In this study, we investigate the determinants of labor productivity dynamics in transition economies using data from Croatian manufacturing industries. Capital intensity growth and human capital ...accumulation have been significant contributors to stronger productivity gains. Private-sector development has positively affected productivity growth-but mostly through the increasing role of new private companies. Still, unfinished privatization represents a significant obstacle to stronger productivity gains. The effect of increasing trade openness is significant but negative, most likely owing to weak export competitiveness of Croatian companies. Neither greenfield nor (predominant) brownfield foreign direct investment inflows have contributed to higher labor productivity growth. Further privatization and structural reforms seem to be the most promising policy measures that need to be undertaken in order to achieve higher productivity gains.
This study empirically investigates the effects of fiscal devaluation—i.e., a tax shift from employers’ social security contributions to value added tax—on real labor costs on a sample of 23 ...countries, members of the European Union, over the period between 2001 and 2018. Our results show that fiscal devaluation indeed reduces real labor costs, as suggested in the literature on fiscal devaluations. The effects turn out to be the strongest, and mostly statistically significant, for countries with intermediate and low degrees of wage bargaining coordination, stressing the importance of labor market institutions. For these countries, we find that both value added tax hikes and cuts in employers’ social security contributions help to reduce real labor costs. Countries with a high degree of wage bargaining coordination, where the impact of fiscal devaluation is weaker, should be able to influence real labor costs via coordinated incomes policy, so that the potentially needed labor costs adjustments can be managed even without the implementation of fiscal devaluations.
We explore whether a fiscal devaluation, that is, a reduction in employers’ social security contributions and an increase in value added tax, affects two indicators of bilateral real exchange rates ...in the euro area: one based on unit labor costs, and another based on consumer prices. We find that, in the short term, cuts in employers’ contributions depreciate real exchange rates based on unit labor costs, while value added tax hikes appreciate real exchange rates based on consumer prices. In the long run, a value added tax increase also appreciates the real exchange rates based on unit labor costs.
We study the effects of fiscal devaluations on the trade balances of European Union countries over the 2000-2014 period using bilateral trade balance data. This enables us to control for the ...coincidence of tax policy measures in different countries, which is an aspect left unconsidered in previous econometric studies. A fiscal devaluation consisting of a budget-neutral tax shift in the amount of 1% of gross domestic product (GDP) from employers' social security contributions to value added tax leads to a short-term improvement of bilateral trade balance ranging between 0.3 and 0.6% of GDP. An extrapolation of our baseline estimate to the overall trade balance yields an impact of 4.3% of GDP for the whole sample, which is slightly higher than presented in previous empirical research. Applying extrapolation to the trade deficit countries in the euro area shows that these countries' balance of trade with the rest of the euro area improves by only 0.75% of GDP. Thus, the magnitude of the fiscal devaluation impact on the trade balance varies significantly across countries, depending on their trade openness, among other potentially relevant factors.
This study explores the role of stabilization and association agreements (SAAs), bilateral investment treaties (BITs) and free trade agreements (FTAs) in the Western Balkans and their impact on the ...region's inward foreign direct investment (FDI) and exports, with primary interest in the effects on intra-regional FDI and trade. Results show that BITs were not related to intra-regional FDI, nor to the FDI from other countries. The Central European Free Trade Agreement (CEFTA) contributed to increased intra-regional trade. Finally, the SAAs turn out to be highly significant for FDI from the EU to signee countries, and their exports to the EU.
We empirically explore whether the magnitude of the effects of fiscal devaluation, which consists of reducing the employers’ social security contribution rate and increasing the value‐added tax rate, ...depends on the composition of trade flows. Our sample comprises data on bilateral balances of trade between 28 European Union (EU) Member States and their main EU trade partners over the 2000–14 period. We use robust ordinary least squares regressions, controlling for the country‐pair and time fixed effects, to test whether there are differences in the sizes of relationships between these taxation forms and bilateral trade balances for different types of goods, by distinguishing between: (i) consumer, intermediate and capital goods; and (ii) labour and capital‐intensive goods. Our results show that the overall effectiveness of fiscal devaluation depends on the composition of trade flows. Value‐added tax is more strongly (positively) associated with (bilateral) balances of trade in consumer goods, compared to balances of trade in capital and intermediate goods. The employers’ contribution rate, in contrast, is more tightly (negatively) related to balances of trade in capital goods. The latter finding also holds true for trade balances of labour‐intensive goods compared to balances of capital‐intensive goods.
This study explores the determinants of sectoral wage dynamics in Croatia, including inter- sectoral wage linkages, using both panel data methods and Granger causality analysis. Given the large ...deficits in Croatian merchandise trade and accumulated external liabilities, wage formation in the exporting sectors receives a particular focus. It has been found that exporters are wage leaders and that labour productivity is a more important wage determinant for the exporting sectors than for other sectors. Public sector wages do not affect wages in private sectors. There are, however, wage spillovers within the group of exporting sectors and possibly a bi-directional causal relationship between wages in exporting and private sheltered sectors. Thus, some exporting industries may face pressure from wage increases in more successful exporting sectors as well as in private sheltered sectors. A more coordinated wage-setting system could contribute to improving overall export performance and reducing external trade imbalances.
•The short-run effects of fiscal devaluation in Southeastern Europe would be positive.•The international trade balances would improve by 0.56–0.94 p.p. of gross value added.•Output is estimated to ...grow by 0.15–0.25%.•The gains are lower when the EU as a whole also implements fiscal devaluation.
We examine the need, potential and likely effects of fiscal devaluation for a group of seven economies in Southeastern Europe. All the countries face external trade imbalances and most of them also experience large or growing fiscal problems. We conclude that fiscal devaluation could be a useful instrument to help these countries improve their trade balances without (further) deteriorating their fiscal positions. The results of our simulations show that a budget neutral fiscal devaluation in the amount of 1 percent of gross value added could yield short-run improvements in trade balances ranging from 0.56 to 0.94 percentage points of (initial) gross value added. Simultaneously, this is expected to have a positive impact on output as well, which should grow at rates between 0.15 and 0.25 percent.
The goal of this research is to analyze developments in employment and employment characteristics during the current crisis in Croatia. The main findings can be summarized as follows: (1) The primary ...(aggregate) mode of adjustment to the crisis was a decline in employment. There are, however, considerable differences in adjustment patterns across economic activities. (2) During the crisis, jobs were lost in the, more dynamic, private sector, while the number of jobs in the public sector (entities in state ownership) slightly increased. (3) Economic activities with comparatively larger shares of women in employment have experienced fewer employment cuts and the aggregate employment share of women rose during the crisis, especially in activities with a larger share of public sector workers. (4) There has been a declining share of younger workers during the crisis, justifying policy actions to facilitate their employment. (5) Employees with comparatively lower educational attainment face severe challenges in the labor market, which is a longer term trend, not specific to the crisis period. There are indications that this group of employees enjoys a higher level of protection in the public sector. (6) Analysis also shows a rising significance of more flexible forms of employment: increasing shares of fixed term employees (during the last two observed years), and of part time workers. (7) Working hours do not exhibit any strong trends specific to the crisis, except for the diminishing number of overtime hours per worker.
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