Institutions for a New Economic Policy

Money, Distribution and Economic Policy takes issue with the inappropriate treatment of money, effective demand and distribution issues in modern mainstream macroeconomics. It presents contributions which are critical of modern orthodoxy and which explore alternative approaches to macroeconomics and economic policy analysis. The contributors explore the following areas: • the development of heterodox theory • the role of money in macroeconomics • the relationship between distribution and aggregate demand • macroeconomic policy issues from a broader heterodox perspective.