Freddy Heylen

The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data

We estimate the curvature of the demand curve for a wide range of products. We use an extension of Deaton and Muellbauer’s Almost Ideal Demand System and scanner data from a large euro area retailer. We find evidence that the overall price elasticity of demand is higher for price increases than for price decreases. However, the overall degree of curvature is one to two orders of magnitude smaller than the value economists usually impose. This suggests that the shape of the demand curve is unlikely to be the only source of real price rigidity.

Success and failure of fiscal consolidation in the OECD: A multivariate analysis

This paper tests five hypotheses explaining thesuccess and failure of fiscal consolidation in amultivariate regression framework. These hypothesesconcern (i) the composition of the consolidationprogramme, (ii) its size and persistence, (iii) thegravity of the debt situation, (iv) the influence ofthe international macroeconomic environment and (v) thecontribution of a preceding devaluation. To testfor composition effects we use cyclically-adjusteddata. Although many conclusions of the existingempirical literature are confirmed, some do notsurvive. A popular hypothesis – that to succeed, consolidationshould rely on cutting the government wagebill – is rejected. A new empirical result is that thecontribution of a devaluation to the success of fiscalconsolidation depends on the composition of theconsolidation programme.

Public capital and productivity growth: evidence for Belgium, 1953-1996

Abstract This paper analyses the impact of public capital on multifactor productivity in Belgium making use of single-equation cointegration analysis on annual data for the period 1953–1996. Instead of fitting a deterministic trend to capture the underlying technological progress, patent statistics are used as a proxy. From the estimated long-run equilibrium between public capital and productivity, we estimate an error–correction model to check for the direction of causality. The results support a strong positive relationship with causality running from public capital to productivity.

WHY DO EUROPEANS WORK (MUCH) LESS? IT IS TAXES AND GOVERNMENT SPENDING

We develop and calibrate a theoretical model that explains per capita hours worked and output growth as a function of three fiscal policy variables. Differences in income taxes, productive government expenditures, and nonemployment transfers are sufficient to answer the question why Europeans work (much) less than Americans and why some Europeans work less than others. Differences in taste for leisure have little role to play given the actual variation of these three policy variables. (JEL E24, E62, J22, O41)

Real versus nominal convergence: national labour markets and the European integration process

: This paper investigates the role of national labour market characteristics for the chances of successful transition to EMU in Europe as well as for its viability The conclusions are rather pessimistic Although overlooked by the Maastricht Treaty the need for real convergence (I e convergence of real macroeconomic variables like unemployment) is emphasized as a major condition for success However current labour market characteristics in the EC make it quite unlikely that this condition will be fulfilled We show that the implementation of the Maastricht programme might turn into an obstacle to monetary unification

Houses and/or jobs: ownership and the labour market in Belgian districts

Isebaert D., Heylen F. and Smolders C. Houses and/or jobs: ownership and the labour market in Belgian districts, Regional Studies. A. J. Oswald argues that high rates of homeownership may imply inferior labour market outcomes. Using a panel of forty-two Belgian districts since the 1970s and accounting for other key determinants of employment, this paper confirms the Oswald hypothesis. A 1 percentage point rise in the rate of ownership in a district implies a statistically significant fall in the employment rate by about 0.35 percentage points. This negative effect declines in the fraction of the high-skilled in a district. The results underscore the importance of controlling for unobserved district-specific fixed effects and common time effects, and of appropriately dealing with endogeneity.

Central bank independence: Only part of the inflation story

Summary Central bank independence: Only part of the inflation storyThe idea that countries with an independent central bank perform better on price stability is very popular and confirmed by studies investigating the issue empirically. Yet, using the Barro-Gordon model we show that the gains from a more independent central bank are not fixed. They are larger in countries with unstable governments, not committed to fixed exchange rates, and in countries were left-wing parties hold a strong position. The effect of increasing central bank independence is also shown to depend on the level of the natural unemployment rate and the slope of the short-term Phillips curve.

Pension reform in an OLG model with heterogeneous abilities

We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate growth, are all endogenous. Within each generation we distinguish individuals with high, medium or low ability to build human capital. This extension allows to investigate also the effects of pension reform on the income and welfare levels of different ability groups. Particular attention goes to the income at old-age and the welfare level of low-ability individuals. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and aggregate welfare, positive effects in a pay-as-you-go system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base. Such a regime does, however, imply welfare losses for the current low-ability generations, and rising inequality in welfare. Complementing or replacing this ‘intelligent’ pay-as-you-go system by basic and/or minimum pension components is negative for aggregate welfare, employment and growth. Better is to maintain the tight link between individual labor income and the pension also for low-ability individuals, but to strongly raise their replacement rate.

Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium

Abstract We build and parameterize a general equilibrium OLG model that explains hours worked by three active generations, education by the young, the retirement decision of older workers, and aggregate per capita growth as functions of the level and structure of taxes and government expenditures. We find that our model’s predictions match the facts remarkably well for all key variables in many OECD countries. We then use the model to investigate the effects of various fiscal policy shocks. To promote employment, especially among older workers, and economic growth, our results strongly prefer labor tax cuts targeted at older workers and higher productive government expenditures financed by a reduction of non-employment benefits and/or higher consumption taxes. We also evaluate the welfare effects for current and future generations of alternative policy changes.

The Economic and Business Consequences of the EMU

Preface. 1. Beyond EMU: The Need for New Momentum F. Heylen, R. Vander Vennet. 2. European Competitiveness and the Euro L. Johansson. 3. The Euro: The Issues for the Future H. Siebert. 4. EMU from an Historical Perspective J. Smets, et al. 5. Monetary Policy in the Euro Area and the First Year of the Eurosystem F. Smets. 6. How the Euro Affects Investments W. De Vijlder, et al. 7. The Evolution of National Tax Structures in View of the EMU J. Ashworth, B. Heyndels. 8. Challenges for Successful Wage Setting in Europe F. Abraham, et al. 9. EMU and European Labour Markets A. Borghijs, A. Van Poeck. 10. Social Protection Competition in the EMU W. Meeusen, G. Rayp. 11. Central and Eastern European Countries and the Advent of the Euro: Is Euro-isation a Good Idea? K. Schoors. 12. Price Differences and Price Setting in the European Car Market J. Bouckaert, F. Verboven. 13. Strategy and the Euro: The Impact of the Single Currency on Business Strategy P. Verdin, N. Van Heck. 14. Banking in the EMU: an Industrial Organization Perspective H. Degryse, et al. 15. Impact of the Introduction of the Euro on Financial Reporting in the EMU P. Joos, V. Weets. 16. How Will the Euro Affect Corporate Finance? M. Deloof, S. Manigart.